TMI Blog2004 (4) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... .6,69,21,424 against brought forward losses of assessment years 1968-69 to 1970-71. The Assessing Officer accepted this return on 24-2-2000, vide his order made under section 143(3) of the Act. The Commissioner of Income-tax has invoked his powers under section 263, and held vide his order dated 7-3-2002 that the assessment made is erroneous and prejudicial to the interests of Revenue, inasmuch as section 115JA of the Act has not been applied to the assessee by the Assessing Officer. Appeal, ITA No. 1055/Hyd./2002 has been filed by the assessee against this order of the CIT passed under section 263 of the Act. 3. In pursuance of the directions of the CIT in the aforesaid order under section 263, the Assessing Officer framed fresh assessment on 25-2-2003, wherein he levied the Minimum Alternate Tax (MAT) under section 115JA of the Act. On appeal, the CIT(A) by the impugned appellate order dated 18-8-2003 confirmed this order of assessment. Aggrieved by the same, assessee preferred appeal, ITA No. 1055/Hyd./03. ITA No. 1055/Hyd./2002 4. We first take up the appeal against the order of the CIT under section 263. 5. The learned counsel for the assessee submitted that: 5.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountry, let alone, APSEB runs on commercial lines, and no Electricity Board is making profit. In this connection, attention is invited to the Preamble of the Electricity Supply Act, 1948 which reads as under- "An Act to provide for the rationalization of the production and supply of electricity and generally for taking measures conducive to electricity development." It is submitted from the above preamble, that there is no object to make profit at all and the Electricity Supply Act contains no provision for declaration of dividends. 5.6 Section 80 of the Electricity (Supply) Act deems the Board as a Company for the purposes of Income-tax Act, and that but for this provision, its income would not have been assessable under the Income-tax Act. The Hon'ble Supreme Court in the case of Rajasthan State Electricity Board, v. Mohanlal AIR 1967 SC 1857 held that Electricity Board is 'State' within the meaning of Article 12 of the Constitution. 5.7 The Finance Minister's Speech introducing the provisions, should be looked into for the purposes of ascertaining the mischief sought to be remedied by the legislation and the objects and purposes for which the legislation is enacted, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the CIT(A)-II Hyderabad in her order dated 21-11-2001 for the assessment year 1998-99 on the same issue held in favour of the assessee. That order was part of the record, and as such the CIT was pre-empted from exercising his powers under section 263. 5.11 Under the circumstances, it is pleaded that the CIT has not only ignored the order of the CIT(A), but also ignored the Board's circular on the issue, and thus has acted in excess of his jurisdiction. The CIT has ignored the decision of the Mumbai Bench of the Tribunal, though brought to his notice. 5.12 On merits, he submitted that the CIT erred in not directing the Assessing Officer to compute the book profits as per the provisions of Companies Act, in which case, once the book profit are computed under the Companies Act, there would be a loss or a very negligible profit. He also erred in creating bad debt as liability, as such disallowance is not permitted under section 115JA(2) of the Act. 5.13 He further submitted that the Mumbai Bench of the Tribunal in the case of Maharashtra State Electricity Board held in favour of the assessee, and this Bench should not straightaway differ from the said decision of the Mumbai B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [1978] 113 ITR 84 and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278. He therefore, submitted that only the profits derived by the undertaking from the business of generation or generation and distribution alone are excluded from the purview of section 115JA of the Act. 6.3 On the scope of the circulars of the CBDT, he submitted that the circulars of the CBDT are no doubt, binding on the authorities, provided they are issued for proper administration of the Act. Since the language of section 115JA is demonstratively clear, according to him, no circular could have been issued by the CBDT which runs counter to the Scheme of the Statute. He submitted that acceptance of the theory that Circulars which are inconsistent with the statutory piece also could be issued under section 119 of the Act, would lead to anomalous consequences, apart from the fact that it nullifies the expression in section 119(1) "for the proper administration of the Act". Inasmuch as, nullification of a statutory provision made by the Parliament cannot be said to be "proper administration" of the Act. On the role of external tools, like Board circulars, etc. in the matter of interpretation of statutory provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has conveyed some orders, instruction or directions, it cannot be considered as Circular, within the purview of section 119 of the Act". The phraseology found in circular in the present case clearly also demonstrates that there are no directions, orders much less instructions, and the decision of the Bombay High Court in Central Bank of India's case squarely operates in the present case. The expressions found in the Circular in the present case can, by no stretch of imagination be considered as an order or instruction, and