2011 (3) TMI 1002 - AT - Income Tax

Capital gain - Book profit u/s 115JB - Circular No. 13/2001, dated 9-11-2001 - Held that - Merely because the capital gains arising from the transfer of those assets is not taxable under the normal provisions of Income-tax Act, it cannot be excluded from the Book Profits under section 115JB, the computation of book profit under section 115JB is a separate code by itself - hold that the profit on sale of assets credited to the profit & loss account cannot be excluded while computing the Book Profit under section 115JB even though the capital gains arising from the sale of that asset is not subject to tax under the normal provisions of the Income-tax Act by virtue of the provisions of section 54EC - Appeal is dismissed

Issues Involved:
1. Taxability of Capital Receipts under Section 115JB.
2. Applicability of other provisions of the Income-tax Act under Section 115JB.
3. Judicial discipline and adherence to higher appellate authorities' rulings.

Detailed Analysis:

1. Taxability of Capital Receipts under Section 115JB:
The primary issue revolves around whether the capital gains arising from the sale of factory land and building, which are exempt under Section 54EC, should be included in the book profits for the purpose of Minimum Alternate Tax (MAT) under Section 115JB. The assessee argued that such capital gains should be excluded from book profits as they are not taxable under the normal provisions of the Income-tax Act. The assessee relied on various judicial precedents, including the decisions in ITO v. Frigsales (I.) Ltd. and Sutlej Cotton Mills Ltd. v. ACIT, which supported the exclusion of exempt capital gains from book profits.

However, the CIT(A) and the Tribunal upheld the inclusion of these capital gains in book profits. The CIT(A) relied on the Supreme Court's decision in Apollo Tyres Ltd. v. CIT and other judicial precedents, stating that once the profit and loss account is prepared in accordance with the Companies Act, no variation can be made except as provided in the Explanation under Section 115JB. The Tribunal further supported this view by citing the Special Bench decision in Rain Commodities Ltd. v. Dy. CIT, which held that the computation of book profit under Section 115JB is a separate code, and exempt capital gains cannot be excluded from book profits.

2. Applicability of Other Provisions of the Income-tax Act under Section 115JB:
The assessee contended that Sub-section (5) of Section 115JB allows for the application of all other provisions of the Income-tax Act, including exemptions under Section 54EC. The CIT(A) and the Tribunal, however, interpreted Sub-section (5) to mean that while other provisions of the Act apply, they do not alter the computation of book profits as specifically provided under Section 115JB. The Tribunal emphasized that the non obstante clause in Section 115JB(1) overrides other provisions, and the computation of book profits must follow the specific provisions of Section 115JB, irrespective of exemptions available under other sections.

3. Judicial Discipline and Adherence to Higher Appellate Authorities' Rulings:
The assessee argued that the CIT(A) should have followed the Mumbai Tribunal's decision in Frigsales (I.) Ltd., as per the principles of judicial discipline. The Tribunal acknowledged the importance of following higher appellate authorities' rulings but noted that the CIT(A) had relied on Supreme Court and High Court decisions, which take precedence over Tribunal decisions. The Tribunal also pointed out that the decisions in Frigsales (I.) Ltd. and Suraj Jewellery (India) Ltd. had not been overruled by higher courts, but the CIT(A)'s reliance on the Supreme Court's decision in Apollo Tyres and other higher judicial authorities was justified.

Conclusion:
The Tribunal dismissed the appeal, holding that the capital gains arising from the sale of assets, though exempt under Section 54EC, must be included in the book profits for the purpose of MAT under Section 115JB. The computation of book profits under Section 115JB is a separate code, and the specific provisions of Section 115JB override other provisions of the Income-tax Act. The Tribunal upheld the CIT(A)'s decision, emphasizing the importance of judicial discipline and adherence to higher judicial authorities' rulings.

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