2014 (1) TMI 866 - AT - Income Tax

Computation of book profits u/s 115JB of the Act - Whether in computing the book profit u/s115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded Held that - The share of income from joint venture has been included by the Assessee in their P&L account in their books of account - The only difference is that instead of including a single entry viz. assessee s share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares - This is the only a way of presentation of profits in the P&L Account - instead of single line entry showing share of profit from joint venture, the assessee s share in all the entries of the joint venture are incorporated in the accounts of the assessee s books - the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books - This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86 - the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company. Profits to be Excluded or not - Whether profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB Held that - The share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books Relying upon APOLLO TYRES Vs. CIT 2002 (5) TMI 5 - SUPREME Court - the only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB - None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP - The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act - But as per sec 86 of the Act, if the conditions are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person. The joint venture is in the nature of a firm and hence share of income should be excluded in computing book profits - However, no copy of return of income of Joint Venture brought on record to suggest that Joint Venture was assessed as a firm so as to exclude its income from the computation of book profit u/s 115JB of the Act there was no merit in the argument of the counsel that the share of income of the joint venture should be excluded from the book profit of the assessee Decided in favour of Revenue.

Issues Involved:
1. Applicability of Section 115JB for computing book profits.
2. Inclusion or exclusion of joint venture profits in the computation of book profits under Section 115JB.
3. Consistency of accounting methods and their impact on tax liability.

Detailed Analysis:

1. Applicability of Section 115JB for Computing Book Profits:
The Assessee argued that Section 115JB was not applicable to them as their financial statements combined the assets, liabilities, income, and expenses of joint ventures on a line-by-line basis, which they claimed was against the Companies Act, 1956. However, the AO determined that any domestic company is liable to pay tax under Section 115JB, and the Assessee had not furnished the required computation to avoid penalty under Section 271(1)(c). The AO computed the book profit at Rs. 13,81,88,757 and raised a tax demand of Rs. 52,83,945.

2. Inclusion or Exclusion of Joint Venture Profits in the Computation of Book Profits under Section 115JB:
The CIT(A) held that the Assessee had consistently followed a method where the share of joint venture profits was excluded from the book profits, as the joint ventures are separately taxable under the Income Tax Act, and taxing the share of joint venture profits would result in double taxation. However, the Tribunal found that the CIT(A) had determined that the provisions of Section 115JB were applicable to the Assessee. The Assessee did not appeal against this direction, and thus, the question of applicability of book profit computation was not agitated further.

3. Consistency of Accounting Methods and Their Impact on Tax Liability:
The Tribunal noted that the Assessee had included the share of joint venture profits in their profit and loss account but had presented it by incorporating all items of income and expenditure of the joint venture in proportion to their shares. The Tribunal emphasized that the net profit from joint ventures, amounting to Rs. 11,09,10,108, was included in the total profits as computed in the books. The Tribunal held that for the purpose of Section 115JB, the book profits should be computed based on the profit and loss account prepared as per Schedule VI of the Companies Act, and the only adjustments allowed are those specified in the explanations under Section 115JB.

Conclusion:
The Tribunal concluded that the share of profits from joint ventures, which are exempt from tax under Section 86, cannot be excluded from the book profits under Section 115JB unless specifically provided for in the explanations under that section. The Tribunal referred to the decision in Rain Commodities Limited vs. DCIT, which held that book profits must be calculated based on the net profits as per the Companies Act, adjusted only by the amounts specified in the Explanation to Section 115JB. Therefore, the appeal of the revenue was allowed, and the share of income from joint ventures was included in the computation of book profits under Section 115JB.

Judgment:
The appeal of the revenue was allowed, and the share of income from the joint venture was included in the computation of book profits under Section 115JB. The decision was pronounced in the open court on 21st June 2013.

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