High Court Of Kerala
CIT vs. Malayala Manorama Co. Ltd.
Sections 115J, 147, 154, COMP 205, COMP 350, COMP SCH. XIV
Asst. Year 1988-89, 1989-90
P.K. Balasubramanyan & C.N. Ramachandran Nair, JJ.
IT Ref. Nos. 245, 259, 289 & 293 of 1999
13th November, 2001
Counsel Appeared
P.K.R. Menon & George K. George, for the Applicant : S.E. Dastur, M. Pathros Mathai & John Ramesh, for the Respondent
JUDGMENT
P.K. BALASUBRAMANYAN, J. :
These references under s. 256(1) of the IT Act relate to the asst. yrs. 1988-89 and 1989-90. IT Ref. Nos. 245 of 1999, and 259 of 1999, relate to the asst. yr. 1988-89. IT Ref. No. 245 of 1999, is at the instance of the Revenue and IT Ref. No. 259 of 1999, is at the instance of the assessee. IT Ref. Nos. 289 of 1999, and 293 of 1999, relate to the asst. yr. 1989-90. IT Ref. No. 289 of 1999, is at the instance of the Revenue and IT Ref. No. 293 of 1999, is at the instance of the assessee. The assessee is a limited company registered under the Companies Act.
2. For the asst. yr. 1988-89 the assessee filed a return declaring a loss of Rs. 1,12,293 and claimed refund of the sum of Rs. 8,62,730 prepaid as tax. The Dy. CIT (Asst), Special Range, Kottayam rejected the return and assessed the total income of the assessee at Rs. 47,26,270 and imposed a tax of Rs. 25,99,448 and a surcharge of Rs. 1,29,972 totalling Rs. 27,29,420. After adjusting the advance tax paid and the tax deducted at source, inclusive of interest, a total demand was made for Rs. 26,83,327. The assessing authority did not allow the deduction claimed by the assessee in terms of s. 80VVA of the IT Act since the said provision stood omitted w.e.f. 1st April, 1988. The assessee went up in appeal before the CIT(A), Cochin. The CIT(A) allowed the appeal and ordered modification of the order of assessment. The AO was directed to consider the claim of the assessee for depreciation in the light of the decisions for the earlier years. The AO was also directed to give effect to the orders of the appellate authority in respect of depreciation for earlier years and work out the correct depreciation admissible to the assessee for the concerned year. By order dt. 19th Feb., 1992, the Dy. CIT (Asst.) Special Range, Kottayam, recomputed the income of the assessee and revised the total loss as Rs. 41,50,280. By letter dt. 10th April, 1992, the Dy. CIT(Asst.) Special Range, Kottayam called upon the assessee to furnish the computation in terms of s. 115J of the IT Act and to furnish the same on or before 23rd April, 1992. In the book profit computed by the assessee, the assessing authority noticed that the assessee had claimed depreciation as per IT Rules amounting to Rs. 2,95,13,873 and investment allowance of Rs. 15,42,163 and thereby had not arrived at the book profit under the Companies Act for assessment under s. 115J of the Act. The assessee wrote back to the Dy. CIT(Asst.) enclosing therewith a statement showing the computation of book profit under s. 115J of the IT Act. In that letter the assessee indicated that the P&L a/c was as per the IT Rules and was not as per Sch. XIV of the Companies Act. Depreciation had been so worked out only according to the Companies Act. The assessee pointed out that the rate of depreciation as per Sch. XIV of the Companies Act came into force only by the Companies (Amendment)Act, 1988, and the amendment came into force only on 24th May, 1988. Hence, the rate of depreciation as per that Schedule was applicable only from 1989-90. The Dy. CIT (Asst.) Special Range, Kottayam, by order dt. 9th Oct., 1992, rejected the argument raised on behalf of the assessee and computed the book profit under s. 115J of the IT Act at Rs. 17,26,617 by adopting rate of depreciation provided under the Companies Act as against the rate of depreciation adopted by the assessee under the IT Rules. The total income at 30 per cent was assessed at Rs. 5,17,990. The tax was thus determined. The assessee appealed to the CIT(A), Cochin. It complained of the computation of income under s. 115J of the IT Act. The assessee also questioned the validity of the assessment under s. 115J of the Act on the ground that the procedure adopted by the Dy. CIT(Asst.) was not warranted and there was no mistake apparent on the record entitling the assessing authority to invoke s. 154 of the IT Act. The CIT(A) rejected the said contention of the assessee and held that the proceedings of the AO were valid. The appellate authority held that there was a mistake apparent from the records when the AO gave effect to the order of the CIT(A) on 19th Feb., 1992, and hence the order dt. 9th Oct., 1992, which was being challenged in appeal was an order validly passed under s. 154 of the IT Act. The appellate authority held that the depreciation as computed by the assessee in its books of accounts had to be taken into account while computing the profit under s. 115J of the IT Act. The CIT(A) hence directed the AO to compute the profit under s. 115J of the Act taking into account the depreciation for the year under consideration as per the IT Rules. Both the assessee and the Revenue went up in appeal before the Tribunal, Cochin Bench. The assessee filed IT Appeal No. 14/Coch/95 and the Dy. CIT(Asst.), Special Range, Kottayam filed IT Appeal No. 89/Coch/95.
