Deemed 30% book profit under section 115J triggers company advance tax obligation under sections 207-219 and interest under section 215(5)

HC held that where section 115J deems a company's total income to be 30% of book profit, the assessee must pay advance tax under the scheme of sections 207-219 and section 215(5) governs assessed tax; any default attracts interest. The Court ruled the legal fiction in section 115J must be given full effect, making levy of interest on deferred or unpaid advance tax inescapable, and rejected any attempt to avoid or partially apply the statutory advance-tax obligation created for companies with deemed income under section 115J.

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Issues involved: Interpretation of special provisions under section 115J of the Income-tax Act, 1961 regarding computation of book profit and taxable income for a company.

Summary:
The High Court judgment pertains to a reference by the assessee regarding the application of section 115J of the Income-tax Act, 1961, for the assessment year 1989-90. The assessee claimed deduction of past losses from the book profit based on the Explanation to section 115J. The Assessing Officer disallowed the benefit of set off of unabsorbed depreciation, resulting in a different taxable profit calculation. The Commissioner of Income-tax (Appeals) disagreed with the Assessing Officer's decision and allowed the set off, adjusting the book profit accordingly. However, the Revenue appealed to the Income-tax Appellate Tribunal, which overturned the Commissioner's decision. The Tribunal held that interest under sections 234B and 234C was chargeable and that the assessee was liable to pay advance tax. The Appellate Tribunal referred two questions of law to the High Court for consideration.

Regarding the first question, the High Court analyzed the legal fiction created by section 115J and the statutory requirement of paying advance tax. The Court emphasized the importance of interpreting the legal fiction in a manner that aligns with the statutory scheme. Referring to relevant provisions and case law, the Court concluded that under the circumstances, the assessee was obligated to pay advance tax as per the statute.

Addressing the second question, the Court delved into the interpretation of 'loss' for deduction to arrive at book profit as per section 115J. Citing a Supreme Court decision, the Court clarified that 'loss' refers to the amount arrived at after considering depreciation provided in the profit and loss account. The Court reversed the decision of the Tribunal and ruled in favor of the assessee on this aspect.

In conclusion, the High Court answered the first question in favor of the Revenue and the second question in favor of the assessee. The Court highlighted the importance of giving full effect to legal fictions and statutory provisions in tax assessments. No costs were awarded in this reference.

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