LexM/S. DYNAMIC ORTHOPEDICS PVT. LTD. versus COMMISSIONER OF INCOME TAX, COCHIN, KERALA
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[201 O] 2 S.C.R. 879 MIS. DYNAMIC ORTHOPEDICS PVT. LTD. v. COMMISSIONER OF INCOME TAX, COCHIN, KERALA (Civil Appeal No. 8419 of 2003) FEBRUARY 16, 2010 [S.H. KAPADIA AND AFTAB ALAM, JJ.] Income Tax Act, 1961: A B s. 115-J - Book profit - Depreciation - Assessee c providing for depreciation under r. 5 of Income Tax Rules, but Assessing Officer allowing depreciation as per Schedule XIV to the Companies Act - High Court upholding the view of Assessing Officer - But, similar view of High Court in CIT vs. Malaya/a Manorama Company Ltd.* stood reversed by D judgment of Supreme Court in Malaya/a Manorama Company Ltd. vs. CIT** - HELD: Section 115J of the 1961 Act is a special provision relating only to certain Companies - The whole purpose of s. 115J was to take care of the phenomenon of prosperous 'zero tax' Companies not paying E taxes though they continued to earn profits and declare dividends - Therefore, a Minimum Alternate Tax was sought to be imposed on 'zero tax' Companies - Section 115J imposes tax on a deemed income - The said section does not make any distinction between public and private limited F companies - Once a company falls within the ambit of its being MAT company, s. 115 J applies and the company would be required to prepare its profits and loss accounts only in terms of parts II and Ill of Schedule VI to 1956 Act - Section 115J of the 1961 Act legislatively only incorporates provisions of Parts II and Ill of Schedule VI to 1956 Act - Such G incorporation is by a deeming fiction - Therefore, s. 115J (1A) of the 1961 Act is needed to be read in strict sense - If so read, it is clear that, by legislative incorporation, only Parts II and Ill of Schedule VI to 1956 Act have been incorporated 879 H 880 SUPREME COURT REPORTS [2010] 2 S.C.R. A legislatively into s. 115J of the 1961 Act - Therefore, the question of applicability of Parts II and /// of Schedule VI to 1956 Act does not arise - If the judgement of Supreme Court , . in Malaya/a Manorama Company Limited is to be accepted, then the very purpose of enacting s. 115J of the 1961 Act would B stand defeated - The view of the Kera/a High Court has been wrongly reversed by Supreme Court - The matter needs re- consideration by a larger Bench of the Court - Income Tax Rules, 1962 - r.5 - Companies Act, 1956 - Schedule VI - Parts II and /// and Schedule XIV. c *Commissioner of Income Tax vs. Malaya/a Manorama Company Limited [2002] 253 l.T.R. 378 (Kerala), approved. **Malaya/a Manorama Company Limited vs. Commissioner of Income Tax [2008] 300 l.T.R.251, referred D to. Case Law Reference: [2002] 253 l.T.R. 378 (Kerala) app_roved E [2008] 300 l.T.R. 251 referred to para 6 para 6 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8419 of 2003. From the Judgment & Order dated 5.7.2002 of the High F Court of Kerala at Ernakulam in ITA No. 66 of 1999. M.S. Ananth, Subramonium Prasad for the Appellant. Vivek Tankha, ASG, H. Raghavendra Rao, R. Venkataramani, Lakshmi Iyengar, D.K. Singh, B.V. Balaram G Das for the Respondent. The Order of the Court was delivered by ORDER H S.H. KAPADIA, J. A short question which arises for DYNAMIC ORTHOPEDICS PVT. LTD. v. COMMNR. OF 881 INCOME TAX, COCHIN, KERALA [S.H. KAPADIA, J.] determination in this civil appeal is - whether the Income Tax A Appellate Tribunal was, on the facts and circumstances of this case, justified in upholding the order of the Commissioner of Income Tax (Appeals) directing the Assessing Officer to allow the claim of depreciation as per the Income Tax Rules, 1962, for the purposes of computing the book profit under Section B 115J of the Income Tax Act, 1961? In this civil appeal, we are concerned with Assessment Year 1990-1991. The appellant-assessee is a private limited of company C engaged in the manufacture and sale of Orthopaedic appliances. In the Return of Income filed, the assessee returned an income of Rs.1,50,730/-. In the Profit and Loss Account, depreciation was provided at the rates specified in Rule 5 of the Income Tax Rules, 1962 ['Rules', for short]. While completing D the assessment of income, the Assessing Officer re-computed the book profit for the purpose of Section 115J of the Income Tax Act, 1961, ['Act', for short], after allowing depreciation as per Schedule XIV to the Companies Act. The rates of depreciation specified in Schedule XIV to the Companies Act, E 1956 r 1956 Act' I for shor
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