The Tribunal, Cochin Bench rejected the argument on behalf of the assessee that the AO had the jurisdiction to apply s. 115J of the Act only at the time of computation of the total income in the order of assessment under s. 143(3) of the Act and that at a later stage, if the total income was found to be reduced consequent to the appellate order, he had no jurisdiction to apply the provisions of s. 115J of the Act. The Tribunal held that the income was determined finally after giving effect to the order of the CIT(A) and the income so determined can only be the total income computed for the concerned assessment year. If at that stage it was found that s. 115J of the Act had application, the AO had necessarily to apply s. 115J of the IT Act and to complete the assessment. The Tribunal thus found no merit in the appeal filed by the assessee. In the appeal filed by the Department, the Tribunal rejected the contention that for computing the book profit under s. 115J of the Act the depreciation for the year as per the IT Rules could not be taken into account. The argument that for the purpose of computing the profit depreciation had to be provided as per Sch. XIV of the Companies Act was rejected and the view of the CIT(A) was upheld. Thus, the appeal by the Revenue was also found to be without substance. Thus both the appeals were dismissed. The Dy. CIT(Asst.) Special Range, Kottayam, filed MP No. 123/Coch/1998 arising out of IT
Appeal No. 89/Coch/1995 submitting that the direction to the AO to compute the book profit under s. 115J of the Act taking into account the depreciation for the year as claimed by the assessee was not justified since the assessee had debited to the P&L a/c the allowance of depreciation as per the IT Rules and further submitting that in the case of CIT vs. Apollo Tyres Ltd. (1998) 149 CTR (Ker) 538 : TC S24.2490 the High Court had held that for the purpose of s. 115J of the Act depreciation has to be computed in accordance with the Companies Act and not as per the IT Rules. This application was opposed on behalf of the assessee by pointing out that the decision of the High Court relied on could not be applied to the case on hand. The Tribunal held that in the Apollo Tyres’ case (supra) what was decided by the High Court was whether arrears of depreciation for earlier years were to be taken into account for computing the book profit under s. 115J of the Act. There was no direction in that decision that for the current year, depreciation was to be computed in accordance with the Companies Act and not as per the IT Rules. Thus the Tribunal refused to modify its decision in the appeal by the Revenue as sought for by theRevenue. The petition was thus dismissed.
5. Both the Revenue and the assessee sought the reference of the questions, which according to them arose for consideration by invoking s. 256(1) of the IT Act. At the instance of the Revenue, the Tribunal referred the question : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the CIT(A), directing the AO to allow the claim of depreciation as per the IT Rules for the purpose of computing the book profit under s. 115J of the IT Act ?” It is this reference that is the subject-matter of IT Ref. No. 245 of 1999. At the instance of the assessee, the Tribunal also referred for decision by this Court the following two questions :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the finding of the CIT(A) that the proceeding of the assessing authority dt. 9th Oct., 1992, was a valid order under s. 154 of the IT Act ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the computation under s. 115J through the order passed on 9th Oct., 1992 ?” These questions are the subject-matter of IT Ref. No. 259 of 1999.
