2019 (7) TMI 35 - HC - Income Tax

Court upholds validity of Tax Act provision on minimum tax payment for profitable companies, dismisses Tax Appeal

CAIRN INDIA HOLDING LTD. Versus ASSISTANT COMMISSIONER OF INCOME TAX (INTL TAXN) -1

The court dismissed the Tax Appeal and upheld the validity of clause (iii) in Explanation 1 to Section 115JB(2) of the Income Tax Act, 1961. The court ... Constitutional validity of clause (iii) of Explanation 1 of section 115JB - non availability to claim brought forward loss where either loss brought forward or unabsorbed depreciation is nil - the provision has been challenged as being discriminatory towards those assessees, who do not have capital asset based infrastructure and as such would not have any unabsorbed depreciation. Thus, despite having substantial brought forward loss, the petitioner in the light of the provisions of clause (iii) of the Explanation to section 115JB of the Act is still liable to pay tax on the book profit without the same being reduced by the amount of brought forward loss. HELD THAT:- As in CAIRN EXPLORATION (NO. 7) LTD & 1 VERSUS UNION OF INDIA & 2 [2010 (10) TMI 1182 - GUJARAT HIGH COURT] Court does not find the impugned provision to be in any manner unconstitutional, hence, the question of reading it down to save its constitutional validity does not arise. Besides, the provisions of clause (iii) of the Explanation to section 115JB are clear and ambiguous and it is not possible to take two views as to the meaning of the statutory language. Hence, the request to read down the provision also does not merit acceptance. Consequently, the question of directing the respondents to allow reduction of the brought forward losses of the petitioner company from the net profit in order to compute book profits under section 115JB of the Act in absence of any unabsorbed depreciation in the assessment year under consideration, also cannot be accepted. Issues Involved:1. Constitutional validity of clause (iii) in Explanation 1 to Section 115JB(2) of the Income Tax Act, 1961.2. Alleged violation of Articles 14 and 19(1)(g) of the Constitution of India.3. Discrimination against companies not employing depreciable assets.4. Contradiction with the object of Section 115JB and the Income Tax Act.5. Distinction between brought forward business loss and unabsorbed depreciation.Detailed Analysis:1. Constitutional Validity of Clause (iii) in Explanation 1 to Section 115JB(2):The primary issue in this Tax Appeal is the constitutional validity of clause (iii) in Explanation 1 to Section 115JB(2) of the Income Tax Act, 1961. The assessee contends that this provision is ultra vires the Income Tax Act and the Constitution of India. The court previously upheld the validity of this provision in a similar case involving the same assessee (Special Civil Application No.11581 of 2008 decided on 21/10/2010). The court reaffirmed that the provision applies uniformly and equally to all companies falling within the ambit of Section 115JB, without any discrimination.2. Alleged Violation of Articles 14 and 19(1)(g) of the Constitution of India:The assessee argues that the provision is arbitrary, discriminatory, and violative of Articles 14 and 19(1)(g) of the Constitution. The court, however, found that the provision does not create any class within the class of assessees falling under Section 115JB. It applies uniformly to all companies, and any disadvantage faced by a particular assessee is a mere fortuitous circumstance. The court emphasized that the legislature is not required to address every fortuitous circumstance while enacting a provision.3. Discrimination Against Companies Not Employing Depreciable Assets:The assessee contends that the provision discriminates against companies that do not have capital asset-based infrastructure and, therefore, do not have any unabsorbed depreciation. The court rejected this argument, stating that the provision does not intend to make any classification between capital asset infrastructure companies and capital-intensive companies with no capital assets. The classification is based on the objective of taxing zero-tax paying prosperous companies, and it does not violate the equality clause.4. Contradiction with the Object of Section 115JB and the Income Tax Act:The assessee claims that the provision contradicts the core objective of Section 115JB and the Income Tax Act, which is to ensure that all companies pay at least some tax. The court found that Section 115JB, including clause (iii) of the Explanation, applies uniformly to all companies and does not deprive any company of its rights. The provision ensures that companies with book profits pay a minimum tax, even if they have brought forward losses but no unabsorbed depreciation.5. Distinction Between Brought Forward Business Loss and Unabsorbed Depreciation:The assessee argues that the provision creates an artificial distinction between brought forward business loss and unabsorbed depreciation, which is not provided in other Minimum Alternative Tax provisions under Section 115JB. The court held that the provision is a special scheme to prevent companies from avoiding total payment of income tax through various deductions and allowances. The distinction is justified and does not render the provision unconstitutional or invalid.Conclusion:The court concluded that the proposed questions of law are no longer res-integra in view of the previous decision. The Tax Appeal was dismissed, and the court upheld the validity of the provisions of clause (iii) in Explanation 1 to Section 115JB(2) of the Income Tax Act, 1961. The court emphasized that the provision applies uniformly to all companies and does not violate the Constitution of India.