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TMI Blog2021 (2) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in the statute and not otherwise. Hence, the said receipt being the unutilized portions, received back from the welfare trusts by the assessee company would not partake the character of a revenue receipt constituting income and would merely have to be treated as a windfall or non-recurring receipt not liable to tax, though not exempted under specific provisions of the Act. It is not in dispute that the welfare trusts had duly suffered taxes on the accretions to the contributions received in the form of dividends and interest on loans in its regular returns and assessed as such. Hence, the accretion portion had already suffered taxes in the hands of the welfare trusts. Taxing the same again in the hands of the assessee company while getting back the unutilized portion would tantamount to double taxation. Accordingly, we hold that the receipt have to be excluded while computing total income of the assessee under normal provisions of the Act. Ground raised by the assessee are allowed. Non-applicability of provisions of Section 115JB - HELD THAT:- All the companies in India are governed by the very same provisions wherein if they suffered nil taxes or zero taxes unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile computing the book profits u/s 115JB of the Act, in the facts and circumstances of the case. 3. We have heard the rival submissions and perused the materials available on record. The undisputed facts are that the assessee is a public limited company engaged in the business of manufacturing of machine tools, textile machines, Air conditioning Refrigeration work , Casting Job work for Air Conditioning Humidification , Air Control Equipment and Trading in Engineering goods. The return of income for the Asst Year 2011-12 was filed by the assessee company on 28.9.2011 declaring Nil income under normal provisions of the Act and book profit of ₹ 5,30,89,000/- u/s 115JB of the Act. In the year ended 30th September 1980, the assessee company established 33 irrevocable trusts to provide medical benefits, scholarships and educational assistance and for the general welfare of its employees and made an aggregate contribution of ₹ 12,50,000/- in the year ended 30th September 1981 (relevant to Asst Year 1982-83) and an aggregate contribution of ₹ 10,00,000/- in the year ended 30th September 1983 (relevant to Asst Year 1984-85) to the said welfare trusts. While fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him. 3.4. The Board of Directors of the assessee company, in terms of the above sub section, passed a resolution at their meeting held on 30.10.2010 falling in Asst Year 2011-12, for claiming back the unutilized amounts lying with the welfare trusts, consequent to which the Trusts withdrew the amounts given as loans to parties and sold the shares held by them and repaid the unutilized amounts of ₹ 4,27,43,000/- to the assessee company. 3.5. The assessee company had irrevocably contributed the amounts to the trusts. As stated earlier, the earnings by way of dividends and interest from the amounts contributed by the assessee company had been duly offered to tax by the welfare trusts in the respective years while filing their returns of income and assessed as such. There is absolutely no dispute on this aspect. 3.6. Having given the contributions irrevocably to the Trusts, the assessee company never contemplated at the time whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the welfare trusts had already paid taxes on the accretion portion in the form of dividends, interest and capital gains in the respective years. e) The said exemption from income tax was also claimed while computing book profits u/s 115JB of the Act during the course of assessment proceedings eventhough the same was offered to tax voluntarily by the assessee in the computation of book profits u/s 115JB of the Act while filing its return of income. 3.9. We find that the assessee company had placed reliance on the following decisions in support of its propositions that the amounts received back from welfare trusts was never in contemplation of the assessee and hence would be a windfall receipt :- a) Decision of Privy Council in the case of The Commissioner of Income Tax, Bengal vs Shaw Wallace and Company reported in 2 Company Cases 276 vide order dated 14.3.1932 b) Decision of Hon ble Jurisdictional High Court in the case of Cadell Weaving Mill Co. Ltd vs CIT reported in 249 ITR 266 (Bom) which was subsequently affirmed by the Hon ble Supreme Court in the case of CIT vs D.P.Sandu Bros (Chembur) Pvt Ltd reported in 273 ITR 1 (SC) c) Decision of Hon ble Jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld AO brought to tax a sum of ₹ 4.27 crores as income both under normal provisions of the Act as well as while computing book profits u/s 115JB of the Act. 3.12. We find that the ld. AO had also stated in his order that if the contention of the assessee is to be accepted, then every assessee would create a welfare trust and make an initial contribution to the said trust for investing it prudently and reclaim the unutilized amount in terms of 40A(11) of the Act and claim that the same is not exigible to tax on the accretions which has never suffered tax in anybody s hands. 