2025 (1) TMI 822 - HC - Income Tax

Section 115JB MAT on Book Profits Not Applicable to Electricity Sector for AY 2006-07 Due to Accounting Rules

The HC held that Section 115JB, relating to MAT on book profits, was inapplicable to the assessee engaged in electricity generation and distribution for ... MAT/Section 115JB applicability on the assessee engaged in the business of electricity generation and distribution - additions made on account of Book Profit u/s 115JB - HELD THAT:- The accounts, laid down in the annual general meeting of an electricity company, would have been prepared in accordance with the special statutes, such as the Electricity Act, 2003 and the Electricity (Supply) Act, 1948. However, as noted above, sub-section (2) of Section 115JB of the Act clearly mandates that the accounts prepared must comply with Schedule VI of the Companies Act, 1956, and use the same accounting policies, standards, etc. as those adopted for preparing accounts for the annual general meeting under Section 210 of the Companies Act, 1956; whereas the electricity companies are not required to prepare their accounts in terms of Schedule VI of the Companies Act, 1956. Therefore, in view of the aforesaid, it would prima facie appear that Section 115JB of the Act, as it stood during AY 2006-07, would become inapplicable to an electricity company. Scope of amended Section 115JB - The new amendment allowed such companies to compute their book profits under Section 115JB of the Act using accounts prepared as per their regulatory Acts, thereby aligning the provisions of the Act with the Companies Act, 1956, and ensuring consistency in tax computation for these special categories of companies. However, the Memorandum also clarified that these amendments were prospective in nature and applicable from AY 2013-14 onwards. Thus, Section 115JB did not apply to the assessee for AY 2006-07. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question addressed in this judgment is whether Section 115JB of the Income Tax Act, 1961, applies to the assessee, an electricity company, for the assessment year 2006-07. Specifically, it examines whether the Minimum Alternate Tax (MAT) provisions under Section 115JB are applicable to companies engaged in the generation and distribution of electricity before the amendment introduced by the Finance Act, 2012.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsSection 115JB of the Income Tax Act, 1961, mandates that companies pay tax on their book profits if such tax exceeds the tax computed under normal provisions. The section requires companies to prepare their profit and loss accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. However, companies engaged in electricity generation and distribution are governed by special statutes, which mandate a different accounting framework.Precedents include the Kerala High Court's decision in Kerala State Electricity Board v. Deputy Commissioner of Income-tax, which held that MAT provisions were inapplicable to electricity companies prior to the 2012 amendment. The Bombay High Court in Commissioner of Income-tax-LTU v. Union Bank of India reached a similar conclusion for banking companies.Court's Interpretation and ReasoningThe court analyzed the applicability of Section 115JB to electricity companies, emphasizing the discrepancy between the accounting requirements under the Companies Act and those under special statutes governing electricity companies. The court noted that the amendment introduced by the Finance Act, 2012, addressed this discrepancy by allowing companies to prepare accounts according to their governing statutes, but this amendment was prospective.Key Evidence and FindingsThe court relied on the legislative history and the explanatory memorandum accompanying the Finance Act, 2012, which clarified that the amendment was intended to align the Income Tax Act with the Companies Act. The court also considered previous judicial decisions that supported the non-applicability of MAT to electricity companies before the amendment.Application of Law to FactsThe court applied the legal framework to the facts, concluding that the machinery provisions of Section 115JB were inoperable for electricity companies prior to the 2012 amendment. This inoperability rendered the charging section unenforceable for such companies during the relevant assessment year.Treatment of Competing ArgumentsThe Revenue argued that the amendment was clarificatory and that the Kerala High Court's decision was distinguishable. However, the court found these arguments unpersuasive, particularly in light of the Supreme Court's dismissal of appeals against similar decisions in favor of electricity companies.ConclusionsThe court concluded that Section 115JB did not apply to the assessee for AY 2006-07, as the statutory framework and judicial precedents supported the view that the MAT provisions were inapplicable to electricity companies before the 2012 amendment.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe court emphasized: 'The amended Section 115JB of the Act takes into account the anomaly discussed in preceding paragraphs, insofar as the applicability of Section 115JB of the Act to electricity companies, etc. is concerned, and aims to resolve the same by including the electricity companies, etc. within its ambit by way of sub-section 2(b).'Core Principles EstablishedThe judgment establishes that the MAT provisions under Section 115JB, as they stood prior to the 2012 amendment, do not apply to electricity companies due to the inoperability of the machinery provisions for such companies.Final Determinations on Each IssueThe court affirmed the decision of the Income Tax Appellate Tribunal, holding that Section 115JB was inapplicable to the assessee for the relevant assessment year, and dismissed the Revenue's appeal.