(2010) 36 (II) ITCL 2 (Hyd `B'-Trib)(SB)
Rain Commodities Ltd. v. Dy. CIT
Counsel: Rajan Vora, for the Appellant q Ms. Vasundhara Sinha, for the Respondent
ORDER
The assessee is in appeal before us against the order of the learned Commissioner under section 263 of the Income Tax Act, 1961 (the Act) dated 23-3-2009 for the assessment year 2004-05. On a reference made by the Division Bench to the honourable President, Income Tax Appellate Tribunal, the honourable President vide order dated 27-10-2009, constituted the present Special Bench to adjudicate the following question of law :
"Whether, in the facts and circumstances of the case, the Commissioner of Income-tax was justified in invoking the provisions of section 263 and directing the assessing officer to recompute the book profit under section 115JB of the Act, 1961, by considering the profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, on account of gains arising out of the transfer of assets to wholly owned subsidiary as part of book profit without considering the provisions of section 47(iv) of the Income Tax Act, 1961."
2. The brief facts of the case are that, the assessee-company filed return of income for the assessment year 2004-05 declaring a loss of Rs.45,81,56,760. The assessment was completed under section 143(3) of the Act determining the total loss at Rs. 36,27,98,173 after making an addition of Rs. 9,53,58,587 towards deferred revenue expenditure. As per the profit and loss account, prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, the profit before tax was Rs. 99,42,30,515 and no income was offered under section 115JB of the Income Tax Act. As such, on examination of records, the Commissioner of Income-tax assumed his jurisdiction under section 263 of the Act for revision on the ground that the assessee is liable to pay income-tax on book profit as declared by the assessee in its profit and loss account as follows :
Profit after taxation and extraordinary items
Rs.
99,42,30,595
Balance brought forward from previous year
Rs.
47,43,86,462
Book profit
Rs.
51,98,44,133
3. As seen from the above, the Commissioner of Income-tax observed that the results of the assessee at Rs. 99,42,30,595 which was arrived after adding the extraordinary item of Rs. 1,16,11,32,013 is to be considered for arriving at the book profit under section 115JB of the Act. The contention of learned counsel for the assessee is that the above amount of extraordinary item of Rs. 1,16,11,32,013 consists of the following items which cannot form part of the book profit.
"Extraordinary item of Rs. 1,16,11,32,013 includes the following debit/ credit items.
(Rs.)
(1)
Write off (bad debts/other advances paid which cannot be recovered)
33,47,64,019 (Dr)
(2)
Write back (creditors/advances received not considered for payment)
4,16,67,423 (Cr)
(3)
Profit on transfer of assets of Rain Commodities Ltd. (100% holding co.) to Rain Industries Ltd. (100% subsidiary company )which is exempt under section 47(iv) of the Income Tax Act.
1,49,77,46,577 (Dr)
(4)
Loss on sale of other assets
4,35,17,968 (Dr)
1,16,11,32,013
4. Further, it was also submitted by the assessee that Rain Commodities Ltd., is a 100 per cent, holding company and Rain Industries Ltd. is a 100 per cent, subsidiary company and as per the scheme of arrangement between Priyadarshini Cements Ltd. (presently known as Rain Commodities Ltd.) and Rain Industries Ltd., which was approved by the hon'ble Andhra Pradesh High Court, the assets and liabilities of M/s Priyadarshini Cements Ltd. were transferred to the Rain Industries and the capital gain arising out of this transaction is exempted under section 47(iv) of the Act from income-tax. The transfer of assets from holding company to subsidiary company is not regarded as transfer under section 47(iv) of the Act and it does not constitute a part of total income in terms of section 2(45) of the Act. It is also submitted that even though assets are transferred from 100 per cent, holding company to 100 per cent, subsidiary company, the transfer is not regarded as a transfer under section 47(iv) of the Income Tax Act. When there is no transfer under section 47(iv), there is no question of deeming the capital gain as income of the assessee. As such, the profit on transfer of assets of Rain Commodities Ltd., to Rain Industries Ltd. at Rs. 1,49,77,46,377 cannot be treated as business income as it is not regarded as transfer of assets under section 47(iv) of the Act since profit arising out of this transfer cannot be treated as income in terms of section 2(24) of the Act. According to the assessee, book profit is negative as shown below :
Profit as per profit and loss account as on 31.3.2004
Rs. 99,42,30,595
Less : Capital gains exempt under section 47(iv) which cannot be Deemed as income on transfer of assets from 100 per cent, holding company to 100 per cent, subsidiary company as the transfer cannot be considered as a transfer under section 47 of the Income Tax Act, 1961
Rs. 1,49,77,46,577
Book profit (negative) (-)
Rs. 50,35,15,982
5. According to the assessee's counsel, no adjustment against book losses/ depreciation of earlier years (Rs. 47,43,86,462) is required and hence, there is no book profit. Not convinced with the explanations and submissions made by the assessee, the Commissioner of Income-tax assumed his jurisdiction under section 263 of the Act and held that assessment order passed by the assessing officer is erroneous and prejudicial to the interests of the revenue and directed the assessing officer to adopt the book profits of the assessee at Rs. 99,42,30,595 shown in the profit and loss account under section 115JB of the Act with a further direction to allow eligible loss brought forward or unabsorbed depreciation whichever is less as per books of account. Aggrieved by the order of the Commissioner, the assessee is in appeal before us. At the time of hearing, none of the parties before us advanced any serious objection about the validity of the assumption of jurisdiction by the learned Commissioner under section 263 of the Act. Accordingly, we confine ourselves to adjudicate the question referred to us on the merits.
6. Learned counsel for the assessee submitted that the intention of section 115JB under the Act is to tax only the "profits" of the company and not to tax the profits other than the normal business profits generated while carrying on the business activities. The assessee's counsel placed reliance on the decision of the Calcutta Special Bench of the Income Tax Appellate Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asst. CIT (1993) 199 ITR (AT) 164 wherein the intent of the Legislature from the inception of section 80VVA till the amendments made in this regard to date to section 115J are considered. The purposive construction of section 115J is considered. The purposive construction of section 115J was observed and concluded that the book profits are only those which are assessable as income under the Act. In the interpretation of statutes, one has to adopt a construction as well promote the general legislative purpose underlying the provision. After examining the memorandum to the Finance Minister Speech explaining the provision, it was concluded that the expression "book profit" was intended to be confined to business profit and was not intended to include profit on realisation of any asset. The genesis of section 115J, thereafter section 115JA and now section 115JB was to ensure that the assessee, while making profit from operations, should not enjoy tax free status due to various deductions available. Therefore, there was never any intention of the Legislature to tax what is not profit from operations under section 115JA (115JB now) of the Act.
