For book profit under section 115J, do I provide depreciation at Income Tax Rules rates or at Schedule XIV rates - and does it matter that I am a private limited company?
It depends, and the Supreme Court did not settle it here. This is a reference order, not a decision. A two-judge bench held that its own earlier ruling in Malayala Manorama - that a private company outside sections 349, 350 and 355 of the Companies Act may provide depreciation at Income Tax Rules rates for book profit - needs reconsideration. Its view was that section 115J incorporates only Parts II and III of Schedule VI, not sections 205, 350 or 355, and draws no distinction between public and private companies. It directed the Registry to place the appeal before the Chief Justice for a larger bench.
Decided by the Supreme Court (Supreme Court of India - S.H. Kapadia and Aftab Alam, JJ. (order per S.H. Kapadia, J.)) on 2010-02-16, reported as 2010 AIR SCW 1546; 2010 (12) SCC 414; AIR 2010 SC (SUPP) 547; 2010 Tax LR 238; (2010) 321 ITR 300; (2010) 2 SCALE 384. It bears on section 115J of the Income Tax Act 1961, in How Tax Law Is Read and Assessment & Scrutiny matters.
Practitioners reach for this because it is the warning label on Malayala Manorama. That decision is still the Supreme Court authority a private company relies on to claim Income Tax Rules depreciation in its section 115J book profit, but this order says in terms that it was wrongly decided and that the Kerala High Court view it reversed was right. The reasoning matters beyond section 115J: section 115J(1A) is legislation by incorporation, and what is incorporated is Schedule VI alone, so provisions of the Companies Act about managerial remuneration and dividends do not travel into the Income Tax Act with it. The order also records that the Companies (Amendment) Act 1988 expressly de-linked the two sets of depreciation rates.
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The appellant, a private limited company making and selling orthopaedic appliances, returned income of Rs.1,50,730 for assessment year 1990-91. In its profit and loss account it provided depreciation at the rates in Rule 5 of the Income Tax Rules, 1962. The Assessing Officer recomputed book profit for section 115J by allowing depreciation at the lower Schedule XIV rates under the Companies Act, 1956. The Commissioner (Appeals) accepted the company's case: it was a private limited company and not a subsidiary of a public company, so by section 355 of the Companies Act section 350 did not apply to it, and Rule 5 rates were right. The Tribunal dismissed the department's appeal on 13 January 1999 on the same footing, holding sections 349 and 350 inapplicable. The Kerala High Court reversed. It held that section 115J was enacted to reach prosperous zero tax companies, that section 115J read with clause (iv) of the Explanation as it then stood was legislation by incorporation which brought section 205 of the Companies Act into it, and that Schedule XIV rates therefore applied. The company appealed to the Supreme Court.
Nothing was decided and no relief was granted either way. The Bench took the view that its own decision in Malayala Manorama Company Limited v. CIT (2008) 300 ITR 251 needs reconsideration and that the Kerala High Court decision reversed by it, CIT v. Malayala Manorama Company Limited (2002) 253 ITR 378, was right. Its reasons were that section 115J imposes a minimum alternate tax on a deemed income, draws no distinction between public and private limited companies, and by section 115J(1A) legislatively incorporates only Parts II and III of Schedule VI to the Companies Act. Once a company is a MAT company it must prepare its profit and loss account in accordance with those Parts alone, whether it is private or public. If Malayala Manorama were accepted, the very purpose of section 115J would be defeated. The Registry was directed to place the civil appeal before the Chief Justice for appropriate directions, the Bench being of the view that the matter needs reconsideration by a larger Bench.
The Bench started from the object of Chapter XII-B, inserted by the Finance Act 1987 with effect from 1 April 1988, which replaced section 80VVA. Section 115J deemed the total income of a company to be thirty per cent of its book profit where the computed total income fell below that figure, the purpose being to bring prosperous zero tax companies, which earned profits and declared dividends but paid no tax, within the net. A provision of that kind, imposing tax on deemed income, cannot sensibly distinguish between private and public companies, and section 115J makes no such distinction. The Bench then read section 115J(1A) strictly, as a provision of legislation by incorporation. What it incorporates is Parts II and III of Schedule VI to the Companies Act and nothing else. Sections 205, 350 and 355 of that Act are not incorporated, so the enquiry the lower authorities had undertaken - whether sections 349, 350 and 355 applied to a private company - was beside the point. Every MAT company, private or public, must draw its profit and loss account in accordance with Parts II and III of Schedule VI. The Bench added that the depreciation rates in Rule 5 differ from those in Schedule XIV and that the Companies (Amendment) Act 1988 expressly de-linked the two, which is why the Kerala High Court's earlier view in Malayala Manorama was correct and its reversal by this Court was not.
