MAT under 115JB

[bhaveshformals]

Under 115 JB a company is allowed to deduct the minimum of brought forward business losses or depreciation.

Suppose a company never had owned fixed assets and therefore has never claimed depreciation in its books as an expense.

Under such facts if we apply 115JB strictly, then the company will never be able to take the benefit of brought forward business losses.

Can one argue that the provision relating to unabsorbed depreciation won't apply to such a case and therefore the company can claim unabsorbed business loss for calculation of book profits for section 115JB

--Bhavesh Savla

Keep Smiling.

[patil]

You have raised very good point.

In BS Srinivasa Shetty, SC had to consider what would happen to case where assessee sold asset for which cost was not determinable. The Court held that s. 48 was an integrated section and that it reqd deduction of cost from consideration for dertermining gain. It was held that if imp com[ponent is not applyicable, then the whole machinery provision fails and capitals gain is not exigible.

Applying same logic to present case, s. 115 J requires comparision of accumulated loss with unabsorbed depr and assessee allowed whichever is lesser.

But if there is nothing to compare than how you will apply provision. You cannot say that whole provision will not apply because that is against intention of legislature. see Surana Stells whre SC has set out that the intention of privision is to give relief to loss-making provision.

In my view, correct way is to ignore the requirement of 'whichever is less;' and give assessee benefit of business loss.

Patil.

[probal_shome]

Sir,

Taking a cue from your point, I would like to refer to the judgement of the Calcutta HC in Rupenjeli Tea 186 ITR 301 in the context of s. 44C. S. 44C provides that an assessee would be entitled to a deduction of the lowest of three items. One of the items postulated that an assessee was carrying on business outside India.

The question was what would happen to an assessee who had no overseas business operations. The Court followed Srinivasa Setty and held that:

"In CIT vs. B. C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) : TC20R.148, the Supreme Court held that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Referring to s. 48(ii), the Supreme Court further observed that this section contemplated an asset in the acquisition of which it was possible to envisage a cost. None of the provisions pertaining to the head "Capital gains" suggests that they include an asset in acquisition of which no cost at all can be conceived. Further, the date of acquisition of the asset was a material factor in applying the computation provisions pertaining to capital gain; but in the case of goodwill generated in a new business, it was not possible to determine the date when it came into existence. In view of these observations of the Supreme Court, we are inclined to hold that if any one or more of the base figures forming part of computations under cls. (a), (b) of (c) of s. 44C are not conceivable in a particular case, it must be held that the non obstante provisions contemplating disallowance of "head office expenditure" under s. 44C would not apply. On a fair reading of cl. (c), it appears that the expression "so much of the expenditure... as is attributable to business....in India" contemplated that at least a part of the expenditure is referable to a business outside India. In the case before us, it is an admitted position that the assessee-company did not have any business operations outside India and the entire expenditure incurred at its London head office was wholly attributable to its business activities in this country. If that be so, it is clear that cl. (c) cannot have any application in this case and, therefore, no disallowance can be made under s. 44C in the facts and circumstances of this case."

This has been followed by the Bombay HC in Deutsche Bank 284 ITR 463.

Regards,

Probal.

[rrmodi]

Mr Patils remarks, though valid, cannot be applied now after the amendment in the clause which says that if either brought forward loss or unabsorbed depreciation is nil, no deduction will be allowed. This is wef AY 2001-02.