TMI Blog2016 (8) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Income-tax Act due to various exemptions/ deductions like sections 10A/10B/80-IA/80-IB. To justify the imposition, the real income theory was stressed and it was held that the companies cannot be allowed to have two faces, one for the shareholder and another for the tax man. Section 115JA was enacted by restructuring the provisions of section 115J with certain minor changes and, thereafter, section 115JB was enacted by bringing minor changes in section 115JA. The provisions of sections 115J, 115JA and 115JB are by and large similar to each other. We find that the accounts laid before the annual general meeting have followed the accounting policies which are required to be followed under the Electricity Act read with the West Bengal Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005, which are admittedly not in accordance with the Companies Act, 1956. We find that there are major differences with regard to the treatment of several items in the accounts in the Electricity Act vis-a-vis the Companies Act, 1956. Hence, it can safely be concluded that the accounts of electricity companies are not prepared in accordance with Parts II and III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuary 10, 2013. The learned Commissioner of Income-tax (Appeals) observed that the assessee had not adduced proper reasons as to why the same issue was not raised before the learned Assessing Officer. Moreover, he observed that the assessee itself had offered the income to tax under the provisions of section 115JB of the Act. Accordingly, he refused to admit the additional grounds but proceeded to adjudicate the issue on the merits. Aggrieved, the assessee had raised the following ground before us : 2.0. That, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) was not justified and erred in not admitting the additional grounds filed before it, without considering the fact that the additional grounds were merely questions of law on the facts available on record and essential in order to correctly assess the tax liability of an appellant. 3.2. We have heard the rival submissions. We find that the additional ground raised by the assessee before the learned Commissioner of Income-tax (Appeals) is a legal issue and does not require any fresh investigation of facts and the honourable Supreme Court in the case of National Thermal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance Act, 1938 ; (b) to banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Companies Act, 1949 ; (c) to companies engaged in the generation or supply of electricity except in so far as the said provisions are inconsistent with the provisions of the Indian Electricity Act, 1910, or the Electricity Supply Act, 1948 ; (d) to any other company governed by any special Act for the time being in force, except in so far, as the said provisions are inconsistent with the provisions of such special Act ; (e) to such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification in the Official Gazette, specify in this behalf, subject to such exceptions, modifications or adaptations, as may be specified in the notification. 4.2. The Indian Electricity Act, 1910, and the Electricity (Supply) Act, 1948, has since been repealed by the Electricity Act, 2003. From a perusal of the above it could be noted that for an electricity company, the provisions of the Electricity Act, 2003, shall override the provisions of the Companies Act wherever there is inconsistencies betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loss account.-(1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case ; and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading 'Notes' at the end of that Part : Provided that nothing contained in this sub-section shall apply to any insurance or a banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of balance sheet has been specified in or under the Act governing such class of company. (2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 (1 of 1956), or in accordance with the provisions of the Act governing such company. 4.5.1. Explanation 3 to section 115JB of the Act has been inserted by the Finance Act, 2012, to clarify that only assessees being companies and to whom the provisions of the Companies Act, 1956, are applicable came within the ambit of section 115JB of the Act. In other words, unless an assessee comes within the ambit of section 211 of the Companies Act, 1956, it was not covered by Explanation 3 to section 115JB and as a necessary corollary section 115JB was not applicable to it. 4.6. The Notes on Clauses to the Finance Act, 2012, on the subject of minimum alternate tax (MAT) is reproduced below ([2012] 342 ITR (St.) 145, 288) : (i) Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and one half per cent. of its book profit in case of tax on its total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 211(2) and the proviso thereon is not applicable and, therefore, consequently, we hold that the provisions of section 115JB of the Act are also not applicable. 4.8. The basic intention of MAT under section 115JB is only to tax the book profits irrespective of nil or lesser taxable income due to various exemptions/deductions like section 10A/10B/80-IA/80-IB, etc. The intention of MAT is that the companies were declaring huge profits as per their Companies Act and declaring dividends to its shareholders but paying nil tax or lesser tax under the Income-tax Act due to various exemptions/ deductions like sections 10A/10B/80-IA/80-IB. To justify the imposition, the real income theory was stressed and it was held that the companies cannot be allowed to have two faces, one for the shareholder and another for the tax man. Section 115JA was enacted by restructuring the provisions of section 115J with certain minor changes and, thereafter, section 115JB was enacted by bringing minor changes in section 115JA. The provisions of sections 115J, 115JA and 115JB are by and large similar to each other. 4.8.1. The scope and effect of section 115JA was elaborated in the Department Circular No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 783 considered the legislative intent for the introduction of section 115J. It was found that the section was introduced to take care of the phenomenon of prosperous zero-tax companies which had continued in spite of the enactment of section 80VVA. These were companies which were paying no Income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. 4.8.4. In fact in section 115JB, originally the companies entitled for exemptions under section 10A/10B and deductions under section 80-IA/80- IB were eligible for deduction from book profits under section 115JB. But later to be in line with the underlying intention behind introduction of MAT provisions to tax the companies declaring huge dividends to shareholders by reporting higher profits as per Companies Act but paying lesser tax under the Income-tax Act, the amendment was brought out in the statute book wherein the companies eligible to claim exemptions and deductions under section 10A/10B/80-IA/80-IB also would come under the ambit of MAT. From this, it could be safely concluded that the Legislature in its wisdom had time and again applied the He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961, creates a legal fiction regarding the total income of assessees which are companies. The book profit of the company is deemed to be the total income of the assessee in the circumstances specified in the section. The expression 'book profit' for the purpose of the section is explained to mean the net profit as increased or decreased by the various amounts shown in the various sub-clauses of the section. The 'net profit' itself must be the net profit as shown in the profit and loss account of the company. Sub-section (2) mandates that the profit and loss account of the company is required to be prepared in the manner specified therein. Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be for the benefit of entire body politic of the State. Therefore, the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, the fiction fixed under section 115JB cannot be pressed into service against the Electricity Board while making the assessment of the tax payable under the Income-tax Act. Maharashtra State Electricity Board v. Joint CIT reported in [2002] 82 ITD 422 (Mum), wherein it was held that : 15. We find that sub-section (2) of section 115JA requires the company to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The assessee was required to prepare its account in conformity with the provision of section 69 of the Electricity (Supply) Act, 1948. Besides the 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 and loss account laid before the company at its annual general meeting under section 210 of the Companies Act. This section cannot be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied. The definition as given in section 2 of the Act begins with the qualifying words, 'unless the context otherwise requires'. Text and context are the basis of interpretation. If the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. Word in section is skin of the living thought. It may vary in colour and content according to the context. It is a settled rule of interpretation canonized in the dictum : ex praecedentibus et consequentibus optima fit interpretatio (the best interpretation is made from the context). Whether the same meaning, as has been given 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril 1, 2013, even companies to which the proviso to section 211(2) applies (the banking companies and companies engaged in generating and distribution of electricity), should prepare their profit and loss and balance sheet in accordance with the provisions of the Act governing such companies. This would mean that prior to assessment year 2013-14, provisions of section 115JB will not apply to companies to which proviso to section 211(2) of the Companies Act, 1956, applies. The assessee being a company to which the proviso to section 211(2) of the Companies Act, 1956, applies, will not be liable to be taxed under section 115JB. 14. The Mumbai Tribunal in the case of Krung Thai Bank PCL v. Joint DIT (International Taxation) [2012] 49 SOT 70 (Mum) (URO) ; [2011] 16 taxmann.com 239, to which one of us is a party has held that provision of section 115JB cannot be applied to the banking company. 15. In view of the above, as the amendment to section 115JB by the Finance Act, 2012, will be applicable only from the assessment year 2013-14, we uphold the claim of the assessee that provision of section115JB will not be applicable to the assessee-bank and set aside the assessment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the series of decisions including the decision relied upon by the learned authorised representative of the assessee. In the case of ICICI Lombard General Insurance Co. Ltd. [2012-TIOL-690- ITAT Mum] the co-ordinate Bench of this Tribunal has considered and decided an identical issue in paragraph 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 Parts II and III of Schedule VI to the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with Parts II and III of Schedule VI to the Companies Act then the provisions of section 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respect fully following the above decisions of the honourable Supreme Court and the decision of the Tribunal for assessment year 1988-89, we hold that the provisions of section 115JB are not applicable on the facts of the present case.' Following the decisions of the co-ordinate Benches of this Tribunal, we ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act and if followed the accounts will not be in accordance with Parts II and III of Schedule VI. 24.6. It was, therefore, submitted that an electricity company cannot prepare the accounts under Parts II and III of Schedule VI to the Companies Act following the same accounting policies as followed in the accounts under the Electricity Supply Act which are presented before the company in annual general meeting. The asses see, therefore, submitted that the provisions of section 115JB(2) as mandated by the first proviso cannot be complied with. 24.7 Attention of the Bench was also drawn to the provisions of section 115JA. The proviso to section 115JA(2) has provided that, while preparing profit and loss account under Parts II and III of Schedule VI the same methods and rates which are adopted for calculation of depreciation in the accounts presented before the company in the annual general meeting should be followed. There was no provision for following the same accounting policies and same accounting standards in both the accounts as prepared under the Electricity Supply Act and under the Companies Act. This material departure in section 115JD from the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 294 (SC) wherein the Supreme Court had pointed out that under the scheme of the Income-tax Act charge of tax will not get attracted unless the case or transaction falls under the governance of the relevant computation provisions. The Supreme Court in B. C. Srinivasa Setty's case [1981] 128 ITR 294 (SC) has observed as under (page 299) : The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. 26. After going through the ratio of the decisions of the honourable Supreme Court, it is clearly seen that where something is not possible then the assessee cannot be forced to do so under specific provisions of law. Those provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates a duty or charge, and the party is disable to perform it, without any default in him, and has no remedy over, there the law will in general excuse him and though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract yet when the obligations once implied by law, impossibility of performance is a good excuse. Thus, in a case in which consignees of a cargo were prevented from unloading a ship promptly by reason of a dock strike, the court, after holding that in the absence of an express agreement to unload in a specified time there was implied obligation to unload within a reasonable time, held that the maxim lex non cogit ad impossibilia applied. 28. As discussed above when it is not possible to prepare the accounts under the Companies Act for the purpose of computation under section 115JB, therefore, the assessee cannot be forced to prepare the accounts when it is not possible. Therefore, we are in agreement with the contentions of the assessee inasmuch as the accounting policies following in the electricity accounts if followed for the preparation of Companies Act amount will not disclose t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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