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TMI Blog2021 (2) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case. 3. We have heard the rival submissions and perused the materials available on record. The undisputed facts are that the assessee is a public limited company engaged in the business of manufacturing of machine tools, textile machines, Air conditioning & Refrigeration work , Casting & Job work for Air Conditioning & Humidification , Air Control Equipment and Trading in Engineering goods. The return of income for the Asst Year 2011-12 was filed by the assessee company on 28.9.2011 declaring Nil income under normal provisions of the Act and book profit of Rs. 5,30,89,000/- u/s 115JB of the Act. In the year ended 30th September 1980, the assessee company established 33 irrevocable trusts to provide medical benefits, scholarships and educational assistance and for the general welfare of its employees and made an aggregate contribution of Rs. 12,50,000/- in the year ended 30th September 1981 (relevant to Asst Year 1982-83) and an aggregate contribution of Rs. 10,00,000/- in the year ended 30th September 1983 (relevant to Asst Year 1984-85) to the said welfare trusts. While filing its return of income for the Asst Years 1982-83 and 1984-85, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him." 3.4. The Board of Directors of the assessee company, in terms of the above sub section, passed a resolution at their meeting held on 30.10.2010 falling in Asst Year 2011-12, for claiming back the unutilized amounts lying with the welfare trusts, consequent to which the Trusts withdrew the amounts given as loans to parties and sold the shares held by them and repaid the unutilized amounts of Rs. 4,27,43,000/- to the assessee company. 3.5. The assessee company had irrevocably contributed the amounts to the trusts. As stated earlier, the earnings by way of dividends and interest from the amounts contributed by the assessee company had been duly offered to tax by the welfare trusts in the respective years while filing their returns of income and assessed as such. There is absolutely no dispute on this aspect. 3.6. Having given the contributions irrevocably to the Trusts, the assessee company never contemplated at the time when these amounts were given, that they would ever come back to the company. It was only by virtue of insertion of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the respective years. e) The said exemption from income tax was also claimed while computing book profits u/s 115JB of the Act during the course of assessment proceedings eventhough the same was offered to tax voluntarily by the assessee in the computation of book profits u/s 115JB of the Act while filing its return of income. 3.9. We find that the assessee company had placed reliance on the following decisions in support of its propositions that the amounts received back from welfare trusts was never in contemplation of the assessee and hence would be a windfall receipt :- a) Decision of Privy Council in the case of The Commissioner of Income Tax, Bengal vs Shaw Wallace and Company reported in 2 Company Cases 276 vide order dated 14.3.1932 b) Decision of Hon'ble Jurisdictional High Court in the case of Cadell Weaving Mill Co. Ltd vs CIT reported in 249 ITR 266 (Bom) which was subsequently affirmed by the Hon'ble Supreme Court in the case of CIT vs D.P.Sandu Bros (Chembur) Pvt Ltd reported in 273 ITR 1 (SC) c) Decision of Hon'ble Jurisdictional High Court in the case of Mehboob Productions Pvt Ltd vs CIT reported in 106 ITR 758 (Bom) d) Decision of Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB of the Act. 3.12. We find that the ld. AO had also stated in his order that if the contention of the assessee is to be accepted, then every assessee would create a welfare trust and make an initial contribution to the said trust for investing it prudently and reclaim the unutilized amount in terms of 40A(11) of the Act and claim that the same is not exigible to tax on the accretions which has never suffered tax in anybody's hands. 3.13 We find that the substance of the essence of the argument of the ld. AO is that every receipt would fall within the ambit of Section 2(24) unless it is specifically exempted under the provisions of the Act. 3.14. We find at the outset that the welfare trusts had duly paid its taxes on the accretions by way of dividends from investment in shares and interest on loans advanced in its income tax returns and the same were duly assessed as such in the hands of the said welfare trusts. This point is absolutely not in dispute before us. Hence the alternative contention of the ld. AO that this accretion has never suffered any tax in anybody's hands is factually incorrect and does not hold water in the peculiar facts and circumstances of the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite being the irrevocable contribution. Hence, it could be safely concluded that the said receipt was never in contemplation of the assessee company to get back the receipts from the welfare trusts. Once, the receipt falls under this category of never contemplated receipt in its ordinary course, the said receipt would not partake the character of the revenue receipt and would only had to be categorized as a windfall receipt. It is a trite law that every receipt is not income unless specified in the Act. No doubt the definition of income u/s.2(24) of the Act is an inclusive definition. It never says that every receipt would fall within the ambit of income u/s.2(24). First the nature of receipt should be "income" in the hands of the assessee or the revenue receipt in the hands of the assessee. The expression 'inclusive' definition need to be understood in this perspective. The same definition does contemplate taxation of a capital receipt representing capital gain which is chargeable to tax specifically u/s.45 of the Act. The said definition does not contemplate taxation of all capital receipts other than capital gains u/s.2(24) of the Act. In our considered opinion, this should be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity, and (4) from a definite source. The Supreme Court in the case of Raghuvanshi Mills has indicated decisively that in order to constitute income, the receipt need not be