6. IT Ref. Nos. 289 of 1999 and 293 of 1999 relate to the asst. yr. 1989-90. On 28th Feb., 1992, the Dy. CIT(Asst.), Special Range, Kottayam, computed the total income of the assessee at Rs. 43,12,970 and determined the tax and surcharge payable as Rs. 24,90,740. After deducting the tax paid by the assessee, the balance payable with interest was determined as Rs. 5,80,160. The assessee went up in appeal. By order dt. 21st Aug., 1992, the CIT(A), Cochin substantially allowed the appeal and upheld some of the claims of the assessee. The AO, by order dt. 29th March, 1993, gave effect to the appellate order and found that a sum of Rs. 3,92,256 was due to the assessee by way of refund. The AO fixed the total income of the assessee at Rs. 38,27,898 and allowed the brought forward loss to be set off. At that stage, the AO did not apply s. 115J of the IT Act, which obviously had application as a consequence of the appellate order and the giving effect of that order by the AO. But on 23rd Nov., 1993, the AO issued a notice under s. 148 of the IT Act calling upon the assessee to compute the income in terms of s. 115J of the IT Act. The assessee filed a return dt. 22nd Dec., 1993, showing the net loss at Rs. 3,22,382 and the income under s. 115J of the IT Act at Rs. 17,70,442. After giving the assessee an opportunity of being heard, the AO by order dt. 15th March, 1994, held that for the purpose of determination of depreciation, Sch. XIV of the Companies Act had to be applied. Since the assessee was a dividend declaring company, it should have adopted depreciation rate as per the Companies Act instead of as per the IT Rules. Thus the AO completed the assessment fixing the total demand at Rs. 54,60,170. The assessee went up in appeal before the CIT(A), Cochin. The assessee questioned the reopening of the assessment under s. 147 of the Act and contended that s. 147 of the Act was not applicable to the AO in the case on hand. The CIT(A) noticing the relevant order regarding the invocation of s. 147 of the IT Act and considering the other circumstances, held that the AO had validly reopened the assessment. But the CIT(A) upheld the contention of the assessee regarding the mode of computing the depreciation. The CIT(A) held that the computation under the Companies Act meant for the purpose of declaring dividend cannot be adopted for the purpose of computing the taxable income under the provisions of the IT Act.
In the case on hand, the assessee had clearly debited depreciation as per the IT Rules in its books of account. Therefore, for the purpose of s. 115J of the Act the book profit had to be taken as the net profit as shown in the P&L a/c for the relevant previous year. The CIT(A) directed that the depreciation as claimed by the assessee in its books of account should be taken by the AO while working out the computation under s. 115J of the Act. The AO was directed to recompute the profit under s. 115J of the Act by adopting the depreciation as provided for in the P&L a/c of the assessee. Both sides went up in appeal before the Tribunal, Cochin Bench. The assessee filed ITA
823 (Coch)/94 questioning the invocation of s. 147 of the IT Act by the AO after he had completed the assessment earlier as directed by the appellate authority. The Revenue filed ITA No. 820(Coch)/94 questioning the direction of the CIT(A) to compute the profit under s. 115J of the Act by adopting the depreciation as provided for in the P&L a/c of the assessee as per the IT Rules after holding that Sch. XIV of the Companies Act had no application. The Tribunal, by order dt. 31st Aug., 1998, held that s. 147 of the Act was rightly invoked by the AO and there was no want of jurisdiction or illegality in his proceeding to assess the assessee in terms of s. 115J of the IT Act in the manner in which he had done. The Tribunal also upheld the view of the CIT(A) that for the purpose of calculating depreciation, the method envisaged by the IT Rules could be adopted and the assessee was not bound to compute it in terms of Sch. XIV of the Companies Act. Thus, the contention of the Revenue was also rejected. The Tribunal thus dismissed both the appeals.
The Revenue sought reference of the question relating to the mode of determination of depreciation by invoking s.256(1) of the IT Act. The Tribunal, at the instance of the Revenue, referred the following question for decision by this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the CIT(A), directing the AO to allow the claim of depreciation as per IT Rules for the purpose of computing the book profit under s. 115J of the IT Act ?” It is this reference that is the subject-matter of IT Ref. No. 289 of 1999. The assessee also sought a reference of the question regarding the jurisdiction of the AO to invoke s. 147 of the Act on the facts and in the circumstances of the case. At the instance of the assessee, the Tribunal referred the following question under s. 256(1) of the IT Act : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessment had been validly reopened under s. 147 to bring to tax the deemed income under s. 115J?” This is the subject-matter of IT Ref. No. 293 of 1999. Thus the two aspects that arise are the jurisdiction of the AO in the circumstance of the case to invoke his jurisdiction under s. 154 and s.
