1. This appeal by the assessee for assessment year 1989-90 has been preferred against the order of the Commissioner of Income-tax (Appeals). The appeal raises the issue of computation of book profit under Section 115J of the Income-tax Act, 1961, for the assessment year under appeal.
2. The appellant is a private limited company. The first year of the company is assessment year 1987-88. The figures of the net profit and loss as per profit and loss account are as follows:--Asst.
DepreciationYear Profit/Loss debited to P&L A/c1987-88 (+) 3.087 --1988-89 (+) 35,79,997 67,75,759 (profit before depn.) The appellant-company had filed return of income disclosing 'nil income after setting off a part of arrears of depreciation against current year's profit of Rs. 28,37,947. The appellant took stand that for the accounting year relevant to assessment year under appeal, there was no book profit after adjustment of earlier year's loss against current year's profit.
3. The Income-tax Officer, however, passed an order under Section 143(1) and an intimation of adjustment by computing the book profit under Section 115J of Rs. 8,51,380, being 30 per cent of current year's profit of Rs. 28,37,947 as per profit and loss account was sent. The ITO was of the view that for arriving at the adjusted book profits, unabsorbed depreciation or business loss, whichever is less, is to be adjusted. Since there was no business loss in earlier years as per the books of account, the amount to be set off was considered as 'nil'. The appellant had, however, contended before the ITO that earlier year's loss of Rs. 31,94,136, which in fact is the unabsorbed depreciation, is to be deducted from current year's profit of Rs. 28,37,947 before arriving at the book profit under Section 115J of the Income-tax Act read with Section 205(1)(b) of the Companies Act, 1956. The contention of the appellant was not accepted by the ITO. In this regard, the appellant also moved an application under Section 154 before the ITO.The ITO, however, refused to rectify the mistake. Aggrieved, the appellant filed an appeal before the CIT (Appeals). The CIT (Appeals), for the reasons mentioned by him in his appellate order, confirmed the order of the ITO.4. Before us, Sri K.K.Gupta, learned counsel for the appellant, has strongly urged that the decision of the CIT (Appeals) is erroneous on facts and in law. He urges that under Chapter XII-B, Section 115J provided that in the case of any company whose total income as computed under other provisions of the Income-tax Act. 1961, in respect of any previous year is less than 30 per cent of its book profit, the total income of such taxpayer chargeable to tax would be deemed to be the amount equal to 30 per cent of such book profit. For the purpose of Section 115J, every assessee-company is required to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. "Book profit" for the purposes of Section 115J has been defined by means of an Explanation provided under Section 115J. The learned counsel draws our attention to the said Explanation which reads as under :- For the purposes of this section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under Sub-section (1A), as increased by - if any amount referred to in Clauses (a) to (f) is debited or, as the case may be, the amount referred to in Clauses (g) and (h) is not credited to the profit and loss account, and as reduced by, - (iv) 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 ifthe provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956 (1 of 1956), are applicable.
The learned counsel emphasizes that Clause (iv) of the Explanation uses a mandatory phrase - "as if the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956 (1 of 1956). are applicable". According to the learned counsel, Section 115J lays down that for arriving at book profit, the profit is to be reduced by certain items specified in Clause (iv) of the Explanation to Section 115J, which clearly lays down that the amount of loss or the amount of depreciation which would be required to be set off against the profits of the relevant previous year as if the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act are applicable. The interpretation of the provisions of Section 205(1)(i)(b) of the Companies Act, as given by the CIT (Appeals) and the ITO, is not the correct interpretation. The ITO and the CIT (Appeals) have failed to appreciate the import and the true meaning of Clause (b) of the first proviso to Section 205(1) of the Companies Act. In this regard, the learned counsel draws our attention to the said provision of the Companies Act which reads as under :-- If a company has incurred any loss in any financial year or years, which falls or fall after the commencement of the Companies (Amendment) Act, 1960, then the amount of 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 in which dividend is proposed to be declared or paid, against the profits of the company for any previous financial year or years, arrived at in both cases after providing for depreciation in accordance with the provisions of Subsection (2) or against both.
According to the learned counsel, Section 205(1)(i)(b) of the Companies Act uses two distinct expressions, viz., "amount of loss" and "amount equal to depreciation"; these should not be substituted by "business loss" and "unabsorbed depreciation" as laid down and understood under the income-tax law. If the expressions are one and the same, there would have been no reference in Section 115J of the Income-tax Act to Section 205(1)(fl(b) of the Companies Act and the significance of the words "as if" used in Clause (iv) of Explanation to Section 115J has to be considered. It explicitly restricts the Revenue to only Clause (b) of first proviso to Section 205(1) of the Companies Act and going further into the purport of Clause (a) of first proviso to Section 205( 1) of the Companies Act is not warranted. The Explanation to Section 115J does not use the words "if applicable". In this regard, the learned counsel also draws our attention to the opinion expressed by the learned author Sri Datta while explaining Clause (b) of first proviso to Section 205( 1) of the Companies Act. By way of illustration, the learned author has observed that "if the company provided for depreciation of, say. Rs. 6,000 and loss suffered after depreciation was, say. Rs. 1,000 for the year ending on 31-3-1982. and the company made profits of Rs. 10,000 for the year ending on 31-3-1983, then under this proviso only Rs. 1,000 should be set off against the profit of Rs. 10,000 and the balance Rs. 9,000 will be available for distribution as dividend." According to the learned counsel, the facts of the appellant's case are similar.
5. The learned counsel continues that the intention of the legislature In introducing Section 115J is only to make a company pay minimum tax before declaring dividends. In other words, no company can pay dividends without paying a minimum amount of income-tax. In the case of the appellant-company, it has no divisible profit to declare dividend.
Ignoring brought forward losses, if dividend is paid out of current year's profit alone, it amounts to payment of dividend out of capital and goes against the provisions of the Companies Act. In the appellant's case, there is a brought forward loss of Rs. 31,94,136 and current year's profit is only Rs. 28,37,947. The intention of legislation in Section 115J is very simple and without any ambiguity.
