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TMI Blog2025 (1) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... ima facie appear that Section 115JB of the Act, as it stood during AY 2006-07, would become inapplicable to an electricity company. Scope of amended Section 115JB - The new amendment allowed such companies to compute their book profits under Section 115JB of the Act using accounts prepared as per their regulatory Acts, thereby aligning the provisions of the Act with the Companies Act, 1956, and ensuring consistency in tax computation for these special categories of companies. However, the Memorandum also clarified that these amendments were prospective in nature and applicable from AY 2013-14 onwards. Thus, Section 115JB did not apply to the assessee for AY 2006-07. - HON BLE THE ACTING CHIEF JUSTICE AND HON BLE MS. JUSTICE SWARANA KANTA SHARMA For the Appellant : Mr. Indruj Singh Rai, SSC, Mr. Sanjeev Menon, JSC, Mr. Rahul Singh, JSC Mr. Anmol Jagga, Advocates For the Respondent : Mr. Shashi M Kapila, Mr. Pravesh Sharma and Mr. Sushil Kumar, Advocates JUDGMENT SWARANA KANTA SHARMA, J. 1. The Revenue has preferred the present appeal under Section 260A of the Income Tax Act, 1961 [hereafter the Act ] impugning an order dated 29.10.2018 [hereafter the impugned order ] passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt income were added back to the book profit as per the provisions of explanation (f) of section 115JB (2) of the I.T Act. As discussed above such expenditure are estimated at Rs. 29,17,000/- same would be added back while computing the book profit. 5. Aggrieved by the assessment order, the assessee filed an appeal before the learned Commissioner of Income Tax (Appeals)-XVII [hereafter the CIT(A) ] on 02.02.2009. The CIT(A), by way of order dated 26.08.2010, granted partial relief to the assessee, but also enhanced the book profit by ₹27.52 crores. During the appellate proceedings, the CIT(A) noted that the assessee had debited ₹27.52 crores in its profit and loss account as a provision for doubtful debts. This amount was required to be added back to the book profit under Clause (i) of Explanation 1 to Section 115JB of the Act, but the assessee had failed to do so. Consequently, a show cause notice under Section 251(2) of the Act was issued on 04.08.2010, proposing the enhancement of book profit by ₹27.52 crores. After considering the assessee s reply, the CIT(A) concluded that ₹27.52 crores on account of the provision for doubtful debts needed to be added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision. We, therefore, while respectfully following the same hold that section 115 JB has no application to the facts of the case in hand and accordingly the additions made to enhance the book profits under section 115 JB are directed to be deleted. 7. Aggrieved by the decision of the learned ITAT, the Revenue has preferred the present appeal. QUESTION OF LAW 8. The present appeal was admitted on the following Question of Law, for this Court s consideration: Whether in the facts and circumstances of the case, and in law, the ITAT was justified in deleting the additions made on account of Book Profit under Section 115 JB of the Income-tax Act, 1961? SUBMISSIONS BEFORE THIS COURT Submissions on Behalf of the Revenue 9. The learned counsel appearing for the Revenue contended that Section 115JB of the Act, a successor to Section 115JA, is a standalone provision aimed at bringing zero tax companies into the tax net. The objective of MAT, introduced through Section 115JB of the Act, is to ensure that companies with substantial book profits pay taxes despite availing tax concessions. It was argued that what was exempt under the erstwhile Section 115JA of the Act cannot be presumed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power-generating companies, from 01.04.2001 onwards. 11. On behalf of the Revenue, it was further contended that Explanation 3, inserted by the Finance Act, 2012, is a clarificatory amendment which clarifies that the companies referred to in the second proviso to Section 129(1) of the Companies Act, 2013, namely any company engaged in the generation of supply of electricity has an option for any assessment year prior to 01.04.2012 to prepare its statement of profit and loss either in accordance with the Companies Act, 2013 or in accordance with provisions of any special act governing such company. However, this clarification does not grant exemption from MAT but instead outlines procedural flexibility. 12. It was argued that reliance placed on the Bombay High Court s decision in Commissioner of Income-tax-LTU v. Union Bank of India: (2019) 13 ITR-OL 655 is also misplaced, as the findings therein are ex-facie contrary to the provisions of the Act and per incuriam. The Revenue has challenged this decision before the Hon ble Supreme Court, where leave has been granted, which places the finality of this judgment in jeopardy. It was contended that Bombay High Court erred in not conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erala High Court in Kerala State Electricity Board v. Deputy Commissioner of Income-tax (supra) and later by the Bombay High Court in Commissioner of Income-tax-LTU v. Union Bank of India (supra). It is submitted that the Kerala High Court held that Section 115JB of the Act was inapplicable to electricity companies because the machinery provisions in Sub-section (2) are inoperable for such companies, and the same render the charging section unenforceable. It was argued that the Kerala High Court relied on the judgment of the Hon ble Supreme Court in Commissioner of Income Tax v. B.C. Srinivasa Setty: (1981) 128 ITR 294, which held that a charging section and its machinery provisions constitute an integrated code, and the inoperability of the machinery provisions negates the applicability of the charging section. This principle was reaffirmed by the Hon ble Supreme Court in Commissioner of Income Tax v. Eli Lilly and Co. (India) P. Ltd: (2009) 312 ITR 225, which clarified that the failure of a computation provision implies the inapplicability of the charging section. 