3.13 We find that the substance of the essence of the argument of the ld. AO is that every receipt would fall within the ambit of Section 2(24) unless it is specifically exempted under the provisions of the Act. 3.14. We find at the outset that the welfare trusts had duly paid its taxes on the accretions by way of dividends from investment in shares and interest on loans advanced in its income tax returns and the same were duly assessed as such in the hands of the said welfare trusts. This point is absolutely not in dispute before us. Hence the alternative contention of the ld. AO that this accret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the specific provision in the statute which had enabled the assessee to gain eligibility to claim the unutilized portions from the welfare trusts despite being the irrevocable contribution. Hence, it could be safely concluded that the said receipt was never in contemplation of the assessee company to get back the receipts from the welfare trusts. Once, the receipt falls under this category of never contemplated receipt in its ordinary course, the said receipt would not partake the character of the revenue receipt and would only had to be categorized as a windfall receipt. It is a trite law that every receipt is not income unless specified in the Act. No doubt the definition of income u/s.2(24) of the Act is an inclusive definition. It never says that every receipt would fall within the ambit of income u/s.2(24). First the nature of receipt should be income in the hands of the assessee or the revenue receipt in the hands of the assessee. The expression inclusive definition need to be understood in this perspective. The same definition does contemplate taxation of a capital receipt representing capital gain which is chargeable to tax specifically u/s.45 of the Act. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that in order to be income, the receipts must be something which came in (1) periodically, (2) as a return, (3) with some sort of regularity or expected regularity, and (4) from a definite source. The Supreme Court in the case of Raghuvanshi Mills has indicated decisively that in order to constitute income, the receipt need not be one coming in with some sort of regularity or expected regularity and even a single payment received by the assessee may, in the circumstances of the case, constitute its income. In some cases it had been contended on behalf of the assessee that in order to constitute income, the receipt must not be gratuitous or ex gratia in character but must arise from some legal obligation on the part of the donor or a corresponding legal right to receive on the part of the donee. In Maharani of Morvi's case , which decision being that of a Division Bench of this court is binding on us, it was been held that even a voluntary payment made entirely without consideration can be considered to fall within the category of income provided it is traceable to a real source and is not something dependent entirely on the whim of the donor. It was expressly held by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had produced the picture, Mother India, or if it can be said that it was producing motion pictures with the idea that they would be exempted from entertainment duty by the Government of Bombay and the amount attributable to the collections of entertainment duty would be paid over to the assessee, then such receipt, perhaps, may not be said to be a windfall received by the assessee. Similarly, if the assessee had produced a motion picture with a particular situation which becomes extremely successful commercially by reason of some extraneous fact, the extra profits received by the assessee or by the exhibitors may be called windfall profits loosely or in ordinary parlance, but would not be a windfall for our purposes. Where the obtaining of a particular advantage or receipt could not be said to be within the ordinary contemplation of the party obtaining or receiving it, then only would it be proper to characterise the advantage or receipt as a windfall. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage or receipt is much more than could have been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso entering in the races, horses, some of which were his own and some of which he owned in partnership with others. He maintained a separate set of accounts for these racing activities. The excess of the receipts over expenditure in these activities amounted to a substantial amount. The question being considered by the Madras High Court was whether these amounts were taxable income of were casual and non-recurring receipts and exempt from tax under section 4(3)(vii) of the Act. It was held by the Madras High Court that whether taxable or not, the amounts constituted income. It was held further that the income was not taxable as it was income of a casual and non-recurring nature within the scope of exemption granted by section 4(3)(vii) of the Income-tax Act. The question is whether the decision of the Madras High Court in the above case really helps Mr. Joshi for the purpose of the decision to be given in the present case. When the assessee before the Madras High Court undertook racing and betting activities, he did so with an expectation of a return and the receipts received from these activities, although the activities could not be regarded as his business or vocation and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly considered by the Calcutta High Court. Further, according to the Calcutta High Court, the amount of ₹ 10,000 had been paid to a person, who was an advance and attorney, in appreciation of the part played by him in securing that benefit. In the words of the Calcutta High Court [1941] 9 ITR 261, 274 (Cal.) : It was as anything could be that the causa causans of the payment was what Mr. Sen had done on the instructions of his client (shareholder whose proxy he held) at the shareholders' meeting. It was on that footing that it was held that the receipt arose from the exercise by the assessee of his profession as lawyer and advocate and, therefore, could not be exempt from taxation. To repeat, the broader question which we are considering was not canvassed before nor decided by the Calcutta High Court in the above decision. 