Book profit computation and depreciation treatment under company law and income tax principles, with unabsorbed depreciation deductible.

For computation of book profit under Section 115J of the Income-tax Act, 1961, the article explains that "loss" in the proviso to Section 205(1)(b) of the Companies Act, 1956 is to be read as the figure after accounting for depreciation. On that reading, unabsorbed depreciation cannot be excluded from the loss figure in a way that would reduce the deduction available from book profit. The note further states that treating loss as excluding depreciation would conflict with the binding Supreme Court position, and that the deduction of unabsorbed depreciation from book profit was upheld against the Revenue.

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Issues: Whether, for the purpose of computing book profit under Section 115J of the Income-tax Act, 1961, the term "loss" in the proviso to Section 205(1)(b) of the Companies Act, 1956 includes depreciation so that unabsorbed depreciation can be deducted even where the business loss is lower than the depreciation amount.

Analysis: The controlling principle applied was that "loss" under the proviso to Section 205(1)(b) of the Companies Act, 1956 must be understood as the figure arrived at after accounting for depreciation. On that basis, the computation under Section 115J of the Income-tax Act, 1961 does not permit excluding depreciation from the loss figure in a manner that would deny deduction of the relevant unabsorbed depreciation. The Tribunal's approach of treating loss as excluding depreciation was held to be inconsistent with the binding Supreme Court ruling.

Conclusion: The question was answered against the Revenue and the deduction of unabsorbed depreciation from book profit was upheld.

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