one coming in with some sort of regularity or expected regularity and even a single payment received by the assessee may, in the circumstances of the case, constitute its income. In some cases it had been contended on behalf of the assessee that in order to constitute income, the receipt must not be gratuitous or ex gratia in character but must arise from some legal obligation on the part of the donor or a corresponding legal right to receive on the part of the donee. In Maharani of Morvi's case , which decision being that of a Division Bench of this court is binding on us, it was been held that even a voluntary payment made entirely without consideration can be considered to fall within the category of "income" provided it is traceable to a real source and is not something dependent entirely on the whim of the donor. It was expressly held by the Division Bench that it is not necessary that in order that a payment may constitute income, it must proceed from a legal source, and it is not necessary that if pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government of Bombay and the amount attributable to the collections of entertainment duty would be paid over to the assessee, then such receipt, perhaps, may not be said to be a windfall received by the assessee. Similarly, if the assessee had produced a motion picture with a particular situation which becomes extremely successful commercially by reason of some extraneous fact, the extra profits received by the assessee or by the exhibitors may be called windfall profits loosely or in ordinary parlance, but would not be a "windfall" for our purposes. Where the obtaining of a particular advantage or receipt could not be said to be within the ordinary contemplation of the party obtaining or receiving it, then only would it be proper to characterise the advantage or receipt as a windfall. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage or receipt is much more than could have been reasonably contemplated. 34. That the advantage received must be attributable to some conscious process on the part of the assessee also appears to be implicit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities. The excess of the receipts over expenditure in these activities amounted to a substantial amount. The question being considered by the Madras High Court was whether these amounts were taxable income of were casual and non-recurring receipts and exempt from tax under section 4(3)(vii) of the Act. It was held by the Madras High Court that whether taxable or not, the amounts constituted income. It was held further that the income was not taxable as it was income of a casual and non-recurring nature within the scope of exemption granted by section 4(3)(vii) of the Income-tax Act. The question is whether the decision of the Madras High Court in the above case really helps Mr. Joshi for the purpose of the decision to be given in the present case. When the assessee before the Madras High Court undertook racing and betting activities, he did so with an expectation of a return and the receipts received from these activities, although the activities could not be regarded as his business or vocation and even though the receipts or items of receipts could be regarded as casual or non-recurring, were attributable to definite sources, viz., these activities, and, therefore, would satisfy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of the part played by him in securing that benefit. In the words of the Calcutta High Court [1941] 9 ITR 261, 274 (Cal.) : "It was as anything could be that the causa causans of the payment was what Mr. Sen had done on the instructions of his client (shareholder whose proxy he held) at the shareholders' meeting." It was on that footing that it was held that the receipt arose from the exercise by the assessee of his profession as lawyer and advocate and, therefore, could not be exempt from taxation. To repeat, the broader question which we are considering was not canvassed before nor decided by the Calcutta High Court in the above decision. 38. Mr. Joshi also referred us to an English case, Herbert v. McQuade [1902] 4 TC 489, 500 (CA). The assessee concerned in that case was a vicar of the parish of St. John de Sepulchre in the city of Norwich and the assessments made upon him were in respect of a certain amount granted to him by the Queen Victoria Clergy Sustentation Fund (Norwich Diocese). This fund was established in the year 1997 and was incorporated under the above name by a charter. It was controlled entirely by the local diocesan council which reserved to itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 16 TC 333 (HL), which also turns on its own facts. In that case the court was considering a subsidy given by the grants committee to the dock company and although the amount had been first credited to revenue in the account of the company, were held not to be profits or gains of trade bearing in mind the purposes for which the grants were made. 40. On the material before us there is nothing to show that assessee-company had produced the said picture Mother India with the slightest expectation that the same would be exempt from entertainment duty and that the amounts collected by the exhibitors as and by way of such duty would be directed to be paid over to it as producers by the Government of Bombay. It is true that we may consider the two notifications of the Government (annexures "A" and "A-1" to the statement of case) and the various letter or orders made pursuant to the later notification dated 25th October, 1957, as the definite source to which the receipts are attributable. The fact that the payments appear to be entirely at the discretion of the Government and that the exemption can be withdrawn by the Government even without any default on the part of the assessee (see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that I have taken that the receipt does not represent income and, therefore, the question of considering whether the assessee is entitled to exemption would not arise. It may just be indicated that the word "non-recurring" does not mean that the receipt is a single one or which has in fact not been repeated, but only that there is no claim or right in the recipient to expect its recurrence. It is further to be noted that merely because the mode of payment in the instant case is one that would ensure to the assessee receipt of the amounts in driblets, it would not necessarily characterise the receipt as a recurring receipt. It is unnecessary to consider this aspect of the matter any further in the view that I have indicated regarding whether such receipts can be regarded as income of the assessee. 