Sanghi Organics and Phytochem Pvt. Ltd. vs Commissioner of Income Tax and Another

A.M. Sapre, J.—This appeal is filed by the assessee u/s 260A of the Income Tax Act, 1961, against an order dated November 9, 1998, passed by the Income Tax Appellate Tribunal, Indore, in I. T. A. No. 49/Ind/ 95 : assessment year 1990-91 (annexure D). This court admitted this appeal on the following substantial questions of law :

"1. Whether the word ''loss'' as appearing in Section 205(1), first proviso Clause (b), of the Companies Act, 1956, read with Section 115J of the Income Tax Act, 1961, means ''including depreciation'' ?

Whether the word ''loss'' used in Section 115J(1A), Explanation (iv) of the Income Tax Act and Clause (b) of the first proviso to Section 205(1) of the Companies Act does not include ''depreciation'' ?"

Heard Shri S. S. Samvatsar, learned counsel for the appellant, and Shri R. L. Jain, learned counsel for the respondents.

Having heard learned counsel for the parties and having perused the impugned order in the light of the cases cited at the Bar by learned counsel, we are of the view that this appeal deserves to be allowed resulting in setting aside of the order impugned in this appeal, of the Income Tax Appellate Tribunal.

Indeed, there does not arise any need to elaborate the facts as also the legal submission in view of the admitted fact that the issue involved in this appeal is now settled and finally decided by their Lordships of the Supreme Court in the case of M/s. Surana Steels Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax and Ors, in favour of the assessee and against the Revenue.

The question that arose for consideration in several cases which came to be decided by several High Courts in the country including even this High Court (M. P. High Court) was whether the term "loss" as appearing in Section 205(1), first proviso, Clause (b) of the Companies Act, 1956, read with Section 115J of the Income Tax Act, 1961, means "including depreciation". The Andhra Pradesh High Court in the case reported in V.V. Trans-investments (P.) Ltd. Vs. Commissioner of Income Tax, decided the issue in favour of the Revenue and against the assessee whereas the Madhya Pradesh High Court in two decisions rendered in the case of Commissioner of Income Tax Vs. Kedia Leather and Liquor Pvt. Ltd., and Commissioner of Income Tax Vs. Shree Synthetics Ltd., decided the issue in favour of the assessee and against the Revenue. All these matters including some more involving the same issue were taken to the Supreme Court in appeal at the instance of the parties who lost the battle in the respective High Courts. Their Lordships then by their decision rendered in these appeals ( M/s. Surana Steels Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax and Ors, ), answered the question in favour of the assessee and against the Revenue. Speaking through R. C. Lahoti J., the apex court while reversing the view taken by the Andhra Pradesh High Court, held as under (page 786) :

"It is therefore clear that the word ''loss'' as used in the proviso Clause (b) to Section 205(1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of Section 115J of the Income Tax Act, 1961. We do not agree with the view taken by the High Court that in case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit u/s 115J can be allowed. The view taken by the High Court would partially defeat the object sought to be achieved by Section 115J of the Income Tax Act, 1961. We also do not agree with the High Court saying that having lifted Section 205(1), proviso Clause (b), from the Companies Act into Section 115J of the Income Tax Act, there is no occasion to refer to the Companies Act, 1956, at all.

For the foregoing reasons, Civil Appeals Nos. 4471 of 1995, 4472 of 1995 and Civil Appeals Nos. 180-181 (NT) of 1995 filed by (1) Surana Steels Pvt. Ltd., (2) V. V. Trans-Investment (P.) Ltd., Hyderabad, and (3) Binjusaria Metal Box Co. Ltd., Hyderabad, respectively, are allowed. The order under appeal passed by the High Court of Andhra Pradesh is set aside."

So the law laid down by the apex court while interpreting the word "loss" appearing in Section 205(1), first proviso, Clause (b) read with Section 115J of the Income Tax Act means loss including depreciation.

Learned counsel for the Revenue brought to our notice a decision of this court and reported in Krishna Oil Extraction Ltd. Vs. Commissioner of Income Tax, taking a view in favour of the Revenue and against the assessee on the aforesaid issue. In our opinion, after the decision of the Supreme Court, resolving the cleavage of opinion and setting the controversy at rest by deciding the issue in favour of the assessee, the decision of this court in the case of Krishna Oil Extraction Ltd. Vs. Commissioner of Income Tax, does not hold good any more and stands overruled by the decision of the Supreme Court, referred to supra.

Accordingly and in view of the aforesaid discussion, the appeal succeeds and is thus, allowed. Impugned order dated November 9, 1998, passed by the Income Tax Appellate Tribunal in I. T. A. No. 49/Ind. of 1995 for the assessment year 1990-91 is set aside.

No costs.