TaxTMI 
TaxTMI 
2008 (12) TMI 251
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....s & Gains from Business 11,92,93,762 Income from other sources 9,82,048 Gross total income 12,02,75,810 Less: Deduction under section 80-IA(4)(iv) 11,92,93,782 Total Income 9,82,048 Tax on the above @ 35% 3,43,717 Add: Surcharge @ 2.5% 8,593 3,52,310 Add: Education cess @ 2% 7,046 3,59,356 In the same page, the assessee also worked out the computation of income as per the provisions of section 115JB of the Act as follows : Computation of Income-tax as per provisions of section 115JB of the Income-tax act, 1961 Net profit (before tax) as per Audited Profit & Loss Account 6,18,36,131 Book Profit 6,18,36,131 R/off 6,18,36,131 Tax payable @ 7.5% 46,37,710 Add : surcharge @ 2.5% 1,15,943 Tax payable 47,53,653 Add : Education Cess @ 2% 95,073 48,48,726 From the above tax payable, prepaid taxes of Rs. 49,04,241 were adjusted and a refund of Rs. 55,515 was claimed. 2. The assessee filed a revised return on 31-3-2006. In this return, the profits and gains from the business were computed at Rs. 11,97,79,339 and....
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.... It would follow that since no tax at all is payable on the income computed under the normal provisions of the Income-tax Act (as shown in this revised return), the provisions of section 115JB, per se, would be inapplicable as comparison between the tax "payable" under the normal provisions of the Income-tax Act and the tax "payable" on the book profits as computed under section 115JB as envisaged on a reading of the section 115JB to make it operative, would itself be not possible; and (b) Secondly, even the computation of book profit was done without excluding deduction available under section 80-IA(4)(iv) on the parity of reasoning for exclusion of other deductions which is erroneous. Hence, this revised return of income is being filed returning total income of Rs. NIL as per the normal provisions of the Act and claiming a refund of Rs. 49,04,241. Since the revised return is valid in terms of section 139(5) of the Act, it is requested that the refund claimed may kindly be granted." 3. Before the Assessing Officer in the course of the assessment proceedings, the assessee took up the plea that since it did not have....
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....ng income therefrom. He, therefore, held that the interest income has to be assessed separately under the head "Income from other sources". He proceeded to compute the total income of the assessee under the normal provisions of the Act in the following manner : Profits & Gains from business Rs. 11,92,93,672 Income from Other Sources : I. Interest income from GD Rs. 6,00,547 II. Interest income from Income- tax refund Rs. 3,81,501 Rs. 9,82,050 Gross Total Income Rs. 12,02,75,810 Less : Deduction under section 80-IA(4)(iv) Rs. 11,92,93,672 Total income Rs. 9,82,050 The Assessing Officer also computed the book profit at Rs. 6,18,36,131 and the tax payable thereon, including surcharge, at Rs. 47,53,653. Since obviously this was more than the tax payable on the total income computed under the normal provisions of the Income-tax Act at Rs. 9,82,050, he directed the assessee to pay the book profit tax and issued demand notice accordingly. 4. The assessee filed an app....
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....and the tax of 7.5 per cent of the book profit. Therefore, necessarily section 115JB has to use the expression "tax payable by the assessee on such total income". In sections 115J and 115JA, the comparison is between the figure of total income computed under the normal provisions of the Act and 30 per cent of the book profit and, therefore, these sections have necessarily to use the expression "total income of such assessee chargeable to tax". Nothing really turns on the language employed in these sections since the language employed is consistent with what is being compared. If the total income of the assessee computed in accordance with the normal provisions of the Act is to be compared with a percentage of the book profit then the expression which is necessarily to be used is "chargeable" whereas if the comparison to be made is between the tax on the total income computed under the normal provisions of the Act and the tax on the book profit, expressed as a percentage of the book profit, then the section has to necessarily refer to the "tax payable" by the assessee. From this, it does not follow that there has to be some tax which is payable by the assessee under the normal compu....
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....all, it is evident that such a case was not intended to fall within the charging section. These observations were made by the Supreme Court in relation to the assessment under the head "Capital gains". It was held that where the cost of an asset, which was deductible from the sale price for ascertaining the capital gains, was incapable of ascertainment for any reason, it can be said that the sale of such an asset was not intended at all to be assessed to capital gains. In that case, the assessee sold goodwill which was no doubt considered as a capital asset but since it was self-generated, the precise cost of the goodwill was incapable of ascertainment. The sale value of the goodwill was, therefore, held to be exempt from capital gains tax. It has to be borne in mind that the observations of the Supreme Court were made with reference to the nature of an asset, the cost of acquisition of which was incapable of being ascertained. The argument in the case before us similarly is that you cannot ascertain the tax payable by the assessee if the total income computed under the normal provisions of the Income-tax Act is Rs. Nil. The argument proceeds further to say that since the entire pr....
