Section 115J

Section 115J — the law in short

What the courts have decided on section 115J, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Dynamic Orthopedics P Ltd v CIT Supreme CourtHelps departmentValidity unconfirmed
  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.
• Sree Ayyanar Spinning & Weaving Mills Ltd v Commissioner of Income Tax Supreme CourtHelps taxpayer
  I filed my rectification application to the Tribunal within four years but it took years to decide it. Can the order be set aside because it was passed after the four years were up?
  No. The Supreme Court held that section 254(2) has two parts. The first is the Tribunal's own power to rectify at any time within four years of its order. The second deals with rectification on an application by the assessee or the Assessing Officer pointing out a mistake apparent from the record. Where the application is made within four years, the Tribunal is bound to decide it on the merits, and the fact that it took its own time to dispose of it does not make the order bad. The High Court had erred in holding the application could not be entertained beyond four years. The Court agreed with the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd.
• Malayala Manorama Co Ltd v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  I have always charged depreciation in my books at Income Tax Rules rates. Can the Assessing Officer rework my book profit under section 115J using Schedule XIV rates instead?
  No. The Supreme Court allowed the company's appeals and set aside the Kerala High Court. Following the three-Judge Bench in Apollo Tyres, it held the controversy was no longer res integra: for section 115J the Assessing Officer may only check that the accounts are certified as properly maintained under the Companies Act, and then make the increases and reductions the Explanation allows. He has no jurisdiction to go behind the net profit shown in the profit and loss account. So where a company has consistently charged depreciation at Income Tax Rules rates in accounts audited, approved in general meeting and filed with the Registrar without objection, the book profit cannot be reworked at Schedule XIV rates.
• Apollo Tyres Ltd v CIT Supreme CourtHelps taxpayer
  The AO has rewritten my audited book profit for MAT. Is he allowed to?
  No. His power is limited to examining whether the accounts have been certified by the authorities under the Companies Act as properly maintained, and then making only the additions and reductions the Explanation prescribes. He cannot sit in judgment over the correctness of an audited profit and loss account.
• Pr. CIT v Gujarat Industries Power Co. Ltd — where the accounts depart from the company's own accounting policy, the book profit can be altered High CourtCuts both waysValidity unconfirmed
  I have always understood that under Apollo Tyres the Assessing Officer cannot touch audited accounts. He says s.115JB is wider than s.115J and that our profit and loss account was not drawn in accordance with our own stated revenue recognition policy. Is there anything in that?
  There is, but note at once how the point comes down: the High Court dismissed the Revenue's appeal holding that no substantial question of law arose, so the proposition below is the reasoning of the CIT(A), confirmed by the Tribunal and left undisturbed, and not the High Court's own. The Apollo Tyres bar is not absolute under s.115JB: the net profit can be altered where the profit and loss account was not drawn up in accordance with Parts II and III of Schedule VI to the Companies Act, and where the accounting policies and accounting standards were not correctly adopted for the accounts laid before the annual general meeting. On these facts the amount actually recovered had to be recognised as revenue under the company's own stated policy, and Rs.16.01 crores was rightly added to book profit — but the balance of Rs.78.1 crores, not being recovered, was not.
• CIT-LTU v Union Bank of India (Bombay High Court) — section 115JB did not apply to a banking company before the Finance Act 2012, because the machinery in sub-section (2) was unworkable for it High CourtHelps taxpayerValidity unconfirmed
  The Assessing Officer has raised a MAT demand on my client bank for an assessment year before 2013-14. Can section 115JB apply at all to a company whose accounts are prepared under the Banking Regulation Act?
  Not for a year before the Finance Act 2012 amendment. The Bombay High Court held that section 115JB as it stood before that amendment would not be applicable to a banking company, because sub-section (2) required the profit and loss account to be prepared under Parts II and III of Schedule VI to the Companies Act 1956 while its first proviso required the same accounting policies, accounting standards and depreciation method and rates as were used for the accounts laid before the annual general meeting — accounts which a bank necessarily prepares under the Banking Regulation Act 1949. A bank could satisfy one requirement or the other but not both, so the machinery provision failed, and on the principle in B.C. Srinivasa Setty a case in which the computation provision cannot apply was not intended to fall within the charging section. All the Revenue's appeals were dismissed.
• CIT v Veekaylal Investment Co P Ltd High CourtHelps department
  My company made a long term capital gain on selling land. Does that gain go into book profit for minimum alternate tax, or can I keep it out as a capital item?
  It goes in. The Bombay High Court held that capital gains must be included in computing book profits under section 115J. Total income under the Act itself includes capital gains under section 45, so there is no reason to leave them out of the book profit computation. Schedule VI to the Companies Act requires a company to disclose in its profit and loss account credits and receipts from non-recurring or exceptional transactions, whatever their character, and profits on transactions not usually undertaken. A capital surplus cannot simply be routed to a capital reserve to keep it out. The Department's appeal was allowed.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.