TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 855
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....issioner 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 Commissioner of Income-tax (Appeals) on January 10,....
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....is 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 said provisions are inconsistent with the provisions of the Insurance Act, 1938 ; ....
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....reciation, 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 211(1), 211(2), 211(3), 211(3A), 211(3B) and 211(3C) of the Companies Act 1956 "211. Form and contents of balance-sheet and profit and loss account.-(1) Every balance sheet of a company shall give a true a....
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....dards' 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 applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 (1 of 1956), or in accordance with....
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....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 clear that section 115JB is applicable only to entities registered and recognised to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of the Companies Act, 1956, section 211(2) and the proviso thereon is not applicable and, therefore, consequently, we hold that the provisions of section 115JB of the Act are....
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....sation 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 effect from 1st April, 1997, and will, accordingly, apply in relation to assessment year 1997-98 and subsequent years." 4.8.3. The honourable apex court in the case of Surana Steels Pvt. Ltd. v. Deputy CIT reported in [1999] 237 ITR 777 (SC) at page 783 considered the legislative intent for the introduction of section 115J. It was found that the section was introduced to take care of the phenomenon of prosperous....
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....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 squarely covered by the following decisions in favour of the assessee : Kerala State Electricity Board v. Deputy CIT reported in [2010] 329 ITR 91 (Ker), wherein their Lordships of the Kerala High Court held that (headnote) : "Section 115JB of the Income-tax Act, 1961, creates a legal fiction regarding the total income of assessees which are companies. The book profit of the company is deemed to be the total income of the assessee in the circumstances specif....
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....A 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 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 can....
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....ny 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 a company for the purpose of the 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 ....
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....x 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 companies. Banking companies and companies engaged in generation and supply of electricity do not have to prepare their accounts in accordance with Parts II and III of Schedule VI to the Companies Act by the virtue of the proviso to section 211(2) of the Companies Act. We find that by the Finance Act, 2012, with effect from April 1, 2013, even companies to which the proviso to section 211(2) applies (the banking companies and companies engaged in generating and distribution of electricity), should prepare their profit and loss and balance sheet in accordance ....
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....uired 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 929 (Mum) (I. T. A. No. 1498/Mum/2011 dated April 9, 2014-ITAT-Mumbai) wherein it was held that "6. Ground No. 5 is regarding applicability of provisions of section 115JB in case of bank. 6.3 Having considered the rival submissions as well as relevant material on record, we note that this issue has been considered by this Tribunal in the series of decisions including the decision relied upon by the learned authorised representative of the assessee. In the case of ICICI Lombard General Insurance Co. Ltd. [2012-TIOL-690- ITAT Mum] the co-ordinate Bench of this Tribunal has c....
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....t 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 same being more or less than reasonable return. Part II of Schedule VI requires the profit and loss account shall be so made out as clearly to disclose the result of working of the company during the year. Therefore, the above accounting policy of transferring the excess profits to be followed under the Electricity Supply Act cannot be followed under the Companies Act and if followed the accounts will not be in accordance with Parts II and III of Schedule VI. 24.6. It was, therefore, submitted that an electricity company cannot prepare the accounts under Parts II and III of Schedule VI to the Companies Act following the sa....
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....ital. 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 Supreme Court held that when one limb is not capable of ascertainment, the whole provision fails, in other words there is "break down" of the whole provision and the provision cannot be applied. 25.1 While deciding so, the honourable Supreme Court has taken into consideration its own decision in the case of CIT v. B. C. Srinivasa Setty in [1981] 128 ITR 294 (SC) wherein the Supreme Court had pointed out that under the scheme of the Income-tax Act charge of tax will not get attracted unless the case or transaction falls under the governance of the relevant computation provisions. The Supreme Court in B. C. Srinivasa Setty's case [1981] 128 I....
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....um/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 of the decision of the Tribunal in case of Divine Holdings Pvt. Ltd. (supra) and has held that the assessee cannot force to do something, which is not possible for it. In view of the above facts and circumstances, it can be easily held that a person cannot be forced to do something impossible. The law does not compel a man to do that which he cannot possibly perform. The law creates a duty or charge, and the party is disable to perform it, without any default in him, and has no remedy over, there the law will in general excuse him and though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract yet ....