7. It is submitted that, section 115JB(2) specifically provides that every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Therefore, the profit realised from sale of assets did not form part of the book profit as required to be shown in the profit and loss account as an extraordinary item under the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The hon'ble Delhi Income Tax Appellate Tribunal in the case of Asst. CIT v. Northern India Theatres P. Ltd. reported in (1996) 218 ITR (AT) 50 (Del) (TM) has dealt with the question whether profit on sale of fixed assets should be shown as profit for the purpose of Parts II and III of Schedule VI, and has held that capital gain on sale of fixed assets do not partake the character of business profits and the same should not be shown as business profits in a properly prepared profit and loss account as per the provisions of Parts II and III of Schedule VI to the Companies Act. The hon'ble Income Tax Appellate Tribunal has further held that if items of credit which do not relate to the business carried on by the company are found included in its profit and loss account, such a profit and loss account cannot be called as profit and loss account prepared in accordance with the requirements of Parts II and III of Schedule VI. Hence, it is submitted that the profits derived on transfer of assets is profit realised on capital assets in its hands, and thus could not be a part of the profit and loss account in accordance with the provisions of Parts II and III of Schedule VT to the Companies Act, 1956.
8. It is also submitted that only the profits in the nature of income commercially understood can be liable to tax under section 115JB and not capital receipt which may be admittedly of commercial in nature like gift, amalgamation reserve, capital reserve and revaluation reserve irrespective of the treatment in the books of account. Therefore, merely on account of accounting treatment given to the particular receipt, the nature of receipt cannot be decided. Part II of Schedule VI to the Companies Act deals with the requirement of profit and loss account whereas Part III deals with interpretation.
9. The profit arising on sale of investment cannot be treated as revenue receipt arising from the carrying on of the business of the assessee-com-pany. The intention of the Legislature is to tax commercial profits under section 115JB and not the profit arising on sale of assets. The introduction of section 115JB is to tax the dividend paying company but not paying any tax.
10. According to the standard accounting practices as well as under the Income Tax Act the assessee has two options to choose manner in which the said surplus amount is to be accounted. Either the same may be credited to the profit and loss account or transferred to the general reserve accounts. As per the definition of income under section 2(24) of the Act, income includes any capital gains chargeable under section 45 of the Act. Capital gains which are not chargeable under section 45 shall not be treated as income under section 2(24) of the Income Tax Act and consequently as the charging section, i.e., section 4 of the Income Tax Act fails and such gain shall not be chargeable to tax under any other provisions of Income Tax Act. In this regard, he relied on the decision of the Supreme Court in the case of CIT v. D. P. Sandhu Bros. Chembur P. Ltd. reported in (2005) 273 ITR 1. He submitted that the receipts which are not taxable under the normal provisions of this Act cannot be treated as part of book profit under section 115JB. It is also submitted that the provisions of section 115J and the provisions of sections 115JA and 115JB are totally different. Section 115JB(5) provides that "save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section". The decision of the Bombay High Court in the case of CIT v. Veekaylal Investment Co. Pvt. Ltd. (2001) 249 ITR 597 is totally distinguishable as in that case the ruling was given under section 115J whereas the section under question before the Special Bench is under section 115JB of the Act which is very much different from section 115J. In that case, the court has not considered section 2(24) which defines the income and section 4 of the Act which is a charging section under the Income Tax Act. In view of the above, learned counsel for the assessee concluded that the only income as commercially understood can be liable to tax under section 115JB and not every credit to the profit and loss account. The Explanation to section 115JB which also refers to the exclusion of income which is not chargeable to tax under section 10 for calculating book profit. Thus, on the same line what is chargeable to tax is only to be part of the book profit. Hence, the decision of CIT v. Veekaylal Investment Co. Pvt. Ltd. (2001) 249 ITR 597, etc., relied on by the department are not applicable to the facts of the instant case. It is therefore submitted that the order of the Commissioner of Income-tax under section 263 of the Act directing to treat the surplus arising from transfer of business as book profit is not correct and the same needs to be reversed. Otherwise, virtually it will mean taxing capital receipt as income which is not the intention of section 115JB of the Act.
11. For this purpose, learned counsel for the assessee relied on the following judgments :
(1) Cadell Weaving Mill Co. P. Ltd. v. CIT (2001) 249 ITR 265 (Bom) approved by the Supreme Court in CIT v. D. P. Sandhu Bros. Chembur P. Ltd. (2005) 273 ITR 1. Income under section 2(24) (vi) shall include only capital gains chargeable to tax under section 45 and not all capital gains, i.e., capital gains not chargeable to tax under section 45 falls outside the definition of income under section 2(24).
(2) Asst. CIT v. Mukund Ltd. (I.T.A. No. 304/Mum/2004). Capital gains on sale to 100 per cent, subsidiary not chargeable to tax under section 47(iv) of the Act cannot be subjected to tax under the minimum alternate tax provisions.
(3) ITO v. Su-raj Jewellery India Ltd. (2008) 22 (II) ITCL 288 (Mum-Trib) : (2008) 21 SOT 79 (Mum). Capital gains on sale to holding company not chargeable to tax under section 47(iv) of the Act cannot be subjected to tax under minimum alternate tax provisions.
(4) ITO v. Frigsales (I) Ltd. (2005) 4 SOT 376 (Mum). Capital gains not chargeable to tax under section 50 of the Act cannot be subjected to tax under the minimum alternate tax provisions.
(5) Oriental Containers Ltd. v. Joint CIT (2008) 20 (II) ITCL 177 (Mum-Trib) : (2007) 19 SOT 30 (Mum). Surplus on revaluation of deferred sales tax liability is not of income nature and accordingly, such item could not form part of book profit for minimum alternate tax provisions.
(6) Pal Synthetics Ltd. v. Joint CIT (I.T.A. No. 1310/Mum/03). Subsidiary receipt which is not a taxable income cannot be subject to book profit for minimum alternate tax provisions.
