Law: Income Tax Act, 1961

Section: 256(1),115J

Law: Indian Companies Act, (I of 1956)

Section: ScheduleVI,205

Section 115J of the Income-tax Act, 1961, read with section 205(1) of the Companies Act, 1956 - Zero-tax companies - Computation of book profits - Assessment year 1989-90 - Whether loss for purposes of book profits is to be arrived at after taking into account depreciation - Held, yes FACTS For the assessment year 1989-90, the Assessing Officer, in the case of respondent-assessee, set off the amount of loss against the profit after taking into account the amount of depreciation under section 115J. On appeal by the assessee, the Commissioner (Appeals) directed the Assessing Officer to allow depreciation as per rate applicable as per the Income-tax Rules. This order was upheld by the Tribunal relying on the Andhra Pradesh High Court's decision in the case of V.V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508/ 74 Taxman 79 in which it is held that once a provision is borrowed from one enactment and incorporated into another enactment, the interpretation of the provision under the parent enactment is relevant and the borrowed provision has to be interpreted in accordance with the provisions of the latter and, therefore, the interpretation of 'loss' and 'depreciation' for the purpose of declaring dividend under the Companies Act is irrelevant and their interpretation under Explanation (iv) to section 115J should be in accordance with the provisions of the Income-tax Act. On reference: HELD The Supreme Court in the case of Surana Steels (P.) Ltd. v. Dy. CIT [1999] 237 ITR 777/ 104 Taxman 188 has observed that the term 'loss' as occurring in clause (b) of the proviso to section 205(1) of the Companies Act is to be understood and read as the amount arrived at after taking into account 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 Income-tax 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 8 to section 205(1) is clear. It applies to those cases where the depreciation has…

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