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....le measure in order to levy tax on companies which made huge profits and declared substantial dividends but did not pay income-tax because of the various tax concessions and incentives availed of by them. It was thought that such companies had the ability to pay taxes and they ought to contribute to the exchequer. The interpretation of section 115JB which is similar to section 115J, and which we have adopted, is in consonance with the object of the section, namely, that all companies which make handsome profits must pay tax irrespective of the fact that they would not have paid tax on their profits if their profits had been computed under the normal provisions of the Act in view of the various tax concessions and reliefs available under the Act. The assessee, in the present case, has made substantial book profit which according to its balance sheet comes to Rs. 6,18,36,130. However, by virtue of the relief available under section 80-IA, it has claimed the entire business profits of Rs. 11,97,79,339 to be exempt from tax with the result that its total income became nil and no tax was payable. This is exactly the situation contemplated by the section for which provision has been made....
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.... undertaking. It is submitted that any income derived by the undertaking from the business of power generation is eligible for the deduction and the interest income falls under this category. It is also pointed out that the income-tax is paid by the undertaking and not the assessee. In contrast, the argument of the revenue is that the interest received by the assessee is on account of fixed deposits with bank and income-tax refund and these two items of income have nothing to do with the business of the undertaking, which is that of power generation and, therefore, the interest cannot be considered as profits derived by the undertaking from the eligible business. Both sides have drawn our attention to certain authorities which we shall refer at the appropriate stage. 10. It is necessary to notice that the interest income of Rs. 9,82,050 consists of the following : (a) Interest from fixed deposits from banks 6,00,547 (b) Interest on Income-tax refund 3,81,501 The case of the assessee is that the entire interest qualifies for the deduction. However, it was agreed by all concerned that even if one of the two items of the interest income is held not eligible for....
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.... the undertaking can be considered as income derived by the said undertaking from the business of power generation. For this purpose, which is the relevant enquiry to be carried out under section 80-IA(1), it is not necessary to examine whether the difference in the phraseology between the aforesaid sub-section and sections 80HH(1) and 80HHA(1) would make any difference to the principle. Even in a case where the assessee contends that the interest on the income-tax refund is eligible for deduction under section 80HH or 80HHA, it would be relevant to examine whether the said interest can be considered as part of the profits and gains derived from an industrial undertaking or a small scale industrial undertaking. In all the three cases, it would be a necessary enquiry to find out if such interest can be considered as part of the profits and gains of the eligible business. Even if we are wrong in this view the position that would still remain is that it is necessary for us, while dealing with the case of deduction under section 80-IA, to examine whether the interest on the income-tax refund can be considered as income derived by the undertaking from the eligible business (i.e., power ....
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....urt stated the law as follows : "On general principles and in accordance with the practice which prevails in England, it is well-settled that income-tax paid by an assessee cannot be allowed to be deducted out of the assessable income. The reason for this practice is that income-tax is a share of the Crown in the income of the assessee and cannot be treated as an expenditure necessary to earn that income." In Smt. Padmavathi Jaikrishna v. Addl. CIT [1987] 166 ITR 1763, the Supreme Court observed as under at page 179 : "We are inclined to agree with the High Court that so far as meeting the liability of income-tax and wealth-tax is concerned, it was indeed a personal one and payment thereof cannot at all be said to be expenditure laid out or expended wholly and exclusively for the purpose of earning income." These observations were made with reference to section 57(iii) of the Act but it makes no difference to our view because the ratio of the judgment is that income-tax payment is a personal obligation. The following general principles emerge out of the above authorities : (a) that income-tax is an appropriation of the profits and is paid out after the p....
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....rofits of the business. It is submitted that the case has to be understood in the light of the controversy for decision which was only whether the interest was capital receipt. It was further submitted that though at page 321, the Madras High Court held that the interest may not be 'an income arising from an activity', business or investment, it would come under the head "Other sources", these observations have to be understood only in the context of the precise controversy which was before the Court. While it may be true that the judgment of the Madras High Court (supra) did not deal with the precise controversy that has arisen for decision before us and the observations made therein have to be understood only to the extent that the interest received on income-tax refund would fall to be considered under the head "Income from other sources" and where a contention is advanced that such interest having arisen because of deployment of the business funds in the payment of tax, the same is assessable under the head "Profits and gains of the business", the judgment cannot be relied on to reject the contention, the other authorities to which we have alluded have clearly held that payment....