CHINTHA PRINTING AND PUBLISHING CO. (P.) LTD. VS COMMISSIONER OF INCOME-TAX
2001 P T D 2629
[247 I T R 95]
[Supreme Court of India]
Present: Arijit Pasayat, CJ and K.S. Radhakrishnan, J
CHINTHA PRINTING AND PUBLISHING CO. (P.) LTD.
versus
COMMISSIONER OF INCOME‑TAX
Income‑tax Reference No. 178 of 1997, decided on 11/02/2000.
(a) Income‑tax‑‑‑
‑‑‑‑Company‑‑‑Computation of book profits for purposes of S.115J‑‑ Meaning of word "'loss" in proviso (b) to S.205(1) of Companies Act read with S.115J of Income Tax Act‑‑‑Loss includes unabsorbed depreciation‑‑ Indian Income Tax Act, 1956, 5.205‑‑‑Indian Income Tax Act, 1961, S.115J.
Clause (iv) of the Explanation to section 115J of the Income Tax Act, 1961, incorporates the provisions of section 205 of the Companies Act, 1956. If a subsequent Act brings. into itself by reference some of the clauses of a former Act, the legal‑effect of that‑ is to write those sections into the new Act. Once the object behind the legislation is taken note of, the inevitable conclusion is the provisions of section 205 stand bodily lifted and incorporated into the body of section' 115J of the Income‑tax Act. On a plain provision, the irresistible conclusion is that section 205(1), first 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 expressions "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.
Surana Steels (Pvt.) Ltd. v. Deputy CIT (1999) 237 ITR 777 (SC) applied.
Garden Silk Weaving Factory v. CIT (1991) 189 ITR 512 (SC) and V.V. Trans‑investments (P.) Ltd. v. CIT (1994) 207 ITR 508 (AP) ref.
(b) Interpretation of statutes‑‑‑
‑‑‑‑ Effect of incorporation of provision of another Act
Party in person.
P.K.R. Menon and N.R.K. Nair for the Commissioner.
JUDGMENT
ARIJIT PASAYAT, C.J.‑‑‑At the instance of the assessee, the following questions have been referred to this Court, for opinion in terms of section 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 section 1151 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 section 205(1), first proviso, clause (b) of the Companies Act, 1956, read with section 1151 of the Income Tax Act, 1961, means 'including depreciation'?"
The assessment year concerned is 1989‑90. The assessee is domestic company in which the 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, the assessee filed a return showing a loss of Rs.4,93,417 which included unabsorbed depreciation relating to the earlier years also. The account was prepared for a period of 21 months in the previous year.. The Assessing Officer computed the book profit under section 1151 of the Act in the following manner:
| Rs "Net profit as per profit and loss account35,055 Add: Investment allowance reserve3,07,811 3,42, 866 Less: Loss as per section 205(1) of the Companies Act1,19,521 Book profits2 23,345." |
The assessee filed an application for rectification pointing out that the net loss as per the profit and loss account had not been then into account in computing the book profit. The Assessing Officer accepted the claim. However, he found that in allowing the loss under section 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 less 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. The computation was made in the following manner:
| Rs. "Net loss as per profit and loss account for2,38,938 the first period from July 1, 1987, to June 30, 1988 Less: Net profit as per profit and loss account for the second 35,055 period July 1, 1988, to March 31, 1989 Net loss as per books2,03,883 Less: Investment allowance reserve3,07,811 Balance profit1,03,928 Less: Loss under section 205(1) of the Companies Act29,330 Balance profit74,598." |
The tax was levied at 30 per cent. on the aforesaid balance under section 1151 of the Act. The assessee preferred an appeal before the Commissioner of Income‑tax (Appeals), Cochin (in short the CIT(A)"), The computation done by the Assessing Officer was upheld by the Commissioner of Income‑tax (Appeals). The assessee preferred second appeal before the Tribunal. The assessee's stand was that for the purpose of section 1151 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 nd that the entire unabsorbed depreciation relating to the earlier years should have been deducted to arrive at the book profit for the current year. The Tribunal placed reliance on the decision of the Andhra Pradesh High Coon in V.V. Trans‑Investments (P.) Ltd. v. CIT (1994) 207 ITR 508 and dismissed the assessee's appeal. Further, when a reference was sought for, the same was accepted and the questions set out above have been referred for opinion.
The word "loss" in the proviso clause (b) to section 205(1) would include "depreciation". In accounting parlance and in the commercial sense, the word "loss" is always taken as including "depreciation". If depreciation were to be excluded, the Legislature would have used the term "cash loss". A comparison may be made with the language employed in section 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. CIT (1991) 189 ITR 512, the apex Court has observed that unabsorbed depreciation was a part of the loss section 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 section 205, proviso. clause (b) of the Companies Act a meaning different from the one in. which it is understood therein solely because it is being read alongwith section 115J of the Act.
Section 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 a 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 inclusion is the provisions of section 205 stand bodily lifted and incorporated into the body of section 115J of the Act. On a plain reading of the provision, the irresistible conclusion is that section 205(1), first 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 expressions "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 (Pvt.) Ltd. v. Deputy CIT (1999) 237 ITR 777, from which decision, we have gathered the conclusions.
The answer to the second question; therefore, is in the affirmative, i.e., 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.
M.B.A./970/FCOrder accordingly.