2025 (1) TMI 1389 - AT - Income Tax

Electricity companies governed by specific statutes exempt from MAT provisions under Section 115JB before 2012 amendment

Gujarat State Electricity Corporation Ltd. Versus The DCIT Circle-1 (1) Baroda

The ITAT Ahmedabad ruled that MAT provisions under Section 115JB did not apply to electricity companies governed by specific statutes distinct from the ... MAT applicability to electricity companies - HELD THAT:- High Court of Rajasthan, in Ajmer Vidyut Vitran Nigam Ltd. [2021 (11) TMI 1103 - RAJASTHAN HIGH COURT] clarified that the MAT provisions u/s 115JB did not apply to electricity companies governed by specific statutes distinct from the Companies Act, regardless of their incorporation status. Thus, CIT(A)’s rejection of these judicial precedents is not sustainable. CIT(A) referenced Section 115JA of the Act, highlighting exclusions under Clause (iv) for companies engaged in power generation, but argued that this exclusion was not extended to Section 115JB. We note that the legislative history and the interpretation provided by higher judicial authorities clearly establish that companies like GSECL (the assessee company) were not intended to be covered by MAT prior to the amendment in 2012. Consequently, the CIT(A)’s interpretation does not align with the legislative intent and judicial guidance. The provisions of Section 115JB did not apply to electricity companies governed by distinct statutes before the amendment effective from 1-4-2013. We allow the appeals of the assessee for both assessment years, and the additions to the book profits under Section 115JB are hereby deleted. Assessee appeal allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered was whether the provisions of Section 115JB of the Income-tax Act, 1961, which relates to Minimum Alternate Tax (MAT), were applicable to Gujarat State Electricity Corporation Ltd. (GSECL) for the assessment years 2002-03 and 2004-05. Specifically, the Tribunal examined if GSECL, being an electricity generating company governed by the Electricity (Supply) Act, 1948, was exempt from MAT prior to the amendment by the Finance Act, 2012.ISSUE-WISE DETAILED ANALYSIS1. Applicability of Section 115JB to Electricity Companies- Relevant Legal Framework and Precedents: Section 115JB of the Income-tax Act mandates the computation of book profits for MAT purposes based on financial statements prepared under the Companies Act. The assessee cited precedents from the Kerala High Court and the Mumbai ITAT, which held that statutory corporations engaged in power generation were not subject to MAT due to their statutory obligations. The Supreme Court's decision in Ajmer Vidyut Vitran Nigam Ltd. was also pivotal, where it was held that MAT provisions did not apply to electricity generating companies prior to the 2012 amendment.- Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) had relied on the incorporation status of GSECL under the Companies Act to apply MAT provisions. However, the Tribunal emphasized that the legislative intent and judicial precedents indicated that electricity companies were not intended to be covered by MAT prior to the 2012 amendment.- Key Evidence and Findings: The Tribunal considered the audited financial statements of GSECL, which were prepared under the Electricity (Supply) Act, 1948, and noted the specific accounting standards applicable to electricity companies. The Tribunal found that the CIT(A) had not adequately considered the exclusions applicable to electricity companies before the amendment.- Application of Law to Facts: The Tribunal applied the Supreme Court's decision in Ajmer Vidyut Vitran Nigam Ltd. to conclude that Section 115JB did not apply to GSECL for the years in question. The Tribunal noted that the CIT(A)'s reliance on the incorporation status under the Companies Act was misplaced.- Treatment of Competing Arguments: The Tribunal acknowledged the arguments of the Departmental Representative, who contended that GSECL was a company under the Companies Act and thus liable to MAT. However, the Tribunal prioritized the judicial precedents and legislative history, which supported the assessee's position.- Conclusions: The Tribunal concluded that GSECL was not liable to MAT under Section 115JB for the assessment years 2002-03 and 2004-05, as the provisions did not apply to electricity companies prior to the amendment.2. Additions to Book Profits- Prior Period Expenses and Foreign Exchange Variations: The CIT(A) had confirmed additions related to prior period expenses and foreign exchange variations to the book profits under Section 115JB. The Tribunal found that these additions were unjustified, given that Section 115JB was not applicable to GSECL for the relevant years.SIGNIFICANT HOLDINGS- The Tribunal held that 'the provisions of Section 115JB, as they stood before the amendment by the Finance Act, 2012, do not apply to companies like the assessee company, which are engaged in the generation of electricity and governed by the Electricity (Supply) Act, 1948.'- The Tribunal emphasized the legislative intent and judicial guidance, stating that 'the legislative framework before the 2012 amendment did not specifically include electricity companies because they prepared their accounts under specialized statutes and not under the Companies Act.'- The Tribunal allowed the appeals of the assessee for both assessment years, deleting the additions to the book profits under Section 115JB.