38. Mr. Joshi also referred us to an English case, Herbert v. McQuade [1902] 4 TC 489, 500 (CA). The assessee concerned in that case was a vicar of the parish of St. John de Sepulchre in the city of Norwich and the assessments made upon him were in respect of a certain amount granted to him by the Queen Victoria Clergy Sustentation Fund (Norwic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering whether the receipts could be properly regarded as income or not. On the same footing one would have to reject from consideration the decision in Seaham Harbour Dock Company v. Crook [1931] 16 TC 333 (HL), which also turns on its own facts. In that case the court was considering a subsidy given by the grants committee to the dock company and although the amount had been first credited to revenue in the account of the company, were held not to be profits or gains of trade bearing in mind the purposes for which the grants were made. 40. On the material before us there is nothing to show that assessee-company had produced the said picture Mother India with the slightest expectation that the same would be exempt from entertainment duty and that the amounts collected by the exhibitors as and by way of such duty would be directed to be paid over to it as producers by the Government of Bombay. It is true that we may consider the two notifications of the Government (annexures A and A-1 to the statement of case) and the various letter or orders made pursuant to the later notification dated 25th October, 1957, as the definite source to which the receipts are attributable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as such. 52. It is unnecessary to consider the matter of exemption in any further detail in the view that I have taken that the receipt does not represent income and, therefore, the question of considering whether the assessee is entitled to exemption would not arise. It may just be indicated that the word non-recurring does not mean that the receipt is a single one or which has in fact not been repeated, but only that there is no claim or right in the recipient to expect its recurrence. It is further to be noted that merely because the mode of payment in the instant case is one that would ensure to the assessee receipt of the amounts in driblets, it would not necessarily characterise the receipt as a recurring receipt. It is unnecessary to consider this aspect of the matter any further in the view that I have indicated regarding whether such receipts can be regarded as income of the assessee. 53. In the view that I have taken, the first question would have to be answered in favour of the assessee. 3.19. Hence, from the detailed reading of the aforesaid decision of the Hon ble Jurisdictional High Court, it could be decipher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) AC 441, Green (RM Inspector of Taxes) vs. J. Gliksten Sons Ltd. (Reports of Tax Cases Vol. 14 p. 365), CIT vs. Popular Metal Works Rolling Mills (1982) 30 CTR (Bom) 216 : (1983) 142 ITR 361 (Bom)]. But where payment is made to compensate for loss of use of any goods in which the assessee does not carry on any business or the payment is a just equivalent of the cost incurred by the assessee, but excess accrues due to fortuitous circumstances or is a windfall, then the accrual may be a receipt, but it would not be income arising from business, and, therefore, not taxable under the Act. In IRC vs. William's Executo₹ 26 Tax Cases 23, distinction was explained thus. A manufacturer can, of course insure his factory against fire. The receipts from that insurance will obviously be capital receipts. But supposing he goes further, as the manufacturer did in that case, and insures himself against the loss of profits which he will suffer while his factory is out of action; it seems to me it is beyond question that sums received in respect of that insurance against loss of profits must be of a revenue nature. 10. The assessee did not carry on business of buying and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succeeds and is allowed. Both the questions referred by the Tribunal to the High Court are answered in the affirmative, i.e., in favour of assessee and against the Department. The assessee shall be entitled to its costs. 3.20. It would also be relevant to consider the meaning of expression casual receipt which had been discussed in various decisions of Hon ble High Courts and Hon ble Supreme Court as under:- 130. RM. AR. AR. RM.AR.AR Ramanathan Chettiar v CIT (1967) 63 ITR 458(SC) The expression casual has not been defined in the Act and must, therefore, be construed in its plain and ordinary sense. According to the Shorter Oxford English Dictionary, the word casual is defined to mean; (i) subject to or produced by chance; accidental, fortuitous, (ii) coming at uncertain times; not to be calculated on, unsettled. A receipt of interest which is foreseen and anticipated cannot be regarded as casual even if it is not likely to recur again. B. Malick v. CIT (1968) 67 ITR 616 (All.) The word casual may have several meanings. It may be something which comes in at uncertain times and something which cannot be relied upon or calculated to produce income or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f provisions of Section 115JB of the Act to the peculiar facts and circumstances of the instance case. The ground Nos. 2 3 raised by the assessee are with regard to non-taxability of the receipt of ₹ 4,27,43,000/- from the welfare trusts by the assessee company while computing book profits u/s.115JB of the Act, even though the same was credited by it in its profit and loss account. 4.1. We have heard rival submissions and perused the materials available on record. At the outset, the ld. AR raised a preliminary argument that the provisions of Section 115JB of the Act are not applicable to the facts of the instant case in view of the fact that Section 115JB starts with a non-obstante clause by stating as under:- 1.Notwithstanding anything contained in any other provision of the 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 commencing on or after the 1st day of April, (2012), is less than (eighteen and one-half per cent) of its book profit, (such book profit shall be deemed to be the total income of the assessee and the tax pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- by the assessee company received from the welfare trusts is a capital receipt not liable to income tax. Hence, a receipt which from its inception is not the income u/s.2(24) of the Act cannot be taxed u/s.115JB of the Act also. To put it differently, what cannot be taxed directly cannot be taxed indirectly. Moreover, this aspect has been elaborately dealt by the Co-ordinate Bench decision of this Tribunal in the case of JSW Steel Ltd. vs. ACIT in ITA Nos.923/BANG/2009 930/BANG/2009 for A.Y.2004-05 dated 13/01/2017. The facts before the case of JSW Steel Ltd., and the manner in which the same has been adjudicated by Mumbai Tribunal by taking into account the specific provisions of Section 115JB of the Act ; provisions of Companies Act, 1956 ; relevant accounting standards issued by the Institute of Chartered Accountants of India and the various decisions of Tribunals, Hon ble High Courts and the Hon ble Supreme Court are reproduced hereunder for the sake of convenience. 