TAX ON BOOK PROFITS- PROVISIONS ARE INTEGRAL, CHARGING AND COMPUTAION PROVISIONS - SELF CONTAINED CODE. CANNOT BE APPLIED IF COMPUTATIONS CANNOT BE MADE AND PRE- CONDITIONS FAILS.

[DEV KUMAR KOTHARI]

Earlier published articles:

Readers may search articles on subject of MAT and S.115J, 115JA and 115JB on this website, written by author and other authors.  Article directly on the issue  in hand  is

SECITION 115JB- CASE OF DCW LTD -SOME RELEVANT IMPORTANT LEGAL PROVISIONS AND CONTENTIONS WHICH NEED TO BE RAISED TO TURN LOST CASE INTO A THUMPING WINNING of DCW before High Court.

An Article By: - CA DEV KUMAR KOTHARI  May 29, 2013

Old articles published in CTR on the concept:

“ IS THERE ANY ZERO TAX COMPANY OR PERSON IN REAL SENSE”   (1996) 132 CTR (Articles) 230- 235 by Dev Kumar Kothari

Section 115JA – ADJUSTMENT FOR PAST LOSS OR DEPRECIATION  (1997) 139 CTR (Articles) 248-252

By DEV KUMAR KOTHARI

Recently reported judgment of ITAT:

2021 (4) TMI 633 - ITAT KOLKATA  THE UNITED PROVINCES SUGAR COMPANY LTD. VERSUS INCOME TAX OFFICER, WARD-12 (2) KOLKATA ITA No. 1956/Kol/2018 Dated: - 01 April 2021.

 In this judgment some old  unreported judgments of honourable Calcutta High Court and ITAT, Calcutta have also been referred to discussed and followed. All these judgments have attained finality.

Understanding of author since inception of MAT:

Author had understood provisions relating to MAT as contained in S.115J ,115JA and 115JB from time to time  as  self-contained  and  integral provisions for charging and computation both.  

Provisions of S. 80A and 80B are also important and directly relevant on the meaning  and computation and related aspects about   concepts of gross total income,  deductions under Chapter VIA  and computation of total income.

That for applicability of these provisions there must be computation of “Gross Total Income” / GTI  and “Total Income” / TI  as per normal provisions of computation of GTI,  deductions under Chapter VIA from GTI to compute “Total Income”. These conditions are common to S.115J, 115JA and 115JB.

In case of S.115JB further condition is that there must be computation of “ tax payable”  on total income (TI)

In case of S.115J and S.115JA comparison was to be made between TI and prescribed percentage of book profits from time to time.

In case of S.115JB comparison is to be made of Tax payable on normal income and on book profits at applicable rate of tax for relevant year.

In first published article in 1996 author had expressed that S.115J will not be applicable if there is no computation of gross total income, deductions and  total income as per prescribed method of computation under the Act.  In case of loss, loss computed is kept apart and carried forwarded. There is no GTI.

In the article published on this website on 29.05.2013 author had discussed some of  aspects with reference to judgment of ITAT in case of DCW Ltd, in which these contentions were not raised but sole contention raised was that if no tax is payable on normal income than S.115JB will not apply.

Case of Vishnu Sugar Mills Ltd (VSM) ( unreported)

In case of  VSM, on advice of  the author,  contentions as discussed above were raised from inception of MAT vide S.115J and then u/s 115JA and S. 115JB.

 Learned CIT(A)  did not allow appeal of assessee relating to provisions of s.115J and 115JA so assessee preferred appeal  before ITAT.

However, on applicability of S.115JB, Learned CIT(A) allowed appeal of assessee that when there is no GTI, TI and tax payable on normally computed income, S.115JB cannot be invoked. Therefore Ld. CIT(A) vacated invocation of S.115JB. On this issue, revenue preferred appeal before ITAT.

Before Tribunal, author represented assessee.

 Honourable Tribunal , after detailed discussion, accepted contentions so raised, and  held that when there is no computation of  GTI  and TI, S. 115J and 115JA cannot be applied and allowed appeal of assessee for various years and reversed order of Ld. CIT(A) on issue of S.115J and 115JA.