on other hand, it clearly depicts the perception of the Board on the Bill rather than the legislative enactment. Such a perception of the Board, according to him cannot be construed as a Circular or instructions within the purview of section 119(1) or (2) of the Act, 6.6 In this view of the matter, he pleaded that the cases cited by the learned counsel for the assessee have no relevance to the facts of the present case and the provisions of section 115JA are clearly applicable to the case of the assessee. He therefore, submitted that the order of assessment is not only erroneous but also prejudicial to the interests of the Revenue inasmuch as the Marginal Alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's contention based on the judgment of Full Bench of Bombay High Court in the case of Central Bapk of India is that no part of paragraph 46.6 can be read as being an order or instruction or direction of the Board. This interpretation of the Board's circular cannot be accepted by us. At para 46.6, the Board has stated categorically that the companies engaged in the business of generation and distribution of power are exempted from the levy of MAT. This interpretation or under- standing of the Board arises from sub-section (2) of section 115JA read with sub-clause (iv) of the Explanation to section 115JA extracted by us herein above. It cannot be held that the Circular is in contravention of the Act, especially when the assessee in question is a State Electricity Board, and has derived income wholly and exclusively from the business of generation and distribution of power. 11. Hon'ble Supreme Court has in the case of Ranadey Micronutrients, had occasion to consider the binding nature of a Circular issued by CBEC. In that case by its Circular dated 21-11-1994 issued by the CBEC, the earlier circular dated 20-6-1990 was withdrawn. On the binding nature of the Circulars, it is held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue to raise a contention that is contrary to a binding circular issued by the Board. The Hon'ble Supreme Court in the case of CST v. Indra Industries [2001] 248 ITR 338 at page 340, held as under- "A circular by tax authorities is not binding on the courts. It is not binding on the assessee. However, the interpretation that is thereby placed by the taxing authority on the law is binding on that taxing authority. In other words, the taxing authority cannot be heard to advance an argument that is contrary to that interpretation." Further, the Apex Court has further in the case of Dhiren Chemical Industries held as under- "We need to make it clear that, regardless of interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs, which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue." Similar is the judgment of the Hon'ble Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889. 12. Hon'ble Supreme Court had considered at length the binding nature of a Circular of the Board in the case of Ajadi Bachao Andolan. In that case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under- "This brings us to Paragraph 32 of the Circular explaining the provisions of the Finance Act, 1966. The sentences therein relevant to the controversy before us are the first, the penultimate and the ultimate sentences. The first sentence says that a company receiving dividends from any domestic company is entitled, under section 85A, to a rebate of income tax which has the effect of limiting the tax on such dividends to a specific percentage of the dividends. The penultimate sentence says that income-tax on inter-corporate dividends received by a company other than a foreign company from any domestic company is limited to 25 per cent thereof and the ultimate sentence says that the Finance Act, 1966, had not made any change in the effective rates of tax in respect of inter-corporate dividends. The understanding of the Board, as suggested by these sentences, appears to be that section 85A has the effect of limiting the tax on inter corporate dividends to a specified percentage thereof and that, in the case of inter corporate dividends received from a domestic company, it is limited to 25 per cent. We agree with the submission of Mr. Jetley, learned counsel for the Revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the Assessing Officer cannot be treated as an erroneous view in view of the legal position discussed above. This is a possible view taken by a quasi-judicial authority and no revision under section 263 lies on the same. The fact that this is a possible legal view is supported by the order of the Commissioner (Appeals)-II, Hyderabad order dated 21-11-2001 for the assessment year 1998-99 in the assessee's own case as well as the order of the Mumbai Bench of the Tribunal in the case of Maharashtra State Electricity Board. Both these orders were put forward to the Commissioner, and were a part of his record. 14. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 836, held that the Commissioner for assuming jurisdiction under section 263(1) has to be satisfied cumulatively of the two conditions, viz., (1) the order of the Assessing Officer sought to be revised is erroneous, and (2) it is prejudicial to the interests of the Revenue. If only one of the two is present, i.e., if the order of the ITO is erroneous but is not prejudicial to the interests of the Revenue, or otherwise it is not erroneous but prejudicial to the interests of the Revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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