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2016 (2) TMI 458

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..... 8377; 41,16,36,422/- under the provisions of section 115JB of the Act. There seems to be apparent mistake on adoption of figures by the Learned AO while computing the book profits u/s 115JB of the Act. However, we have already held that the assessee corporation is not liable to pay tax on the book profits u/s 115JB of the Act and accordingly, the issue of whether the disallowance u/s 14A of the Act could be added to the book profits u/s 115JB of the Act, becomes infructuous. Accordingly the ground raised by the assessee in this regard is allowed. Applicability of rule 8D - Held that:- As the action of the Learned AO in directly embarking on Rule 8D(2) of the Rules without recording any satisfaction as mandated in Rule 8D(1) of the Rules is not appreciated and hence no disallowance u/s 14A of the Act by applying Rule 8D(2) of the Rules could be made in the facts of the instant case. In the instant case the assessee corporation had disallowed a sum of ₹ 11,08,315/- and no adverse inference has been brought on record and no satisfaction has been recorded with cogent reasons by the Learned AO as to why the said figure computed by the assessee is incorrect. Without satisfying t .....

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..... rily on the ground that the aforesaid claim was not made in the return of income or revised return of income filed by the appellant. 3. For that on the facts and in the circumstances of the case and in law, the learned CIT(Appeals) failed to appreciate that the judgment of the Kerala High Court in the case of Kerala State Electricity Board Vs DCIT was squarely applicable to the appellant in terms of which statutory corporations not registered under the Companies Act, 1956 were not liable to be assessed on 'book profits' under Section 115JB of the Income-tax Act, 1961. 4. For that on the facts and in the circumstances of the case and in law, the AO be directed to assess total income of the appellant for AY 2008-09 only with reference to computational provisions of the LT. Act, 1961, without invoking deeming provisions of Section 115JB of the Act. Ground nos. 1 to 5 of ITA No.451/Kol/2013 A.Y 2009-10 1. For that on the facts and in the circumstances of the case and in law, the CIT(Appeals) was grossly unjustified in rejecting the appellant's claim that the deeming provisions of Section 115JB are not applicable to the appellant and therefore total .....

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..... ny shareholders. d. that the accounts of the Corporation are maintained in accordance and conformity with the provisions of DVC Act, 1948. The annual financial statements are prepared in the form prescribed under the said Act. e. that assessee Corporation does not prepare its annual accounts in accordance or conformity with Schedule VI of the Companies Act, 1956 and accordingly the net profit of the Corporation is not arrived at the provisions of Part II III of Schedule VI to Companies Act, 1956. f. that assessee Corporation does not distribute its profits by way of dividend either to participating Governments or any other person. In view of the above, the Learned AR argued that the provisions of section 115JB of the Act are not applicable to the assessee corporation. 3.2. In response to this, the Learned DR argued that the assessee filed its return by computing its income under normal provisions of the Act as well as under section 115JB of the Act and during assessment proceedings, it is only by way of a letter dated 20.12.2010, the asssessee sought to withdraw the applicability of section 115JB of the Act for the assessee and no revised return was filed for making t .....

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..... corporation and upto date financial results. (3) The payments provisionally made by each of the three participating governments on the basis of the budget estimates shall be adjusted as soon as possible in accordance with the allocation made in the annual report. (4) Printed copies of the annual report shall be made available to each of the three participating governments by the 15th day of October each year. (5) The annual report shall be laid before the Central and the Provincial Legislatures concerned as soon as may be, after it is prepared. 3.3.1. We find that the provisions of section 46 of DVC Act, 1948 are as below:- Section 46 Other Annual Financial Statements (1) The corporation shall also prepare such other annual financial statements in such form and by such dates as may be prescribed. (2) Printed copies of each such annual financial statements shall be made available to each of the three participating governments by such date as may be prescribed. 3.3.2. We find that the provisions of section 46 of DVC Act, 1948 are as below:- Section 47 Accounts and Audit The accounts of the corporation shall be maintain .....

