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TMI Blog2008 (1) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... alternate tax (MAT) may be different from the one placed before the AGM as held by the Tribunal in case of Atul Ltd. vs. Asstt. CIT (1999) 64 TTJ (Ahd) 741 : (1999) 69 ITD 187 (Ahd) and Arvind Mills Ltd. vs. Dy. CIT (Asst.) ITA No. 4636/Ahd/1998. 1.2 The learned CIT(A) grossly erred in law and on facts in ignoring the fact that the claim for deduction under s. 42 of the Act was set out in the note appended to the Sch. H. Item (IV) inasmuch as the notes appended to the accounts were required to be treated as part of P&L a/c as held under the binding decision of the Hon'ble Gujarat High Court in the case of Nagri Mills Co. Ltd. vs. CIT (1981) 131 ITR 257 (Guj). 1.3 The learned CIT(A) grossly erred in law and on facts in levying additional tax on the basis of book profit under s. 115JA of the Act ignoring the claim for statutory deduction under s. 42 of the Act amounting to Rs. 12.50,72,810 as a result of which book profits stood at loss of Rs. 3,12,25,652. The appellant states that the learned CIT(A) was wholly unjustified both in law as well as on facts of the case in ignoring the claim for statutory deduction under s. 42 of the Act and thereby levying tax on the basis of book pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual accounts subject to other additions and thereby computed total income at 30 per cent of book profit at Rs. 3,36,95,570. The computation is given in the orders of lower authorities and the same is being reproduced as it is: "1. Book profit as per P&L a/c 9,38,47,158 2. Add: (i) income not accounted 1,81,78,084 in respect of gas contract Additional revenue from Gujarat 2,93,326 1,84,71,410 Gas Co. ----------- Book profit 11,23,18,568 ------------ Total income at 30% of book profit 3,36,95,570" 5. Aggrieved against the action of the AO for recomputation of book profit after inclusion of statutory deduction claimed under s. 42 of the IT Act, in the computation of income as enclosed With the return of income, the assessee preferred appeal before the CIT(A). CIT(A) upheld action of the AO after going through the provision's of s. 115JA and s. 42 of the Act. CIT(A) after going through sub-s. (1) of s. 115J held that this section clearly states that the provisions of this section are in total exclusion of anything contained under any other provisions of this Act. According to him in View of this sub-section which clearly states that first the total income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly calculated the total income after computing book profit under s. 115JA by claiming deduction under s. 42 of the Act out of book profits of the assessee company as computed as per the provisions of Companies Act, 1956. He referred to the profit and loss declared for the year under consideration. The learned counsel of the assessee further argued that the assessee company while filing the return has made necessary adjustments in respect of fictional deduction as admissible under s. 42 of the Act and also placed the revised P&L a/c worked out in accordance with Parts II and III of Sch. VI of Companies Act, 1956. He further argued that Companies Act did not prohibit allowance for claim of deduction in the manner claimed by the assessee. On the other hand the learned Departmental Representative argued that the assessee company has prepared two sets of accounts and the first set of accounts i.e., approved by AGM of board of directors in their meeting and the second was not placed before the AGM. He argued that assessee has claimed the deduction under s. 42 and the second set of the accounts has not been approved in terms of Parts II and III of Sch. VI of the Companies Act, 1956 by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of which deemed income relating to certain companies is assessed. The relevant provision of s. 115JA was inserted in the Act by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997. This provision is a deeming provision and deemed income has to be computed in view of sub-ss. (1) and (2) as under: "115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st April, 1997, but before the 1st day of April, 2001 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (2) Every assessee, being a company, shall, for the purposes of this section prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing P&L a/c, the depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or (iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or (v) the amount of profits derived by an industrial undertaking located in an industrially backward State or District as referred to in sub-s. (4) and sub-s. (5) of s. 80-IB, for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the profits and gains under sub-s. (4) or sub-s. (5) of s. 80-IB; or (vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility as defined in the Explanation to sub-s. (4) of s. 80-IA and subject to fulfilling the conditions laid down in that sub-section; or (vii) the amount of profits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such deduction claimed under s. 42 of the Act was not admissible. The book profit to be calculated under provision of s. 115JA has been provided in Explanation and the relevant Explanation from s. 115JA is reproduced for the sake of clarity. "For the