Book profit comes only when the profit can be available for declaration of dividend. Clause (iv) of Explanation to Section 115J makes it very clear by adopting Section 205(1)(fl(b) of the Companies Act, that only if a company has profit available for dividend, then the profit canbe taxed as book profit and not otherwise. Clause (b) of the first proviso to Section 205(1) of the Companies Act does not require any comparison between loss and amount of depreciation as contesting claims. It only gives an option to the company that the smaller of the two is to be adopted for set off before declaration of dividend where a company has profit for current year and loss for earlier years.
6. The learned counsel also urges that the Revenue has not properly understood the true import and meaning of the word "loss" under the provisions of the Income-tax Act. Relying on the decision in the case of Garden SilkWvg. Factory v. CJT[1991] 189 ITR 512, he points out that the Honourable Supreme Court had observed that the loss is only after debiting the profit and loss account with the amount of depreciation.
By drawing our attention to the observations of the apex court at page In our view there is nothing anomalous or absurd in the statute providing for dissection of the amount of loss for purposes of carry forward and ... providing for a special or different treatment to unabsorbed depreciation in this regard, although it is a component element of the genus described as "loss". To illustrate, suppose an assessee has a profit of Rs. 5,000 in one business before deduction of depreciation of, say Rs. 10,000 and a loss of Rs. 15,000 in another business. It will be quite correct to say that he has a business loss of Rs. 20,000 in that assessment year.
This decision of the Supreme Court, in the opinion of Sri Gupta, fully supports the case of the appellant. He urges that for the purpose of computation of book profit, the assessee is entitled to deduct the loss after depreciation and there need not be any business loss in the previous years.
7. The learned counsel has also drawn our attention to the single Member decision of theTribunal in the case of Buttwelded Tools (P.)Ltd. v. Assistant CIT [1991]39 ITD 432 (Mad.). On the facts and the circumstances of the case, the single Member of the Madras Bench held that the Assessing Officer has to take least of net loss which includes depreciation as per profit and loss account and depreciation provided in profit and loss account in each of the years in which losses were incurred by the assessee. While arriving at this decision, the learned counsel urges, the single Member had relied upon the Supreme Court's decision in the case of Garden Silk Wvg. Factory (supra).
8. The learned counsel also urges that there appears to be some ambiguity in the provisions of Section 115J of the Income-tax Act read with Section 205(1)(fl(b) of the Companies Act. Interpretations of these provisions of two different types are not very clear. In such a situation, if two interpretations are possible, the interpretation favourable to the assessee should be applied. In this regard, the learned counsel has placed reliance on the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, in which it has been held. "If the court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penal ty."This decision, he points out, has also been applied by the Single Member of the Tribunal in the case of Buttwelded Tools (P.) Ltd. (supra).
9. The learned counsel has also taken us through a decision of the Commissioner of Income-tax (Appeals) in the case of Vartech Engineers (P.) Ltd., in which the CIT (Appeals) has held that the "loss" to be considered is the net loss after depreciation. In the said decision of the Income-tax Appellate Tribunal. Delhi Bench, in the case of Steel Authority of India Ltd. v. Dy. CiT[1991] 38 ITD 193. In that decision, he urges, the Tribunal has laid down three eventualities while Interpreting Section 115J of the Income-tax Act, viz., (i) The company may have incurred losses in any previous year or years and in the first year of profit, Clause (b) of the first proviso to Section 205(1) of the Companies Act permits adjustment of such loss or amount of depreciation, whichever is less, to be set off against the profits of the company for the current year.
(ii) The company may have suffered losses in some of the previous years and earned profits in some of the years. In such an eventuality, Clause (b) of the first proviso to Section 205(1) of the Companies Act permits adjustment of such losses/depreciation, whichever is less, against the profits of the previous financial year.
(iii) The company may have sufferred loss es in previous financial years and profits of the previous years may not be sufficient to absorb such losses/ depreciation, whichever is less. In that case, Clause (b) of the first proviso to Section 205(1) of the Companies Act provides for adjustment of such loss/depreciation, whichever is less, against the profits of the previous years and such loss/depreciation, whichever is less, that remains unabsorbed by the profits of the preceding years, would be permitted to be set off against the profits of the current year and that is why the expression "or against both" has been used in Clause (b) of the first proviso to Section 205(1) of the Companies Act. It has been laid down in the said decision that Clause (b) of the first proviso to Section 205(1) of the Companies Act. 1956. does not give any option to the assessee to ignore the profits earned insomeofthe previous years. The proviso has taken into account the three eventualities explained above and the adjustment would be permissible in accordance with the facts and circumstances of each case. In the opinion of the learned counsel, the said decision supports the case of the appellant. The ratio of the said decision makes it clear that the loss for the purpose of adjustment is only the resultant figure after depreciation. The CIT (Appeals) was, therefore, in error in ignoring the factual as well as the legal position.
10. The learned counsel has also drawn our attention to the opinion of the Expert Committee of the Institute of Chartered Accountants of India, regarding interpretation and meaning of the word "loss" occurring in Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act. The said Committee has expressed its view that the terms "profit" and "loss" used in the Companies Act denote "profit after depreciation and tax" and "loss after depreciation and tax" respectively. The opinion of the Expert Committee leaves no room for doubt as far as the case of the appellant is concerned. The word "loss" appearing in Clause (b) of the first proviso to Section 205(1) of the Companies Act, therefore, means only loss after depreciation and tax.
11. Sri Gupta also draws our attention to an article written by Sri S.Rajaratnam, an Ex-Member of the Income-tax Appellate Tribunal. This article appeared in Taxman Vol. 59 page 448 (sic) copy of which has been filed by the learned counsel before us. In this article, the learned author has adverted to a decision of the Commissioner of Income-tax (Appeals). Madurai. in which it has been held by him that the loss under Section 2O5(1)(0(b) of the Companies Act is only after depreciation. The predominance of the judicial decisions, therefore, in the opinion of the learned counsel, supports his case.
