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Revision u/s 263 - Whether the CIT was justified in invoking the provisions of section 263 and directing the AO to re-compute the book profit u/s 115JB by considering the P&L account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956 on account of gains arising out of the transfer of assets to wholly-owned subsidiary as part of book profit without considering the provisions of section 47(iv)? - facts of the case are that, the assessee is a company filed return of income for the AY 2004-05 declaring a loss and assessment was completed u/s 143(3) determining the total loss after making an addition towards deferred revenue expenditure.
HELD THAT:- Even declaration of dividend is not a must for application of section 115JB. The purpose of this section is to tax companies which were making profits but not paying taxes due to so many exemptions and deductions. The reference to the declaration of dividend in the context of section 115JB by the Finance Minister or by the Circulars are merely explanations to the kind of malaise that the section sought to address. For invoking this section, there is no pre-requisite condition that the company should have declared dividend to the shareholders.
Long-term capital gain is to be included in the net profit prepared under the Companies Act and the same is not deductible from the net profit for the purpose of computing book profit u/s 115JB. We further hold that merely because the long-term capital gain is exempt u/s 47(iv) under the normal provision of the Act, it is not correct to say that it is also to be reduced from the net profit for the purpose of computing book profit u/s 115JB when the Explanation to section 115JB does not provide for any deduction in terms of section 47(iv). In other words, we hold that section 47(iv) of the Act has no application in the computation of book profit under section 115JB of the Act.
In fact only because the Government felt that companies availing of various deductions permitted under the Income-tax Act showed a low income for the purpose of income-tax but was able to show healthy profits as per books on the basis of which dividends were distributed and to tax these types of companies that tax on book profits were introduced. By again importing deductions allowed under the normal provisions of income-tax into computation of book profits, we will be negating the very purpose for which these sections were introduced. To sum up, we hold that in the absence of any provision for exclusion of capital gains exempted in the computation of book profit under the provisions contained in Explanation to section 115JB, the assessee is not entitled to the exclusion thereof as claimed.
In the result, we answer the question as against the assessee.
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