2008 (2) TMI 557 - HC - Income Tax

Inclusion of Capital Gains in Book Profit Upheld Under Income-tax Act

The court upheld the inclusion of long-term capital gains in the book profit for assessment under section 115J of the Income-tax Act, 1961. It ruled that ... “1. Whether Tribunal was justified in law in holding that the capital gains is part of the book profits under section 115J of the Income-tax Act, 1961? - 2. Whether there were materials for the Appellate Tribunal to hold that even though section 115J is a deeming provision the long-term capital gain which itself is deemed income and which is saved by the operation of section 54E is liable to be included in the book profit under section 115J of the Act?” - We, answer the questions raised against the assessee and uphold the order of the Tribunal. The appeal is accordingly dismissed. Issues:1. Whether capital gains are part of the book profits under section 115J of the Income-tax Act, 1961Rs.2. Whether the exemption on long-term capital gains under section 54E can be claimed in the computation of book profit under section 115J of the ActRs.Analysis:1. The appellant challenged the order of the Income-tax Appellate Tribunal regarding the inclusion of long-term capital gains in the book profit for assessment under section 115J of the Act. The appellant claimed relief under section 54E for the long-term capital gains but the Assessing Officer included the gains in the book profit calculation. The Tribunal, on appeal by the Department, upheld the inclusion of capital gains in the book profit. The appellant contended that capital gains should be excluded based on the exemption under section 54E. However, the court held that the assessment under section 115J is a self-contained code, and no further deductions beyond those specified in the Explanation to section 115J(1A) are allowed. The court cited the non obstante clause in section 115J(1) to emphasize that the assessment under this section overrides other provisions of the Act. The court also referred to a Bombay High Court decision stating that capital gains are part of profit and cannot be excluded in the computation of book profit.2. The appellant argued that the exemption under section 54E should be applicable to exclude capital gains from the book profit calculation. However, the court held that since there is no provision in Chapter XII-B for the deduction of capital gains in the computation of book profit, the appellant is not entitled to the claimed deduction. The court emphasized that as long as long-term capital gains are part of the profit included in the profit and loss account prepared under Schedule VI to the Companies Act, they cannot be excluded unless specified in the Explanation to section 115J(1A) of the Act. Therefore, the court concluded that section 54E has no application in the computation of book profit under section 115J.In conclusion, the court answered the questions against the appellant, upholding the Tribunal's order and dismissing the appeal.