9911796707
TMI Blog2008 (12) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the effect that the company should pay tax on its book profit and, thus, contribute to the exchequer. Therefore, there can be no escape from the position that the assessee-company is caught within the mischief of section 115JB, notwithstanding that the tax payable by it on its total income computed under the normal provisions of the Act is Rs. Nil. It would be anomalous to hold that where tax of Re. 1 is payable on the total income computed under the normal provisions of the Act, then section 115JB would be attracted, but it would not be attracted when the tax payable on the total income is Rs. Nil either because the total income is nil or is a negative figure. It is well-settled that the section has to be interpreted in such a manner as to avoid absurdity and also in such a manner as to advance the cause and suppress the mischief. For the above reasons, we are unable to give effect to the argument of the assessee that the tax payable on the total income computed under the normal provisions of the Act being Rs. Nil, section 115JB cannot be applied to its case. We are unable to accept the contention of the assessee that the interest earned on income-tax refunds was ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 2.5% 1,15,943 Tax payable 47,53,653 Add : Education Cess @ 2% 95,073 48,48,726 From the above tax payable, prepaid taxes of Rs. 49,04,241 were adjusted and a refund of Rs. 55,515 was claimed. 2. The assessee filed a revised return on 31-3-2006. In this return, the profits and gains from the business were computed at Rs. 11,97,79,339 and the entire profits were claimed to be deductible under section 80-IA(4)(iv). The total income was, thus, declared at Rs. Nil. The entire prepaid taxes of Rs. 49,04,241 were claimed to be refundable. It is significant to note that in the revised return, the assessee did not compute or show any book profit under section 115JB. The reasons for filing the revised return and for not declaring any income under section 115JB were given in the note appended to the revised return and they are reproduced hereunder : Reasons for filing revised return of income. The assessee-company originally filed its return of income for the assessment year 2005-06 on 31-10-2005 vide Ack. No. 151. In the said return, the total income for income-tax purposes was returned at Rs. 9,82,048 after claiming ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the normal provisions of the Act and claiming a refund of Rs. 49,04,241. Since the revised return is valid in terms of section 139(5) of the Act, it is requested that the refund claimed may kindly be granted. 3. Before the Assessing Officer in the course of the assessment proceedings, the assessee took up the plea that since it did not have any tax payable as the total income was Nil according to the revised return, it was not covered under section 115JB, the contention being that the section would be applicable only when there is some tax payable. The Assessing Officer rejected this contention. It was his view that section 115JB was introduced only to tackle companies which had sufficient profits but did not contribute anything by way of tax to the exchequer by taking advantage of the deductions and exemptions available to them and the assessee-company had sufficient profits as per its books of account but still failed to pay any income-tax and, therefore, the provisions of section 115JB were clearly applicable. He further noted that in the revised return, the assessee has included the interest income from fixed deposits and income-tax refunds under the head Profits and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer also computed the book profit at Rs. 6,18,36,131 and the tax payable thereon, including surcharge, at Rs. 47,53,653. Since obviously this was more than the tax payable on the total income computed under the normal provisions of the Income-tax Act at Rs. 9,82,050, he directed the assessee to pay the book profit tax and issued demand notice accordingly. 4. The assessee filed an appeal before the Commissioner of Income-tax (Appeals) and reiterated its contentions, which he found to militate against the intention and purpose of section 115JB. He also upheld the Assessing Officer s view that the interest income was to be assessed only under the head Income from other sources and not under the head Profits and gains of business . In this view of the matter, he upheld the assessment and dismissed the appeal. 5. The assessee is in further appeal before the Tribunal. It was argued on its behalf that having regard to the language employed in section 115JB, there should be at least some tax payable on the total income computed under the normal provisions of the Act before it can be compared with the tax payable on the book profit computed according to section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable whereas if the comparison to be made is between the tax on the total income computed under the normal provisions of the Act and the tax on the book profit, expressed as a percentage of the book profit, then the section has to necessarily refer to the tax payable by the assessee. From this, it does not follow that there has to be some tax which is payable by the assessee under the normal computation of the total income. What is chargeable to tax under the Act is the total income of the assessee, on which the tax is payable . In the case of K.S. Venkataraman Co. (P.) Ltd. v. State of Madras [1966] 60 ITR 112, a constitution Bench of the Supreme Court approvingly cited the following passage from Kanga and Palkiwala s treatise on Income-tax Law : Section 3 charges total income; section 4 defines its range; section 6 qualifies it; and sections 7 to 12B quantify it . The sections referred to are the sections of the Indian Income-tax Act, 1922. The 8th edition of the treatise referred to above, at page 398 substituted the corres-ponding provisions of the Income-tax Act, 1961. Reference may also be made to the judgment of the Bombay High Court in CIT v. Smt. T.P. Sidhwa [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the Supreme Court were made with reference to the nature of an asset, the cost of acquisition of which was incapable of being ascertained. The argument in the case before us similarly is that you cannot ascertain the tax payable by the assessee if the total income computed under the normal provisions of the Income-tax Act is Rs. Nil. The argument proceeds further to say that since the entire profits of Rs. 11,97,79,339 from the undertaking is exempt under section 80-IA, no tax is payable and, therefore, there is nothing with which one can compare the book profit tax. With respect, the