TMI Blog2006 (8) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the legal principles in the case of Kwality Biscuits Ltd.[ 2006 (4) TMI 121 - SC ORDER] are squarely applicable to the provisions of section 115JA and hence, if the income of the assessee company is determined by invoking section 115JA, then no interest under sections 234B and 234C can be charged. As far as the issue of prima facie adjustment is concerned, we are of the opinion that the law declared by the Supreme Court was always the law in existence. Hence, the Assessing Officer was not competent to charge the interest u/s 234B or 234C of the Act when the income is determined on the basis of book profit computed u/s 115JA. We, therefore, allow the appeals by the assessee for the assessment years 1997-98, 1998-99, 1999-2000 and 2001-02. Hence, this common issue is decided in favour of the assessee and against the revenue. Levy of surcharge - HELD THAT:- In our opinion, though the assessee is required to pay the surcharge, still by virtue of the provisions of section 115JA, the assessee is entitled to get relief in respect of the extra payment of surcharge due to determination of his income u/s 115JA. The ld. counsel has referred to sections 112 and 113 of the Act but there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed of by this common order for the sake of convenience. 2. The first common issue in all appeals of the assessee is with regard to levy of interest under section 234B and under section 234C of the Income-tax Act, 1961 when the tax liability arises under the provisions of section 115JA of the Act. The assessee is a closely held company which is engaged in the business of hotel. In all the years under consideration, the assessee-company filed its returns of income declaring the total income as computed under the provisions of section 115JA of the Act. The assessee had also paid advance-tax. For the purpose of assessment, the assessee's income was determined for all the assessment years under section 115JA of the Act. For the assessment years 1997-98, 1998-99, 1999-2000 and 2001-02 the returns filed by the assessee were processed under section 143(1)(a) of the Act. While doing so, the Assessing Officer charged interest under section 234B and under section 234C for the assessment year 1999-2000 and under section 234C for the assessment years 1997-98, 1998-99 and 2001-02. 3 The assessee challenged the charging of interest while processing the returns under section 143(1)(a) by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ria to section 115J and there is no much difference in both the sections. It was further argued that this particular legal position has been settled by the interpretation to newly inserted section 115JA by the Hon'ble High Court of Kerala in the case of CIT v. Apollo Tyres Ltd [1999] 237 ITR 706. It was further contended that the decision in respect of section 115J is also applicable to section 115JA. The ld. counsel for the assessee further submitted that the payment of advance-tax is contemplated in case of income computed in the regular provisions of the Income- tax Act and not under the deeming provisions. It was further contended that when the total income of the assessee is determined by invoking section 115J based on the book profit, then whether the charging provisions of sections 234B and 234C are applicable or not has come for judicial scrutiny before the Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd v. CIT [2000] 243 ITR 519 and in that case, after thoroughly examining the scheme of section 115J and also the provisions of sections 234B and 234C, the Hon'ble Karnataka High Court held that when the income is determined under section 115J of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition is dismissed without giving any reason, then what will be the binding effect as a precedent of the said decision, has been discussed by the Hon'ble Supreme Court in the case of Kunhayammed v. State of Kerala [2000] 245 ITR 360 and it is made clear by the Supreme Court that if the appeal is dismissed even with a non-speaking order, then the doctrine of merger is applicable and whatever principles have been laid down by the High Court have been approved and hence, even in case where the appeals are dismissed with non-speaking order, the same becomes the precedent having a binding effect. The ld. counsel further submitted that as far as the applicability of sections 234B and 234C is concerned, the High Court of Karnataka has examined the scheme of section 115J which is not different from section 115JA and thereafter only it is held that provisions of sections 234B and 234C are not attracted as the entire exercise of computing the book profit could be only at the end of the financial year and until and unless the accounts are audited and balance sheet prepared, even the assessee may not know whether the provisions of section 115J would be applicable or not. Hence, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation.-For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves by whatever name called; o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from free trade zone (FTZ), export oriented undertakings (EOUs), charitable activities, investments by a venture capital company and other exempted incomes (section 10) are excluded from the purview of the alternate tax. 46.5 Since the alternate tax is applicable only where the normal total income computed is less than 30 per cent of the book profits, so long as the enterprises (other than FTZ units and EOUs) earning income from export profits do not have their component of export income higher than 70 per cent of the book profits, the provisions of section 115JA will not be attracted. In other words, the MAT will apply only to such cases where export profits forming part of book profits of an assessee exceed 70 per cent of the total profits. 46.6 Companies engaged in the business of generation and distribution of power and those enterprises engaged in developing, maintaining and operating infrastructure facilities under sub-section (4A) of section 80-IA are exempted from the levy of MAT, so that the incentive given to infrastructure development is not affected. 46.7 The amendment will take effect from 1st April, 1997, and will accordingly apply in relation to the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown in the profit and loss account for the relevant previous year prepared under subsection (2) with the adjustments provided in clauses (a) to (f) and (i) to (vii). Clause (iii) of the Explanation refers to the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. The Explanation thereto says that for the purposes of this clause, the loss shall not include depreciation. Though the provisions of section 115JA are applicable only for the assessment year 1997-98 onwards, it would appear that the restructuring of the section was necessitated only because of the dispute in regard to the determination of book profit pending before the Courts and the Tribunals... Hence, it is a well settled position of law that section 115JA is pari materia to section 115J of the Act. 13. The next question is regarding the applicability of the provisions of sections 234B and 234C of the Act. As far as section 234B is concerned, it comes into operation when there is a failure on the part of the assessee to pay the advance-tax as per provisions of section 208 or where advance tax paid by the assessee under section 210 is less than 90 per cent