Registration on TRACES and Downloading of TDS Certificates mandatory
As per the records of Centralized Processing Cell (TDS), the TDS Statements have been filed by many deductors for different quarters. However, many of them have not yet registered on TRACES (https://www.tdscpc.gov.in). In this regard, your attention is invited to the CBDT circulars 04/2013 dated 17.04.2013, No. 03/2011 dated 13.05.2011 and No. 01/2012 dated 09.04.2012 on the Issuance of certificate for Tax Deducted at Source in Form 16 / 16A as per IT Rules, 1962. It is now mandatory for all deductors to issue TDS certificates after generating and downloading the same from 'TDS Reconciliation Analysis and Correction Enabling System' or (https://www.tdscpc.gov.in) (hereinafter called TRACES).
- In view of above circulars, it may kindly be noted that only the TDS Certificates downloaded from TRACES will be valid. Certificates issued in any other form or manner will not comply to the requirements referred in the Income Tax Act, 1961 read with relevant Rules and Circulars issued in this behalf from time to time
- In addition to the facility to download TDS Certificates bearing unique TDS certificate number, the portal provides other facilities, some of which are as under:
- View of Deductor Dashboard to know about your TDS performance
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The above facilities including downloading of the TDS Certificates can be availed only by registering yourself with TRACES. You are accordingly requested to register immediately on TRACES.
Maternity is a natural process and could not be termed as illness or disease
The AO noted in the assessment order that the assessee society is running maternity hospital and all services pertaining to maternity only. Maternity is a natural process and could not be termed as illness or disease. Giving birth and at that time hospital providing services for delivery could not be said to be providing any treatment for illness or mental defectiveness. Further in absence of any details or evidences available on record, we do not find it to be a fit case for interference and the ld. CIT(A) was therefore justified in holding that the ingredients of above section are not fulfilled in the case of assessee. The ld. counsel for the assessee pointed out from the paper book, the application of income and details of deliveries and operations conducted in this regard, which is not sufficient to grant relief under the above provisions to the assessee. It is worthwhile pointing out that the child birth is the natural process of God and it is certainly the God's grace which is extended to sustain us through it. It is the act of God who designs a child conceived in the womb to be born into this world. In olden days deliveries of children were perfectly conducted by midwives at home, but in the modern age, it is only because the anxiety of people that they would not be able to manage the discomfort or pains during labor, they choose to take better facilities in the hospitals in presence of Doctors for this purpose. Thus, it may be said that the assessee's maternity hospital in the instant case would have been facilitating the deliveries, i.e., a natural process of God. It, therefore, can in no way be said to be any illness to be treated in the assessee's hospital as envisaged u/s. 10(23C)(iiiae). Therefore, the ingredients of section 10(23C)(iiiae) being not fulfilled, the ld. CIT(A) has rightly disallowed the claim of assessee.
INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA
BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No. 218/Agra/2013 – Asstt. Year : 2009-10
D.C.I.T. vs. Nehru Prasutika Asptal Samiti
C.O. No. 18/Agra/2013
(in ITA No. 218/Agra/2013) – Asstt. Year : 2009-10
Date of pronouncement of order : 14.08.2013
ORDER
Per Bhavnesh Saini, J.M.:
The departmental appeal and the cross objection by the assessee are directed against the order of ld. CIT(A), Ghaziabad dated 15.03.2013 for the assessment year 2009-10.
2. We have heard the ld. representatives of both the parties, perused the findings of the authorities below and considered the material available on record. 2 ITA No. 218 & C.O. No. 18/Agra/2013
Departmental Appeal :
3. The Revenue challenged the order of the ld. CIT(A) in holding that investment of surplus fund in FDRs to earn interest income on idle funds is directly incidental activity. Hence, such interest income of Rs.11,32,800/- is eligible for exemption u/s. 11 of the IT Act. It is also stated that earning of interest on surplus funds cannot be treated as either educational or charitable activities.
4. The assessee filed return of income at nil income accompanied by auditors report. The assessee society is running a maternity hospital at Aligarh. All services pertaining to maternity, i.e., consultation, delivery and related operations etc. are provided to the patients at nominal charges. The assessee society is registered u/s. 12AA of the IT Act. The AO asked the assessee as to why interest income from FDR be not taxed. The AO found that as per submissions, the interest income as per FDR exceeds 15% of receipts allowed to be treated as charitable activity and balance was to be disallowed. The interest income was found to be taxable income. The assessee challenged the addition before the ld. CIT(A) and also claimed that its income is exempt u/s. 10(23C)(iiiae) of the Income-tax Act. It was submitted that the assessee is a charitable trust running a maternity hospital and large number of deliveries and related operations are conducted in the hospital. Therefore, the assessee is entitled for exemption u/s. 11 as well as u/s. 10(23C)(iiiae) of the IT Act and the receipts do not exceed Rs.1 crore. The investment made in the FDRs with the bank is permissible mode u/s. 11(5) of the IT Act. The AO disallowed 15% of the income. Therefore, remaining should have been considered as the income applied to the charitable objects. The assessee relied upon the decision of Delhi High Court in the case of DIT(Exemption) vs. Dalmiya Shiksha Pratishthan, 305 ITR 327, in which it was held that merely because the assessee earns interest as a result of its investment would not mean that the assessee ceased to exist solely for educational purposes. The assessee also relied upon the decision of ITAT, Delhi Bench in the case of ITO vs. Jesuit Conference of India, 47 SOT 29, in which it was held -
"Assessee trust would not lose exemption under s. 11 merely because of investing surplus money in mutual fund units and entering frequent transactions related to purchase/switchover from one such mutual fund scheme to another as the same is not a business activity; even otherwise, there was due compliance of the provisions of s. 11(4A) by the assessee."
The ld. CIT(A) found the claim of the assessee to be correct because the interest earned on surplus / corpus fund was directly incidental to the main activities of the trust and the assessee's claim is allowable by the above decision. The AO was therefore, directed to allow deduction u/s. 11 of the IT Act.