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..... ian thereof. The results of the verification together with the orders of the Corporation for shortages and excesses shall be communicated to the Audit Officer. AUDIT 28. The accounts of the Corporation shall be audited by an officer appointed by the Comptroller and Auditor General of India, and under his direction and control. A statement of the results of audit for each month, shall be presented to the Corporation. 29. The Audit Officer shall be supplied with copies of all contracts and other orders involving revenue or expenditure of the Corporation duly authenticated by an Officer of the Corporation, who is competent to enter into the contract or to issue the order. 30. The Audit Officer shall have access to all papers, books, records, files and accounts at all reasonable times. 31. The Audit Officer shall certify to the correctness of the Annual Accounts prepared by the Corporation and append to the Certificate an audit report. The annual accounts so certified and the audit report shall, after countersignature by the Comptroller and Auditor General be submitted with three additional copies to the President. One copy shall be retained by the Cen .....

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..... Companies Act, 1956. We hold that Sec 211 of Companies Act, 1956 is not applicable to assessee herein, whereas it is very much applicable to companies defined under Companies Act, 1956. We hold that assessee Corporation is not a company under the Companies Act, 1956. Only for income tax assessment purposes, the assessee corporation is given the status of a company. We hold that when the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply. We hold that the amendment in section 115JB came into effect only from 1.4.2013 vide Expln 3 inserted by Finance Act 2012. At the time of Finance Bill 2012 stage, amendment was proposed only in section 115JB(2) . Expln 3 was not proposed at that time. But when the Act was enacted, Expln 3 was inserted. Expln 3 states that assessee being a company to which section 211(2) of Companies Act applies. Admittedly, the accounts of assessee corporation are not prepared as per section 211(2) of Companies Act, 1956. We find that the Explanation 3 to section 115JB of the Act has been inserted by the Finance Act 2012 to clarify that only assesses being companies and to w .....

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..... the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. ii. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. iii. It is also proposed to omit the reference of Part III of the Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act 1956. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment .....

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..... t of the book profits computed under the Companies Act, as taxable income, in 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 Incometax Act, is more than 30 per cent of the book profit, tax shall be charged on the same. 3.10. The Memorandum explaining the provisions in the Finance (No. 2) Bill, 1996 categorise the amendment under the caption Rationalisation and Simplification . The relevant portion is reproduce hereunder:- RATIONALISATION AND SIMPLICATIONS 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 o .....

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..... n (2) mandates that the profit and loss account of the 115JB stipulates that the accounting policies, accounting standards, etc. shall be uniform both for the purpose of income-tax as well as for the information statutorily required to be placed before the annual general meeting conducted, in accordance with section 210 of the Companies Act, 1956. Though the Kerala State Electricity Board, a statutory corporation constituted by virtue of section 5 of the Electricity (Supply) Act, 1948 answers the description of an Indian company and therefore a company within the meaning of section 2(17) of the Income-tax Act, 1961 it is not a company for the purpose of the Companies Act, 1956. It is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. On the other hand, under section 69 of the Electricity (Supply) Act, 1948, the Board is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. Such accounts of the Board are required to be audited by the Com .....

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..... see was required to prepare its account in conformity with the provision of section 69 of the Electricity (Supply) Act. Besides proviso to section 115JA(2) provides that while preparing the annual accounts, depreciation has to be provided on the same rates, and as per the same method as was adopted for calculating depreciation for the purpose of preparing the Profit Loss Account laid before the company at its AGM under section 210 of the Companies Act. This section cannot be applied in relation to the assessee. In fact, the very concept of a meaning 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 .....

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..... in the interpretation clause, should be given to the word wherever it occurs, will depend upon the context. Therefore, it becomes necessary not only to look at the words but also to look at the context, the collocation and the objects of such words relating to such matter. 19. It is true that the word used in section 115JA of the Act is company . The heading of this section is Deemed income relating to certain companies. The provision begins with a non obstante clause. It applies to every assessee being a company. The panoply o 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 it .....

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..... dated 9.4.2014 ITAT Mumbai, wherein it was held that : 6. Ground No. 5 is regarding applicability of provisions of section 115JB in case of Bank. 6.3 Having considered the rival submissions as well as relevant material on record, we note that this issue has been considered by this Tribunal in the series of decisions including the decision relied upon by the Ld. AR of the assessee. In the case of ICICI Lombard General Insurance (supra) the coordinate bench of this Tribunal has considered and decided an identical issue in para 6 as under:- As discussed above, the assessee is following the accounting policies under the Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts in accordance with part II III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon ble Supreme Court and the decision of the Tr .....

