Commissioner of Income Tax vs Singh Alloys and Steel Ltd.

On an application u/s 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case and on a proper interpretation of Section 115J(2) of the Act, the Tribunal was right in law in holding that the unabsorbed losses/allowances to extent of Rs. 15,78,210 relating to the assessment years 1983-84, 1986-87, 1987-88 and 1990-91 were eligible to be set off against the income for the assessment year 1991-92 ?"

The assessment for the assessment year 1989-90 was made by invoking the provisions of Section 115J and the assessee''s total income in accordance with that section was determined at Rs. 9,74,816. For the assessment year 1990-91 the income was also similarly determined at Rs. 6,73,920 under the same provision. The provisions of Section 115J were omitted with effect from April 1, 1991, i.e., from the assessment year 1991-92, i.e., the relevant assessment year in the case in hand.

In the year under appeal while computing the assessment u/s 143(3) the assessee claimed that an amount of Rs. 15,78,210 was available to it as unabsorbed investment allowance and unabsorbed business loss/depreciation for being set off against the income for the assessment year 1991-92. The Income Tax Officer set off only Rs. 72,560 which represents unabsorbed investment allowance against the income of the assessee for the assessment year 1991-92. According to him, in the assessment years 1989-90 and 1990-91 the entire unabsorbed business loss/depreciation and investment allowance had been adjusted, save and except the investment allowance of Rs. 72,560 which alone can be set off against the income of assessment year 1991-92. He, therefore, rejected the assessee''s claim for set off of the unabsorbed loss and allowance amounting to Rs. 15,78,210.

In appeal before the Commissioner of Income Tax (Appeals), the Commissioner of Income Tax (Appeals) confirmed the view taken by the Assessing Officer, though on different grounds. In appeal before the Tribunal, the Tribunal has allowed the claim of the assessee. According to the Tribunal, subsection (2) clarified that the consequence of applying the deemed provision of Sub-section (1) would not be that the assessee-company would also lose its right to have the aforesaid allowance and loss for that year determined and carried forward to the subsequent year. The Tribunal also pointed out that there was an arithmetical mistake committed by the Assessing Officer, holding that the losses were set off in the earlier years.

None appeared for the assessee. We heard learned counsel for the Revenue. Learned counsel for the Revenue, Mr. Dutt, submits that once there is a non-obstante clause in Sub-section (1) of Section 115J the income shall be determined as per Sub-section (1) of Section 115J.

Sub-section (1) of Section 115J provides a fiction for taking the deemed income. That provides that though as per the provisions of the Act in computing the income, income may come at nil. But in such cases, in case of companies referred to in Sub-section (1) while computing the income of the previous year, after the first day of April, 1988, and before the first day of April, 1991, if the income computed as per the provisions of the Act is less than 30 per cent. of the book profit, in such cases 30 per cent. of the book profit shall be taken as deemed income for the purpose of the Income Tax.

Sub-section (2) further provides nothing contained in Sub-section (1) shall affect the determination of the amount 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.

The income shall be computed in respect of the deemed income and the deductions provided under the sections referred to in Sub-section (2) are to be taken into account for the purpose of ascertaining the loss, if any, and that has to be allowed to be carried forward to be set off in the subsequent year or years. That clearly shows that the Legislature has intended that even though the income may not be taxable under the provisions of the Act but if the income is less than 30 per cent. of the book profit if computed in accordance with the provisions of the Act, 30 per cent. of the book profit shall be taken as a deemed income. But for that the assessee should not suffer and that has been taken care of by allowing the loss which the assessee suffered on account of not allowing the deductions which the assessee is entitled to under the Act. That has to be ascertained on allowing all these deductions and whatever the net loss comes on taxing the 30 per cent. of book profit that has to be allowed to be carried forward and be allowed to be set off against the income of subsequent year or years.

In our considered opinion, there is no substance in the argument of Mr. Dutt that the provisions of Sub-section (2) are contrary and do not prevail over Sub-section (1) of Section 115J. Under the scheme of Section 115J, it left no doubt or ambiguity under the scheme behind Section 115J whatever the loss the assessee suffered on account of fixation of the deemed income, the assessee is permitted to carry forward that loss and that loss can be set off against the income of subsequent year or years.

In view of the aforesaid provisions, we find no infirmity in the order of the Tribunal.

In the result, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.

The reference so made stands disposed of accordingly.

Parties to act on a signed xerox copy of this dictated order on usual undertaking.