TaxTMI 
TaxTMI 
1997 (10) TMI 58
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the IT Act, 1961, r/w s. 205(1)(b) of the Companies Act, 1956? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the prior period expenditure should not be excluded from the computation of book profits under s. 115J within the meaning of net profit given in the Explanation below s. 115J(1A) of the IT Act, 1961?" 2. The brief facts giving rise to this reference are that the assessee is a private limited company engaged in the manufacturing of oil from oil-seeds, etc. A return showing nil income was filed on 26th Dec., 1989. The AO while computing the income, proceeded to determine the same under the provisions of s. 115J of the IT Act, 1961. On examination of the accoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee's claim for prior period depreciation under s. 115J(1A) of the IT Act. Thereafter, the Revenue approached the Tribunal for referring the questions of law before this Court and, accordingly, the aforesaid questions of law have been referred for answer of this Court. 3. We have heard learned counsel for the parties and perused the records. Shri Abhay Sapre, learned counsel for the Revenue, has submitted that the whole idea behind enacting the provision of s. 115J of the IT Act was to check the tendency on the part of the company to show nil book profit; therefore, the said section was added so as to check this tendency on the part of the company to work out nil profit. The whole new scheme was enacted so that the company sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (g) and (h) is not credited to the P&L A/c, and as reduced by various amounts which have been worked out as given in cls. (i) to (iv). Clause (iv) says that the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act, 1956, are applicable. By virtue of cl. (iv), the provisions of the Companies Act stand incorporated under the IT Act. This statutory incorporation means that so far as loss or depreciation is concerned, which is to be given a set off against the profit and loss of the relevant previous year has to be in the manner provided under s. 205(1), cl. (b) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ays down the procedure for declaring dividend and in that case, it is pointed out that if the company has incurred any loss in any previous financial year or years, which falls or fall after the commencement of the Companies (Amendment) Act, 1960, then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both the cases after providing for depreciation in accordance with the provisions of sub-s. (2) or against both. Sub-s. (2) of s. 205 lays down ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hichever is less. It is notable that the use of words 'that year or those years ' lays emphasis on current depreciation and past depreciation. As it is obvious that without considering arrear depreciation, no company can declare dividend, the depreciation is, in our opinion, an essential charge to be set off against the profits before declaring dividend as no dividend can be declared out of capital under the Companies Act, 1956. It is notable that the provisions of s. 115J(1A) which provides for adjustment out of book profit do not provide for exclusion of arrear depreciation provided under the Companies Act. The AO has nowhere given a finding that the assessee is not entitled to extra shift allowance. Therefore, the extra shift allowance h....