12. Regarding the Interpretation of statutes, dealt with atlength by the CIT (Appeals) in his order, the learned counsel submits that the interpretation of "loss" as advanced by the Revenue leads to a situation where a company can pay dividend without providing for depreciation which is against the provisions of the Companies Act. In the opinion of the learned counsel, this is an absurdity. In his view, the provision should be so construed that such absurdity may be avoided. The other interpretation as submitted by the appellant is proper and should be accepted.
13. The learned counsel has also drawn our attention to the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd unjust result which could never has been intended by the legislature, the court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produces a rational construction.
He. therefore, urges that the interpretation of Section 115J of the Income-tax Act read with Section 205(1)(i)(b) of the Companies Act should be made in such a way that the intention of legislature is brought out rather than defeated. He. therefore, concludes that the order of the CIT (Appeals) is contrary to law and the facts of the case and it should, therefore, be vacated.
14. The learned counsel has also filed an additional ground before us which reads as under:-- The assessment was completed under Section 143(1) and the determining of book profit under Section 115J as one of the items to be adjusted to the returned total income is not correct and against law. Under Section 143(1) the Income-tax Officer is not empowered to compute book profit under Section 115J and make adjustments to the returned total income.
The learned counsel contends that the computation of book profit under Section 115J does not fall under the adjustments enlisted in Section 143(1). The learned counsel, however, fairly concedes that this issue was not raised by the appellant company either before the ITO or the CIT (Appeals). However, he argued that additional ground should be admitted in view of the ratio of the decision of the Patna High Court in the case of Hindusthan Malleables & Forgings Ltd. v. CIT [1991] 191 ITR 110. In the said decision, it has been laid down that there is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities.
All questions, whether of law or of facts, which relate to the assessment of the assessee, may be raised before the Tribunal. He, therefore, prays that the additional ground should be admitted.
15. On the other hand, the learned Senior Departmental Representative, Sri H. Srinivasulu, very effectively and vehemently opposed the contention of the learned counsel for the appellant. He argues that the order of the CIT (Appeals) is in accordance with law and should, therefore, be upheld. He took us through the relevant portions of the order of the CIT (Appeals) and contended that the CIT (Appeals) had properly appreciated the provisions of Section 115J of the Income-tax Act and Section 205(1)(i)(b) of the Companies Act. He has also drawn our attention to the intention of the legislature in bringing on the statute book the provisions of Section 115J of the Income-tax Act. He points out that in his Budget speech, the Prime Minister, who was holding finance portfolio, explained the intention in bringing on the statute book the provisions of Section 115J. The relevant portion of the Prime Minister's speech reads: It is only fair and proper that the prosperous zero-tax companies should pay at least some tax. The phenomenon of so-called "zero-tax" highly profitable companies deserve attention. In 1983,anew Section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn.
I now propose to introduce a provision whereby every company will have to pay a "minimum corporation tax" on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit. In other words, a domestic widely held company will pay tax of at least 15 per cent of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores.
The learned departmental representative has also drawn our attention to the Memorandum explaining the provisions in the Finance Bill, 1987, regarding the levy of minimum tax on book profit of certain companies.
He points out that under the existing provisions of the Income-tax Act, certain deductions are allowed in the computation of profits and gains of business or profession. Various deductions are also allowed under Chapter VI-A of the Income-tax Act in computing total income. As a result of these concessions, certain companies making huge profits are managing their affairs in such a way as to avoid payment of income-tax.
With a view to making the tax system more progressive, a new chapter, Chapter XII-B, was inserted in the Income-tax Act. Under the proposed amendment, in the case of a company whose total income as computed under other provisions of the Income-tax Act in respect of any previous year is less than 30 per cent of its book profit, the total income of such taxpayer chargeable to tax shall be deemed to be the amount equal to 30 per cent of such book profit. For the purpose of the aforesaid provision, the book profit is defined to mean the net profit as shown in the profit and loss account in the relevant previous year prepared in accordance with the provisions of parts II and III of the Vlth Schedule to the Companies Act, 1956. subject to an adjustment in respect of any amount of income-tax paid or payable, any amount carried to any reserve set apart to meet any provision, or provision for losses of subsidiary companies or any amount set apart for declaration of dividends which are taken into the profit and loss account prepared in accordance with the sixth schedule. However, the expenditure relating to income as well as the receipts relating to incomes to which the provisions of Chapter III of the Income-tax Act apply, will be excluded from the computation of book profit. 30 per cent of such book-profit shall be treated as total income of the company to which the provisions of Section 115J apply. It has also been provided under the Act that the aforesaid provisions shall not affect the determination of the amount to be carried forward to subsequent years under the provisions of Sections 32(2), 32A(3), 72, 73, 74, 74A and 80J of the Income-taxAct relating to unabsorbed depreciation, unabsorbed investment allowance, unabsorbed loss and unabsorbed deduction relating to tax holiday. This Memorandum explaining the provisions in the Finance Bill, 1987, clearly brings out the purport and the meaning of Section 115J of the Income-tax Act.
16. The learned departmental representative continues and points out that in the present appeal, the appellant's case is regarding Clause (iv) of Explanation to Section 115J. At the time of moving the Finance Bill, Clause (iv) of Explanation to Section 115J was not there and during the course of general debate amendments were made on 29-4-1987 by the Prime Minister. The relevant portion of the amendment speech is as under:-- The Finance Bill inserts a new Section 115J in the Income-tax Act.
to levy a minimum tax on "book profit" of certain companies.
Representations have been received that in computing the book profits for the purpose of determining the minimum tax, losses and unabsorbed depreciation pertaining to earlier years should be allowed to be set off. Otherwise, new projects that have just begun to make profits after some years of losses, and sick companies that have just turned the corner, will become subject to minimum tax.
There is merit in the suggestion. Under Section 205 of the Companies Act 1956, past losses or unabsorbed depreciation, whichever is less, are allowed to be set off against the book profits of the current year for determining the profits for the purposes of declaring dividends. It is proposed to allow the same adjustments in computation of book profits for purposes of the new provision for levy of minimum tax.
The learned departmental representative contends that these proceedings in the Parliament do not support the appellant's view and interpretation of Section 115J read with Section 205(1)(i)(b) of the Companies Act.
