P. G. Agarwal, J. - (1.) IN this reference under Section 256(2) of the INcome-tax Act, 1961, made at the instance of the assessee the following questions have been referred for opinion of this court : "1. Whether, within the meaning of Section 115J, the Tribunal was justified in not reducing the 30 per cent. of taxed income of the year from the income computed as per the provisions of the INcome-tax Act for the purpose of setting off the earlier years depreciation and losses ? 2. Whether, the deeming provision of Sub-section (2) of Section 115J restricts the deduction of the taxed income of the year from the total income computed under the INcome-tax Act for the purpose of setting off the losses and depreciation of earlier year(s) ? (3) Whether the Tribunal was justified in applying the fiction created under Section 115J beyond the legitimate field by not allowing the deduction of the taxed income of Rs. 74,450 of the year out of the income computed under the provisions of the INcome-tax Act, 1961, of Rs. 2,55,866 for the purpose of setting off the earlier years losses ?"
(2.) THE assessee is a private limited company carrying on the business of manufacturing and sale of tea. THE reference relates to the income-tax assessment of the assessee-company for the financial year ending on March 31, 1988. THE relevant facts are as follows. For the assessment year 1988-89, the assessee-company filed its return computing income at Rs. 2,55,866. The company had a brought forward loss of Rs. 4,87,417 of the assessment year 1987-88. After setting off the income against carried forward loss, an amount of Rs. 2,31,551 was shown as business loss to be carried forward. The Assessing Officer found that as the total income computed was less than 30 per cent. of the book profit the special provisions relating to companies contained in Section 115J of the Income-tax Act are applicable. After computing the book profit in terms of the Explanation to Section 115J(1) of the Act a sum of Rs. 74,477 (rounded off to Rs. 74,450) was deemed as total income chargeable to tax. The assessee preferred an appeal contending that a sum of Rs. 74,450 charged to tax under Section 115J of the Act could not be deducted from the brought forward losses. The appeal was allowed granting the relief as claimed. The Revenue thereafter preferred an appeal before the Tribunal and the learned Tribunal held that the deduction of taxed income is not permissible in view of the provisions of Sub-section (2) of Section 115J of the Act.
(3.) WE have heard Shri R. K. Joshi, advocate, for the assessee, and Shri U. Bhuyan, advocate, for the Revenue. Section 115J reads as follows : "115J. Special provisions relating to certain companies.--(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company other than a company engaged in the business of generation or distribution of electricity, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent., of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit. (1A) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Explanation.--For the purposes of this section 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under Sub-section (1A), as increased by--. . . . if any amount referred to in Clauses (a) to (f) is debited or, as the case may be, the amount referred to in Clauses (g) and (h) is not credited to the profit and loss account, and as reduced by--. . . (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956 (1 of 1956), are applicable. (2) Nothing contained in Sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of Sub-section (2) of Section 32 or Sub-section (3) of Section 32A or Clause (ii) of Sub-section (1) of Section 72 or Section 73 or Section 74 or Sub-section (3) of Section 74A or Sub-section (3) of Section 80J." ;