High Court Of Kerala
CIT vs. Dynamic Orthopedics (P) Ltd.
Sections 115J, COMP 349, COMP 350, COMP 355
Asst. Year 1990-91
S. Sankarasubban & K. Padmanabhan Nair, JJ.
IT Appeal No. 66 of 1999
5th July, 2002
Counsel Appeared
P.K.Ravindranatha Menon & George K. George, for the Appellant : P. Balachandran, for the Respondent
JUDGMENT
S. SANKARASUBBAN, J. :
This appeal has been filed by the CIT, Cochin, under s. 260A of the IT Act, 1961 (hereinafter referred to as the ‘Act’), against the order passed by the Tribunal, Cochin Bench, Cochin in ITA No. 115/Coch/93 dt. 13th Jan., 1999. The assessment year in question is 1990-91. The appellant is a private limited company engaged in manufacturing and sale of orthopaedic appliances like compression bandages, fixation bandages, etc. In the return of income filed, the assessee returned an income of Rs. 1,50,730. In the P&L a/c depreciation was provided at the rates specified in the IT Rules. While completing the assessment of income, the AO recomputed the book profit for the purpose of s. 115J of the Act after allowing depreciation as per Sch. XIV of the Companies Act r/w
s. 350 at lower rate. Against that order, the assessee took up the matter before the CIT(A). The CIT(A) allowed the assessee’s appeal. The Department took up the matter before the Revenue (sic-Tribunal). The Revenue (sic- Tribunal) dismissed the appeal. It is against that the present appeal is filed.
2. The only question that arises for consideration is whether on the facts and in the circumstances of the case, is not the book profit estimate under s. 115J with depreciation as per the provisions of the IT Act in accordance with law and the Tribunal is justified in interfering with the same ? For this purpose, we will have to look into s. 115J of the Act. Sec. 115J of the Act states 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 (hereafter 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 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)”. Clause (1A) of the Act (sic-section) says that 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. The argument of the learned counsel for the assessee is that the respondent being a private company, the preparation of its P&L a/c for the relevant previous year in accordance with the provisions of Part II of Sch. VI to the Companies Act is not applicable. Sec. 350 of the Companies Act states as follows : “The amount of depreciation to be deducted in pursuance of cl. (k) of sub-s. (4) of s. 349 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 this Act or immediately thereafter and at the end of each subsequent financial year at the rate specified in Sch. XIV”. What is submitted by the learned counsel is that under s. 355 of the Companies Act, nothing in s. 349 shall apply to a private company unless it is applicable to the private company. Hence, learned counsel contends that his client has calculated the depreciation on the basis of the provisions of the IT Act. We are afraid, this explanation cannot be accepted. Sec. 115J has to be looked into for the following reasons : “It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called ‘zero-tax’ highly profitable companies deserves attention. In 1983, a new s. 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a ‘minimum corporate tax’ on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profits. In other words, a domestic widely held company will pay tax of at least 30 per cent of its book profits. This measure will yield a revenue gain of approximately Rs. 75 crores”. Sec. 115J of the Act broadly makes applicable to the assertable (sic-allowable) depreciation at the rates prescribed in Sch. VI. Thus, this provision is incorporated in the Act. Sec. 355 of the Companies Act cannot be made applicable in such cases. We are of the view that depreciation has to be calculated as stated in s. 350 of the Companies Act.
3. In the above view of the matter, we are of the view that the book profit estimate under s. 115J with depreciation shall be calculated on the basis of Sch. VI of the Rules (sic-Companies Act) and not as per the provisions of the Act. The order of the Tribunal to the above point is set aside and the appeal is allowed. The AO is directed to reassess on the basis of the provisions laid down above.
Appeal is disposed of as above.
[Citation : 257 ITR 446]