17. In the opinion of Sri Srinivasulu, Section 115J has a fiscal mission and seeks to make the tax system more progressive. Section 115J is applicable only to companies and is a self contained code. It is a charging section by itself and starts with a non obstante clause.
18. The learned departmental representative further continues that Section 115J itself refers to loss or depreciation, whichever is less, and for a limited purpose Section 205(1)(i)(b) of the Companies Act has been imported and has a very limited role to play. The section itself treats any loss on a different footing from depreciation, as would be evident from the allusion to 'loss' and 'depreciation' in sui generis terms. As already mentioned above, in the budget speech, it was categorically stated that past losses or unabsorbed depreciation, whichever is less, should be allowed to be set off against the book profit of the current year. From the history of the legislation and the speech of the Finance Minister, It is, therefore, evident that past losses are distinct from unabsorbed depreciation. If losses were to include depreciation as contended by the appellant, there was no need for the Finance Minister to spell them out distinctly in sui generis terms. The intention of legislature in enacting Section 115J is to broaden the tax base by taxing the prosperous and profit making companies and certainly Section 115J has a fiscal mission. The Finance Minister in his budget speech has clearly referred to "past losses or unabsorbed depreciation" as understood in ordinary common parlance.
Never was it the intention of the legislature to include the depreciation in the past losses. If it were so. they would not have been referred to independently and distinctly.
19. Adverting to the impugned order of the CIT (Appeals), the learned departmental representative contends that the scheme or Section 205 of the Companies Act has elaborately been explained by the CIT (Appeals).
Section 205(1) of the Companies Act provides that no dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with tne provisions of Sub-section (2).
Subsection (2) of Section 205 spells out the working of the depreciation as per Section 350 of the Companies Act. Clause (a) of first proviso to Section 205(1) makes it clear that the company has to provide for depreciation for any previous financial year or years which falls after the commencement of Companies (Amendment) Act, 1960, before declaring or paying dividend for any financial year. Under Clause (a) of the first proviso to Section 205(1), depreciation for all financial years after the commencement of the Companies (Amendment) Act, 1960, had to be provided for out of the profits of the financial year or of the previous financial years before declaration of dividend.
Accordingly, it would follow that depreciation including arrears of depreciation would have to be adjusted against the profits of the financial year before declaration of dividend. Arrears of depreciation is nothing but unabsorbed depreciation. Clause (b) of the first proviso to Sub-section (1) of Section 205 gives the option to the company to set off the amount of loss or an amount which is equal to the amount provided for depreciation for that year or those years, whichever is less, against the profits of the company for that year for which dividend is proposed to be declared. Section 350 of the Companies Act provides for ascertainment of depreciation, while Section 349 provides for determination of net profit after allowing depreciation to the extent specified in Section 350 and after allowing the excess of expenditure over income which had arisen in computing the net profit in accordance with Section 349 in any year which begins at or after the commencement of the Companies Act. Since Clause (a) of the first proviso to Section 205(1) provides for all kinds of depreciation including arrears of depreciation, to be set off, the amount of losses referred to in Clause (b) of the proviso cannot be the same depreciation considered in Clause (a) of the proviso. For this proposition, the learned departmental representative advances the following arguments. viz., (i) In the scheme of enactment under the Companies Act, Clauses (a) and (b) of the first proviso to Section 205(1) have their own raison d'etre and have their own applications in different circumstances.
(ii) Clause (a) of the proviso deals with the allowance of depreciation in all its dimensions for the purpose of computing the net profit before declaration of dividend. However, Clause (b) of the proviso introduces a comparison between the amount of loss and an amount which is equal to the amount provided for depreciation for that year or the earlieryears. The comparison is an examination of two or more items to establish similarities and dissimilarities. If the amount of loss as referred to in Clause (b) of the proviso were to be regarded as ejusdem generis with the depreciation Including arrears of depreciation considered in Clause (a) of the proviso, then such a comparison is reduced to one within the same clause, indivisible and absolute. If the appellant's contention that depreciation including arrears of depreciation is embedded in the amount of loss were to be followed, then, there was no need for the legislature to introduce the comparison exercise in Clause (b) of the proviso, because it would have been sufficient to state in Clause (b) of the proviso that an amount of loss representing unabsorbed depreciation would be set off against the profits of the current year. Thus, Clause (b) of the proviso is different from Clause (a). Clause (a) speaks of provision for depreciation in a year of profit, while Clause (b) deals with treatment of depreciation when the company had incurred any loss in any previous financial year or years. In the case of the appellant, there is no loss in the previous year and the entire amount is unabsorbed depreciation. Therefore, Clause (b) is not applicable and the ITO's computation of book profit is correct.
20. The learned departmental representative also urges that the appellant's interpretation that business loss includes depreciation under Clause (b) of the first proviso to Section 205(1) of the Companies Act is fraught with absurd results. The interpretation sought to be given by the appellant in the context of Clause (b) always leads to deduction of depreciation from profit. To support his view, he cites the following example:-- whichever is less, or Rs. 30,000 whichever is less Rs. 30,000 is the least amount (unabsorbed depreciation)(b) No profit and depreciation: Rs. 30,000 (loss) or Rs. 30,000 (depreciation) whichever is less.(c) Profit and depreciation Rs. 30,000 Loss is Rs. 20,000 and unabsorbed depreciation is Rs. 20,000: whichever is less. Here also unabsorbed depreciation is less.
In all the above situations, what is getting absorbed is only depreciation. In any of the above examples, loss does not get allowed.
