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2000 DIGILAW 100 (KER)

Chintha Printing And Publishing Co v. CIT

2000-02-11

ARIJIT PASAYAT, K.S.RADHAKRISHNAN

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JUDGMENT Arijit Pasayat, J. 1. At the instance of assessee, following questions have been referred to this Court, for opinion in terms of S.256(1) of the Income Tax Act, 1961 (in short 'the Act'), by the Income Tax Appellate Tribunal, Cochin Bench (in short 'the Tribunal'): "1. Whether on the facts and in the circumstances of the case, the interpretation sought to be put on S.115J of the Income Tax Act by the Appellate Tribunal is correct on law? 2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that "loss" as it appears in S.205(1), first proviso, clause.(b) of the Companies Act, 1956 read with S.115J of the Income Tax Act, 1961 means "including depreciation"? 2. Assessment year concerned is 1989-90. Assessee is a domestic company in which public are not substantially interested. During the relevant period it was engaged in the business of printing newspapers and journals. For the assessment year in question, assessee filed return showing a loss of Rs. 4,93,417/- which included unabsorbed depreciation relating to the earlier year also. The account was prepared for a period of 21 months in the previous year. Assessing Officer computed the book profit under S.115J of the Act in the following manner: Net profit as P & L A/c. Add: Investment allowance reserve Less: Loss as per S. 205 (1) of the Companies Act Book Profits Rs. 35,055/- 3,07,811/- 3,42,866/- 1,19,521/- 2,23,345/- 3. Assessee filed an application for rectification pointing out that the net loss as per the Profit and Loss Account had not been taken into account in computing the book profit. Assessing Officer accepted the claim. However, he found that in allowing the loss under S.205(1)(b) of the Companies Act, 1956 (in short 'the Companies Act'), the correct amount to be allowed was only the carried forward business loss of Rs. 29,330/- as the same was lesser than the unabsorbed depreciation of the earlier years amounting to Rs. 2,36,480/-. Accordingly, he restricted the deduction to the extent of Rs. 29,330/-. 29,330/- as the same was lesser than the unabsorbed depreciation of the earlier years amounting to Rs. 2,36,480/-. Accordingly, he restricted the deduction to the extent of Rs. 29,330/-. Computation was made in the following manner: Net loss as per profit and loss account for the first period from1.7.1987 to 30.6.1988 Less: Net Profit as per P & L A/c for the second period 1.7.88 to 31.3.89 Net loss as per book Less: Investment allowance reserve Balance Profit Less: Loss under S.205(1)of the Companies Act Balance Profit Rs.2,38,938/- 35,055/- 2,03,883/- 3,07,811/- 1,03,928/- 29,330/- 74,598/- Tax was levied at 30% on the aforesaid balance under S.115J of the Act. Assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Cochin (in short 'the CIT(A)'). Computation done by the assessing officer was upheld by the CIT (A). Assessee preferred second appeal before the Tribunal. Assessee's stand was that for the purpose of S.115J of the Act, loss or depreciation, whichever is less, should be computed as contemplated under the provisions of the Companies Act and the authorities failed to note the general principle that loss included depreciation also and that the entire unabsorbed depreciation relating to the earlier years should have been deducted to arrive at the book profit for the current year. Tribunal placed reliance on the decision of the Andhra Pradesh High Court in V.V. Trans - Investments P. Ltd. v. C.I.T. ( 1994 (207) ITR 508 ) and dismissed the assessee's appeal. Further when a reference was sought for, same was accepted and the questions set out above have been referred for opinion. 4. The word "loss" in proviso (b) to S.205(1) would include "depreciation". In accounting parlance and in commercial sense, the word "loss" is always taken as including "depreciation". If depreciations were to be excluded, the Legislature would have used the term "cash loss". A comparison may be made with the language employed in S.3(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short 'the Sick Industrial Act') wherein a distinction is made between "accumulated loss" and "cash loss". In Garden Silk Weaving Factory v. C.I.T. ( 1991 (189) ITR 512 ) the Apex Court has observed that unabsorbed depreciation was part of loss. S.349(4)(1) of the Companies Act uses the expression "excess of expenditure over income" which is narrower in scope and excludes "depreciation". In Garden Silk Weaving Factory v. C.I.T. ( 1991 (189) ITR 512 ) the Apex Court has observed that unabsorbed depreciation was part of loss. S.349(4)(1) of the Companies Act uses the expression "excess of expenditure over income" which is narrower in scope and excludes "depreciation". 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 which it is understood therein solely because it is being read along with S.115J of the Act. 5. S.115J, Explanation, clause.(iv), is a piece of legislation by incorporation. If a subsequent Act brings into itself by reference some of the clauses of the former Act, the legal effect of that is to write those sections into the new Act as if they had been actually written in it with the pen, or printed in it, as was so admirably stated by Lord Esher, M. R. Once the object behind the legislation is taken note of, the inevitable conclusion is the provisions of S.205 stand bodily lifted and incorporated into the body of S.115J of the Act. On a plaint reading of the provision, the irresistible conclusion is that S.205(1), proviso clause.(b) of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The expression "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 into account the amount of depreciation provided in the profit and loss account. The above position has been elaborately dealt with by the Apex Court in Surana Steels v. Deputy C.I.T. (1999 (237) ITR 777), from which decision, we have gathered the conclusions. The answer to the second question, therefore, is in the affirmative ie., in favour of the Revenue and against the assessee. In view of the answer to this question, there is no necessity to answer the first question as it would really be of academic interest.