TMI Blog2005 (9) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Thus, we are of the opinion that the Explanation is declaratory or explanatory and has to be construed as retrospective as it is retroactive in nature. The second issue is the argument of the revenue that the investment should have been made between the first day of April, 1998 and the first day of June, 1998 for being eligible for the deduction. A plain reading of Explanation 2, as introduced by Finance Act, 1999, does not permit such an interpretation. All that it says is that the investment should be made before the first day of June, 1998. Even going by the speech of the Hon'ble Finance Minister or by the Board's circular, we do not find at any place a mention that the investment in question for the purposes of claiming exemption under Explanation to section 10(23G), as introduced by the Finance Act, 1999, should have been made between 1-4-1998 and 1-6-1998. On the contrary, by Finance Act, 1997, 'infrastructure facility', to the extent relevant to this case, is defined as a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993 . This implies that the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as follows:- (ii) the amount of income to which any of the provisions of section 10 or section l0A or section 10B or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; Thus, this ground of the assessee is also allowed. In the result, the appeals of the assessee are allowed in part and the appeal of the revenue is dismissed. - HON'BLE D. MANMOHAN, JUDICIAL MEMBER AND J. SUDHAKAR REDDY, ACCOUNTANT MEMBER For the Assessee : G. Sarangan, C. N. Prasad For the Revenue : Y. R. Rao, B. G. Reddy ORDER J. Sudhakar Reddy, Accountant Member. 1. I.T.A. Nos. 1134 and 1226/Hyd./2004 are cross appeals arising out of the order of the CIT (Appeals) IV, Hyderabad, dated 7-10-2004, for assessment year 2000-01. I.T.A. No. 1132/Hyd./2004 is an appeal filed by the assessee against the order of the CIT (Appeals) IV, Hyderabad, dated 6-10-2004, for assessment year 2001-02. As some of the issues arising out of these appeals are similar, for the sake of convenience, these appeals were heard together and are disposed of by way of a common order. We first take up the appeals relating to assessment year 2000-01. 2. The assessee is a public limited company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction claimed by the assessee towards additional charges and interest on APSEB dues. It is pertinent to note that the decision of the CIT(A) on the issue of supplementary bills received from NTPC relating to the years 1996 to 1999 as on 29-2-2000 amounting to Rs. 5,59,38,495 in the regular assessment proceedings, has been accepted by the revenue. I.T.A. No. 1134/Hyd./2004 4. The first issue before us in this appeal is in ground Nos. 2(a) and (b) which read as under:- (2a) The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing Rs. 4,32,35,924 representing electricity charges on account of difference in tariff due to category change and interest thereon of Rs. 10,08,60,680 on the ground that the said expenditure crystallized during the accounting year 2000-01 only. (2b) The Commissioner of Income-tax (Appeals) ought to have seen that as per Accounting Standard - 4, 'Contingencies and Events Occurring After the Balance Sheet Date' issued by ICAI, the events which occur after balance sheet date and which have direct bearing on the financial statements that were to be approved by the Board subsequent to the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Appellate Tribunal, Hyderabad Bench 'A', in the case of Sarvaraya Textiles Ltd. v. Dy. CIT [1995] 54 ITD 612, and submitted that In that case High Court judgment was delivered on 2-4-1990 whereas the assessee made a claim on 31-3-1990 and the Tribunal held that the revenue expenditure in question was allowable for assessment year 1990-91. For the proposition that events that occur after the balance sheet have to be taken into consideration and expenditure allowed, he relied upon the following decisions:- CIT v. Delta Plantation Ltd. [1993] 71 Taxman 329 (Cal.) CIT v. Rameshwar Prasad Kejriwal Sons (P.) Ltd. [1994] 76 Taxman 124 (Cal.) CIT v. Champaran Sugar Co. Ltd. [1993] 200 ITR 258 (All.). 7. While submitting that the expenditure in question is allowable in assessment year 2000-01, Shri Sarangan made a concession and submitted that the assessee would not have any objection if this expenditure is allowed for assessment year 2001-02. 8. The learned departmental representative, Shri B.G. Reddy, submitted that the only issue is as to in which year this expenditure is allowable. Referring to the contentions of Shri Sarangan, he submitted that the expenditure in question co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . if it is considered as a contingent liability or as a statutory liability, the same cannot be allowed in the impugned assessment year as no enforceable liability had arisen as on 31-3-2000. He relied on the judgment of Hon'ble Allahabad High Court in the case of CIT v. Kishore Chand Shivcharan Lal [2004] 266 ITR 37, and submitted that the liability can be allowed only in the year in which it crystallized. He referred to AS-5 and submitted that the term 'prior period item' refers only to income or expenditure which arises in the current period as a result of error or omission in the financial statement of one amount or the other, and argued that the facts of the present case clearly point out that it is neither a result of error or omission and thus it cannot be termed as a prior period item. He also referred to paragraph 19 of the Standard and submitted that the issue in question does not come within the terms of AS-5. 