53. In the view that I have taken, the first question would have to be answered in favour of the assessee." 3.19. Hence, from the detailed reading of the aforesaid decision of the Hon'ble Jurisdictional High Court, it could be deciphered that unless the assessee was in contemplation to receive a particular receipt from a definite source, it would not fall within the ambit of income u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82) 30 CTR (Bom) 216 : (1983) 142 ITR 361 (Bom)]. But where payment is made to compensate for loss of use of any goods in which the assessee does not carry on any business or the payment is a just equivalent of the cost incurred by the assessee, but excess accrues due to fortuitous circumstances or is a windfall, then the accrual may be a receipt, but it would not be income arising from business, and, therefore, not taxable under the Act. In IRC vs. William's ExecutoRs. 26 Tax Cases 23, distinction was explained thus. "A manufacturer can, of course insure his factory against fire. The receipts from that insurance will obviously be capital receipts. But supposing he goes further, as the manufacturer did in that case, and insures himself against the loss of profits which he will suffer while his factory is out of action; it seems to me it is beyond question that sums received in respect of that insurance against loss of profits must be of a revenue nature." 10. The assessee did not carry on business of buying and selling ingots. The compensation paid to the assessee was not for any trading or business activity, but just equivalent in money of the goods lost by the assessee wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee shall be entitled to its costs. 3.20. It would also be relevant to consider the meaning of expression "casual" receipt which had been discussed in various decisions of Hon'ble High Courts and Hon'ble Supreme Court as under:- 130. RM. AR. AR. RM.AR.AR Ramanathan Chettiar v CIT (1967) 63 ITR 458(SC) The expression 'casual' has not been defined in the Act and must, therefore, be construed in its plain and ordinary sense. According to the Shorter Oxford English Dictionary, the word 'casual' is defined to mean; (i) subject to or produced by chance; accidental, fortuitous, (ii) coming at uncertain times; not to be calculated on, unsettled. A receipt of interest which is foreseen and anticipated cannot be regarded as casual even if it is not likely to recur again. B. Malick v. CIT (1968) 67 ITR 616 (All.) The word 'casual' may have several meanings. It may be something which comes in at uncertain times and something which cannot be relied upon or calculated to produce income or it may be something which is the result of chance, or the result of a fortuitous circumstance. One test which has been laid down in some cases is whether the receipt is one which is foreseen, known and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he welfare trusts by the assessee company while computing book profits u/s.115JB of the Act, even though the same was credited by it in its profit and loss account. 4.1. We have heard rival submissions and perused the materials available on record. At the outset, the ld. AR raised a preliminary argument that the provisions of Section 115JB of the Act are not applicable to the facts of the instant case in view of the fact that Section 115JB starts with a non-obstante clause by stating as under:- "1.Notwithstanding anything contained in any other provision of the Act, where in the case of an assessee, being a company, the income-tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, (2012), is less than (eighteen and one-half per cent) of its book profit, (such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be amount of income-tax at the rate of (eighteen and one-half per cent)." 4.2. From the aforesaid reading of the provisions of the Act, the ld. AR argued that unless there is tax paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , what cannot be taxed directly cannot be taxed indirectly. Moreover, this aspect has been elaborately dealt by the Co-ordinate Bench decision of this Tribunal in the case of JSW Steel Ltd. vs. ACIT in ITA Nos.923/BANG/2009 & 930/BANG/2009 for A.Y.2004-05 dated 13/01/2017. The facts before the case of JSW Steel Ltd., and the manner in which the same has been adjudicated by Mumbai Tribunal by taking into account the specific provisions of Section 115JB of the Act ; provisions of Companies Act, 1956 ; relevant accounting standards issued by the Institute of Chartered Accountants of India and the various decisions of Tribunals, Hon'ble High Courts and the Hon'ble Supreme Court are reproduced hereunder for the sake of convenience. "4. The facts in brief qua the issue raised in the aforesaid grounds are that, assessee is a public limited company engaged in the business of manufacturing of hot rolled steel sheets and steel plates. For the assessment year 2004-05 assessee had filed its original return of income u/s 139(1) on 30.10.04, declaring loss of (-)Rs. 262,53,15,582/-. Later on the said return was revised on 17.02.05 whereby "nil" income was declared under the normal provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e repayable over various maturity dates up to 2010. After setting up the steel plants, the assessee had incurred huge loss due to economic recession in general and steel industry in particular and was under severe financial crisis. Hence, the assessee was unable to meet its financial commitments in respect of the above loans. Accordingly, the assessee entered into a financial restructuring package, i.e., 'Corporate Debt Restructuring Package' (CDR) in respect of loans taken from various Indian and foreign financial institutions. After negotiations with the foreign lenders, the assessee entered into agreements to settle the dues, pursuant to which the principal and interest