purposes of this section, 'book profit' means the net profit as shown in the P&L al c for the relevant previous year prepared under sub-s. (1A), as increased by- (a) The amount of income-tax paid or payable, and the provision therefor; or (b) The amounts carried to any reserves [other than the reserves specified in s. 80HHD or sub-s. (1) of s. 33AC] by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) The amount or amounts of expenditure relatable to any income which any of the provisions of Chapter III (g) the amount withdrawn from the reserve account under s. 80HHD, where it has been utilised for any purpose other than those referred to in sub-s. (4) of that section; or (h) The amount credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company shall for the purpose of this section prepare its P&L a/c for the relevant previous year in accordance with Parts II and III of Sch. VI of the Companies Act, 1956. Under each head of income, deductions and allowances have been provided, and by way of Explanation, the book profit has been defined. The purpose of bringing this new s. 115JA of the Act by Finance Act (No. 2) of 1996 is to levy a minimum tax on companies which are having book profits and paying dividends but are called as zero tax companies i.e., not paying any taxes. The scheme envisages the payment of minimum tax by deeming 30 per cent of book profits as computed under the Companies Act as taxable income in case the total income as computed under the provisions of the IT Act is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Act is more than 30 per cent of the book profit then tax shall be charged on normal income. The AAR in the case of Niko Resources Ltd., In re has called that a foreign company engaged in the business of exploration and development of oil and gas fields is covered by the provisions of s. 115JA. The AAR has held that s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection is as under: '293A. Power to make exemption, etc., in relation to participation in the business of prospecting for extraction, etc., of mineral oils.-(1) If the Central Government is satisfied that it is necessary or expedient so to do in the public interest, it may, by notification in the Official Gazette, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of persons specified in sub-s. (2) or in regard to the whole or any part of the income of such class of persons or in regard to the status in which such class of persons or the members thereof are to be assessed on their income from the business referred to in cl. (a) of sub-s. (2): Provided that the notification for modification in respect of the status may be given effect from an assessment year beginning on or after the 1st day of April, 1993. (2) The persons referred to in sub-s. (1) are the following, namely: (a) persons with whom the Central Government has entered into agreements for the association or participation of that Government or any person authorised by that Government in any business consisting of the prospecting for or extraction or production of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of assessment of income. If the total income, thus calculated, falls short of thirty per cent of book profit, the special provisions of s. 115JA come into operation. There is no scope for any deduction or allowance under any other provision of the Act at this stage. The section is to apply 'notwithstanding anything contained in any other provisions of this Act'. Book profit has been defined and explained in s. 115JA. This provision became necessary because a large number of companies were not paying any tax in spite of making huge profits by taking advantage of the various provisions for deduction and allowances contained in the Act. The total income thus computed was way below the taxable limit. To circumvent this, s. 115JA was introduced in the statute. Thirty per cent of the book profit of a company will have to be treated as its total income in a case where the total income as computed in accordance with the other provisions of the Act was found to be less than thirty per cent of the book profit of the company. What is book profit has been defined and explained in that section. Sec. 115JA is a self-contained code and will apply notwithstanding any other provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section in the computation of his business income. But this deduction was available insofar as the computation of total income from head business was concerned. In the process of computation of total income, if any relief had been given to an assessee under any other section that too was to be allowed. But s. 42 could not override s. 115JA which has introduced a legal fiction by which 30 per cent of the book profit of an assessee were deemed to be his total income. This was so because s. 115JA did not levy tax on the business income of the assessee but on his total income. Sec. 42 could be applicable only when the computation of profit and loss of business income was to be considered. No doubt the legal fiction has been created in s. 42 but that fiction was relevant only so far as the computation of income under the head business income was concerned. If the legal fiction created in s. 42 was to be extended and telescoped into the provisions of s. 115JA then the entire purpose of introducing minimum alternate tax (MAT) under