In the opinion of the learned departmental representative, Clause (b) of the first proviso to Section 205(1) of the Companies Act comes into play only when a company has incurred loss. If in the year loss depreciation were to be allowed as per the above example, there is no need for all the comparative exercises in Clause (b) of the proviso and it would have sufficed to mention that in ayear of loss also, depreciation alone would be allowed. In such a context, Clause (b) of the proviso would be rendered redundant since Clause (a) takes care of depreciation both past and current. If loss includes depreciation, the Companies Act, 1956, could have made it explicit by referring to the amount provided for depreciation as 'loss'. On the contrary, the language employed is "the amount which is equal to the amount provided for depreciation for that year or those years". Definitely, the language in Clause (b) does not bear out the appellant's interpretation. It is an accepted canon of construction of statute that the consideration put on a particular provision should make a consistent enactment of the whole statute. Where a literal construction of the provision is fraught with the manifestly absurd and anomalous results having the effect of defeating the obvious intention of the legislature, it would be advisable to adopt such a construction as will be in consonance with the principle that all parts of a section should be construed together and every clause thereof should be construed with reference to the context and other clauses thereof, so that the construction put on a particular provision makes a consistent enactment of the whole statute. This dictum would apply all the more, to the interpretation of Clause (b) of the first proviso to Section 205(1) of the Companies Act. In this regard, the learned departmental representative has placed reliance on the decision of the Supreme Court in the case of CIT v. NatlonalTqj Traders [1980] 121 ITR 535.
21. The learned departmental representative has also drawn our attention to the CBDT's Circular No. 495, dated 22-9-1987. He points out that the said Circular has been made public wherein the intention of Parliament has been shown by way of an example. Accordingly, taxpayers were aware of the legal position and their obligation in sustaining the society. He urges that the Board's Circular is binding on the departmental authorities and what the ITO has done is to merely follow the said Circular. The ITO was, therefore, not in error in following the said Circular. The book profit has been computed by the ITO strictly in accordance with the said Circular which should, therefore, be upheld.22. The learned departmental representative has also drawn our attention to Sub-section (2) of Section 115J of the Income-tax Act. The said subsection reads as under:-- Nothing contained in Sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to the carried forward to the subsequent year or years under the provisions of Sub-section (2) of Section 32 or Sub-section (3) of Section 32A or Clause (it) of Sub-section (1) of Section 72 or Section 73 or Section 74 or Sub-section (3) of Section 74A or Sub-section (3) of Section 80J.A plain reading of this sub-section clearly indicates that if the interpretation given by the appellant is accepted, the appellant-company would get a double benefit. Firstly, the appellant-company shall set off the entire depreciation or part of it while computing the book profit under Section 115J and will also be eligible to carry forward the full depreciation etc. to be set off in subsequent years. Thus, the appellant-company will be entitled to double deduction of depreciation and such a double advantage is not envisaged by the Act. The interpretation of the appellant-company in regard to provisions of Section 115J of the Income-tax Act and Section 205(1)(fl(b) of the Companies Act is, therefore, not correct.
23. Regarding admission of the additional ground, the learned departmental representative strongly opposes its admission. It is contended that the appellant had not raised this ground either before the Assessing Officer or before the CIT (Appeals). This ground, therefore, does not arise out of the order of the first appellate authority. He also contends that the ITO has already selected this case for scrutiny and, therefore, this ground is academic in nature. The learned departmental representative also drawn our attention to the decision of the Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT(1991] 187 ITR 688, wherein it has been held: An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the powers of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the orders of assessment passed by the Income-tax Officer.
However, the learned departmental representative points out that the additional ground to be admitted should be pertinent and should be dealt with first by the Assessing Officer. If the Assessing Officer has no opportunity to deal with the issue, the additional ground cannot be raised. He, therefore, prays that the additional ground should not be admitted.
24. In reply the learned counsel for the appellant, Sri K.K. Gupta, points out that the Department is in error in relying on the Prime Minister's speech and the Memorandum explaining the provisions of Section 115J. He urges that while interpreting statute, recourse could be had to Finance Minister's speech provided the provision of the Act is ambiguous and not easy to understand. In this regard, he draws our attention to the decision of the Delhi High Court in the case of Escorts Ltd. v. Union of India [1991] 189 ITR 81, wherein it has been held that one of the cardinal rules of interpretation of statute is that if the language of the statute is clear and unambiguous, then resort cannot be had to the aims and objects or to the Minister's speech with a view to interpreting the provisions of the statute. In this regard, he points out that in the case of Steel Authority of India Ltd. (supra). the ITAT, Delhi Bench, has laid down that the provisions of Section 115J of the Income-tax Act and Section 205(1)(i)(b) of the Companies Act are clear and unambiguous. The learned departmental representative -was, therefore, not justified in relying on the Minister's speech.
25. We have heard the rival submissions. On a proper appreciation of the facts of the case and the law on the point. We are inclined to agree with the submissions of the Revenue, for the reasons mentioned below.
26. Before discussing the issue, we feel it necessary to give a brief background of Section 115J of the Income-tax Act, 1961. Before introduction of Section 115J with effect from assessment year 1988-89, minimum tax on companies was covered by Section 80VVA. Section 80WA sought to ensure that companies paid tax on at least 30 per cent of pre-incentive income. The provision was inserted by Finance Act, 1983, with effect from 1-4-1984. A restriction was placed under the provision on allowance of various incentives which were otherwise allowable under the Income-tax Act. Unabsorbed part oi these incentives was allowed to be carried forward to subsequent years. No restriction was placed on allowances of depreciation or on set off of business losses. Sample studies carried out by the Government, however, revealed that while the provisions of Section 80WA had the effect of subjecting companies to minimum tax which they would have otherwise not paid, there were still companies which had no income-tax liability despite substantial profits. The latter phenomenon was largely due to the fact that the companies were availing of depreciation in full under the Income-tax Act. Thus, despite Section 80WA, the phenomenon of'prosperous zero-tax companies' continued. Astudy was also carried out by an economic journal in regard to the performance of 650 top companies during the year relevant to assessment year 1984-85. The study revealed that out of top 23 profit making companies, the profit and loss accounts of 12 companies showed no income-tax liability though they had profits and had declared dividends. About 139 companies accounted for a net profit of Rs. 274 crores, but still paid no tax. Further, the prospect of Section 80WAbecoming otfosebecame a near certainty with the conscious decision taken to enhance the depreciation rates from assessment year 1988-89 onwards, when block asset concept was to be introduced first.
Therefore, there was an imperative need to tackle the problem of prosperous zero-tax companies by suitably modifying Section 80WA.Accordingly, Finance Act, 1987, deleted Section 80WA and introduced new Section 115J in its place. Section 115J, therefore, came into force from assessment year 1988-89 onwards.
