KARIMTHARTH TEA ESTATES LTD Vs. COMMISSIONER OF INCOME TAX
LAWS(KER)-2003-4-23
HIGH COURT OF KERALA
Decided on April 04,2003

Karimtharth Tea Estates Ltd Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

G.SIVARAJAN,J. - (1.) THE following questions of law are referred to at the instance of the Revenue to this Court under Section 256(1) of the IT Act (for short 'the Act') : '(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the carried forward loss determined for the earlier assessment years and allowed to be set off against the profit of subsequent years cannot be set off against the income computed under Section 115J of the IT Act for the asst. yr. 1990 -91 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the imposition of interest under Section 234B for the asst. yr. 1990 -91 ?'
(2.) THE assessee is a closely -held company running a tea estate and the main income of the company is from tea. The assessment year concerned is 1990 -91, the relevant accounting period ended 31st March, 1990. The assessee filed a return on 20th Dec., 1990, showing a total loss of Rs. 30,80,490. The AO computed the total income of the assessee as follows : Rs. Net income as per adjusted statement 22,97,140 Less : Loss b/f from the asst. yr. 1986 -87 18,63,490 4,33,650 Total 22,97,140 Total Income Nil It was also noted that the following losses of earlier years are allowed to be carried forward. Rs. Asst. yr. 1987 -88 5,08,540 Asst. yr. 1988 -89 9,23,330 Asst. yr. 1989 -90 16,48,620 Total loss 30,80,490 The AO thereafter computed the profit under Section 115J of the Act. The assessee had claimed set off of carried forward depreciation as well as carried forward loss. The AO allowed set off of only the carried forward depreciation of Rs. 12,83,140 which is less than the carried forward loss. The profit under Section 115J of the Act was arrived at Rs. 6,94,710. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A), Kochi, where a contention was taken that Section 115J of the Act is unconstitutional and void. A further contention was taken that the AO should have allowed the set off of the carried forward loss against the income computed under Section 115J. Yet another contention was taken that the levy of interest under Section 234B on the basis of the income computed under Section 115J of the Act is illegal. One more contention was taken that the levy of additional tax of Rs. 82,532 under Section 143(1)(a) was also illegal. All the three contentions were rejected and the appeal was dismissed. The assessee took up the matter in further appeal before the Tribunal on all the three points canvassed before the first appellate authority. The Tribunal also did not accept the said contention and the appeal was dismissed. It is in those circumstances the two questions of law specified in para. 1 of this judgment is referred for decision by this Court. The first question is regarding the set off of the carried forward losses of the earlier years against the income computed under Section 115J of the Act. The validity of the provisions of Section 115J of the Act was questioned by the assessee before this Court by filing a writ petition O.P. No. 11472 of 1991. A Division Bench in Karimtharuvi Tea Estates Ltd. and Anr. v. Dy. CIT and Ors. : [2001]247ITR22(Ker) had upheld the validity of the said provision.
(3.) THE first question raised by the assessee is covered by the decision of the Supreme Court in Surana Steels (P) Ltd. v. Dy. CIT and Ors. : [1999]237ITR777(SC) . The question involved in that case was whether the term loss' as appearing in Section 205(1), first proviso, Clause (b) of the Companies Act, 1956, r/w Section 115J of the IT Act, 1961, means including depreciation. The Supreme Court considered the matter thus : 'Section 205(1), proviso Clause (b), of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The words 'the amount provided for depreciation' and 'arrived at in both cases after providing for depreciation' make it abundantly clear that in this clause 'loss' refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the P&L; a/c. The significance of the formula prescribed in Clause (b) of the proviso to Section 205(1) of the Companies Act can well be demonstrated by two examples as given hereunder: Example Amount of profit/loss(Rs.) Amount ofdepreciation provided (Rs.) Loss forthe year after taking into account the depreciation (Rs.) (1) (+) 1 lakh 3 lakhs 2 lakhs (2) ( -) 1 lakh 3 lakhs 4 lakhs In example 1, rupees three lakhs is the depreciation. Rupees two lakhs is the loss after taking into account the depreciation. The loss being lower than the amount of depreciation, it will be taken into account for set off against the profit of the year in which dividend is to be declared. In example 2, rupees three lakhs is the depreciation. Rupees four lakhs is the amount of loss after taking into account the depreciation. The depreciation being lower than the amount of loss, rupees three lakhs is to be taken into account for set off against the profit of the year for which dividend is to be declared. We are of the opinion that the term 'loss' as occurring in Clause (b) of the proviso to Section 205(1) of the Companies Act has to be understood and read as the amount arrived at after taking into account the depreciation. Then alone the formula prescribed in this clause would make sense and it would be consistent with the object sought to be achieved by enacting Section 115J of the IT Act, 1961. If 'loss' were to be taken as pre -depreciation loss then the resultant computation will not be in conformity with the tenor of the provisions of Section 205. The language of Clause (b) of the proviso to Section 205(1) is clear. It applies to those cases where the depreciation has been provided in accordance with the provisions of Sub -section (1) of Section 205. The depreciation is provided for in the P&L; a/c. The loss is arrived at after taking into account the depreciation provided. It is, therefore, clear that the word 'loss' as under in the proviso Clause (b) to Section 205(1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of Section 115J of the IT Act, 1961'. The Supreme Court noted that the High Court in that case has taken the view that in case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit under Section 115J can be allowed and observed that this view of the High Court will defeat the object sought to be achieved by Section 115J. The Supreme Court also did not agree with the view of the High Court that having lifted Section 205(1), proviso Clause (b), from the Companies Act into Section 115J of the IT Act, there is no occasion to refer to the Companies Act, 1956, at all.;


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