of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessment year. It is only the deemed income for which the provisions of, section 115J have been incorporated. When a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of section 207, 208, 209 or 210 cannot be made applicable, until and unless the accounts are audited and the balance-sheet is prepared even the assessee may not know whether the provision of section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words 'for the purposes of this section' in the Explanation to section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability of tax. Accordingly, we are of the view that the Income-tax Appellate Tribunal was not justified in directing to charge interest under sections 234B and 234C of the Income-tax Act. This question No.2 is, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not to the latter. (iv) An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the court was not inclined to exercise its discretion so as to allow the appeal being filed. (v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court as well as other High Courts, we are of the opinion that the legal principles in the case of Kwality Biscuits Ltd. are squarely applicable to the provisions of section 115JA and hence, if the income of the assessee company is determined by invoking section 115JA, then no interest under sections 234B and 234C can be charged. As far as the issue of prima facie adjustment is concerned, we are of the opinion that the law declared by the Supreme Court was always the law in existence. Hence, the Assessing Officer was not competent to charge the interest under section 234B or 234C of the Act when the income is determined on the basis of book profit computed under section 115JA. We, therefore, allow the appeals by the assessee for the assessment years 1997-98, 1998-99, 1999-2000 and 2001-02. Hence, this common issue is decided in favour of the assessee and against the revenue. 20. The next issue is levy of surcharge and this issue arises in ITA No. 452 (Coch.)/2004 which is relevant to the assessment year 1997-98 and the subject-matter of the assessment order which is passed under section 143(3) of the Act. The assessee's assessment for the assessment year 1997-98 was completed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 115JA, then tax credit in respect of MAT paid is allowed to be carried forward for set off against the regular tax payable during the subsequent five years' period. He, therefore, submitted that as the surcharge is additional levy that cannot be levied when the total income is determined by invoking the deeming provisions of section 115JA of the Act. He also referred to paragraph E of the First Schedule of the Finance Act, 1997. 23. On the other hand, the ld. DR supported the orders of the Assessing Officer as well as CIT(Appeals). She further submitted that when the assessee is required to pay MAT under section 115JA on the 30 per cent of the book profit, it does not mean that the assessee has no taxable income. Moreover, the Legislature has provided for giving the tax credit in respect of the subsequent five years. Hence, if at all the surcharge is levied on the element of MAT, the assessee is eligible to carry forward the same and set off against the regular tax payable. 24. We have heard the rival submissions of the parties. Surcharge is in the nature of additional levy on the income-tax. Section 4 is a charging section, which provides that income-tax shall be charged for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 115JA. The ld. counsel has referred to sections 112 and 113 of the Act but there is a difference between sections 112 and 113 and section 115JA, as in these sections in the Act itself special rates of tax have been prescribed. Therefore, in our opinion, at the regular assessment stage when the income is determined on the basis of book profit as per provisions of section 115JA, surcharge is leviable. We, therefore, decide this issue against the assessee and in favour of the revenue. 25. The next issue is adjustment made by the Assessing Officer while computing the book profit for the assessment year 1997-98 and this issue arises in ITA No. 452(Coch.)/2004. As stated hereinabove, the assessment of the assessee is completed under section 143(3). The Assessing Officer determined the total income as per the normal provisions of the Act as well as computed the book profit for the purpose of section 115JA. It was noticed by the Assessing Officer that the assessee has computed the book profit at Rs. 99,67,798/- and 30 per cent of the said amount was declared as the income under section 115JA. While computing the net profit the assessee has claimed the arrears of depreciation at Rs. 34, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in clause (iv) of the Explanation to section 115J. As far as the decision in the case of Apollo Tyres Ltd. is concerned, the CIT(Appeals) was of the opinion that it is also distinguishable as it was concerning section 115J. In the opinion of the CIT(Appeals), the provisions of sub-clause (iii) of Explanation to section 115JA were existing which was for consideration before the Supreme Court. The CIT(Appeals), therefore, rejected the contention of the assessee. Now, the assessee has challenged the finding of the CIT(Appeals) before us. 27. The ld. sr. counsel Shri G. Sarangan submitted that the Assessing Officer is not empowered to tinker with the figures disclosed by the financial statements which are audited and approved by the General Body. He further submitted that the financial statements of the assessee have been prepared in accordance with Part-I and Part-II of Schedule- VI to the Companies Act. It was further argued that the arrears of depreciation represented depreciation in respect of the earlier year consequent to the change in the method of charging depreciation from SLM to WDVM. He further submitted that the charging of arrears of depreciation strictly in accordance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kerala in CIT v. Apollo Tyres Ltd [1999] 237 ITR 706 was challenged and the issue of treatment to be given to depreciation while computing the book profit under section 115J was for consideration. After examining the provisions of section 115J, the Hon'ble Supreme Court held as under:- The above speech shows that the income-tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that section 115J was introduced in the Income-tax Act with ia deeming provision which makes the company liable to pay tax on at least 30 per cent of its book profits as shown in its own account. For the said purpose, section 115J makes the income reflected in the company's books of account the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words 'in accordance with the provisions of Parts II and ill of Schedule VI to the Companies Act' was made for the limited purpose of empowering the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer to reassess the company's income, then it would have stated in section 115J that 'income of the company as accepted by the Assessing Officer'. In the absence of the same and on the language of section 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J. 31. In the case of Kinetic Motor Co. Ltd., it has been held as under:- The assessee was a public limited company engaged in the business of manufacture and sale of two wheelers. For the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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