s. 115JA would have been defeated. The two legal fictions had to exist harmoniously and are not meant to destroy each other as being claimed by the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , deduction claimed by the appellant under s. 42 cannot be considered for the purpose of computing the income under s. 115JA. 12. In the present case the assessee has prepared 2 sets of accounts, in the first set of accounts as approved by AGM and prepared according to provisions of Parts II and III of Sch. VI of the Companies Act, by which book profit is determined, which includes the profits as claimed as deduction under s. 42 of the Act by the assessee company in respect of exploration and exploitation of oil and gas. The authorities below rejected the claim of assessee and taken the P&L a/c placed before the AGM as the final in which no adjustment was permissible. Where the assessee is entitled to claim deduction under s. 42 of the Act from the book profit as per the accounts is not placed before the AGM and not prepared as per the provisions of Parts II and III of Sch. VI to the Companies Act. 1956. This query has already been answered by the Hon'ble apex Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC). Before the Hon'ble apex Court first question was as under: "(i) Can an AO while assessing a company for income-tax under s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will to have to pay a 'minimum corporate tax' on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit. In other words, a domestic widely held company will pay tax of at least 15 per cent of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores.' The above Speech shows that the IT authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that s. 115J was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 30 per cent of its book profits as shown in its own account. For the said purpose, s. 115J makes the income reflected in the company's books of account the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the AO to reassess the company's income, then it would have stated in s. 115J that 'income of the company as accepted by the AO'. In the absence of the same and on the language of s. 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the AO while computing the income under s. 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The AO thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the AO does not have the Jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s. 115J." 13. As the Hon'ble apex Court has already answered that the AO, while determining book profit under s. 115JA could not recompute the profits in the P&L a/c by excluding provisions made for arrears of depreciation and sub-s. (1A) of s. 115JA does not empower the AO to embark upon fresh enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in view of the facts of the present case, the issue is already covered by the decision of Hon'ble apex Court in the case of Apollo Tyres Ltd. As the facts in present case are clear that the assessee company has computed book profit under s. 115JA after reducing book profit by an amount which was statutory deduction available under s. 42 of the Act. The assessee has prepared a revised P&L a/c for the purpose of computation of book profit under s. 115JA, which has introduced legal fiction by which 30 per cent of the book profit of the assessee were made to be his total income and this was so because s. 115JA did not depend on the business income of the assessee but his total income. Sec. 42 could be applicable only when computation of income of business was to be considered, no doubt a legal fiction has been created in s. 42 that fiction is relevant only for the purpose of computation of income under the head 'Business'. For that legal fiction created in s. 42 was to be extended into the provisions of s. 115JA then the entire purpose of introducing MAT under s. 115JA will be defeated. The two legal fictions had to exist harmoniously and are not meant to destroy each other as claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is as regards to levy of interest under ss. 234B and 234C of the Act. The learned counsel of the assessee as well as the learned Departmental Representative fairly stated that this charging of interest under ss. 234B and 234C of the Act is consequential and hence the same is treated as consequential in nature and dismissed. 16. The only issue in Revenue's appeal i.e. ITA No. 2592/Ahd/2000 raised by the Revenue vide ground No. 1 reads as under: "The learned CIT(A) erred in law and on facts of the case in directing to delete the income of Rs. 1,84,71,410 for the purpose of computation of book profit as per s. 115JA of the Act, disregarding the facts that addition of the very same amount of Rs. 1,84,71,410 as in the case of the assessee for the year under consideration has been confirmed by the learned CIT(A)." 17. On the facts and circumstances the addition of Rs. 1,84,71,410 made in the book profit, as per P&L a/c is ordered to be deleted in view of the Explanation to s. 115JA which defines the book profit for the purpose of this section to mean the net profit as shown in the P&L a/c for the relevant year prepared in accordance with the provisions of Part II and Part III of Sch. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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