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TMI Blog2008 (4) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 (hereinafter referred to as "the 1961 Act") when a ceiling was placed on allowances by the Finance Act, 1983 with effect from the Assessment Year 1984-85. However, the allowances unabsorbed, because of the restriction imposed by the ceiling, were carried forward, so that they could be absorbed in a later year, if adequate profits are available. Section 80VVA was dropped from the statute by the Finance Act, 1987, with effect from A.Y. 1988-89, when replaced Book Profits Tax by section 115J of the 1961 Act. But it was materially different in one respect that no part of the tax on book profits could be adjusted against tax on regular assessment at a future date. It may be pertinent to mention that the Book Profit Tax was abandoned with effect from A.Y. 1990-91 by the Finance Act, 1990. It was re-introduced with a new name "Minimum Alternate Tax" with effect from A.Y. 1997-98 under section 115JA. For ready reference, we deem it appropriate to reproduce section 115J of the 1961 Act as under: "115-J. Special provisions relating to certain companies." (1) Notwithstanding anything contained in any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account, and as reduced by, (i) the amount withdrawn from reserves other than the reserves specified in Section 80-HHD or provisions, if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amounts as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under Section 80-HHC or Section 80-HHD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creased by income-tax paid or payable or the provisions thereof, amount carried to any reserve, provision made for liabilities other than ascertained liabilities, provision for losses of subsidiary companies, etc., if the amounts are debited to the profit and loss account. Liabilities relating to expenditure which has been incurred or which has accrued in respect of expenses which are otherwise deductible in computing income will not be added back. The amount so arrived at is to be reduced by- (i) amounts withdrawn from reserves, if any such amount is credited to the profit and loss account; (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; and (iii) the amount of any brought forward losses or unabsorbed depreciation whichever is less as computed under the provisions of section 205(1)(b) of the Companies Act, 1956, for the purposes of declaration of dividends. Section 205 of the Companies Act requires every company desirous of declaring dividend to provide for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the obligation to prepare his profit and loss account as per Parts-II and III of Schedule VI to the 1956 Act. No dispute has been raised at any stage of the proceedings by the revenue that the profit & loss account of the assessee is not in compliance with the provisions of the 1956 Act, particularly Schedule VI, Parts II and III. In Schedule VI, there is no reference to sections 205 and 350 or Schedule XIV to the 1956 Act. The appellant referred to Note 3 (iv) to Part II (Requirements as to profit and loss account) of Schedule VI to the 1956 Act which reads as under: "The amount provided for depreciation, renewals or diminution in value of fixed assets. If such provision is not made by means of a depreciation charge, the method adopted for making such provision. If no provision is made for depreciation, the fact that no provision has been made shall be stated and the quantum of arrears of depreciation computed in accordance with section 205(2) of the Act shall be disclosed by way of a note." This makes it clear that Schedule VI to the 1956 Act does not create any obligation on a company to provide for any depreciation much less provides for deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay at least some tax. The phenomenon of so-called "zero-tax" highly profitable companies deserves attention. In 1983, a new Section 80-VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a "minimum corporate tax" on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30% of its book profit. In other words, a domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield a revenue gain of approximately Rs.75 crores. The Court held that the purpose of introducing this section was that the Income Tax Authorities were unable to bring certain companies within the net of income tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that section 115J was introduced in the 1961 Act with a deeming provision which makes the company liable to pay tax on at least 30% of its book profits as shown in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er submitted that the reasoning of this case has been accepted in a large number of judgments of the High Courts. Mr. Vellapally placed reliance on a division bench judgment of the Punjab & Haryana High Court in Commissioner of Income Tax v. Sona Woolen Mills Pvt. Ltd. (2007) 160 Taxman 22 and submitted that in this case also the assessee had provided for depreciation in its profit & loss account by adopting the rates prescribed in the Income-tax Rules. The Assessing Officer claimed that the depreciation for the purposes of section 115J was permissible as per Schedule XIV to the Companies Act. The High Court relying upon the decision in Apollo tyres rejected the view taken inter alia by the Kerala High Court in Malayala Manorama (2002) 253 ITR 378. Mr. Vellapally also submitted that the respondent revenue has accepted the judgment delivered by the High Court of Punjab & Haryana in the aforesaid judgment and did not challenge the same by filing Special Leave Petition before this Court. Mr. Vellapally has also drawn our attention to the division bench judgment of the Bombay High Court in Kinetic Motors v. Deputy Commissioner of Income Tax (2003) 262 ITR 33 and submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin Cadalas (P) Ltd. v. Commissioner of Income Tax (2002) 125 Taxman 47 (Kerala) and Rajasthan Spinning & Weaving Mills v. Deputy Commissioner of Income Tax (2006) 281 ITR 177 (Rajasthan). All these judgments have been decided on the basis of the ratio of the decision of this Court in Apollo Tyres (supra). He further submitted that the respondent revenue has accepted the decisions of the High Courts in all these cases and did not challenge the same by filing Special Leave Petitions before this Court. Mr. Vikram Gulati, learned counsel appearing on behalf of the respondent-Revenue submitted that in the instant case three questions were raised before the High Court, one at the instance of the Revenue and two questions at the instance of assessee. The question raised by the revenue was: "Whether on the facts and in the circumstances of the case, the tribunal was right in upholding the order of the CIT (Appeals) directing the assessing officer to allow the claim of depreciation as per the Income Tax Rules for the purposes of computing the book profit under section 115J of the Companies Act?" The questions raised by the assessee are as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "prepared under sub-section (1A)" were introduced by the Finance Act, 1989, with effect from 01.4.1989. Sub-section (1A) to section 115J reads as follows: "Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year, in accordance with the provisions of Part II, and III of Schedule VI to the Companies Act, 1956 (1 of 1956)." This sub-section (1A) to section 115J of the 1961 Act would have application for the A.Y. 1989-90, which is the subject matter of ITR Nos.289 and 293 of 1999. But would have no application to the A.Y. 1988-89, which is the subject matter of ITR Nos.245 and 259 of 1999. Explanation (ha) (iv) to section 115J, which would be relevant to both assessment years 1988-89, as well as 1989-90 and introduced w.e.f. 01.4.1989 reads as follows: "(ha). The amount deemed to be the profits under sub-section (3) of section 33AC: if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profits and loss account, as as reduced by." (i) xxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see under section 115J of the Income Tax Act. Mr. Gulati further submitted that the question raised in the case of Sona Woolen Mills Pvt. Ltd. (supra) shows that the assessee was trying to claim depreciation as per Income Tax Rules on the ground that the same was based on the views expressed by the then chairman of the CBDT in a departmental publication. It is clear that the views expressed by the Chairman of the CBDT cannot override the Act and have clearly to be rejected in case they are not consistent with the Act. He submitted that the Kerala High Court in Commissioner of Income Tax v. Dynamic Orthopaedics Pvt. Ltd. (2002) 257 ITR 446 as well as Malayala Manorama (supra) and the M.P. High Court in the case of Commissioner of Income Tax v. Vandana Rolling Mills Ltd. (1998) 234 ITR 693 have all held that for the purposes of section 115J of the Act, depreciation could not be calculated as per provisions of the Income Tax Rules. Only the Gujarat High Court in the case of Deputy Commissioner of Income Tax v. Vardhman Fabrics (P) Ltd. (2002) 254 ITR 431 has upheld the view that the circular of the Company Law Board laid down only minimum dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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