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TMI Blog2019 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is not possible to take two views as to the meaning of the statutory language. Hence, the request to read down the provision also does not merit acceptance. Consequently, the question of directing the respondents to allow reduction of the brought forward losses of the petitioner company from the net profit in order to compute book profits under section 115JB of the Act in absence of any unabsorbed depreciation in the assessment year under consideration, also cannot be accepted. - R/TAX APPEAL NO. 213 of 2019 - - - Dated:- 25-6-2019 - MR J. B. PARDIWALA AND MR A. C. RAO, JJ. For The Appellant : MR TUSHAR HEMANI with MS VAIBHAVI K PARIKH ORAL ORDER ( PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.00. This Tax Appeal under section 260 of the Income Tax Act, 1961 (for short the Act, 1961 ) is at the instance of the assessee and is directed against the order passed by the Income Tax Appellate Tribunal dated 01/08/2018 in ITA No.1613/Ahd/2014 for the A.Y. 2008-09. 2.00. The assessee has proposed the following questions as the substantial questions of law arising in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitutional validity of the aforesaid provision. The constitutional validity is questioned on the premise that the provisions are violative of Articles 14 and 19(1)(g) of the Constitution of India. 3.00. We take notice of the fact as very fairly pointed out by Mr.Tushar Hemani, the learned counsel appearing for the assessee that this Court had the occasion to consider the constitutional validity of the very same provision in the case of very same assessee in the judgement rendered in the Special Civil Application No.11581 of 2008 decided on 21/10/2010. 4.00. This Court, in the aforesaid decision, while upholding the validity of provisions of clause (iii) in Explanation 1 to Section 115JB(2) of the Act, has held as under :- 7. The principal and only challenge in the present petition is to the constitutional validity of clause (iii) of Explanation 1 of section 115JB of the Act on the ground that the same is discriminatory and arbitrary inasmuch as while computing the book profit the same provides for reduction from the net profit of loss brought forward or unabsorbed depreciation whichever is less, which means that if eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nimum tax on Book profits of certain companies , it has been stated thus: Under the existing provisions of the Income Tax Act, certain deductions are allowed in the computation of profits and gains of business or profession. Various deductions are also allowed under Chapter VI-A of the Income Tax Act in computing total income. As a result of these concessions, certain companies making huge profits, are managing their affairs in such a way as to avoid payment of income-tax. With a view to making the tax system more progressive, a new Chapter XIIB is proposed to be inserted in the Income Tax Act. Under the proposed amendment, in the case of any company whose total income as computed under the other provisions of the Income Tax Act in respect of any previous year is less than 30 per cent of its book profit, the total income of such taxpayer chargeable to tax shall be deemed to be the amount equal to 30 per cent of such book profit. For the purposes of the aforesaid provisions, book profit means the net profit as shown in the profit and loss account in the relevant previous year prepared in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) of section 115J gives the definition of the book profit by incorporating the requirement of section 205 of the Companies Act in the computation of the book profit. Brought forward losses or unabsorbed depreciation whichever is less would be reduced in arriving at the book profits. Sub-section (2), however, provides that the application of this provision would not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set off, and deduction under section 80J, to the extent not set off as computed under the Income Tax Act. [ 7.5] The present petition relates to Section 115JB of the Act, which came to be inserted by Finance Act, 2000 with effect from 1.4.2000, and insofar as the same is relevant for the present purpose reads thus: 115-JB. Special provision for payment of tax by certain companies.- (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxx ( iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.- 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 Explanation.- For the purposes of this clause, the loss shall not include depreciation; or xxxxx [ 7.6] Chapter XII-B came to be inserted in the Income Tax Act by the Finance Act, 1987 with effect from 1.4.1987. Under the provisions of the Income Tax Act, certain deductions are allowed in the computation of profits and gains of business or profession. Various other deductions are also allowed under Chapter VI-A of the Act in computing total income. As a result of these concessions, certain companies making huge profits were managing their affairs in such a way as to avoid payment of income-tax. