2010 (11) TMI 127 - HC - Income Tax

MAT under Section 115JB not payable for electricity generation/distribution companies; Section 43B(a) excludes fiduciary electricity duty collections

HC held that MAT under section 115JB could not be imposed on the appellant, adopting the CBDT's policy exclusion for companies engaged in electricity ... Levy of electricity duty on consumers - Applicability of Minimum Alternate Tax (MAT) u/s 115JB - electricity company - fiduciary capacity - relationship of the principal and agent - Applicability of Section 43B - Held that:- The Central Board of Direct Taxes understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (section 115JA) for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the Central Board of Direct Taxes is binding on the Department - the fiction fixed under section 115JB cannot be pressed into service against the appellant while making the assessment of the tax payable under the Income-tax Act. Applicability of section 43B - in respect of the electricity duty collected - In substance, though it is not clearly indicated in the assessment order, the case of the Revenue is that section 43B(a) is attracted ; whereas the case of the appellant is that the said clause is applicable only in those cases where any sum is payable by the assessee qua tax, duties, cess or fee under any law for the time being in force - Held that:- The only clause if at all is relevant in the context of the facts of the appellant's case is clause (a) which deals with 'any sum payable by the assessee by way of tax, duty, . . . . under any law for the time being in force'. - the words, 'by way of tax' are relevant as they are indicative of the nature of liability. - The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign. Whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation, in our opinion, continues to be fiduciary even in a case wherein the relationship of the principal and agent is created by a statute. We are of the opinion that, when section 43B(a) speaks of the sum payable by way of tax, etc. ; the said provision is dealing with the amounts payable to the sovereign qua sovereign, but not the amounts payable to the sovereign qua principal. Section 43B cannot be invoked in making the assessment of the liability of the appellant under the Income-tax Act with regard to the amounts collected by the appellant pursuant to the obligation cast on the appellant under section 5 of the Kerala Electricity Duty Act, 1963. Issues Involved:1. Applicability of Section 115JB of the Income-tax Act.2. Applicability of Section 43B of the Income-tax Act.Issue-wise Detailed Analysis:1. Applicability of Section 115JB of the Income-tax Act:The primary issue revolves around whether Section 115JB, which mandates a minimum alternate tax (MAT) on companies, is applicable to the appellant, a statutory corporation constituted under the Electricity (Supply) Act, 1948. The appellant contends that it should not be subjected to Section 115JB since it is engaged in the generation and distribution of electricity, a sector previously excluded under Section 115J and understood to be excluded under Section 115JA by the Central Board of Direct Taxes (CBDT) Circular No. 762.The court examined the legislative history of Sections 115J, 115JA, and 115JB. Section 115J expressly excluded companies engaged in the generation or distribution of electricity. Although Section 115JA did not explicitly exclude such companies, the CBDT's Circular No. 762 clarified that the MAT provisions were not intended to apply to them. The court held that Section 115JB, being similar in purpose and structure to its predecessors, should be interpreted in the same manner, thereby excluding the appellant from its purview.The court also considered the appellant's unique status as a statutory corporation without shareholders, which further supported the argument that the MAT provisions were not meant to apply. The court concluded that the legal fiction under Section 115JB could not be pressed into service against the appellant for tax assessment purposes.2. Applicability of Section 43B of the Income-tax Act:The second issue pertains to whether Section 43B, which mandates that certain deductions can only be claimed on actual payment, applies to the electricity duty collected by the appellant from consumers. The appellant argued that the duty collected was not its income but was held in a fiduciary capacity as an agent of the State of Kerala, and hence, Section 43B should not apply.The court analyzed the nature of the duty collected under the Kerala Electricity Duty Act, 1963. It noted that the duty was collected by the appellant on behalf of the State and was to be paid to the State. The court distinguished between amounts payable by an assessee as a tax and amounts held by an assessee as an agent for the principal (the State in this case). It held that Section 43B(a) applies to sums payable by way of tax by the assessee in its capacity as a taxpayer, not as an agent.Therefore, the court concluded that Section 43B could not be invoked in assessing the appellant's tax liability concerning the amounts collected as electricity duty. However, it clarified that this conclusion does not exempt the collected amounts from income tax liability altogether; such questions must be examined independently by the assessing authority.Conclusion:The court allowed the appeals, holding that Section 115JB does not apply to the appellant and that Section 43B was not properly invoked concerning the electricity duty collected. The assessment orders were set aside to the extent they applied these provisions to the appellant.