5. On consideration of the rival submissions, we are of the view that the departmental appeal has no merit and is liable to be dismissed. The decision in the case of Dalmiya Shiksha Pratishthan (supra) and ITO vs. Jesuit Conference of India (supra) squarely apply to the facts and circumstances of the case. The assessee has invested its funds in FDRs on which the assessee earned interest, which is applied towards the objects of the assessee society. The funds invested in FDR have been shown in the balance sheet and is the property of the assessee- society. Merely because the assessee earns interest on its surplus / corpus funds would not lead to the fact that the assessee exists for profit purpose. The claim of the assessee has been correctly allowed by the ld. CIT(A). The departmental appeal has no merit and is accordingly dismissed.
Cross Objection:
6. The assessee in the cross objection made a claim of deduction u/s. 10(23C)(iiiae) of the IT Act. The ld. CIT(A) held that the assessee is a general hospital pertaining to maternity while the hospital / Institution as envisaged in section 10(23C)(iiiae) is in respect of mental disease or illness or rehabilitation existing solely for philanthropic purposes. The assessee has, however, not satisfied these conditions. Therefore, the claim of assessee was denied. Section 10(23C)(iiiae) of the IT Act reads as under :
"Any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed."
7. The AO noted in the assessment order that the assessee society is running maternity hospital and all services pertaining to maternity only. Maternity is a natural process and could not be termed as illness or disease. Giving birth and at that time hospital providing services for delivery could not be said to be providing any treatment for illness or mental defectiveness. Further in absence of any details or evidences available on record, we do not find it to be a fit case for interference and the ld. CIT(A) was therefore justified in holding that the ingredients of above section are not fulfilled in the case of assessee. The ld. counsel for the assessee pointed out from the paper book, the application of income and details of deliveries and operations conducted in this regard, which is not sufficient to grant relief under the above provisions to the assessee. It is worthwhile pointing out that the child birth is the natural process of God and it is certainly the God's grace which is extended to sustain us through it. It is the act of God who designs a child conceived in the womb to be born into this world. In olden days deliveries of children were perfectly conducted by midwives at home, but in the modern age, it is only because the anxiety of people that they would not be able to manage the discomfort or pains during labor, they choose to take better facilities in the hospitals in presence of Doctors for this purpose. Thus, it may be said that the assessee's maternity hospital in the instant case would have been facilitating the deliveries, i.e., a natural process of God. It, therefore, can in no way be said to be any illness to be treated in the assessee's hospital as envisaged u/s. 10(23C)(iiiae). Therefore, the ingredients of section 10(23C)(iiiae) being not fulfilled, the ld. CIT(A) has rightly disallowed the claim of assessee. As a result, the cross objection of the assessee has no merit and is accordingly dismissed.
8. In the result, the departmental appeal as well as the cross objection of the assessee are dismissed.
Order pronounced in the open court.
2013-TIOL-923-ITAT-HYD
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' HYDERABAD
BENCH 'A' HYDERABAD
ITA No.433/HYD/2009
Assessment Year: 2002-03
Assessment Year: 2002-03
ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE -1 (3), HYDERABAD
CIRCLE -1 (3), HYDERABAD
Vs
B SEENAIAH & CO PROJECTS LTD, HYDERABAD
PAN NO:AACB8316
PAN NO:AACB8316
Chandra Poojari, AM And Asha Vijayaraghavan, JM
Dated: June 21, 2013
Appellant Rep by: Shri B Mallikarjun
Respondent Rep by: Shri D V Anjaneyulu
Respondent Rep by: Shri D V Anjaneyulu
Income Tax - Sections 67A, 86, 115JB, 271(1)(c) - Whether the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of section 86, can be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
The Assessee filed return of income for AY 2002-03 which processed u/s 143(1). Subsequently AO noticed that that there was escapement of income and issued notice u/s 148 for reopening the Assessment. The AO observed that the assessee company had not furnished any computation of Book Profit as per sec.115JB and accordingly, the assessee company was asked to file computation of income u/s.115JB of the Act. The assessee stated that the reply had already been filed in response to the notice u/s.154 and contended that there was no computation u/s.115JB since the said provision is not applicable in their case. It was also stated by the assessee that the financial statements were prepared combining the assets and liabilities, income and expenditure of jointly controlled entities of (1) BSE, RBM PATI Joint Venture and (2) M/s.BSE/C&E Joint Venture on line-by-line basis which is in contravention of the provisions of Companies Act, 1956. Therefore, the provision of Sec. 115JB are not applicable and the fact can be seen from the computation of income where the income from the said two joint ventures was claimed as non-taxable income in the hands of the company. Therefore, the question of preparing computation statement u/s.115JB does not arise. However, the explanation submitted by the assessee was not accepted by the AO. The AO was of the view that any domestic company is liable to pay tax u/s.115JB and the assessee company has deliberately not furnished the computation to avoid the penalty u/s.271(1)(c). The AO referred to the Director's Report and the Auditor's Report filed by the assessee and held that the assessee had followed the Companies Act and the financial statements were prepared according to the Companies Act and hence, assessee's contention that provision of Sec.115JB is not applicable in their case is not acceptable. Accordingly, the AO computed the Book Profit at Rs.13,81,88,757/- and raised a tax demand of Rs.52,83,945/-.
The CIT(A) held that the assessee has been following the method / practice consistently wherein the return of income and the profits from the joint venture was excluded and the assessment have been completed on that basis. In the books of accounts the income and expenditure of the joint venture was mentioned separately in the different schedules. The said joint venture is separately taxable under the Income Tax Act and the share of profits from the joint venture are not taxed in the hands of the assessee by virtue of sec.86. Under the circumstances, the CIT(A) felt that taxing the share of the joint venture profits would amount to double taxation. He also cited various decisions where it was held that the method of accounting consistently followed cannot be rejected. He has referred to the decision of Mumbai Bench ITO Vs. Frigsales (India) Pvt Ltd (4 SOT 376) wherein it has been held that receipt which is not in the nature of income cannot be assessed to tax. Hence, the CIT(A) held that the book profit computed by the AO without reducing the share of income of joint venture is not proper and justified. On the basis of method of accounting followed by the assessee consistently and therefore directed the AO to reduce the share of joint venture while computing the book profit.
