TaxTMI 
TaxTMI 
2016 (2) TMI 458
X X X X Extracts X X X X
X X X X Extracts X X X X
....are applicable to the assessee being a Corporation established under Damodar Valley Corporation Act, 1948 for the Asst Years 2008- 09 and 2009-10. The assessee has raised the following grounds in this regard:- Ground nos. 1 to 4 of ITA No.1622/Kol/2011 A.Y 2008-09 1. For that on the facts and in the circumstances of the case and in law, the CIT(Appeals) was grossly unjustified in rejecting the appellant's claim that the deeming provisions of Section 115JB are not applicable to the appellant and therefore total income was not assessable with reference to 'book profit'. 2. For that on the facts and in the circumstances of the case and in law, the CIT(Appeals) was grossly unjustified in not entertaining the statutory claim of the appellant that the provisions of Section 115JB had no application primarily on the ground that the aforesaid claim was not made in the return of income or revised return of income filed by the appellant. 3. For that on the facts and in the circumstances of the case and in law, the learned CIT(Appeals) failed to appreciate that the judgment of the Kerala High Court in the case of Kerala State Electricity Board Vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t for AY 2009-10 only with reference to computational provisions of the I.T. Act, 1961, without invoking deeming provisions of Section 115JB of the Act. 3.1. The brief facts of this issue is that the Learned AO invoked the provisions of section 115JB of the Act. Before the lower authorities, it was stated :- a. that assessee is a statutory corporation established under the Act of Parliament namely Damodar Valley Corporation (DVC) Act, 1948 meant to provide for the establishment and regulation of the Corporation for the development of the Damodar Valley in the Provinces of Bihar and West Bengal. b. that assessee Corporation consists of 3 participating governments viz Union Government and the Provincial Governments of Bihar (now Jharkhand) and West Bengal. c. that assessee Corporation does not have equity capital and consequently does not have any shareholders. d. that the accounts of the Corporation are maintained in accordance and conformity with the provisions of DVC Act, 1948. The annual financial statements are prepared in the form prescribed under the said Act. e. that assessee Corporation does not prepare its annual accounts in a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....948 which is as below:- Section 45 - "Annual Report" (1) The assessee Corporation shall prepare in such form as may be prescribed , an annual report within six months after the end of each financial year giving a true and faithful account of its activities during the financial year with particular reference to irrigation ; water supply ; electrical energy ; flood control ; navigation ; forestation ; soil erosion; use of land ; resettlement of displaced population ; sanitation and public health measures and economic and social welfare of the people. (2) The Annual Report shall also give a true and faithful account of the income and expenditure during the previous financial year , the net amount attributable to each of the three main objects and the distribution of the capital cost between the three participating governments and show the progressive total from the inception of the corporation and upto date financial results. (3) The payments provisionally made by each of the three participating governments on the basis of the budget estimates shall be adjusted as soon as possible in accordance with the allocation made in the annual report. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 24. Subsidiary accounts indicating the unit costs shall be maintained and presented to the Corporation simultaneously with the accounts for each month. 25. Within six months of the end of each financial year, the annual accounts, prepared in the forms prescribed in Annexure II to these rules, showing the financial results of irrigation, electricity and flood control schemes with such subsidiary accounts as may be necessary, shall be placed before the Corporation, and, after the accounts have been duly passed, communicated to the Participating Governments and the Audit Officer. 26. Initial Accounts for stores including materials on the site of works, and tools and plant (including special tools and plant) shall be maintained in accordance with such instructions as may, from time to time, be issued by the Corporation. 27. A physical verification of stores and tools and plant shall be made by an officer who is not the custodian thereof. The results of the verification together with the orders of the Corporation for shortages and excesses shall be communicated to the Audit Officer. "AUDIT" 28. The accounts of the Corporation shall be audited ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....poration is prescribed in Annexure II of the Damodar Valley Corporation Rules which is kept in Pages 38 to 40 of Paper Book of assessee and form of Revenue Account for the year ending 31st March is in page 43 to 44 of Paper Book of assessee. We find from the provisions of DVC Act, 1948, the assessee Corporation does not conduct any annual general meeting. We hold that Section 115JB of Income Tax Act overrides all other provisions of Income Tax Act as it starts with a non obstante clause. Hence it is an independent code by itself. In this section, the term 'company' referred to should be construed as company as defined under Companies Act, 1956 only. The Section 115JB of the Act clearly states that the accounts are to be prepared in accordance with Part II of Schedule VI of Companies Act, 1956. We find lot of force in the arguments of the Learned AR that the computation provision states that 'Net profit as per per Profit and Loss Account prepared as per Part II of Sch VI of Companies Act, 1956.' We hold that Sec 211 of Companies Act, 1956 is not applicable to assessee herein, whereas it is very much applicable to companies defined under Companies Act, 1956. We hold that assessee Cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 115JB of the Act, a company is liable to pay MAT of eighteen and one half per cent of its book profit in case of tax on its total income computed under the provisions of the Act is less than MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies e.g. insurance, banking or electricity company are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regula....
