TaxTMI 
TaxTMI 
2016 (8) TMI 855
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.... this appeal is as to whether the learned Commissioner of Income-tax (Appeals) is justified in rejecting the additional grounds raised by the assessee before him on January 10, 2013, in the facts and in the circumstances of the case. 3.1. The brief facts of this issue are that the assessee is a public company engaged in the business of generation and distribution of electricity and being an electricity company is governed by the provisions of the Electricity Act, 2003, and has to prepare its accounts as per the policies and standards prescribed under the Electricity Act and its regulations. In terms of the said regulations and location of the assessee, the assessee is required to prepare its balance-sheet and profit and loss account in accordance with the West Bengal Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005. Since the accounts were prepared not in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956, the assessee pleaded that the provisions of section115JB of the Act could not be made applicable to the assessee-company and had accordingly raised the additional grounds to this effect before the learned Com....
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....ioner of Income-tax (Appeals) had given a clear finding to this effect in his order. The learned authorised representative argued that as per the provisions of section 115JB(2) of the Act, for computing book profit under this section, the assessee has to prepare its accounts as per Parts II and III of Schedule VI to the Companies Act, 1956, and not as per the Electricity Act, 2003. The learned Commissioner of Income-tax (Appeals) had held that the amendment brought in section 115JB of the Act by the Finance Act, 2012, is clarificatory in nature and, hence, has to be construed as retrospective in operation. We find that section 211 and section 616 of the Companies Act, 1956, provides that in the case of electricity companies, the provisions of the Electricity Act shall prevail over the provisions of the Companies Act wherever they are inconsistent. For the sake of convenience, the provisions of section 616 of the Companies Act, 1956, is reproduced below : 616. Application of Act to insurance, banking, electricity supply and other companies governed by special Acts. The provisions of this Act shall apply- (a) to insurance companies, except in so far as the ....
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.... (ii) the accounting standards adopted for preparing such accounts including profit and loss account ; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies ; (ii) the accounting standards adopted for preparing such accounts including profit and loss account ; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year." 4.4. Sections ....
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....the following, namely :- (a) The deviation from the accounting standards ; (b) The reasons for such deviation ; and (c) The financial effect, if any, arising due to such deviation. (3C) For the purposes of this section, the expression 'accounting standards' means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A : Provided that the standards of accounting specified by the Insti tute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this sub-section." 4.5. Explanation 3 to section 115JB of the Income-tax Act, 1961 "For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956), is applic....
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....nding in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. (iii) It is also proposed to omit the reference of Part III of Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act, 1956. These amendments will take effect from 1st April, 2013, and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years." 4.7. In view of the above, we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section115JB of the Act by the Finance Act, 2012, the assessee's conten tion in fact stands more fortified. Explanation 3 to section 115JB makes it evidently cle....
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....the normal provisions of the Income-tax Act, is more than 30 per cent. of the book profit, tax shall be charged on the same." 4.8.2. The Memorandum Explaining the Provisions in the Finance (No. 2) Bill, 1996 categorise the amendment under the caption "Rationalisation and simplification". The relevant portion is reproduce hereunder ([1996] 220 ITR (St.) 248, 263) : "Rationalisation and simplification Minimum alternative tax on companies In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. The new proposal provides for those companies to pay tax on 30 per cent. of the book profits, whose total income as computed under the Income-tax Act is less than 30 per cent. of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. 'Book profits' is defined and certain adjustments are provided in the proposed section. The proposed amendment will take....
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....a meaning shall be given to it as may carry out and effectuate to the fullest extent the intention of the Legislature. Each law consists of two parts, viz., of body, and soul. The letter of the law is the body of law and the sense and reason of the law is the soul of the law. Law to a large extent, lives in the language even if it expands with the spirit of the statute. 4.9. We find that the accounts laid before the annual general meeting have followed the accounting policies which are required to be followed under the Electricity Act read with the West Bengal Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005, which are admittedly not in accordance with the Companies Act, 1956. We find that there are major differences with regard to the treatment of several items in the accounts in the Electricity Act vis-a-vis the Companies Act, 1956. Hence, it can safely be concluded that the accounts of electricity companies are not prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956 and, hence the provisions of section 115JB of the Act cannot be made applicable to the said companies. 4.9.1. We find that the issue is squ....
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.... At the earliest point of time when section 115J was introduced, the section expressly excluded from its operation bodies like the Electricity Board. Though such express exclusion is absent in section 115JA, the Central Board of Direct Taxes issued Circular No. 762 dated February 18, 1998, excluding bodies like the Electricity Board from the operation of the section. Circular No. 762 not only is binding on the Department, but also explains the purpose in introducing section 115JA which was to tax zero-tax companies. The CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of section 115JA for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the CBDT is binding on the Department. Section 115JB, which is substantially similar to section115JA cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of section 115JA. Where the computation provision could ....