(7) Sutlej Cotton Mills Ltd. v. Asst. CIT (1993) 199 ITR (AT) 164. Book profit was intended to be confined to business profits and was not intended to include profit on realization of any asset. The capital gains is deemed to be income only for the purpose of section 45 and cannot be deemed to be income for minimum alternate tax provisions.
(8) Asst. CIT v. Northern India Theatres P. Ltd. reported in (1996) 218 ITR (AT) 50 (Del) (TM). Profits on sale of fixed assets yield only capital gains and they do not partake the character of business profits. Simply because these were shown as part of trading receipts in the profit and loss account and accounts were audited, nature of receipt cannot change.
(9) Oswal Agro Mills Ltd. v. Deputy CIT (1994) 51 ITD 447 (Delhi). Book profits should include only income from the business activities of the company and not any income which arose on account of capital gains. Accordingly, short-term capital gains as a result of sale of certain Government securities credited to the profit and loss account not to be included for computation of book profit under minimum alternate tax provisions.
(10) GKW Ltd. v. Joint CIT (2000) 74 ITD 161 (Cal). The object of the Legislature is to consider the profits of the business while computing the book profits of the company and profit on transfer of assets should not be considered while computing the same.
(11) Hitkari Fibres Ltd. v. Joint CIT (2004) 90 ITD 654 (Mum). Waiver of interest written back in the profit and loss account, provision of which was not allowed in earlier years, not to be included in the minimum alternate tax provisions. The minimum alternate tax to be levied on real book profits which has been earned by the companies and not on artificial income.
12. It is further submitted that capital gains in this case are exempt under section 47(iv) of the Act and this fact was not disputed by the department. Therefore the capital gains are not in the nature of income and they cannot be taxed as income under the provisions of section 115JB of the Act. He submitted that section 115JB is a self-contained code and sub-section (5) into the statute which was not in section 115J, states that "save otherwise provided in this section, all other provisions of the Act shall apply to every assessee being a company". Hence he submitted that now the other provisions of the Act will continue to apply in view of sub-section (5) of section 115JB of the Act. Therefore, the exempt income under section 47(iv) of the Act would remain exempted as per the provisions of sub-section (5) and the operation of non obstante clause is limited only to determine the book profit and the book profit so determined has to be taxed taking into consideration the other provisions of the Act.
13. The learned Departmental Representative Smt. Vasundra Sinha, submitted that the very term used to describe the scheme of taxation under section 115JB of the Act is "minimum alternate tax", i.e., to be seen as an alternate method of taxation. The provision was to be invoked only when the tax payable by the company fell below a certain limit. In such circumstances, the regular provisions ceased to operate and a new and alternate basis of taxation was provided for. The intention of the section is to tax the book profit, irrespective of its nature or component and without the privileges of deductions and exemptions available under the regular provisions. In this alternate method, what is subjected to tax is the book profit and not "income". So, the nature of receipt being subjected to tax may not be "income" in the strict accounting or legal sense but is still taxable so long as it is a part of "book profit". It is further submitted that sub-section (1) of section 115JB begins with a non obstante clause, "Notwithstanding anything contained in any other provisions of this Act. . .". This is also the charging sub-section while sub-section (2) provides for the computation of income under this section. Together, they provide for levy of income-tax on "book profit" and not on "total income" as defined in the rest of the Act. Therefore, in determining book profits and thereby, deemed total income, they prevail over the other regular provisions of this Act. Sub-sections (1) and (2) together make section 115JB a self-contained code and there is no difference in this respect from the earlier provisions of section 115JA and section 115J.
14. She relied on the decision of the Apex Court, in the case of Apollo Tyres Ltd. v. CIT reported in (2002) 255 ITR 273, for the proposition that the assessing officer cannot go beyond the profit and loss account except to the extent provided in Explanation 1. Even though the decision was rendered in the context of section 115J of the Act but there is no doubt that section 115J did not have any provision analogous to sub-section (5) of section 115JB of the Act. However, section 115JB (5) of the Act does not have an impact on the charging and computation aspects of section 115JB, contained in its sub-sections (1) and (2). This is clear from the decision of the Supreme Court in the case of CIT v. HCL Comnet Systems and Services Ltd. (2008) 23 (I) ITCL 501 (SC) : (2008) 305 ITR 409 (SC), rendered in the context of section 115JA (whose sub-section (4) is analogous to sub-section (5) of section 115JB), where the views expressed in the case of Apollo Tyres Ltd. (2002) 255 ITR 273 were extensively quoted, relied on and reiterated. From the above Apex Court decisions, the court laid down the following principles with regard to section 115JB of the Act :
(i) The assessing officer has to accept the authenticity of the accounts maintained by the company in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, which are certified by the auditors and laid before the company at the annual general meeting.
(ii) The assessing officer cannot go beyond the net profit shown in the profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, except for the adjustments permissible under the Explanation.
(iii) The adjustments required to be made to the net profit as per section 349 of the Companies Act are quite different from the adjustments required to be made as per the Explanation.
15. It is further submitted that the capital gain in question has been duly reflected in the profit and loss account as "extraordinary items". Further, Note 1 of the "Notes on accounts" categorically states that "the financial statements have been prepared on the basis of going concern, under the historical cost convention on accrual basis, to comply in all material aspects with applicable accounting principles in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956". There is no mention in any of the other "Notes on accounts" that the inclusion of the capital gain in question was not in keeping with Parts II and III of the Schedule VI to the Companies Act or of the accounting principles. Thus, it cannot be said on the basis of the audited accounts of the assessee that the capital gain was not includible in the profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act. Since the capital gain is part of net profit as per the profit and loss account prepared in accordance with Schedule VI to the Companies Act, it cannot be excluded from net profit for computing book profit unless specifically provided in the Explanation to section 115JB. There being no reference to section 47(iv) in the Explanation, the assessee is not entitled to any such deduction from net profit. "Book profit" as defined in the Explanation, is derived from the profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act. It is to be noted that, as per Explanation, the basis for computing the book profit is the "profit and loss account", so prepared, and not the "net profit" as per the provisions of the Companies Act. Reference to the Companies Act is to be made only with regard to the profit and loss account and not for the definitions or determination of net profit. "Book profit" is to be determined exclusively in accordance with Parts II and III of Schedule VI to the Companies Act. Though there are references in various sections of the Companies Act to the drawing up of the profit and loss account or the determination of net profits, for the purposes of the determination of "book profits" under section 115JB, it is the manner and method provided in Parts II and III of Schedule VI to the Companies Act, alone that is relevant. The provisions of section 349 of the Companies Act, which specifies the manner in which "net profits" of the company are to be determined cannot, therefore, be imported into section 115JB of the Act when it has not expressly been provided for. Paragraph 2(b) of Part II of Schedule VI to the Companies Act requires that "the profit and loss account shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature". Such transactions are also specifically required to be disclosed in the profit and loss account by paragraph 3(xii) of Part III of Schedule VI. It is, thus, clear that all such receipts are very much required to be reflected in the profit and loss account and included in the net profit. While section 115J (as also section 115JA) referred only to the Companies Act for the manner of preparation of the profit and loss account, section 115JB lays down stricter norms by specifying adherence to accounting standards and accounting policies as well. Paragraph 34 of Accounting Standard 13 provides that "On disposal of an investment, the difference between the carrying amount and net disposal proceeds should be charged or credited to the profit and loss statement". Thus, even as per the Accounting Standards, capital gains are required to be included in the profit and loss account and consequently in the net profit.
