IMPORTANT POINT
In deeming the total income to be 30% of the book profit (under Section 115-J of I.T. Act, 1961) the deductions claimed are not ignored as contended by the appellants but are a necessary ingredient of the formula for applying the fictional total income. Thus there is no notional but actual deduction in this case.

Headnote:Income Tax Act, 1961-Section 115-J(1)-In deeming the total income to be 30% of book profit-Interpretation-Whether there are notional or actual deductions in their case? (actual)-Whether view of High Court of Karnataka in this case following A.P. High Court correct? (Yes)-Result-Appeals dismissed.
       Held : Section 115-J(1) commences with a non obstante clause. Plainly read, it provides for two stages:
        (a) computation of income of the assessee under the Act in respect of any previous year relevant to the assessment year commencing on or after 1st April 1988 and before 1st July 1991;
        (b) If the income as computed under the Act in respect of the relevant previous year is less than 30 per cent of its book profit, then the deemed total income of the assessee chargeable to tax for the relevant previous year would be equal to 30 per cent of the book profit. (Para 12)
       Once the deductions are taken into consideration and the assessee is put into the category of those companies covered by section 115J(1) only then is the assessee required to pay on a notional income of 30 per cent of its book profits. (Para 13)
       It allows only the unabsorbed losses, depreciation, investment allowance etc. which otherwise could have been carried forward, to be carried forward. (Para 14)
       The Division Bench of the Andhra Pradesh High Court in Suryalatha Spg. Mills Ltd. (supra) had construed section 115J in favour of the Revenue inter alia because: "the very object of the provision of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income tax, as a result of various tax concessions and incentives and for that purpose the taxable income is determined under sub-section (1) of section 115J, if any loss equal to the income thus determined is allowed to be adjusted, then that would frustrate and nullify the very object of enacting the provision". The reasoning appears to us to be unexceptionable. (Para 17)
       Held (about decisions cited by appellant) : Both decisions are distinguishable since, for the reasons stated we have held that there is no notional but actual deduction in this case. (Para 21)
       Held finally : For the reasons aforesaid, we have no hesitation in confirming the decision of the High Court and dismissing these appeals with costs. (Para 22)

JUDGMENT

Ruma Pal, J.-All these appeals are disposed of by this common judgment.

2. The assessees who are in appeal before us are companies who have been subjected to imposition of tax on 30% of their book profits in accordance with section 115J(1) of the Income Tax Act, 1961 (referred to as the Act ).

3. Section 115-J is in Chapter XII-B of the Act which is entitled Special Provisions Relating to Certain Companies . It was inserted by the Finance Act, 1987 with effect from the Assessment Year 1988-89 and remained in operation till the Assessment Year 1990-91. The relevant extract of section 115-J reads as follows:-

"115J. (1) Notwithstanding anything contained in any other provision of this Act, 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 the 1st day of April, 1988 but before the 1st day of April 1991 (hereinafter in this section referred to as the relevant previous year, 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.

(1A) 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.

.................................

(2) Nothing contained in sub-section (1) shall affect the determination of the amounts 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 32-A 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.

4. The question to be determined in all these appeals is whether the deductions which are permissible under the provisions of the Act can be considered to have been actually allowed when the assessee has been made liable to pay 30 percent of its book profits in terms of section 115-J of the Act.

5. The Income Tax Appellate Tribunal, Bangalore Bench held that in determining the total income of the assessee under other provisions of the Act, depreciation actually considered for calculating the taxable income shall be the depreciation which is deemed to have been actually allowed. According to the Tribunal, this depreciation has to be considered while determining the written down value of the assets for the subsequent assessment year even though the taxable income of the assessee was determined with reference to book profit pursuant to section 115-J(1) of the Act. It also held that the scheme for levying tax by considering 30% of the book profit under section 115J(1) to be the deemed total income, as "an artificial process super-imposed on the regular process of determination of the total income of the assessee in the usual manner".

6. The Tribunal at the instance of the assessee formulated the following questions under section 256(1) of the Act and referred the same to the High Court for its opinion:

"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts of business loss, unabsorbed depreciation, unabsorbed investment allowance etc., as at the beginning of the accounting year are required to be adjusted and set off to the extent of such brought forward business loss, unabsorbed depreciation etc., would have been adjusted and set off had the assessee been assessed to tax in the regular way in accordance with the provisions of Sec. 28 to 43 of the Income Tax Act, 1961 and not by way of application of the provisions of Sec.115J(1) and that the resultant amounts of losses, unabsorbed depreciation,

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2002 Supreme(SC) 1188

Cases Referred (2)