payable were reworked and part of the principal and interest amounts aggregating toRs. 390,76,03,999/-were waived. Accordingly, the entire sum of Rs. 390,76,03,999/- was credited to the Profit and Loss account as an exceptional item on account of waiver of the principal and interest payable thereon with a specific note in 'Notes to Account' that the exceptional item represents waiver of dues on settlement with certain lenders and since the principal amount of the borrowing of Rs. 228.46 crores was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with section 115JB(4) along with return of income, the assessee company again mentioned that exceptional item representing waiver of loan was capital receipt and hence could not be considered to be part of book profits for the purpose of section 115JB. The Assessing Officer, however, while computing the book profit in the assessment order considered the figure as given in the profit & loss account and did not agree to reduce the aforesaid waiver of dues as stated by the assessee in the 'notes' as well as in the accountant's report that it should not be included in the profit & loss account. 6. The assessee's submissions in the first appellate proceedings have been summarized by the Ld. CIT(A) in the following manner:- "The AO had erred in including the aforesaid dues waived while computing the Book Profits u/s 115JB of the Act, in view of the following: i) Firstly, the principal amount waived and written back being an 'exceptional item' cannot be considered as income for the purposes of determining "Book Profits" u/s 115JB; ii) Secondly, the principal amount waived and written back would be chargeable to tax only by the provisions of Section 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered for the purpose of computing the book profit under the provisions of section 115JB; and secondly, the waiver of loan is a 'capital receipt' because it was taken for the purchase of capital assets and hence it does not fall within the definition of income under the provisions of the Income Tax Act, therefore it is neither a profit nor revenue nor income nor gain which can be said to be chargeable to tax under the Income Tax Act. Once the particular receipt is not recognized as income at all under the charging provisions of Sections 4 & 5, there is no question of taxing the same under any other provisions of the Act. For the first proposition, after referring to the provisions of section 115JB read with Explanation-1, he submitted that the book profit has been defined as net profit shown in the profit & loss account and such a profit & loss account is to be prepared in accordance with the provisions of Part II & III of 6th Schedule of the Companies Act. The surplus arising on waiver of loan is though required to be credited to the profit & loss account as provided under section 211(2) of the Companies Act, however he pointed out that section 211(3A) as well as su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit u/s 115J of the Act, it claimed the amount of depreciation as deduction from the net profit disclosed in the profit and loss account. The relevant observation of the Hon'ble High Court in respect of the said controversy was as under: "The answer to this poser is found in sub-section (6) of section 211 of the Companies Act, which provides that except where the context otherwise requires any reference to a balance sheet or profit and loss account shall include the notes thereon or documents annexed thereto, giving information required to be given and/or allowed to be given in the form of notes or documents by the Companies Act. As already noted it is obligatory under clause 3of Part II to Schedule VI to the Companies Act to give information with regard to depreciation, which has not been provided for along with the quantum of arrears. According to us, once this information is disclosed in the notes to the accounts it would clearly fall within the ambit of the Explanation to section 115 J of the Act which defines "book profit" to mean "net profit as shown in the profit and loss account for the relevant assessment year. To our minds, as long as the depreciation which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section (1) of section 115J. The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115 J. An assessee is enabled to claim carry forward and set-off of losses, unabsorbed allowance, in view of the specific provisions of the Act enabling an assessee to claim. But because of this provision a company will have to pay tax on at least 30 per cent of its book profits. Therefore, what is taxed is not fictional or hypothetical income. Under the law though it is permissible to bring to tax hypothetical income, what is really done under section115 J is not exactly bringing to tax hypothetical income. What is really done is to limit or restrict or curtail deduction, carry-forward and set-off of losses, unabsorbed depreciation, unabsorbed allowance, etc. Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r part II & III of VIth Schedule of the Companies Act and here in this case assessee did prepared its Profit &Loss account as per the requirement of the Companies Act and therefore, said Profit &Loss account cannot be disturbed while computing the book profit under section 115JB which are the non obstante provisions and code by itself. Once the assessee itself has offered the amount as income under section 115JB which has been accepted by the Assessing Officer as such then how the assessee can claim that the same should be reduced from the book profit. The notes appended to the profit & loss account cannot be read into because ultimately the results shown by the assessee are to be reckoned and considered for the profit & loss account disclosed in the books. In all the judgments relied upon by the Ld. Counsel, the assessee had made a claim for deduction from the book profit in the computation of book profit itself and not when assessee himself has shown as a part of Profit & Loss Account and offered it as a book profit. Therefore, on facts all these judgments relied upon by the assessee are not applicable at all. The assessee herein the present case has made a claim before the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of interest payable to