1995-VIL-208-ITAT-
Equivalent Citation: ITD 055, 013,
Income Tax Appellate Tribunal CALCUTTA
Date: 31.05.1995
SINGH ALLOYS AND STEEL LIMITED.
Vs
DEPUTY COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : N. PACHUAU., R. V. EASWAR.
JUDGMENT
Per R. V. Easwar, J.M. - This appeal filed by the assessee relates to the assessment year 1991-92, for which the accounting year ended on 31-3-1991. The appeal arises out of the assessment made under section 143(3) of the Act. The only issue in dispute is regarding the consequences arising from the applicability of the provisions of section 115J of the Act and their impact on the assessee's right to carry forward and set off losses and allowances.
2. We may start with a brief resume of the facts. The following unabsorbed depreciation/losses were available to the assessee for being brought forward to the assessment relating to the assessment year 1989-90 :
Asst.year Amount brought forward
1983-84 Rs. 1,53,873
1986-87 Rs. 13,28,917
1987-88 Rs. 14,45,356
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Total : Rs. 29,28,146
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The assessment for the assessment year 1989-90 was made by invoking the provisions of section 115J and the assessee's total 'income in accordance therewith was determined at Rs. 9,74,816. For the assessment year 1990-91 also the total income was similarly determined at Rs. 6,73,920. The provisions of section 115J were omitted with effect from 1-4-1991, that is from the assessment year 1991-92, which is the year under appeal. In the year under appeal while completing the assessment under section 143(3), the assessee claimed that an amount of Rs. 15,78,210 was available to it as unabsorbed investment allowance and unabsorbed business loss/depreciation for being set off against the income for the assessment year 1991-92. The Income-tax Officer, however, set off only Rs. 72,560 which represented unabsorbed investment allowance against the income for the assessment year 1991-92. According to him, in the assessment years 1989-90 and 1990-91 the entire unabsorbed business losses/depreciation and the investment allowance had been adjusted, save and except the investment allowance of Rs. 72,560 which alone could be set off against the income for the year under appeal. He, therefore, rejected the assessee's claim that it was eligible for set off of the unabsorbed losses and allowance amounting to Rs. 15,78,210.
3. On appeal, the view of the ITO was upheld.
4. In the further appeal it is submitted by Mr. Bajoria, ld. counsel for the assessee that the view taken by the revenue authorities relating to the impact of section 115J is erroneous. He submitted that the section provided only for a limited fiction, namely, that in case the total income of a company, computed under the provisions of the Income-tax Act is ascertained to be less than 30 per cent of the company's book profit, the total income of the company shall be deemed to be an amount equal to 30 percent of the book profit and income-tax shall be charged accordingly. Mr, Bajoria submitted that the result of application of section 115J was not that the other provisions of the Act relating to the carry forward of allowances and losses should be thrown out. According to him, even where the income of the company for a particular assessment year is determined by applying the deeming provision of section 115J, the losses and allowances relating to that year are eligible to be carried forward to the subsequent year or years as made clear by sub-section (2) of section 115J. He, therefore, submitted that the position with regard to the losses and allowances brought forward from earlier years, in which years the provisions of section 115J were not in force, would be " a fortiori " and the assessee's right to have them brought forward and set off in the subsequent years, where possible, would not be affected. Mr. Bajoria in this connection submitted that the right to carry forward the losses and allowances was conferred upon the assessee by the various provisions of the Act and thus became a vested right which could be taken away only by clear words in the Statute which are missing. He contended that section 115J provided only for one fiction for determining the total income of a company and the section did not contain a second fiction that if the total income is so computed, the allowances and losses of the past years which were available to the assessee for being set off in the subsequent years would also be deemed to have been allowed against the income fictionally determined. Mr: Bajoria, therefore, submitted that even though in the assessment years 1989-90 and 1990-91 the assessee's income was determined under section 115J of the Act at 30 per cent of its book profits, there has to be necessarily a computation of the income in accordance with the usual provisions of the Act and in such computation past losses and allowances have to be adjusted and whatever remains unadjusted would be permitted to be carried forward to the subsequent years and adjusted, wherever possible. It was argued by Mr. Bajoria that in any event where two views are possible on the interpretation or impact of a particular statutory provision, the view which favours the tax-payer should be adopted. In the course of his arguments Mr. Bajoria also cited certain authorities which we will presently refer to.
5. On the other hand, the ld. representative for the department strongly supported the orders of the revenue authorities. He contended that the fiction contained in section 115J should not be limited to the determination of the assessee's income at 30 per cent of its book profits but should be given full effect and if full effect is given to the fiction, it would be logical also to deem that all the past losses and allowances have been taken care of and the income that is fictionally determined is over and above the adjustment of the past losses and allowances. If this principle is borne in mind, the result would be that the brought forward losses and allowances cannot be set off against the income for the assessment year under appeal, since they are deemed to have been adjusted in the assessments for the assessment years 1989-90 and 1990-91 where the provisions of section 115J were invoked. He, therefore, submitted that only the unabsorbed investment allowance of Rs. 72,560 could be set off against the income for the year under appeal and not Rs. 15,78,210 as claimed by the assessee.