On appeal by the Revenue, the Tribunal held that,
++ the only issue to be considered is whether in computing the book profit u/s 115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded. It is clear that the share of income from joint venture has been included by the Assessee in their P&L account in their books of account. The only difference is that instead of including a single entry viz. assessee's share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares. This is the only a way of presentation of profits in the P&L Account; instead of single line entry showing share of profit from joint venture, the assessee's share in all the entries of the joint venture are incorporated in the accounts of the assessee's books. However, the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books. This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86. This would show that the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company;
++ the next issue to be considered is whether such profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB. No doubt this share of profits from the Joint ventures may not taxable in the computing the taxable income under the normal provision of Income Tax Act by the virtue of application of Sec.86 of the Income Tax Act, whether by virtue of such non taxability of the share of income from Joint Ventures , the same should be excluded while computing Book profits also;
++ it is settled proposition that for the purpose of sec 115JB, the profits as computed as per provisions of Sch VI to the Companies Act 1956 should be determined and the same should be increased or reduced as per explanations provided under that section;
++ In the instant case the share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books. It is the contention of the Assessee that as the income from JVs are not subject to tax under the normal provisions, the income should also be excluded for the purpose of computing Book Profits u/s 115JB. The only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB. None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP. The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act. But as per sec 86 of the Act, if the conditions stipulated therein are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person;
++ by sec 86, an assessee is exempted from paying tax on his share of income from AOP; but the share of income from AOP is not excluded from his total income as is done u/s 10. Under Explanation (ii) to sec 115JB the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account should be excluded from the Book profits. But the share profits of the AOP is exempt u/s 86 Of the Act and not u/s10, 11 or 12 of the Act. Hence the share of income from AOP, which has been credited to the P&L account of the Assessee cannot be excluded from Book profits unless the same has been exempted u/s 10;
++ the very fact that a specific explanation u/s 115JB for excluding income to which sec 10, 11 or 12 of the Act applies, would show that unless specifically excluded under Explanation to sec 115JB, all amounts credited to the P&L, whether or not taxable under the normal provisions of the Act, would have to be included in computing the Book profits. In fact, explanation (ii) to Sec.115JB was amended w.e.f. 1.4.07 to exclude or carve out from the exclusion the amounts arising from sale of listed securities which is exempt from taxation under the normal provision u/s.10(38). This would show that even though a particular type of income is exempt or non-taxable in the normal provisions of Income Tax Act would still be taxable as book profits u/s.115JB as long as the amount has been credited to the profit & loss and cannot be reduced or excluded in any of the explanations container us/115JB. Therefore if as a legal proposition the income exempt under the normal provisions of income tax will not form part of the Book profits is to be accepted, the explanation (ii) to sec 115JB referred to above is redundant. It therefore follows that all amounts credited to the P&L account of the company should be considered for the purpose of computing Book profits u/s 115JB, unless specifically excluded by any of the explanations under that section;
++ as held by the Apex Court in the case of CIT Vs. HCL COMNEK (2008-TIOL-182-SC-IT) the provision of diminution of value of assets even though would be allowable under the normal provisions of Income Tax Act has to be reduced in computing the book profit (this of course was nullified by the retrospective amendment brought in by the Finance No.2 Act 2009 with retrospective effect from 1.4.2001). Thus, taxability of an amount under the normal provisions of the Income Tax Act has no relationship with the amount to be included / excluded for the purpose of computing the book profits. The adjustments have to be made only on the basis of explanations contained u/s.115JB. In the instant case, the share of profit from the joint venture company represents share of profits from AOP. U/s.10(2A) only the share of profits from a firm governed by the partnership act is excluded from computation of total income. In computing the book profit also the share of profits from the firms would have to be excluded in view of explanation (ii) to sec.115JB. But the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of sec 86, cannot be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
The Assessee filed return of income for AY 2002-03 which processed u/s 143(1). Subsequently AO noticed that that there was escapement of income and issued notice u/s 148 for reopening the Assessment. The AO observed that the assessee company had not furnished any computation of Book Profit as per sec.115JB and accordingly, the assessee company was asked to file computation of income u/s.115JB of the Act. The assessee stated that the reply had already been filed in response to the notice u/s.154 and contended that there was no computation u/s.115JB since the said provision is not applicable in their case. It was also stated by the assessee that the financial statements were prepared combining the assets and liabilities, income and expenditure of jointly controlled entities of (1) BSE, RBM PATI Joint Venture and (2) M/s.BSE/C&E Joint Venture on line-by-line basis which is in contravention of the provisions of Companies Act, 1956. Therefore, the provision of Sec. 115JB are not applicable and the fact can be seen from the computation of income where the income from the said two joint ventures was claimed as non-taxable income in the hands of the company. Therefore, the question of preparing computation statement u/s.115JB does not arise. However, the explanation submitted by the assessee was not accepted by the AO. The AO was of the view that any domestic company is liable to pay tax u/s.115JB and the assessee company has deliberately not furnished the computation to avoid the penalty u/s.271(1)(c). The AO referred to the Director's Report and the Auditor's Report filed by the assessee and held that the assessee had followed the Companies Act and the financial statements were prepared according to the Companies Act and hence, assessee's contention that provision of Sec.115JB is not applicable in their case is not acceptable. Accordingly, the AO computed the Book Profit at Rs.13,81,88,757/- and raised a tax demand of Rs.52,83,945/-.
