TMI Blog2008 (4) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 115J of the Income Tax Act, 1961 to rework net profits by substituting the rates prescribed in Schedule XIV of the Companies Act, 1956?" The concept of a minimum tax on zero tax companies was introduced under section 80VVA of the Income Tax 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. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by, (i) the amount withdrawn from reserves other than the reserves specified in Section 80-HHD or provisions, if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1 st day of April, 1988 shall not be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the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. The net profit as above will be increased 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 depreciation for the relevant accounting year. Further, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule 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 depreciation as per Schedule XIV to the Act. It was also submitted by the appellant that it is a long-stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 its own account. For the said purpose, section 115J makes the income reflected in the companies books of accounts as the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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 submitted that in this case the Bombay High Court relied on the said judgment of Apollo Tyres and held the issue in favour of the assessee. In this case, the Division Bench of the Bombay High Court observed as under: The short question that arises for consideration in this tax appeal is whether it is open to the Assessing Officer to make adjustment to the book profits beyond what is authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: "1. Whether on the facts and in the circumstances of the case, the tribunal was justified in upholding the finding of the CIT (Appeals) that the proceeding of the assessing authority dated 09.10.2002, was a valid order under section 154 of the Income Tax Act? 2. Whether on the facts and in the circumstances of the case, the tribunal was justified in law in upholding the computation under section 115J through the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89 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 xxx xxx (ii) xxx xxx xxx (iii) xxx xxx xxx (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 of 1956) are applicable." Mr. Gulati further submitted that before the High Court, it was argued by counsel for the revenue that section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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