TaxTMI 
TaxTMI 
2025 (1) TMI 822
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....ong with Tata Sons Limited, holds 51% of the shares, while the remaining 49% of the shares are held by the Government of NCT of Delhi. The assessee is engaged in the power generation and distribution of electricity in North and North West Delhi. 3. For the AY 2006-07, the assessee filed its return of income declaring a total income of Rs.29,76,44,446/- under the normal provisions, and Rs.162,35,14,954/- as book profits under Section 115JB of the Act. The return was processed under Section 143(1) of the Act on 04.12.2007, at the declared returned income. The return was selected for scrutiny, and a notice under Section 143(2) of the Act was issued to the assessee on 12.10.2007, which was duly served upon the assessee. Subsequently, further notices under Sections 143(2) and 142(1) of the Act, accompanied by detailed questionnaires, were issued on 01.02.2008, 31.07.2008, 04.11.2008 and 17.11.2008. 4. On 23.12.2008, the learned Assessing Officer [hereafter 'the AO'] passed an order under Section 143(3) of the Act, assessing the total income of the assessee at Rs.121,30,35,243/- and computing the book profit under Section 115JB of the Act at Rs.162,64,31,954/-. The AO's findings on the....
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....f the appellant. It is clear from the above that an amount of Rs. 27.52 crores on account of provision for doubtful debts requires to be added in taxable income for the purpose of MAT. Accordingly, the income of the appellant company under MAT is enhanced from Rs. 162.25 crores to 189.87 crores, which will result into additional tax liabilities of Rs.2.32 crores, excluding interest as admitted by the appellant. The AO is directed to issue revised notice of demand, after verification of tax calculation and applicable interest as per law." 6. Aggrieved by the order of the CIT(A), the assessee filed an appeal (ITA No. 4848/Del/2010) before the learned ITAT, challenging the enhancement of book profit under Section 115JB of the Act. The learned ITAT allowed the assessee's appeal and directed the deletion of the additions made to enhance the book profit. The learned ITAT relied on the decision of the Kerala High Court in Kerala State Electricity Board v. Deputy Commissioner of Income-tax: (2010) 329 ITR 91, and held that the ratio of this decision applied to the present case. The learned ITAT observed that no exceptional circumstances had been brought to its notice to deviate from the r....
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.... 762, which specifically exempted electricity companies under the erstwhile regime. He however contended that the Kerala High Court failed to consider that Section 115JA of the Act was a precursor to Section 115JB and that Section 115JA was replaced with Section 115JB for the very reason that the efficacy of the erstwhile provision had declined in view of "exclusion of various sectors from the operation of MAT and the credit system" as evident from the Explanatory Notes to Finance Act, 2000 which had inserted Section 115JB of the Act. It was also argued that the fact that power generation and distribution companies are not exempted was evident from the fact that it does not find mention in the exempted categories of companies, as evident from para 43.5 of the Explanatory Notes to Finance Act, 2000 which read as follows: "43.5 The export profits under sections 10A, 10B, 80HHC, 80HHE and 80HHF are kept out of the purview of this provision as these are being phased out. The new provisions also exempt companies registered under section 25 of the Companies Act." 10. Next, it was argued that the decision in Kerala State Electricity Board v. Deputy Commissioner of Income-tax (supra) is d....
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....he Companies Act, 1956, and the said Section 211 as well as the Accounting Standards (AS)-5 carves out an exception for the insurance/banking/electricity companies to prepare balance sheet as per the governing Act. Thus, the option to the assessee to prepare its profit and loss account as per the governing Act was always available under Section 115JB of the Act, and to further clarify this position of law and for the sake of removal of doubts, the insertion of Explanation 3 to Section 115JB of the Act was rightly done vide the Finance Act, 2012. 13. In light of the above submissions, it is prayed that the order of the learned ITAT to the aforesaid extent be set aside, and the additions made by the CIT(A) under Section 115JB of the Act, for the purpose of computing book profits, be restored. Submissions on Behalf of the Assessee 14. On behalf of the assessee, it was submitted that Section 115JB of the Act creates a legal fiction regarding the expression "total income" as defined in Section 2(45) of the Act, and Section 115JB(2) mandates that where the tax payable on the "total income" computed under the normal provisions of the Act is less than a specified percentage of the "book....