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....n of section616(c) cannot be applied. For example, Tata Electric Company is a company registered under the Companies Act. It is company within the meaning of section 3 of the Companies Act. It is engaged in the business of generation or supply of electricity. As such it will come within the sweep of this provision. MSEB cannot be construed to be a company within the meaning of section 3 of the Companies Act, therefore, though it is engaged in the generation/distribution of electricity, it cannot be deemed as a company within the meaning of section 616(c). 17. The Explanation to section 115JA defines the term 'book profit' to mean the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) (i.e., in accordance with Parts II and III of Schedule VI) as increased by . . . We have noted that assessee did not prepare its accounts under Parts II and III of Schedule VI. The assessee was under no legal obligation to do so. As such the definition of 'book profit' cannot be applied in the case of the assessee. 18. According to section 2(17) read with section 2(26) of the Act, MSEB could be deemed to be ....
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....uired to distribute any dividend. As such it does not come within the mischief of this section . . . ." State Bank of Hyderabad v. Deputy CIT reported in [2013] 33 taxmann.com 312 (Hyd-Trib.) vide order dated September 7, 2012 wherein it was held that : "12. The next issue is regarding the applicability of provision of section 115JB to the assessee-bank. The contention of the assessee is that the assessee being a bank, the provisions of the Companies Act will not apply to the assessee and, hence, the assessee will not be liable to tax under section 115JB. 13. The provisions of section 115JB will be applicable to all companies. However, it is contended that section 115JB will be applicable only where the assessee is required to show profit and loss account in accordance with Schedule VI to the Companies Act. As the banks are required to prepare balance sheet and profit and loss account in accordance with the Banking Regulation Act, the provision of section 115JB cannot be applied to the banks. In the case of Maharashtra State Electricity Board v. Joint CIT [2002] 82 ITD 422 (Mum) it was held that provisions of book profit cannot be applied to electricity compani....
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....the state of affairs of the company as the said condition has been relaxed by sub-section (5) of section 211 of the Companies Act. In order to align the provisions of the Income-tax 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 with effect from April 1, 2013, and, therefore, prior to April 1, 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 Parts II and III of Schedule VI to the Companies Act. Thus, when the insurance companies, banking companies and electricity genera tion 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." Bank of India v. Addl. CIT reported in [2014] 5 TMI ....
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.... Reliance Energy Ltd. v. Asst. CIT (I. T. A. No. 218/Mum/05, dated January 24, 2008 ITAT-Mumbai), wherein it was held that : "24.4. The assessee further brought to our notice the case of depreciation. Rate of depreciation under the Electricity Supply Act is lower than the rates provided under the Companies Act and if the rates as provided is resented before the annual general meeting, i.e., Electricity Act accounts, the depreciation at the same rates in the accounts for the Companies Act will be below what is required under the Companies Act, therefore, the accounts so prepared under the Companies Act will not be in accordance with Parts II and III of Schedule VI. 24.5. The assessee also referred to the requirement of the Electricity Supply Act as regards the real profits and reasonable return. In the accounts under the Electricity Supply Act, the excess of profits is required to be transferred to tariff and dividend control reserve and also to be distributed to the consumers. This treatment is not in consonance with the accounting policy which is permitted under the Companies Act as the company is required to disclose the entire profit earned irrespective of the....
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....ssessment year 1963-64 the Assessing Officer was of the opinion that their taxable income would attract liable to Super Profits tax Act. Under the Act the super profits tax is leviable in respect of chargeable profits, which are in excess of standard deduction as specified in Third Schedule to the said Act. Standard deduction was defined to mean an amount equal to six per cent. of the capital of the company or Rs. 50,000, whichever is higher. The issue arose as to whether a company in liquidation can be said to have a paid-up capital and reserves. The Supreme Court came to conclusion that after liquidation of company there cannot be any share capital. The Supreme Court further held that once the provisions contained in the Act for computing the capital of the company and its reserves cannot have any application, the 'standard deduction' is incapable of ascertainment, and the charge of super profits tax under section 4 of the Act is not attracted. In this case the definition of "standard deduction" was to mean six per cent. of the capital or Rs. 50,000, whichever is higher. Out of the two limbs of the calculation, one limb being capital was not capable of ascertainment. The ....
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....ctions 207, 208, 209 and 210 cannot be made applicable until and unless the accounts are audited and the balance sheet prepared. The ratio of this decision helps the case of the asses see because it is not possible to prepare the accounts in accordance with Parts II and III of Schedule VI to the Companies Act for the purpose of provisions of section 115JB. Therefore, in view of the ratio of this decision, in our considered view, the provisions of section115JB cannot be attracted on the facts of the present case. 27. The issue in regard to doctrine of impossibility has been discussed in a decision of the Tribunal in the case of Divine Holdings Pvt. Ltd. (I. T. A. No. 180/Mum/2000, vide order dated June 26, 2001). The Tribunal in paragraph 8 has observed that the assessee did whatever was possible on its part. It is well-known principles "law canonised in the dictum lex non cogit ad impossibilia. Law cannot compel you to do the impossible". Again this ratio has been considered in the case of Hitewsh S. Mchlam (I. T. A. No. 2469/Mum/2002, vide order dated May 7, 2004). In the case of Growmore Leasing Investments Ltd., the Tribunal has again taken into consideration the ratio ....