4. The facts in brief qua the issue raised in the aforesaid grounds are that, assessee is a public limited company engaged in the business of manufacturing of hot rolled steel sheets and steel plates. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, assessee had availed 'rupee term loans' and 'foreign currency loans' from various Indian and foreign financial institutions and banks for setting up of integrated steel plants. The foreign lenders had sanctioned foreign currency loans of about ₹ 1000 crores as buyer's credit for purchase of various equipment, plant and machinery etc. The assessee had utilized the above loans to pay the purchase price of the imported plant and machinery for setting up of the Steel plants. The loans were repayable over various maturity dates up to 2010. After setting up the steel plants, the assessee had incurred huge loss due to economic recession in general and steel industry in particular and was under severe financial crisis. Hence, the assessee was unable to meet its financial commitments in respect of the above loans. Accordingly, the assessee entered into a financial restructuring package, i.e., 'Corporate Debt Restructuring Package' (CDR) in respect of loans taken from various Indian and foreign financial institutions. After negotiations with the foreign lenders, the assessee entered into agreements to settle the dues, pursuant to which the principal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em in the computation of Book Profits to the extent of ₹ 3,907,603,999, the Company reserves its right to exclude such sum from Book Profits during the course of assessment/appellant proceedings. For this purpose, the assessee relies on the following decisions of the Income-tax Appellate Tribunal. Sutlej Cotton Mills Ltd. v. ACIT [1993] 45 ITD 22 (Cal) (SB) Sipani Automobiles Ltd. v. DCIT [1993] 46 ITD 280 (Bang) NCL Industries Ltd. v. JCIT [2004] 88 ITD 150 (Hyd) Even while filing the Auditor's report in form no. 29B in accordance with section 115JB(4) along with return of income, the assessee company again mentioned that exceptional item representing waiver of loan was capital receipt and hence could not be considered to be part of book profits for the purpose of section 115JB. The Assessing Officer, however, while computing the book profit in the assessment order considered the figure as given in the profit loss account and did not agree to reduce the aforesaid waiver of dues as stated by the assessee in the 'notes' as well as in the accountant's report that it should not be included in the profit loss account. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer for including the waived amount for the purpose of arriving the book profit. 8. Before us, the Ld. Counsel for the assessee, Mr. Kanchan Kaushal submitted that the amount of waiver of loans needs to be reduced from the net profit for the purpose of computing the book profit u/s 115JB to the extent of ₹ 314.14 crores on the ground that firstly, the exclusion of capital receipt though credited to the profit loss account is in accordance with Part II III of VIth Schedule of the Companies Act, 1956 as only the 'working results' of the company is required to be considered for the purpose of computing the book profit under the provisions of section 115JB; and secondly, the waiver of loan is a 'capital receipt' because it was taken for the purchase of capital assets and hence it does not fall within the definition of income under the provisions of the Income Tax Act, therefore it is neither a profit nor revenue nor income nor gain which can be said to be chargeable to tax under the Income Tax Act. Once the particular receipt is not recognized as income at all under the charging provisions of Sections 4 5, there is no question of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has very categorically stated that the waiver amount is not includable in the working of the book profit and it has been shown out of abundant precaution to avoid any amount of interest or penalty. In support of his contention, he relied upon the decision of Hon'ble Delhi High Court in the case of CIT v. Sain Processing Weaving Mills (P.) Ltd. [2010] 325 ITR 565/[2009] 176 Taxman 448. In the case before the Hon'ble Delhi High Court, the assessee did not charge depreciation to the Profit Loss account, but disclosed the same in the Notes forming part of accounts. However, while computing book profit u/s 115J of the Act, it claimed the amount of depreciation as deduction from the net profit disclosed in the profit and loss account. The relevant observation of the Hon'ble High Court in respect of the said controversy was as under: The answer to this poser is found in sub-section (6) of section 211 of the Companies Act, which provides that except where the context otherwise requires any reference to a balance sheet or profit and loss account shall include the notes thereon or documents annexed thereto, giving information required to be given and/or allowed to be gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the section, where the total income of companies as computed under the provisions of the Act, in respect of the previous year relevant to the assessment year, is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J (1). Sub-section (2) provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section (1) of section 115J. The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115 J. An assessee is enabled to claim carry for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv. Dy. CIT v. Binani Industries Ltd. [IT Appeal No. 144 (Kol.) of 2013, dated 15-2-2016] v. Dy. CIT v. Garware Polyester Ltd. [IT Appeal No. 5996 (Mum.) of 2013] 10. On the other hand, the Ld. CIT D.R. submitted that once the assessee itself has credited the waiver amount to the profit loss account, then neither the Assessing Officer nor the assessee can tinker with such profit loss account. In support of it, he strongly relied upon the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC) . The assessee is required to