Pasayat, CJ. At the instance of the assessee, following questions have been referred to this court, for opinion in terms of section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as `the Act') Income Tax Act, by the Tribunal, Cochin Bench :
"1. Whether, on the facts and in the circumstances of the case, the interpretation sought to be put on section 115J of the Income Tax Act by the Appellate Tribunal is correct in law ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that 'loss' as it appears in section 205(1), first proviso, clause (b) of the Companies Act, 1956 read with section 115J of the Income Tax Act, 1961 means 'including depreciation'?"
2. The assessment year concerned is 1989-90. The assessee is a domestic company in which public are not substantially interested. During the relevant period it was engaged in the business of printing newspapers and journals. For the assessment year in question, the assessee filed a return showing a loss of Rs. 4,93,417 which included unabsorbed depreciation relating to the earlier years also. The account was prepared for a period of 21 months in the previous year. The assessing officer computed the book profit under section 115J of the Act in the following manner:
2. The assessment year concerned is 1989-90. The assessee is a domestic company in which public are not substantially interested. During the relevant period it was engaged in the business of printing newspapers and journals. For the assessment year in question, the assessee filed a return showing a loss of Rs. 4,93,417 which included unabsorbed depreciation relating to the earlier years also. The account was prepared for a period of 21 months in the previous year. The assessing officer computed the book profit under section 115J of the Act in the following manner:
Rs.
"Net profit as per profit and loss account 35,055 Add: Investment allowance reserve 3,07,811 3,42,866 Less: Loss as per section 205(1) of the Companies Act 1,19,521 Book profits 2,23,345"
3. The assessee filed an application for rectification pointing out that the net loss as per the profit and loss account had not been taken into account in computing the book profit. The assessing officer accepted the claim. However, he found that in allowing the loss under section 205(1)(b) of the Companies Act, 1956, the correct amount to be allowed was only the carried forward business loss of Rs. 29,330 as the same was lesser than the unabsorbed depreciation of the earlier years amounting to Rs. 2,36,480. Accordingly, he restricted the deduction to the extent of Rs. 29,330. Computation was made in the following manner:
3. The assessee filed an application for rectification pointing out that the net loss as per the profit and loss account had not been taken into account in computing the book profit. The assessing officer accepted the claim. However, he found that in allowing the loss under section 205(1)(b) of the Companies Act, 1956, the correct amount to be allowed was only the carried forward business loss of Rs. 29,330 as the same was lesser than the unabsorbed depreciation of the earlier years amounting to Rs. 2,36,480. Accordingly, he restricted the deduction to the extent of Rs. 29,330. Computation was made in the following manner:
Rs.
"Net loss as per profit and loss account for the first period from 1-7-1987 to 30-6-1988 2,38,938 Less: Net profit as per profit and loss account for the second period 1-7-1988 to 31-3-1989 35,055 Net loss as per books 2,03,883 Less: Investment allowance reserve 3,07,811 Balance profit 1,03,928 Less: Loss under section 205(1) of the Companies Act 29,330 Balance profit 74,598"
Tax was levied at 30 per cent on the aforesaid balance under section 115J. The assessee preferred an appeal before the Commissioner (Appeals), Cochin. Computation done by the assessing officer was upheld by the Commissioner (Appeals). The assessee prefer-red second appeal before the Tribunal. The assessee's stand was that for the purpose of section 115J, loss or depreciation, whichever is less, should be computed as contemplated under the provisions of the Companies Act and the authorities failed to note the general principle that loss included depreciation also and that the entire unabsorbed depreciation relating to the earlier years should have been deducted to arrive at the book profit for the current year. The Tribunal placed reliance on the decision of the Andhra Pradesh High Court in V. V. Trans-Investments (P) Ltd. v. CIT (1994) 207 ITR 508 (AP) and dismissed the assessee's appeal. Further, when a reference was sought for, same was accepted and the questions set out above have been referred for opinion.
4. The word loss 'in proviso (b) to section 205(1) would include 'depreciation'. In accounting parlance and in commercial sense, the word 'loss' is always taken as including 'depreciation'. If depreciations were to be excluded, the Legislature would have used the term 'cash loss'. A comparison may be made with the language employed in section 3(o) of the Sick Industrial Companies (Special Provisions) Act, 1985, wherein a distinction is made between 'accumulated loss' and 'cash loss'. In Garden Silk Wvg. Factory v. CIT (1991) 189 ITR 512 (SC), the Apex Court had observed that unabsorbed depreciation was part of loss. Section 349(4)(1) uses the expression 'excess of expenditure over income' which is narrower in scope and excludes 'depreciation'. There is no reason to assign to the term 'loss' as occurring in section 205, proviso clause (b) of the Companies Act a meaning different from the one in which it is understood therein solely because it is being read along with section 115J.
4. The word loss 'in proviso (b) to section 205(1) would include 'depreciation'. In accounting parlance and in commercial sense, the word 'loss' is always taken as including 'depreciation'. If depreciations were to be excluded, the Legislature would have used the term 'cash loss'. A comparison may be made with the language employed in section 3(o) of the Sick Industrial Companies (Special Provisions) Act, 1985, wherein a distinction is made between 'accumulated loss' and 'cash loss'. In Garden Silk Wvg. Factory v. CIT (1991) 189 ITR 512 (SC), the Apex Court had observed that unabsorbed depreciation was part of loss. Section 349(4)(1) uses the expression 'excess of expenditure over income' which is narrower in scope and excludes 'depreciation'. There is no reason to assign to the term 'loss' as occurring in section 205, proviso clause (b) of the Companies Act a meaning different from the one in which it is understood therein solely because it is being read along with section 115J.
5. Section 115J, Explanation, clause (iv), is a piece of legislation by incorporation. If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that is to write those sections into the new Act as if they had been actually written in it with the pen, or printed in it, as was so admirably stated by Lord Esher, M.R. Once the object behind the legislation is taken note of, the inevitable conclusion is the provisions of section 205 stand bodily lifted and incorporated into the body of section 115J. On a plain reading of the provision, the irresistible conclusion is that section 205(1), proviso clause (b) of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The expressions 'the amount provided for depreciation 'and' arrived at in both cases after providing for depreciation' make it abundantly clear that in this clause 'loss' refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss account. The above position has been elaborately dealt with by the Apex Court in Surana Steels (P.) Ltd. v. Deputy CIT(1999) 9 DTC 400 (SC) : (1999) 237 ITR 777 (SC), from which decision, we have gathered the conclusions.
5. Section 115J, Explanation, clause (iv), is a piece of legislation by incorporation. If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that is to write those sections into the new Act as if they had been actually written in it with the pen, or printed in it, as was so admirably stated by Lord Esher, M.R. Once the object behind the legislation is taken note of, the inevitable conclusion is the provisions of section 205 stand bodily lifted and incorporated into the body of section 115J. On a plain reading of the provision, the irresistible conclusion is that section 205(1), proviso clause (b) of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The expressions 'the amount provided for depreciation 'and' arrived at in both cases after providing for depreciation' make it abundantly clear that in this clause 'loss' refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss account. The above position has been elaborately dealt with by the Apex Court in Surana Steels (P.) Ltd. v. Deputy CIT(1999) 9 DTC 400 (SC) : (1999) 237 ITR 777 (SC), from which decision, we have gathered the conclusions.
The answer to the second question, therefore, is in the affirmative, i.e., in favour of the revenue and against the assessee. In view of the answer to this question, there is no necessity to answer the first question as it would really be of academic interest.