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TMI Blog2013 (6) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... changes, it is filing an application before the Reserve Bank of India seeking approval for the proposed transfers. 4. According to the applicant, section 10(38) of the Income-tax Act exempts any income arising from the transfer of a long-term capital asset, being an equity share in a company, when such transaction is chargeable to securities transaction tax. According to it, however, the proviso to section 10(38) of the Act states that such long-term capital gain earned by a company shall be taken into account in computing the book profit and income-tax payable thereon under section 115JB of the Act. The shares held by it in the Indian companies are long-term capital assets in terms of section 2(29A) of the Act read with section 2(42A) thereof. According to it, the capital gains arising out of the sales through the stock exchanges in India on which securities transaction tax would be paid, would be exempt under section 10(38) of the Act. Since the proviso to section 10(38) would be attracted, it is desirous of seeking a ruling whether, the computation of tax based on the prescription contained in section 115JB of the Act would be applicable. The applicant had no physical pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act before the Assessing Officer. On behalf of the Revenue, it is submitted that the first question to be ruled on is on the applicability of section 10(38) of the Act especially in the light of the proviso to that section and a ruling on it is essential for giving rulings on the questions the applicant has raised. 8. The stand adopted on behalf of the applicant that no question of appli-cability of section 10(38) of the Act arises, cannot be accepted. Question No. 3 formulated for ruling by the applicant asserts that the sales are exempt from tax under section 10(38) of the Act since the sales have suffered securities transaction tax. This position is controverted by the Revenue contending that section 10(38) does not apply to the applicant and the transaction is not exempt. Therefore, for giving a ruling on ques-tion No. 3, this Authority cannot assume that there is no dispute on this question, and the exemption from taxation engrafted in section 10(38) of the Act applies. Thus, it is seen that a ruling on the applicability of section 10(38) of the Act cannot be avoided on the basis that such a question has not been raised by the applicant. 9. An advance ruling, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R(4) of the Act, this Authority has to pronounce its ruling on the question speci-fied in the application. These provisions may suggest that an applicant is entitled to seek a ruling only on the questions it wants, even while leaving open other questions in respect of the transaction that may be controversial, to be agitated before the regular tax authorities. 12. Proceeding further, I may also notice rules 11 and 12 framed by this Authority. Rule 11 enables facts additional to those set out in the appli-cation to be brought in for deciding the application. Under rule 12, in deciding the application, this Authority at its discretion, can consider all aspects of the questions set forth, as may be necessary to pronounce a ruling on the substance of the questions posed for its consideration. This according to me, gives sufficient leeway to this Authority to advert to any other aspect in respect of the transaction relevant to the questions formu-lated before it for ruling. 13. A ruling pronounced by this Authority is binding on the applicant, in respect of the transaction in relation to which the ruling has been sought and on the Commissioner and the income-tax authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of section 115JB of the Act. 16. In this case, I must notice that the Revenue has not joined issue with the applicant on the applicability of section 115JB of the Act to a non-resident company or a foreign company. The Revenue appears to have accepted, for the purpose of this case, the view earlier adopted by this Authority in the ruling in Timken Co., In re [2010] 326 ITR 193 (AAR) and has joined issue only on the applicability of section 10(38) of the Act to a non-resident com-pany. It is the submission of the Revenue that if the operation of section 115JB is confined to resident companies, then clearly, the operation of sec-tion 10(38) of the Act is also confined to resident companies. This is made clear by the insertion of the proviso to that section. The reference in the proviso to section 115JB of the Act is significant and if section 115JB of the Act is held to be not applicable, section 10(38), also must be held to be not applicable to a foreign company. Referring to the meaning of the expres-sion "proviso" given in Black's Law Dictionary as, "a limitation, condition, or stipulation upon whose compliance a legal or formal document's validity or application may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its understanding. It is plain and clear. 21. Sub-section (2) of section 115JB which is sought to be shoved in to deprive sub-section (1) of its width actually reaffirms the independent operation of sub-section (1). It exhorts every company, for the purpose of sub-section (1) to prepare its profit and loss account as provided for therein. The operation of sub-section (1) does not depend on the appli-cability of sub-section (2). It is on the applicability of sub-section (1) that the obligation under sub-section (2) arises. It is a fallacy to think that unless sub-section (2) is independently attracted, sub-section (1) also cannot be operated. Sub-section (2) gets attracted when sub-section (1) operates proprio vigore. It is for the purpose of the section that the account has to be prepared as detailed therein. The liability to tax under sub-section (1) does not depend on the accounting. It arises from chargeability to tax under the Act. 22. Section 115JB of the Act on its wording makes no distinction between a resident company and a non-resident company. Prima facie, it applies to all companies. The definition of a company in section 2(17) of the Act means an Indian company or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permanent