TMI Blog2015 (8) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act and hence, no assistance from any other section of the Act can be taken for that purpose. The decisions relied upon by the learned Departmental representative in the cases of Apollo Tyres Ltd. [2002 (5) TMI 5 - SUPREME Court] and HCL Comnet Systems and Services Ltd. [2008 (9) TMI 18 - SUPREME COURT] had clearly laid down a law that the Assessing Officer has only limited power of making increases and reductions to the net profit shown in the profit and loss account except as provided for in the Explanation to section 115J or 115JA of the Act. In the light of the discussions made above, it is clear that the Assessing Officer, while computing the book profit of a company under section 115JB of the Act, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having being properly maintained in accordance with the Companies Act, and the Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to section 115JB of the Act. These receipts in question are not covered by any of the clauses (i) to (vii) of Explanation 1 to section 115JB of the Act and in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of calculation of book profit tax u/s. 115JB. Before the AO, the assessee filed the copy of return of income in which the adjustment was carried out under the head Minimum Alternate Tax (MAT). On verification of the other details from the fixed assets Schedule of the Balance Sheet by the AO, the total additions to Plant and Machinery for the year 2009-10 was ₹ 2,89,35,769/-. As against the above mentioned additions to Plant Machinery, the amount claimed by the assessee in the income-tax computation was ₹ 1,64,57,309/- only. In the Depreciation Schedule for the income tax computation, an amount of ₹ 1,24,78,460/- was claimed less because the assessee deducted the following items from the additions to plant and machinery: (i) Grant-in-aid received from the Central Govt. ₹ 49,92,354 (ii) Foreign Exchange fluctuation ₹ 74,86,106 3.1. The assessee prepared its Profit Loss Account as per Part II and III of Schedule VI of the Companies Act, 1956, by treating to its Profit Loss Account the Govt. grant for machinery acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of modernization and diversification of the assessee's processing plant. The assessee enclosed the sanction letter of the grant. The assessing authority also did not deduct an amount of ₹ 64,276 received from the Government by the assessee as compensation towards damages to its fixed assets. The assessee enclosed the order in this regard for the compensation. The assessee had excluded these amount while computing its book profits under the firm belief that these are capital receipts which are not liable to tax under section 115JB. The intention of section 115JB under the Act is to tax only the 'normal business profits of a company and not to tax the profits other than the normal business profits generated while carrying on the business activities. The assessee placed reliance on the decision of the Tribunal, Calcutta Special Bench, in the case of Sutlej Cotton Mills Ltd vs. ACIT reported in 45 ITD 22, wherein the intent of the legislature from the inception of section 8OVVA till the amendments made in this regard to section 115J have been considered. The purposive construction of section 115J was observed and concluded that the book profits are only those which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB and brought to tax. In view of the above, the assessee submits that only operational business income as commercially understood can be liable to tax under S. 115JB and not every credit to the profit and loss account. 5.3. Further, the ld. AR submitted that the explanation to the section 115JB also refers to the exclusion of income which is not chargeable to tax under section 10 for calculating book profit. Thus, on the same line, of what is chargeable to tax, is only to be part of the operating business profit, capital and compensation receipts cannot be brought within the meaning of book profits u/s. 115JB. Otherwise, virtually it will mean taxing capital receipt as income which is not the intention of the section 115JB of the Act. 5.4. According to the ld. AR, the assessee has deducted the amount of capital subsidy and the compensation amounts from the additions to plant and machinery and buildings respectively in the depreciation claimed for Income Tax purposes. Therefore the depreciation claimed by the assessee is deficient to the extent of the subsidy and compensation received. Having done so, the assessee cannot be asked to pay book profits tax for this subsidy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he preparation of the profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. Under these circumstances, as long as these receipts of grant are part of profit included in the profit and loss account prepared in accordance with the provisions contained in Parts II and III of Schedule VI to the Companies Act, it cannot be excluded from the net profit unless so provided under the Explanation to section 115JB of the Act for the purpose of computing book profit under section 115JB of the Act. In the absence of any provision for exclusion of these receipts in the computation of book profit under the above provision, the assessee is not entitled to the exclusion claimed. 8. It is the case of the assessee that since these receipts arising in relation to capital asset, the same was exempt from tax and it shall not be charged to tax and as such the same is to reduce from the net profit determined in the profit and loss account prepared by the assessee while computing book profit within the meaning of section 115JB of the Act. Learned counsel for the assessee strongly contended that the provisions contained in sub-section (5) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [2008] 305 ITR 409 which has been rendered in the context of section 115JA of the Act. As per sub-section (5) of section 115JB of the Act, which reads as save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section . Having regard to expression save as otherwise provided in this section used in this sub-section (5) of section 115JB of the Act, we are of the considered opinion that the expression save as otherwise provided in this section 115JB clearly means that what is provided in section 115JB should be religiously followed and anything over and above the matter provided in section 115JB will be subject to other provisions of the Act. The provisions of section 115JB have an overriding effect upon other provisions of the Act as is evident from the section itself. The method of computation of book profit provided in the Explanation to section 115JB should be followed while computing the book profit and the normal provisions of computation of profit under any head of the Act shall not be applicable. It is also held by the Karnataka High Court in the case of Jindal Thermal Power Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB of the Act is concerned. The entire mechanism for the computation of book profit is clearly set out in sub-section (1) of section 115JB read with Explanation thereto. The starting point being the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act but also the items, which are to be increased as stipulated in clauses (a) to (h), and the items, which are to be reduced as specified in clauses (i) to (vii), find separately mentioned in the scheme of the section itself. So, the computation of book profit is to be done strictly as per the Explanation to section 115JB of the Act and hence, no assistance from any other section of the Act can be taken for that purpose. The decisions relied upon by the learned Departmental representative in the cases of Apollo Tyres Ltd. [2002] 255 ITR 273 and HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409 had clearly laid down a law that the Assessing Officer has only limited power of making increases and reductions to the net profit shown in the profit and loss account except as provided for in the Explanation to section 115J or 115JA of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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