147 of the Act in respect of the respective assessment years raised at the instance of the assessee and the question whether while computing the income in terms of s. 115J of the IT Act the depreciation allowable has to be computed in terms of Sch. XIV of the Companies Act or in terms of the IT Rules. Chapter XII-B containing special provisions relating to certain companies was inserted in the IT Act by the Finance Act, 1987 w.e.f. 1st April, 1988. From the asst. yr. 1988-89 s. 115J as introduced, replaced s. 80VVA of the IT Act. Sec. 115J provided that where the total income of a company as computed under the IT Act in respect of any accounting year was less than thirty per cent 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 thirty per cent of such book profit. Accordingly to Kanga and Palkiwala, “the whole purpose of this section is to tax a company which has no taxable income, merely because it shows a book profit.” It is explained in that section that for the purpose of the section, book profit meant the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (1A) as increased by the amounts referred to in cls. (a) to (ha) of the Act. It may be noted that the words “prepared under sub-s. (1A)” were introduced by the Finance Act, 1989 w.e.f. 1st April, 1989. Certain deductions were also provided by the Explanation. Sub-s. (1A) introduced w.e.f. 1st April,1989, read : “Every assessee, being a company, shall, for the purpose of this section, prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956).”
Thus going by the amendments introduced w.e.f. 1st April, 1989, s. 115J (1A) had application as indicated by that provision and the Explanation thereto. For the asst. yr. 1989-90, the subject-matter of the references IT Ref. Nos. 289 and 293 of 1999, sub-s. (1A) of s. 115J as introduced has clear application. But regarding the asst. yr. 1988-89 covered by IT Ref. Nos. 245 and 259 of 1999, s. 115J had application without reference to sub-s. (1A) thereof and the Explanation thereof. The provision relating to one of the deductions contemplated by Explanation to sub-s. (1A) of s. 115J of the Act is “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 cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act, 1956 (1 of 1956) are applicable.” According to learned counsel for the Revenue, s. 205 of the Companies Act has been legislatively incorporated into the IT Act for the purpose of s. 115J of the Act and since this is legislation by incorporation, the said provision of the Companies Act has to be applied as indicated by that provision in the Companies Act. Counsel pointed out that in s. 205 of the Companies Act it is provided that for the purpose of calculating the depreciation under s. 205(1) of the Act, the same could be provided to the extent specified under s. 350 of the Companies Act. According to counsel, a reference to s. 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 at the rates specified in Sch. XIV. Thus, according to counsel for the Revenue, the calculation of depreciation in terms of the Companies Act and Sch. XIV becomes a must while assessing an assessee under s. 115J of the IT Act.
Learned counsel for the assessee on the other hand submitted that though w.e.f. 1st April, 1989, sub-s. (1A) had been inserted and cl. (iv) of the proviso was also inserted, it was open to the assessee to claim depreciation in terms of the IT Act and the Rules and since there was no reference to s. 350 of the Companies Act in s. 115J of the IT Act, the requirements of s. 350 of the Companies Act should not be roped in to make applicable Sch. XIV of the Companies Act or to insist that the rate of depreciation should be as specified in Sch. XIV of the Companies Act. In Surana Steels (P) Ltd. vs. Dy. CIT (1999) 153 CTR (SC) 193 : (1999) 237 ITR 777 (SC), the Supreme Court speaking on s. 115J of the Act stated as follows : “Sec. 115J was introduced in the asst. yr. 1988-89 to take care of the phenomenon of prosperous zero tax companies which had continued in spite of the enactment of s.80VVA. These were companies which were paying no income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. A plain reading of s. 115J shows that if the assessee be a company and its total income determined under the IT Act in respect of a previous year be less than thirty per cent of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent of such book profit. The total income of the assessee shall first be computed in accordance with the provisions of IT Act and if the total income so computed be less than thirty per cent of the book profit, than P&L a/c of the company for the relevant previous year shall have to be prepared under sub-s. (1A) of s. 115J in accordance with Parts II and III or Sch. VI of the Companies Act. The book profit so arrived at under the Companies Act shall be suitably adjusted so as to satisfy the requirements of the Explanation. We are in this case concerned with the interpretation of cl. (iv) under the Expln. to s. 115.” Thereafter, the Supreme Court stated that s. 115J, Explanation, cl. (iv), is a piece of legislation by incorporation. After dealing with the principles of statutory interpretation their Lordships stated : “Once we have ascertained the object behind the legislation and held that the provisions of s. 205 quoted hereinabove stand bodily lifted and incorporated into the body of s. 115J of the IT Act, all that we have to do is to read the provisions plainly and apply rules of interpretation if any ambiguity survives. Sec. 205(1), proviso cl. (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 words “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 P&L a/c. xx xx xx It applies to those cases where the depreciation has been provided in accordance with the provisions of subs. (1) of s. 205. The depreciation is provided for in the P&L a/c. The loss is arrived at after taking into account the depreciation provided. It is, therefore, clear that the word ‘loss’ as used in proviso to cl. (b) to s. 205(1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of s. 115J of the IT Act, 1961. We do not agree with the view taken by the High Court that in case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit under s. 115J can be allowed. The view taken by the High Court would partially defeat the object sought to be achieved by s.