prepare its Profit Loss account as per part II III of VIth Schedule of the Companies Act and here in this case assessee did prepared its Profit Loss account as per the requirement of the Companies Act and therefore, said Profit Loss account cannot be disturbed while computing the book profit under section 115JB which are the non obstante provisions and code by itself. Once the assessee itself has offered the amount as income under section 115JB which has been accepted by the Assessing Officer as such then how the assessee can claim that the same should be reduced from the book prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integrated steel plants. It is an undisputed fact that loan taken and utilized was for the purchase of plant and machinery for setting up of steel plant, i.e., for acquisition of capital assets. The assessee due to heavy losses and its inability to meet its financial commitment, entered into a 'corporate debt restructuring package' in respect of the loan taken from various Indian and foreign financial institutions. After negotiations the principal and interest amount which was waived by the institutions were calculated at ₹ 390,76,03,999/- which consists of following amounts:- Particulars Amount (Rs.) Waiver of principal loans 228,46,76,328 Waiver of interest payable to UTI 86,01,30,698 Waiver of interest, guarantee commitment fees 76,27,96,973 Total 390,76,03,999 Out of the said amount it is an admitted fact that sum of ₹ 76,27,96,973/- has been added back by the assessee in its computation of income and has been offered to tax as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision. Generally the waiver of remission of a liability cannot be regarded as income in the hands of the assessee unless it is a trading liability and if the waiver of a loan is on capital account then certainly it cannot be reckoned as income or revenue, which is clearly evident from the relevant provisions of section 41(1) which reads as under: (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra Mahindra v. CIT [2003] 261 ITR 501/128 Taxman 394 (Bom.). Similarly, in a later judgment Hon'ble Court in the case of CIT v. Softworks Computers (P.) Ltd. [2013] 354 ITR 16/216 Taxman 219 (Mag.)/35 taxmann.com 610 (Bom.), after considering the said judgment and also the judgment of Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417/178 Taxman 192 (Bom.), observed and held as under:- 7. We find that the decision of this court in the matter of Solid Containers Ltd. (supra) has also considered the earlier decision in the matter of Mahindra and Mahindra Ltd. (supra) and distinguished the same by holding that in that case the loan was given for purchase of capital assets unlike in the case of Solid Containers Ltd. (supra) where waiver was of a loan taken for trading activity and thus considered to be of a revenue nature. In the present case, the amount which was advanced as a loan to the respondent-assessee was for the purposes of relocating its office premises. The loan taken was utilized for the purposes of acquiring a office at Godrej Soap Complex, Vikroli, Mumbai. Therefore, the loan in the present fact was taken for acquisition of capital asset and not for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicies; (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 falling within the relevant previous year. 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 (2), as increased by- (a) to (f)** ** if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by- (i) to (viii)** ** From the reading of the above provision it can be seen that; Firstly, it is a non-obstante provision which provides that if the income tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year is less than 7 % o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provisions of Part II III of VIth Schedule of the Companies Act needs to be seen. The starting point for computation of book profit under section 115JB is the 'net profit' as per the profit loss account prepared in accordance with the provisions of the Companies Act. The primary purpose of preparing profit loss account under the Companies Act is to find out the result of the working of the company during the period covered by the profit loss account which has been enshrined in Part II of the Companies Act. The relevant portion of Part II reads as under:- 1. The provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act, in like manner as they apply to a profit and loss account, but subject to the modification of references as specified in that sub-section. 2. The profit and loss account- (a) shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account, and (b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to therein and if for some reason or the other they have been accounted for in the profit loss account then those provisions do not require that those items must necessarily be accounted as a part of the profit loss account. Separate disclosure is intended to ensure that the reader of the profit loss account gets a fair and clear picture of the result of the working of the company during the period covered by the profit loss account. The aforesaid provision cannot be so read so as to require that every non-recurring transaction or transaction of an exceptional nature to be debited/credited to the Profit Loss account. Accounting Standard-5 prescribes the classification and disclosure requirements of certain items in the statement of profit loss account, whereas the Accounting Standard-9 gives the illustration of revenue recognition. AS-5 defines Profit or Loss for the period in the following manner: All items of income and expense which are recognised in a period shall be included in the determination of the net profit or loss for the period unless an Accounting Standard requires or permits otherwise. Thus, what is contemplated is that, all items of income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance, when a loan amount is waived, a debit goes to the liability account and a credit has to go to any of the liability/ reserve account, which in the present case has been taken to the Profit and Loss account. The disclosure compulsions merely require the assessee to disclose the material items in the Profit Loss account. A mere disclosure of an extraordinary item in the profit loss account statement does not mean that the said item represents the 'working result' of the company, when the accounting standard, especially AS-9 clearly provides that remission of a liability is not to be recognized as revenue, then it has to be reckoned that it cannot be treated as revenue for the purpose of either net profit or consequently book profit. The primary purpose of preparing the Profit Loss account in Part II of the Companies Act is to find out the result of the company, during the period covered by the profit loss account and the exceptional nature items are required to be disclosed separately so as to assess the correct impact on the profit loss account of the company. What is required under clause (3) of Part II of Schedule VI of the Companies Act, is that, a profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss account. 