2011 (6) TMI 452 - HC - Income Tax

MAT - exclusion of income derived on sale of old and unyielding rubber trees credited in the P & L A/c for computation of MAT - Tribunal excluded it on holding the same as agricultural income - Held that - Since the assessee has included the sale proceeds of assets as income in the P/L A/c prepared under Schedule VI to the Companies Act for the purpose of assessment of book profit u/s 115JA(2) the assessee has no escape but to pay tax on the book profit including such income. Hence if book profit assessment originally made were not in accordance with the statutory provision then the Assessing Officer was certainly free to rectify the assessment to make it in compliance with statutory provisions which exhaustively deals with the scheme of book profit assessment - Decided against Assessee.

Issues:
- Challenge to order of Income Tax Appellate Tribunal allowing appeals filed by respondent-assessee for assessment years 1997-98 to 2000-2001.
- Exclusion of income derived on sale of old and unyielding rubber trees from book profit computation under Section 115JA of the Income-tax Act.
- Interpretation of relevant provisions of the Income Tax Act regarding book profit assessment.
- Consideration of whether sale proceeds of old rubber trees should be treated as agricultural income.
- Application of Supreme Court decisions in similar cases to the current scenario.

Analysis:

The High Court of Kerala addressed the challenge posed by the Revenue against the Income Tax Appellate Tribunal's order favoring the respondent-assessee for the assessment years 1997-98 to 2000-2001. The core issue revolved around the exclusion of income derived from the sale of old and unyielding rubber trees from the book profit computation under Section 115JA of the Income-tax Act. The Assessing Officer had completed the assessment on book profit without excluding this income, which the assessee contested. The Tribunal had ruled in favor of the assessee, considering the sale proceeds of old rubber trees as agricultural income to be excluded from book profit computation under clause (ii) of Explanation to Section 115JA(2) of the Act.

The Tribunal's decision was based on the interpretation of relevant provisions of the Income Tax Act and previous judgments, including the Bombay High Court's ruling that capital gains cannot be part of book profit assessment under Section 115JA. However, the High Court found the Tribunal's classification of sale proceeds of old rubber trees as agricultural income to be erroneous and contrary to established legal principles. The Court highlighted that the Supreme Court had previously held that rubber trees are capital assets, not agricultural income, and therefore, the sale proceeds should not be excluded from book profit computation.

The Court emphasized that the book profit assessment must strictly adhere to the provisions of Section 115JA of the Act and the Explanation to Section 115JA(2). It noted that there was no provision in the clauses of the Explanation to exclude capital gains from the Profit and Loss Account for book profit computation. As such, the Court concluded that the sale proceeds of old rubber trees, included as income in the Profit and Loss Account, must be subject to taxation as part of the book profit assessment. The appeals filed by the Revenue were allowed, reversing the Tribunal's orders and restoring the assessments.

Additionally, the Court clarified that if the original book profit assessment was not in compliance with statutory provisions, the Assessing Officer had the authority to rectify the assessment to align with the statutory scheme of book profit assessment. This decision aimed to ensure the proper application of the Income Tax Act in determining the taxable income of the assessee for the relevant assessment years.

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