10. We have heard rival contentions. On a careful consideration of the facts and circumstances of the case, we find that the only issue that is to be determined is as regards the year in which this revenue expenditure is allowable. The learned DR conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has accepted the decision of the CIT(A) for the very same assessment year on the issue of supplementary bills raised by NTPC. The learned CIT(A) held that the notices were received during the year ended on 31-3-1990 and held that the same is allowable in this accounting year. Applying the same ratio as the judgment of the Hon'ble Andhra Pradesh High Court was received during the financial year 1-4-2000 to 31-3-2001, the same may be allowed in the assessment year 2001-02. While holding so, we note that the Special Bench of the Tribunal had, in the case of Indian Communication Network (P.) Ltd. v. IAC [1994] 206 ITR (AT) 96 (Delhi), at page 114, observed: Before we part with this ground, we cannot help feeling that the, litigation between the parties could have been avoided since it was quite immaterial, whether full deduction was allowed in one year or partly in one year and partly in the next, since the assessee is a company and rate of tax is uniform. The gain to one and the loss to the other is illusory since what is deferred in one year, would have to be discharged in the next. In that sense, nobody has won and nobody has lost. These observations found approval of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (Bom.), and submitted that the Assessing Officer had no power whatsoever to alter the book profit declared by the assessee in its profit and loss account and that all that the Assessing Officer had to do was to make adjustments that are specified in Explanation to section 115JA(2). He vehemently contended that the expenditure representing electricity charges due to difference in tariff due to category change as well as interest thereon, and supplementary bills raised by NTPC, are ascertained liabilities and no adjustment is contemplated under Explanation to section 115JA(2) while computing book profit under section 115JA. He pointed out that the CIT(A) has allowed in the regular proceedings the expenditure being supplementary bills raised by NTPC to the tune of Rs. 5,59,38,495 on the ground that the demand notice was received within the accounting period relevant to this assessment year and has erred in rejecting the claim of the assessee while computing the book profit under section 115JA. He pointed out that the revenue has accepted this decision of the CIT(A). 16. The learned DR, on the other hand, countered the arguments of the learned counsel for the assessee by drawing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not open for the Assessing Officer to determine book profits under the Companies Act by holding that the assessee has not properly followed AS-5 and AS-4. Though the learned DR advanced arguments on this issue, it is not for us to give a finding as to whether the assessee had rightly applied AS-5 or AS-4 or, for that matter, whether the assessee had arrived at the book profit under the Companies Act properly. This is beyond the jurisdiction of the Assessing Officer. Thus, the entire issue boils down to the fact as to whether the adjustment in question falls within the purview of Explanation to sub-section (2) of section 115JA. The learned DR states that it falls in clause (c) of the Explanation, which reads as follows:- 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- (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. In our considered opinion, the liability in question cannot, by any stretch of imagination, be held as an unascertained liability. Once Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under normal provisions of the Act and also under special provisions of section 115JB of the Act stating that the provisions of section 10(23G) are not applicable to appellant's case as the investment was made by the appellant prior to 1-4-1998. (b) The Commissioner of Income-tax (Appeals) ought to have seen that Explanation 2 to clause (23G) of section 10 of the Act categorically declares that income by way of long term capital gains from investments made prior to 1-6-1998 by way of shares in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility, shall not be included in computing the total income. Therefore, when the Explanation specifically declares that long term capital gains on investments made prior to 1-6-1998 is eligible for exemption the CIT (Appeals) erred in law in holding that long term capital gains on investments made prior to 1-4-1998 is not eligible for exemption. 