115J of the IT Act, 1961. We also do not agree with the High Court saying that having lifted s. 205(1), proviso cl. (b) from the Companies Act into s. 115J of the IT Act, there is no occasion to refer to the Companies Act, 1956 at all.”
It may be noted here that the Tribunal, in its order, has relied on the decision of the Andhra Pradesh High Court in V.V. Trans Investments (P) Ltd. vs. CIT (1994) 119 CTR (AP) 184 : (1994) 207 ITR 508 (AP) : TC 24R.600 for holding that the claim of depreciation as per the IT Rules is allowable. That decision of the Andhra Pradesh High Court was also the subject-matter of one of the appeals dealt with in the decision reported in (1999) 153 CTR (SC) 193 : (1999) 237 ITR 777 (SC) (supra). That was Civil Appeal No. 4472 of 1995. That appeal was also allowed and the decision of the Andhra Pradesh High Court was reversed. The fact that s. 350 of the Companies Act may not apply to a private company unless it is a subsidiary of a public company may not matter since s. 205 of the Companies Act has been incorporated into s. 115J of the IT Act and s. 205 of the Companies Act in turn insists that depreciation shall be provided to the extent specified in s. 350 of the Act. It is, therefore, not possible to keep out Sch. XIV of the Companies Act relating to ascertainment of depreciation as mentioned in s. 350 of the Companies Act. It is, therefore, clear that after the insertion of sub-s. (1A) of s. 115J of the Act w.e.f. 1st April, 1989, the ascertainment of depreciation has to be in terms of s. 205 of the Companies Act understood in the light of s. 350 of the Act and Sch. XIV to that Act.
13. Learned counsel for the assessee submitted that what was relevant was to determine the book profit of the assessee. As per the books of account of the assessee, the book profit as computed in the order of the AO dt. 9th Oct., 1992, could be seem to be Rs. 17,26,617 and the question was whether the AO could determine the book profit as Rs. 51,27,865 as was sought to be done. Counsel submitted that the only increases contemplated by Explanation to s. 115J were contained in cl. (a) to (ha) and the addition of the amount to book profits did not fall under any of those categories. The assessee had always shown depreciation in its accounts as per the IT Rules and there was no warrant for the addition. It is seen from the order of assessment dt. 9th Oct., 1992, that the depreciation as per the books of account of the assessee is Rs. 2,95,13,873 and the depreciation as per Sch. XIV to the Companies Act is Rs. 2,45,81,766. Counsel submitted that the balance sheet prepared by the company was in terms of s. 211 of the Companies Act and there was no justification in ignoring the balance sheet thus prepared. There was no reference to Sch. XIV in s. 211 of the Companies Act. Counsel, therefore, submitted that it could not be insisted that the rates of depreciation specified in Sch. XIV to the Companies Act should be applied, while preparing the P&L a/c of the assessee. Counsel also relied on the circular issued. Sch. XIV applies only to the assets purchased after the coming into force of Sch. XIV and Sch. XIV had to be applied on its terms, if at all it was to be applied and it was not open to add anything to Sch. XIV. Counsel further submitted that cl. (iv) of Explanation to s. 115J of the Act deals only with a specific situation and in this case, the assessee did not come under the proviso to s. 205 of the Companies Act and therefore, there was no question of upholding the contention that the depreciation has to be calculated only in terms of Sch. XIV to the Companies Act.
