Important point
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”.

Judgment

R.C. Lahoti, J.-This is a batch of eight matters before this Court. The routes through which the different matters travelled up to the High Court were differnt. Some were reference applications under Section 256(1) of the Income-tax Act, 1961 and some were writ peti­tions filed before the High Court. All the matters have stood disposed of consistently with the view taken by the Division Bench of the High Court of Andhra Pradesh in the leading judgment which is reported as V.V. Trans-Investments (P) Ltd. v. Commissioner of Income-tax1 and also impugned herein. In all the matters the question arising for decision is in substance only one : 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”.

2. In order to appreciate the bone of contention it would suffice to state the facts relevant to one of the assessee’s namely M/s. V.V. Trans-Investments (P) Ltd. Hyderabad, a private limited company. The figures of net profit and loss as per the profit and loss account of the company were as follows :

Assessment profit/ Depreciation Year  loss debited to P & L account.

Rs. Rs.

1987-88 (+) 3,087 -

1988-89 (+) 35,79,997 67,75,759

(profit before depreciation)

(-) 31,95,762

(loss after depreciation)

1989-90 (+) 28,37,947 3,534

3. The assessee-company had filed its return of income disclosing ‘nil’ income after setting off a part of arrears of depreciation against the current year’s profit of Rs. 28,37,947/. The contention of the assessee was that for the accounting year relevant to the assess­ment year under consideration, there was no book profit after adjust­ment of the earlier years’ loss against the current year’s profit. The Income-tax Officer, however, computed the book profit under Section 115J of the Income-tax Act at Rs. 8,51,380/, being 30 per cent. of the current year’s profit of Rs. 28,37,947/- as per the profit and loss account. According to the Income-tax Officer, for arriving at the adjusted book profit, unabsorbed depreciation or business loss, whichever is less, is to be adjusted. Since there was no business loss in earlier years as per the books of account, the amount to be set off was considered as ‘nil’, whereas the assessee contended that earlier year’s loss of Rs. 31,94,136/- which in fact was unabsorbed deprecia­tion, was to be deducted from current year’s profit of Rs. 28,37,947/- before arriving at the book profit under Section 205(1), first provi­so, clause (b) of the Companies Act, 1956.

3. The Commissioner of Income-tax (Appeals) and the Tribunal have upheld the view of the Income-tax Officer. On an application made by the assessee, questions of law were framed and referred for the opin­ion of the High Court. In a few other matters, a special bench was constituted by the Tribunal forming an opinion that there was conflict in decisions of the Tribunal on this issue. The Special Bench of the Tribunal has formed an opinion against the assessee. The High Court has answered the reference made by the Tribunal in favour of the department and against the assessee. In the opinion of the High Court the term ‘loss’ as used in Section 205(1), first proviso, clause (b) of the Companies Act, 1956 read with Section 115J of the Income-tax Act, 1961 does not mean “including depreciation”. In other words, the High Court has held that the assessee is entitled to deduct deprecia­tion or loss whichever is less only in the eventuality wh