27. The new provision was made applicable to any company whose total income as computed under other provisions of the Income-tax Act in respect of any accounting year was less than 30 per cent of its book profit. In the case of such a company, 30 per cent of the book profit would be treated as income chargeable to tax. The new Section 115J, therefore, based the definition of "book profit" on the net profit as per the profit and loss account prepared in accordance with the provisions of the Companies Act subject to certain adjustments. The term "book profit" was defined in Explanation to Section 115J of the Income-tax Act. In particular, Clause (iv) of the Explanation entitled an assessee to reduce the amount of loss or the amount of depreciation, whichever is less. Section 115J of the Income-tax Act read with Section 205(1)(i)(b) of the Companies Act, therefore, uses two distinct expressions, viz., "amount of loss" and "amount equal to depreciation".
In our view, under income-tax law, "loss" and "depreciation" have different meanings. The question for consideration is whether for the purpose of Section 115J the words "loss" and "depreciation" should receive the same meaning as under the Income-tax Act or as contended by the appellant. If the appellant's interpretation that the word "loss" in Clause (b) of the first proviso to Section 205(1) of the Companies Act includes depreciation, is accepted the whole Clause (b) will be rendered superfluous and Clause (a) will take care of all situations contemplated in Clause (b).
28. It is well established, and one of the cardinal rules of interpretation, that no words of a statute are redundant or surplusage.
The provisions of Section 205(1)(i)(b) of the Companies Act speak that the amount of 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 the dividend is proposed to be declared or paid. If the interpretation given by the appellant is to be accepted, then the words "whichever is-less" will become superfluous. This could not be the intention of the legislature.In Utkal Contractors & Joinery (P.) Ltd. v. State of Orissa AIR 1987 SC 1454, their Lordships of the Supreme Court had stated: No provision in the statute and no word of the state may be construed in isolation. Every provision and every word must be looked at generally before any provision or word is attempted to be construed. The setting and pattern are important. It is again important to remember that the Parliament does not waste its breath unnecessarily. Just as Parliament is not expected to use unnecessary expressions, the Parliament is also not expected to experess itself unnecessarily. Even as Parliament does not use any word without meaning something Parliament does not legislate where no legislation is called for. Parliament cannot be assumed to legislate for the sake of legislation, nor can it be assumed to make pointless legislation. Parliament does not indulge in legislation merely to state what is unnecessary to state or to do what is already validly done. Parliament may not be assumed to legislate unnecessarily.
Again while the words of an enactment are important, the context is no less important. For instance, the fact that general words are used in a statute is not in itself a conclusive reason why every case falling literally within them should be governed by that statute, and the context of any Act may well indicate that wide or general words should be given a restrictive meaning.
30. If the one-sided and restrictive interpretation of the statute given by the appellant is accepted, it would do incalculable harm to companies which have large accumulated losses and have very little provision for depreciation, as in the case of trading companies and investment companies. Such companies will be at a total disadvantage and will suffer invidious discrimination vis-a-vis manufacturing companies which have large provisions for depreciation, because, in either case, depreciation alone will be set off. Such an interpretation, which drives a wedge between the companies to which Section 115J is applicable, should, therefore, be avoided, since it is heavily loaded in favour of manufacturing companies.
31. Further, Section 115J of the Income-tax Act creates a legal fiction as observed by the Income-tax Appellate Tribunal, Delhi Bench, in the case of Steel Authority of India Ltd. (supra) and the legal fiction created by the said section should be constructed strictly, without any latitude. Any attempt to wrench out a different meaning which is at variance with the legal fiction should be balked at. A legal fiction has to be understood strictly in terms of the legislative intention which was the precursor for the fiction created and there is no soft option to leave the interpretation to any vagaries. In that view of the matter, the interpretation favourable to the appellant, as argued for by the learned counsel, has no place while interpreting a legal fiction which has to be apparised and unlocked purely within the strait-jacket of legislative intention. Any interpretation which is likely to give the taxpayer the breaks is out of place where the legislation has a fiscal mission. Our view is strengthened by the decision of the Supreme Court in the case of Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1.
Section 115J of the Income-tax Act, without any doubt was brought on the statute book with fiscal mission and is designed to mop up additional resources. The genesis of Section 115J would clearly point out as to what was sought to be plugged in Section 80WA which was found to be ineffective in tackling prosperous zero-tax companies. The fiscalmission was to get over the impediments experienced while implementing Section 80WA and the major impediments was, as already pointed out, that companies were availing full depreciation without any fetter. The fiscal mission and the legal fiction in Section 115J have to be understood in this context and if any attempt is made to dilute the true signification of Clause (iv) of Explanation to Section 115J, it would undermine the very fiscal mission of Section 115J(1) not to speak of the corresponding revenue loss throwing away the anticipated mobilisation of additional resources. If the progressive tax policy aimed at mopping up additional resources were to be given its pride of place as envisaged, then there is no escape from the CBDT Circular No.495, dated 22-9-1987 which lays down the mode of adjustment in relation to Clause (iv) of Explanation to Section 115J of the Income-tax Act.
32. It may also be mentioned that Section 115J of the Income-tax Actread with Section 205(1)(i)(b) of the Companies Act was introduced with a view to suppressing the mischief of Section 80WA and to advance the remedy of collecting the minimum tax from the prosperous zero-tax companies. The issue is, therefore, governed by the Mischief Rule enunciated in Heodon's case. The Mischief Rule in Heydon's case was examined by the Supreme Court in the case of Dr. Baliram Woman Hiray v.Mr. Justice B. Lentin [1989] 176 ITR 1. The following principles enunciated in Heodon's case, and firmly established, are still in full force and effect, viz., For the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law), four things are to be discerned and considered, namely, (ii) what was the mischief and defect for which the common law did not provide; (iii) what remedy Parliament has resolved and appointed to cure the disease of the common wealth; and and then the office of all the judges is always to make such construction as shall suppress the mischief and advance the remedy, and to suppress subtle inventions and evasions for the continuance of the mischief and pro private commodo and to add force and life to the cure and remedy according to the true intent of the makers of the Act pro bono publico. There is now the further addition that regard must be had not only to the existing law but also to prior legislation and to the judicial interpretation thereof.
