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2015 (8) TMI 872 - ITAT CHENNAI

2015 (8) TMI 872 - ITAT CHENNAI - TMI - Computation of book profit u/s 115JB - whether Parts II and III of Schedule VI to the Companies Act permits the exclusion of the receipts relating to Central and State Government grant? - can a profit and loss account drawn up without considering the above receipts said to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act or not ? - Held that:- The entire mechanism for the computation of book profit is clearly set .....

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k 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 (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 .....

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he 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 our opinion, it cannot be reduced from book profits u/s.115JB of the Act. - Decided in favour of revenue. - ITA No.829/Mds/2015 - Dated:- 12-8-2015 - SHRI CHANDRA POOJARI AND SHRI CHALLA NAGENDRA PRASAD, JJ. For The A .....

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ct. 3. The learned CIT(A) ought to have appreciated the fact that the Assessing Officer was right in disallowing the grant-in-aid and compensation received while computing the book profit u/s.115JB of the IT Act. 3. The facts of the case are that the assessee received an amount of ₹ 49,92,354/- from the Central Government as machinery grant for the purpose of modernization and diversification of the assessee s processing plant relating to cashew. The assessee filed the Sanction Letter of G .....

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l of the assessee. The amounts received from the State Government was ₹ 64,276/-. It is seen that the profit and loss account was signed on 07.09.2010 for adoption of the Annual General Meeting. The overstatement of profit in the Profit & Loss Account was noticed while filing the return of income in ITR VI on 26.09.2010. Since, the P&L Account was already signed on 07.09.2010, no correction was possible when the assessee noticed the error on 26.09.2010. However, it is to be noted t .....

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ar 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 flu .....

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o be treated as part of book profits for Section 115JB. The assessee because of the error committed while preparing the Profit & Loss Account (in accounting the machinery grant and compensation for compound wall as Other Income in the P&L Account), the assessee claimed the amount of capital subsidy as deduction u/s 115JB. An item of income which does not come under the purview of income-tax cannot be subjected to tax under any of the provisions of the Act and therefore cannot be included .....

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icer also should take into consideration the depreciation claimed by the assessee by reducing the grant-in-aid received from the Central Government for the value of the fixed assets. However, the AO has not agreed with the assessee and considered the above item of receipt for computing the book profit. On the other hand, the CIT(Appeals) directed the Assessing Officer to allow the claim of deduction of ₹ 50,56,630/- as deduction from the book profits and allowed the claim of the assessee. .....

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not deduct an amount of ₹ 49,92,354 which was received from the Central Government as machinery grant by the assessee for the purpose 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 c .....

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nch, 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 assessable as income under the Act. In the interpretation of statutes, one has to adopt a construction as will promote the general legislative purpose unde .....

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of the Companies Act, 1956 by crediting to its profit and loss account the Government grant for capital assets acquisition and compensation for loss of assets. Only the profits in the nature of income commercially understood can be liable to tax under section l15JB and not capital receipts and compensation for loss of capital assets which may admittedly not be commercial in nature like gift, amalgamation reserve, capital reserve and revaluation reserve irrespective of the treatment in the books .....

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the Act, income includes any capital gains which are not chargeable under section 45 shall not be treated as income under section 2(24) of the Income-tax Act and consequently as the charging section i.e., section 4 of the Income-tax Act fails and such receipts shall not be chargeable to tax under any other provisions of Income-tax Act. The subsidy receipts and compensation receipts by the assessee are not assessed to tax as capital gains. In this regard, the assessee relies the decision of the S .....

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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. Accordin .....

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he same receipts. 5.5. The ld. AR relied on the decision of the ITAT Cochin Bench in ACIT, Kottayam vs The Niligiri Tea Estate Ltd. reported in 47 Taxmann 329 and submitted that profit from sale of agricultural land which does not come under purview of 'capital asset' as defined u/s 2(14) does not come under the purview of the Act at all and therefore, cannot be included for purpose of computing book profit under section 115JB. An item of income which does come under the purview of incom .....

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9 (Mum) 4. ITO V. Frigsales (I) Ltd. 4 SOT 376 (Mum) 5. Oriental Containers Ltd. VS. JCIT 19 SOT 30 (Mum) 6. Sutlej Cotton Mills Ltd. Vs. AC1T 45 1TD 22 (Cal) (SB) 7. GKW Ltd. V. JCIT 74 1TD 161 (Cal) 8. Hitkari Fibres Ltd. v. JCIT (90 ITD 654) 9. GKW Ltd. v. JCIT (74 ITD 161(Cal.) 10.ACIT, Kottayam, v. The Niligiri Tea Easte Ltd. (47 Taxman.com 329) 6. We have heard both the parties and perused the material on record. The moot question that needs to be decided is whether Parts II and III of Sch .....

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t deductible from the net profit prepared in accordance with Parts II and III of Schedule VI to the Companies Act. Moreover, the taxability of these receipts is relevant only for the purpose of computation of income under the normal provisions of the Income-tax Act, and has nothing to do with the 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 pa .....

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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) o .....

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ions of the Act. Section 115JA and 115JB have also overriding effect over all other provisions of the Act to the extent of the matter provided in these sections. Sub-section (4) was inserted in section 115JA of the Act. A provision similar to sub-section (4) of section 115JA was not there in section 115J of the Act. Sub-section (4) of section 115JA reads as "save as otherwise provided in this section, all other provisions of the Act shall apply". It is, thus, clear that all other provi .....

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ion 115J or 115JA or 115JB itself as the case may be, and consequently all other provisions of the Act providing the manner of computation of total income under the normal provisions of the Act cannot be applied while computing book profit under section 115J or 115JA or 115JB, as the case may be. We do not find any difference between section 115J or 115JA or 115JB in so far as method of computation of book profit as provided in the Explanation appended thereto is concerned. The Tribunal in the c .....

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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 .....

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t 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. v. Deputy CIT reported in [2006] 286 ITR 182, that except for substitution of the tax payable under the provisions and manner of computation of book profits, all the provisions of the tax including the provision relating to charge, definitions, recoveries, payment, assessment, etc., would apply in respect of the provisions of this section and in view of th .....

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ct, the same would certainly be against the above referred decisions laid down by the honourable Supreme Court in the case of Apollo Tyres Ltd. [2002] 255 ITR 273 and HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409 wherein the powers of the Assessing Officer while computing the book profits for the purpose of section 115J or 115JA were limited as discussed above. The case law relied upon by learned counsel for the assessee, several cases were rendered before the decision of the apex cour .....

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reference to the declaration of dividend in the context of section 115JB by the Finance Minister or by the circulars are merely explanations to the kind of malaise that the section sought to address. For invoking this section, there is no prerequisite condition that the company should have declared dividend to the shareholders. 10. It is not the intention of the Legislature to substitute the other provisions of the Act in place of what is specifically made available in section 115JB in so far a .....

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