2008 (12) TMI 251 - AT - Income Tax

Liability to pay book profit u/s 115JB - interest earned on income-tax refunds - Business income or other sources - business of generation and selling of power - prepaid taxes claimed to be refundable - Assessee filed an appeal before the CIT(A) and reiterated its contentions, which he found to militate against the intention and purpose of section 115JB - He also upheld the AO s view that the interest income was to be assessed only under the head Income from other sources and not under the head Profits and gains of business HELD THAT - The assessee, in the present case, has made substantial book profit which according to its balance sheet. However, by virtue of the relief available u/s 80-IA, it has claimed the entire business profits to be exempt from tax with the result that its total income became nil and no tax was payable. 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. 1 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. For the above reasons, we are unable to give effect to the argument of the assessee that the tax payable on the total income computed under the normal provisions of the Act being Rs. Nil, section 115JB cannot be applied to its case. We are unable to accept the contention of the assessee that the interest earned on income-tax refunds was assessable as part of the profits and gains of the power generation business. In our view, the interest was assessable under the head Income from other sources as rightly assessed by AO. If that is so, some tax is payable on the interest income which would be admittedly less than the book profit tax payable u/s 115JB. The assessee is, therefore, liable to pay book profit tax under the section as demanded by the AO. The appeal of the assessee is, accordingly, dismissed with no order as to costs.

Summary

Issues Involved:
1. Applicability of Section 115JB when total income computed under normal provisions is nil.
2. Classification of interest income from fixed deposits and income-tax refunds under the head "Profits and gains of business" or "Income from other sources."
3. Entitlement of interest income for deduction under Section 80-IA(4)(iv).

Issue-wise Detailed Analysis:

1. Applicability of Section 115JB when total income computed under normal provisions is nil:

The assessee argued that since the total income computed under normal provisions was nil, Section 115JB, which mandates the payment of tax on book profits, should not apply. The Tribunal rejected this argument, clarifying that Section 115JB requires a comparison of the tax payable on the total income computed under normal provisions with the tax on book profits. The Tribunal emphasized that the language of Section 115JB uses "tax payable" instead of "chargeable," indicating that the comparison is between the tax figures, not the income figures. Therefore, even if the total income is nil, Section 115JB applies if the book profit tax is higher.

2. Classification of interest income from fixed deposits and income-tax refunds under the head "Profits and gains of business" or "Income from other sources":

The assessee contended that the interest income from fixed deposits and income-tax refunds should be classified under "Profits and gains of business" and be eligible for deduction under Section 80-IA(4)(iv). The Assessing Officer and the Tribunal disagreed, holding that such interest income does not arise from the core business activities of power generation but from incidental activities. The Tribunal cited various precedents to support the view that income-tax payments and refunds are personal obligations and not business activities. Consequently, the interest income was assessed under "Income from other sources."

3. Entitlement of interest income for deduction under Section 80-IA(4)(iv):

The assessee argued that the interest income should qualify for deduction under Section 80-IA(4)(iv) since it was derived from the business of power generation. The Tribunal rejected this argument, stating that the interest income from fixed deposits and income-tax refunds could not be considered as income derived from the business of power generation. The Tribunal emphasized that income-tax payments are personal obligations and not business expenses. Therefore, the interest income was not eligible for deduction under Section 80-IA(4)(iv).

Conclusion:

The Tribunal upheld the Assessing Officer's decision that Section 115JB applies even if the total income computed under normal provisions is nil. It also affirmed that the interest income from fixed deposits and income-tax refunds should be classified under "Income from other sources" and is not eligible for deduction under Section 80-IA(4)(iv). Consequently, the assessee's appeal was dismissed.