High Court allows set off of unabsorbed losses against income for 1991-92

The High Court ruled in favor of the assessee, allowing the set off of unabsorbed losses/allowances against income for the assessment year 1991-92. The Court held that section 115J(2) does not override section 115J(1) and emphasized the legislative intent to protect the assessee from suffering due to deemed income provisions. The Tribunal's decision was upheld, highlighting an arithmetical mistake by the Assessing Officer and ensuring the assessee's right to carry forward losses for future set off.

---

---

Issues:
Interpretation of section 115J(2) of the Income-tax Act, 1961 regarding set off of unabsorbed losses/allowances against income for a specific assessment year.

Analysis:
The case involved a question referred by the Tribunal regarding the eligibility to set off unabsorbed losses/allowances against income for the assessment year 1991-92, under section 115J(2) of the Income-tax Act, 1961. The Tribunal allowed the claim of the assessee, stating that the provisions of sub-section (2) clarified that the right to carry forward losses/allowances would not be lost due to the application of sub-section (1) of section 115J. Additionally, the Tribunal highlighted an arithmetical mistake made by the Assessing Officer in adjusting losses in previous years.

The Revenue argued that the income should be determined as per sub-section (1) of section 115J, emphasizing the non-obstante clause in that subsection. Sub-section (1) of section 115J provides a fiction for deemed income, specifically for companies falling within its scope. It states that if the computed income is less than 30% of the book profit, 30% of the book profit shall be considered as deemed income for tax purposes.

The High Court analyzed the provisions of section 115J and concluded that sub-section (2) does not contradict or override sub-section (1). The court emphasized that the scheme of section 115J ensures that any loss suffered by the assessee due to the deemed income calculation can be carried forward and set off against income in subsequent years. It was held that the legislative intent was to protect the assessee from suffering due to the deemed income provision.

In light of the above analysis, the High Court found no fault in the Tribunal's decision and ruled in favor of the assessee, allowing the set off of unabsorbed losses/allowances against the income for the assessment year 1991-92. The reference was disposed of accordingly, with the decision binding on the parties based on a signed copy of the order.

---