LexM/S. SURANA STEELS PVT. LTD. ETC. ETC. versus THE DEPUTY COMMISSIONER OF INCOME TAX AND ORS.
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MIS. SURANA STEELS PVT. LTD. ETC. ETC.
A
v.
THE DEPUTY COMMISSIONER OF INCOME TAX AND ORS.
APRIL 13, 1999
[S.P. BHARUCHA AND R.C. LAHOTI, JJ.]
B
Income Tax Act, 1961 : S. 115-J-Assessee-Book profit-Previous years
'loss' after depreciation-Set off against current year's profit-Validity of-
Held, 'loss' occurring in clause (b) of the proviso to S. 205(1) of Companies
Act means 'loss' arrived at after depreciation-Assessee entitled to set off C
earlier years' loss against current years profit-Object of S. 115-J Explained--
Companies Act, 1956-S. 205(1) proviso clause (b).
Interpretation of statutes
Legislation by incorporation-Held, the provision is to be read plainly D
and rules of interpretation to be applied if any ambiguity arises.
Words & Phrases:
"Loss "-Meaning of in the context of S. 205(1), proviso clause (b) of
the Companies Act, 1956 read with S. 115-J of Income Tax Act, 1961.
E
Appellant-assessee, a private limited company earned profit for the
assessment year 1989-90. However, as it had incurred loss after depreciation
in earlier years, it filed returns disclosing 'nil' income after setting off
arrears of depreciation against the current year's profit. The Income Tax
Officer took the view that for arriving at the adjusted book profit, unabsorbed F
depreciation or business loss, whichever was less, was to be adjusted and
since there was no business loss in earlier years as per books of accounts,
no amount could be allowed to be set off. The said view was upheld by
Commissioner of Income Tax (Appeals) and the Tribunal. On reference, High
Court held that in case there was profit in a year but after adjustment of G
depreciation it resulted in loss, no adjustment in the book profit under S.
115-J of the Income Tax Act, 1961 can be allowed. Hence the present appeals
by the assessees.
In one of the appeals, the rejection of Reference under S. 256(1) by the
High Court and its upholding the Tribunal's rejection of Reference, raising H
589
'
590
SUPREME COURT REPORTS
(1999) 2 S.C.R.
A the same questions as in the other appeals, the assessee challenged these
orders. Revenue has filed an appeal and two SLPs in connected matters.
B.
Allowing the 2ppeals preferred by the assessees and dismissing the
appeal and SLPs preferred by the Revenue, this Court.
HELD : 1. Appellant-assessees were entitled to set off earlier year's
loss after depreciation against current year's profit.
2. S. 205(1), proviso clause (b) of the Companies Act, 1956 provides
that if any loss is incurred in any previous year/years, then the amount of
C tbe loss or an amount which is equal to the amount provided for depreciation
for that year/years whichever is less is to be set off against current year's
profit. 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 int<J
account the amount of depreciation provided in the profit and loss account.
D Then alone the formula prescribed in clause {b) would make sense and it
would be consistent with the object sought to be achieved by enacting S. 115-
J of the Companies Act. If 'loss' were to be taken as pre-depreciation loss
then the resultant computation will not be ia conformity with the tenor of the
provisions for Sec. 205. Thus, High Court erred in holding that in case there
E is profit in a year but after adjustment of depreciation it results in loss, no
adjustment in the book profit under S. 115-J of the Income Tax Act, 1961
can be allowed. [598-C-D-E)
F
Garden Silk Weaving Factory v. Commissioner of Income Tax, (1991)
189 ITR 512, referred to.
3. The provisions of S. 205 proviso clause (b) of the Companies Act,
~tand bodily lifted and incorporated into the body of S. 115-J of the Income
Tax Act. S. 115-J, Explanation clause (iv) is a piece of legislation by
incorporation. The provision is to be read plainly and rules of interpretation
G should be applied if any ambiguity survives. Thus, there is no reason to
assign to the term 'loss' as occurring in S. 205 proviso clause (b) of the
Companies Act a meaning different from the one in which it is understood
there at solely because it is being read alongwith S. 115-J of the Income Tax
Act. High Court was not justified in holding that having lifted S. 205(1)(b)
from the Companies Act into S. 115-J of the Act, there is no occasiExcerpt shown. Read the full judgment & AI analysis in Lexace.