16. From our above analysis and discussion of the various provisions of the Companies Act as well as Accounting Standards it can be ostensibly deduced that an item of 'capital surplus' can never be a part of profit loss account albeit it is a part of a capital reserve as the waiver of a loan taken for acquisition of a capital asset is a capital receipt falling within the category of capital surplus which is non-recurring and exceptional item which to be disclosed as per the requirement of the Companies Act. Further it is quite pertinent to note that, clause (ii) of Explanation -1 of section 115JB is also an indicator of the intention of the legislature and also the scheme of the section that the incomes which are treated as exempt under the Income Tax Act are to be excluded from the profit loss account. The said clause excludes; (ii) the amount of income to which any of the provision 0f section 10 or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; When the said clause requires exclusion from the book profit all that amount of income which are exempt and are not in the nature of income, if any such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not have the income character, it has to be accepted that, when what is routed through the profit and loss account and carried to re-.serve is of a capital nature and does not have an income character, it cannot be added back to the book profits merely because of the enabling provision in the Explanation to section 115J for the purpose of imposing a tax thereon. Apart from the fact that capital gains is deemed to be income under section 45, it has to be kept in mind that even section 115J deems 30 per cent of the book profit to be total income chargeable to tax. The legislative history shows that the tax under section 115J was with reference to the business profit as it was in replacement of section 80VVA which sought to reduce the deductions available in computing the income from business. When section 80VVA was introduced in 1983-84, the intention was to restrict the various tax incentives and concessions available in computing the income from business to 70 per cent thereof. Significantly, the deduction under section 80T in respect of capital gains was not one of the items of concession or tax rebate which was to be restricted under that section. This shows that exemption of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of such assets is not a necessary part of the process of determining the trading result since they do not form part of the stock-in-trade. Any revaluation of fixed assets or investments does not indicate the accrual of any profit because profit or loss will arise only on sale or disposal and not on revaluation and such unrealized profit on revaluation cannot be brought to tax. However, it is well recognized that, in case of unrealized appreciation of fixed assets, they are written up on revaluation on the assets side of the balance-sheet to give a true and fair view of the company's affairs on a particular date, i.e. balance sheet date and the net surplus is shown as a capital reserve. This is not a regular annual feature but an exercise undertaken at appropriate junctions in the career of a company. In contrast, in the case of stock-in-trade, if the assessee had been following the method of valuing at cost and changes to the method of valuation at market value, such a valuation has to be made thereafter every year at market value on the valuation date. But, in the case of fixed assets, if the investments have been shown at cost for some years and the value is written up or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seen that assessee had shown profit before exceptional item at ₹ 571.84 crores. Thereafter, it has disclosed exceptional item of ₹ 390.76 crores which is on account of waiver of dues. However, while computing the book profit and tax payable under section 115JB the assessee included the said amount for calculating the tax under MAT. Along with the said computation, the assessee has given the following note which reads as under: The Company has credited an amount of ₹ 390,76,03,999 as an exceptional item in its Profit and Loss account. This includes write-back of certain principal amounts and certain interest dues, as a part of a restructuring package with its lenders Out of these amounts, the Company has not considered the write back of principal amounts (amounting to ₹ 228,46,76,328) as a taxable income since the same is in the nature of capital receipt in the hands of the Company. Further, these amounts do not represent the reversal of any amount allowed as a deduction in any earlier year. Hence the provisions, of section 41(1) do not apply in respect of this write-back. As regards the write-back of the balance amount relating to waiver of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an income cannot be taxed by an acquiescence or consent of the assessee but as per the mandate of the statutory provision and if assessee shows that a particular income is not taxable then he can always demonstrate and satisfy to the authorities that a particular income was not taxable in his hand and it was returned under an erroneous impression of law. There cannot be imposition of tax without the authority of law. One has to look what is envisaged under the Act to be taxed