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.... of a company to which second proviso to section 129(1) of the Companies Act, 2013 is applicable, would have an option to prepare its statement of profit and loss either in accordance with the provisions of Part III Schedule VI to the Companies Act, or in accordance with the provisions of the Act governing such company. It was thus contended that a combined reading of second proviso to Section 129(1) of the Companies Act, Clause (b) of sub-section (2) of Section 115JB of the Act, and the Memorandum explaining the provisions made in the Finance Bill, 2012, makes it clear that prior to the said amendment, MAT provisions as contemplated under Section l l5JB of the Act were not applicable to electricity, banking and insurance companies, and would apply only prospectively i.e. with effect from 01.04.2013. Therefore, it was prayed that the impugned order be upheld and the present appeal be dismissed. ANALYSIS & FINDINGS 17. The primary issue for our determination is whether Section 115JB of the Act would be applicable to the assessee, who is engaged in the business of electricity generation and distribution, during the period relevant to AY 2006-07. 18. In this regard, the relevant ex....
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....alculated under the normal provisions of the Act, is less than 10% of its book profit for a given financial year, then the book profit will be treated as the company's total income, and the company will be required to pay income tax at the rate of 10% on this deemed total income. 20. Sub-section (2) of Section 115JB of the Act mandates as to how the companies must prepare their profit and loss account for the purpose of this section. It specifies two important things: (i) Firstly, that the accounts should comply with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956; and (ii) Secondly, that the same accounting policies, standards, and methods for calculating depreciation used in preparing the accounts for the annual general meeting under Section 210 of the Companies Act, 1956 must also be used for the purpose of this section. 21. At this juncture, it would be relevant to note that in terms of Section 210 of the Companies Act, 1956, Board of Directors of every company, including the assessee, are required to lay before the company, its balance sheet as well as profit and loss account. However, it is an undisputed fact that as per Section 211 of the C....
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.... year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than (eighteen and one-half per cent.) of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of Income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company : Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies ; (ii) the accounting standards adopted for preparing such accounts including profit and loss accou....
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....are their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of the 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 Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. II. It is noted that in certain cases, the amount standing 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 minimum alternate tax 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 omi....
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....y High Court in Commissioner of Income-tax-LTU v. Union Bank of India (supra) also answered a similar question (though in context of banking companies) against the Revenue. It held that Section 115JB of the Act, prior to its amendment in 2012, cannot be made applicable to a banking company as the machinery provision provided in the sub-subsection (2) of Section 115JB of the Act was wholly unworkable and in-operable in the case of a banking company and, therefore, when the machinery provision fails, the charging section can have no applicability. It was observed that on one hand, in terms of Section 210 of the Companies Act, 1956, the bank would be under an obligation to lay before the Annual General Meeting its annual accounts including the profit and loss account, which would be prepared as per the Banking Regulation Act, 1949. On the other hand, sub-section (2) of Section 115JB of the Act requires preparation of the accounts in terms of the Companies Act, 1956, and proviso to sub-section (2) require maintaining the same parameters in relation to the accounting policies, accounting standards and method and rate of depreciation, as adopted for the purpose of preparing the accounts,....
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....han High Court in Principal Commissioner of Income Tax v. Ajmer Vidyut Vitran Nigam Ltd: (2022) 447 ITR 186 dealt with the issue, i.e. whether Section 115JB of the Act applied to an electricity company prior to its amendment in 2012. The Rajasthan High Court, in this regard, relied on the decisions of the Kerala High Court in Kerala State Electricity Board v. Deputy Commissioner of Income-tax (supra) and the Bombay High Court in Commissioner of Income-tax-LTU v. Union Bank of India (supra), and taking note of the same, the Court dismissed the appeal of the Revenue. 32. It will be apposite to note that all the afore-mentioned three decisions in Kerala State Electricity Board v. Deputy Commissioner of Income-tax (supra), Commissioner of Income-tax-LTU v. Union Bank of India (supra) and Principal Commissioner of Income Tax v. Ajmer Vidyut Vitran Nigam Ltd (supra) were challenged by the Revenue before the Hon'ble Supreme Court by way of Special Leave Petitions. The main grounds of the present appeal, as well as the contentions raised in the written submissions filed on behalf of the Revenue, were that the decisions in aforesaid cases were bad in law, contrary to the provisions of the ....