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TMI Blog2002 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... a number of questions came up for consideration before the High Court, in these appeals, based on the arguments addressed before us, we are mainly concerned with the following three questions: (i) Can an Assessing Officer while assessing a company for income-tax under section 115J of the Income-tax Act question the correctness of the profit and loss account prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act? (ii) Whether the dividend income earned by the assessee-company from its investment made in the units of the Unit Trust of India, can be included in computing the profit of the eligible business under section 32AB of the Income-tax Act? (iii) Whether the business of buying and selling of units of the Unit Trust of India by the assessee-company amounts to a speculation business or not, for the purpose of allowing set off as to the loss suffered by the company in such a business? The brief facts necessary for the disposal of first of the above questions are as follows: The assessee-company while determining its net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Explanation.-- For the purposes of this section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (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 section 80HHD or sub-section (1) of section 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amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or (g) the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J. For deciding this issue, it is necessary for us to examine the object of introducing section 115J in the Income-tax Act which can be easily deduced from the Budget Speech of the then Finance Minister of India made in Parliament while introducing the said section which is as follows : It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called 'zero-tax' highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does 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 ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the Income-tax Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of the Companies Act and another for the purpose of income-tax both maintained under the same Act. If the Legislature intended the Assessing Officer to reassess the company's income, then it would have stated in section 115J that income of the company as accepted by the Assessing Officer . In the absence of the same and on the language of section 115J, it will have to held that view taken by the Tribunal is correct a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture and sale of tyres are so intertwined and interlaced that the same cannot be separated and treated independently, therefore, this income from the UTI being part of its business income, it is entitled to claim the benefit of section 32AB. A perusal of section 32AB, as it stood at the relevant time, shows that if an assessee has a total income including income chargeable to tax under the head Profits and gains of business or profession and if the income from such business is derived from an eligible business and if the assessee has out of such income utilised any amount during the previous year for the purchase of new plant or machinery then it is entitled to a set off of a sum equal to 20 per cent. of the profit of such eligible business as computed in the accounts of the assessee which account has been audited in accordance with sub-section (5) of section 32AB. The dispute in the present case is in regard to the question whether the assessee's investment in the UTI is business, and if so, is it a business which qualifies to be an eligible business under section 32AB? In regard to the first aspect, we must note that the Tribunal as a question of fact based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Relying on the above provision of the UTI Act, the Revenue contends that if the UTI is a company and income from its units is dividend then ipso facto the units will have to be shares, therefore, the business of purchase and sale of units conducted by the assessee-company will have to be deemed to be a business in shares which business, according to the Revenue, attracts Explanation to section 73. On this basis, it is contended that the business of purchase and sale of units by the assessee-company amounts to a business of speculation. Both the Tribunal and the High Court have considered this argument as also the effect of section 32(3) of the UTI Act and have come to the conclusion that the provision of the said Act is limited for the purpose of assessment of dividend income under the Act, and for deduction of tax at source. They have held that the legal fiction created by section 32(3) of the UTI Act cannot be carried any further. We have examined the provisions of the UTI Act and we are of the opinion that even though the said section creates a fiction to make the UTI a deemed company and distribution of income received by the unit holder a deemed dividend, by virtue of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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