and there is no room for intendment or tax authorities can capitalize on acquiescence by assessee sans any authority by law. The court and taxing authorities have bounden duty to decide as to whether a particular category of assessee is to pay a particular tax or not. Even if we agree that Assessing Officer could not have entertained such a fresh claim but in view of the decision of Hon'ble Supreme Court in the case of Goetz India Ltd. v. CIT (supra) as heavily relied upon by the Ld. CIT D.R., however, it does not impinge upon the powers of the appellate authorities including Ld. CIT(A) and Tribunal. This has been clarified by the Hon'ble Supreme Court itself in the concluding part of the said ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the Part II III of Schedule VI of the Companies Act. Only when accounts are drawn as provided in section 115JB, then the proposition laid down by the Hon'ble Apex Court will apply. In our humble opinion the Judgment and law as envisaged by the Hon'ble Apex Court will not apply here because, as we have held above that waiver amount is a capital reserve which cannot be included in the net profit as shown in the profit loss account for the relevant previous year and consequently cannot be taxed as book profit. 20. So far as non-inclusion of interest amount payable to UTI in the net profit or working result of the company, our finding given above will not only apply to waiver of principal loan but also to the waiver of interest payable to UTI for the reason that, it is not taxable as per the provision of section 41(1), because, admittedly the assessee has not claimed the said amount as deduction in the earlier years in view of the provisions of section 43B. Once it has not been claimed as deduction then there is no question to be offered for tax under section 41(1). Thus it cannot be regarded as income in the hands of the assessee. The legal proposition as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Part II of Sch. VI to the Companies Act where a company receives the amount on account of surrender of leasehold rights, the company is bound to disclose in the P L a/c the said amount as non-recurring transaction or a transaction of an exceptional nature irrespective of its nature i.e. whether capital or revenue. That, it would be inappropriate to directly transfer such amount to capital reserve [see Companies Act by A. Ramaiya, p. 1669 (Fourteenth Edn.]. Such receipts are also covered by Cl. 2(b) of Part II of Sch. VI of the Companies Act which, inter alia, states that P L a/c shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. Lastly, even under cl. 3(xii)(b) profits or losses in respect of transactions not usually undertaken by the Company or undertaken in circumstances of exceptional or non-recurring nature shows clearly that capital gains should be included for the purposes of computing book profits. That, capital gains would certainly be one of the various items whose information is required to be given to the shareholders under the said cl. 3(xii)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the written down value was treated as profit on sale of factory and said capital gain was credited to the Profit and Loss account as other income. The assessing held that the said amount should form a part of the assessee and accordingly, added back the same for the purpose of assessment u/s. 115JB. In this background it was held as under:- Now the question is, in such circumstances, where the assessee has option to account the surplus profit in two different methods, one by including in the profits and the other without including in the profits, what should be the implication for the purpose of computing taxable income under a scheme of MAT. 11. In this context, particularly in the matter of income by way of capital gains, the Bombay High Court has held in the case of Veekaylal Investment Co. (P.) Ltd. (supra) that clause 3 (xii)( b) of Part II of Schedule VI to the Companies Act, requires disclosure of profits or losses from transactions of an exceptional nature. In the light of the said disclosure and accounting requirement mandated by Schedule VI to the Companies Act, the Hon'ble Bombay High Court has held that the capital gains arising to a company should form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it' which is the starting point for computing 'Book Profit' u/s. 115JB. iv. Lastly, in the case of the assessee also, it is not the case of assessee that an adjustment should be done while arriving at the 'Book profit' as provided under the Act in Explanation 1 to sub-section (2) to Section 115JB. What the assessee's case is, first determine the correct amount of 'Net Profit' as per Profit and Loss account which is the starting point for computation u/s. 115JB and then tax the book profit. Whence as per our discussion above the receipts in question itself is not part of net profit, then there is no question of bringing it to tax under MAT. (c) Hindustan Shipyard Ltd. (supra) Relevant facts were that, during the year under consideration, the Government of India had waived loan (a portion by way of conversion of loan into equity) and interest thereon due from the assessee. The assessee did not credit, both, the principal and interest waiver in the Profit and Loss account though the details of waiver disclosed in notes to accounts. Such accounting treatment was qualified by auditor. The assessing officer accepted that waiver of principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither the waiver of principal amount of loan (being a capital receipt) nor the interest (not claimed as a deduction in earlier years) is taxable under any provisions of the Act. iv. In this case also, the Assessing Officer has adjusted the net profit as per Profit and Loss account which is the starting point of calculation under section 115JB, i.e., before one enters the computation of 'Book Profit' under the Explanation to sub-section (2) of Section 115JB. In other words, the Hon'ble Tribunal after considering the Hon'ble Supreme Court decision in the case of Apollo Tyres Ltd. has allowed tinkering to the 'Net Profit' which is the starting point for computing 'Book Profit' u/s. 115JB. (d) Duke Offshore Ltd(supra) In this case, the