16. She also placed reliance on the decision of the Bombay High Court in the case of CIT v. Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597, where the requirements of the Companies Act for reflection of capital gain in the profit and loss account were examined and hence, the inclusion of capital gains in its profit and loss account by the assessee is, therefore, in accordance with the provisions of Schedule VI to the Companies Act and Accounting Standards.
17. The view that exempt income is not to be included in the "book profits" in view of the provisions of section 115JB(5), is not in consonance with the decision of the Supreme Court in HCL Comnet Systems and Services Ltd. (2008) 23 (I) ITCL 501 (SC) : (2008) 305 ITR 409 (SC) where the matter had been considered with reference to section 115JA, which is analogous to section 115JB. Section 115JB does not classify "book profits" into heads of income, leave alone "taxable" and "exempt" income. The provisions of the Income Tax Act relevant for the computation of regular income are not relevant for the purpose of computation of "book profits". Indeed, if the argument that exempt income is to be excluded from "book profits", is to be taken to its logical end, then all the provisions of the Income Tax Act ought to be applied to net profit to arrive at the "book profit". Such an interpretation would render the non obstante clause of section 115JB(1) ineffective and the section 115JB(2) superfluous. For instance, Explanation 1 to section 115JB(2) provides for reduction of deductions under sections 80HHC, 80HHE and 80HHF from the book profits. If the assessee's argument were to be accepted, the other deductions of Chapter VI should also be reduced from the book profit since their non-application is not "otherwise provided". Such an interpretation of section 115JB(5) cannot be said to be the intention of the Legislature. Certain incomes have been exempted from taxation under the Income Tax Act by various specific provisions. Section 47 is one such provision whereby certain transactions have been specifically exempted from the application of section 45 of the Act. Such an exemption does not change the nature of the transaction from intrinsically being in the nature of transfer or resulting in income. Indeed, section 47 further emphasises that such transactions would have been in the nature of transfer and the resultant receipt would have been in the nature of income, but for the specific exemption provided by the section. No such exemption being available to the assessee under section 115JB, the question of claiming deduction of all "exempted income" does not arise.
18. The learned Departmental representative placed reliance on the following decisions :
(i) N. J. Jose and Co. P. Ltd. v. Asst. CIT (2008) 22 (I) ITCL 525 (Ker-HC) : (2010) 321 ITR 132 (Ker).
(ii) Growth Avenue Securities P. Ltd. v. Deputy CIT (I.T.A.No. 3912/Del/2005 dated 29-5-2009) reported at (2010) 32 (II) ITCL 81 (Del `B'-Trib) : (2010) 1 ITR (Trib) 807 (Delhi).
19. In the case of N. J. Jose and Co. P. Ltd. v. Asst. CIT (2008) 22 (I) ITCL 525 (Ker-HC) : (2010) 321 ITR 132, the Kerala High Court held that there was no provision for exclusion of such income included in the profit and loss account and the fact that income was exempt under section 54E was not relevant for tax on book profits under section 115J of the Act. In the case of Growth Avenue Securities P. Ltd. v. Deputy CIT (2010) 32 (II) ITCL 81 (Del `B'-Trib) : (2010) 1 ITR (Trib) 807 (Delhi) the Income-tax Appellate Tribunal has, while holding that capital gain exempt under section 54EC were to be included in the book profits, also examined the decisions in Sutlej Cotton Mills Ltd. v. Asst. CIT reported in (1993) 199 ITR (AT) 164 ; 45 ITD 22 and ITO v. Frigsales (India) Ltd. reported in (2005) 4 SOT 376 (Mum) and held them to be not in consonance with the decisions in Apollo Tyres Ltd. (2002) 255 ITR 273 and HCL Comnet Systems and Services Ltd. (2008) 23 (I) ITCL 501 (SC) : (2008) 305 ITR 409 (SC).
20. Declaration of dividend is not a pre-requisite for application of section 115JB of the Act. The purpose of the section, as of its predecessors, sections 115J and 115JA, was to tax companies which were making profits and also declaring dividend. However the reference to declaration of dividend, whether in the Speech of the Finance Minister or in circulars of the Central Board of Direct Taxes, was merely by way of explaining the kind of malaise that the section sought to address. There is no reference in the section itself that dividend being declared by the company as a condition for invoking the section. The only condition prescribed for invoking the section is that the income-tax payable by the company is less than a prescribed percentage of the book profit. The law is clear, categorical and unambiguous on this issue. It has been held by the Supreme Court in CIT v. Tara Agencies (2007) 17 (I) ITCL 15 (SC) : (2007) 292 ITR 444 (SC) that the intention of the Legislature has to be gathered from the language used in the statute, which means that attention should be paid to what has been said as also to what has not been said. The court also held that it is the bounden duty and obligation of the court to interpret the statute as it is. It is contrary to all rules of construction to read words into a statute which the Legislature in its wisdom has deliberately not incorporated. The plea of the assessee that section 115JB is not applicable to its case due to absence of dividend is, therefore, devoid of merit. Hence, the order of the Commissioner be upheld and the appeal of the assessee be dismissed. She also relied on the decision in the case of CIT v. Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597 (SC), wherein it was held as follows (headnote) :
"Held, allowing the appeal, that according to section 115J of the Act, in the case of an assessee being a company, if the total income is less than 30 per cent, of its book profits then the total income of such company shall be deemed to be an amount equal to 30 per cent, of such book profit and such income shall be chargeable to tax. The important thing to be noted is that while calculating the total income under the Income Tax Act, the assessee is required to take into account income by way of capital gains under section 45 of the Act. In the circumstances, while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under section 115J. Even under clause 3(xii)(b) of Part II of Schedule VI to the Companies Act, 1956, profits or losses in respect of transactions or transactions of an exceptional or non-recurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits."