X X X X Extracts X X X X
X X X X Extracts X X X X
....turing the provisions of section 115J with certain minor changes and thereafter section 115JB was enacted by bringing minor changes in section 115JA. The provisions of section 115J, 115JA and 115JB are by and large similar to each other. 3.9. The scope and effect of section 115JA was elaborated in the Department Circular No. 762 dated 18.2.1998. The relevant portion is reproduced hereunder:- "Alternate minimum tax on companies- 46.1 In recent times, the number of zero-tax companies and companies marginal tax has grown. Studies have shown that in spite of the fact that companies have entered substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance (No.2) Act, 1996, has inserted a new section 115JA of the Income-tax Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... intention of the legislature to impose MAT on corporations enacted by an Act of Parliament like assessee herein. 3.13. We place reliance on the following decisions in support of our findings rendered hereinabove on the impugned issue:- A. Kerala State Electricity Board vs DCIT reported in (2010) 329 ITR 91 (Ker), wherein their Lordships of Kerala High Court held that :- " Section 115JB of the Income-tax Act, 1961 creates a legal fiction regarding the total income of assesses which are companies. The book profit of the company is deemed to be the total income of assessee in the circumstances specified in the section. The expression "book profit"for the purpose of the section is explained to mean the net profit as increased or decreased by the various amounts whon in the various sub-clause of the section. The " net profit" itself must be the net profit as shown in the profit and loss account of the company. Sub-section (2) mandates that the profit and loss account of the company. Sub-section (2) mandates that the profit and loss account of the 115JB stipulates that the accounting policies, accounting standards, etc. shall be uniform both for the purpose of incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5JA. Where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply. The Electricity Board or bodies similar to it, which are totally owned by the Government, either State or Central, have no shareholders. Profit, if at all, made would be for the benefit of entire body politic of the State. Therefore, the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, the fiction fixed under section 115JB cannot be pressed into service against the Electricity Board while making the assessment of the tax payable under the Income-tax Act." B. Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mumbai Tribunal), wherein it was held that : "15. We find that sub-section (2) of section 115JA requires the company to prepare its Profit & Loss Account in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956. The assessee was required to prepare its account in conformity with the provision of section 69 of the Electricity (Supply) Act. Besides proviso to section 115JA(2) provide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urpose of Income-tax Act. The term company as defined in the said section is, NOMEN GENERALISSIMUM (term of the most general meaning) and its meaning in the CONTEXT of section 115JA is to be gathered from the connection in which it is used and from the subject-matter to which it is applied. The definition as given in section 2 of the Act begins with the qualifying words, "UNLESS THE CONTEXT OTHERWISE REQUIRES". Text and context are the basis of interpretation. If the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. Word in section is skin of the living though. It may vary in colour and content according to the context. It is a settled rule of interpretation canonized in the dictum: EX PRAECEDENTIBUS ET CONSEQENTIBUS OPTIMA FIT INTERPRETATIO" ( the best interpretation is made from the context). Whether the same meaning, as has been given in the interpretation clause, should be given to the word wherever it occurs, will depend upon the context. Therefore, it becomes necessary not only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lign the provisions of the IT Act with the Companies Act , an amendment has been brought in to the statute by the Finance Act 2012 whereby section 115JB has been amended w.e.f. 1.4.2013 and therefore, prior to 1.4.2013, the amended provisions of section 115JB cannot be applied in case of Insurance, Banking, Electricity generation and distribution companies and other class of companies , which are not required to prepare their accounts and particularly Balance Sheet and profit and loss account as per Part II and III of Schedule VI of the Companies Act . Thus, when the Insurance Companies, Banking companies and electricity generation and distribution companies are treated in the same class as per the provisions of section 211 of the Companies Act in preparing the final accounts, then those companies cannot be treated differently for the purpose of section 115JB and accordingly, the provisions of section 115JB are not applicable in the case of the assessee. D. Bank of India vs Addl CIT reported in 2014 (5) TMI 929 :n ITA No. 1498/Mum/2011 dated 9.4.2014- ITAT Mumbai, wherein it was held that : 6. Ground No. 5 is regarding applicability of provisions