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Income Tax Act, 1961, Sections 115JA & 54EC
MAT—Book profit under section 115JA—Capital gains exempted under section 54EC being reckoned for purpose of computing book profit
Conclusion: Capital gains, exempt under section 54EC, could not be reckoned for purpose of computing book profit under section 115JA.
Issue under consideration was that whether capital gains, which were exempt under section 54EC could be reckoned for purpose of computing book profit under section 115JA. Held: In the light of binding decision of High Court in case of CIT-III, Chennai v. M/s.Metal & Chromium Plater (P.) Ltd. (2016) 76 taxmann.com 229 (Madras) : 2016 TaxPub(DT) 5156 (Mad-HC), the capital gains which were exempt under section 54EC could not be reckoned for the purpose of computing book profit under section 115JA.
Decision: In assessee’s favour.
Referred: CIT-III, Chennai v. M/s. Metal & Chromium Plater (P.) Ltd. (2016) 76 taxmann.com 229 (Madras) : 2016 TaxPub(DT) 5156 (Mad-HC).
IN THE ITAT, CHENNAI BENCH
GEORGE MATHAN, J.M. & INTURI RAMA RAO, A.M.
Fibroflex (India) (P) Ltd. v. Dy. CIT
ITA No. 1042/Chny/2018
20 July, 2019
Appellant by: R. Subramanian, CA
Respondent by: M. Subashri, JCIT
Inturi Rama Rao, A.M.
This is an appeal filed by the assessee-company directed against the Order of the Commissioner (Appeals)-13, Chennai, dated 1-12-2017 for the assessment year 1999-2000.
2. The assessee-company raised the following grounds of appeal :–
1. For that the Order of the Commissioner (Appeals) is contrary to law, facts and circumstances of the case and to that extent prejudicial to the interest of the Appellant. At any rate the impugned Order is opposed to the principles of equity, natural justice and fair play.
2. For that the Commissioner (Appeals) failed to appreciate that the Order of the assessing officer is on a wrong interpretation of 115JA of Income Tax Act and is further without jurisdiction.
3. The learned Commissioner (Appeals) erred in confirming the incorrect interpretation of provisions of section 115JA by the assessing officer
4. The learned Commissioner (Appeals) failed to appreciate that the Appellant is even otherwise eligible for exemption under section 54EA against the book profit under section 115JA.
5. The learned Commissioner (Appeals) failed to appreciate that the Audited Accounts adopted by the shareholders of the Appellant at their General Meeting and duly filed before the Registrar of Companies/Ministry of Corporate Affairs which cannot be altered or modified by the assessing officer nor the said action be upheld by the learned Commissioner (Appeals).
6. For that the learned Commissioner (Appeals) erred in upholding the wrongful invoking of the provisions of section 115JA.
7. For that the Commissioner (Appeals) erred in confirming the recasting of the Profit & Loss Account prepared under the provisions of the Companies Act by the assessing officer.
For these grounds and such other grounds that may be urged before or during the hearing of the Appeal it is most humbly prayed that the Hon’ble Tribunal may be pleased to pass Set Aside the Order of the learned Commissioner (Appeals) and pass such other Orders as the Hon’ble Tribunal may deem fit in the facts and circumstances of the Case.
3. Briefly the facts of the case are as under :–
The assessee is a company incorporated under the provisions of Companies Act, 1956. The return of income for the assessment year 1999-2000 was filed on 28-10-1998 declaring total income of Rs. 51,851. Against the said return of income, the assessment was completed by the assessing officer vide an Order, dated 31-1-2001 at total income of Rs. 50.00 lakhs under the provisions of section 115JA of the Income Tax Act. While doing so, the assessing officer noticed that the assessee credited sum of Rs. 50.00 lakhs to the reserve and surplus a/c being the amount received in lieu of surrender of tenancy rights.
However, under the normal computation of income, the same was claimed exempt under section 54E by investment in U.S.64 units of U.T.I. However, while computing the taxable income under the provisions of section 115JA, the same was not added to book profits. The assessing officer was of the opinion that the same is liable to be reckoned for the purpose of computation of book profit under section 115JA. Accordingly, the assessing officer assessed the same under section 115JA of the Act.
4. Being aggrieved by the Assessment Order, an appeal was filed before the learned Commissioner (Appeals) who vide impugned order dismissed the appeal.
Hence, the assessee is before us in the present grounds of appeal. It is submitted before us that the issue in the present appeal is covered by the decision of the Hon’ble High Court of Madras in the case of CIT-III, Chennai v. M/s. Metal & Chromium Plater (P.) Ltd., (2016) 76 taxmann.com 229 (Madras) : 2016 TaxPub(DT) 5156 (Mad-HC). On the other hand, learned Sr. DR placed reliance on the orders of the lower authorities.
5. We heard the rival submissions and perused the materials placed on record.
6. The issue whether the capital gains which are exempt under section 54EC can be reckoned for the purpose of computing book profit under section 115JA is settled by the Hon’ble jurisdictional High Court in the case of CIT-III, Chennai v. M/s. Metal & Chromium Plater (P.) Ltd., in favour of the assessee-company by holding as under :–
6. The allowance or otherwise of the claim under section 54AC has to be seen in the context of the provisions of section 115JB which is a self contained code of assessment. The levy of tax is on the ‘book profits’ after effecting various upward and downward adjustments as set out in terms of the Explanation thereto. The provisions of sub-section (5) of section 115JB open the assessment to the application of all other provisions contained in the Income Tax Act except if specifically barred by that section itself. Section 115JB(5) reads as follows :–
‘(5) 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.’
7. Thus, the adjusted book profits would be further eligible to the benefits set out in the other provisions of the Act and the plain language of section 115JB thus admits of the grant of relief under section 54EC in an assessment thereunder. We now deal with the case law relied upon by the assessing officer in denying relief to the assessee. The Supreme Court, in the case of Apollo Tyres (supra) is to the effect that the assessing officer is not empowered to embark on an enquiry with regard to the entries in the profit and loss account maintained in accordance with the provisions of the Companies Act 1956 and approved in the AGM except to the extent of effecting modifications in accordance with the Explanation to section 115J. The Bombay High Court in the case of Veekaylal Investments (supra) considers the inclusion of capital gain for the purposes of assessment under section 115J. Both judgments are rendered in the context of section 115J which does not contain a provision analogous to sub-sections (4) of section 115JA or (5) of section 115JB of the Act. Thus while an assessment under section 115J would be concluded exclusively on the basis of the book profits as adjusted by the items set out in the Explanation thereunder, in an assessment in terms of sections 115JA or JB, the adjusted book profits would be further subjected to the effect of other provisions of the Act that are specifically brought into play by virtue of sub-sections (4) of section 115JA and (5) of section 115JB.
8. Reliance of the learned standing counsel on the decision of the Division Bench of the Kerala High Court in the case of N.J. Jose and Co. (P) Ltd. v. Asst. Commissioner of Income Tax and another (2008) 321 ITR 133 (Ker) : 2008 TaxPub(DT) 1682 (Ker-HC) is also distinguishable for the same reason as aforesaid.
9. In view of the above discussion, the substantial question of law is answered against the Revenue and in favour of the assessee. The departmental appeal is dismissed without costs.
7. In the light of the binding decision of the jurisdictional High Court, we hold that the capital gains which are exempt under section 54EC cannot be reckoned for the purpose of computing book profit under section 115JA.
8. In the result, the appeal filed by the assessee is allowed.