What is incorporated in Section 115J is only Schedule VI and not Section 205 or Section 350 or Section 355.
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Handle my notice → Ask a CA on WhatsAppIt depends, and the Supreme Court did not settle it here. This is a reference order, not a decision. A two-judge bench held that its own earlier ruling in Malayala Manorama - that a private company outside sections 349, 350 and 355 of the Companies Act may provide depreciation at Income Tax Rules rates for book profit - needs reconsideration. Its view was that section 115J incorporates only Parts II and III of Schedule VI, not sections 205, 350 or 355, and draws no distinction between public and private companies. It directed the Registry to place the appeal before the Chief Justice for a larger bench. This was decided by the Supreme Court (Supreme Court of India - S.H. Kapadia and Aftab Alam, JJ. (order per S.H. Kapadia, J.)) and bears on section 115J of the Income Tax Act 1961. It is reported as 2010 AIR SCW 1546; 2010 (12) SCC 414; AIR 2010 SC (SUPP) 547; 2010 Tax LR 238; (2010) 321 ITR 300; (2010) 2 SCALE 384. Practitioners reach for this because it is the warning label on Malayala Manorama. That decision is still the Supreme Court authority a private company relies on to claim Income Tax Rules depreciation in its section 115J book profit, but this order says in terms that it was wrongly decided and that the Kerala High Court view it reversed was right. The reasoning matters beyond section 115J: section 115J(1A) is legislation by incorporation, and what is incorporated is Schedule VI alone, so provisions of the Companies Act about managerial remuneration and dividends do not travel into the Income Tax Act with it. The order also records that the Companies (Amendment) Act 1988 expressly de-linked the two sets of depreciation rates. If it applies to you, the first step is this: Treat Malayala Manorama as doubted rather than safe, and say so when you advise on a section 115J or old section 115JA book profit claim.
The appellant, a private limited company making and selling orthopaedic appliances, returned income of Rs.1,50,730 for assessment year 1990-91. In its profit and loss account it provided depreciation at the rates in Rule 5 of the Income Tax Rules, 1962. The Assessing Officer recomputed book profit for section 115J by allowing depreciation at the lower Schedule XIV rates under the Companies Act, 1956. The Commissioner (Appeals) accepted the company's case: it was a private limited company and not a subsidiary of a public company, so by section 355 of the Companies Act section 350 did not apply to it, and Rule 5 rates were right. The Tribunal dismissed the department's appeal on 13 January 1999 on the same footing, holding sections 349 and 350 inapplicable. The Kerala High Court reversed. It held that section 115J was enacted to reach prosperous zero tax companies, that section 115J read with clause (iv) of the Explanation as it then stood was legislation by incorporation which brought section 205 of the Companies Act into it, and that Schedule XIV rates therefore applied. The company appealed to the Supreme Court. The matter was decided on 2010-02-16 by the Supreme Court (Supreme Court of India - S.H. Kapadia and Aftab Alam, JJ. (order per S.H. Kapadia, J.)). On those facts the Supreme Court held as follows. Nothing was decided and no relief was granted either way. The Bench took the view that its own decision in Malayala Manorama Company Limited v. CIT (2008) 300 ITR 251 needs reconsideration and that the Kerala High Court decision reversed by it, CIT v. Malayala Manorama Company Limited (2002) 253 ITR 378, was right. Its reasons were that section 115J imposes a minimum alternate tax on a deemed income, draws no distinction between public and private limited companies, and by section 115J(1A) legislatively incorporates only Parts II and III of Schedule VI to the Companies Act. Once a company is a MAT company it must prepare its profit and loss account in accordance with those Parts alone, whether it is private or public. If Malayala Manorama were accepted, the very purpose of section 115J would be defeated. The Registry was directed to place the civil appeal before the Chief Justice for appropriate directions, the Bench being of the view that the matter needs reconsideration by a larger Bench.
The Bench started from the object of Chapter XII-B, inserted by the Finance Act 1987 with effect from 1 April 1988, which replaced section 80VVA. Section 115J deemed the total income of a company to be thirty per cent of its book profit where the computed total income fell below that figure, the purpose being to bring prosperous zero tax companies, which earned profits and declared dividends but paid no tax, within the net. A provision of that kind, imposing tax on deemed income, cannot sensibly distinguish between private and public companies, and section 115J makes no such distinction. The Bench then read section 115J(1A) strictly, as a provision of legislation by incorporation. What it incorporates is Parts II and III of Schedule VI to the Companies Act and nothing else. Sections 205, 350 and 355 of that Act are not incorporated, so the enquiry the lower authorities had undertaken - whether sections 349, 350 and 355 applied to a private company - was beside the point. Every MAT company, private or public, must draw its profit and loss account in accordance with Parts II and III of Schedule VI. The Bench added that the depreciation rates in Rule 5 differ from those in Schedule XIV and that the Companies (Amendment) Act 1988 expressly de-linked the two, which is why the Kerala High Court's earlier view in Malayala Manorama was correct and its reversal by this Court was not. In the words reproduced by the source cited on this page: "What is incorporated in Section 115J is only Schedule VI and not Section 205 or Section 350 or Section 355."