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..... which book profit of a company assessee is regarded as total income . The deeming fiction of the IT Act can only be applied to a company proper. Section 115JB which is a deeming provision of the IT Act cannot be applied to any other bodies which are not companies incorporated under the provisions of the Companies Act. In this regard, we place reliance on the following decision to support our view :- CIT vs M/s Pruthvi Brokers Shareholders Pvt Ltd in ITA No. 3908 of 2010 dated 21.6.2012 for Asst Year 2004-05 (Bombay High Court) The questions raised before the Bombay High Court is as below:- (i) Whether, an assessee can amend a return filed by him for making additional claim for deduction other than filing a revised return ? (ii) Whether , on the facts and circumstances of the case, the Hon ble Income Tax Appellate Tribunal, in law, was right in holding that a claim of deduction not made in the original return and not supported by a revised return, is admissible ? (iii) Whether, on the facts and in the circumstances of the case, the Hon ble Tribunal, in law, was right in not appreciating the fact that the AO has no power to entertain a claim made b .....

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..... but could not have been raised at that stage. The words are could not have been rasied and not were not in existence . Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz. where the ground became available on account of change of circumstances or law . 14. The facts in Jute Corporation of India Ltd, various judgements referred to therein as well as in subsequent cases, which we will refer to establishes this beyond doubt. In many of the cases, the grounds were, in fact, available when the return was filed and / or the assessment order was made. In Jute Corporation of India Ltd, the ground was available when the return was filed. The assessee did not claim any deduction of its liability to pay purchase tax as it entertained a belief that it was not liable to pay purchase tax under the Bengal Raw Jute Taxation Act, 1941 . Thus, the ground existed when the return was filed. The assessment order was even made and received by the assessee. It is only after the appeal was filed that the assessee claimed a deduction in respect of the amount paid towards the purchase tax under the said Act. It .....

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..... CIT vs Jai Parabolic Springs Limited (2008) 306 ITR 42. The Division Bench, in paragraph 17 of the judgement held that the Supreme Court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and for the just decision of the case. 25. In the circumstances, it is not necessary to decide the other questions raised by Mr.Mistri. 26. The appeal, is therefore, dismissed. 3.15. Apart from the above decisions, we also find that the following cases also supports the contentions of the assessee on the impugned issue :- * UCO Bank vs DCIT reported in (2015) 64 taxmann.com 51 (Kolkata Tribunal) in ITA No.1768 / Kol / 2009 dated 27.11.2015 for Asst Year 2002-03 * A.P.S.E.B. vs JCIT reported in (2004) 91 ITD 259 (HYD ITAT) in ITA No. 1055 (HYD) of 20052 dated 5.4.2004 for Asst Year 1997-98 3.16. In view of .....

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..... also in computing book profits, if any. Ground nos. 6 7 of ITA No.451/Kol/2013 A.Y 2009-10 6. For that on the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred in upholding the disallowance made by the AO under Section 14A of Income-tax Act, 1961 read with Rule 8D of the I.T. Rules, 1962 by summarily rejecting appellant's explanations which clearly proved that the disallowance was arbitrary and not supported by the entries in the books of account. 7. For that on the facts and in the circumstances of the case and in law, the CIT (Appeals) failed to appreciate the reasons and explanations offered by the appellant against the disallowance of ₹ 18,45,63,204/- made under Section 14A of the Act and therefore the AO be directed to delete the disallowance and/or reduce the disallowance ix] s.14A; in assessing total income both as per computational provisions as also book profits, if any. 4.1. The brief facts of this issue are that the assessee derived exempt income during the asst year 2008-09 under appeal as below:- Interest on tax free bonds of RBI 120,37,87,527 .....

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..... ting to PF contributions made by the employees and investments made in various securities. In order to maintain records of such Provident Fund contributions and its investments, the corporation has established a Provident Fund Cell within its accounts department and total salary paid to employees working in that cell worked out to ₹ 55,41,573/-. The Learned AR argued that the personnel in the said provident fund cell are entrusted with collection of PF contributions from employees, its accounting, complying with various statutory rules, settlement of provident fund claims, collection of income and accounting of income investment etc. The Learned AR argued that the employee cost of the said provident fund cell does not pertain only to earning of interest income. Accordingly the assessee disallowed 20% of such salaries amounting to ₹ 11,08,315/- as attributable to the interest income earning activity which does not form part of total income. 4.5. The Learned AR argued that the assessee is the co-promoter of Bokaro Power Supply Co. Ltd jointly promoted with Steel Authority of India Ltd (SAIL), another PSU. The investment has been made with a view to expand the existin .....

