Book profit computation under section 115J is confined to certified accounts and limited statutory adjustments.

Under section 115J, book profit had to be taken from the company's certified profit and loss account, and the Assessing Officer could not re-open the accounts or alter net profit except for the specific adjustments authorised by the Explanation; the assessee was therefore given relief on that point. The text also states that dividend income arising from investment in Unit Trust of India units was includible in the profits of the eligible business under section 32AB because the activity was treated as business, and that buying and selling UTI units was not speculative business under section 73 since the statutory fiction in the UTI Act could not be extended to treat units as shares.

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Issues: (i) Whether, while computing tax under section 115J, the Assessing Officer can go behind the profit and loss account certified under the Companies Act and re-examine its correctness beyond the adjustments specifically permitted by the Explanation; (ii) whether dividend income from investment in units of the Unit Trust of India can be included in computing the profits of the eligible business under section 32AB; and (iii) whether the business of buying and selling units of the Unit Trust of India is a speculative business for the purpose of section 73.

Issue (i): Whether, while computing tax under section 115J, the Assessing Officer can go behind the profit and loss account certified under the Companies Act and re-examine its correctness beyond the adjustments specifically permitted by the Explanation.

Analysis: Section 115J created a deeming scheme under which a company's book profit, as shown in accounts prepared in accordance with Parts II and III of Schedule VI to the Companies Act, formed the basis of taxation. The requirement of compliance with the Companies Act was treated as a limited statutory mandate to use accounts duly maintained, audited, approved, and filed under that law. The Assessing Officer was held not to have authority to conduct a fresh inquiry into the correctness of the accounts or to substitute his own view of the profits, except to make the increases and reductions specifically permitted by the Explanation to section 115J.

Conclusion: The question was answered in favour of the assessee. The Assessing Officer had no jurisdiction to go behind the net profit shown in the certified profit and loss account except to the extent expressly provided in the Explanation.

Issue (ii): Whether dividend income from investment in units of the Unit Trust of India can be included in computing the profits of the eligible business under section 32AB.

Analysis: Section 32AB was applied on the footing that the assessee's activity in buying and selling units was part of its business and was intertwined with its manufacturing business. Once the investment activity was found to be a business activity, the fact that the income was shown under another head did not deny the statutory benefit. The business did not fall within the excluded categories in section 32AB(2), and therefore the income generated from that business activity qualified for inclusion in the computation of profits of the eligible business.

Conclusion: The question was answered in favour of the assessee. Dividend income from the Unit Trust of India units was includible in computing the profits of the eligible business under section 32AB.

Issue (iii): Whether the business of buying and selling units of the Unit Trust of India is a speculative business for the purpose of section 73.

Analysis: The legal fiction in section 32(3) of the Unit Trust of India Act was confined to treating the Trust as a company and distributions to unit holders as dividends. That fiction was not extended to treat units as shares. Since the statutory fiction could not be enlarged beyond its express purpose, the business of purchase and sale of units could not be classified as a business in shares for invoking the speculation rule in section 73.

Conclusion: The question was answered against the Revenue and in favour of the assessee. The purchase and sale of units of the Unit Trust of India was not a speculative business under section 73.

Final Conclusion: The assessee succeeded on the first issue and the Revenue succeeded on the remaining issues. The appeals were disposed of accordingly, with the assessee obtaining partial substantive relief.

Ratio Decidendi: Under section 115J, the Assessing Officer is bound by the company's certified accounts and may make only the statutory adjustments expressly authorised by the provision; a limited statutory fiction cannot be expanded beyond its stated purpose.

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