2009 (9) TMI 44 - HC - Income Tax

Computation of Book Profit for the purpose of MAT u/s 115JB Minimum Alternate Tax (MAT) - amount withdrawn from the revaluation reserve and credited to the profit and loss account Held that - assessee company takes benefit of additional depreciation on account of revaluation of the fixed assets by increasing the revaluation reserve in the relevant assessment year 2000-2001 and consequently the same definitely has the effect of reducing the net profit for the said Assessment Year. - the amount withdrawn from the revaluation reserve and credited to the profit and loss account is not to be reduced from the net profit as per the profit and loss account unless the book profit had been increased by the amount of the reserve in the year of the creation of such reserve.

Summary

Issues:
Interpretation of Section 115 JB of the Income Tax Act, 1961 regarding computation of "book profit" for the Assessment Year 2001-2002, specifically in relation to the treatment of revaluation reserve withdrawals in the profit and loss account.

Analysis:

1. Issue of Reduction from Net Profit: The appellant company contested the Assessing Officer's decision to disallow the reduction of the amount withdrawn from the revaluation reserve in computing the "book profit" under Section 115 JB. The CIT(A) upheld the order, stating that such reduction is permissible only if the book profit had been increased by the amount of the reserve in the year of its creation. The Tribunal concurred with this interpretation, emphasizing the specific wording of the provision and the legislative intent behind it. The Tribunal clarified that post the insertion of the proviso to clause (i) of Explanation 1 of Section 115 JB, the assessee is mandated to include the withdrawn reserve amount in the book profits if not added back in the year of creation, thereby depriving the company of this benefit.

2. Interpretation of Section 115 JB: The Tribunal's detailed analysis of the relevant provision highlighted the changes brought about by the insertion/substitution of clause (i) of the explanation to Section 115 JB. The Tribunal emphasized the necessity of a literal interpretation of ambiguous provisions of the Act, adhering to the legislative intent and statutory language. The Tribunal concluded that the plain reading of the provision clearly mandated the inclusion of withdrawn reserve amounts in the book profits if not added back in the relevant year, irrespective of the reserve being debited to the profit and loss account.

3. Applicability of Accounting Standards: The appellant argued that the treatment of the revaluation reserve as an adjustment entry to balance the balance sheet should not impact the profit and loss account. However, the Court emphasized the applicability of clause (i) of Explanation-1 to Section 115 JB to the issue at hand, noting that the legislative intent behind the Minimum Alternate Tax provision necessitates a literal interpretation of the provision. The Court agreed with the Tribunal's interpretation and dismissed the appeal, stating that no question of law arose in the present case.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of adhering to the plain language and legislative intent of Section 115 JB in computing "book profit" for tax purposes, specifically regarding the treatment of withdrawn amounts from revaluation reserves.