6. We have given anxious consideration to the arguments advanced before us. In our opinion, the contentions of Mr. Bajoria have to prevail.
7. We may start with the total brought forward losses and depreciation allowance of Rs. 29,28,146, the details of which we have already given earlier. The claim of the assessee is as follows :
Assessment year 1989-90
Income-computed as per the provisions of the IT Act. Rs. 28,79,232
Less : Past losses and allowances adjusted out of Rs. 29,28,146 Rs. 28,79,232
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Total income : NIL
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Income as per 115J(1) of the Act that is
30 per cent of the book profit Rs. 9,74,816
The contention of the assessee is that to the extent of the income taxed under section 115J(1), there has been no adjustment of the past losses and allowances. Thus, there has been an adjustment of the past losses and allowances only to the extent of Rs. 28,79,232 (-) Rs. 9,74,816 Rs. 19,04,416. Therefore, according to the assessee, out of the past losses of Rs. 29,28,146 set off was allowed only to the extent of Rs. 19,04,416 and the balance to be carried forward is Rs. 10,23,730. This figure can be taken as 'A'.
Assessment year 1990-91
Income computed as per the provisions of the IT Act. Rs. 21,99,039
Less : Investment allowance for the year (out of Rs. 22,71,599) Rs. 21,99,039
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Total income : NIL
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Income as per 115J(1) of the Act, ie.
30 per cent of the book profit Rs. 6,73,920
The contention of the assessee is that to the extent of the income taxed under section 115J(1), there has been no adjustment of the investment allowance. Thus, there has been an adjustment of the investment allowance to the extent of Rs. 21,99,039 (-) Rs. 6,73,920 = Rs. 15,25,119. Therefore, according to the assessee, out of the investment allowance of Rs. 22,71,599, only a sum of Rs. 15,25,119 has been adjusted, leaving a balance of Rs. 7,46,480 to be carried forward to the subsequent years. This figure can be taken as 'B'.
8. Thus, according to the assessee, it is eligible to carry forward the following two amounts to the assessment year 1991-92 :
Unabsorbed losses/depreciation* Rs. 8,23,730**
Unabsorbed investment allowance (figure marked 'B' above) Rs. 7,46,480
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Total income : Rs. 15,78,210
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*(figure marked 'A' above)
" Though the correct figure is Rs. 10,23,730 due to mistake, the assessee has taken it at Rs. 8,23,730.
9. According to the ITO, however, since the assessments for the assessment years 1989-90 and 1990-91 were made by invoking section 115J(1 of the Act, there was no question of bringing forward the unabsorbed depreciation/losses amounting to Rs. 29,28,146. Regarding investment allowance relating to the assessment year 1990-91, he held that only Rs. 72,560 remained to be absorbed (Rs. 22,71,599 (-) income of Rs. 21,99,039 computed under the normal provisions of the Act). He set off the same against the income for the year under appeal. The action of the ITO left a sum of Rs. 14,95,650 unadjusted. This precisely is the grievance of the assessee.
10. On the aforesaid facts, we now proceed to a consideration of the arguments advanced by both the sides. Section 115J was introduced as a separate Chapter (Chapter XII-B) of the Income-tax Act by the Finance Act, 1987, with effect from 1-4-1988. The section remained in operation for three years up to the assessment year 1990-91. It ceased to have effect from 1-4-1991 as per amendment made by the Finance Act, 1990. Now, the section was introduced, as per the CBDT's Circular No. 495 dated 22-9-1987, " as a measure of equity ".