of section 115JB ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the provisions of section 115JB of the Act are not applicable to the assessee corporation as by that time the law on the impugned issue had started evolving and various judicial decisions had been rendered. We find that the assessee could not make this claim in the form of a revised return as the time limit for filing the revised return u/s 139(5) of the Act had admittedly expired and hence assessee had no other option but to make its request in the form of a letter before the Learned AO. At this juncture, we are aware of the decision rendered by the Hon'ble Apex Court in the case of Goetze (India) Ltd vs CIT in 284 ITR 323 (SC). But we find that the same decision specifically states that the claim could be made before the appellate authorities. In this regard, we would like to state that the revenue should not be unjustly enriched and only the due taxes should be collected. We find that the provisions of section 115JB of the Act is a code by itself. It imposes tax not on "income" but on "book profits". Section 115JB of the Act creates a statutory fiction under which "book profit" of a company assessee is regarded as 'total income'. The deeming fiction of the IT Act can only be app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stablish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims to wit claims not made in the return filed by it. It is necessary for us to refer to some of these decisions only to deal with two submissions on behalf of the department. The first is with respect to an observation of the Supreme Court in Jute Corporation of India Ltd vs CIT , (1991) 187 ITR 688. The second submission is based on a judgement of the Supreme Court in Goetze (India) Ltd vs CIT in (2006) 157 Taxman 1. 13. The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part viz. "if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made...." Clearly relate to cases where the ground was available when the return was filed and the assessment order was made but "could not have been raised" at that stage. The words are "could not have been rasied" and not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s originally filed before the Tribunal. Subsequently, the assessee by a letter, raised additional grounds to the effect that the said sum could not be included in the total income. The assessee contended that on a erroneous admission, no income can be included in the total income. It was further contended that the ITO and the Commissioner of Income Tax (Appeals) had erred and failed in their duty in adjudicating the matter correctly and by mechanically including the amount in the total income. It is pertinent to note that the assessee contended that it was entitled to the deduction in view of two orders of the Special Benches of the Tribunal and the assessee further stated that it had rasied these additional grounds on learning about the legal position subsequently. The Tribunal declined to entertain these additional grounds. But the Supreme Court held that we fail to see why the tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 24. A Division Bench of Delhi High Court dealt with a similar submission in CIT vs Jai Parabolic Springs Limited (2008) 306 ITR 42. The Division Bench, in paragrap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... disallowance u/s 14A of the Act could be made in the facts and circumstances of the case under the normal provisions of the Act as well as under the provisions of section 115JB of the Act. The assessee has raised the following grounds in this regard:- Ground nos. 5 & 6 of ITA No.1622/Kol/2011 A.Y 2008-09 5. For that on the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred in upholding the disallowance made by the AO under Section 14A of Income-tax Act, 1961 read with Rule 80 of the LT. Rules, 1962 by summarily rejecting appellant's explanations which clearly proved that the disallowance was arbitrary and not supported by the entries in the books of account. 6. For that on the facts and in the circumstances of the case and in law, the CIT (Appeals) failed to appreciate the reasons and explanations offered by the appellant against the disallowance of Rs. 41, 16,36,422/- made under Section 14A of the Act and therefore the AO be directed to delete the disallowance and/or reduce the disallowance in assessing total income both as per computational provisions as also in computing book profits, if any. Ground nos.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee corporation had set up a Provident Fund Scheme which is recognized by the Government of India under the provisions of the Provident Fund Act, 1925. The Provident Fund schem is implemented as per the DVC's Provident Fund Regulations as approved by and notified by the Central Government. As per approved rules, the corporation receives contributions which are invested in specified securities. The interest earned thereon is eligible for exemption u/s 10(25) of the Act. The assessee corporation has moe than 11000 employees on its roll and the corporation has to maintain extensive records relating to PF contributions made by the employees and investments made in various securities. In order to maintain records of such Provident Fund contributions and