TaxTMI 
TaxTMI 
1993 (12) TMI 83
X X X X Extracts X X X X
X X X X Extracts X X X X
....n doing so the Assessing Officer had considered the 'loss' to mean only 'loss' before absorbing or allowing depreciation. When the assessees took up the matter in appeals before the CIT (A), the CIT (A) allowed the appellate grounds by considering the word 'loss' as appearing in this particular section to mean the figure of loss after taking into consideration and debiting the depreciation also. He accordingly directed the Assessing Officer to recompute the working under section 115J afresh. 3. The department has come up in appeals before us against the abovementioned finding and direction of the CIT(A). Representatives of both sides, during the course of their arguments stated that this particular issue had been the subject-matter of consideration in a number of appeals before different Benches of the ITAT and that divergent decisions have been given on this issue by those different Benches. It has been gathered by us that the first decision in favour of the assessee and against the Department was delivered by the Single Member Bench of ITAT, Madras in the case of Buttwelded Tools (P.) Ltd. v. Asstt. CIT [1991] 39 ITD 432. It also appears from a study of the decision of the ITAT,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proper guidance from any of the judgments passed by the different Benches of the Tribunal so far on this particular issue inasmuch as the said judgments are conflicting in nature and we are not in a position to seek guidance from the judgment of the ITAT, Hyderabad Bench (Special Bench). We, therefore, propose to examine the entire issue on our own and to come to our own decision thereon on the basis of the facts of the case, legal points involved and the arguments of both the sides. 6. The word 'loss' has not been defined anywhere in the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). However, the two words 'profit' and 'loss' are very much In use in the commercial and accountancy world. These two words denote the result (positive or negative) of all the transactions taking place in a particular business concern over a specified period, which is generally taken as a year. Thus, 'loss' in the commercial and accounting sense means the excess of expenditure incurred by the business over the income earned by it during the period. When we take into consideration the expenditure, we must exhaust all the items of expense pertaining to that particular period, be they actual ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years." It would appear from the abovementioned provision that 'loss' in accordance with Chapter IV-D of the Income-tax Act, 1961, cannot be computed by including any portion of unabsorbed depreciation. If the transactions before charging depreciation result into a figure of profit, then, depreciation will have to be absorbed to that extent only to which it converts the profit into nil income and the balance portion of unabsorbed depreciation will have to be carried over separately to the next year and added back to the amount of current depreciation for that next year. On the other hand, if the net result before charging depreciation be a figure of loss, then, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the expression 'unabsorbed depreciation' has been used herein. The amount of loss or the amount of depreciation as referred to in this particular clause again represents such amount which is required to be set off against the profit as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 are applicable. The direct connection between the expressions used in this clause and clause (b) of the first proviso to section 205(1) of the Companies Act leads to the inevitable conclusion that the expressions 'the amount of the loss' and 'the amount of depreciation' are to be understood exactly in the same sense in which they had been used in the abovementioned proviso of the Companies Act. There cannot be any doubt about the fact that if we try to interpret these expressions with reference to the computation of 'business loss' and 'unabsorbed depreciation' as per the Act, the result would be anomalous one inasmuch as the connection of the expressions with the provisions of the Companies Act (which has clearly been stated in this clause to be applicable in this case) will be completely lost. 9. Let us now look into the provisions o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T, Hyderabad Bench, that if this particular contention, being that of the assessee, be accepted, it will lead to a case that always the amount of unabsorbed depreciation will have to be allowed. It is admitted that, that will actually be the case and it had also to be so. The Companies Act does not convey the concept of 'unabsorbed depreciation' like the Income-tax Act and hence, the Companies Act did not have any other way but to use the language as finding place in clause (b) of the first proviso to section 205(1) of the said Act. If the expression 'unabsorbed depreciation' was to be used, then, it would have been necessary to define the said expression separately. Instead of doing so, the Companies Act has come up with the proposition by using an apt language. This particular interpretation of the expressions used in the abovementioned clause of the Companies Act has been approved of by not only the Companies Law Board but also by the Expert Committee of the Institute of Chartered Accountants of India. 10. It is now required to be seen whether interpreting the expression 'loss' as loss after providing for depreciation really leads to any anomalous situation or whether it does n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oint has got to be accepted, then we will have to come to the conclusion that the Legislature wanted to behave in a most erratic manner by allowing different things in different circumstances, to be set off against the current year's book profit without any reasoning or rationale behind the same. If on the other hand, the view-point of the assessees be accepted, it will be that depreciation required to be charged to the accounts in the earlier year, which has got to be allowed in full before taxing the book profit under section 115J in a subsequent year. This Scheme has got a clear-cut meaning and it is also possible to find out a rationale behind this particular scheme. Hence, we are inclined to give the credit of intelligent reasoning to the Legislature as against legislating provisions in a haphazard and chaotic manner. We, therefore, hold that the Legislature must have intended to allow loss (after charging depreciation) or depreciation, whichever is lower against the current year's book profit. 11. The learned DR solely relied on the decision of the ITAT, Hyderabad Bench in the case of V.V. Trans-Investments (P.) Ltd. and contended that all the arguments made by the Departmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of unabsorbed depreciation cannot be considered to stand at the same footing as the different concessions and benefits specifically and benevolently allowed by the Income-tax Act. Depreciation is a claim of the assessees and not merely a benevolence meted out by the Legislature. Again, the Legislature has always been favourable to the case of unabsorbed depreciation in comparison to other business loss (before charging depreciation) to the assessees. This is clear from the discriminatory behaviour meted out by the Income-tax Act and the specific favours given to the assessees in the matter of unabsorbed depreciation like being able to carry forward the same for an indefinite period and also being able to set off the same against income from any head in a future year. If the Statute treats "unabsorbed depreciation" in such a favourable manner as compared to the "other business loss", there is no reason why the same discriminatory facility should be denied to the case of "unabsorbed depreciation" while computing the book profits under section 115J. The anxiety raised by the DR in the case of V. V. Trans-Investments (P.) Ltd. to the effect that if the contention of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Companies Act used the two expressions 'amount of loss' and amount equal to depreciation' in two different contexts only and that it was necessary to treat. these expressions as sui generis and not ejusdem generis with like ones appearing in section 32(2). We are in perfect agreement with the ITAT, Hyderabad Bench, that the expressions are required to be treated as sui generis that means independently. We have already stated above that the expression 'loss' is required to be understood in its independent sense as used in general commercial and accounting principles. The distorted version of loss being taken before charging depreciation is peculiar to certain sections of the Income-tax Act alone. We have clearly expressed our opinion that this distorted definition of 'loss' (before charging depreciation) cannot be considered to suit the purpose of section 115J. Again, we are clearly of the view that the expression 'amount of loss' and 'the amount equal to depreciation' as appearing in both the Income-tax Act and the Companies Act are to be considered exactly in the same sense inasmuch as clause (iv) of section 115J(1A) virtually relies on the relevant provisions of section 205 of th....