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..... r and even in subsequent years. He further placed on record a copy of the assessment order passed u/s 143(3) of the Act for the Asst Year 2010-11 wherein the disallowance u/s 14A of the Act made by the assessee has been accepted by the Learned AO. He further argued that the assessee had made earned taxable interest income of ₹ 248.78 crores and paid interest on its borrowings amounting to ₹ 211.01 crores and earned a net interest income of ₹ 37.77 crores. He argued that the assessee had sufficient own funds to make the investments and no part of borrowed funds were utilized for the same. Hence in any case, the provisions of Rule 8D(2)(ii) of the IT Rules cannot be applied in the facts of the instant case. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 4.8. We have heard the rival submissions and perused the materials available on record. At the outset, we find that the Learned AO had adopted the disallowance figure u/s 14A of the Act at ₹ 20,03,61,170/- under normal provisions of the Act and at ₹ 41,16,36,422/- under the provisions of section 115JB of the Act. There seems to be apparent mistake on adopt .....

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..... t directly presume that the investments were made out of borrowed funds. If the action of the Learned AO and Learned CITA are to be upheld, then no assessee could make any investments when there is a interest bearing loan to be repaid. The fact of making the investments has to be viewed from the point of commercial expediency and from the point of view of businessman and not from the view point of the revenue. It is well settled that businessman knows his interest best. We place reliance on the decision of Hon ble Bombay High Court in the case of CIT vs Reliance Utilities Power Ltd ( 313 ITR 340 ) (Bom) in support of our view that if the own funds are available with the assesee and if the same are more than the investments made by the assessee, then it has to be presumed that the investments were made out of own funds and not out of borrowed funds. Hence the provisions of Rule 8D(2)(ii) cannot be invoked in these circumstances. 4.8.3. On non-application of Rule 8D(2)(ii) as the assessee had earned net taxable interest income Reliance placed on the coordinate bench decision of this tribunal in the case of DCIT vs M/s Trade Apartment Ltd in ITA No. 1277 / Kol / 2011 da .....

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..... at no expenditure was made by the assessee. Challenging the order of the tribunal, the present appeal has been filed. We have heard Mr.Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed . Hence we hold that the action of the Learned AO in directly embarking on Rule 8D(2) of the Rules without recording any satisfaction as mandated in Rule 8D(1) of the Rules is not appreciated and hence no disallowance u/s 14A of the Act by applying Rule 8D(2) of the Rules could be made in the facts of the instant case. In the instant case the assessee corporation had disallowed a sum of ₹ 11,08,315/- and no adverse inference has been brought on record and no satisfaction has been recorded with cogent reasons by the Learned AO as to why the said figure computed by the assessee is incorrect. Without satisfying the requirement contemplated in Rule 8D(1) , the Learned AO had directly proceeded to apply Rule 8D(2) in the instant case. Hence the disallowance u/s 14A of the Act cannot be made in the instant case of the assessee corporation for the Asst Years 2008-09 and 2009-10. Accordingly the ground nos. 5 6 raised by th .....

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..... could come to the rescue of the assessee. For the sake of convenience, the Circular No. 676 dated 14.1.1994 on which the Learned AR placed heavy reliance is reproduced hereunder:- Circular No. 676. dated 14-1-1994 SECTION 211. INSTALMENTS OF ADVANCE TAX 1197. Whether, in case last day for payment of any instalment of advance tax is day on which receiving bank is closed, assessee can make payment on next immediately following working day, and in such cases mandatory interest leviable under sections 234B and 234C would not be charged 1. Representations have been received by the Board seeking waiver of interest chargeable under sections 234B and 234C of the Income-tax Act, 1961 for default in payment of instalments of advance tax by the due dates which are prescribed under section 211 of the Income-tax Act. In cases where the last date for making payment of such instalments (i.e., 15th September, 15th December and 15th March) happens to be a holiday and the assessee pays the due amount of advance tax on the next working day. 2. The matter has been carefully considered by the Board and it is felt that in such cases section 10 of the General Clauses Act, 1897 .....

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