TMI Blog2018 (9) TMI 1899X X X X Extracts X X X X X X X X Extracts X X X X ..... ive and state capital investment subsidy availed during the year being capital in nature in computing book profits section 115JB - HELD THAT:- The undisputed fact is that the incentive received by assessee is not in the nature of income earned during the course of business. Therefore, in our considered view, same cannot be regarded as income for the purpose of MAT u/s 115JB of the Act. Thus, the amount of incentive received by assessee should be excluded from the determination of book profit under the provision of Section 115JB of the Act. Thus, we reverse the order of Ld. CIT(A). and direct the AO to delete the same. This ground of assessee s appeal is allowed. Section 14A r.w. 8D disallowance of administrative expenditure - HELD THAT:- CIT(A) has followed this tribunal s decision in REI Agro Ltd. vs. DCIT [ 2013 (9) TMI 156 - ITAT KOLKATA] holding that only dividend yielding investments are to be considered for computing administrative expenditure disallowance as upheld in hon'ble jurisdictional high court. The CIT(A) has admittedly directed the Assessing Officer to adopt the same formula in impugned assessment year. DR fails to pin-point any irregularity or illegali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by assessee in ground No.3 is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of sales tax incentive and state capital investment subsidy for ₹39,870,574/- and ₹59,75,000/- respectively while computing the book profit u/s 115JB of the Act. 10. During the year, assessee declared profit after taxes in its profit and loss account for ₹45,55,43,545/- only. The assessee while determining the book profit u/s.115JB of the Act has reduced following receipts:- Sl. No Particulars Amount 1 Sales tax remission since capital in nature 3,98,70,574/- 2 State capital subsidy since capital in nature 59,75,000/- The assessee claimed that the above receipts are not taxable in the hands of assessee under the normal provision of computation of income. Therefore, same are also eligible for deduction u/s 115JB of the Act. The assessee also submitted that sales tax remission and state capital subsidy was received by it under the West Bengal Incentive Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant co and included in the net profit determined as per profit and loss account prepared as per Part II and Part III of Schedule VI to the Companies Act. In other words, it is not the case of the assessee that the capital receipts earned by the assessee was not included in the net profit determined as per profit and loss account of the assessee prepared under the Companies Act. As per the audited accounts of the assessee, the statutory auditors have reported that, that in their opinion, the profit and loss account and the balance sheet are in compliance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, and further reported that the balance sheet and profit and loss account, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. The appellant has contended that an item without any element of profit or income , when credited to the profit and loss account prepared under Part-2 Part III of Schedule IV of the Companies Act, 1956, lays down that' P L should be made to closely disclose the worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany at its annual general meeting. Therefore, whatever accounting policy was adopted for the purpose of preparing the P L laid before the company should be adopted for computing, 600k Profits under section 115JB. The sales tax incentive and Capital Investment Subsidy were included in computing the profits presented before the shareholders and the A.O has held that the same should also be included in computing Book Profits under section 115JB. It is well settled that the adjustments to the profit and loss account of the company can be carried out only in accordance with the provisions set out in the Explanation to section 115J. This is in view of the definition of 'book profit' as given in the Explanation to section 115JB, the net profit as shown in the profit and loss account, in the relevant previous year, can only be adjusted i.e., increased or reduced, as the case may be, by reference to heads referred in clauses (a) to (ha) and clauses (i) to (iv) of the Explanation to section 115JB. It is found from findings of fact on record that the assessee admittedly, had itself credited the amounts of S.T subsidy and state investment subsidy to the profit and loss account whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 case of Frigsales (India) Ltd. (2005) 4 SOT 376 (MUM) has not applied the ratio of the decision of the Supreme Court in the case of Apollo Tyres Ltd. v. CIT[2002] 255 ITR 273/122 Taxman 562. But the fact remains that the propositions laid down by the hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) have been reiterated and relied upon by the Supreme Court in the case of CIT v. HCL Comnet Systems Services Ltd. [2008] 305 ITR 409/174 Taxman 118 which has been rendered in the context of section 115JA of the Act. