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TMI Blog2010 (11) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... e only in those cases where any sum is payable by the assessee qua tax, duties, cess or fee under any law for the time being in force - Held that: the only clause if at all is relevant in the context of the facts of the appellant's case is clause (a) which deals with "any sum payable by the assessee by way of tax, duty, . . . . under any law for the time being in force". - the words, "by way of tax" are relevant as they are indicative of the nature of liability. - The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign. Whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation, in our opinion, continues to be fiduciary even in a case wherein the relationship of the principal and agent is created by a statute. We are of the opinion that, when section 43B(a) speaks of the sum payable by way of tax, etc. ; the said provision is dealing with the amounts payable to the sovereign qua sovereign, but not the amounts payable to the sovereign qua principal. Section 43B canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant that under an agreement between the State ofKeralaand the appellant, the appellant is entitled to retain 1 per cent. of the total amount collected from the consumer pursuant to section 4 of the abovementioned Act to enable the appellant to meet the expenditure involved in collecting the tax and the balance is liable to be paid to the State. The learned counsel for the appellant submits that such balance amount is either actually paid to the Government or adjusted in the accounts between the State and the appellant. The details of which may not be necessary for the purpose of the present appeal. 5. As already mentioned, the facts of each of the other appeals are also similar, except the dates and amounts vary from year to year. In view of the fact that the assessing authority made certain additions to the income returned by the appellant and disallowed certain claims, the appellant carried the matter in appeals (aggrieved by the said assessment orders) before the Commissioner of Income-tax, Thiruvananthapuram. The appeals were allowed. Aggrieved by such appellate orders, the Revenue carried the matter before the Income-tax Appellate Tribunal successfully. Hence, the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be understood to be reference to the Income-tax Act, 1961. 9. Section 4 of the Income-tax Act, 1961, creates a charge of tax on the total income of every person. The expression "person" is defined under section 2(31) is as follows: "(31) `Person' includes- (i) An individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses." 10. It can be seen from the said definition that it includes a company and every artificial juridical person along with others. The expression "company" itself is defined under section 2(17) as follows : "(17) `company' means- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of country outsideIndia, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assess-able or was assessed under this Act as a company for any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant is a company for the purpose of the Income-tax Act, it is liable for the assessment under the various heads of tax, pro-vided under the Income-tax Act from time to time. 13. The two questions of law which require an examination in these appeals are : (i) Whether section 115JB is applicable to the appellant herein? And (ii) Whether section 43B of the Income-tax Act is legally inviolable on the facts and circumstances of the case ? 14. Before we examine the first question a brief survey of the history of section 115JB is necessary. Chapter XII-B was inserted by the Finance Act of 1987 in the Income-tax Act. Section 115J was introduced for the first time by the said Chapter. The relevant portion of the said section reads as follows : "115J. Special provisions relating to certain companies.-(1) Not-withstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), 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 day of April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the various sub-sequent sub-clauses appended to the Explanation, the details of which are not necessary for the purpose of this case. However, the operation of section 115J came to an end with 1991-92 assessment year onwards. 16. Subsequently, section 115JA came to be inserted in the Income-tax Act by the Finance (No. 2) Act of 1996, with effect fromApril 1, 1997. The scheme of section 115JA is almost similar to the scheme of section 115J. Two major points of difference are that the new section is applicable with reference to the previous year relevant to the assessment year commencing from1st April, 1997and ending with1st April, 2001. Secondly, the express exclusion of the companies engaged in the business of either generation or distribution of electricity is absent under section 115JA. The third and most important change is that two provisos are added to sub-section (2) stipulating that : "Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of pre-paring the profit and loss account laid before the company at its annual general me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent from the previous year under this Act,- (i) the accounting policies ; (ii) the accounting standards adopted for preparing such accounts including profit and loss account ; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year failing within the relevant previous year." 19. The scheme of section 115JB is similar to section 115J and section 115JA. The difference in so far as it is relevant for the present purpose between section 115JB and its fore-runners (sections 115J and 115JA) is as follows : 20. All the three sections (sections 115J, 115JA and 115JB) create legal fictions regarding the "total income" (a defined expression under section 2(45) of the Act) of the companies. While the earlier two sections mandate the Department to make the assessment on a fictitious amount of "total income" where the actual amount of total income computed in accordance with the Income-tax Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Governments. Such accounts of the appellant are required to be audited by the Comptroller and Auditor-General ofIndiaor such other person duly authorized by the Comptroller and Auditor-General ofIndia. The accounts so prepared along with the audit report is required to be laid annually before the State Legislature and also to be published in the prescribed manner and copies of such publication shall be made available for sale at a reasonable price, obviously for the benefit of the general public who wish to scrutinize the accounts. 