21. And the decision of the hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC), wherein it was held as follows (head-note) :
"The assessing officer, while computing the book profits of a company under section 115J of the Income Tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The assessing officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of words `in accordance with the provisions of Part II and III of Schedule VI to the Companies Act' in section 115J was made for the limited purpose of empowering the assessing officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the assessing officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinised and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the assessing officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.
Held accordingly, that, while determining the `book profits' under section 115J, the assessing officer could not recompute the profits in the profit and loss account by excluding provisions made for arrears of depreciation.
Decision of the Kerala High Court in CIT v. Appollo Tyres Ltd. (1999) 237 ITR 706 reversed on this point."
22. It was held by the hon'ble Supreme Court in the case of Apollo Tyres Ltd. (2002) 255 ITR 273, where the accounts are prepared and certified by the auditors, which in turn are approved/adopted by the shareholders of the company and are filed before the Registrar of Companies, the assessing officer has no power of disturbing the profits of business. The only power of the assessing officer under section 115JB of the Act is to make suitable adjustments to the profits of the business under the Explanation to this section. The net profit shown in the profit and loss account are to be adopted for working out the book profit of the company under section 115JB of the Act by the assessing officer except to the extent adjustments provided in the Explanation to the said section.
23. We have considered the rival submissions and perused the materials available on record and the case law relied upon by both the parties. We have taken into consideration the ratio decidendi of all the decisions relied upon by the rival parties. The omission of reference to some of the cases in the order is either due to their irrelevance or to relieve the order from the repetitive nature of the decisions. Under the minimum alternate tax (MAT) provisions, the assessing officer is concerned with the adjustments to be made with the net profit as shown in the profit and loss account. One of the moot questions relevant to the issue before us is whether the assessing officer has power to alter the net profit ? In our considered opinion, "Yes". We agree that it is settled law that the assessing officer has the power to alter the net profit. In the following two cases, the assessing officer can rewrite the profit and loss account, i.e., to say that the assessing officer should recalculate the net profit and then follow the adjustments of the minimum alternate tax as usual : (1) If it is discovered that the profit and loss account is not drawn up in accordance with Part II and Part III of Schedule VI to the Companies Act. However, the assessing officer cannot disturb the net profit as shown by the assessee where there are no such allegations, fraud or misrepresentation but only a difference of opinion as to whether a particular amount should be properly shown in the profit and loss account or in the balance-sheet. (2) If accounting policies, accounting standards are not adopted for preparing such accounts and method, rates of depreciation which have been incorrectly adopted for preparation of the profit and loss account laid before the annual general meeting. Except for the above two cases, the assessing officer has no power to alter the net profit shown by the companies for the purpose of computing the book profit. Thus it is clear that under the minimum alternate tax, the assessing officer should take the net profit as computed by the assessee and then make the adjustments under section 115JB of the Act. It is common that some companies follow an accounting year under the Companies Act, 1956, which is different from the financial year under Income Tax Act, 1961.
These companies generally prepare two sets of accounts—one for the Companies Act and another for the Income Tax Act. The reason being different accounting policies, standards, depreciation methods and rates are adopted in two sets of accounts so that higher profit is reported to shareholders and lower profit for the Income-tax authorities. To curb the above practice only this recalculation of net profit under minimum alternate tax was incorporated so that there should be a consistency in accounting policies, standards, methods and rates of depreciation within the knowledge of the income-tax authorities.
24. Section 115JB reads as follows :—(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007, is less than ten percent, 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 ten per cent. . . .
(2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) : . . .
Explanation 1, for the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by . . .
25. It is evident from the above that, the moot question that needs to be decided is whether Parts II and III of Schedule VI to the Companies Act permits the exclusion of the capital gain from the profit and loss account or not ? In other words, can a profit and loss account drawn up without considering the capital gain said to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act or not ?".
26. Part II of Schedule VI to the Companies Act read as under :
Part II: Requirements as to profit and loss account
1. The provisions of this part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Companies Act, in like manner as they apply to a profit and loss account, but subject to the modification of reference as specified in that sub-section.
The profit and loss account :
(a) shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account ; and
(b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature.
3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account : . . .
(xi) (a) The amount of income from investments, distinguishing between trade investments and other investments.
(b) Other income by way of interest, specifying the nature of the income.
(c) The amount of income-tax deducted if the gross income is stated under sub-paragraphs (a) and (b) above.
(xii) (a) Profits or losses on investments showing distinctly the extent of the profits or losses earned or incurred on account of membership of a partnership firm to the extent not adjusted from any previous provision or reserve.
Note : Information in respect of this item should also be given in the balance-sheet under the relevant provision or reserve account.
(b) Profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount.
As is evident from the above, the profit and loss account of a company has to disclose every material feature including credits or receipts and debits or expenses in respect of non-recurring transaction or transactions of an exceptional nature. Further the company is also required to set out the various items relating to the income and expenditure of the company arranged under most convenient heads and disclosing profit or loss in respect of transaction of a kind not usually undertaken by the company or undertaking in circumstances of exceptional or non-recurring nature if material in amount.
27. The issue whether capital gains had to be included in book profits arose before the Bombay High Court in the case of Veekay Lal Investment Co. P. Ltd. (2001) 249 ITR 597 (Bom. In that case, the court held that if for computing the total income under the normal provisions, the capital gains computed under section 45 of the Act has to be taken into account, it was not understood how in computing the book profits under section 115J of the Act, the assessee could exclude capital gain. The assessee is required to take into account income by way of capital gains under section 45 of the Act. In the circumstances, while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under section 115J. Even under clause 3(xii) of Part II of Schedule VI to the Companies act, 1956, profits or losses in respect of transactions or transactions of an exceptional or non-recurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits. In the case of Apollo Tyres Ltd. (2002) 255 ITR 273 the Apex Court held that the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" were made for the purpose of empowering the assessing authority to rely upon the authentic statements of accounts of the company. It was held that while doing so, looking into the accounts of the company, the assessing officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act who obligates the company to maintain its accounts in a manner provided by the Companies Act and the same to be scrutinised and certified by the statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies which has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. It was held that if these procedures were complied with, it was not open to the assessing officer to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. The same view was reiterated in the case of Malayala Manorama Co. Ltd. v. CIT (2008) 22 (I) ITCL 15 (SC) : (2008) 300 ITR 251 (SC) by the Apex Court.
