2016 (2) TMI 458 - AT - Income Tax

Assessee wins appeal: Section 115JB inapplicable, disallowance under Section 14A unjustified, no interest under Section 234C

Damodar Valley Corporation Versus Addl. CIT, Range-9, Kolkata and Damodar Valley Corporation Versus D CIT, Cir-9, Kolkata

The tribunal held that Section 115JB is not applicable to the assessee corporation established under the Damodar Valley Corporation Act, 1948. ... MAT applicability - whether the provisions of section 115JB of the Act are applicable to the assessee being a Corporation established under Damodar Valley Corporation Act, 1948 for the Asst Years 2008- 09 and 2009-10 - Held that:- As we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee’s contention in fact stands more fortified. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of Companies Act, 1956 , section 211(2) and proviso thereon is not applicable and therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable. Disallowance u/s 14A - Held that:- AO had adopted the disallowance figure u/s 14A of the Act at ₹ 20,03,61,170/- under normal provisions of the Act and at ₹ 41,16,36,422/- under the provisions of section 115JB of the Act. There seems to be apparent mistake on adoption of figures by the Learned AO while computing the book profits u/s 115JB of the Act. However, we have already held that the assessee corporation is not liable to pay tax on the book profits u/s 115JB of the Act and accordingly, the issue of whether the disallowance u/s 14A of the Act could be added to the book profits u/s 115JB of the Act, becomes infructuous. Accordingly the ground raised by the assessee in this regard is allowed. Applicability of rule 8D - Held that:- As the action of the Learned AO in directly embarking on Rule 8D(2) of the Rules without recording any satisfaction as mandated in Rule 8D(1) of the Rules is not appreciated and hence no disallowance u/s 14A of the Act by applying Rule 8D(2) of the Rules could be made in the facts of the instant case. In the instant case the assessee corporation had disallowed a sum of ₹ 11,08,315/- and no adverse inference has been brought on record and no satisfaction has been recorded with cogent reasons by the Learned AO as to why the said figure computed by the assessee is incorrect. Without satisfying the requirement contemplated in Rule 8D(1) , the Learned AO had directly proceeded to apply Rule 8D(2) in the instant case. Hence the disallowance u/s 14A of the Act cannot be made in the instant case of the assessee corporation for the Asst Years 2008-09 and 2009-10. Interest u/s 234C - Held that:- As per Circular: No. 676, dated 14-1-1994 and section 10 of General Clauses Act, we hold that the assessee had not committed any default in payment of first instalment of advance tax and hence we direct the Learned AO not to charge interest u/s 234C in the instant case for the first quarter. Issues Involved:1. Applicability of Section 115JB to a statutory corporation.2. Disallowance under Section 14A.3. Levy of interest under Section 234C.Detailed Analysis:1. Applicability of Section 115JB to a Statutory Corporation:The primary issue was whether Section 115JB of the Income Tax Act, 1961, applies to the assessee, a statutory corporation established under the Damodar Valley Corporation Act, 1948.Arguments by the Assessee:- The corporation is established by an Act of Parliament and does not have equity capital or shareholders.- The accounts are maintained as per the DVC Act, 1948, and not as per Schedule VI of the Companies Act, 1956.- The corporation does not distribute profits as dividends.- Cited the Kerala High Court judgment in Kerala State Electricity Board Vs DCIT, which held that statutory corporations not registered under the Companies Act are not liable to be assessed on 'book profits' under Section 115JB.Arguments by the Revenue:- The assessee filed returns under Section 115JB and sought to withdraw this applicability during assessment proceedings without filing a revised return.- Section 43 of the DVC Act, 1948, states that the corporation shall pay taxes on income in the same manner as a company.Tribunal's Findings:- The corporation is not a company under the Companies Act, 1956, and does not prepare its accounts as per Part II of Schedule VI of the Companies Act.- Section 115JB applies to companies defined under the Companies Act, 1956, and the accounts must be prepared accordingly.- The amendment in Section 115JB effective from 1.4.2013 clarifies that only entities registered and recognized as companies under the Companies Act are covered.- The legislative intent was not to impose MAT on statutory corporations like the assessee.- The tribunal relied on several judicial precedents, including Kerala State Electricity Board vs DCIT and Maharashtra State Electricity Board vs JCIT, supporting the non-applicability of Section 115JB to statutory corporations.Conclusion:The provisions of Section 115JB are not applicable to the assessee corporation for the assessment years 2008-09 and 2009-10.2. Disallowance under Section 14A:The issue was whether the disallowance under Section 14A of the Act could be made under the normal provisions and under Section 115JB.Facts:- The assessee derived exempt income from interest on tax-free bonds, Provident Fund investments, and dividends.- The assessee disallowed a portion of employee costs related to the Provident Fund cell as attributable to earning exempt income.- The AO invoked Rule 8D and made disallowances under Section 14A.Tribunal's Findings:- The AO did not record satisfaction as required under Rule 8D(1) before applying Rule 8D(2).- The assessee had sufficient own funds to make the investments, and no nexus between borrowed funds and investments was established.- The tribunal cited the Bombay High Court decision in CIT vs Reliance Utilities & Power Ltd, which held that if own funds are available, it is presumed that investments are made from those funds.- The tribunal also referred to the decision in DCIT vs M/s Trade Apartment Ltd, which held that no disallowance can be made if there is no net interest expenditure.Conclusion:The disallowance under Section 14A was not justified, and the assessee's method of disallowance was accepted. The issue of disallowance under Section 115JB became infructuous as Section 115JB was held not applicable.3. Levy of Interest under Section 234C:The issue was whether interest under Section 234C could be levied for a delay in payment of the first installment of advance tax.Facts:- The assessee paid the first installment of advance tax on 16.6.2008, as 15.6.2008 was a Sunday.Tribunal's Findings:- The tribunal referred to CBDT Circular No. 676 dated 14.1.1994, which states that if the last day for payment is a holiday, payment made on the next working day is considered timely.- The tribunal also cited Section 10 of the General Clauses Act, which supports this interpretation.Conclusion:The assessee had not committed any default, and interest under Section 234C should not be charged.Summary:The appeals for the assessment years 2008-09 and 2009-10 were allowed. The tribunal held that Section 115JB is not applicable to the assessee, disallowance under Section 14A was not justified, and interest under Section 234C should not be charged.