23. Thus, it can be seen that coming to the maintenance of the accounts, the appellant though is deemed to be a "company"-both by virtue of operation of section 80 of the Electricity (Supply) Act, for the purpose of the Income-tax Act and by virtue of the definition of the expression "company" under the Income-tax Act (which is already examined earlier)-the appellant is required to keep and maintain its accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act. Therefore, the question is whether the legal fiction contemplated under section 115JB can be pressed into service while making the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (SC)) excluding the bodies like the appellant from the operation of the said section. Though under the normal rules of interpretation of statutes the omission of a clause which existed in the statute at some point of time by a subsequent amendment would indicate that the Legislature intended not to give the benefit of such clause any more to those who were getting the benefit of such exclusion clause, in our opinion, it is not an absolute rule. The other attendant circumstances, the context, the history and the mischief sought to be remedied by the amendment are all required to be examined before reaching at definite conclusion. 26. Circular No. 762 not only is binding on the respondents, but also explains the purpose in introducing section 115JA. The relevant portion reads as follows ([1998] 230 ITR (St.) 12, 42) : "46.1 In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance Act has inserted a new section 115JA of the Income-tax Act, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of dividends. Therefore, the amendment was made to plug the loophole in the law. However, the Central Board of Direct Taxes understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (section 115JA) for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the Central Board of Direct Taxes is binding on the Department. 28. If that is the background in which section 115JA is introduced into the Income-tax Act, section 115JB, which is substantially similar to section 115JA, in our opinion, cannot have a different purpose and need not be interpreted in a manner different from the understanding of the Central Board of Direct Taxes of section 115JA. 29. Another submission made by the learned counsel for the appellant is that in view of the judgment of the Supreme Court in CIT v. B. C. Srini-vasa Setty [1981] 128 ITR 294 (SC) and CIT v. Eli Lilly and Co. (India) P. Ltd. [2009] 312 ITR 225 (SC), where the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harging provisions and the machinery provisions under the 1961 Act, we may, at the very outset, point out that in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) this court has held that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section." 31. Another reason is that the appellant or bodies similar to the appellant, which are totally owned by the Government-either State or Central-have no shareholders. Profit, if at all, made by the appellant would be for the benefit of entire body politic of the State ofKerala. In the final analysis, all taxation is meant for the welfare of the people in aConstitutionalRepublic. Therefore, the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, we are of the opinion that the fiction fixed under section 115JB cannot be pressed into service against the appellant while making the assessment of the tax payable under the Income-tax Act. 32. Coming to the next question of whether section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h assessees, if such amounts representing the imposts or other legal dues payable or otherwise deductible under some provisions of the Act or other from the computation of the total income of the year in which such amounts are actually paid. Coming to the taxes or other imposts contemplated under clause (a) the question whether the amounts are taxes or other imposts contemplated under section 43B(a) is required to be determined. The opening clause of section 43B-"Notwithstanding any-thing contained in any other provisions of this Act, a deduction otherwise allowable under this Act"-is relevant. Then it must be decided whether such amounts are liable to be included in the total income of the assessee under some provisions or the other of the Income-tax Act. Then the further question as to in which previous year the deduction of such amounts from the total income of the appellant arises. 35. The assessment order in so far it relates to the issue of the applicability of section 43B of the Income-tax Act reads as follows : "During the course of hearing, the assessee has objected to the disallowance under section 43B in respect of the electricity duty collected on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, Cochin Bench held that section 43B can be properly invoked where the assessee has in fact collected the amounts from the consumer. In other words, the submission of the assessee that the amount was collected on behalf of the State of Kerala pursuant to the statutory obligation to collect such an amount and the assessee is only an agent of the Government of Kerala holding the said amount and liable to account for and pay the said amount to the State of Kerala as an agent, but not as the assessee who has a primary liability to pay tax under the Kerala Electricity Duty Act, 1963 is not accepted. The relevant portion of the Appellate Tribunal's order is in paragraph 10 of the order under appeal and it reads as follows : "10. Therefore, in the light of the judgments of the hon'ble Gujarat High Court, by holding that the assessee is bound to make payment of duty or suffer the consequences of section 43B, we make it clear that the assessee is not hit by the provisions of section 43B where the assessee has not collected duty from the consumers and where the assessee has not made any collections and no claim for deductions but only has made provisions for the payment of the electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumer belonging to any of the classes specified in column (2) of the Schedule shall pay every month to the Government in the prescribed manner a duty calculated at the rate specified against that class in column (3) thereof :Provided that in cases where the supply of energy to a consumer is regulated by an agreement entered into between the Government or the licensee and the consumer itshall be competent for the Government either to reduce the rate at which duty is leviableon such consumer or to exempt such consumer from payment of duty under this section subject to, such terms and conditions as may be imposed by the Government.** 2. Section 5. Collection and payment of electricity duty levied on consumers. (1) Every licensee shall collect and pay to the Government at the time and in the manner prescribed, the electricity duty payable under section 4 of this Act on the units of energy consumed by every consumer to whom energy is supplied by him. The duty so payable shall be a first charge on the amounts recoverable by the licensee for the energy consumed, and shall be a debt due by him to the Government.(2) When any consumer fails or neglects to pay at the time and in the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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