14. We think that in the light of the decision of the Supreme Court in Surana Steels (P) Ltd. vs. Dy. CIT (supra) explaining the scope of s. 115J of the IT Act and the reasoning therein based on this being a legislation by incorporation, this argument raised on behalf of the assessee cannot be accepted. Sec. 115J of the Act is a special provision relating to an assessee-company, the total income of which as computed under the IT Act in respect of any previous year relevant for the assessment year commencing on or after 1st April, 1988, is less than thirty per cent of the book profit and the section postulates that the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be the amount equal to thirty per cent of such book profit. The section thereafter lays down the manner in which the book profits is to be calculated. We think that in circumstances like the present, in respect of an assessment of a company, s. 115J of the Act has to be applied in all its rigour especially considering the object sought to be achieved by the introduction of that provision. In fact we may note that even the constitutional validity of this provision was doubted by the learned authors Kanga and Palkiwala in their Commentaries to the Income-tax Act. We are, therefore, of the view that the Tribunal and the CIT(A) were not justified in holding that the assessee was entitled to calculate depreciation as per the IT Rules as opposed to the relevant provisions of the Companies Act. It has to be held that for the purpose of s. 115J of the IT Act, the depreciation has to be calculated in terms of Sch. XIV to the Companies Act in view of the incorporation of s. 205 of the Companies Act into s. 115J of the Act and the consequence arising therefrom. Though it is seen that sub-s. (1A) of s. 115J of the Act was inserted only w.e.f. 1st April, 1989, in the view we have taken on the scope of s. 115J of the Act with the Explanation thereof, in the light of the decision of the Supreme Court in Surana Steels (P) Ltd. vs. Dy. CIT (supra) we are of the view that even as regards the asst. yr. 1989-90 the position would be the same. The depreciation allowable has to be calculated at the rates provided in Sch. XIV to the Companies Act in respect of that assessment year as well. Counsel for the assessee referred to the Note given below Sch. XIV of the Companies Act and Circular No. 2 of 1989 dt. 7th March, 1989, and contended that for calculating book profit under the Companies Act, the assessee is entitled to charge depreciation at rates different from the standard rates provided in Sch. XIV of the Companies Act. However, he has not justified the basis on which income tax rates of depreciation were adopted for arriving at book profit. It is stated in the circular that on the basis of technological evaluation bona fide made, higher rates of depreciation can be charged with proper disclosure. We cannot accept this contention for two reasons. Sec. 115J does not permit such a deviation and allow the assessee to charge rates of depreciation different from the rates provided in Sch. XIV of the Companies Act. Further, the assessee has no case that they have made any technical evaluation and charged depreciation accordingly. If at all any such evaluation is made, the same should be approved by the assessing authority. Therefore, we do not find any justification for the assessee to charge depreciation at the income tax rates for calculating book profit which defeats the very object of s. 115J of the Act. We also do not find any authority under s. 115J of the IT Act to apply depreciation on the basis of circular of the Company Law Board as against the rates to be applied as provided under Sch. XIV of the Companies Act.
In the light of these conclusions the questions referred to at the instance of the Revenue for the relevantassessment years have to be answered in the negative and in favour of the Revenue and against the assessee. Now we come to the questions referred to at the instance of the assessee in IT Ref. No. 259 of 1999. Those questions relate to the asst. yr. 1988-89. At the first instance the Dy. CIT(Asst.) Special Range, Kottayam rejected the return filed by the assessee and assessed the taxable income of the assessee at Rs. 47,26,270 and imposed a tax of Rs. 25,99,448 and a surcharge. On appeal by the assessee, the CIT(A) Cochin ordered modification of the order of assessment by upholding some of the claims of the assessee and directing the AO to consider the claim of the assessee for depreciation in the light of the decisions for the earlier years. The AO was also directed to give effect to the orders of the appellate authority in respect of depreciation for earlier years and work out the correct depreciation admissible to the assessee for the concerned year. This order of the CIT(A) was not appealed against by the Revenue. By order dt. 19th Feb., 1992, the Dy. CIT(Asst.), Special Range, Kottayam gave effect to the appellate order and recomputed the income of the assessee and accepted the total loss as Rs. 41,50,280. At the time of recomputing the income thus, the AO did not invoke s. 115J of the Act or make an assessment based on that section. But on 10th April, 1992 the Dy. CIT (Asst.) issued a notice to the assessee calling upon the assessee to furnish the computation of income in terms of s. 115J of the Act and to furnish the details. The AO also indicated that the assessee had claimed depreciation as per the IT Rules and also an investment allowance and thereby had not arrived at the book profit in terms of s. 115J of the Act. The assessee-respondent submitted a statement showing the computation of the book profit under s. 115J of the Act. In the covering letter the assessee indicated that the P&L a/c was prepared as per the IT Rules and the same was not prepared as per Sch. XIV of the Companies Act. According to the assessee depreciation need not be worked out according to the Companies Act. It was pointed out that the rate of depreciation as per Sch. XIV of the Companies Act came into force only on 24th May, 1988, and hence the rate of depreciation as per that Schedule was applicable only from 1989-90. The AO rejected the argument raised on behalf of the assessee and computed the book profit under s. 115J of the Act at Rs. 17,26,617. The total income at 30 per cent was assessed and the tax was determined. Among other things, the assessee challenged the fresh assessment made by the AO under s. 115J of the Act by raising a contention before the CIT(A). It was contended on behalf of the assessee that the AO was not entitled to invoke s. 154 of the Act on the facts and in the circumstances of the case. This contention of the assessee was overruled by the CIT(A) who held that the AO had jurisdiction to proceed to assess the assessee under s. 115J of the Act as he has done. This contention pursued by the assessee before the Tribunal was also rejected. It is in that situation that the assessee has got the two questions referred, as to whether the proceeding of the assessing authority dt. 9th Oct., 1992, was a valid order in terms of s. 154 of the IT Act and whether the Tribunal was justified in law in upholding the computation under s. 115J of the Act through the order passed on 9th Oct., 1992.
