Court rules T.D.S. not to increase book profit under sec 115J

The Court ruled in favor of the assessee, holding that the book profit under section 115J should not be increased by the T.D.S. amount as it was not debited to the Profit and Loss Account in accordance with the Companies Act. The Court emphasized that adjustments to net profit should only be made as specified in the Explanation to section 115J, and legislative amendments were necessary for any changes. The Revenue's argument to include the T.D.S. amount was rejected, and the Court disposed of the Reference with no costs awarded.

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Issues Involved:
1. Whether the book profit under section 115J of the Income Tax Act should be increased by the T.D.S. amount, despite not being debited to the Profit and Loss Account as per the Companies Act.

Issue-wise Detailed Analysis:

1. Tribunal's Decision on Book Profit Calculation:
The Tribunal held that the book profit under section 115J should include the T.D.S. amount of Rs. 5,73,451/-. The assessee had filed a return declaring taxable income under section 115J, but the Assessing Officer added the T.D.S. amount to the book profit. This decision was upheld by the Commissioner (Appeals) and the Tribunal. The Tribunal rejected the assessee's Miscellaneous Application for rectification, stating no apparent mistake existed in its order.

2. Assessee's Argument Based on Companies Act:
The assessee argued that under paragraph No. 3 (xi) of Part-II of Schedule-VI to the Companies Act, 1956, income from dividends could be shown net of T.D.S. They contended that the book profit calculation should not include the T.D.S. amount since it was not debited to the Profit and Loss Account.

3. Legal Provisions and Explanation under Section 115J:
The assessee's advocate emphasized that the book profit should be computed based on the net profit shown in the Profit and Loss Account prepared as per the Companies Act. Any adjustments to the net profit should only be as per the Explanation under section 115J. The Tribunal had accepted that the assessee's books were correctly prepared as per the Companies Act, thus the addition of T.D.S. was not permissible.

4. Revenue's Argument on Gross Income and T.D.S.:
The Revenue argued that dividend income should be considered gross, as per section 198 of the Act, and the T.D.S. amount should be included in the book profit. They cited section 8 and clause (a) of the Explanation to section 115J, which requires the net profit to be increased by income tax paid or payable if debited to the Profit and Loss Account. They contended that the Profit and Loss Account should clearly disclose the company's financial results, and the addition of T.D.S. was justified.

5. Reference to Accounting Standards:
The Revenue referred to Accounting Standards, particularly AS-13, which requires gross income to be stated, including T.D.S. However, the Court noted that AS-13 came into effect for financial statements from 1.4.1995, and thus was not applicable to the financial year in question (ending 31.3.1988).

6. Supreme Court's Judgment in Apollo Tyres Ltd.:
The Court referred to the Supreme Court's judgment in Apollo Tyres Ltd., which stated that the Assessing Officer's power under section 115J is limited to verifying whether the books of accounts are certified as per the Companies Act. The Assessing Officer cannot reassess the company's income beyond the adjustments specified in the Explanation to section 115J.

7. Court's Interpretation and Conclusion:
The Court concluded that the Assessing Officer could only make adjustments to the net profit as specified in the Explanation to section 115J. Since the T.D.S. amount was not debited to the Profit and Loss Account, it could not be added to the book profit. The Court emphasized that it could not add words to the statute to address perceived inequities and that legislative amendments were required for any changes.

8. Final Judgment:
The Court answered the referred question in the negative, ruling in favor of the assessee and against the Revenue. The book profit under section 115J should not be increased by the T.D.S. amount since it was not debited to the Profit and Loss Account as per the Companies Act. The Reference was disposed of with no order as to costs.

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