2018 (8) TMI 1363 - AT - Income Tax

Minimum alternate Tax (MAT) u/s 115JB - applicability on assessee Corporation. - The assessee corporation was constituted with three participating government namely, Union government, State Govt. of Bihar (now Govt. of Jharkhand) and State Govt. of West Bengal. - Damodar Valley Corporation Act, 1948 - Held that - the accounts were prepared inconformity with the provisions of the DVC Act, 1948 and annual financial statement were prepared in the form prescribed under the said Act even though the format approved by the Government of India u/s. 47 of the DVC Act, 1948 was on the lines of Schedule VI of the Companies Act, 1956. On perusal of the provisions of section 115JB of the Act as were in force in the relevant year, it is noted that provisions of subsection (2B) of section 115JB of the Act clearly clarified that the said section is applicable to every assessee being a company to which proviso to sub-section (2) of section 211 of Companies Act, 1956 is applicable. We, however, find that assessee corporation though assessed in the status of a company was not a company within the meaning of Companies Act, 1956 and, therefore, the proviso to sec. 211(2) of the Companies Act, 1956 was not applicable. - the provisions of section 115JB of the Act imposing tax liability on the book profit were not applicable. Further, as per the specific provisions of section 115JC of the Act, however, the assessee did not have any alternate minimum tax liability. - Decided against the revenue. Diallowance u/s 14A - assessee derived exempt income in the form of interest from CPF investment, interest from tax free RBI Bond and dividend of shares of Power Trading Corporation and Bokaro Power Supply Corporation Ltd. - Held that - following the decision for the earlier years, no disallowance can be made - Decided against the revenue.

Summary

Issues Involved:
1. Applicability of Section 115JB of the Income-tax Act, 1961 to the assessee corporation.
2. Deletion of disallowance under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Applicability of Section 115JB of the Income-tax Act, 1961 to the assessee corporation:

The revenue contended that the provisions of Section 115JB of the Income-tax Act, 1961 (Minimum Alternate Tax or MAT) were applicable to the assessee corporation, arguing that the assessee had declared income as per Section 115JB in its return and had not denied its liability under this section through a revised return. The revenue also pointed out that the assessee's financial accounts were prepared as per revised Schedule VI, making Section 115JB applicable.

The assessee countered by stating that it was not a company within the meaning of the Companies Act, 1956, and thus, Section 115JB did not apply. The Tribunal noted that the assessee corporation was established through an Act of Parliament in 1948 and was not a company under the Companies Act, 1956. The accounts were audited by the Principal Director of Commercial Audit, not by a Chartered Accountant as required under the Companies Act, 1956.

The Tribunal referred to its previous decisions for AY 2008-09 and 2009-10, where it was held that the assessee was not a company under the Companies Act, 1956, and thus, Section 115JB was not applicable. The Tribunal also noted that the legislative changes introduced by the Finance Act, 2012, clarified that Section 115JB applied only to entities recognized as companies under the Companies Act, 1956. Since the assessee was not such a company, Section 115JB did not apply.

The Tribunal upheld the CIT(A)'s order, confirming that the provisions of Section 115JB were not applicable to the assessee corporation for the relevant year. The revenue's grounds on this issue were dismissed.

2. Deletion of disallowance under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962:

The revenue challenged the CIT(A)'s decision to delete the disallowance of ?36,86,72,174/- made under Section 14A read with Rule 8D. The assessee had earned exempt income from CPF investments, tax-free RBI bonds, and dividends, and had suo moto offered a disallowance of ?14,99,502/- towards monitoring CPF investments. The AO, however, computed the disallowance as per Rule 8D, resulting in a higher disallowance.

The Tribunal noted that in previous years (AY 2008-09 and 2009-10), similar disallowances made by the AO were deleted by the Tribunal. The Tribunal found that the assessee had sufficient own funds to cover the investments in tax-free bonds and shares, and there was no evidence to prove that borrowed funds were used for these investments.

The Tribunal also observed that the AO did not bring any material evidence to show that specific administrative expenses were incurred to earn the tax-free income. The interest on tax-free bonds and dividends was received directly in the assessee's bank account without incurring significant expenses.

The Tribunal upheld the CIT(A)'s order, finding that the factual matrix remained unchanged from previous years and that the AO had not provided evidence to support the disallowance. The revenue's grounds on this issue were dismissed.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order on both issues. The provisions of Section 115JB were not applicable to the assessee corporation, and the disallowance under Section 14A read with Rule 8D was correctly deleted. The order was pronounced in the open court on 21st August 2018.