18. As regards the asst. yr. 1989-90, more or less the same situation arose. The AO while giving effect to the appellate order passed on 29th March, 1993, did not apply s. 115J of the Act, which obviously had application as a consequence of the appellate order and the giving effect to of that order by the AO. There also he issued a notice on 23rd Nov., 1993, under s. 148 of the IT Act calling upon the assessee to compute the income in terms of s. 115J of the Act. The assessee filed a return. But the assessee also raised a contention that the AO could not reopen the assessment under s. 147 of the Act since s. 147 of the Act was not available in the case on hand. That claim was rejected by the AO, by the CIT(A) and by the Tribunal and it is in that circumstance that at the Tribunal and it is in that circumstance that at the instance of the assessee, the Tribunal has referred the question whether the assessment had been validly reopened under s. 147 of the Act to bring to tax the deemed income under s. 115J of the Act.
19. Under s. 154 of the IT Act, the assessing authority has the power to rectify any mistake apparent from the record and amend any order passed by it under the provisions of the Act. As regards the asst. yr. 1988-89 while giving effect to the order of the CIT(A) and recomputing the income of the assessee, the AO failed to give effect to s. 115J of the Act which had clear application in the light of the order he passed giving effect to the appellate order. There was thus clearly an apparent omission or apparent mistake in the order of the assessing authority, in that he had omitted to apply a statutory provision which had clear application. In the context of the object sought to be achieved by the introduction of s. 115J into the Act, it has to be noted that it was a mandatory provision in respect of companies like the assessee here. In CIT vs. Kesaria Tea Co. Ltd. (1998) 148 CTR (Ker) 309 : (1998)
233 ITR 700 (Ker) : TC S53.4160 this Court had held that overlooking a mandatory provision of law which allows no discretion to the taxing authorities is a mistake apparent from the record and the order passed overlooking such a mandatory provision could be rectified in exercise of power under s. 154 of the Act. The Division Bench referred to the decision of the Supreme Court in M.K. Venkatachalam ITO vs. Bombay Dyeing & Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC) : TC 53R.157, The Maharana Mills (P) Ltd. vs. ITO (1959) 36 ITR 350 (SC) : TC 53R.275, ITO vs. Ashok Textiles Ltd. (1961) 41 ITR 350 (SC) : TC 53R.275 and in T.S. Balaram, ITO vs. Volkart Brothers (1971) 82 ITR 50 (SC) : TC 53R.165, in coming to this conclusion. After also referring to the decision of this Court in CIT vs. Quilon Marine Produce Co. (1985) 48 CTR (Ker) 135 : (1986) 157 ITR 448 (Ker) : TC 53R.173, the Division Bench held : “From the aforesaid decisions of the Supreme Court and this Court it is clear that overlooking the mandatory provision of law which allows no discretion in the taxing authorities is a mistake apparent from the record. It is also a settled position that a decision on a debatable point of law or where the law confers on the taxing authorities a discretion, such discretion cannot be corrected under s. 154 of the Act.” Here, in view of the decision of the CIT(A) and the giving effect to the same by the AO, the position that emerged was that s. 115J of the IT Act clearly became applicable. We have already adverted to the purpose for which the said provision was introduced. The AO was, in the circumstances, bound to apply s. 115J of the Act and complete the assessment. But he overlooked or ignored the said statutory provision and purported to pass the order giving effect to the decision of the CIT(A). Since while passing that order, he had ignored the mandate of s. 115J of the Act, it has to be held that the said order was capable of being rectified in exercise of power under s. 154 of the Act. We may also notice here that when he completed the original assessment, going by the order of assessment made by the AO, s. 115J of the Act had no application and s. 115J of the Act became relevant and applicable only on the AO giving effect to the decision of the CIT(A). It was at that stage that the AO ignored the mandatory statutory provision contained in s. 115J of the IT Act. In that situation, the power available to the