Case: Malayala Manorama Co Ltd Vs. Commr.Of Income Tax, Trivandrum

115J was introduced into the 1961 Act, which replaced section 80VV of the Act. Section 115J provided that where the total income of a company as computed under the Income Tax Act in respect of any accounting year was less than 30% of its book profit, as defined in the explanation, the total income of the company, chargeable to tax, shall be deemed to be an amount equal to 30% of such book profit. The whole purpose of this section was to tax a company, which has no taxable income, merely because it shows book profit. Book profit as explained in this section meant the net profit as shown in the profit and loss account for the relevant previous year prepared under sub section (1A) of section 115J as increased by the amounts referred to in clauses (a) to (ha) of the Act. It should be noted that the words “prepared under sub-section (1A)” were introduced by the Finance Act, 1989, with effect from 01.4.1989. 24. Sub-section (1A) to section 115J reads as follows: “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 Part II, and III of Schedule VI to the Companies Act, 1956 (1 of 1956).” 25. This sub-section (1A) to section 115J of the 1961 Act would have application for the A.Y. 1989-90, which is the subject matter of ITR Nos.289 and 293 of 1999. But would have no application to the A.Y. 1988-89, which is the subject matter of ITR Nos.245 and 259 of 1999. Explanation (ha) (iv) to section 115J, which would be relevant to both assessment years 1988-89, as well as 1989-90 and introduced w.e.f. 01.4.1989 reads as follows: “(ha). The amount deemed to be the profits under sub-section (3) of section 33AC:if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profits and loss account, as as reduced by. -(i) xxx xxx xxx(ii) xxx xxx xxx(iii) xxx xxx xxx(iv) 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 (1 of 1956) are applicable.” 26. Mr. Gulati further submitted that before the High Court, it was argued by counsel for the revenue that section 205 of the Companies Act, 1956 has been legislatively incorporated into the Income Tax Act for the purposes of section 115J and since this is a legislation by incorporation, the said provision of the Companies Act, 1956 has to be applied as indicated by that provision in the Companies Act. It was also pointed out that in section 205 of the Companies Act, it has been provided that for the purposes of calculating depreciation under section 205(1), the same could be provided to the extent specified under section 350 of the Companies Act. A reference to section 350 of the Companies Act would show that the amount of depreciation to be deducted shall be the amount, calculated with reference to the written down value of the assets, as shown by the books of the company at the end of the financial year expiring at the commencement of the Act or immediately thereafter and at the end of each subsequent financial year and the rates specified in Schedule XIV to the Companies Act. Therefore, according to the revenue, the calculation of depreciation in terms of the Companies Act and Schedule XIV thereof becomes a must, while assessing an assessee under section 115J of the Income Tax Act.27. Mr. Gulati further submitted that the question raised in the case of Sona Woolen Mills Pvt. Ltd. (supra) shows that the assessee was trying to claim depreciation as per Income Tax Rules on the ground that the same was based on the views expressed by the then chairman of the CBDT in a departmental publication. It is clear that the views expressed by the Chairman of the CBDT cannot override the Act and have clearly to be rejected in case they are not consistent with the Act. He submitted that the Kerala High Court in Commissioner of Income Tax v. Dynamic Orthopaedics Pvt. Ltd. (2002) 257 ITR 446 as well as Malayala Manorama (supra) and the M.P. High Court in the case of Commissioner of Income Tax v. Vandana Rolling Mills Ltd. (1998) 234 ITR 693 have all held that for the purposes of section 115J of the Act, depreciation could not be calculated as per provisions of the Income Tax Rules. Only the Gujarat High Court in the case of Deputy Commissioner of Income Tax v. Vardhman Fabrics (P) Ltd. (2002) 254 ITR 431 has upheld the view that the circular of the Company Law Board laid down only minimum depreciation for the purposes of distribution of the dividend and the company could decide to give a higher depreciation. Mr. Gulati also contended that the Punjab & Haryana High Court has preferred to follow the minority view and has ignored the majority view taken by two High Courts, namely the Kerala High Court as well as the M.P. High Court. Mr. Gulati also relied upon the case of J.K. Industries Ltd. v. Union of India (2008) 297 ITR 176 (SC) . On proper analysis of the said case, we find that this case also does not help the Revenue.28. We have heard the learned counsel for the parties at length and carefully perused the written submissions filed by them. In our considered opinion, the controversy involved in this case is no longer res integra. A three Judge Bench of this Court in Apollo Tyres (supra) has clearly interpreted section 115J of the 1961 Act. There is no scope for any further discussion.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. This makes it clear that Schedule VI to the 1956 Act does not create any obligation on a company to provide for any depreciation much less provides for depreciation as per Schedule XIV to thethese judgments have been decided on the basis of the ratio of the decision of this Court in Apollo Tyres (supra).proper analysis of the said case, we find that this case also does not help the Revenue.28. We have heard the learned counsel for the parties at length and carefully perused the written submissions filed by them. In our considered opinion, the controversy involved in this case is no longer res integra. A three Judge Bench of this Court in Apollo Tyres (supra) has clearly interpreted section 115J of the 1961 Act. There is no scope for any further discussion.