2002 (12) TMI 200 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of tax-exempt dividend income in 'book profit' under section 115JA of the Income-tax Act, 1961.
2. Charging of interest under sections 234B and 234C of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Inclusion of Tax-Exempt Dividend Income in 'Book Profit' under Section 115JA
The assessee, a public sector undertaking, contested the inclusion of tax-exempt dividend income of Rs. 539.35 crores in its 'book profit' for the assessment year 1997-98. The income was exempt under section 10(33) in the subsequent year, but the assessee included it in the profit and loss account of the current year due to its accounting practices.

The Assessing Officer (AO) excluded this amount from the taxable income for the current year but included it in the 'book profit' for section 115JA purposes. The AO argued that since section 10(33) was not in force in the relevant previous year, the dividend income could not be excluded from the 'book profit'. The CIT(A) upheld this decision.

The Tribunal analyzed the conditions for exclusion under Explanation (ii) to section 115JA(2):
- The amount should be in the nature of income.
- The income should be exempt under Chapter III of the Income-tax Act.
- The amount should be credited to the profit and loss account.

The Tribunal found that the dividend did not constitute income for the relevant year under section 8 of the Income-tax Act, which taxes dividends in the year they are declared, distributed, or paid. Therefore, the dividend income did not meet the exclusion criteria under Explanation (ii) to section 115JA(2).

The Tribunal cited the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, emphasizing that the AO cannot adjust the profits disclosed in the profit and loss account unless supported by a specific enabling provision. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.

Issue 2: Charging of Interest under Sections 234B and 234C
The assessee argued against the levy of interest under sections 234B and 234C, claiming that it had no taxable income but only deemed income on book profits under section 115JA. The AO and CIT(A) rejected this claim, stating that section 115JA(4) specifies that all other provisions of the Income-tax Act, including sections 234B and 234C, apply to book profits computed under section 115JA.

The Tribunal found no specific exclusion for the levy of interest under sections 234B and 234C in the context of section 115JA. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground as well.

Conclusion:
The Tribunal dismissed the assessee's appeal in its entirety, upholding the inclusion of the tax-exempt dividend income in the 'book profit' under section 115JA and the levy of interest under sections 234B and 234C.