It was thought that as a result of various tax concessions and incentives, certain companies which were making huge profits and were declaring substantial dividends did not pay any income-tax. It was, therefore, thought necessary that such companies should be made to suffer income-tax on some basis. This is the rationale behind the provision. In one sense, the section is not entirely a new concept, since earlier the Income-tax Act contained a similar provision in section 80VVA which was in operation for the assessment years 1984-85 to 1987-88. Be that as it may, the provisions of section 115J(1), contained a fiction to the effect that in the circumstances stated therein, the company would be liable to pay tax on the footing that its total income would be an amount equal to 30 per cent of its book profits. The controversy arises because of the non obstante clause.Section 115J(1) is stated to operate " notwithstanding any thing contained in any other provision of this Act ". Whereas Mr. Bajoria submitted that the function of the non obstante clause is only for the limited purpose of deeming the total income of the company to be an amount equal to 30 per cent of its book profits and nothing more, the argument of the Ld. Departmental Representative, supported by the orders of the departmental authorities, was that all other provisions of the Income-tax Act are to be ignored while applying the provisions of section 115J. Those provisions include the provisions for carry forward of the losses and allowances and in view of the non obstante clause, these provisions also have to be ignored. These provisions, according to the Ld. Departmental Representative have to be applied only for the limited purpose of finding out whether the total income as computed under the various provisions of the Act is below 30 per cent of the book profits of the company. Once this exercise is done, all those provisions should be given the go-by, if it is found that the total income is below 30 per cent of the book profit. Admittedly, the total income computed under the provisions of the Income-tax Act for the assessment years 1989-90 and 1990-91 was less than 30 per cent of the assessee's book profits and, therefore, the assessee was charged to tax on 30 per cent of its book profits, by applying section 115J. The application of section 115J for these years automatically excluded the other provisions of the Act, including those relating to the carry forward and set off of the past losses and allowances and, therefore, there was no question of those losses and allowances getting revived in the year under appeal. The difficulty in accepting the argument of the ld. Departmental Representative is created by sub-section (2) of section 115J. This sub-section states that nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the year in which the provisions of section 115J are applied to be carried forward to the subsequent years under section 32(2), section 32A(3), section 72(1)(ii) or section 73 or section 74, etc. Thus, in the very year in which the deeming provisions of section 115J(1) are applied and the total income of the company is deemed to be an amount equal to 30 per cent of its book profits, sub-section (2) preserves the assessee's right to have the unabsorbed depreciation, unabsorbed investment allowance and unabsorbed business loss to be computed and carried forward to the subsequent years. Therefore, it would be illogical to assume that in the years where section 115J(1) was not at all applicable, the provisions relating to the carry forward of the aforesaid allowances and losses should be ignored and given a go-by. To our mind, sub-section (2) appears to have been introduced to set at rest doubts that may arise out of the application of the deeming provision contained in sub-section (1). It may be possible to argue, as it was done on behalf of the department in the present case, that because the company has been asked to pay tax on 30 per cent of its book profits by applying section 115J(1), it will not be eligible to carry forward the depreciation, investment allowance, business loss, etc., for that year to the subsequent years. It is precisely to put to rest such doubts that sub-section (2) was enacted, in our opinion. It was clarified that no such thing would happen and that the consequence of applying the deeming provisions of sub-section (1) would not be that the assessee-company would also lose its right to have the aforesaid allowances and losses for that year determined and carried forward to the subsequent years. As stated earlier, if that is the result even in respect of the year in which section 155J(1) is applied, the position would be " a fortiori " as contended by Mr. Bajoria, for the years where section 115J had no application. In the present case, the losses and depreciation had been computed for the assessment years 1983-84, 1986-87 and 1987-88. Section 115J was not applicable in those years. When these losses and allowances were computed, a corresponding right enured in the assessee, and such right was, in our opinion, rightly described by Mr. Bajoria as a vested right. Such a vested right cannot, in our opinion, be taken away without express sanction of the law. We were not referred to any such express words in section 115J authorising the taking away of the right. It was argued on behalf of the department that express words for this purpose are not necessary and once sub-section (1) of section 115J provided for the deeming of the total income of the assessee-company to be an amount equal to 30 per cent of the book profits, by implication it followed that the vested right had been taken away, since what would have been normally available to the assessee for set off against the income was not being given. We are certain that such a result or consequence should not be permitted to follow as a matter of course or by implication. It has to be remembered that what sub-section (1) of section 115J provided for was only a deeming limited to the ascertainment of the total income of the assessee on which it should pay tax. There is no second deeming in the sub-section itself to the effect that once the total income is so determined, the assessee should forget about all the past losses and allowances and that it would be deemed that all such losses and allowances had been taken care of. We have already noticed this argument of Mr. Bajoria. In support of this argument, he cited the following judgments :