3. (a) The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing surcharge and interest of Rs. 8,05,51,309 [1,64,09,795 + 6,41,41,514] payable to APSEB on old dues while computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,32,35,924 representing electricity charges on account of difference in tariff due to category change and interest thereon of Rs. 10,08,60,680 in the assessment year 2001-02 since the demand notice is received during the previous year relevant to the assessment year 2001-02, ought to have directed the Assessing Officer to allow the above expenditure in the assessment year 2001-02. (b) The lower authorities failed to see that if the liability towards electricity charges on account of difference in tariff due to category change and interest thereon is crystallised only during the assessment year 2001-02, there is no justification in not allowing the said expenditure during the assessment year 2001-02. (2a) The Assessing Officer ought to have seen that tax credit under section 115JAA should be given against the tax payable on total income and thereafter adjust TDS, advance tax, if any, and interest under sections 234B and 234C could be levied only on balance tax payable. (b) The Assessing Officer ought to have adjusted MAT credit first against the tax payable and adjust thereafter TDS and advance tax and levy interest under section 234B only on balance of tax payable. As admissibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not claimed in earlier years. On appeal, the learned CIT(A) upheld the findings of the Assessing Officer by holding that the demand notice was issued on 7-5-2001 which was beyond the accounting period relevant for this assessment year and thus the liability had not crystallised during the financial year under consideration. He held that the assessee would be entitled to claim this expenditure in the next assessment year. Further aggrieved, the assessee is in appeal before the Tribunal. 21. The learned counsel for the assessee submitted that the demand notice in question was received on 7-5-2001 which was well before the date of finalisation of accounts for the year 2001. He further submitted that a copy of the bill had been furnished to the Assessing Officer and that the demand notice was accompanied by a calculation sheet which shows how the demand had been arrived at. He submitted that events occurring after the balance sheet date can be taken into account for the purpose of arriving at true and fair profits of the assessee company, and for this proposition, he relied on the following judgments:- CIT v. Delta Plantation Ltd. [1993] 71 Taxman 329 (Cal.) CIT v. Rameshwar Prasad Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The Assessing Officer, while computing income under the special provisions of section 115JB, made an addition of Rs. 8,47,77,507 which represents depreciation debited to the profit and loss account on revaluation of assets, to the net profit, stating that- (1) The assessee wrote off l/5th of the amount of revaluation of assets under the head 'Depreciation' without adhering to the conditions laid down in Schedule-XIV of the Companies Act; (2) Because of debiting of depreciation of Rs. 7,60,62,291 the book profits were reduced to that extent and it is not giving true and fair picture of profit/loss of the assessee company for the financial year 2000-01 i.e., assessment year 2001-02. Aggrieved of the same, the assessee carried the matter in appeal. The learned CIT(A) referred to AS-6 issued by the Institute of Chartered Accountants of India and rejected the claim of the assessee by holding that the depreciation of revalued assets is not an item which is allowable as a deduction in arriving at the book profit. Further aggrieved, the assessee is in appeal. 25A. The learned counsel for the assessee submitted that the Explanation to sub-section (2) of section 115JB defines b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l within clauses (a) to (f) of the Explanation to sub-section (2) of section 115JB, the adjustment in question should be held bad in law. 28. We have carefully considered rival submissions. Whatever may be the position under the Companies Act, the Assessing Officer has no jurisdiction to go into the same as held by Hon'ble Supreme Court in the case of Apollo Tyres Ltd. In the case of Vijay Spinning Mills Ltd., the Bench had held that the method adopted by the assessee, i.e. charging of additional depreciation to profit and loss account, is permitted by the Accounting Standards as one of the methods. It also held that the Accounting Standards propose an alternative method and though the company chooses the first method, it is open to the Assessing Officer to recompute the profits under the Companies Act by adopting the alternative method suggested by the Accounting Standards. This proposition, that the Assessing Officer is permitted to re-compute the profits under the Companies Act, has not been approved by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. The working in question should start from book profit as arrived at by the company under the Companies Act. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an investment by way of equity shares of Andhra Pradesh Gas Power Corporation Ltd. ('APGPCL' in short), which is an enterprise carrying on infrastructure facility as contemplated under clause (iii) of Explanation 1(c) to section 10(23G) of the Income-tax Act, 1961. APGPCL started generation of power after 31-3-1997 and completed the combined cycle of power generation by 23-12-1997. APGPCL is recognised as an industrial undertaking which is having infrastructure facility for generation of power and is notified under section 10(23G) by Central Government. 