2018 (11) TMI 438 - AT - Income Tax

Minimum alternate tax u/s 115JB - Applicability of MAT where normal tax payable is itself Nil - intentions of the legislature - Held that - Section 115J was introduced as an equitable measure in order to levy tax on companies which made huge profits and declared substantial dividends but did not pay income-tax because of the various tax concessions and incentives availed of by them. It was thought that such companies had the ability to pay taxes and they ought to contribute to the exchequer. The interpretation of section 115JB which is similar to section 115J and which we have adopted, is in consonance with the object of the section namely, that all companies which make handsome profits must- pay tax irrespective of the fact that -they would not have paid tax on their profits if their profits had been computed under the normal provisions of the Act in view of present case has made substantial book profit which according to its balance sheet comes to ₹ 6,18,3 6,130/-. However, by virtue of the relief available u/s.801A, it has claimed the entire business profits of ₹ 11,97,79,339/- to be exempt from tax with the result that its total income became nil and no tax waspayable. This is exactly the situation contemplated by the section for which provision has been made to the effect that the company should pay tax on its book profit and thus contribute to the exchequer. Therefore, there can be no escape from the position that the assessee company is caught within the mischief of section 115JB, notwithstanding that the tax payable by it on its total income computed under the normal provisions of the Act is Rs. Nil. It would be anomalous to hold that where tax of Re. - is payable on the total income computed under the normal provisions of the Act, then section 115JB would be attracted, but it would not be attracted when the tax payable on the total income is Rs.Nil either because the total income is nil or is a negative figure. It is well settled that the section has to be interpreted in such a manner as to avoid absurdity and also in such a manner as to advance the cause and suppress the mischief

Summary

Issues Involved:
1. Applicability of Section 115JB of the Income Tax Act, 1961 to a company engaged in the business of generation of power.
2. Interpretation of the amendments to Section 115JB by the Finance Act, 2012.
3. The relevance of judicial precedents and legislative intent in the application of Section 115JB.

Detailed Analysis:

Issue 1: Applicability of Section 115JB of the Income Tax Act, 1961 to a company engaged in the business of generation of power.

The primary issue was whether Section 115JB, which deals with the assessment of book profits, applies to a company engaged in the generation of power. The assessee argued that their accounts are prepared in accordance with the Electricity Act and not as per the Companies Act, 1956, thus exempting them from Section 115JB. The CIT(A) allowed relief to the assessee based on the decision of the Co-ordinate Bench of the Tribunal in the case of Karnataka Power Corporation. The Tribunal concurred, emphasizing that prior to the amendment by the Finance Act, 2012, Section 115JB did not apply to companies governed by special statutes like the Electricity Act, 2003.

Issue 2: Interpretation of the amendments to Section 115JB by the Finance Act, 2012.

The Tribunal examined the amendments made to Section 115JB(2) by the Finance Act, 2012, effective from April 1, 2013. The amendment clarified that companies governed by special statutes, like those engaged in the generation of power, are included within the ambit of Section 115JB from the assessment year 2013-14 onwards. The Tribunal noted that prior to this amendment, the provisions of Section 115JB were not applicable to such companies. This interpretation was supported by various judicial precedents, including the decisions in Karnataka Power Corporation Ltd. v. ACIT and BSES Rajdhani Power Ltd., which held that the provisions of Section 115JB did not apply to companies required to prepare accounts under special statutes.

Issue 3: The relevance of judicial precedents and legislative intent in the application of Section 115JB.

The Tribunal relied on several judicial precedents to support its decision. It cited the case of Kerala State Electricity Board v. DCIT, where it was held that Section 115JB could not be invoked against companies governed by special statutes. The Tribunal also referred to the legislative intent behind the amendments, as explained in the Finance Minister's speech and the Memorandum explaining the provisions of the Finance Bill, 2012. These documents clarified that the amendments were prospective and intended to include companies governed by special statutes within the scope of Section 115JB only from the assessment year 2013-14 onwards.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, holding that the provisions of Section 115JB were not applicable to the assessee for the assessment years prior to 2013-14. The Tribunal's decision was based on a thorough examination of the legislative amendments, judicial precedents, and the specific statutory requirements governing the preparation of accounts for companies engaged in the generation of power. The Tribunal emphasized that the amendments to Section 115JB by the Finance Act, 2012, were substantive in nature and could not be applied retrospectively.