The CIT(A) held that the assessee has been following the method / practice consistently wherein the return of income and the profits from the joint venture was excluded and the assessment have been completed on that basis. In the books of accounts the income and expenditure of the joint venture was mentioned separately in the different schedules. The said joint venture is separately taxable under the Income Tax Act and the share of profits from the joint venture are not taxed in the hands of the assessee by virtue of sec.86. Under the circumstances, the CIT(A) felt that taxing the share of the joint venture profits would amount to double taxation. He also cited various decisions where it was held that the method of accounting consistently followed cannot be rejected. He has referred to the decision of Mumbai Bench ITO Vs. Frigsales (India) Pvt Ltd (4 SOT 376) wherein it has been held that receipt which is not in the nature of income cannot be assessed to tax. Hence, the CIT(A) held that the book profit computed by the AO without reducing the share of income of joint venture is not proper and justified. On the basis of method of accounting followed by the assessee consistently and therefore directed the AO to reduce the share of joint venture while computing the book profit.
On appeal by the Revenue, the Tribunal held that,
++ the only issue to be considered is whether in computing the book profit u/s 115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded. It is clear that the share of income from joint venture has been included by the Assessee in their P&L account in their books of account. The only difference is that instead of including a single entry viz. assessee's share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares. This is the only a way of presentation of profits in the P&L Account; instead of single line entry showing share of profit from joint venture, the assessee's share in all the entries of the joint venture are incorporated in the accounts of the assessee's books. However, the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books. This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86. This would show that the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company;
++ the next issue to be considered is whether such profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB. No doubt this share of profits from the Joint ventures may not taxable in the computing the taxable income under the normal provision of Income Tax Act by the virtue of application of Sec.86 of the Income Tax Act, whether by virtue of such non taxability of the share of income from Joint Ventures , the same should be excluded while computing Book profits also;
++ it is settled proposition that for the purpose of sec 115JB, the profits as computed as per provisions of Sch VI to the Companies Act 1956 should be determined and the same should be increased or reduced as per explanations provided under that section;
++ In the instant case the share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books. It is the contention of the Assessee that as the income from JVs are not subject to tax under the normal provisions, the income should also be excluded for the purpose of computing Book Profits u/s 115JB. The only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB. None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP. The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act. But as per sec 86 of the Act, if the conditions stipulated therein are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person;
++ by sec 86, an assessee is exempted from paying tax on his share of income from AOP; but the share of income from AOP is not excluded from his total income as is done u/s 10. Under Explanation (ii) to sec 115JB the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account should be excluded from the Book profits. But the share profits of the AOP is exempt u/s 86 Of the Act and not u/s10, 11 or 12 of the Act. Hence the share of income from AOP, which has been credited to the P&L account of the Assessee cannot be excluded from Book profits unless the same has been exempted u/s 10;
++ the very fact that a specific explanation u/s 115JB for excluding income to which sec 10, 11 or 12 of the Act applies, would show that unless specifically excluded under Explanation to sec 115JB, all amounts credited to the P&L, whether or not taxable under the normal provisions of the Act, would have to be included in computing the Book profits. In fact, explanation (ii) to Sec.115JB was amended w.e.f. 1.4.07 to exclude or carve out from the exclusion the amounts arising from sale of listed securities which is exempt from taxation under the normal provision u/s.10(38). This would show that even though a particular type of income is exempt or non-taxable in the normal provisions of Income Tax Act would still be taxable as book profits u/s.115JB as long as the amount has been credited to the profit & loss and cannot be reduced or excluded in any of the explanations container us/115JB. Therefore if as a legal proposition the income exempt under the normal provisions of income tax will not form part of the Book profits is to be accepted, the explanation (ii) to sec 115JB referred to above is redundant. It therefore follows that all amounts credited to the P&L account of the company should be considered for the purpose of computing Book profits u/s 115JB, unless specifically excluded by any of the explanations under that section;
++ as held by the Apex Court in the case of CIT Vs. HCL COMNEK (2008-TIOL-182-SC-IT) the provision of diminution of value of assets even though would be allowable under the normal provisions of Income Tax Act has to be reduced in computing the book profit (this of course was nullified by the retrospective amendment brought in by the Finance No.2 Act 2009 with retrospective effect from 1.4.2001). Thus, taxability of an amount under the normal provisions of the Income Tax Act has no relationship with the amount to be included / excluded for the purpose of computing the book profits. The adjustments have to be made only on the basis of explanations contained u/s.115JB. In the instant case, the share of profit from the joint venture company represents share of profits from AOP. U/s.10(2A) only the share of profits from a firm governed by the partnership act is excluded from computation of total income. In computing the book profit also the share of profits from the firms would have to be excluded in view of explanation (ii) to sec.115JB. But the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of sec 86, cannot be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
Revenue's appeal allowed
ORDER
Per: Asha Vijayaraghavan:
This appeal preferred by the revenue is directed against the order of CIT(A)-II, Hyderabad dated 28/01/2009 for the assessment year 2002-03.
2. The revenue has raised the following grounds of appeal:
1. The order of the CIT(A) is erred both in law and facts.2. The CIT(A) ought to have appreciated the adjustments made while computing the book profits u/s.115JB.3. The CIT(A) erred in not appreciating the fact that the joint ventures are assessed as Association of Persons (AOP) and share of profit from such AOP is not exempted u/s.10 of the Act.4. The CIT(A) ought to have considered the fact that share profit from AOP, though no tax is payable on such profit in view of the provisions of sec.86, cannot be reduced from the book profit u/s.115JB.5. Any other ground that may be urged at the time of hearing of appeal.
