C.I.T. vs. DINTEX DYECHEM LTD.

Facts

The assessee, Dintex Dyechem Ltd., filed an appeal against the order of the DCIT(Asstt.) Spl. under Section 143(3) for Assessment Year 1989-90. The assessee contended that if a loss included depreciation, the specific mention of 'loss' or 'depreciation' was unnecessary. The first appellate authority partly allowed the appeal, deleting interest charged under Section 234. However, the CIT(Appeals) held that for computing book profits under Section 115J, carried forward losses should be adjusted before depreciation, not after. The assessee appealed to the Tribunal, which allowed the appeal. The revenue applied for a reference, and the Gujarat High Court framed two questions of law arising from the Tribunal's order dated 03.09.1998 in ITA No. 1186/Ahd/1990.

Held

The High Court held that the questions referred were squarely covered by the Supreme Court's decision in Surana Steels (P) Ltd. vs. Deputy Commissioner of Income-Tax (237 ITR 777 SC). The Supreme Court had held that the term 'loss' in clause (b) of the proviso to Section 205(1) of the Companies Act, when read in the context of Section 115J of the Income-tax Act, 1961, signifies the amount arrived at after taking into account depreciation. If 'loss' were to be interpreted as pre-depreciation loss, the resultant computation would not conform to the tenor of Section 205. The Court agreed with the Tribunal's view that unabsorbed depreciation should be considered after depreciation and that the computation should be in conformity with the object of Section 115J. Therefore, the High Court upheld the Tribunal's order and answered the referred questions in favour of the assessee and against the revenue. The reference was disposed of accordingly.

Key Issues

1. Whether the Appellate Tribunal is right in law and on facts in holding that 'loss' in explanation (iv) to section 115J means net loss after deduction of depreciation and that the assessee was entitled to deduction of unabsorbed depreciation? (Question of law and fact, concerning Section 115J). 2. Whether the Appellate Tribunal ought not to have considered the specific distinguishable words used in section 115J(1A) for unabsorbed business loss and unabsorbed depreciation? (Question of law, concerning Section 115J(1A)). Assessee's contention: The assessee argued that if a loss already included depreciation, separate mention of 'loss' or 'depreciation' would be redundant. The Tribunal ultimately allowed the assessee's appeal. Revenue's contention: The revenue sought reference on the grounds that the Tribunal's interpretation of 'loss' in the context of Section 115J was incorrect. The revenue's application led to the framing of the questions for the High Court.