UTI 86,01,30,698 Waiver of interest, guarantee &commitment fees 76,27,96,973 Total 390,76,03,999 Out of the said amount it is an admitted fact that sum of Rs. 76,27,96,973/- has been added back by the assessee in its computation of income and has been offered to tax as it was claimed in the earlier years. The balance amount aggregating to Rs. 314.4 crores which was though in the nature of exceptional item representing the waiver of loan amount as aforesaid was not excluded by the assessee from the net profit as per the profit & loss account while computing the book profit, instead assessee made a caveat by way of notes in the computation itself that the said amount represents capital receipt, hence was not in the nature of profit and gains of business and accordingly, was not includable in the book profit under section 115JB. In the notes to the computation of income which has been reproduced above, the assessee categorically mentioned that such capital receipt is not in the nature of income and hence it is not includable in the book profit, but same has been included only out of abundant portion in order to avoid any interest and penalty exposure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not;............" From the plain reading of above section it is quite ostensible that before this section can be invoked it is sine-qua-non that assessee should establish that first of all an allowance or deduction has been granted during the course of assessment for any year in respect of, (i) loss; (ii) expenditure; or (iii)trading liability, which is incurred by the assessee; and subsequently during any previous year the assessee obtains, whether in cash or in any other manner, whatsoever; (i) any amount in respect of such loss or expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent-assessee was for the purposes of relocating its office premises. The loan taken was utilized for the purposes of acquiring a office at Godrej Soap Complex, Vikroli, Mumbai. Therefore, the loan in the present fact was taken for acquisition of capital asset and not for the purposes of trading activity as in the case of Solid Containers Ltd. (supra). The present case is, therefore, covered in favour of the respondent-assessee by the decision of this court in the matter of Mahindra and Mahindra Ltd. (supra)." Thus, waiver of loan taken for acquisition of a capital asset and on capital account cannot be taxed u/s 41(1), as it is neither on revenue account nor a remission of a trading liability so as to attract tax in the year of remission. 14. Now we come to the core issue, whether the amount of waiver amount would at all form part of the 'book profit' of the company for the purpose of levy of MAT under section 115JB. Relevant portion of section 115JB as it stood at the relevant period reads as under: "115JB.(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as reduced by- (i) to (viii)** ** From the reading of the above provision it can be seen that; Firstly, it is a non-obstante provision which provides that if the income tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year is less than 7½% of its 'book profit', then such 'book profit' shall be deemed to be the total income of the assessee and assessee shall pay tax on the book profit at the rate of 7½%.; Secondly, the assessee company is required to prepare its profit & loss account in accordance with the provision of Part II & III of VIth Schedule of the Companies Act, 1956 and while preparing the annual accounts including profit & loss account, accounting policies, accounting standards shall be the same which has been adopted for the purpose of annual general meeting in accordance with provision of section 210 of the Companies Act and; Lastly, book profit has been defined to mean 'net profit' as shown in the Profit &Loss account for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to a profit and loss account, but subject to the modification of references as specified in that sub-section. 2. The profit and loss account- (a) shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account, and (b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. 3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads; and in particular, shall disclose the following information in respect of the period covered by the account (xii) ** ** (a) ** ** (b) Profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount." Further, section 211(2) of the Companies Act provides for the form and contents of profit & loss account in the following manner: "(2) Every profit and loss account of a company shall give a true and fair view of the profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Accounting Standard-9 gives the illustration of revenue recognition. AS-5 defines Profit or Loss for the period in the following manner: "All items of income and expense which are recognised in a period shall be included in the determination of the net profit or loss for the period unless an Accounting Standard requires or permits otherwise." Thus, what is contemplated is that, all items of income and expenses which are recognised in a period alone are reckoned as net profit or loss. The recognition criteria of revenue by a company in the profit & loss account is however determined as per Accounting Standard-9. Clause 3 of AS-9 gives illustration of the items which are specifically not to be included within the definition of 'Revenue', the same reads as under:- "3. Examples of items not included within the definition of revenue for the purposes of this Statement are: (i) Realised gains from the disposal of, and unrealised gains resulting from the holding of, non-current assets e.g. appreciation in the value affixed assets; (ii) Unrealised holding gains resulting from the change in value of current assets, and the natural increases in herds and agricultural and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t II of the Companies Act is to find out the result of the company, during the period covered by the profit & loss account and the exceptional nature items are required to be disclosed separately so as to assess the correct impact on the profit & loss account of the company. What is required under clause (3) of Part II of Schedule VI of the Companies Act, is that, a profit & loss account