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2006 (8) TMI 234 - AT - Income TaxComputation of profit under MAT u/s 115JB - Charging of interest u/s 234B and 234C are attracted while determining the book profit u/s 115JA during the processing the returns u/s 143(1)(a) - HELD THTA - It is pertinent to note that earlier for the assessment years 1988-89 to 1990-91 section 115J was also in the nature of overriding effect. As far as section 115J is concerned the provision in the form of sub-section (4) to section 115JA was not in the said section. Section 115JA had come for judicial scrutiny of the Hon ble High Court of Kerala in the case of Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT . Hence it is a well settled position of law that section 115JA is pari materia to section 115J of the Act. After examining this issue in the backdrop of the legal principles laid down by the Hon ble Supreme Court as well as other High Courts we are of the opinion that the legal principles in the case of Kwality Biscuits Ltd. 2006 (4) TMI 121 - SC ORDER are squarely applicable to the provisions of section 115JA and hence if the income of the assessee company is determined by invoking section 115JA then no interest under sections 234B and 234C can be charged. As far as the issue of prima facie adjustment is concerned we are of the opinion that the law declared by the Supreme Court was always the law in existence. Hence the Assessing Officer was not competent to charge the interest u/s 234B or 234C of the Act when the income is determined on the basis of book profit computed u/s 115JA. We therefore allow the appeals by the assessee for the assessment years 1997-98 1998-99 1999-2000 and 2001-02. Hence this common issue is decided in favour of the assessee and against the revenue. Levy of surcharge - HELD THAT - In our opinion though the assessee is required to pay the surcharge still by virtue of the provisions of section 115JA the assessee is entitled to get relief in respect of the extra payment of surcharge due to determination of his income u/s 115JA. The ld. counsel has referred to sections 112 and 113 of the Act but there is a difference between sections 112 and 113 and section 115JA as in these sections in the Act itself special rates of tax have been prescribed. Therefore in our opinion at the regular assessment stage when the income is determined on the basis of book profit as per provisions of section 115JA surcharge is leviable. We therefore decide this issue against the assessee and in favour of the revenue. Treatment to be given to the arrears of depreciation - HELD THAT - On the perusal of the reasons given by the Assessing Officer as well as the CIT(Appeals) for adding back the arrears of depreciation which was provided due to the change in the method of working of the depreciation it appears that both tried to distinguish sections 115J and 115JA. We have already expressed that sections 115J and 115JA both are deeming provisions and book profit is to be worked out as per the provisions of the Companies Act. What is to be added back to the book profit has been specifically provided by Explanations (a) to (f) to section 115JA in which there is no reference in respect of the treatment to be given to the arrears of depreciation provided in case the assessee changes the method of depreciation which is debited to the profit and loss account. In our opinion the principles laid down by the Hon ble Supreme Court in the case of Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT are squarely applicable for working out the book profit u/s 115JA also. We therefore direct the Assessing Officer to delete the sum which represents the arrears of depreciation included in the depreciation debited to the profit and loss account for the reasons stated hereinabove and set aside the order of the CIT(Appeals) on this issue. In the result the assessee s appeals are allowed. The revenue s appeal is dismissed.
Issues Involved:
1. Levy of interest under sections 234B and 234C of the Income-tax Act, 1961. 2. Levy of surcharge on the tax computed under section 115JA. 3. Adjustment of arrears of depreciation while computing book profit under section 115JA. Issue-wise Detailed Analysis: 1. Levy of Interest under Sections 234B and 234C: The primary issue in all the appeals was the levy of interest under sections 234B and 234C when the tax liability arises under section 115JA of the Income-tax Act, 1961. The assessee, a closely held company engaged in the hotel business, had its income determined under section 115JA for the relevant assessment years. The Assessing Officer charged interest under sections 234B and 234C while processing the returns under section 143(1)(a). The assessee challenged this before the CIT(Appeals), who allowed the appeal for the assessment year 1997-98, stating that the issue of charging interest under section 234C was debatable and could not be levied as a prima facie adjustment. However, for the other assessment years, the CIT(Appeals) upheld the Assessing Officer's decision, leading to appeals by the assessee. The assessee argued that section 115JA is a deeming provision, and the total income determined under it is not the true income contemplated under the charging provisions of the Income-tax Act. They cited the Karnataka High Court's decision in Kwality Biscuits Ltd. v. CIT, which held that no interest under sections 234B and 234C could be levied when income is determined under section 115J. This decision was upheld by the Supreme Court, dismissing the revenue's appeal. The Revenue contended that the decision in Kwality Biscuits Ltd. was not applicable to section 115JA, as section 115JA(4) states that all provisions of the Act apply to every assessee, implying the liability to pay advance tax. However, the Tribunal found that the principles laid down in Kwality Biscuits Ltd. were applicable to section 115JA as well, and hence, no interest under sections 234B and 234C could be charged when income is determined under section 115JA. The Tribunal allowed the assessee's appeals for the relevant years. 2. Levy of Surcharge: The second issue was the levy of surcharge on the tax computed under section 115JA for the assessment year 1997-98. The Assessing Officer levied a surcharge on the tax payable under section 115JA, which was upheld by the CIT(Appeals). The assessee argued that the surcharge could not be levied when the total income is determined under section 115JA, as the surcharge is an additional levy on income-tax computed under the regular provisions of the Act. The Tribunal, however, found that surcharge is in the nature of additional levy on income-tax and is applicable even when income is determined under section 115JA. The Tribunal upheld the levy of surcharge, deciding the issue against the assessee. 3. Adjustment of Arrears of Depreciation: The third issue was the adjustment of arrears of depreciation while computing the book profit under section 115JA for the assessment year 1997-98. The assessee had changed its method of charging depreciation and included arrears of depreciation in the profit and loss account. The Assessing Officer added back the arrears of depreciation while computing the book profit, which was upheld by the CIT(Appeals). The assessee contended that the arrears of depreciation were charged in accordance with the Companies Act and Accounting Standards, and the Assessing Officer could not adjust these figures. The Tribunal agreed with the assessee, citing the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, which held that the Assessing Officer cannot go behind the net profit shown in the profit and loss account except as provided in the Explanation to section 115J. The Tribunal directed the Assessing Officer to delete the addition of arrears of depreciation, allowing the assessee's appeal on this issue. Conclusion: The Tribunal allowed the assessee's appeals regarding the levy of interest under sections 234B and 234C and the adjustment of arrears of depreciation, while upholding the levy of surcharge on the tax computed under section 115JA. The revenue's appeal was dismissed.
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