1. CIT v. Ajax Products Ltd.[1965] 55 ITR 741(SC).
2. Madeva Upendra Sinai v. Union of India [1975] 98 ITR 209 (SC).
3. CIT v. Mother India Refrigeration Industries P.Ltd [1985] 155 ITR 711 (SC).
4. CIT v. Justice R.M. Datta [1989] 180 ITR 86(Cal.).
These authorities strongly support the contention canvassed by Mr. Bajoria. Apart from the decisions cited by him, we notice that right from the decision in Bengal Immunity Co. Ltd. v. State of Bihar AIR 1955 SC 661 and from CIT v. Amarchand Saraf's case 44 ITR 442 (sic) right up to the case of Mother India Refrigeration Industries P. Ltd. the Supreme Court has consistently cautioned that legal fictions should not be stretched beyond the purpose for which they were enacted. The fiction enacted by the Legislature cannot be enlarged in scope by reading into it many words which are not there. A Full Bench of the Allahabad High Court in the case of CIT v. Nathimal Gaya Lal [1973] 89 ITR 190 at page 198 held, after referring to certain English cases, that a fiction should never be used to work injustice or injury because its operation is to prevent a mischief or remedy an inconvenience that might result from the general rule of law. The Full Bench observed at page 197 of the report that a provision creating a legal fiction should not be interpreted in such a manner as to work injustice to a party, for even when the court steps into the world of legal fantasy, the principle of equity and justice cannot be lost sight of. We have already seen that section 115J itself was introduced as a measure of equity, solely for the purpose of extracting tax from a category of assessees who, even while earning substantial profits, were not obliged to pay tax in view of the concessions and benefits availed of by them. The purpose of the section was thus limited to extracting tax for the particular year in which the circumstances stated in sub-section (1) existed. We are not prepared, under these circumstances and having regard to the judicial pronouncements on the scope of the legal fiction, to extend the same and hold, by putting words which are not there, that where the provisions of section 115J(1) are applied, there is an end to the adjustment of the past losses and allowances and further that there is no revival of the losses and allowances in a year where the provisions of section 115J are not attracted. To hold so would be to treat the assessee's vested right in a cavalier fashion not authorised by the Legislature.
11. Turning now to the contention of the revenue that since sub-section (1) of section 115J opens with a non obstante clause, the other provisions of the Act are automatically ruled out or excluded, we are afraid that the same cannot be accepted if due regard is had to the true effect of the non obstante clause. Recently the Supreme Court had occasion to consider the scope and purport of the non obstante clause in the case of Bharat Hari Singhania v. CWT [1994] 207 ITR 1. At page 24 of the report, the Supreme Court held that the scope and purport of a non obstante clause have to be ascertained by reading it in the context of the provisions and consistent with the scheme of the enactment. As already noticed, the provisions of section 115J had a specific purpose, namely, that of collecting tax from affluent companies which were not paying income-tax in view of the various benefits and deductions available to them under the various provisions of the Act. A summary scheme of assessment had to be devised, authorising the Income-tax Officer to collect tax from such companies and this scheme found expression in sub-section (1) of section 11 5J. Thus, the provision is limited in its scope and purport, having regard to the object of the section. The non obstante clause, therefore, only means that notwithstanding that normally a company is to pay tax under section 4 of the Income-tax Act, which is the charging section, on the total income of the previous year computed in accordance with the provisions of the Act, if such total income computed under the Act is less than 30 per cent of the company's book profits, then it shall pay tax on 30 per cent of its book profits which would be deemed to be its total income. The computation provisions of the Act are ignored once the result of such computation discloses that the total income goes below 30 per cent of the company's book profit. In such a situation, 30 per cent of book profits are deemed to be the total income of the company. The non obstante clause does not have the effect of either taking away the vested right to carry forward the past losses and allowances once and for all. Such a drastic result should not be allowed to follow from the use of the non obstante clause, if regard is had to the scope and purport of the said clause and by reading it in the context of the provision and consistent with the scheme of the section. We are, therefore, unable to accept the contention of the revenue that by the use of non obstante clause there is an end of the assessee's right to adjust the past losses and allowance in a year where the provisions of section 115J have been applied.
12. In the present case, the calculations made by the assessee show that to the extent of the income assessed under section 115J(1) of the Act for the assessment years 1989-90 and 1990-91, the assessee is prepared to concede that set off has been actually allowed. It is only with regard to the balance that the assessee claims set off in the assessment year 1991-92. We have already extracted the assessee's computation. The computation makes this position clear. In accordance with the same, the assessee would be entitled to have the following allowances and losses brought forward from the earlier assessment years set off against the income for the assessment year under appeal :
1. Unabsorbed losses/allowances relating to the assessment years 1983-84, 1986-87 and 1987-88 Rs. 8,23,730
2. Unabsorbed investment allowance relating to the assessment year 1990-91 Rs. 7,46,480
13. It may be added here that in any case the investment allowance relating to the assessment year 1990-91, to the extent to which it remains unabsorbed has to be absorbed against the income for the assessment year 1991-92, in accordance with section 115J(2). This sub-section expressly preserves the assessee's right to have the investment allowance relating to the year in which section 115J(1) is applied, determined and carried forward to the subsequent years.
14. For the aforesaid reasons, we are of the view that the departmental authorities were not justified in rejecting the assessee's claim. We direct the ITO to allow the set off as prayed for by the assessee. We may clarify that there appears to be some arithmetical mistake in the figures relating to the assessment year 1989-90 which may be corrected while giving effect to our order. With these observations, we allow the appeal.
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