32. The assessee company invested in the shares of APGPCL as under:- Nature of shares allotted Date of allotment No. of shares Original shares 30-7-1990 21,44,000 Original shares 9-3-1992 5,36,000 Bonus shares 3-12-1996 19,29,600 Rights shares 4-12-1996 29,48,000 The assessee company, during the financial year 2000-01, sold the rights shares purchased on 4-12-1996 numbering 26,80,000 to Hindustan Zinc Limited, Udaipur, for a consideration of Rs. 40 crores. The date of sale was 3-11-2000. The assessee claimed that the cost of the shares was Rs. 6,43,20,000 at a value of Rs. 24 per share. The capital gain was Rs. 33,56,80,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company from investments made by way of shares or long term finance in any enterprise carrying on the business of developing, maintaining and operating an infrastructure facility, is exempt from tax. This infrastructure facility, he argued, includes generation or generation and distribution of electricity or any other form of power where the project starts generating power on or after the first day of April 1993. He submitted that as all the ingredients are satisfied in the assessee's case, the capital gain in question on sale of shares of APGPCL was exempt under section 10(23G). He took this Bench through Explanation 2 of section 10(23G) as inserted by the Income-tax (Second Amendment) Act, 1998, with effect from 1-4-1999, and argued that in the light of the Explanation, the assessee is entitled to exemption of the long term capital gain even on investments made prior to 1-6-1998. He vehemently contended that there is no stipulation whatsoever in the Explanation that the investment should have been made between 1-4-1998 and 1-6-1998 as contended by the revenue. He argued that on a plain reading of the Explanation, no such interpretation can be given and that there is no merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 23-12-1998, issued by CBDT, on the Explanation Notes on provisions relating to direct taxes, paragraph 10.3 of which reads as under:- 10.3 The amended provisions would apply only in respect of investments made on or after 1-6-1998. Doubts had been expressed in different quarters about the continuance of exemption available under section 10(23G) in respect of investments made prior to 1-6-1998, for the assessment year 1999-2000 and onwards. The Central Board of Direct Taxes have clarified by way of a press release that the exemption available under the provisions of section 10(23G), prior to its amendment by the Act, will continue to govern the investments made prior to 1-6-1998. The rules and forms in this regard have since been notified, vide Notification No. S. O. 897(E), dated 12-10-1998. He filed extracts from the book on Law of Income-tax Volume 7(1), Fifth edition, by the learned authors Chaturvedi and Pithisaria, at page 327, under heading Lacuna in the 1998 substituted section 10(23G) removed , and submitted that Explanation 2 to section 10(23G) inserted by the Income-tax (Second Amendment) Act, 1998, clarifies that the exemption available under section 10(23G) is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be imputed to the period prior to 1-4-1997. He submitted that when the provision itself was not existing for all those previous years, the question of allowing exemption under section 10(23G) prior to 1-4-1997 does not arise. On the case laws relied upon by the learned counsel for the assessee, which were submitted by way of a paper book, the learned DR submitted that they are not applicable to the facts of the case. He further submitted that the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.)Ltd. [1992] 198 ITR 297, has clearly stated that the judgments have to be read as a whole and words and phrases from judgments should not be made dicta and sought to be put to use. He distinguished the judgments relied upon by the learned counsel for the assessee. 37. Joining the issue, the learned counsel for the assessee submitted that when a plain reading of Explanation 2 leaves no room for ambiguity, the question of using external aids such as circulars of the Board and Finance Minister's speech for interpretation of a statute simply does not arise. He once again took this Bench through Explanation 2 to section 10(23G) and submitted that there is nothing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatsoever. He reiterated his argument that the exemption for long term capital gain for the assessment year 1999-2000 as contemplated in the Explanation as well as in the Board's circular No. 772 at para 10.3, cannot be availed of unless and until the investment in question was made prior to 1-4-1998. He prayed for relief. 38. We have carefully considered rival contentions and gone through the relevant provisions of law as well as the case laws relied upon by both the parties. Before we deal with the issue, it is necessary to reproduce the section in question for ready reference:- I. Finance (No.2) Act, 1996, introduced section 10(23G) which reads as follows: (23G) any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made by way of shares or long-term finance in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility, which fulfils the conditions specified in sub-section (4A) of section 80-IA. Explanation.