2021 (2) TMI 1083 - AT - Income Tax

Taxability of receipts from the welfare trusts under normal provisions of the Act as well as while computing the book profits u/s 115JB - contributions received by the welfare trusts were partially invested in equity shares of listed / unlisted companies on which the trusts received dividends which were duly offered to tax in the respective years by the trusts and also claimed credit for Tax deducted at source thereon AND part of the contributions received by the welfare trusts were advanced by way of loans to parties on which interest was received, which was also duly offered to tax in the respective years by the trusts and also claimed credit for Tax deducted at source thereon - HELD THAT - Unutilized portion lying in the trust funds which were claimed back by the assessee company was never in contemplation by the assessee company as assessee had all along treated the said contribution being made to an irrevocable trust fund and the eligibility to get back the monies got triggered only pursuant to insertion of provisions of Section 40A(11) of the Act in the statute and not otherwise. Hence, the said receipt being the unutilized portions, received back from the welfare trusts by the assessee company would not partake the character of a revenue receipt constituting income and would merely have to be treated as a windfall or non-recurring receipt not liable to tax, though not exempted under specific provisions of the Act. It is not in dispute that the welfare trusts had duly suffered taxes on the accretions to the contributions received in the form of dividends and interest on loans in its regular returns and assessed as such. Hence, the accretion portion had already suffered taxes in the hands of the welfare trusts. Taxing the same again in the hands of the assessee company while getting back the unutilized portion would tantamount to double taxation. Accordingly, we hold that the receipt have to be excluded while computing total income of the assessee under normal provisions of the Act. Ground raised by the assessee are allowed. Non-applicability of provisions of Section 115JB - HELD THAT - All the companies in India are governed by the very same provisions wherein if they suffered nil taxes or zero taxes under the normal provisions of the Act or the tax payable under normal provisions is less than tax @18.5% of book profits, then the provisions of Section 115JB of the Act would be applicable to those companies and assessee company alone cannot be singled out or isolated from the same. These provisions are in force from the year 1987 onwards commencing from Section 115J which had gradually migrated to Section 115JB of the Act without digressing from the true intention behind introduction of these provisions in the Act. Hence, the primary argument that Section 115JB of the Act is not applicable to the assessee company in the instant case is hereby rejected. Accordingly, the ground No.1 raised by the assessee is dismissed. Non-taxability of the receipt from the welfare trusts by the assessee company while computing book profits u/s.115JB of the Act, even though the same was credited by it in its profit and loss account - HELD THAT - Respectfully following the Co-ordinate Bench decision of JSW Ltd. 2017 (4) TMI 47 - ITAT MUMBAI and the decision of the Hon ble Calcutta High Court in the case of Ankit Metal and Power Ltd. 2019 (7) TMI 878 - CALCUTTA HIGH COURT we hold that the sum receipts from the welfare trusts is to be a capital receipt and not liable to tax while computing books profits u/s.115JB of the Act. Accordingly, the ground Nos. 2 3 raised by the assessee are allowed.

Summary

Issues Involved:
1. Taxability of ?4.27 crores received from welfare trusts under normal provisions of the Income Tax Act, 1961.
2. Taxability of ?4.27 crores received from welfare trusts while computing book profits under Section 115JB of the Income Tax Act, 1961.
3. Non-applicability of provisions of Section 115JB to the facts of the case.

Detailed Analysis:

Issue 1: Taxability of ?4.27 crores received from welfare trusts under normal provisions of the Income Tax Act, 1961

The primary issue was whether the ?4.27 crores received by the assessee from welfare trusts should be taxed under normal provisions of the Income Tax Act, 1961. The assessee argued that the contributions to the trusts were irrevocable and the amounts received back were capital receipts, not liable to income tax. The assessee cited several judgments to support their claim that the receipt was a windfall and not taxable as income. The Tribunal noted that the contributions were made to irrevocable trusts and the amounts received back were due to a statutory provision (Section 40A(11)) that allowed the assessee to claim back unutilized funds. The Tribunal concluded that the receipt was not in the contemplation of the assessee and thus should be treated as a windfall receipt, not liable to income tax. The Tribunal held that taxing the same would result in double taxation since the welfare trusts had already paid taxes on the accretions. Consequently, the Tribunal allowed the assessee's grounds and excluded the ?4.27 crores from the total income under normal provisions of the Act.

Issue 2: Taxability of ?4.27 crores received from welfare trusts while computing book profits under Section 115JB of the Income Tax Act, 1961

The assessee argued that the provisions of Section 115JB should not apply as the receipt was a capital receipt and not income. The Tribunal examined whether the receipt, being a capital receipt, should be included in the book profits for the purpose of Section 115JB. The Tribunal referred to the Co-ordinate Bench decision in the case of JSW Steel Ltd. and the decision of the Hon'ble Calcutta High Court in Ankit Metal and Power Ltd., which held that capital receipts not liable to income tax should not be included in book profits under Section 115JB. The Tribunal concluded that the ?4.27 crores received from the welfare trusts was a capital receipt and should be excluded from the computation of book profits under Section 115JB. Thus, the Tribunal allowed the assessee's grounds on this issue.

Issue 3: Non-applicability of provisions of Section 115JB to the facts of the case

The assessee argued that the provisions of Section 115JB should not apply as there was no tax payable under normal provisions of the Act. The Tribunal rejected this argument, stating that the provisions of Section 115JB were introduced to ensure that companies pay a minimum tax on their book profits, even if they have no tax liability under normal provisions. The Tribunal emphasized that the provisions of Section 115JB apply to all companies and cannot be isolated for the assessee. Thus, the Tribunal dismissed the assessee's ground on the non-applicability of Section 115JB.

Conclusion:

The Tribunal concluded that the ?4.27 crores received from the welfare trusts should be excluded from the total income under normal provisions of the Income Tax Act, 1961, and from the computation of book profits under Section 115JB. The Tribunal allowed the assessee's grounds on these issues and dismissed the ground on the non-applicability of Section 115JB.