should set out various items relating to the income and expenditure of the company arranged under the most convenient heads and then it provides to list out the various information which needs to be disclosed in the profit & loss account. The profit & loss account contains income and expenditure of a company in respect of the period covered by the account and therefore, there cannot be any question for including a capital surplus in that account which cannot be reckoned as income. Clause (3)(xii)(b) of Part II of schedule also shows that what is to be included in the profit & loss account is in respect of transactions of an account, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount. This clearly indicates that only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. The said clause excludes; (ii) the amount of income to which any of the provision 0f section 10 or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; When the said clause requires exclusion from the book profit all that amount of income which are exempt and are not in the nature of income, if any such amount is credited to the profit & loss account, then on same logic it would be inconceivable that this provision intends that 'book profit' should include something which is in the nature of a capital surplus on account of waiver of a loan. Even if a company has credited the amount of remission to its profit & loss account, then such a profit &loss account needs to be adjusted with the amount of remission so as to arrive at the net profit as per the profit & loss account prepared in accordance with provisions of Part II & III of VIth Schedule of the Companies Act and this is what has been envisaged in the operating lines of Explanation-1 to section 115JB, that, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year. Net profit as per profit and loss account can never m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83-84, the intention was to restrict the various tax incentives and concessions available in computing the income from business to 70 per cent thereof. Significantly, the deduction under section 80T in respect of capital gains was not one of the items of concession or tax rebate which was to be restricted under that section. This shows that exemption of capital gains was not intended to be restricted. Subsequently also when that section was replaced by section 115J, the object was to introduce the provision whereby every company will have to pay a minimum corporate tax on the profits declared by it in its own accounts. These profits can only be those which are assessable as income under the Act. It is now well-settled that, in the interpretation of statutes, one has to adopt such a construction as will promote the general legislative purpose underlying the provision. In the present case, as can be seen from the Finance Minister's speech and the Memorandum explaining the provisions, the intention was to make the company pay tax on income which would otherwise be reduced by reason of certain deductions available under the Act. Even the adjustments specified in section 115J refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of stock-in-trade, if the assessee had been following the method of valuing at cost and changes to the method of valuation at market value, such a valuation has to be made thereafter every year at market value on the valuation date. But, in the case of fixed assets, if the investments have been shown at cost for some years and the value is written up or written down on revaluation at market rate on a particular date, there is no change in the method of accounting so as to require the company to again revalue the investments at market rate on subsequent annual valuation dates. What will be shown in the subsequent years will be only the revised book value. The method of accounting is an essential and integral process to ascertain the income or loss after the end of the previous year within the meaning of section 145 and it does not apply to revaluation of fixed assets or investments. The proceeds by way of sale of an investment not being income, they are not liable to tax under section 115J unless there is a clear intendment. It is well recognized that there cannot be a charge by implication. The non obstante clause with which this section begins could only mean that the other sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of capital receipt in the hands of the Company. Further, these amounts do not represent the reversal of any amount allowed as a deduction in any earlier year. Hence the provisions, of section 41(1) do not apply in respect of this write-back. As regards the write-back of the balance amount relating to waiver of interest dues, the Company has offered for tax those amounts which had been claimed as a deduction in earlier years on provision basis amounting to Rs. 76,27,96,973 (refer clause A(1) of Annexure 8 of TAR). The balance amount of Rs. 86,01,30,698 had not been allowed as a deduction in earlier years due to the provisions of Section 43B of the Act and consequently, the write-back of this amount is not considered as a taxable income in this year Accordingly, the loss computed has been increased to the extent of the provision written-back. In connection with the above contentions, the Company relies on the following decisions - Tirunelveli Motor Bus Service Co. P Ltd. v. CIT 78 ITR 55 (SC) CIT v. Chetan Chemicals (P) Ltd. 188 CTR 572 (Guj) Mahindra & Mahindra Ltd v CIT 261 ITR 501 (Bom) CIT v. Usha Ranjan Bhadra 126 ITR 44 (Gauhati)" Then again in note n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Goetz India Ltd. v. CIT (supra) as heavily relied upon by the Ld. CIT D.R., however, it does not impinge upon the powers of the appellate authorities including Ld. CIT(A) and Tribunal. This has been clarified by the Hon'ble Supreme Court itself in the concluding part of the said judgment. There is no such bar or statutory restrain on the appellate authorities to permit/entertain such additional claims which has been raised by the assessee before them. This proposition is strongly supported by the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 349 ITR 336/208 Taxman 498/23 taxmann.com 23 (Bom.). It is also equally a salutary principle of tax laws that