It was decided by the Supreme Court on 2010-02-16 and is reported as 2010 AIR SCW 1546; 2010 (12) SCC 414; AIR 2010 SC (SUPP) 547; 2010 Tax LR 238; (2010) 321 ITR 300; (2010) 2 SCALE 384. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 115J, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Nothing was decided and no relief was granted either way. The Bench took the view that its own decision in Malayala Manorama Company Limited v. CIT (2008) 300 ITR 251 needs reconsideration and that the Kerala High Court decision reversed by it, CIT v. Malayala Manorama Company Limited (2002) 253 ITR 378, was right. Its reasons were that section 115J imposes a minimum alternate tax on a deemed income, draws no distinction between public and private limited companies, and by section 115J(1A) legislatively incorporates only Parts II and III of Schedule VI to the Companies Act. Once a company is a MAT company it must prepare its profit and loss account in accordance with those Parts alone, whether it is private or public. If Malayala Manorama were accepted, the very purpose of section 115J would be defeated. The Registry was directed to place the civil appeal before the Chief Justice for appropriate directions, the Bench being of the view that the matter needs reconsideration by a larger Bench. It arises in How Tax Law Is Read and Assessment & Scrutiny matters, on section 115J of the Income Tax Act 1961, and was decided by Supreme Court of India - S.H. Kapadia and Aftab Alam, JJ. (order per S.H. Kapadia, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check the current status of Civil Appeal No.8419 of 2003 before relying on either decision; this order only referred the question, it did not answer it. Frame the argument on what section 115J actually incorporates - Parts II and III of Schedule VI - rather than on whether sections 349, 350 and 355 of the Companies Act apply to your company. Keep the point live in appeal rather than conceding it, since the question is pending before a larger bench.
Under appeal, and the appeal has not been decided. This order decides nothing; it refers a question to a larger Bench, and the citator shows the reference is still open. A search returns 17 later decisions citing the order, none of them an answer by the larger Bench. Later courts treat the matter as pending: the Rajkot Bench recorded on 6 December 2012 that 'the matter has been referred for consideration of larger bench', the Ahmedabad Bench in Kansara Popatlal Tribhovandas Metal v ACIT (31 August 2022) that the Supreme Court in Dynamic Orthopedics 'did not agree with its earlier judgment', and the Gujarat High Court in Principal Commissioner of Income Tax v Kansara Popatlal Tribhuvan Metal Pvt Ltd (21 August 2023) that the judgment was pending reconsideration. A second search, by case name for a larger-Bench ruling on Malayala Manorama, returned 14 decisions, every one of which describes the reference as still to be decided and none of which reports an answer. Civil Appeal No. 8419 of 2003 accordingly stands referred and undecided, and Malayala Manorama Co Ltd v CIT (2008) 300 ITR 251 remains the operative Supreme Court authority, under express doubt. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a reference order, not a judgment on the appeal, so there is no operative outcome to report. Section 115J applied only to assessment years 1988-89 to 1990-91; the reasoning is expressed for that section and the order says nothing about section 115JA or section 115JB, which the batch line lists, or about how far it carries to those provisions. The text as reproduced contains an apparent slip - after holding that only Parts II and III of Schedule VI are incorporated, it says the question of applicability of Parts II and III of Schedule VI does not arise, where the sense of the passage requires sections 205, 350 and 355. The Explanation to section 115J, on which the Kerala High Court relied, is referred to but not set out. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Nothing was decided and no relief was granted either way. The Bench took the view that its own decision in Malayala Manorama Company Limited v. CIT (2008) 300 ITR 251 needs reconsideration and that the Kerala High Court decision reversed by it, CIT v. Malayala Manorama Company Limited (2002) 253 ITR 378, was right. Its reasons were that section 115J imposes a minimum alternate tax on a deemed income, draws no distinction between public and private limited companies, and by section 115J(1A) legislatively incorporates only Parts II and III of Schedule VI to the Companies Act. Once a company is a MAT company it must prepare its profit and loss account in accordance with those Parts alone, whether it is private or public. If Malayala Manorama were accepted, the very purpose of section 115J would be defeated. The Registry was directed to place the civil appeal before the Chief Justice for appropriate directions, the Bench being of the view that the matter needs reconsideration by a larger Bench.
TaxSphere, “Dynamic Orthopedics P Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/dynamic-orthopedics-p-ltd-v-cit/ (validity last checked 2026-08-29)
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