Book profit under section 115J: "loss" includes depreciation, so the lower figure governs the deduction computation.

Section 115J adopts the Companies Act computation by legal fiction, so book profit must be determined under that framework rather than a narrow income-tax approach. In that setting, the word "loss" in the incorporated provision includes depreciation, because commercial profit or loss is ascertained only after providing for depreciation and unabsorbed depreciation forms part of loss. The deduction is therefore computed by comparing loss inclusive of depreciation with depreciation and taking the lower amount. The assessee is entitled to that treatment on this issue.

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Issues: Whether, for the purposes of computing book profit under section 115J, the expression "loss" in Explanation (iv) includes depreciation and therefore requires comparison of loss inclusive of depreciation with depreciation, taking the lesser amount.

Analysis: Explanation (iv) to section 115J(1A) incorporates by fiction the rule in clause (b) of the first proviso to section 205(1) of the Companies Act, 1956. On that footing, the computation of book profit under section 115J must follow the Companies Act framework rather than a narrow income-tax computation. The word "loss" in section 205(1)(b) was held to include depreciation, since commercial profit or loss can be ascertained only after providing for depreciation, and the statutory scheme contemplates setting off the lower of the loss or depreciation for the relevant years. The reasoning was supported by the view that unabsorbed depreciation forms part of loss and that a company's accounts under the Companies Act reflect loss after depreciation.

Conclusion: The expression "loss" includes unabsorbed depreciation, and the Assessing Officer must compute the deduction by taking the lower of the loss inclusive of depreciation and the depreciation amount. The assessee succeeds on this issue.

Ratio Decidendi: Where section 115J adopts the Companies Act computation by legal fiction, the term "loss" in the incorporated provision includes depreciation and book profit must be worked out on that basis.

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