28. This principle was also applied by the Mumbai Bench of the Tribunal in the case of Deputy CIT v. Bombay Diamond Co. ITA No 7488/Mum/2007, dt 30-11-2009 [reported as (2010) 32 (II) ITCL 456 (Mum `B'-Trib)]. In that case, the assessee earned a capital profit of Rs. 10.38 crores on sale of rights to immovable property which was directly credited to the capital reserves in the balance-sheet instead of being routed through the profit and loss account. The accounts of the assessee-company were duly certified by the auditors and were also adopted in the annual general meeting. The audited accounts were filed with the Registrar of Companies. In the computation of book profits under section 115JB of the Act, the said capital profits were not included. The assessing officer took the view that by not crediting the capital profit to the profit and loss account, the assessee had contravened sub-clause (xi) (a) of clause 3 of Part II of the Schedule VI to the Companies Act and that he was, therefore, entitled to add the capital profit to the book profit. On appeal, the first appellate authority reversed the assessment order on the ground that the assessing officer had no jurisdiction to go beyond the net profit shown in the profit and loss account except to the extent provided in the Explanation 1 to section 115JB of the Act. On appeal by the department, the Tribunal upheld the stand of the assessing officer on the ground that as the assessee had not routed the capital profits through the profit and loss account and directly credited it to the balance-sheet, its accounts were not prepared in the manner provided in Part II and Part III of Schedule VI to the Companies Act. It was held that the fact that the auditors had certified the accounts was not relevant. The Tribunal distinguished the decision in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 on the ground that as the assessee had by-passed the provisions of Schedule VI and directly credited the capital profit to the reserve account, decision in the case of Apollo Tyres Ltd. (2002) 255 ITR 273 did not apply. In the case under consideration, the department is on a better footing, as the assessee-company itself credited the capital gain to the profit and loss account. Moreover, there is no qualification by the auditors that the accounts of the company are not in accordance with accounting policies, standards to be followed as per ICAI guidelines.
29. It is an undisputed fact that the long-term capital gain earned by the assessee is included in the net profit determined as per the profit and loss account prepared as per Parts II and III of Schedule VI to the Companies Act. In other words, it is not the case of the assessee that the capital gains earned by the assessee was not included in the net profit determined as per profit and loss account of the assessee prepared under the Companies Act. As per the audited accounts of the assessee, the statutory auditors have reported that amongst others, that in their opinion, the profit and loss account and the balance-sheet are in compliance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, and further reported that the balance-sheet and profit and loss account read together with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. As per the audited profit and loss account, the assessee has included long-term capital gain. In the notes on accounts, it is nowhere mentioned and claimed that though the long-term capital gain is included in the profit and loss account it is not includible in the net profit in terms of the provisions of Parts II and III of Schedule VI to the Companies Act or the accounting principles accepted under the Companies Act. Hence, it is not case of the assessee that the long-term capital gains was not includible in the profit and loss account prepared in terms of Schedule VI to the Companies Act. Only in the computation of book profit under section 115JB of the Act, the assessee claimed exclusion of long-term capital gain which is exempt under section 47(iv) of the Act. It is due to the fact that the assessee claimed deduction of long term-capital gain from book profit by virtue of being exempted income in the normal provisions of the Act and not because of the reason that the same was not includible in the profit and loss account prepared under Parts II and III of Schedule VI to the Companies Act. In the circumstances, when the assessee itself has included the capital gains arising from sale of shares to subsidiary in the profit and loss account, the same cannot be excluded under any of the Explanations under section 115JB. At this point it is not necessary for us to dwell upon the situation, where the assessee has directly credited the profit on sale of asset to a reserve account. The proviso to section 115JB prescribes that the accounting policies, accounting standards and the method and rates of depreciation adopted for preparing the book profits under section 115JB shall be the same as adopted for the purpose of preparing such accounts including the profit and loss account and laid before the company at its annual general meeting. Therefore whatever accounting policy is adopted for the purpose of preparing the profit and loss account laid before the company should be adopted for computing the book profits under section 115JB. Capital gains on sale of shares were included in computing the profits presented before the shareholders and the same should also be included in computing book profits under section 115JB.
30. The Kerala High Court in the case of N. J. Jose and Co. P. Ltd. v. Asst. CIT (2008) 22 (I) ITCL 525 (Ker-HC) : (2010) 321 ITR 132 (Ker) has held that capital gains, even though exempt under the normal provisions of the Income Tax Act under section 54E cannot be excluded while computing book profits.
31. They have observed (page 134 of 321 ITR) :
"... We are unable to accept the contention of the assessee, because the assessment under Chapter XII-B on book profit is a self-contained code. The scheme thereunder is to adopt the profit and loss account of the assessee prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 and to treat the net profit shown therein as book profit. The permissible adjustments in the form of additions and deductions are provided under the Explanation to section 115J(1A) of the Act. No more deductions, rebates or allowances other than what is stated in the said Explanation are available for the computation of book profit. In fact, it is very clear from the non obstante clause in section 115J(1) that the assessment under section 115J overrides other provisions of the Act. In fact, the assessing officer gets jurisdiction to make assessment under section 115J of the Act only when the total income computed under the provisions of the Act is below 30 per cent, of the book profit of the assessee as contemplated under the said section. While deductions, rebates and allowances are available in the computation of income for normal assessment, additions, deductions and adjustments except to the extent covered by the Explanation to section 115J(1A) are not available in the computation of book profit. In other words, once the assessing officer finds that total income as computed under the provisions of the Act is less than 30 per cent, of the book profit, he has to give up normal assessment and the assessing officer has to opt for the assessment under section 115J which does not provide for any deduction in terms of section 54E of the Act. The assessee has no case that the long-term capital gains are not profit not includible in the profit and loss account prepared in terms of Schedule VI to the Companies Act. Since there is no provision in Chapter XII-B for deduction of capital gains in the computation of book profit, the assessee is not entitled to the deduction claimed. The Bombay High Court in the decision in CIT v. Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597 (Bom) also took the view that capital gains is part of profit which cannot be excluded in the computation of book profit. Even though learned senior counsel for the assessee contended that the case decided by the Bombay High Court did not involve the claim of exemption on capital gains under section 54E of the Act, we do not think this distinction makes any difference, because so long as long-term capital gains is part of profit included in the profit and loss account prepared under Chapter VI to the Companies Act, it cannot be excluded unless so provided under the Explanation to section 115J(1A) of the Act. In the absence of any provision for exclusion of capital gains in the computation of book profit under the above provision, the assessee is not entitled to the exclusion claimed. In other words, section 54E has no application in the computation of book profit under section 115J."