argument seems to overlook that what is required by the section is only a factual ascertainment whether any tax payable by the assessee on the total income computed under the normal provisions of the Act and if there is, then it should be compared with the book profit tax, but it does not further require that there should be some tax actually payable on such total income. In a case where the total income is Rs. Nil or a negative figure, undoubtedly no tax is payable but we are not concerned with that at all, but what we are concerned is the comparison of the fact that no tax is payable by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de substantial book profit which according to its balance sheet comes to Rs. 6,18,36,130. However, by virtue of the relief available under section 80-IA, it has claimed the entire business profits of Rs. 11,97,79,339 to be exempt from tax with the result that its total income became nil and no tax was payable. This is exactly the situation contemplated by the section for which provision has been made to the effect that the company should pay tax on its book profit and, thus, contribute to the exchequer. Therefore, there can be no escape from the position that the assessee-company is caught within the mischief of section 115JB, notwithstanding that the tax payable by it on its total income computed under the normal provisions of the Act is Rs. Nil. It would be anomalous to hold that where tax of Re. 1 is payable on the total income computed under the normal provisions of the Act, then section 115JB would be attracted, but it would not be attracted when the tax payable on the total income is Rs. Nil either because the total income is nil or is a negative figure. It is well-settled that the section has to be interpreted in such a manner as to avoid absurdity and also in such a manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to notice that the interest income of Rs. 9,82,050 consists of the following : ( a ) Interest from fixed deposits from banks 6,00,547 ( b ) Interest on Income-tax refund 3,81,501 The case of the assessee is that the entire interest qualifies for the deduction. However, it was agreed by all concerned that even if one of the two items of the interest income is held not eligible for the deduction then it would fall to be assessed as income from other sources, with the result that there would some tax payable in respect of the total income computed under the normal provisions of the Act which would be available for comparison with the book profit tax payable under section 115JB and, therefore, it would not be possible for the assessee to contend that the said section cannot be applied to its case. Having regard to this position, arguments were addressed on behalf of the assessee with regard to the interest of Rs. 3,81,501 which was received in respect of the income-tax refund. The contention was that it was the undertaking which carried on the power generation business which suffered the outflow of funds by payment of income-tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary enquiry to find out if such interest can be considered as part of the profits and gains of the eligible business. Even if we are wrong in this view the position that would still remain is that it is necessary for us, while dealing with the case of deduction under section 80-IA, to examine whether the interest on the income-tax refund can be considered as income derived by the undertaking from the eligible business (i.e., power generation). 12. We may first proceed to examine the nature of the income-tax payment. The leading case in England is that of Attorney General v. Ashton Gas Co. [1904] 2 Ch. 621. In this case, it was observed that income-tax is part of the profits which the revenue is entitled to take out of the profits. . . . But a proportionate part of the profits payable to the revenue is not the deduction before arriving at, but a part of the profits themselves . This case was affirmed by the House of Lords where the Earl of Halsbury L.C. observed that . . . you must ascertain what is the profit that is made before you deduct the tax - you have no right to deduct the income-tax before you ascertain what the profit is. I cannot understand how you can make the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olly and exclusively for the purpose of earning income. These observations were made with reference to section 57(iii) of the Act but it makes no difference to our view because the ratio of the judgment is that income-tax payment is a personal obligation. The following general principles emerge out of the above authorities : (a) that income-tax is an appropriation of the profits and is paid out after the profits are earned; (b) that it is the State s share of the profits of the assessee; (c) that it is a personal obligation of the assessee to pay income-tax and it has nothing to do with the business; and (d) that it is not deductible in the computation of the profits because it represents an appropriation of the profits after they have been earned and not in the course of or for the purpose of earning such profits. It is in view of the aforesaid principles that income-tax paid is not allowed as a deduction in computing the profits of the business. Section 10(4) of the 1922 Act prohibited the allowance of income-tax payment as a deduction in computing the profits of the business. The present section 40(a)(ii) is the successor of the above sub-section. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head Income from other sources and where a contention is advanced that such interest having arisen because of deployment of the business funds in the payment of tax, the same is assessable under the head Profits and gains of the business , the judgment cannot be relied on to reject the contention, the other authorities to which we have alluded have clearly held that payment of income-tax is a personal obligation and cannot be deducted in the computation of the business profits. It follows that the deployment of the funds of the power generation business for payment of income-tax must be viewed de hors business consi-derations and purely as a discharge of a personal obligation. If business considerations have to be excluded it further follows that the income arising from the deployment of the funds in payment of taxes cannot be viewed as business income assessable under the head Profits and gains of the business . 14. Reference was made on behalf of the assessee to the judgment of the Supreme Court in CIT v. Williamson Financial Services [2008] 297 ITR 174. It was held in this case that the word derived used in the expression profits derived from exports in section 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
