March 2009
Whether while computing book profit u/s. 115JB, lower of unabsorbed loss or depreciation as per profit and loss account of amalgamated company can be set off against profits of amalgamating company — Held, Yes.
By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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40 2009 TIOL 26 ITAT Bang.
VST Tillers & Tractors Ltd.
v. CIT
ITA No. 588/Bang./2008
A.Y. : 2003-2004. Dated : 21-11-2008
S. 115JB of the Income-tax Act, 1961 — A.Y. 2003-04 — Whether
while computing book profit u/s. 115JB of the Act lower of unabsorbed loss or
depreciation as per profit and loss account of the amalgamated company can be
set off against profits of an amalgamating company — Held, Yes.
Facts :
During the year ended 31-3-2003, V.S.T. Precision Components
Ltd. (‘VPCL’), a company which was subsidiary of the assessee company was
amalgamated with the assessee company. The amalgamation, approved by the
Karnataka High Court by its order dated 18th July 2003, was to be effective from
1-4-2002. The terms of amalgamation, as mentioned in paragraph 11 of the order
of the Court, inter alia stated that accumulated loss and depreciation of
VPCL shall be deemed to be the loss and depreciation of the assessee company as
provided u/s.72 of the Act.
The assessee returned an income of Rs. Nil after setting off
business loss and unabsorbed depreciation of VPCL. The assessee computed book
profit u/s.115JB by reducing from profit as per its profit & loss account the
brought forward loss as per profit & loss account of VPCL.
The book profit computed by the assessee was accepted by the
AO in the assessment u/s.143(3).
Subsequently, the CIT was of the opinion that since the
unabsorbed loss was not as per the books of account of the assessee company but
of VPCL, the same cannot be permitted to be reduced from the book profit for
purposes of S. 115JB. He, accordingly, directed the AO to modify the assessment
order by re-computing the tax liability u/s.115JB.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held :
The Tribunal noted that the effective date of amalgamation
was 1-4-2002. The Tribunal held that in view of the statutory provisions of S.
72A(1) and also the order of the High Court sanctioning the scheme, the
unabsorbed business loss and also unabsorbed depreciation of VPCL were deemed to
be loss and depreciation of the assessee company. U/s.115JB(2) lower of
unabsorbed loss or unabsorbed depreciation is to be set off against the book
profit. Since the unabsorbed loss of VPCL was lower than unabsorbed
depreciation, the assessee had rightly set off the unabsorbed loss against book
profit. The Tribunal held that the CIT was not correct in directing the AO to
compute book profit without setting off the unabsorbed loss of VPCL. The
Tribunal set aside the order of the CIT passed u/s.263 of the Act.