32. In the decision of the Bombay High Court in the case of CIT v. Akshay Textiles Trading and Agencies P. Ltd. (2008) 304 ITR 401 (Bom) : (2008) 167 Taxman 324 (Bom)the question referred to the High Court and the decision of the High Court, as reported are as under (page 402) :
"C. Whether, on the facts and the circumstances of the case and in law, the hon'ble Income tax Appellate Tribunal was correct in upholding the order of the Commissioner of Income tax (Appeals) in holding that the capital gains of Rs. 19,74,489 are not to be taken into account while computing the profits liable to be taxed under section 115JA of the Income Tax Act, 1961, and that the decision of the hon'ble Bombay High Court in CIT v. Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597 was not applicable ?
In so far as question No. `C, our attention is invited to the judgment of the Supreme Court in Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC). The question framed therein which is similar to question No. `C has been answered in favour of the assessee and against the revenue. In the light of that the question of law as framed would not arise."
33. From the above it is difficult to conclude that the Division bench of the Bombay High Court in this case has overruled the decision of another Division Bench without even a line of discussion. The decision of the Bombay High Court in the case of Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597 holding that the book profits have to be computed in accordance with Parts II and III of Schedule VI to the Companies Act. This is in line with the decision of the Apex Court in the case of Apollo Tyres Ltd. (2002) 255 ITR 273. The Mumbai High Court in the case of CIT v. Akshay Textiles Trading and Agencies P. Ltd. (2008) 304 ITR 401 (Bom) : (2008) 167 Taxman 324 (Bom) has held that there is no question of law in view of the decision of the Apex Court in the case of Appollo Tyres Ltd. (2002) 255 ITR 273. From this we are not able to infer that the decision of the Bombay High Court in the case of Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597 is no longer good law. Therefore this case does not help the assessee.
34. The Delhi Court in the case CIT v. Sain Processing and Weaving Mills (P) Ltd. (2009) 26 (I) ITCL 173 (Del-HC) : (2010) 325 ITR 565 (Delhi) has held that company—Book profit under section 115J—Depreciation not debited to profit and loss account—It is obligatory under clause 3(iv) of Part II of Schedule VI to the Companies Act to give information with regard to depreciation which has not been provided for, along with the quantum of arrears—Once this information is disclosed in the notes to the accounts, it would clearly fall within the ambit of the Explanation to section 115J—Notes to the accounts form part of the profit and loss account by virtue of sub-section (6) of section 211 of the Companies Act and thus the depreciation which is not charged to profit and loss account but is disclosed in the notes to the accounts would come within the ambit of the expression "shown in the profit and loss account" occurring in Explanation to section 115J—Further, the net profit of a company cannot be determined till all the items of income and expenses as well as depreciation are taken into account—Depreciation, even if not debited to the profit and loss account has to be taken into account while determining "book profit" under section 115J as long as it forms part of the prescribed accounts—That apart, section 205(1), proviso (b) of the Companies Act read with clause (iv) of Explanation to section 115J permits reduction of net profit to the extent of past losses or unabsorbed depreciation, whichever is less—If unabsorbed depreciation can be reduced from the net profit to arrive at book profit, there is no reason why current year's depreciation which is not charged to the profit and loss account cannot be deducted from the net profit in determining book profit.
35. Regarding the judgment of the Special Bench of the Tribunal rendered in the case of Sutlej Cotton Mills Ltd. (1993) 199 ITR (AT) 164 we find that this judgment is not applicable in the present case because it was held by the hon'ble Bombay High Court in the case of Veekaylal Investment Co. Pvt. Ltd. (2001) 249 ITR 597 that capital gain is to be included in the book profit. In that case of Veekaylal Investment Co. Pvt. Ltd. (2001) 249 ITR 597, the Tribunal has decided this issue in favour of the assessee by following the judgment of the Special Bench of the Tribunal rendered in the case of Sutlej Cotton Mills Ltd. (1993) 199 ITR (AT) 164, but that decision of the Tribunal has been reversed by the hon'ble Bombay High Court, and hence this decision of the Special Bench of the Tribunal rendered in the case of Sutlej Cotton Mills Ltd. (1993) 199 ITR (AT) 164 is of no avail to the assessee.
36. It is to be noted that the assessee has not made any claim of deduction of long-term capital gain from the book profit, which goes to show that capital gain as such is not deductible from the net profit prepared in accordance with Parts II and III of Schedule VI to the Companies Act. Moreover, the taxability of capital gains is relevant only for the purpose of computation of income under the normal provisions of the Income Tax Act, and has nothing to do with the preparation of the profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. Under these circumstances, as long as long-term capital gain is part of profit included in the profit and loss account prepared in accordance with the provisions contained in Parts II and III of Schedule VI to the Companies Act, it cannot be excluded from the net profit unless so provided under the Explanation to section 115JB of the Act for the purpose of computing book profit under section 115JB of the Act. In the absence of any provision for exclusion of capital gains in the computation of book profit under the above provision, the assessee is not entitled to the exclusion claimed. In other words, section 47(iv) of the Act has no application in the computation of book profit under section 115JB of the Act where as section like 80HHC, etc., finds place in the exclusion item.
