9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (8) TMI 872 - AT - Income TaxComputation of book profit u/s 115JB - whether Parts II and III of Schedule VI to the Companies Act permits the exclusion of the receipts relating to Central and State Government grant? - can a profit and loss account drawn up without considering the above receipts said to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act or not ? - Held that - The entire mechanism for the computation of book profit is clearly set out in sub-section (1) of section 115JB read with Explanation thereto. The starting point being the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act but also the items, which are to be increased as stipulated in clauses (a) to (h), and the items, which are to be reduced as specified in clauses (i) to (vii), find separately mentioned in the scheme of the section itself. So, the computation of book profit is to be done strictly as per the Explanation to section 115JB of the Act and hence, no assistance from any other section of the Act can be taken for that purpose. The decisions relied upon by the learned Departmental representative in the cases of Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME Court and HCL Comnet Systems and Services Ltd. 2008 (9) TMI 18 - SUPREME COURT had clearly laid down a law that the Assessing Officer has only limited power of making increases and reductions to the net profit shown in the profit and loss account except as provided for in the Explanation to section 115J or 115JA of the Act. In the light of the discussions made above, it is clear that the Assessing Officer, while computing the book profit of a company under section 115JB of the Act, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having being properly maintained in accordance with the Companies Act, and the Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to section 115JB of the Act. These receipts in question are not covered by any of the clauses (i) to (vii) of Explanation 1 to section 115JB of the Act and in our opinion, it cannot be reduced from book profits u/s.115JB of the Act. - Decided in favour of revenue.
Issues Involved:
1. Whether the grant-in-aid and compensation received by the assessee should be excluded from the book profits under Section 115JB of the Income Tax Act. 2. Whether the assessee's treatment of these receipts as capital receipts, not liable to tax under Section 115JB, is valid. Detailed Analysis: Issue 1: Exclusion of Grant-in-Aid and Compensation from Book Profits under Section 115JB The Revenue contended that the Commissioner of Income-tax (Appeals) erred in allowing the deduction of Rs. 50,56,630 from book profits under Section 115JB of the Income Tax Act, which includes Rs. 49,92,354 received as machinery grant from the Central Government and Rs. 64,276 as compensation from the State Government. The assessee had included these amounts under 'Other Income' in the Profit & Loss Account, resulting in an overstatement of revenue profits. The assessee argued that these were capital receipts and should not be taxed under Section 115JB, as they were not operational business income. Issue 2: Treatment of Receipts as Capital Receipts The assessee claimed that the machinery grant and compensation for damages were capital receipts, not liable to tax under Section 115JB. The assessee prepared its Profit & Loss Account per Schedule VI of the Companies Act, 1956, and treated these receipts as part of the book profits. The assessee relied on various judicial precedents, including the decision of the Tribunal, Calcutta Special Bench in Sutlej Cotton Mills Ltd vs. ACIT, which emphasized that only operational business income should be taxed under Section 115JB. Tribunal's Findings: 1. Compliance with Schedule VI of the Companies Act: The Tribunal noted that the assessee had not claimed any deduction of these receipts from the book profit, indicating that these receipts were not deductible from the net profit prepared per Schedule VI of the Companies Act. The Tribunal emphasized that the taxability of these receipts is relevant only for computing income under the normal provisions of the Income Tax Act, not for preparing the Profit & Loss Account under Schedule VI. 2. Legislative Intent and Overriding Provisions: The Tribunal referred to the overriding effect of Sections 115J, 115JA, and 115JB over other provisions of the Income Tax Act. The Tribunal highlighted that the computation of book profit should strictly follow the Explanation to Section 115JB, which does not provide for the exclusion of such receipts. 3. Judicial Precedents: The Tribunal relied on the Supreme Court decisions in Apollo Tyres Ltd. and HCL Comnet Systems and Services Ltd., which limited the Assessing Officer's power to make adjustments to the net profit shown in the Profit & Loss Account, except as provided in the Explanation to Section 115JB. The Tribunal also referred to the Karnataka High Court's decision in Jindal Thermal Power Co. Ltd., which supported the view that the computation of book profit under Section 115JB should strictly adhere to the provisions of the section. Conclusion: The Tribunal concluded that the grant-in-aid and compensation received by the assessee could not be excluded from the book profits under Section 115JB, as these receipts were not covered by any of the clauses in Explanation 1 to Section 115JB. Therefore, the appeal of the Revenue was allowed, and the assessee's claim for deduction of Rs. 50,56,630 from the book profits was rejected. Order: The appeal of the Revenue is allowed, and the order was pronounced on Wednesday, the 12th of August, 2015, at Chennai.
|