-For the purposes of this clause,- (a) 'infrastructure capital company' means such company as has made investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by it in accordance with the rules made in this behalf and which satisfies the prescribed conditions.' Explanation. - For the purposes of this clause: (a) 'infrastructure capital company' means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise wholly engaged in the business of developing, maintaining and operating infrastructure facility; (b) 'infrastructure capital fund' means such fund operating under a trust deed, registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to an enterprise wholly engaged in the business of developing, maintaining and operating infrastructure facility. (c) 'infrastructure facility' means: (i) a road, highway, bridge, airport, port, rail system, a water supply project, irrigation project, sanitation and sewerage system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in sub-section (4A) of section 80-IA; (ii) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospective. Conversely where a statute uses the word 'declaratory', the words so used may not be sufficient to hold that the statute is a declaratory Act as words may be used in order to being into effect new law. 40. Craies on Statute Law, 7th Edn. stated the statement of law thus: 'If a doubt is felt as to what the common law is on some particular subject, and an Act is passed to explain and declare the common law, such an Act is called a declaratory Act'. 41. G.P. Singh on Principles of Statutory Interpretation quoting Craies stated thus: 'For modem purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word declared as well as the word enacted . But the use of the words it is declared it is not conclusive that the Act is declaratory for these words may, at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-SC-CX-LB, which has been relied upon by the learned counsel for the assessee. 40. When this Explanation is read with Circular No. 772 dated 23-12-1998, issued by Central Board of Direct Taxes on the Explanatory Note to provisions relating to Direct Taxes, paragraph 10.3, it is clear that this Explanation is a declaratory statute inserted to supply an obvious omission and to clear doubts. The new Act, i.e. Explanation 2 ; is to explain an earlier Act and thus would be without object unless constructed retrospectively. The law applicable to investments made prior to 1-6-1998 is declared to remove doubts. Thus, we are of the opinion that the Explanation is declaratory or explanatory and has to be construed as retrospective as it is retroactive in nature. 41. The second issue is the argument of the revenue that the investment should have been made between the first day of April, 1998 and the first day of June, 1998 for being eligible for the deduction. A plain reading of Explanation 2, as introduced by Finance Act, 1999, does not permit such an interpretation. All that it says is that the investment should be made before the first day of June, 1998. Hon'ble Delhi High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect interpretation of law. There is no warrant for adding the date 1-4-1998 to the enactment. The words before 1-6-1998 cannot be read as between 1-4-1998 and 1-6-1998 . 42. The reliance placed by the revenue on the speech of Hon'ble Finance Minister as well as the word in Board's circular does not come to the rescue of the revenue as it is well settled that these cannot override the provisions of the Act. Hon'ble Supreme Court in the case of Kerala Finance Corpn. v. CIT [1994] 210 ITR 129, held (as per head note) as follows:- A circular of the Central Board of Direct Taxes under section 119 of the Income-tax Act, 1961, cannot override or detract from the Act, inasmuch as what section 119 has empowered is to issue orders, instructions or directions for the 'proper administration' of the Act or for such other purposes specified in sub-section (2) of the section. Such an order, instruction or direction cannot override the provisions of the Act; that would be destructive of all the known principles of law as that would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament. 42A. Even going by the speech of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any' means. . . (b) 'infrastructure capital fund'. . . (c) 'infrastructure facility' means- (i) and (ii) (iii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993; 45. The following facts and issues have not been disputed by the revenue- (a) That the gain in question is a long-term capital gain. (b) That the company, Andhra Pradesh Gas Power Corporation Ltd., is an infrastructure facility within the meaning of sub-clause (iii) of clause (b) of Explanation to section 10(23G), as Central Government had notified that undertaking as an infrastructure facility and as it had started generation of power after 1-4-1993. (c) That the company falls within the definition of infrastructure capital company envisaged in section 10(23G). With these undisputed facts, we examine the issue of exemption of the long-term capital gain. 46. As section 10(23G) as it existed immediately before amendment by Finance (No.2) Act, 1998, clearly states that any income by way of long-term capital gain of an infrastructure capital fund is exempt under section 10(23G), we have no hesita ..... X X X X Extracts X X X X X X X X Extracts X X X X
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