entries in the books of account or in the profit & loss account is not a determinative factor for taxing the income because income can be taxed only by the express provisions of law. We have already discussed in detail in our earlier part of the order that waiver of a loan is a capital receipt which is part of the capital reserve and cannot be reckoned as working result of the company and therefore, it does not form part of the net profit as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt as deduction in the earlier years in view of the provisions of section 43B. Once it has not been claimed as deduction then there is no question to be offered for tax under section 41(1). Thus it cannot be regarded as income in the hands of the assessee. The legal proposition as discussed above would apply in the case of waiver of interest payable to UTI, because firstly, it is not a remission of trading liability or has been allowed as expenditure in any of the earlier assessment year so as to be deemed as taxable under section 41(1); and secondly, it is part of capital surplus arising out of waiver of dues and hence it forms part of the capital reserve which cannot be roped in as a part of net profit while computing the book profit under section 115JB. Even otherwise also the provision of section 41(1) is a deeming provision and the fiction cannot be extended either to the provisions of section 115JB or to the provisions of the Companies Act, because the waiver of a liability for interest on loan is not required to be credited to the profit & loss account of the year of the waiver. Thus, the waiver of interest payable to UTI will also not be includable in the book profit and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-recurring nature shows clearly that capital gains should be included for the purposes of computing book profits. That, capital gains would certainly be one of the various items whose information is required to be given to the shareholders under the said cl. 3(xii)(b). So also, the disclosure is required to be made in respect of investment in the capital of a partnership firm if the company is a partner on the date of the balance sheet (see pg. 1651 of the Companies Act by A. Ramaiya [Fourteenth Edn.]. Similarly, profits or losses on such investments are also required to be disclosed. [See cl. 3(xii)(a) of Part II of Sch. VI of the Companies Act]." (i) First of all, it is pertinent to note here that, the transaction under consideration in the aforesaid decision was chargeable to tax under the head 'Capital Gains' and thereafter, its assessibility under MAT provisions was determined. In the case of the assessee, the transaction under consideration is a pure capital receipt not chargeable under any of the provisions of the Act at all. The question of law before the Hon'ble High Court was, "Whether the income from capital gains should be included for the purpose of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om transactions of an exceptional nature. In the light of the said disclosure and accounting requirement mandated by Schedule VI to the Companies Act, the Hon'ble Bombay High Court has held that the capital gains arising to a company should form part of the book profit for the purpose of section 115J. As far as this issue is concerned, there is no functional distinction between section 115J and section 115JB. Therefore, we find that the specific issue of capital gains, vis-a-vis, MAT profit has been decided by the jurisdictional High Court in the above judgment and we are bound to follow the above judgment. If so, the lower authorities have rightly held that the amount of Rs. 27,01,6 70 should be included in the book profit for the purpose of section 115JB. 12. It is true that the Hon'ble Supreme Court has held in the case of Apollo Tyres Ltd. (supra) that the Assessing Authority does not have the jurisdiction to make adjustments in the book profits certified by the Statutory Auditors of the Company other than the adjustment provided under the Explanation thereto. But that is a general proposition of law declared by the Hon'ble Supreme Court. On the other hand, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest waiver in the Profit and Loss account though the details of waiver disclosed in notes to accounts. Such accounting treatment was qualified by auditor. The assessing officer accepted that waiver of principal amount of loan not taxable. However, according to him, since interest amount was liable to tax u/s. 41(1) and therefore, accounts prepared could be modified to tax such interest u/s. 115JB. In this background it was held as under:- "8.6.2 We notice that the Hyderabad Tribunal in the case of NCL Industries (supra) followed the analogy of the decision of the Special Bench of Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asstt. CIT [1993] 111 CTR (Cal)(Trib) 321 (1993) 46 TTJ (Cal) 310 to come to the conclusion that the income taxable under s. 41(1) cannot be included for the purpose of computing book profit under s.115J of the Act. The Special Bench in the case of Sutlej Cotton Mills Ltd. (supra), has held that the capital gains chargeable under s. 45, as deemed income, cannot be brought to tax for the purposes of determining the book profits under s. 115J. However, the Hon'ble Bombay High Court in the case of Veekaylal Investment Co. (P) Ltd. (supra), ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook profits for the purpose of section 115JB, the assessee did not consider the said waiver. However, the assessing officer included such waiver of loan and interest thereon for the purpose of computing book profits u/s. 115JB. The tribunal in this background held as under:- "15. The Jurisdictional High Court in the case of CIT Veekaylal Investment Co P Ltd (249 ITR 597) has held that capital gains credited to profit and Loss account should be take into account in computing Book Profits. 