JUDGMENT
A.K. Mathur, C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, wherein two questions have been referred at the instance of the Revenue/Department and one at the instance of the assessee which read as under :
Questions raised by the Department :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal’s interpretation of ‘loss’ is in conformity with Explanation (iv) to Section 115J of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the loss and/or unabsorbed depreciation for all the preceding assessment years are to be taken cumulatively instead of separate consideration in each assessment year in accordance with the provisions of Sections 205(1)(b) and 205(2), of the Companies Act, 1956 ?”
Question raised by the assessee :
“Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that there was taxable book profits under Section 115J ?”
2. The assessee-company carried on the business in manufacturing and sale of wire drawings (steel, etc.). For the assessment year 1988-89, the assessee furnished computation of income along with the return of income, under Section 115J of the Income-tax Act (hereinafter referred to as the “Act”) showing the book profit of Rs. 2,20,688 and tax payable under Section 115J of the Act as nil. During the course of assessment proceedings, a revised computation under Section 115J of the Act was filed by the assessee computing the book profit of Rs. 8,30,178 and declared the income at 30 per cent. amounting to Rs. 2,49,053 which is liable to tax and declared the income and liability to tax at the rate of 55 per cent. at Rs. 1,36,979. The Assessing Officer did not accept the above computation and determined the assessee’s book profit at Rs. 23,54,501 and determined the tax at Rs. 7,06,150 under Section 115 of the Act.
3. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) affirmed the same. Thereafter, the assessee approached the Tribunal and the Tribunal accepted the revised computation filed by the assessee and directed that the book profit under Section 115J should be computed at Rs. 8,30,178 and allowed the assessee’s appeal following the decision given by the Income-tax Appellate Tribunal, in the case of Surana Steels (P.) Ltd. v. Dy. CIT [1993] 201 ITR (A.T.) 1; [1993] 45 ITD 1 (Hyd) [SB].
4. Aggrieved by the order of the Tribunal the assessee as well as the Revenue, both approached the Tribunal for making a reference and, accordingly, at the instance of both the parties, a reference has been made by the Tribunal framing the aforesaid questions of law before this court for answer.
5. We have heard learned counsel for both the parties and perused the record.
6. Shri Abhay Sapre, learned counsel for the Revenue, has submitted that the Tribunal has relied on the decision given by the Bench of the Tribunal and that decision has been the subject-matter of challenge before the Andhra Pradesh High Court and the Andhra Pradesh High Court has reversed that judgment of the Tribunal in the case of V. V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508. Therefore, learned counsel submits that the order of the Tribunal should be set aside and the Tribunal should be asked to reconsider the whole matter in the light of the decision given by the Andhra Pradesh High Court in V. V. Trans-Investments (P.) Ltd.’s case [1994] 207 ITR 508. Shri H. S. Shrivastava, learned counsel for the assessee, has opposed the prayer of learned counsel for the Revenue and submitted that the view taken by the Tribunal in the facts and circumstances of the case, is justified for the reasons which we will advert to hereinafter.
