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2005 (9) TMI 253 - AT - Income TaxInterpretation of a statute - Exemption u/s 10(23G) - Infrastructure Capital - Industrial undertaking - investment by way of equity shares - computation of book profits - generation of power - whether the amendment by way of inserting of Explanation regarding investments made before the first day of June, 1998, is a prospective legislation or a declaratory legislation and thus has to be construed as retroactive? - HELD THAT - When the Explanation is read with Circular No. 772 dated 23-12-1998, issued by Central Board of Direct Taxes on the Explanatory Note to provisions relating to Direct Taxes, paragraph 10.3, it is clear that this Explanation is a declaratory statute inserted to supply an obvious omission and to clear doubts. The new Act, i.e. Explanation 2 ; is to explain an earlier Act and thus would be without object unless constructed retrospectively. The law applicable to investments made prior to 1-6-1998 is declared to remove doubts. Thus, we are of the opinion that the Explanation is declaratory or explanatory and has to be construed as retrospective as it is retroactive in nature. The second issue is the argument of the revenue that the investment should have been made between the first day of April, 1998 and the first day of June, 1998 for being eligible for the deduction. A plain reading of Explanation 2, as introduced by Finance Act, 1999, does not permit such an interpretation. All that it says is that the investment should be made before the first day of June, 1998. Even going by the speech of the Hon'ble Finance Minister or by the Board's circular, we do not find at any place a mention that the investment in question for the purposes of claiming exemption under Explanation to section 10(23G), as introduced by the Finance Act, 1999, should have been made between 1-4-1998 and 1-6-1998. On the contrary, by Finance Act, 1997, 'infrastructure facility', to the extent relevant to this case, is defined as a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993 . This implies that the investment should have been made prior to 1-4-1993, as, otherwise, it would never be possible for a company to generate power on 1-4-1993. It would be anomalous to hold that the generation should start on or after 1993 but the investment should be made on or after 1-4-1998. Looking at the issue from another angle, if a long-term capital gain has to arise in 1997, as contemplated by the Act, then the investment must necessarily be made much before that date. For these reasons, we agree with the argument of the learned counsel for the assessee that as the investment in question was made prior to 1-6-1998, Explanation 2 is squarely applicable to the case of the assessee. Having come to this conclusion, the next question before us is as to which are the provisions of the Act that are applicable to the assessee's case as the investment in question was made prior to 1-6-1998. A plain reading of Explanation 2 introduced by Finance Act, 1999, shows that the provision as it stood immediately before its amendment by Finance (No.2) Act, 1998 (21 of 1998) shall apply to such income. The term immediately before means provision existing in the Finance Act, 1997, has to be applied in this case. As section 10(23G) as it existed immediately before amendment by Finance (No.2) Act, 1998, clearly states that any income by way of long-term capital gain of an infrastructure capital fund is exempt under section 10(23G), we have no hesitation whatsoever in holding that the capital gain in question is exempt from tax under section 10(23G) as per the provisions of the statute existing in 1997 read with Explanation 2 introduced by Finance Act, 1999. Explanation 2 mandates that income by way of longterm capital gain of an infrastructure capital company from investments made before 1-6-1998, by way of shares in any enterprise which is an infrastructure facility shall not be included in the total income, i. e., it shall not form part of total income. Thus, this ground of the assessee is allowed. Coming to the computation of book profits, i.e. reduction of this long- term capital gain, which is exempt under section 10(23G), from the book profits of the company under the special provisions of section 115JB, we are of the considered opinion that the revenue authorities have committed an error, as the disallowance is in violation of sub-section (2) of section 115JB, Explanation (ii), which reads as follows - (ii) the amount of income to which any of the provisions of section 10 or section l0A or section 10B or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; Thus, this ground of the assessee is also allowed. In the result, the appeals of the assessee are allowed in part and the appeal of the revenue is dismissed.
Issues Involved:
1. Disallowance of electricity charges and interest due to tariff change and category change. 2. Computation of book profit under section 115JA. 3. Disallowance of additional charges and interest payable to APSEB. 4. Depreciation on revaluation of assets while computing book profit under section 115JB. 5. Exemption of long-term capital gains under section 10(23G). 6. Adjustment of MAT credit against tax payable before TDS and advance tax. Detailed Analysis: 1. Disallowance of Electricity Charges and Interest Due to Tariff Change and Category Change The assessee challenged the disallowance of Rs. 4,32,35,924 representing electricity charges due to tariff change and Rs. 10,08,60,680 as interest on tariff difference. The assessee argued that these liabilities crystallized in the accounting year 1999-2000, relevant to assessment year 2000-01, following the High Court judgment dated 15-9-2000. The CIT(A) and the Tribunal held that these expenditures should be allowed in the assessment year 2001-02, as the judgment was delivered during the financial year 2000-01. The Tribunal dismissed the grounds for assessment year 2000-01 but allowed the expenditure for assessment year 2001-02. 2. Computation of Book Profit under Section 115JA The CIT(A) upheld the Assessing Officer's disallowance of Rs. 20,00,35,099 while computing book profit under section 115JA. The assessee contended that the profit and loss account was prepared in accordance with the Companies Act, and the Assessing Officer had no power to alter the book profit. The Tribunal, following the Supreme Court judgment in Apollo Tyres Ltd. v. CIT, held that the Assessing Officer could not disturb the book profit as determined by the company under the Companies Act. The Tribunal allowed the assessee's ground, deleting the disallowance. 3. Disallowance of Additional Charges and Interest Payable to APSEB The CIT(A) allowed the deduction of Rs. 53,09,240 being additional charges and interest payable to APSEB, following the Tribunal's earlier decision in the assessee's own case. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. 4. Depreciation on Revaluation of Assets while Computing Book Profit under Section 115JB The assessee claimed depreciation on revalued assets, which the Assessing Officer disallowed while computing book profit under section 115JB. The CIT(A) upheld the disallowance. The Tribunal, applying the Supreme Court judgment in Apollo Tyres Ltd., held that the Assessing Officer had no jurisdiction to recast the profit of the company. The Tribunal allowed the assessee's ground, canceling the adjustment. 5. Exemption of Long-Term Capital Gains under Section 10(23G) The assessee claimed exemption under section 10(23G) for long-term capital gains on the sale of shares in Andhra Pradesh Gas Power Corporation Ltd. The Assessing Officer and CIT(A) disallowed the exemption, stating that the investment was made before 1-4-1998. The Tribunal, interpreting Explanation 2 to section 10(23G), held that the exemption applied to investments made before 1-6-1998. The Tribunal allowed the exemption for the assessee, directing the exclusion of the long-term capital gain from the total income and book profit under section 115JB. 6. Adjustment of MAT Credit Against Tax Payable Before TDS and Advance Tax The assessee contended that MAT credit should be adjusted against tax payable before TDS and advance tax. The Tribunal, following decisions of various Benches, allowed the assessee's ground, directing the Assessing Officer to adjust MAT credit first against the tax payable. Conclusion: The Tribunal allowed the assessee's appeals in part, granting relief on issues related to the disallowance of electricity charges and interest, computation of book profit under section 115JA, depreciation on revalued assets, and exemption of long-term capital gains under section 10(23G). The appeal of the revenue was dismissed.
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