ITAT, COCHIN BENCH Computation of taxable income u/s 115JB of IT Act, 1961

Computation of taxable income u/s 115JB of IT Act, 1961

An assessee could claim by way of deduction u/s 115JB either the loss or depreciation whichever is less and not both

ITAT, COCHIN BENCH, COCHIN

DCIT

v.

Costal Resorts (I) Ltd.

ITA No. 667/Coch/2007

September 1, 2008

RELEVANT EXTRACTS:

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7. We heard Shri V.M.Thyagarajan,DR, appearing for the
Revenue and Shri P.K.Sasidharan,C.A, appearing for the
respondent-assessee. Section 115JB provides for special provision for payment of tax of certain companies. Those companies are by and large recognized, as companies which have earned operational profits in the previous year relevant to the assessment year but not liable to pay income tax under the normal provisions of computation as those companies are entitled for very many deductions and reliefs under the various provisions of the Income-tax Act, 1961. It is in that sense it is always stated that profit making and dividend declaring companies who do not pay taxes under the normal provisions of computation are brought under MAT Scheme by introducing the concept of book profit. The law stated in section 115JB is provided the method of computation of the taxable income of an assessee company on the basis of book profits. Various positive and negative adjustments are provided therein. In Explanation (1) to section 115JB sub-section (2), the law has
stated about eight items are to be adjusted in the profit and loss account of an assessee, prepared under the provisions of the Companies Act,1956. Item (iii) under the above Explanation provides as under:

"(iii) The amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account.,

the loss shall not include depreciation;

the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or".



A plain reading of the above clause states that for the purpose of adjustment under section 115JB, ordinary business loss and statutory depreciation have been differentiated and that is why the Explanation says that the loss shall not include depreciation. It means the business loss and depreciation for the purpose of adjustment under section 115JB has to be considered separately as independent items. The law further provides that what is to be adjusted by way of deduction is the amount of loss brought forward or unabsorbed depreciation, whichever is less. Therefore, it is crystal clear that an assessee could claim by way of deduction either the loss or depreciation whichever is less and not both. In the present case, the assessee has claimed both the brought forward loss and the unabsorbed depreciation, which is patently against the express provisions of law. In order to justify such a claim, the assessee has relied on the macro principles governing the introduction of MAT Scheme in an academic sense. Even though the economics behind the introduction of MAT Scheme is discussed at different levels, the administration of section 115JB is not guided by such discussions and viewpoints but on the other hand guided by strict provisions of law contained in section 115JB. The rules regarding the computation of book profit under section 115JB have been strictly discussed in the statute and that law cannot be re-placed by academic or philosophical discussions on law.

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