3. The Assessee filed return of income for AY 2002-03 on 31.10.2002 admitting a total income of Rs. !,98,86,905/-. This was processed u/s 143(1) on 5.2.2003. Subsequently AO noticed that that there was escapement of income and issued notice u/s 148 for reopening the Assessment. The AO observed that the assessee company had not furnished any computation of Book Profit as per sec.115JB and accordingly, the assessee company was asked to file computation of income u/s.115JB of the Act. The appellant company vide its reply dated 7.11.06 stated that the reply had already been filed in response to the notice u/s.154 and contended that there was no computation u/s.115JB since the said provision is not applicable in their case. It was also stated by the appellant that the financial statements were prepared combining the assets and liabilities, income and expenditure of jointly controlled entities of (1) BSE, RBM PATI Joint Venture and (2) M/s.BSE/C&E Joint Venture on line-by-line basis which is in contravention of the provisions of Companies Act, 1956. Therefore, the provision of Sec.115JB are not applicable and the fact can be seen from the computation of income where the income from the said two joint ventures was claimed as non-taxable income in the hands of the company. Therefore, the question of preparing computation statement u/s.115JB does not arise. However, the explanation submitted by the assessee was not accepted by the AO. The AO was of the view that any domestic company is liable to pay tax u/s.115JB and the assessee company has deliberately not furnished the computation to avoid the penalty u/s.271(1)(c). The AO referred to the Director's Report and the Auditor's Report filed by the assessee and held that the assessee had followed the Companies Act and the financial statements were prepared according to the Companies Act and hence, assessee's contention that provision of Sec.115JB is not applicable in their case is not acceptable. Accordingly, the AO computed the Book Profit at Rs.13,81,88,757/- and raised a tax demand of Rs.52,83,945/-.
4. On appeal before the CIT(A), the appellant submitted that while preparing its annual accounts right from the Assessment Year 2000-01, it has been disclosing its share in the joint venture in its accounts. For the year under consideration it has mentioned in its annual accounts (point no.2 of notes on accounts) as under:
02. Share of Joint Venture: "the share of each of the assets liabilities, income and expenses of jointly controlled entities (i) BSE, RTBM PATI Joint Venture and (2) M/s.BSE/C&C Joint Venture is combined on line-by-line basis with similar items of the company. Accordingly, each of the assets and liabilities and profits are increased by Rs.4452.36 lakhs and Rs.1039.19 lakhs respectively."
5. The appellant also stated that the statutory auditors in their report clearly qualified this issue at para no.2(vi) which reads as under:
"In our opinion and to the best of our information and according to the explanation given to us, the said balance sheet and P&L A/c read together with the notes thereon and subject to note(2) with regard to the combining of assets and liabilities and income and expenses of jointly controlled entity give the information required by the Companies Act, 1956 in the manner so require and give true and fair…..
6. The appellant also stated that while filing its return of income, in the statement of computation of Income, it has been deducting the share of profit from the firms (which firms are separately assessed to tax) so as to arrive at the book profit for the purpose of computing taxable income right from the year of getting share from the joint venture i.e. from AY 2000-01 onwards. In course of the assessment proceedings for the AY 2000-01, while issuing the notice u/s.142 and 143(2) the assessee was asked information with regard to the MAT and the assessee vide its letter dt.20.11.2002 had explained in detail the applicability of MAT. After thoroughly examining the contention and explanation of the assessee in regard to applicability of MAT u/s.155 JB and after satisfying himself with the explanation during the hearing, the AO completed the assessment u/s.143(3) without invoking the provision of sec.115JB. Similarly for the AY 2001-02 the AO had raised the same issue and the assessee vide its letter dt.20.11.02 and contented and explained in regard to nonapplicability of MAT provisions as was explained for the AY 2000-01. The AO again completed the assessment u/s.143(3) without invoking the provision of sec.115JB vide order dated 27.2.2003. Even for the AY under appeal, the assessment was originally completed u/s.143(1) without any adjustment. And after a lapse of two years, the AO issued notice u/s.154 proposing therein certain disallowances including invocation of sec.115JB for which the assessee vide its letter dated 28.4.2005 filed on 2.5.05 objected to the proposal. Subsequently, the AO issued notice u/s.148 which has been contested by the assessee vide its letter dated 12.12.06. The appellant further contended that after duly considering the statutory provisions of the Act and the material evidences furnished by the assessee, relief u/s.115JB was granted. Although grant of excess relief could be ground for re-opening the assessment, unless the grant of excess relief is on account of failure on part of the assessee to disclose fully, all the material facts concluded assessments cannot be reopened as was held in the case of Parikh Petrol Chemicals Agencies Vs ACIT (266 ITR 196 & 201). Without prejudice to the above, it was submitted that the precondition of applicability of section 115JB as enumerated in this provision is to prepare a P&L A/c for the relevant previous year in accordance to the provisions of Part II and III of Schedule VI to the Companies Act, 1956 and while preparing the annual accounts including the P&L A/c, the accounting policies, the accounting standards adopted, the methods and rate adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts and laid before the Company as its AGM. The appellant also referred to the provisions contained in sec.115JB regarding exclusion of exempted income and inclusion of any expenditure relatable to exempted income and submitted that the action of the AO in determining the book profit invoking the provisions of sec.115JB is unjustified, unwarranted and invalid.
7. The CIT(A) held that the assessee has been following the method / practice consistently wherein the return of income and the profits from the joint venture was excluded and the assessment have been completed on that basis. In the books of accounts the income and expenditure of the joint venture was mentioned separately in the different schedules. The said joint venture is separately taxable under the Income Tax Act and the share of profits from the joint venture are not taxed in the hands of the assessee by virtue of sec.86. Under the circumstances, the CIT(A) felt that taxing the share of the joint venture profits would amount to double taxation. He also cited various decisions where it was held that the method of accounting consistently followed cannot be rejected. He has referred to the decision ofMumbai Bench ITO Vs. Frigsales (India) Pvt Ltd (4 SOT 376) wherein it has been held that receipt which is not in the nature of income cannot be assessed to tax. Hence, the CIT(A) held that the book profit computed by the AO without reducing the share of income of joint venture is not proper and justified. On the basis of method of accounting followed by the assessee consistently and therefore directed the AO to reduce the share of joint venture while computing the book profit.