its investments, the corporation has established a Provident Fund Cell within its accounts department and total salary paid to employees working in that cell worked out to Rs. 55,41,573/-. The Learned AR argued that the personnel in the said provident fund cell are entrusted with collection of PF contributions from employees, its accounting, complying with various statutory rules, settlement of provident fund claims, collection of in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Corporation Ltd and income earned thereon. He further argued that the assessee had derived exempt income in the form of interest on Provident fund investments for which some expenditure could have been incurred by the assessee which is worked out for disallowance at Rs. 11,08,315/- and accordingly pleaded that Rule 8D of the Rules cannot be made applicable in the facts of the instant case. He also further stated that the assessee has been consistently making this disallowance on the basis of 20% of employee cost in provident fund cell of the assessee corporation in earlier and even in subsequent years. He further placed on record a copy of the assessment order passed u/s 143(3) of the Act for the Asst Year 2010-11 wherein the disallowance u/s 14A of the Act made by the assessee has been accepted by the Learned AO. He further argued that the assessee had made earned taxable interest income of Rs. 248.78 crores and paid interest on its borrowings amounting to Rs. 211.01 crores and earned a net interest income of Rs. 37.77 crores. He argued that the assessee had sufficient own funds to make the investments and no part of borrowed funds were utilized for the same. Hence in any case, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereas the investments made by the assessee is only Rs. 1466.15 crores including the investments in tax free bonds of RBI and investment in Bokaro Power Supply Co Ltd and Power Trading Corporation Ltd. 4.8.2. On availability of own funds with the assessee for making investments We also find that the assessee has got sufficient own funds to make these investments and the Learned AO had not brought any nexus between the borrowed funds vis a vis the investments made by the assessee. Without doing the same, he cannot directly presume that the investments were made out of borrowed funds. If the action of the Learned AO and Learned CITA are to be upheld, then no assessee could make any investments when there is a interest bearing loan to be repaid. The fact of making the investments has to be viewed from the point of commercial expediency and from the point of view of businessman and not from the view point of the revenue. It is well settled that businessman knows his interest best. We place reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs Reliance Utilities & Power Ltd ( 313 ITR 340 ) (Bom) in support of our view that if the own funds are available with t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....% of the total value. In view of the above and respectfully following the coordinate bench decision in the case of J.K. Investors (Bombay) Ltd., supra, we uphold the order of CIT (A)". CIT vs R.E.I. Agro Ltd in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 rendered by Calcutta High Court "The Assessing Officer also disallowed the expenditure under section 14A of the Income Tax Act, 1961 without first recording that he was not satisfied with the correctness of the claim as regards the claim that "no expenditure" was made by the assessee. Challenging the order of the tribunal, the present appeal has been filed. We have heard Mr.Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed". Hence we hold that the action of the Learned AO in directly embarking on Rule 8D(2) of the Rules without recording any satisfaction as mandated in Rule 8D(1) of the Rules is not appreciated and hence no disallowance u/s 14A of the Act by applying Rule 8D(2) of the Rules could be made in the facts of the instant case. In the instant case the assessee corporation had disallowed a sum of Rs. 11,08,315/- and no adverse ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act is chargeable in the hands of the assessee corporation. In response to this, the Learned DR argued that there is no provision in the IT Act to condone the delay and hence the interest u/s 234C of the Act is chargeable in the instant case. 5.3. We have heard the rival submissions and find that the assessee had paid the first installment of advance tax on 16.6.2008 (Monday) as the last date of paying advance tax i.e 15.6.2008 (Sunday) was a holiday. Hence the provisions of section 10 of General Clauses Act could come to the rescue of the assessee. For the sake of convenience, the Circular No. 676 dated 14.1.1994 on which the Learned AR placed heavy reliance is reproduced hereunder:- Circular No. 676. dated 14-1-1994 SECTION 211. INSTALMENTS OF ADVANCE TAX 1197. Whether, in case last day for payment of any instalment of advance tax is day on which receiving bank is closed, assessee can make payment on next immediately following working day, and in such cases mandatory interest leviable under sections 234B and 234C would not be charged 1. Representations have been received by the Board seeking waiver of interest chargeable under sections 234B and 234C of....