TaxTMI 
TaxTMI 
2002 (2) TMI 307
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....er from reserve is as follows : (i) Reserve on account of valuation of fixed assets made in earlier years Rs. 8,03,39,668 (ii) Reserve on account of valuation of fixed assets made in the current year Rs. 1,96,28,861 --------------- ....
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....uch reserves cannot be excluded from computation of book profits. He thus declined the adjustment, for the purpose of computing book profits under section II 5J, on account of transfer of Rs. 1,96,28,861 from capital reserve to the profit and loss account. In first appeal, CIT(A) has confirmed the action of the Assessing Officer. Still aggrieved, assessee is in further appeal before us. 4. We have conscientiously heard Shri R.N. Bajoria, learned Senior Advocate for the assessee, and Shri D.K. Ghosh, learned Departmental Representative. We have also carefully perused the orders of the Assessing Officer and the CIT(A), and duly deliberated upon the authorities cited at the bar. The thrust of learned counsel's argument is that the intention behind incorporating the proviso, to the effect that the amount credited to profit and loss account by transfer from capital reserves shall be excluded only "if the reserves have been created or provisions have been made after 1st day of April, 1988, and have gone to increase the book profits in any year when the provisions of section 115J of the Income-tax Act were applicable", was to take care of a situation in which, on one hand assessees red....
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.... then, since the revaluation reserve was not created by any debit to the profit & loss account, in the previous year relevant to the assessment year under appeal, then by virtue of the explanation rendered at the time of amendment, as reproduced earlier, then, the amount withdrawn from the revaluation reserve account, is to be reduced to give the figure of book profit. This is obvious because, all adjustments as are provided in section 115J, has to be necessarily to be given effect to". We are thus urged to hold that the authorities below erred in not excluding the amount of Rs. 1,96,28,861 which represented transfer from revaluation reserve created during the relevant previous year itself. Shri Ghosh, on the other hand, submitted that the language of the Act does not admit any controversy at all and once an amount, in respect of the reserve created by the assessee after 1-4-1988, is not added to the book profit, no adjustment, for computing book profit under section 115J, in respect of transfer from such reserve can be made. It is also stated that when words are clear and unambiguous, there is no need to look at the intent of the Legislature. Revenue has thus urged us to confirm t....
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....ncing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amounts [as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (h) and reducing the net profit by the amounts referred to in clauses (i) and (ii)] attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable." The con....
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.... & loss account in the previous year relevant to the assessment year under appeal, the profit of the year would have been higher because of depreciation on the historical cost would be lower, because historical cost is lower than the revalued cost. But, the charge of depreciation on the revalued cost is not the same thing as creation of the reserve, because, creation of the reserve means debit to the profit & loss account by an amount and giving credit to the reserve by an equivalent amount." However, according to the assessee, in such a case there is no impact on net profit due to creation of revaluation reserve per se, because there is nothing to the debit to the profit and loss account, so far as the creation of revaluation reserve is concerned. With the help of this reasoning, in substance, it is submitted that the present case is outside the scope of mischief sought to be remedied by the legal provision in question. 9. The assessee's case is that even in terms of section 115J(1A), increase in book profit, on account of reserve made during the year, can only be made when the reserve is created by way of debit to the profit and loss account. It specifically provides that, "bo....
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....andatory adjustment will have to be made by the Assessing Officer under item (b) of Explanation to section 115J(1A), and, as far as reserves created, after 1-4-1988, without debit to the profit and loss account are concerned, the same will have to be treated, if we are to accept the interpretation put by the assessee, as outside the scope of the proviso. In that case, to our understanding, there cannot be a situation in which this provision can be invoked. 11. It is one of the basic principles of the interpretation of statutes that a legal provision should not be interpretated in such a manner so as to make the provision infructuous or redundant. Hon'ble jurisdictional High Court, in the case of CIT v. Jayashree Charity Trust [1986] 159 ITR 280 (Cal.) has observed that, "To resolve .... (the) controversy, regard must be had to the language that has been employed and also to the object of the statute. It is well settled that, if possible, the words of a statute must be construed so as to give a sensible meaning to them. The words ought to be construed ut res magis valeat quam pereat." This latin maxim, i.e., ut res magis valeat quam pereat, means that the words of the statute sho....
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....ill pay tax on at least 30 per cent of its book profit. In other words a domestic widely held company will pay tax of at least 15 per cent of its book profit." Earlier, in the identical context, his predecessor had observed that "Hon'ble Members must be aware of the phenomenon of companies which are flourishing but are paying no tax at all only nominal tax. This is largely due to these companies availing of the tax incentives and concession available under the provisions of the Income-tax Act. It has been a matter of concern to us that under our tax system several highly profitable companies are able to refuse their tax liability to zero even though they continue to pay high dividends. It seems reasonable that profitable and prosperous companies should contribute at least small portion of their profits to the national exchequer at a time when other and less better off section of society are bearing a burden". 15. When we consider the facts of this case, in the light of the above discussions, we find that the assessee's taking the profit on revaluation of assets directly to the revaluation reserve, without routing the same through the profit and loss account, does indeed undul....
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....see is aggrieved that the CIT(A) was not justified in not allowing the assessee's claim for proportionate deduction of Rs. 15,60,714 on account of premium of Rs. 1,09,25,000 payable on redemption of 15 per cent non-convertible debentures issued by the company during the assessment year 1985-86. In ground No. 5, assessee is aggrieved that CIT(A) was not justified in not allowing the assessee's claim for proportionate deduction of Rs. 4,64,286 on account of premium of Rs. 32,50,000 payable on redemption of 15 per cent non-convertible debentures issued by the company during the assessment year 1984-85. 22. Having heard the rival contentions and having perused the orders of the authorities below, as indeed the documents filed before us, we find that this issue is also covered, in favour of the assessee, by various orders (in assessee's own case for the assessment years 1987-88, 1988-89 and 1990-91) by the co-ordinate benches which have, following Hon'ble Supreme Court's judgment in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802 upheld the assessee's contentions. We see no reasons to take any contrary view. Accordingly, we direct the Assessing Officer ....