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TMI Blog2006 (12) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... bonds are maturing over long period of time and the entire income by way of difference between acquisition price and redemption price do not accrue to the assessee during the financial year. Thus, though the assessee has credited the income, the same is not strictly in accordance with Part II and Part III of Schedule VI to the Companies Act, 1956. Hon ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT[ 2002 (5) TMI 5 - SUPREME COURT] held that the Assessing Officer has no power to rework the book profit if the profits are computed in accordance with Part II and Part III of Schedule VI to the Companies Act, 1956. In the case of CIT v. Veekaylal Investment Co. (P.) Ltd. [ 2001 (2) TMI 117 - BOMBAY HIGH COURT] held that if the profit is not computed in accordance with Part II and Part III of Schedule VI to the Companies Act, 1956, the Assessing Officer has power to recompute such book profits. Thus, it can be held that if the Assessing Officer can amend the book profit if it is not in accordance with Part II and Part III of Schedule VI to the Companies Act, 1956, likewise, the assessee also can recompute the book profit for the purpose of section 115JA. Since in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added it back for which he drew support from the decision given by the CIT(A) while disposing of the appellant s appeal against the intimation for the year in issue. In the appeal thereagainst, the appellant contended that when any income is exempt altogether, the same has to be adjusted appropriately in arriving at the book profit. By considering the Board Circular and the context in which it clarified that the interest on zero coupon bonds would not be income chargeable to tax, the CIT(A) came to the conclusion that while it may not be taxable per se under the conventional method, it cannot qualify/merit for deduction or exclusion in arriving at the book profit. 3. Learned counsel for assessee Shri K.P. Kumar submitted that though the appellant has accounted the interest on zero coupon bonds in its profit and loss account, the same is only a notional income and not actual receipt of income. The assessee acquired certain zero coupon bonds at a discount as per the scheme of allotment. In its books of account, the assessee declared the investment at its book value and the difference between book value and acquisition price was shown by way of interest being interest on zero cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on securities means interest on any security of the Central Government or a State Government. Here again by virtue of clause 15 of the Scheme which states that no interest will be payable on the bonds, any payment in the nature of interest is ruled out. Comparison with Indira Vikas Patras may also be not correct as, under the provisions of Indira Vikas Patra Rules, 1986, interest at a specified rate is deemed to have accrued at the end of each year and also such interest payable has been kept specifically outside the provisions of TDS under section 194A of the Act. Inasmuch as similar provisions are absent in the present Zero Coupon Bonds Scheme it cannot be said that the gain in respect of such bonds is in the nature of interest. 5. It is felt that the correct interpretation to be given is that what is obtained in an auction by an investor is the right to receive a fixed sum of money after a period of 5 years. The present market value of such right gets determined in the course of the auction and the right is purchased for that market price. Thereafter, at the end of the specified 5 years, such right is converted into money, represented by the face value of the bonds an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate order. He further submitted that as per section 115JA of the Act, profit has to be computed as per Part II and Part III of Schedule VI to the Companies Act, 1956. The assessee has computed the income accordingly. The accounts are certified to be depicting true and fair view of the profits of the year. Thus, there is no room for any addition or deletions except as permitted under section 115JA itself. Since the interest on zero coupon bonds has been accounted as income by the assessee, the assessee cannot have on its own version saying that it is not an income or otherwise required to be excluded while computing book profits. 5. We have carefully considered the relevant facts and arguments advanced. The CBDT by its circular aforesaid opined that interest on zero coupon bonds is not an interest in strict sense as it encompasses over certain period of time. The circular issued by CBDT are binding upon the authorities working under it. Similar view has been adopted by Hon ble Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889, in the case of CCE v. Dhiren Chemical Industries [2002] 254 ITR 554 and in the case of Commissioner of Customs v. Indian Oil Corpn. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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