Law:

Section:

Section 115J of the Income-tax Act, 1961 - Zero-tax companies - Whether where an assessee has been made liable to pay 30 per cent of book profits in terms of section 115J, deductions which are permissible under provisions of Act should be considered to have been actually allowed - Held, yes - Whether, therefore, assessee should be allowed to carry forward only balance of unabsorbed deductions and not full value of deductions - Held, yes FACTS The assessee-company which was entitled to various deductions from its total income, was liable under section 115J to pay tax on 30 per cent of the company's book profit irrespective of the actual deductions claimed by it for the period when section 115J was in operation. The assessee-company contended that it could not be said that the benefits of deduction which the assessee had claimed had actually been allowed and, therefore, the assessee should have been permitted to carry forward the unabsorbed investment allowance or depreciation claimed by it for the relevant previous year. The Tribunal, however, held that the amounts of business loss, unabsorbed depreciation, unabsorbed investment allowance, etc., were required to be adjusted to set off to the extent of such brought forward business loss, unabsorbed depreciation, etc., which would have been adjusted and set off, had the assessee been assessed to tax in the regular way in accordance with the provisions of sections 28 to 43 and not by way of application of provisions of section 115J(1) and that the resultant amounts of losses, unabsorbed depreciation, unabsorbed investment allowance, etc., only would be required to be carried forward to the next year. The written down values of the assets would have to be adjusted by deducting therefrom the amounts of depreciation which would have been allowed on such assets in the regular method of assessment in accordance with the provisions of sections 28 to 43 without applying the provisions of section 115J(1), and the resultant amounts of written down values would only have to be carried forward to the next year. The High Court upheld the reasoning of the Tribunal. On appeal to the Supreme Court : HELD The first stage provided…

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