In case we accept the interpretation of the appellant-company, the position that existed under Section 80WA would prevail and the prosperous company will remain a zero-tax company. In our view, the provision should be interpreted in such a way that the remedy is advanced and the mischief is curbed and the intention of the legislature is carried out.
33. In our opinion, the reliance of the appellant on the decision of the Supreme Court in the case of Garden Silk Wvg. Factory (supra) wherein it has been held that depreciation was a part of loss, is also misplaced. That decision, in our view, is not applicable to the appellant's case in view of the fact that the observation of the Supreme Court in the aforesaid decision was made in the context of interpreting Section 32(2) of the Income-taxAct. In our view, that decision does not lay down that the word "loss" included depreciation for all purposes, including carry-forward. The said decision is also not applicable in view of the fact that the provisions of Section 115J start with a non obstante clause. The said decision was also rendered at a time when the provisions of Section 115J were not on the statute book. For the purpose of Section 115J, therefore, we are of the view that depreciation cannot be a part of loss. As held in Steel Authority of India Ltd.'s case (supra) the legal fiction created under Section 115J by which the total income is deemed to be 30% of the book profit, applies only for purposes of Section 115J and it does not extend beyond that. This fiction has been created for a definite purpose and it would operate within its field for which it is created. In the case of CIT v.Mother India Refrigeration Industhes (P.) Ltd. [1985] 155 ITR 711, the Supreme Court held that the legal fictions are created only for some definite purposes and these must be limited to those purposes only and should not be extended beyond that legitimate field. The purpose of creating a legal fiction in Section 115J is to levy tax in respect of companies whose book profit computed in accordance with the provisions of the Income-tax Act are less than 30%. Therefore, there is every need to construe the legal fiction strictly, without relating it to other provisions of the Income-taxAct like Section 32(2) which cease to operate the moment Section 115J is invoked.
34. Acareful reading of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956, shows that loss or depreciation, whichever is less, is deducted with a view to declaring dividend. However, under Section 115J of the Income-tax Act, the declaration of dividend is not the consideration. Section 115J has a fiscal mission and seeks to make the tax system more progressive. It is a self contained code by itself and operates to the total exclusion of other provisions of the Income-tax Act. Therefore, the concepts and terminologies used in Section 115J are suigeneris and not ejusdem generis. While interpreting the provisions of Section 115J of the Income-tax Act read with Section 2O5(1)(0(b) of the Companies Act, artificial and unduly latitudinarian rules of construction, with their general tendency to give the taxpayer thebreaks, are out of place where the legislation has a fiscal mission. In the modern context taxation has ceased to be regarded as an "impertinent intrusion into the sacred rights of private property" and it is now increasingly regarded as a potent fiscal tool of state policy to strike the required balance, which is required in the context of the felt needs of the times, between the citizen's claims to enjoyment of his property on the one hand and the need for an equitable distribution of the burdens of the community to sustain special services and purposes, on the other.
35. The appellant before us has relied only on Section 115J of the Income-tax Act and Section 205(1)(i)(b) of the Companies Act. While arguing its case, the appellant has totally ignored the provisions of Sub-section (2) of Section 115J of the Income-tax Act. The said sub-section lays down that nothing contained in Section 115J(1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of Section 32(2) or Section 32A(3) or Section 72(1)(i() or Section 73 or Section 74 or Section 74A(ii) or Section 80J(iii). In other words, Section 115J(2) postulates that the determination of amounts to be carried forward under various Sections would not be affected because of the operation of Section 115J(1).
Definitely, such determination of amounts to be carried forward has to be under the normal provisions of the Income-tax Act and not under Section 115J(1). Accordingly, there has to be a separate determination of the same in accordance with the other provisions of the Income-tax Act. Thus, what Section 115J(2) implies is that such an independentprocess of determination of allowances or losses to be carried forward under the normal provisions of the Income-tax Act would not be affected because of operation of Section 115J(1). In other words, Section 115J(2), operating within the parameters of Section 115J(1), provides for a relation in relation to determination of losses/allowances to be carried forward under the other provisions of the Income-tax Act. Accordingly, the language employed in Section 115J(2) makes it abundantly clear that the process of determination of depreciation to be carried forward under Section 32(2) is independent and not one within the scheme of Section 115J(1). Section 115J(2) provides a relaxation to the legal fiction creatr d by Section 115J(1) to enable the companies to have the benefit of carry brward of depreciation under the Income-tax Act, since Clause (iv) of Explnation to Section 115J permits of adjustment of other past losses or unabsorbed depreciation, whichever is less. The very fact that a company is entitled to carry forward depreciation in full under Section 115J(2) bears ample testimony to the inexorable finding that the adjustment contemplated under Clause (iv) of Explanation to Section 115J cannot be depreciation in full as contended by the appellant. In such an event, the company would have a double benefit, viz., reducing the book profit to a lesser amount or nil by arrears of depreciation as provided for in the books, under Section 115J(1), and carrying forward in full under Section 115J(2). Obviously, future income also would get reduced to the extent of the depreciation allowed to be carried forward under Section 115J(2). Accordingly, such a munificent intention to confer double benefit in respect of the same allowance cannot be ascribed to the legislature, more so, when Section 115J was conceived with the object of taxing zero-taxprosperous companies by clamping certain restrictions on depreciation. Thus, because of Section 115J(2), the expressions "amount of loss" and "amount of depreciation" appearing in Clause (iv) of Explanation to Section 115J, as already mentioned above, are sui generis and not ejusdemgenerls with like ones appearing in Section 32(2), 36. The difference between business loss and depreciation was. examined by the Andhra Pradesh High Court in the case of CIT v. Srinivasa Sugar Factory [1988] 174 ITR 178. A clear distinction is drawn between unabsorbed depreciation and business loss. It may be mentioned that under the Income-tax Act, there are two distinct Sections dealing with these two items. Business loss inherently takes within it the features of an outgoing while depreciation allowance is not an actual outgoing.