7. Section 115J of the Income-tax Act is a special provision relating to certain companies and it lays down that where in the case of an assessee being a company, other than a company engaged in the business of generation or distribution of electricity, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after April 1, 1988, is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit. That means that in case, the profit is less than thirty per cent. of its book profit then the income of that assessee during that year should be deemed to be an amount equal to thirty per cent. of such book profit. Sub-section (1A) of Section 115J lays down that every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The Explanation further lays down that for the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under the Companies Act as increased by the conditions, i.e., from (a) to (ha). Then Clause (iv) of the Explanation to Sub-section (1A) of Section 115J of the Act, with which we are concerned, lays down that the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956 are applicable. Section 205 of the Companies Act lays down that the dividend is to be paid only out of profits and Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act says that if the company has incurred any loss in any previous financial year or years, which falls or fall after the commencement of the Companies (Amendment) Act, 1960, then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both the cases after providing for depreciation in accordance with the provisions of Sub-section (2) or against both. So this Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act has been bodily lifted and incorporated in the Income-tax Act for working out the profit and loss for the company to work out the book profit. The idea is that in any previous year if its book profit is to be worked out then the deductions of the loss or depreciation has to be given. But it is further qualified that both cannot be made simultaneously, either of them whichever is less. In the present case, the assessee has relied on the decision given by the Tribunal which has been overruled by the Andhra Pradesh High Court and the Andhra Pradesh High Court has taken a view that (headnote of [1994] 207 ITR 508) ;
“Section 115J provides that in the case of an assessee which is a company, if the total income of the previous year was less than thirty per cent. of its book profit, then, the total income of such company should be deemed to be an amount equivalent to thirty per cent. of such book profit, and such income should be chargeable to tax. The assessee has first to compute the total income in accordance with the provisions of the Income-tax Act and if the total income was less than thirty per cent. of the book profits, then it has to prepare a profit and loss account under Sub-section (1A) of Section 115J for the relevant previous year in accordance with Parts II and III of Schedule VI to the Companies Act.”
8. Therefore, in a case where the income is less than thirty per cent. of the book profit then in order to get the benefit of Section 115J, the company has to prepare the account of profit and loss in terms of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, and on that basis, the assessee will be entitled to deduct depreciation or a loss whichever is less only when in a given year, there is a loss as well as depreciation. The assessee will not be entitled to both the benefits simultaneously. We need not dilate on this issue how the loss or depreciation is to be worked out. Suffice it to say that the provisions of the Income-tax Act will come into play for such exercise and it has to be worked out in terms of the Act. So far as the depreciation is concerned under Sub-section (1) of Section 32 of the Income-tax Act. It can be permitted in the previous year till it is exhausted, but the same is not applicable in the case of loss but it has to be worked out in terms of Sections 70, 71 and 72 of the Income-tax Act.
9. Now, coming to the facts of the present case, the Tribunal has only accepted the revised computation filed by the assessee and held that the revised computation is correct. In the revised computation (return) 1986-87, there was a book profit of Rs. 23,54,501 and a carried forward loss of Rs. 15,24,323 and the net profit has been worked out to Rs. 8,30,178, as book profit for Section 115J. But according to the order of the Assessing Officer, it appears that there was no such depreciation or loss during 1986-87 and 1987-88. The Assessing Officer has worked out the loss and profit right from the accounting year/assessment years 1974-75 to 1987-88 and from the years 1976 to 1979, the Assessing Officer has given the benefit of depreciation and loss as shown nil profit, whereas from 1979-80 to 1983-84, profit has been shown that it appears to be after giving a deduction of loss or depreciation. Then again during 1984-85 and 1985-86 the assessee has shown the depreciation/loss as nil. Then again in 1986-87 and 1987-88, profit is shown at Rs. 20,65,452. But in the revised computation filed by the assessee, the assessee has shown a carried forward loss of Rs. 15,24,323. This part has not been dealt with by the Tribunal. It is true that the Assessing Officer has worked out the total profit and loss and on that he has determined the book profit which is not correct, in view of what we have said above. The Tribunal should have applied its mind to find out whether the Assessing Officer had worked out the book profit for the company under Section 115J correctly or not. Be that as it may, the fact remains that according to the statement prepared by the Assessing Officer on the basis of the account books, it appears that during 1986-87 and 1987-88, neither any depreciation nor loss has been shown and the assessee has shown the net profit of Rs. 18,77,888 (1986-87) and Rs. 20,65,452 (1987-88). This aspect has not been considered by the Tribunal and the Tribunal has mechanically accepted the revised computation filed by the assessee and assessed the book profit under Section 115J on the basis of the revised computation filed by the assessee without going into the factual aspect of the matter, which has been examined by the Assessing Officer and it appears that during the accounting years 1986-87 and 1987-88, there was no carried forward loss. Therefore, we set aside the order of the Tribunal and leave it to the Tribunal to work out the correct loss or depreciation, if there is any. Hence, all the aforesaid three questions are accordingly answered.