2017 (2) TMI 643 - AT - Income Tax

MAT computation - addition of share income of AOP in the book profit - assessment order of the AOP - Held that -Since the profit and loss account so prepared has been approved by the Board of Director of Assessee Company, there is no reason to exclude the profit credited in the P&L account in respect of share of assessee s income in two AOPs while computing book profit u/s.115JB. Accordingly, ground raised by assessee with regard to exclusion of such income while computing book profit u/s.115JB is not tenable Amending Act had sought to bring parity between similar kind of situation faced by two class of assessees, where in one case, statute envisaged that if the income of the assessee is not taxable, that is, in case of partner the share income from the partnership firm, then it cannot be taxed as book profit under MAT liability. Similarly, in second case also, that is, in case of member of an AOP where no income-tax is payable on the share of a member of an AOP in certain situations in terms of section 86, should also not be brought to tax under MAT liability. The legislature by this amendment has thus removed this imparity between two classes of assessees so that mischief or prejudice caused to other class of assessees should be removed. The mischief which has been sought to be remedied is that the share income of the member of the AOP which was not taxable in terms of section 86 was getting taxed under MAT while computing the book profit. This was also never the purpose of section 115JB to tax any income or receipts which is otherwise not taxable under the Act. If the intention of legislature was always that income which is not taxable under the normal provisions of the Act should not be brought to tax under MAT also, then it has to be interpreted that such a benefit has to be given to all and where the income is otherwise not taxable under the Act cannot be brought to be taxed under MAT. Therefore, any remedy brought by an amendment to remove the disparity and curb the mischief has to be reckoned as curative in nature and hence, is to be held retrospectively. Accordingly, this issue is allowed in favour of the assessee.

Summary

Issues Involved:
1. Taxability of the assessee's share in the income of the Association of Persons (AOP).
2. Computation of book profit under Section 115JB of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Taxability of Assessee’s Share in AOP Income:

The assessee, a Private Limited Company, received a share of income amounting to ?54,58,717/- from AOP, M/s Cosmos Properties, which was claimed as exempt under Section 86 of the Income Tax Act, 1961. The Assessing Officer (A.O.) held that this share of profit should be taxed in the assessee's hands because the total income of M/s Cosmos Properties and M/s Cosmos Estate was shown as Nil after claiming deductions under Section 80IB(10). The A.O. argued that since no tax was chargeable on the total income of the AOP, the profit of the assessee from AOP was chargeable to tax in the hands of the assessee in terms of the second proviso to Section 86.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, leading to the assessee's further appeal to the Tribunal. The Tribunal noted that in the assessment year (A.Y.) 2008-09, a similar issue was decided in favor of the assessee. The Tribunal observed that the income of AOP, M/s Cosmos Properties, was charged to tax at a maximum marginal rate in the assessment completed under Section 143(3) for A.Y. 2009-10, thus invalidating the basis for taxing the amount in the assessee's hands. The Tribunal held that the share of income from AOP should not be included in the assessee's total income under normal provisions, following the precedent set in the previous year.

2. Computation of Book Profit under Section 115JB:

The A.O. included the share of income from AOP in the assessee's book profit for the purpose of Minimum Alternate Tax (MAT) under Section 115JB, reasoning that the book profit should be computed based on the net profit shown in the Profit & Loss (P&L) account. The CIT(A) upheld this view, stating that the share of a member from an AOP should be included in the book profit as there was no specific exclusion provided under Section 115JB.

The Tribunal, while acknowledging the inclusion of the share income from AOP in the P&L account by the assessee, noted that an amendment by the Finance Act, 2015, inserted clause (iic) to Explanation 1 of Section 115JB, effective from 01.04.2016. This amendment allowed the exclusion of the share of income from AOP from the computation of book profit. The assessee argued that this amendment was curative and should be applied retrospectively. The Tribunal agreed, citing Supreme Court judgments that curative amendments should be applied retrospectively to remedy unintended consequences and provide relief to taxpayers.

The Tribunal concluded that the amendment was intended to bring parity between the treatment of share income from partnerships and AOPs under MAT provisions. Therefore, it should be considered retrospective, allowing the exclusion of the share income from AOP from the book profit for the purpose of Section 115JB.

Conclusion:

The Tribunal allowed the appeal in favor of the assessee, ruling that the share income from AOP should not be taxed under the normal provisions of the Income Tax Act and should be excluded from the computation of book profit under Section 115JB, applying the curative amendment retrospectively. The appeal filed by the assessee was thus allowed.