37. It is the case of the assessee that since the capital gain arising from the transfer of a long-term capital asset was exempt to the assessee shall not be charged to tax as so provided in section 47(iv) of the Act, and as such the same is to reduce from the net profit determined in the profit and loss account prepared by the assessee while computing "book profit" within the meaning of section 115JB of the Act. Learned counsel for the assessee strongly contended that the provisions contained in sub-section (5) of section 115JB of the Act that since all other provisions of this Act shall also apply to every assessee, being a company, mentioned in section 115JB of the Act, the assessee is entitled to reduce the long-term capital gain exempted under section 47(iv) of the Act. For this proposition the assessee relies on the decision of the Mumbai Tribunal in the case of Frigsales (I) Ltd. (2005) 4 SOT 376. In that case, it is noted by the Tribunal in paragraph 3.2 of its order that the capital gain earned by the assessee being exempt under section 50 of the Act will not form part of the normal taxable income, and when the receipt is not in the nature of taxable income, it cannot be taxed as income under section 115JA of the Act. The Tribunal applied the provisions of sub-section (4) of section 115JA, which provides that "save as otherwise provided in this section (section 115JA), all other provisions of the Act shall apply", in taking a view that all other provisions of the Act would continue to operate and, therefore, the exempt income under section 50 would remain exempted as per the provisions of sub-section (4) of section 115JA. The Tribunal further observed that in section 115JA, a new sub-section (4) has been brought on the statute, which was not there in section 115J, and sub-section (4) has been introduced for the first time in section 115JA. The Tribunal, therefore, had taken a view that the operation of non obstante clause is now limited only to determine book profit and the book profits so determined have to be taxed taking into consideration the other provisions of the Act. In other words, the Tribunal held that section 115JA is a part of the Act now and the exemption allowed by one provision of the Act cannot be taken away by another provision of the Act, and, thus, in that case, the Tribunal held that if the exemption allowed under section 50 was taken away while taxing the book profits under section 115JA, it would make the provision of section 50 redundant. In this decision, a reference to the decision of the hon'ble Mumbai High Court in the case of Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597 was made but the same was not discussed or deliberated upon or relied upon by the Tribunal by observing that this decision was rendered as per the provisions of section 115J, which is a self-contained code, though a new sub-section (4) has been inserted for the first time in section 115JA of the Act. We have carefully gone through the aforesaid decision of the Tribunal in the case of ITO v. Frigsales. We have also perused the provisions of sections 115J, 115JA and 115JB of the Act. All these sections are deeming provisions. Section 115J has overriding effect over all other provisions of the Act. Section 115JA and 115JB have also overriding effect over all other provisions of the Act to the extent of the matter provided in these sections. Sub-section (4) was inserted in section 115JA of the Act. A provision similar to sub-section (4) of section 115JA was not there in section 115J of the Act. Sub-section (4) of section 115JA reads as "save as otherwise provided in this section, all other provisions of the Act shall apply". It is, thus, clear that all other provisions of the Act shall apply but subject to the provisions otherwise provided in section 115JA of the Act. In other words, the provisions specifically provided in section 115JA shall have overriding effect over all other provisions of the Act. The provision for computing book profit by increasing or reducing the net profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act is specifically provided in section 115J or 115JA or 115JB itself as the case may be, and consequently all other provisions of the Act providing the manner of computation of total income under the normal provisions of the Act cannot be applied while computing book profit under section 115J or 115JA or 115JB, as the case may be. We do not find any difference between section 115J or 115JA or 115JB in so far as method of computation of book profit as provided in the Explanation appended thereto is concerned. The Tribunal in the case of ITO v. Frigsales (I) Ltd. (2005) 4 SOT 376 has not applied the ratio of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (2002) 255 ITR 273 and the hon'ble Mumbai High Court in the case of Veekaylal Investment Co. P. Ltd. (2001) 249 ITR 597 (Mum) for the reason that these decisions were rendered in the context of the provisions of section 115J of the Act, but the fact remains that the propositions laid down by the hon'ble Supreme Court in the case of Apollo Tyres Ltd. (2002) 255 ITR 273 (SC) have been reiterated and relied upon by the Hon'ble Supreme Court in the case of HCL Comnet Systems and Services Ltd. (2008) 23 (I) ITCL 501 (SC) : (2008) 305 ITR 409 (SC) which has been rendered in the context of section 115JA of the Act. As per sub-section (5) of section 115JB of the Act, which reads as "save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section". Having regard to expression "save as otherwise provided in this section" used in this sub-section (5) of section 115TB of the Act, we are of the considered opinion that the expression "save as otherwise provided in this section 115JB" clearly means that what is provided in section 115JB should be religiously followed and anything over and above the matter provided in section 115JB will be subject to other provisions of the Act. The provisions of section 115JB have an overriding effect upon other provisions of the Act as is evident from the section itself. The method of computation of book profit provided in the Explanation to section 115JB should be followed while computing the book profit and the normal provisions of computation of profit under any head of the Act shall not be applicable. It is also held by the Karnataka High Court in the case of Jindal Thermal Power Co. Ltd. v. Deputy CIT reported in (2006) 12 (I) ITCL 305 (Karn-HC) : (2006) 286 ITR 182 (Karn), that except for substitution of the tax payable under the provisions and manner of computation of book profits, all the provisions of the tax including the provision relating to charge, definitions, recoveries, payment, assessment, etc., would apply in respect of the provisions of this section and in view of the scheme of the Income Tax Act.
38. It is not the intention of the Legislature to substitute the other provisions of the Act in place of what is specifically made available in section 115JB in so far as the computation of book profit under section 115JB of the Act is concerned. The entire mechanism for the computation of book profit is clearly set out in sub-section (1) of section 115JB read with Explanation thereto. The starting point being the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act but also the items, which are to be increased as stipulated in clauses (a) to (h), and the items, which are to be reduced as specified in clauses (i) to (vii), find separately mentioned in the scheme of the section itself. So, the computation of book profit is to be done strictly as per the Explanation to section 115JB of the Act and hence, no assistance from any other section of the Act can be taken for that purpose. The decisions relied upon by the learned departmental representative in the cases of Apollo Tyres Ltd. (2002) 255 ITR 273 and HCL Comnet Systems and Services Ltd. (2008) 23 (I) ITCL 501 (SC) : (2008) 305 ITR 409 (SC) had clearly laid down a law that the assessing officer has only limited power of making increases and reductions to the net profit shown in the profit and loss account except as provided for in the Explanation to section 115J or 115JA of the Act. In the light of the discussions made above, it is clear