In this view of the matter, we are also supported by the decision of the Calcutta High Court in the case of Universal Cargo Carriers Inc. v.CIT[1987] 165 ITR 209, in which it has been held : So far as depreciation is concerned, the Act provides for compensation of the same by an allowance. Such allowance by itself is not a loss but if it cannot be absorbed in a particular year against business income, then it is carried forward as unabsorbed depreciation allowance under Section 32(2). This unabsorbed depreciation allowance does not enter into the computation of the business loss of the assessee in that particular year. In the subsequent year, such unabsorbed depreciation allowance is treated to be a part of the depreciation allowance of the succeeding year and the assessee is entitled to claim.absorption in respect of the same in the succeeding year.
37. The case of the appellant is also not supported by the decision of the Supreme Court in the case of Vegetable Products Ltd. (supra). The interpretation of a statute favourable to the assessee is invoked when there is some ambiguity in a statute and the statute is capable of two or more interpretations. In the case before us, the learned counsel for the appellant himself has admitted that there is no ambiguity in the statute. The Income-tax Appellate Tribunal in the case oi Steel Authority of India Ltd. (supra) has also given a clear finding that the provisions of Section 115J of the Income-tax Act read with Section 205(1)(i)(b) of the Companies Act are without any ambiguity, there is, therefore, no question that survives for adopting the interpretation which is favorable to the assessee.
38. To conclude, we are of the view that the appellant is entitled to deduction of depreciation or loss, whichever is less, only in the eventuality when in a given year there is a loss as well as depreciation. In such a case, the lesser of the amounts will be allowed to be deducted as per the provisions of the Income- tax Act. However, in case there is a profit in a year but after adjustment of depreciation it results in a loss, no adjustment in book profit under Section 115J can be allowed.
39. In this regard, it is essential to remember that the provisions of the Income-tax Act and the Companies Act under review use two distinct expressions, viz., "amount of loss" and "amount equal to depreciation".
If the amount of loss as referred to in Clause (b) of the first proviso to Section 205(1) of the Companies Act were to be regarded as ejusdem generis with the depreciation including arrears of depreciation considered in Clause (a) of the proviso, then such a comparison is reduced to one within the same class, indivisible and absolute. In such a context, there is no comparison at all. because, for the purpose of comparison, more than one standard are required. If the appellant's argument that depreciation including arrears of depreciation is embedded in the amount of loss (clause (b) of the proviso) as a kind of allotropic modification, were to be followed, the comparison contemplated in Clause (b) would peter out to be a vapid exercise of stating the obvious, viz., that the unabsorbed depreciation in the amount of loss to the extent of Rs. 31,95,762 is less than the amount of depreciation provided for, viz., Rs. 66,75,759. In other words, if the argument of the appellant that the amount of loss in Clause (b) of the proviso has a connection with the depreciation referred to in Clause (a) of the proviso were to hold good, then there was no need for legislature to introduce the comparative exercise in Clause (b) of the proviso, because it would have sufficed to state in Clause (b) that an amount of loss representing unabsorbed depreciation would be set off against the profits of the current year.
40. We have also given our anxious thought to the view expressed by the Expert Committee/of the Institute of Chartered Accountants of India.
From the material papers, we find that their opinion is that 'The word 'loss' appearing in the Clause (b) of the first proviso to Section 205(1) means the loss after depreciation and tax." They have, however, not discussed the basis on which they have arrived at such a finding.
No reasons have been recorded by them in support of the finding and, therefore, we are unable to appreciate the same. The learned author Datta's view is also not acceptable to us in view of the fact that the learned author has restricted his interpretation of Section 205 of the Companies Act to Clauses (a) and (b) of the first proviso and has not taken into account the provisions of the Income-tax Act in which 'depreciation' and 'loss' have two distinct meanings.
41. We have also carefully gone through CBDT's Circular No. 495, dated 22-9-1987. We find the examples to illustrate the new provision more appropriate than the examples given by the learned author Sri Datta.
Regarding the Circulars of the CBDT, it is settled law that the Board's circulars are binding on the department in the administration or implementation of a provision. In this regard, our view is strengthened by the decision of the Supreme Court in K.P. Varghese's case (supra).
In the said decision, the Hon'ble Supreme Court had considered, while interpreting Section 52(2) of the Income-tax Act. two circulars of the Board issued on 7-7-1964 and 14-1-1974. It was laid down by the apex court that these two circulars of the CBDT are binding on the tax department in administrating or executing the provisions enacted in Sub-section (2). Quite apart from their binding character, these circulars were held to be clearly in the nature of "comtemporanea expositio" furnishing legitimate aid in the construction of Sub-section (2). The rule of construction by reference to contemporanea exposilio is a well established rule for interpreting a statute by reference to the exposition it has received from the contemporary authority. This rule has been succinctly and felicitously expressed in "Crawford on Statutory Construction", 1940 edition, where it has been stated in paragraph 219 that "administrative construction (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive". It is thus a well-established principle of interpretation that courts, in construing a statute, should give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it. The Circular No. 495 has explained the true scope and nature of the provisions of Section 115J and the scope and nature was explained by the said circular at the time of enactment of the section. We. therefore, find it more reliable and hence acceptable.
42. Regarding the reliance of the appellant on the Single Member decision of the Madras Bench of the Tribunal in the case of Buttwelded Tools (P.) Ltd. (supra), we are of the view that the said decision has been rendered by our learned Brother mainly on the basis of the decisions of the Supreme Court in the cases of Garden Silk Wvg. Factory (supra) and K.P. Varghese (supra). We have already discussed above that these decisions, in ourview do not apply to the facts before us. In view of the above, we are in respectful disagreement with the decision of our learned Brother.
43. Coming to the additional ground, we are of the view that the issue has become academic. We are informed that the Assessing Officer has not only s'elected this case for scrutiny but even the assessment has been completed by computing the book profit on similar lines. Since the Assessing Officer has computed the book profit in the similar manner, no purpose would be served to admit the additional ground. Moreover, this ground does not arise out of the order of the first appellate authority. The appellant had not even taken up this ground before the Assessing Officer. However, we are rejecting the additional ground only because it is academic in nature now. We, therefore, decline to admit the additional ground.