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax, but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year prepared under subsection (2), as increased by clauses (a) to (g) thereunder. If any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by clauses (I) to (vii) thereunder. Clause (iii) of the Explanation to section 115JB of the Act provides for reducing the net profit as shown in the profit and loss account by the amount of loss brought forward or unabsorbed depreciation, whichever is less, as per the books of account. The explanation to clause (iii), inter alia, provides that the provisions of the said clause would not be applicable if the amount of loss brought forward or unabsorbed depreciation is `Nil . In the circumstances, in the absence of either brought forward loss, or unabsorbed depreciation, an assessee would not be entitled to compute the book profit by reducing the net profit by the amount of brought forward loss or unabsorbed depreciation, as the case may be. Section 115JB of the Act opens with a nonobstante clause. From the scheme of the section as noted hereinabove, it is apparent that section 115JB is a self contained Code and will apply notwithstanding any of the provisions of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that it taxes some person or objects and not others; it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14. It is well settled that a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. [ 7.10] If one examines the impugned provision in the light of the principles enunciated in the aforesaid decision, it is apparent that all assessees falling within the ambit of section 115JB of the Act are special class of assessees, viz. Those companies in whose case the income tax payable upon determining their total income under the provisions of the Income Tax Act is less than 10% of their book profit. While examining the constitutional validity of the impugned provision, what has to be seen is whether, within the class, there is any discrimination. On a plain reading of clause (iii) of the Explanation to section 115JB of the Act, it is apparent that the same applies uniformly and equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the said decision was dealing with the provisions of the Stamp Act, 1899 (as in A.P.), and held that it is well settled that stamp duty is a tax, and hardship is not relevant in construing taxing statutes which are to be construed strictly. That there is no equity in a tax. If the words used in a taxing statute are clear, one cannot try to find out the intention and the object of the statute. The Court held that, the High Court, therefore, fell in error in trying to go by the supposed object and intendment of the Stamp Act, and by seeking to find out the hardship which will be caused to a party by the impugned amendment of 1998. [ 7.13] In the case of State of A.P. v. Nallamilli Ramli Reddi, (2001) 7 SCC 708, the Supreme Court held, what Article 14 of the Constitution prohibits is class legislation and not classification for purpose of legislation . If the legislature reasonably classifies persons for legislative purposes so as to bring them under a well-defined class, it is not open to challenge on the ground of denial of equal treatment that the law does not apply to other persons. The test of permissible classification is twofold: (I) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the earlier years, which is absurd as the petitioner does not have any income in the year under consideration. [ 7.16] The Income Tax Act, 1961 is indubitably a fiscal statute. The legislature has over the years been devising ways and means to prevent companies from avoiding total payment of income-tax by resorting to the various deductions and allowances made under the Act. In its attempt to bring all companies under the tax net, the legislature has formulated a scheme as contained under section 115JB of the Act with a view to ensure that all companies pay at least some tax. The provision also provides for the manner of computation of income thereunder, which is a special provision for certain companies. Section 115JB of the Act including clause (iii) of the Explanation thereto, which is impugned in the present petition applies uniformly to all companies. The said provision does not draw any distinction between companies as a class and applies to all companies which fall within its ambit; viz. Companies in whose case the income tax payable on the total income as computed under the normal provisions of the Act in respect of the previous year releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. It is also not as if the petitioner was not permitted to set off its brought forward losses against its income. In fact it is only after computing the income under the provisions of the Income Tax Act after allowing all allowable deductions, because the income tax payable works out to less than ten per cent of book profits that the petitioner has become liable to be assessed under provisions of section 115JB of the Act on its book profits. Thus, merely because, in the peculiar facts and circumstances of the case of the petitioner, the petitioner has not been able to set off its losses against its income while computing its income under section 115JB of the Act, the same would not render the statutory provisions unconstitutional or invalid. In the circumstances, the challenge to the provisions of section 115JB of the Act must necessarily fail. [ 7.19] Though not specifically pleaded in the petition, at the time of hearing of the petition it had been urged that in case where the plain literal interpretation produces an absurd or manifestly unjust result which could never have been intended by the Legislature, the Court may fine tune the language used ..... X X X X Extracts X X X X X X X X Extracts X X X X
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