Tribunal accepted contentions of assessee in relation to s.115JB also and confirmed order of Ld. CIT(A) and  held that when there is no computation of  GTI, deductions under Chapter VIA so as to make computation of TI and tax payable thereon, then S.115JB will not be applicable. So the appeals of revenue was dismissed on issue of S.115JB.

On appeal of revenue before honourable High Court of Calcutta, honourable High Court dismissed appeal of revenue in view of detailed order of ITAT and finding no substantial question of law.  No appeal was filed before the Supreme Court, though provisions and circular relating to no appeal in case of low tax, as per S.268A  was not applicable  because tax effect was higher and issue involved was repetitive. In  some other cases decided on these basis , no further appeal was filed before High Court or Tribunal, as the case may be.

  Therefore, the judgment /order of Tribunal had attained finality.

Case of the United Provincial Sugar Co. Ltd:

In the case of United Provinces Sugar Company Ltd claim was allowed in assessment by following judgments relied by assessee and also order of CIT(A) in case of assessee, in  an earlier year. The order of Ld. CIT(A)  was accepted by revenue as no appeal was filed before Tribunal.  

 However, during course of appeal on some other issues. Ld. CIT(A) invoked power of enhancement and then invoked S.115JB and made enhancement to assessment by following judgments of ITAT in some other cases which were on issue of computation of book profit and not strictly on non-applicability of S.115JB.

On appeal of assessee before Tribunal, honourable Tribunal held that Ld. CIT(A) was not right in making enhancement for lack of jurisdiction. Tribunal also considered legal aspect of non-applicability of S.115JB and held that S.115JB is not applicable as there was no computation of GTI, TI and Tax payable.

There are some mistakes of typing in the order, whereby judgments in case of Vishnu Sugar Mills Ltd have been mentioned as judgment  in case of assessee.

The conclusions about non-applicability of S.115JB is found in last paragraph no.10 which is reproduced below with high lights added:

10.1. The ITAT 'D' Bench of the Tribunal in the ( in the assessee's own case )   in ITA No. 1761/Kol/2005, upheld this order of the ld. CIT(A) by holding that the issue is covered in favour of the assessee by the decision in the assessee's own case as well as by a bunch of appeals filed by the revenue on this issue. The revenue carried the matter before the Hon'ble Calcutta High Court. The Hon'ble High Court held as follows:-

"We have perused the order passed by the Tribunal It appears that the Tribunal has extensively dealt with the matter. We do not find that any substantial question of law is involved which is required to be decided by this Court. We therefore, do not find any reason to admit the application.

Hence, this application is dismissed."

           10.1.1. From the above, it is clear that the issue is decided in favour of the assessee by the Hon'ble Jurisdictional High Court. The Ld. CIT(A) was in error in hold that the decisions of the Tribunal was sub-silentio, when the Hon'ble High Court has upheld the same. The Income Tax Department itself, has not been bringing to tax book profits U/s. 115JB of the Act except for the Assessment Year 2005-06  (sic. It should be AY 2006-07) in the case of the assessee when the GTI and TI are -Nil- or negative. The Ld. CIT(A) was in error in refusing to follow the ratio of the judgment laid down by the Hon'ble Jurisdictional High Court and in following the ratio laid down by the Lucknow Bench of the ITAT. The merits of the issue are a matter of interpretation, as to how we should interpret the same is of no relevance, when a binding decision of the Hon'ble Jurisdictional High Court is already before us and we are bound to follow the same. Thus, this issue whether book profits can be computed U/s. 115JB of the Act, when the GTI and TI of the assessee are Nil and no taxes payable, is adjudicated in favour of the assessee, by respectfully following the decision of the Hon'ble Jurisdiction High Court on this issue. No other arguments are raised before us.

Typing mistakes in the order:

 in para 10.1 of the order:

Mistakenly it is mentioned “ in the assessee's own case” . In fact this refers to case of Vishnu Sugar Mills Ltd.   

In para 10.1.1 assessment year 2005-06 is mentioned whereas it should be AY 2006-07.