The main legal principle established in the judgment is the requirement to adjust and carry forward brought forward losses/allowances in accordance with the regular method of determination of income, irrespective of the application of Section 115J for tax assessment.

V.K. Singhal, J.— The Income Tax Appellate Tribunal has referred the following question of law arising out of its order under Section 256(1) of the Income Tax Act, 1961, in respect of the assessment year 1989-90 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding the amounts of brought forward losses/allowances were required to be adjusted to the extent to which such adjustments would be necessary by way of set-off of such losses/allowances against current year's net profit, computed in accordance with the regular method of determination of income of the assessee for this year in accordance with the ordinary provisions of the Income Tax Act (from Sections 28 to 43), for the purpose of carrying forward such losses/allowances to the next year, without paying any attention to the fact that actually the asses-see was charged to tax in this year in accordance with the provisions of Section 115J only ?"

2. The facts of the case, are, that the assesses-company was charged to Income Tax on the basis of the computation made under Section 115J. It was claimed before the taxation authorities that, as it had been assessed to a total income as computed under Section 115J, all the other allowances like depreciation, investment allowance, etc., should be deemed not to have been allowed at all inasmuch as the income had been determined without reference to any of the provisions of the Income Tax Act, but by taking into consideration only the book profits computed in accordance with Parts II and III of Schedule VI to the Companies Act. It was further contended that, once the total income had been determined under Section 115J, the other allowances could not be deemed to have been allowed so as to reduce the income to nil. The amounts of unabsorbed losses, depreciation, investment allowance, etc., as brought forward from earlier years should also be carried forward without any change on the ground that no computation of total income of the assessee in the regular manner was done for this year. The Assessing Officer did not allow the claim of the assessee. The Commissioner of Income Tax (Appeals), however, accepted the contention of the assessee. The matter was taken up before the Tribunal, which held, that, while determining the total income in accordance with the regular provisions of the Act, the current year's depreciation and also, if necessary, part of the full amount out of unabsorbed depreciation, etc., is required to be set off against the gross income of the assessee. According to the Tribunal, the total income is first to be determined in the regular manner and in certain cases where the provisions of Section 115J(1) are applicable, the figure of total income as determined is replaced by the figure representing 30 per cent. of the adjusted book profits and that tax is levied on the said figure. The amount of unabsorbed business loss, depreciation, etc., were considered to have been adjusted to the extent set off out of such amounts required in connection with the computation of the total income of the assessee for the current year in the regular manner and the resultant amounts of brought forward loss, unabsorbed depreciation, etc., have to be carried forward to the next year.

3. In I. T. R. C. Nos. 137 and 138 of 1995, the following questions have been referred :

"(i) 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 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 Sections 28 to 43 of the Income Tax Act, 1961, and not by way of application of the provisions of Section 115J(1) and that the resultant amou