assessee had a settlement with the bank as a result of which there was a waiver/reduction of loan. The assessee had shown the same amount as extraordinary item in the Profit and Loss account. While computing book profits for the purpose of section 115JB, the assessee did not consider the said waiver. However, the assessing officer included such waiver of loan and interest thereon for the purpose of computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration was whether advisory fee debited as an extra-ordinary item in the Profit and Loss account was to be considered while computing Book profits u/s. 115JB. The premise on which adjustment was sought was that the item under consideration was 'revenue in nature' per se. However, in the case of Duke Offshore Ltd. (supra), the Tribunal was dealing with an item of receipt which is capital in nature and not 'income' per se. Further, from the perusal of the decisions of the Hon'ble Bombay High Court and Hyderabad Special Bench stated at point no. (b) (c) above, it is seen that both the decisions deal with the issue of taxability of capital gains in computing Book Profit u/s. 115JB of the Act. These capital gains were otherwise income u/s. 2(24) of the Act and exclusion was claimed by the assessee while computing Book Profit u/s. 115JB on the ground that the said capital gains were exempt either u/s. 47(iv) or not constitute commercial profits. However, in the case of Duke shore before the Tribunal, the waiver was not capital gains but pure capital receipts which does not even have any 'income', 'profits', 'gains' embedded therein. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has any power to tinker with it nor the assessee is permitted to claim exclusion or inclusion of any item of income or expenditure as the case may be, for the purpose of computing book profits u/s 115JB except the permissible adjustment provided under the Explanation to sec.115JB of the Act itself. It is not disputed that this amount does not fall in the ambit of any of the clauses of Explanation to 115JB. Therefore, once this amount has been disclosed in the P L A/c prepared strictly as per provisions of Schedule VI of the Companies Act, the same cannot be excluded for the purpose of computing book profits u/s 115JB. We find that the CIT(A) has rejected the claim of the assessee by following the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as well as the Hon'ble Supreme Court in the case of CIT v. HCL Comnet Systems Services Ltd. [2008] 305 ITR 409/174 Taxman 118 (SC). Accordingly, in the facts and circumstances of the case as well as above discussion, we do not find any error or illegality in the impugned order of the CIT (A). This decision is again against the assessee, however at the outset, it is seen that the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said profit does not fall under the definition of income at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of Book Profit for the reasons discussed above. (b) ACIT v. Shree Cement Ltd. [IT Appeal Nos. 614, 615 635 (JP) of 2010] following Shree Cement Ltd. v. Addl. CIT [2015] 152 ITD 561/[2014] 49 taxmann.com 274 (Jaipur - Trib.) wherein it was held that: 13.4. From perusal of the decisions of Rain Commodities (supra) and Growth Avenues (supra), we notice that both the decision dealt with the issue of taxability of capital gains in computing Book Profit u/s 115JB of the Act. These capital gains were otherwise income u/s 2(24) of the Act and exclusion was claimed in computing Book Profit u/s 115JB on the ground that the said capital gains was exempt either u/s 47(iv) or u/s 54EC of the Act, which the Tribunal did not agree. In the present case, however, we are dealing not with cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lo Tyres Ltd. ((Supra) and thereafter, it was noted by the Tribunal in this case that as per the decision of Special Bench of the Tribunal rendered in the case of Rain Commodities Ltd. v. DCIT, 41 DTR 449, if profit and loss account is not in accordance with Part II Part III of Schedule VI to the Companies Act, 1956 because it is prerequisite for Section 115JB of the Act. The Tribunal in this case also considered two another Tribunal's orders rendered in the case of DCIT v. Bombay Diamond Company Ltd-33 DTR 59 and Syndicate Bank v. ACIT, 7 SOT 51 Bangalore where it was held by the Tribunal after considering the decision of Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (Supra), and after 28 explaining the same that adjustment to profit and loss account is possible to make it compliant with Schedule VI Part II and Part III of the Companies Act, 1956 which is prerequisite of Section 115JB of the Act. On this basis, the Tribunal in the case of Shree Cement Ltd. (Supra) decided this issue in favour of the assessee and it was held that capital receipt in the form of sales tax subsidy needs to be excluded from profit as per P L account for the purpose of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decisions, at the outset, it may appear that on similar nature of issues there are divergent views of various benches of the Tribunal, however, one common point/ratio permeating through all the decisions, which can be deduced by us is that, if an assessee company is in receipt of a 'capital receipt' which is not chargeable to tax at all, that is, it does not fall within any of the charging section or can be classified under any heads of income under the Income Tax Act, then same cannot be treated as part of net profit as per Profit Loss account or reckoned as 'working result' of the company of the relevant previous year and consequently, cannot be held to be taxable as 'book profit' under MAT in terms of section 115JB. Accordingly, our conclusion remains the same that, the capital surplus on account of waiver of dues neither is nether taxable nor can be included in computation of book profit u/s 115JB. 5.2. We also find that the issue regarding non-taxability of ₹ 4,27,43,000/- by treating the same as capital receipt for the purpose of Section 115JB of the Act though not claimed before the lower authorities by the assessee, is being claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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