2016 (11) TMI 1021 - HC - Income Tax

MAT computation - whether Capital gains which form part of the net profit is the profit and loss account of the assessee company, should not be taken into account for calculation of tax on book profits as per section 115JB? - Held that - The allowance or otherwise of the claim under Section 54AC has to be seen in the context of the provisions of Section 115 JB which is a self contained code of assessment. The levy of tax is on the book profits after effecting various upward and downward adjustments as set out in terms of the Explanation thereto. The provisions of sub-section (5) of s.115 JB open the assessment to the application of all other provisions contained in the Income tax Act except if specifically barred by that section itself. S.115 JB (5) Thus, the adjusted book profits would be further eligible to the benefits set out in the other provisions of the Act and the plain language of Section 115 JB thus admits of the grant of relief under section 54 EC in an assessment thereunder. - Decided against arevenue

Summary

Issues:
Interpretation of Section 115JB - Treatment of capital gains in computation of tax on book profits

Analysis:
The case involved the interpretation of Section 115JB of the Income Tax Act regarding the treatment of capital gains in the computation of tax on book profits for the assessment year 2003-2004. The main issue was whether capital gains forming part of the net profit in the profit and loss account of the assessee company should be considered for calculating tax on book profits under Section 115JB of the Act. The assessing officer had rejected the claim under section 54EC for the purpose of tax computation under Section 115JB, relying on judgments of the Supreme Court and Bombay High Court.

The court noted that the provisions of Section 115JB constitute a self-contained code of assessment, where tax is levied on book profits after adjustments as per the Explanation to the section. Section 115JB(5) allows for the application of all other provisions of the Income Tax Act to the assessment, unless specifically barred by that section itself. Therefore, adjusted book profits are eligible for benefits under other provisions of the Act, including relief under section 54EC.

The court discussed the judgments cited by the assessing officer, emphasizing that those judgments were rendered in the context of Section 115J, which differs from Section 115JB. While Section 115J mandates assessment exclusively based on adjusted book profits, Sections 115JA and 115JB subject adjusted book profits to other provisions of the Act as specified in sub-sections (4) and (5) respectively. The court distinguished a decision of the Kerala High Court, stating it was not applicable in the present case.

In conclusion, the court held that the substantial question of law was answered against the Revenue and in favor of the assessee. The departmental appeal was dismissed without costs, affirming that relief under section 54EC could be granted in an assessment under Section 115JB, and the assessing officer cannot disregard the entries in the profit and loss account without specific statutory provisions.