S.115JB must be discontinuied as soon as possible in view of changed circumstances and also to avoid un-constitutional provisions

[DEV KUMAR KOTHARI]

NAMO Government promises towards the Constitution:

The present Government of India , honourable Prime Minister and other ministers in his cabinet, always express lot of respect and regard to the Constitution of India and Dr. Bhimrao Ramji Ambedkar popularly known as Babasaheb Ambedkar one of  Bharat Ratna and main  author cum editor  of draft of the  Constitution of India. On websites of government departments, ministries, and also in advertisements such expressions are publicly made to show full faith and respect in the COI and values expressed therein.

Therefore, it is duty and moral obligation of the present Government to scrutinize various laws and legal provisions which are not in accordance with the provisions of the Constitution of India  (COI).

The Income-tax Act, 1961:

Under the  Income-tax Act, 1961 read with powers under the constitution tax can be imposed only on income. However, in the Income-tax Act, 1961 we find that many provisions are beyond the power to impose tax on income, as conferred upon the Parliament and the Central Government by our Constitution. If there is any doubt about constitutional validity, of any provisions those provisions should not be continued.

There is no power to impose tax on capital receipts. Mere inclusion of any item in definition of income, has no effect on amending meaning of income under the Constitution of India.

Under many provisions there are feeling of , presumption, bias, conjecture  that tax payer is chor. This is also against the spirit of the Constitution of India. As per theme and spirit in the constitution such feeling should not be found in any provision. There can be and there are many  provisions to check tax evasion by illegal means but there should not be presumption that tax payer has evaded tax by showing gifts, capital receipts, exempted income etc. If an assesse / tax payer has income and which is introduced as capital receipt, it is for tax authorities to establish such facts and there are provisions for imposing tax, tax at higher rate and also to penalize and prosecute such assesse/ taxpayer. But there should not be tax imposed on any items which in fact is not income but is deemed to be income for convenience of tax authorities.

For a few cases of tax evasion detected, making provisions of presumption is not correct and it is also not constitutionally permissible.

The tax authorities have their role and there are provisions if they find case of tax evasion to book the taxpayer, but there should not be presumption that any capital receipt shown is income or deemed as income.

Some of such provisions were introduced by earlier governments and are continued and some were introduced by present government or were enlarged in scope.

Provisions which does not stand test of validity under the constitution and also in which cases there is some doubt,  must be dropped.  

Provisions relating to MAT:

One of such provision is related with MAT in different forms. The author had earlier written an article titled “ Section 115J, 115JA and 115JB may be ultra-virse the Constitution of India and the Income-tax Act,1961 - a study with reference to some very weekly prepared and contested cases about validity of provision for tax on book profit / minimum alternate tax (MAT) and some suggestions for tax payers and government both” which was  webhosted on this website on  July 10, 2013.  In that article author had highlighted and summarised on the following:

Relevant links and references:

The Constitution of India- particularly the preamble, articles 14 ,19 , 366, and the union List.

National Thermal Power Corporation Limited Versus Union Of India And Others 1991 (4) TMI 97 - DELHI HIGH COURT

Suryalatha Spinning Mills Limited And Another Versus Union Of India And Others 1996 (2) TMI 48 - ANDHRA PRADESH HIGH COURT

Karimtharuvi Tea Estates Ltd And Another Versus Deputy Commissioner Of Income-Tax And Others 2000 (7) TMI 11 - KERALA HIGH COURT

Summary in earlier article:

It can be said that declared intention to collect some Minimum tax on book profit, is to collect   a provisional tax which is collected from companies showing huge profits and declaring huge dividends, but having lower taxable total income. At present Section 115JB is applicable.

In view of author very important contentions to be raised to challenge validity of MAT are that (a) the provisional tax collected u/s 115JA and 115JB which is eligible for credit in future tax liability cannot be called ‘tax’ or ‘impost’ within the meaning in the Constitution of India(COI) (b) collection of tax on Book profit or any part of book profit cannot be called tax on ‘income’ or ‘excess profit’ within the meaning of the Constitution of India. (c) In absence of mandate to prepare Profit and Loss account based on same and similar accounting policies on uniform principals and methodology, by all companies, at least for the purposes of MAT, there is discrimination amongst companies who are permitted to follow different accounting policies and methods resulting into different amount of profit even in a theoretically similar case. (e) Profit after Tax is a major decision in any financial plan, payment of MAT causes lower net cash retention and thus reduced scope to carry and expand business. By imposing MAT companies are forced to adopt policies which result into higher book profit under Companies Act and consequently higher tax by way of MAT – this leads to some restrictions on carrying business because due to such reasons one has to show lower profit to reduce MAT liability, although there is very low real income or normal income liable to tax. Therefore, the levy of tax u/s 115J, 115JA and 115JB need to be examined vis a vis the rights of citizens and powers of the central Government under the Constitution of India and also vis a vis the objects of the Income-tax Act, 1961.

With due regards to the counsels of petitioners who challenged provisions of S.115J the author feels that relevant contentions were not raised and irrelevant and vague contentions were raised. The cases seem to have been prepared and contested in great hurry and half heartedly and without proper application of mind hence validity of S.115J was upheld by Courts. The author feels that on a proper contest, the provisions of S. 115J, 115JA and 115JB can be considered as ultra virse. It is worth to note observations of the High Court which held that the  averment of the petitioner in this regard are extremely vague, to say the least. Therefore, apparently the case was not made out on sound footings.

Latest position:

On search of some of related websites author could not find any order on SLP on issue of constitutional validity of S.115J. It appears that the SLP of NTPC is still pending.

 Readers are requested to refer to the earlier article above referred and many other on aspect of constitutionals powers to impose tax on income.

Changes in facts and law for which MAT should be discontinued:

The following are major changes which need to be considered to find out that the reasons fore which MAT was introduced are no longer continuing:

• Tax on dividend distributed - companies are required to pay additional tax u/s 115O. Furthermore the tax on dividend is final tax and no credit is allowed to anyone. Even dividend is not allowed as allowable expenditure. Therefore reason that companies declare huge dividend and do not pay any tax is no longer existing.
• Rates of depreciation have been drastically reduced over a period of time for example from 33.33% to 15%, from 100% to 40%, from 80% to 40% from 60% to 40% etc.
• Incentives like Investment allowance has been discontinued.
• Exemptions of income and deductions from income have been drastically reduced.
• MAT was intended to impose a minimum tax based on book profits of companies who made huge profits and declared huge dividend also. We find that more than 98% of companies do not declare any dividend, leave aside huge and regular dividend, This isbecause there profits are not significant and such profits have to be retained for purposes of company.
• For a very few companies, who made huge profits on regular basis and declare huge dividend on regular basis, also there should not be MAT because on dividend companies are paying tax u/s 115O.
• For a very few companies, who made huge profits on regular basis and declare huge dividend on regular basis, thereshould not be MATon other companies who make marginal and casually profit and do not declaredividend.

Therefore, many of major reason for higher book profit and lower taxable income does not exist. Some of provisions which still exist for exemption or deduction or some weighted deductions have their special role and by imposing tax on book profit, the purpose of exemption or deductions get defeated. Therefore, the provisions of S.115JB must be discontinued as soon as possible.