establishment in that case. 23. In the ruling reported in P. No. 14 of 1997, In re [1998] 234 ITR 335 (AAR) this Authority dealing with the argument that section 115JA of the Act is confined in its operation to Indian companies, after a discussion stated (page 343) : "a large number of decisions were cited, relating to well-known rules of construction of a taxing statute. What is important to bear in mind is the object of introduction of section 115JA. A number of companies with huge profits were avoiding payment of tax by adjusting their profits against various allowances which are permitted under the Income-tax Act. To circumvent this strategy, section 115JA was inserted. The simple method adopted by section 115JA is to find out whether the total income of a company after all the deductions and allowances was less than 30 per cent. of its book profit. In such a situation, the total income chargeable to tax is deemed to be 30 per cent. of such book profit. There is no reason to confine this section to Indian companies alone. If a foreign company is avoiding tax lawfully by similar devices, this section will be applicable also to such companies. This section has been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imultaneously, the proviso to section 10(38) of the Act was also inserted bringing income from long-term capital gains in for the purpose of section 115JB of the Act while calculating the book profit. If the Notes on Clauses to the Finance Bill of 2002 or in his speech the Minister mentioned domestic companies, can it be taken to indicate that the opera-tion of section 115JB is confined to domestic companies ? With respect, it appears to me that the relevant aspects require further consideration. After all, when a statute defines an expression and uses that expression generally without confining it to Indian companies (like the provisions in section 80HH series ; for example), can one so easily discard the defined meaning of the expression when construing a section in the Act using that expres-sion ? 26. Generally, when a word has been defined in the interpretation clause, prima facie, that definition governs whenever that word is used in the body of the statute (See, Indian Immigration Trust Board of Natal v. Govinda-swamy, AIR 1920 PC 114 and Vanguard Fire and General Insurance Co. Ltd. v. Fraser and Ross [1960] 30 Comp Cas (IC) 13 (SC) ; AIR 1960 SC 971). In any event as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able profit. In fact sub-section (2) casts an obligation on a company to which section 115JB(1) is attracted to prepare an account in terms of the Companies Act, 1956. It is not as if the liability to be taxed depends on the obligation to prepare an account in terms of the Companies Act, 1956. The liability to tax depends on the profit earned or deemed to be earned. The deemed profit is specified in sub-sec-tion (1) and the rate of tax is also specified. Only the mode of determining the book profit is left to sub-section (2) and a duty is cast on the assessee to determine the book profit as set out in sub-section (2). Taking note of the inconvenience that may be caused by this mandate to some of the com-panies coming under the proviso to section 211(2) of the Companies Act, the requirement to comply with the mandate has been done away with by the Finance Act, 2012, leaving untouched the liability under sub-section (1) of that section. This also would support the soundness of the reasoning in P. No. 14 of 1997, In re [1998] 234 ITR 335 (AAR) and would indicate that section 115JB(1) of the Act always subjected even the companies coming under the proviso to section 211(2) of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit for taxation under section 115JB of the Act. Section 115JB of the Act overrides sections 45 to 48 of the Act as well. So, by reading section 115JB of the Act as confined in its operation to domestic companies alone, we would be doing violence to the special scheme of taxation adopted for taxing certain companies. Unless there are compelling reasons, no such interpretation is justified. As pointed out in the ruling in 234 ITR 335, there is no compelling reason to jettison the scheme of taxation adopted by the Act by reading section 115JB of the Act or section 10(38) of the Act as confined to domestic companies. 32. It is well settled that an Act has to be read as a whole to understand its purport and effect. It is also settled that when more than one provision in the Act deals with a subject the proper course to adopt is to read the pro-visions together harmoniously to understand their effect. An interpretation of a provision in isolation without reference to the other provisions in the statute is not warranted or justified. Hence, in this case, one has to read section 115JB of the Act along with section 10(38) of the Act with its proviso to understand the scope of taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny otherwise than under section 115JB of the Act cannot be in question. Section 115JB(1) of the Act only provides for a minimum quantum of tax to be paid by a company, if the determination of that tax under the Act otherwise, is less than what is contemplated by the section. There is no question of any inability to quantify the profits or the tax otherwise due, involved. There is also no question of inability to determine the cost of acquisition or the cost of sales, if it is a capital gain. It is only on determination of the tax payable otherwise, that section 115JB(1) of the Act, an overriding provision, operates. One has first to determine the tax payable under the Act s de hors section 115JB(1). One has then to apply section 115JB(1). There is no parallel to the principle stated in B. C. Srinivasa Setty [1981] 128 ITR 294 (SC). I have no hesitation in overruling the attempt to invoke the principle in B. C. Srinivasa Setty [1981] 128 ITR 294 (SC). 36. Normally, when the charging provision itself indicates how to deter-mine the chargeable income and the rate at which it is to be taxed, one cannot resort to the so-called machinery provision to nullify the effect of the char ..... X X X X Extracts X X X X X X X X Extracts X X X X
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