8. Aggrieved the revenue is in appeal before us.
9. We have heard both the parties and perused the record as well as gone through the orders of the authorities below. The main contention of the assessee before the lower authorities appears to be that the assessee company has been disclosing its share in joint ventures while preparing its annual accounts and the same is being mentioned in the annual accounts in the notes to the accounts. It is also stated by the assessee that financial statements were prepared combining the assets and liabilities income and expenses of jointly controlled entities (i) BSE, RTBM PATI Joint Venture and (2) M/s.BSE/C&C Joint Venture on line-by-line basis which is contravention of the provision of Companies Act and therefore the provision of Sec.115 JB will not be applicable. For the earlier years, the Assessing officer has completed the assessment without invoking the provisions of sec 115JB. Therefore the provisions of sec 115JB is not applicable to them.
10. But we find that the CIT(A) has found that provisions fo sec 115JB are applicable to the Assessee, even though the assessee had submitted that the accounts they have prepared is not in accordance with Schedule VI. The Assessee have not come on appeal against the direction of CIT(A) that the book profits should be computed after excluding the profits from joint venture. Therefore the question of applicability of computation of book profit to the assessee is not being agitated. In any event the assessee being a company, there cannot be any doubt the provision of book profit u/s.115 JB will be applicable to the assessee.
11. The only issue to be considered is whether in computing the book profit u/s.115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded. It is clear that the share of income from joint venture has been included by the Assessee in their P&L account in their books of account. The only difference is that instead of including a single entry viz. assessee's share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares. This is the only a way of presentation of profits in the P&L Account; instead of single line entry showing share of profit from joint venture, the assessee's share in all the entries of the joint venture are incorporated in the accounts of the assessee's books. However, the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books. This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86. This would show that the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company.
12. The next issue to be considered is whether such profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB. No doubt this share of profits from the Joint ventures may not taxable in the computing the taxable income under the normal provision of Income Tax Act by the virtue of application of Sec.86 of the Income Tax Act, whether by virtue of such non taxability of the share of income from Joint Ventures , the same should be excluded while computing Book profits also.
13. Sec 115JB reads as under:
Special provision for payment of tax by certain companies.115JB. (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, 2012, is less than 82eighteen 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 85Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or(b) being a company, to which the proviso to subsection (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 account;(iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) :Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,—(i) the accounting policies;(ii) the accounting standards adopted for preparing such accounts including profit and loss account;(iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year.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—(a) the amount of income-tax paid or payable, and the provision therefor; or(b) the amounts carried to any reserves, by whatever name called , other than a reserve specified under section 33AC; or(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or(d) the amount by way of provision for losses of subsidiary companies; or(e) the amount or amounts of dividends paid or proposed ; or(f) the amount or amounts of expenditure relatable to any income to which 88[section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or](g) the amount of depreciation,(h) the amount of deferred tax and the provision therefor,(i) the amount or amounts set aside as provision for diminution in the value of any asset,(j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset,if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account:Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 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 Explanation below the second proviso to section 115JA, as the case may be; or](ii) the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or(iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or(iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or](iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.Explanation.-For the purposes of this clause,-(a) the loss shall not include depreciation;(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or](iv) to (vi)…..(vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section(1) of section 171 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.Explanation.-For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or(viii) the amount of deferred tax, if any such amount is credited to the profit and loss account.
14. The Apex Court in the case of APOLLO TYRES Vs. CIT 255 ITR 273 = (2002-TIOL-185-SC-IT)has clarified that the profit and loss as disclosed in the accounts approved by the share holders should alone be taken and the AO can only make adjustments thereon as provided for in the explanations under that section. Once an item has been credited to the profit & loss account (in this case net profit of B.Seenaiah & Co (Projects) Ltd from joint ventures) the same should be included in computing the book profits of the joint venture u/s.115JB unless they can be excluded or reduced as per any of the explanations contained u/s.115JB. Merely because a particular amount which is included in the profit & loss account in the books is not taxable under the normal provision of the Income Tax Act, it would not entitle the assessee to exclude the same in computing the book profits. The Mumbai High Court in the case of M/s. Eschjay Forgings ( 251 ITR 50) = (2003-TIOL-442-HC-MUM-IT) have held that loss on foreign exchange arising from foreign currency liability utilized for purchase of plant and machinery, even though should be capitalized u/s.43A as per the normal provisions of the Income Tax Act, should be allowed as a revenue deduction for the purpose of computing book profits as that amount has been debited to the profit and Loss accounts of the Assessee. Similarly, the Bombay High Court in that case also held that provision for wealth tax which was not specifically excluded under the explanation to sec.115JB should also be reduced from the book profits. Thus it is settled proposition that for the purpose of sec 115JB, the profits as computed as per provisions of Sch VI to the Companies Act 1956 should be determined and the same should be increased or reduced as per explanations provided under that section.
15. In the instant case the share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books. It is the contention of the Assessee that as the income from JVs are not subject to tax under the normal provisions, the income should also be excluded for the purpose of computing Book Profits u/s 115JB. But as held by the Apex Court and other High Courts, the only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB. None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP. The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act. But as per sec 86 of the Act, if the conditions stipulated therein are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person.
16. By sec 86, an assessee is exempted from paying tax on his share of income from AOP; but the share of income from AOP is not excluded from his total income as is done under sec 10. Under Explanation (ii) to sec 115JB the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account should be excluded from the Book profits. But the share profits of the AOP is exempt under sec 86 Of the Act and not under sec10, 11 or 12 of the Act. Hence the share of income from AOP, which has been credited to the P&L account of the Assessee cannot be excluded from Book profits unless the same has been exempted under sec 10.
