2007 (11) TMI 401 - SC - Income Tax

Whether Accounting Standard 22 (AS 22) entitled "accounting for taxes on income" insofar as it relates to deferred taxation is inconsistent with and ultra vires the provisions of the Companies Act, 1956 (‘the Companies Act’), the Income-tax Act, 1961 (‘Income-tax Act’) and the Constitution of India?

Held that:- Appeal dismissed. Before the Calcutta High Court, the impugned Notification adopting AS 22 was also challenged on the ground that the provisions of AS 22 insofar as it relate to ‘deferred taxation’ is violative of articles 14 and 19(1)(g) of the Constitution of India. In this connection, it was pleaded that by making AS 22 mandatory, the appellants ‘companies will suffer erosion of its net worth. That, as a result, the debt equity ratio will also increase and that the lenders may recall the loans and thereby the appellants’ rights to carry on business in future would be violated. Although, the aforestated challenge was pleaded in the writ petition, when the matter came for hearing before the High Court, it appears that the said grounds were not argued. According to the appellants, implementation of AS 22 would result in reduction of profits and reserves. In the circumstances, we do not wish to express any opinion on the constitutional validity of the said AS 22. Whether the said Standard constitutes a restriction on the rights of the appellants to carry on business under article 19(1)(g) or whether the said Standard is violative of article 14 are questions on which we express no opinion. We keep those questions open. Suffice it to state that, in the present case, we are of the view that the said AS 22 is neither ultra vires nor inconsistent with the provisions of the Companies Act, including Schedule VI.