TMI Blog2001 (8) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... this cannot be disregarded in computing the book profit. - ITA NO. 955 (MUM.) OF 2001 - - - Dated:- 6-8-2001 - M. K. CHATURVEDI., AND S. V. MEHROTRA. ORDER M.K. Chaturvedi, Vice-President.-- This appeal by the assessee is directed against the order of Commissioner of Income-tax (Appeals)-II, Mumbai and relates to the assessment year 1997-98. 2. Various grounds raised in this appeal rotate around the following three questions:-- "(i) Whether on the facts and in the circumstances of the case, assessee could be construed to be a company for the purposes of applying the provisions of section 115JA of the Income-tax Act, 1961? (ii) Whether on the facts and in the circumstances of the case the provision contained in clause (iv) of the Explanation to section 115JA(2) could be applied in respect of subsidy and grants, interest on delayed payments from consumers, liquidated damages received from the contractors and other miscellaneous receipts such as sale of tender forms, interest on loan to staff, profit on sale of excess stores, commission for collection of duty etc.? (iii) Whether on the facts and in the circumstances of the case the modus for the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtance for post-war reconstruction and development. The absence of coordinated system, in which generation is concentrated in the most efficient units and bulk supply of energy centralized under the direction and control of one authority is one of the factors that impedes the healthy and economical growth of electrical development in this country. Besides, it is becoming more and more apparent that if the benefits of electricity are to be extended on semi-urban and rural areas in the most efficient and economical manner consistent with the needs of an entire region, the area of development must transcend the geographical limits of a municipality, a cantonment board or notified area committee, as the case may be. It has, therefore, become necessary that the appropriate Government should be vested with the necessary legislative powers to link together under one control electrical development in contiguous areas by the establishment of what is generally known as the 'Grid System'. In the circumstances of this country such a system need not necessarily involve inter-connection throughout the length and the breadth of a province; regional co-ordination inclusive of some measures of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 922), the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income-tax and super-tax accordingly on its income, profits and gains. (2) The State Government shall not be entitled to any refund of any such taxes paid by the Board." (b) According to section 2(17) of the Act, "company" means-- (i) any Indian company, or Section 2(26) of the Act, defines "Indian company" as under:-- "Indian company" means a company formed and registered under the Companies Act, 1956 (1 of 1956), and INCLUDES-- (ia) a corporation established by or under a Central, State or Provincial Act; 8. Section 3 of the Companies Act defines company as under:-- (i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii); (ii) "existing company" means a company formed and registered under any of the previous Companies laws specified below:-- 9. Section 616 of the Companies Act, reads as under:-- "Section 616. Application of Act to insurance, banking, electricity supply and other companies governed by Special Acts--The provisions of this Act shall apply (a) ................... (b) ........ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Income-tax Act, is more than 30 per cent of the book profit, tax shall be charged on the same." 12. Memorandum explaining the provisions in the Finance (No. 2) Bill, 1996 categorize the amendment under the caption "Rationalisation and Simplification". The relevant portion is reproduced here as under:-- "RATIONALISATION AND SIMPLIFICATION Minimum Alternative tax on companies In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. The new proposal provides for those companies to pay tax on 30% of the book profits, whose total income as computed under the Income tax Act is less than 30% of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. "Book profits" is defined and certain adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. This section cannot be applied in relation to the assessee. In fact, the very concept of a "meeting" is alien to MSEB. A meeting can be between two or more persons. In case of MSEB there is no other person. Similarly, second proviso to sub-section (2) provides that where a company has adopted or adopts a financial year under the Companies Act, 1956, which is different from the previous year under the Act, the methods and the rates of depreciation shall correspond to the method and rates, which have been adopted for calculating the depreciation, for which financial year or part of such financial year falling within or relevant previous year. 16. Only those companies, which are engaged in the generation or supply of electricity, will come within the ambit of section 616 of the Companies Act. For that it is necessary that assessee must be a company. If assessee is not a company, then provision of section 616(c) cannot be applied. For example, Tata Electric Company is a company registered under the Companies Act. It is company within the meaning of section 3 of the Companies Act. It is engaged in the business of generation or supply of electricity. As such it will come within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gins with a non obstante clause. It applies to every assessee being a company. The panoply of the section is erected over the structure of Companies Act, 1956. The Minimum Alternate Tax (MAT) on companies was introduced by the Finance (No. 2) Act, 1996 with effect from 1-4-1997. This was necessitated due to the rise in the number of zero-tax companies. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. To curb this mischief MAT was introduced by inserting section 115JA . This is a deeming provision. It is a trite law that deeming provision should be narrowly watched, jealously regarded and never to be pressed beyond its true limits. It is applicable to a company. The assessee is not a company. It is not required to distribute any dividend. As such it does not come within the mischief of this section. We have considered the various precedents relied upon. Legal precedents are like statistics. If you manipulate them, you can prove any thing. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to adjust its tariffs so as to ensure that its net revenue was minimum of 3% of its fixed, assets. Tariff was controlled by the State Government. Assessee was required to obtain their approval for every revision in its tariffs. Assessee supply electricity to certain specified sectors at concessional rates as directed by the State Government. To make up for the shortfall in achieving this stipulated rate of return, State Government granted a subsidy. The subsidy was therefore a part of the sale price, which MSEB could have recover from its consumers. 22. The interest of Rs. 138.51 crores and the delayed payment of Rs. 32.89 crores were received from consumers for late payment of electricity bills. This represents additional sale consideration for supply of electricity. The amount of Rs.41.15 crores was received by the assessee from its contractors on account of liquidated damages and hire charges. Other receipts such as sale of tender forms, interest on loans to staff, rent from staff, profits on sale of excess stores, commission from the Government for collection of duty, etc. were all derived from business of generation and distribution of electricity. 23. Stating the pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from the Greek word "demos", the people, and most Dictionaries will so state. That is the ordinary meaning of the word "derived from" and there is no reason to depart from that ordinary meaning. The expression "attributable to" is of wider import than the expression "derived from". The former expression covers receipts from sources other than the actual conduct of the business. Profits and gains can be said to be attributable if there is a direct and proximate connection between the profits and gains of the business. In the present case we find that subsidy was attributable to industrial undertaking from the business of generation or generation and distribution of power. It cannot be said to be derived from because its nexus with the business was not direct but proximate. Similarly grants, interest on staff loans, interest from consumers, interest on advances to suppliers, income from investment in bank deposits, interest on other investment, interest on banks, rent from staff quarters, rent charges from contractors, commission for collection of electricity duty and other miscellaneous receipts do not bear direct nexus with the amount of profits of the business of generation o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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