ITO in terms of s. 154 of the Act is wide enough to justify the rectification of the mistake he had made. In view of our conclusion as above, the question referred to us in IT Ref. No. 259/99 at the instance of the assessee have to be answered against the assessee and in favour of the Revenue. Regarding the asst. yr. 1989-90, the AO had while giving effect to the order of the CIT(A) omitted to apply s. 115J of the Act which had clear application. But regarding that year the AO invoked his jurisdiction under s. 147 of the Act and issued a notice to the assessee under s. 148 of the Act calling upon the assessee to compute the income-tax in terms of s. 115J of the Act. The question that is referred to us for decision arises out of the objection raised by the assessee that the AO could not reopen the assessment in exercise of power under s. 147 of the Act in the circumstances of the case. Under s. 147 of the Act the AO can bring to assessment any income chargeable to tax that has escaped assessment for the concerned year. The deemed income in terms of s. 115J of the Act was chargeable to tax when the AO gave effect to the order of the CIT (A). Thus the income equal to thirty per cent of the book profit escaped assessment within the meaning of s. 147 of the IT Act. Since such income at thirty per cent of the book profit in terms ofs. 115J of the Act chargeable to tax had escaped assessment, the AO, in our view, had jurisdiction under s. 147 of the Act to proceed to bring that income to assessment after issuing a notice under s. 148 of the Act.
22. In Alleppey Co. Ltd. vs. CIT 1976 KLT 57, a Division Bench of this Court, after referring to the decision of the Supreme Court in CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC) : TC 51R.423 held that information which was made the foundation for reassessment may well be obtained from the material on record or the facts disclosed thereby or from other enquiry or research into the facts or law, even if this could well have been obtained on the earlier occasion. This Court also referred to an earlier decision of a Division Bench of this Court in United Mercantile Co. Ltd. vs. CIT (1967) 64 ITR 218 (Ker) : TC 51R.1403 and the decision of the Madras High Court in Salem Provident Fund Society Ltd. vs. CIT (1961) 42 ITR 547 (Mad) : TC 51R.1411. This Court also relied on the decision of the Supreme Court in CWT vs. Imperial Tobacco Co. of India Ltd. (1966) 61 ITR 461 (SC) : TC 66R.554 in support of the proposition that if there is information leading to the belief that income has escaped assessment, the mere fact that this information has resulted in a change of opinion will not make s. 34inapplicable. The change of opinion is not sufficient for initiating proceedings under s. 34 only when such change of opinion is the result of a different method of reasoning and not based on information. In the case on hand, when he gave effect to the order of the CIT(A) and passed the order, the material available was sufficient information to enable the AO to invoke s. 147 of the Act and to rope in the income in terms of s. 115J of the Act to assessment on the ground that the same had escaped assessment. The fact that the information was available even when he originally gave effect to the order of the CIT(A) does not preclude the exercise of jurisdiction under s. 147 of the Act since this was not a case where there was a change of opinion as the result of a different method of reasoning. This, in our view, was a case where the income at thirty per cent of the book profit of the company had escapedassessment and the same could be brought to tax in exercise of power under s. 147 of the Act. In view of this conclusion, the question referred to us in IT Ref. No. 293 of 1999 at the instance of the assessee has also to be answered against the assessee and in favour of the Revenue. We are not in a position to agree with the submission of learned counsel for the assessee that this was merely a case of change of opinion by the AO and consequently s. 147 of the Act could not be invoked by him. In the light of our discussion as above, all the questions referred to us in these tax references have to be answered in favour of the Revenue and against the assessee. Consequently we answer all the questions referred to us for opinion in favour of the Revenue and against the assessee.
[Citation : 253 ITR 378]
