2022 (10) TMI 564 - AT - Income Tax

MAT computation u/s 115JB - assessee has received excise refund and interest subsidy which have been claimed as capital receipts - AO held that the scheme of Section 115JB does not permit for exclusion of capital receipts (excise refund and interest subsidy) as done by the assessee while computing the book profits for the purpose of Section 115JB - HELD THAT - As in the case in hand the issue revolves around the capital receipts of the nature excise duty refund and interests subsidy which without any doubt are receipts of capital nature. Hon ble Calcutta High Court in the case of Ankit Metal and Power Ltd. 2019 (7) TMI 878 - CALCUTTA HIGH COURT was directly dealing with the question whether the incentives received from the Government for setting up power plant in the backward regions of West Bengal are to be included for the purpose of computation of book profits u/s 115JB and after taking into consideration the judgment of Hon ble Supreme Court in Appollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT observed that the income in question, in that case was taxable but was exempt under specific provision of the Act, as such it was to be included as a part of book profit. But since a receipt is not in the nature of income at all, it cannot be included in book profit for the purpose of computation u/s 115JB and accordingly held that interest in power subsidy under the scheme have to be excluded while computing book profits u/s 115JB. The Co-ordinate Bench in M/s. Insecticides (India) Ltd. 2022 (9) TMI 653 - ITAT DELHI while dealing with question and treatment of capital receipts in computation of profit u/s 115JB had relied judgment of Hon ble Calcutta High Court in Ankit Metal and Power Ltd. (supra) and Co-ordinate Bench decision in SRF Ltd. 2022 (2) TMI 758 - ITAT DELHI ITAT Delhi judgment dated 07.02.2022, and had held that since the receipt is not in nature of income, then it cannot be considered in the book profits for the purpose of computation u/s 115JB of the Act. Thus held that Appellant company has rightly reduced Capital Receipts of the nature excise refund and interest subsidy for working out Book Profits. The appeal is allowed

Summary

Issues:
1. Whether capital receipts like excise refund and interest subsidy should be included in the computation of book profits for the purpose of Section 115JB of the Income Tax Act, 1961.

Analysis:

Issue 1:
The appeal involved a dispute regarding the inclusion of capital receipts, specifically excise refund and interest subsidy, in the computation of book profits for the purpose of Section 115JB of the Income Tax Act, 1961.

The Assessee, engaged in the manufacturing business, claimed deductions under Section 80IC for its unit in Jammu & Kashmir. The Assessee received excise refund and interest subsidy, which were considered capital receipts. The Assessee argued that these incentives were for industrial development and employment generation, thus should be treated as capital receipts. However, the Assessing Officer (AO) held that Section 115JB does not allow exclusion of capital receipts while computing book profits. The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the scheme of Section 115JB does not permit such exclusions.

The Assessee raised multiple grounds in appeal, arguing that the capital receipts should be excluded from book profits as they are not taxable income and have been accepted as capital receipts in previous years. The Assessee cited various judgments and legal precedents to support their argument.

The Tribunal considered the arguments and legal precedents presented by both parties. It noted that the nature of the receipts, being excise refund and interest subsidy, was capital in nature and not income. Referring to previous judgments, including the decision of the Hon'ble Calcutta High Court, the Tribunal held that since the receipts were not income, they should not be included in book profits for the purpose of Section 115JB.

In conclusion, the Tribunal allowed the Assessee's appeal, directing the AO to re-compute the income without including the capital receipts of excise refund and interest subsidy. The Tribunal's decision was based on the principle that receipts not falling under the definition of income should not be considered in the computation of book profits under Section 115JB.

This judgment clarifies the treatment of capital receipts in the computation of book profits under Section 115JB, emphasizing that receipts of a capital nature, such as excise refund and interest subsidy, should be excluded from book profits as they do not constitute taxable income.