16. The assessee submitted that the Finance Act, 2012 introduced a substantive amendment to Section 115JB of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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): Provided that while preparing the annual accounts including profit and loss account, (i) the accounting polices ; (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 be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of company for which a form of profit and loss account has been specified in or under the Act governing such class of company. 22. Thus, the accounts, laid down in the annual general meeting of an electricity company, would have been prepared in accordance with the special statutes, such as the Electricity Act, 2003 and the Electricity (Supply) Act, 1948. However, as noted above, sub-section (2) of Section 115JB of the Act clearly mandates that the accounts prepared must comply with Schedule VI of the Companies Act, 1956, and use the same accounting policies, standards, etc. as those adopted for preparing accounts for the annual general meeting under Section 210 of the Companies Act, 1956; whereas the electricity companies are not required to prepare their accounts in terms of Schedule VI of the Companies Act, 1956. 23. Therefore, in view of the aforesaid, it would prima facie appear that Section 115JB of the Act, as it stood during AY 2006-07, would become inapplicable to an electricity company. 24. This also becomes clear in light of the amended Section 115JB of the Act. The relevant portion of Section 115JB of the Act, as it read post amendment by Finance Act, 2012, is set out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of this section, would prepare their profit and loss account as per the provisions of the Acts governing such companies. 26. Therefore, the amended Section 115JB of the Act takes into account the anomaly discussed in preceding paragraphs, insofar as the applicability of Section 115JB of the Act to electricity companies, etc. is concerned, and aims to resolve the same by including the electricity companies, etc. within its ambit by way of sub-section 2(b). The intent of this amendment is also amplified in the Memorandum Explaining the Provisions made in the Finance Bill, 2012, in relation to MAT. The relevant extract of the Memorandum reads as under: Minimum Alternate Tax (MAT) I. Under the existing provisions of section 115JB of the Act, a company is liable to pay minimum alternate tax of eighteen and one-half per cent. of its book profit in case tax on its total income computed under the provisions of the Act is less than the minimum alternate tax liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive regulatory Acts. This created inconsistencies while applying MAT provisions. The new amendment allowed such companies to compute their book profits under Section 115JB of the Act using accounts prepared as per their regulatory Acts, thereby aligning the provisions of the Act with the Companies Act, 1956, and ensuring consistency in tax computation for these special categories of companies. However, the Memorandum also clarified that these amendments were prospective in nature and applicable from AY 2013-14 onwards. 28. We also note that the same issue was considered and decided by the Kerala High Court in Kerala State Electricity Board v. Deputy Commissioner of Income-tax (supra), against the Revenue. The Court analysed the history of the provisions, including its precursors i.e. Section 115J and 115JA of the Act, and observed that Section 115J of the Act expressly excluded from its scope a company engaged in the business of generation or distribution of electricity . Thereafter, such express exclusion was missing in Section 115JA of the Act, which succeeded Section 115J; however, Circular No. 762, dated 18.02.1998, issued by the CBDT provided that the companies engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in the above-noted case had also dealt with an argument of the Revenue that Explanation 3 to sub-section (2) of Section 115JB of the Act, inserted by Finance Act, 2012, was a clarificatory amendment, which clarified that companies such as banking, insurance or electricity companies, have an option for any AY prior to 01.04.2012 to prepare their profit and loss account either in accordance with the Companies Act, 1956 or in accordance with provisions of any special act governing such company. In this regard, the Bombay High Court observed that firstly, in the original form, sub-section (2) of Section 115JB of the Act did not offer any option to a banking company, insurance company or electricity company to prepare its profit and loss account at its choice either in terms of its governing Act or as per terms of Section 115JB of the Act. Secondly, by virtue of this explanation, if an anomaly which has been noticed is sought to be removed, the same had not been achieved inasmuch as it was not a case of retrospective legislative amendment, and when the plain language of sub-section (2) of Section 115JB of the Act did not permit any ambiguity, one cannot say that the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Arijit Prasad, learned senior advocate in support of the Revenue and Mr. Ritin Rai, learned senior advocate for the assessee. The judgment under appeal was rendered by the Division Bench of the Kerala High Court in I.T.A. No.1710 of 2009 dated 12.11.2010. We have gone through the circumstances on record and considered the rival submissions. In our view, no interference is called for. We, therefore, dismiss this appeal. No costs. Pending applications, if any, also stand disposed of. *** SLP(C) No.11435/2022, 11393/2022 and 12257/2022 Since the issue involved in the instant matters stand covered by the dismissal of Civil Appeal No.151 of 2015, the instant matters are also dismissed. Pending applications, if any, also stand disposed of. 34. Thus, the primary argument of the Revenue that the decisions of Kerala High Court, Bombay High Court and Rajasthan High Court are contrary to law and fails to appreciate the statutory framework, etc. are now unmerited, in view of the decision of the Hon ble Supreme Court by virtue of which the judgments delivered by the Kerala High Court and Rajasthan High Court on the same issue, in favour of electricity companies and against the Revenue, have b ..... 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