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion as to whether a particular amount should be properly shown in the P L a/c or in the balance sheet, (2) If accounting policies, Accounting Standards aren't adopted for preparing such accounts and method, rates of deprecation which have been incorrectly adopted for preparation of P L a/c laid before the annual general meeting. Except for the above two cases, the AO has no power to alter the net profit shown by the companies for the purpose of computing the book profit. Thus, it is clear that under MAT, the Assessing Officer should take the net profit as computed by the assessee and then make the adjustments under sec. 115JB. The moot question that needs to be decided is whether Parts IT and II of Sch. VI to the Companies Act permit the exclusion of the capital gain from the P L Account or not? In other words, can a P L A/c drawn up without considering the capital gain said to be in accordance with the provisions of Parts II and II of Sch. VI to the Companies Act or not? It was accordingly held that in the absence of any provision for exclusion of exempted capital gain in the computation of book profit under the provisions contained in Explanation to section 115JB of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no doubt regarding its interpretation, particularly when a legal fiction is embedded in that section. A legal fiction has a limited scope. A legal fiction cannot be expanded by giving purposive interpretation particularly if the result of such interpretation is to transform the concept of chargeability which is also there in Section 9(1) (i), particularly when one reads Section 9(1)(i) with Section 5(2) (b) of the Act. What is contended on behalf of the Revenue is that under Section 9(1) (i) it can look through the transfer of shares of a foreign company holding shares in an Indian company and treat the transfer of shares of the foreign company as equivalent to the transfer of the shares of the Indian company on the premise that Section 9(1)(i) covers direct and indirect transfers of capital assets ... The language of the section is unambiguous and there is no doubt regarding its interpretation particularly when there is specific mechanism provided in sec.115JB, which is a code in itself for computation of deemed income of MAT companies. The exclusion of the impugned capital receipts sought by the appellant is not tenable by giving purposive interpretation particularly since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exclusion of impugned sales tax incentive of ₹ 3,98,70,574/- and state capital investment subsidy of ₹ 59,75,000/- is confirmed. This ground of appeal is dismissed. The assessee being aggrieved by this order of Ld. CIT(A) came in second appeal before us. 12. Ld. AR for the assessee submitted that the co-ordinate Bench of this Tribunal in the case of Sicpa India (P) Ltd. vs. DCIT (2017) 80 taxmann.com 87 (Kolkata-Trib) after considering the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (20102) 255 ITR 273/122 taxman 562 has decided the issue in favour of assessee. The ld. AR in support of assessee s claim also relied on the judgment of Hon'ble Supreme Court in the case of CIT vs.Chaphal Kar Brothers, Pune reported in 400 ITR 279 (SC). He requested the Bench to decide the issue on merit. On the other hand, Ld. DR supported the order of Authorities Below. 13. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. From the foregoing discussion, we note that subsidy was given by the Govt. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act. 23. We have already seen that the issue whether subsidies in question can be regarded as income at all is no longer res integra and has been concluded by the Hon'ble Jammu Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Dy. CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB of the Act. 25. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H. Sugar Factory Ltd. (supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture (P.) Ltd. (supra) which was a case where the question was whether profits arising on transfer of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and dismiss Gr.No.2 raised by the Revenue. Similarly, we further find that Hon'ble Supreme Court in the case of Chaphas Kar Brother Pune (supra) has decided the issue in favour of assessee. The relevant extract is reproduced below:- 27. Since the subsidy scheme in the West Bengal case is similar to the scheme in the Maharashtra case being to encourage development of Multiplex Theatre Complexes which are capital intensive in nature, and since the subsidy scheme in that case is also similar to the Maharashtra cases, in that the amount of entertainment tax collected was to be retained by the new Multiplex Theatre Complexes for a period not exceeding four years, we are of the view that West Bengal cases must follow the judgment that has been just delivered in the Maharashtra case. The undispu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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