17. The very fact that a specific explanation u/s 115JB for excluding income to which sec 10, 11 or 12 of the Act applies, would show that unless specifically excluded under Explanation to sec 115JB, all amounts credited to the P&L, whether or not taxable under the normal provisions of the Act, would have to be included in computing the Book profits. In fact, explanation (ii) to Sec.115JB was amended w.e.f. 1.4.07 to exclude or carve out from the exclusion the amounts arising from sale of listed securities which is exempt from taxation under the normal provision u/s.10(38). This would show that even though a particular type of income is exempt or non-taxable in the normal provisions of Income Tax Act would still be taxable as book profits u/s.115JB as long as the amount has been credited to the profit & loss and cannot be reduced or excluded in any of the explanations container us/115JB. Therefore if as a legal proposition the income exempt under the normal provisions of income tax will not form part of the Book profits is to be accepted, the explanation (ii) to sec 115JB referred to above is redundant. It therefore follows that all amounts credited to the P&L account of the company should be considered for the purpose of computing Book profits u/s 115JB, unless specifically excluded by any of the explanations under that section.
18. As held by the Apex Court in the case of CIT Vs. HCL COMNEK 305 ITR 409 = (2008-TIOL-182-SC-IT) the provision of diminution of value of assets even though would be allowable under the normal provisions of Income Tax Act has to be reduced in computing the book profit (this of course was nullified by the retrospective amendment brought in by the Finance No.2 Act 2009 with retrospective effect from 1.4.2001). Thus, taxability of an amount under the normal provisions of the Income Tax Act has no relationship with the amount to be included / excluded for the purpose of computing the book profits. The adjustments have to be made only on the basis of explanations contained u/s.115JB. In the instant case, the share of profit from the joint venture company represents share of profits from AOP. Under sec.10(2A) only the share of profits from a firm governed by the partnership act is excluded from computation of total income. In computing the book profit also the share of profits from the firms would have to be excluded in view of explanation (ii) to sec.115JB. But the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of sec 86, cannot be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
19. In this context the decision of the Special Bench 'B' Hyderabad in the case of Rain Commodities Limited vs. DCIT, Circle 3(1), Hyderabad (40 SOT 265) (Hyd) (SB) = (2010-TIOL-355-ITAT-HYD-SB) wherein the Tribunal has held as follows:
"Thus, from a reading of the section 115JB as well as analyses of various High Courts and Supreme Court decisions, the inescapable conclusion is that the book profits have to be calculated on the net profits computed as per Parts II and III of Schedule VI to the Companies Act, 1956 and as adjusted by the amounts mentioned in the Explanation. No further rebates or deductions after such adjustments, notwithstanding the fact whether any income is taxable or not under the normal provisions of the Income Tax Act. Computation of income under the normal provisions and the book profits are two parallel computations. While normally followed method of accounting in the books may also be taken for the purpose of computing income under the IT Act, the actual computation of book profits will not affect or be governed by the computation of income under the normal provisions of the IT Act. In fact only because of the govt felt that companies availing of various deductions permitted under the IT Act showed a low income for the purpose of IT Act but was also able to show healthy profits as per books were introduced. By again importing deductions allowed under the normal provisions of IT Act into computation of book profits, we will be negating the very purpose for which these sections were introduced. To sum up, we hold that in the absence of any provision for exclusion of capital gains exempted in the computation of book profit under the provisions contained in Explanation to section 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed."
20. In the course of arguments the learned counsel for the assessee had stated that the joint venture is in the nature of a firm and hence share of income should be excluded in computing book profits. However, no copy of return of income of Joint Venture brought on record to suggest that Joint Venture was assessed as a firm so as to exclude its income from the computation of book profit u/s 115JB of the Act. Being so, we cannot find any merit in the argument of the learned counsel that the share of income of the joint venture should be excluded from the book profit of the assessee. Accordingly, appeal of the revenue is allowed.
21. In the result, appeal of the revenue is allowed.
(Pronounced in the open court on 21.6.2013.)
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
O/o The Principal Accountant General
Ahmedabad, Gujarat
M. No. 9825829075
To It_law_reported@yahoogroups.com
Nov 4 at 10:40 AM
2013-TIOL-923-ITAT-HYD
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' HYDERABAD
BENCH 'A' HYDERABAD
ITA No.433/HYD/2009
Assessment Year: 2002-03
Assessment Year: 2002-03
ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE -1 (3), HYDERABAD
CIRCLE -1 (3), HYDERABAD
Vs
B SEENAIAH & CO PROJECTS LTD, HYDERABAD
PAN NO:AACB8316
PAN NO:AACB8316
Chandra Poojari, AM And Asha Vijayaraghavan, JM
Dated: June 21, 2013
Appellant Rep by: Shri B Mallikarjun
Respondent Rep by: Shri D V Anjaneyulu
Respondent Rep by: Shri D V Anjaneyulu
Income Tax - Sections 67A, 86, 115JB, 271(1)(c) - Whether the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of section 86, can be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
The Assessee filed return of income for AY 2002-03 which processed u/s 143(1). Subsequently AO noticed that that there was escapement of income and issued notice u/s 148 for reopening the Assessment. The AO observed that the assessee company had not furnished any computation of Book Profit as per sec.115JB and accordingly, the assessee company was asked to file computation of income u/s.115JB of the Act. The assessee stated that the reply had already been filed in response to the notice u/s.154 and contended that there was no computation u/s.115JB since the said provision is not applicable in their case. It was also stated by the assessee that the financial statements were prepared combining the assets and liabilities, income and expenditure of jointly controlled entities of (1) BSE, RBM PATI Joint Venture and (2) M/s.BSE/C&E Joint Venture on line-by-line basis which is in contravention of the provisions of Companies Act, 1956. Therefore, the provision of Sec. 115JB are not applicable and the fact can be seen from the computation of income where the income from the said two joint ventures was claimed as non-taxable income in the hands of the company. Therefore, the question of preparing computation statement u/s.115JB does not arise. However, the explanation submitted by the assessee was not accepted by the AO. The AO was of the view that any domestic company is liable to pay tax u/s.115JB and the assessee company has deliberately not furnished the computation to avoid the penalty u/s.271(1)(c). The AO referred to the Director's Report and the Auditor's Report filed by the assessee and held that the assessee had followed the Companies Act and the financial statements were prepared according to the Companies Act and hence, assessee's contention that provision of Sec.115JB is not applicable in their case is not acceptable. Accordingly, the AO computed the Book Profit at Rs.13,81,88,757/- and raised a tax demand of Rs.52,83,945/-.
