COMMISSIONER OF INCOME TAX Vs. KALPETTA ESTATES LTD

JUDGEMENT

(1.) This appeal is preferred by the Commissioner of Income Tax, Trivandrum. The following questions of law have been came up for consideration:

(2.) When the matter came up for hearing either sides submit that the question has been dealt with by the Apex Court in Karnataka Small Scale Industries Development Corporation Ltd. v. Commissioner of Income Tax (258 ITR 770). The Apex Court in Karnataka Small Scale Industries Development Corporation case (supra) affirmed the decision of the Karnataka High Court in Widia (India) Ltd. v. CIT ( 2000 (242) ITR 678 ). Referring to the various circulars issued by the department and after examining the scope of S.115J of the Income Tax Act, the Apex Court held that S.115J involves two processes. Firstly, an Assessing Authority has to determine the income of the company under the provisions of the Income Tax Act. Secondly, the book profit is to be worked out in accordance with the Explanation to S.115J(1) and it is to be seen whether the income determined under the first process is less than 30 percent of the book profit. It was noticed that S.115J would be invoked if the income determined under the first process is less than 30 per cent of the book profit. The explanation to sub-s.(1) of S.115J gives the definition of 'book profit' by incorporating the requirement of S.205 of the Companies Act in the computation of the book profit. Considering the various other decisions, ultimately, the Apex Court held that all that S.115J(2) does is to carry forward the balance of the unabsorbed deductions in the relevant previous year to the next year. The court held that S.115J allows only the unabsorbed losses, depreciation, investment allowance etc. which would otherwise have been carried forward to be carried forward. The court held that the allowances need not have been quantified under sub-s.(1) of S.115J to be carried forward under sub-s.(2). This being the legal position, we are inclined to allow the appeal and the appeal is answered in favour of the revenue and against the assessee. Order be communicated to the Tribunal.