16. The Delhi High Court in the case of CIT v Goyal M.G. Gases 2010- TIOL-91HC-DEL has held as under: "In the present case, the assessee did not claim nor was allowed any deduction or benefit of allowance by way of allowable expenditure and trading liability, and the same being credited to the profit and loss account had been subjected to tax as part of book profit under Section 115JB of the Act. We are, therefore, of the opinion that the conclusions of the Tribunal are based on a correct appreciation of law and, therefore, do not warrant any interference by this Court." The High Court has approved the fact that write back of loans, though is not taxable under the normal provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the waiver was not capital gains but pure capital receipts which does not even have any 'income', 'profits', 'gains' embedded therein. Accordingly, all the above decisions relied upon by the Hon'ble Mumbai Tribunal were different on facts as compared to the facts under consideration. Though this decision is against the assessee, however we find that in subsequent decisions on similar facts and issues this matter has been decided by the Mumbai Tribunal and other Tribunals in favour of the assessee. These decisions shall be discussed hereinafter. (e) B &B Infotech Ltd. (supra) In this case, the assessee entered into a one-time settlement with a bank as a result of which there was a waiver of principal amount of loan. The assessee prepared its Profit and Loss account by including the said amount as income. The assessee submitted before the Assessing Officer that the remission of liability was on account of principal amount of loan and therefore, the same was not in the nature of income which could be considered as part of the book profits u/s. 115JBof the Act. The Assessing Officer rejected the objections of the assessee and added the aid amount whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the impugned order of the CIT (A)." This decision is again against the assessee, however at the outset, it is seen that the Tribunal has not at all adjudicated on the contention of the assessee that remission being capital receipt, cannot be considered as income even for the purpose of section 115JB of the Act. The Tribunal has summarily relied on the Supreme Court decision in the case of Apollo Tyres (supra) to reject the contentions of the assessee. Secondly, the Tribunal has distinguished the case laws relied upon by the assessee on the basis that, the ratio of decisions relied upon by the assessee is based on the premise that if an item of income or expenditure is required as per Part II of Schedule VI of the Companies Act to be a part of the P/L account, but the same was not disclosed in the P/L A/c and has been disclosed in the notes forming part of the accounts, then the said disclosure in the notes to the accounts would be treated as disclosure of that particular item or expenditure as the case may be, in the P/LA/c for the purpose of book profits u/s. 115JB. Lastly, the decision has been rendered essentially on the premise that the assessee cannot seek any adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 47(iv) or u/s 54EC of the Act, which the Tribunal did not agree. In the present case, however, we are dealing not with capital gains but with pure capital receipt, which does not even have anti 'income', 'profits or, gains' embedded therein. The impugned incentive granted to the Assessee is pure and simple capital receipt, in terms of our decision on ground no. i at Para 10 hereinabove, which in turn is supported by the principles laid down by the Apex Court, various high courts & Special Bench of the Tribunal. That being the case, it does not have any income or profit element embedded in it, since the incentive was granted to encourage industrial growth of industrially non developed area. No one can make profit out of the subsidy or incentive granted to it. Hence, it is not chargeable to tax under the Income Tax Act as held by the Apex Court in the case of Padmaraje (supra) and in the light of our fact finding as above, clearly not includible in P&L account prepared under Part II & Part III of Schedule VI to the companies Act." It has been informed by the ld. Counsel that in fact, the Tribunal order in favour of the aforesaid assessee in its own case for the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e form of sales tax subsidy needs to be excluded from profit as per P&L account for the purpose of computing book profit u/s 115JB of the Act. By respectfully following these Tribunal's orders, we hold that in the present case also, the receipt on account of transfer of carbon credit which is held to be a capital receipt needs to be excluded from profit as per P&L account for the present year while computing the book profit u/s 115JB of the Act. This issue is decided in favour of the assessee and accordingly Ground Nos.1 to 5 are allowed. The assessee gets relief of Rs. 27,70,880/- and consequent interest being 10% of amount received by the assessee on sale of carbon credit of Rs. 27,70,8,800/-." (d) Kolkata Tribunal in the case Binani Industries Ltd (supra) wherein following the all above decisions, it was held that: "... respectfully following the aforesaid decision of the Mumbai Tribunal, the profit and loss account prepared in accordance with Part IT and III of Schedule VI of Companies Act 1956, includes notes on accounts thereon and accordingly in order to determine the real pro fit of the assessee as laid down by the Hon'ble Apex Court in the case of Indo Rama Syn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t claimed before the lower authorities by the assessee, is being claimed for the first time before this Tribunal. We find that this is purely a legal issue and does not involve verification of any facts and hence, the same can be claimed for the first time before this Tribunal. Reliance in this regard is placed on the decision of Hon'ble Supreme Court in the case of NTPC Ltd., reported in 229 ITR 383 and CIT vs. Sinhgad Technical Education Society reported in 397 ITR 344 and the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt Ltd., reported in 349 ITR 336 (Bom). We also find that the Hon'ble Calcutta High Court in the case of PCIT vs. Ankit Metal and Power Ltd., reported in 109 Taxmann.com 93 dated 09/07/2019 had specifically held that where the receipt is not in nature of income, it cannot be included in book profits u/s.115JB of the Act. The relevant portion of the said judgment is reproduced hereinabove. "26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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