The CIT(A) held that the assessee has been following the method / practice consistently wherein the return of income and the profits from the joint venture was excluded and the assessment have been completed on that basis. In the books of accounts the income and expenditure of the joint venture was mentioned separately in the different schedules. The said joint venture is separately taxable under the Income Tax Act and the share of profits from the joint venture are not taxed in the hands of the assessee by virtue of sec.86. Under the circumstances, the CIT(A) felt that taxing the share of the joint venture profits would amount to double taxation. He also cited various decisions where it was held that the method of accounting consistently followed cannot be rejected. He has referred to the decision of Mumbai Bench ITO Vs. Frigsales (India) Pvt Ltd (4 SOT 376) wherein it has been held that receipt which is not in the nature of income cannot be assessed to tax. Hence, the CIT(A) held that the book profit computed by the AO without reducing the share of income of joint venture is not proper and justified. On the basis of method of accounting followed by the assessee consistently and therefore directed the AO to reduce the share of joint venture while computing the book profit.
On appeal by the Revenue, the Tribunal held that,
++ the only issue to be considered is whether in computing the book profit u/s 115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded. It is clear that the share of income from joint venture has been included by the Assessee in their P&L account in their books of account. The only difference is that instead of including a single entry viz. assessee's share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares. This is the only a way of presentation of profits in the P&L Account; instead of single line entry showing share of profit from joint venture, the assessee's share in all the entries of the joint venture are incorporated in the accounts of the assessee's books. However, the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books. This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86. This would show that the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company;
++ the next issue to be considered is whether such profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB. No doubt this share of profits from the Joint ventures may not taxable in the computing the taxable income under the normal provision of Income Tax Act by the virtue of application of Sec.86 of the Income Tax Act, whether by virtue of such non taxability of the share of income from Joint Ventures , the same should be excluded while computing Book profits also;
++ it is settled proposition that for the purpose of sec 115JB, the profits as computed as per provisions of Sch VI to the Companies Act 1956 should be determined and the same should be increased or reduced as per explanations provided under that section;
++ In the instant case the share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books. It is the contention of the Assessee that as the income from JVs are not subject to tax under the normal provisions, the income should also be excluded for the purpose of computing Book Profits u/s 115JB. The only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB. None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP. The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act. But as per sec 86 of the Act, if the conditions stipulated therein are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person;
++ by sec 86, an assessee is exempted from paying tax on his share of income from AOP; but the share of income from AOP is not excluded from his total income as is done u/s 10. Under Explanation (ii) to sec 115JB the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account should be excluded from the Book profits. But the share profits of the AOP is exempt u/s 86 Of the Act and not u/s10, 11 or 12 of the Act. Hence the share of income from AOP, which has been credited to the P&L account of the Assessee cannot be excluded from Book profits unless the same has been exempted u/s 10;
++ the very fact that a specific explanation u/s 115JB for excluding income to which sec 10, 11 or 12 of the Act applies, would show that unless specifically excluded under Explanation to sec 115JB, all amounts credited to the P&L, whether or not taxable under the normal provisions of the Act, would have to be included in computing the Book profits. In fact, explanation (ii) to Sec.115JB was amended w.e.f. 1.4.07 to exclude or carve out from the exclusion the amounts arising from sale of listed securities which is exempt from taxation under the normal provision u/s.10(38). This would show that even though a particular type of income is exempt or non-taxable in the normal provisions of Income Tax Act would still be taxable as book profits u/s.115JB as long as the amount has been credited to the profit & loss and cannot be reduced or excluded in any of the explanations container us/115JB. Therefore if as a legal proposition the income exempt under the normal provisions of income tax will not form part of the Book profits is to be accepted, the explanation (ii) to sec 115JB referred to above is redundant. It therefore follows that all amounts credited to the P&L account of the company should be considered for the purpose of computing Book profits u/s 115JB, unless specifically excluded by any of the explanations under that section;
++ as held by the Apex Court in the case of CIT Vs. HCL COMNEK (2008-TIOL-182-SC-IT) the provision of diminution of value of assets even though would be allowable under the normal provisions of Income Tax Act has to be reduced in computing the book profit (this of course was nullified by the retrospective amendment brought in by the Finance No.2 Act 2009 with retrospective effect from 1.4.2001). Thus, taxability of an amount under the normal provisions of the Income Tax Act has no relationship with the amount to be included / excluded for the purpose of computing the book profits. The adjustments have to be made only on the basis of explanations contained u/s.115JB. In the instant case, the share of profit from the joint venture company represents share of profits from AOP. U/s.10(2A) only the share of profits from a firm governed by the partnership act is excluded from computation of total income. In computing the book profit also the share of profits from the firms would have to be excluded in view of explanation (ii) to sec.115JB. But the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of sec 86, cannot be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
The Assessee filed return of income for AY 2002-03 which processed u/s 143(1). Subsequently AO noticed that that there was escapement of income and issued notice u/s 148 for reopening the Assessment. The AO observed that the assessee company had not furnished any computation of Book Profit as per sec.115JB and accordingly, the assessee company was asked to file computation of income u/s.115JB of the Act. The assessee stated that the reply had already been filed in response to the notice u/s.154 and contended that there was no computation u/s.115JB since the said provision is not applicable in their case. It was also stated by the assessee that the financial statements were prepared combining the assets and liabilities, income and expenditure of jointly controlled entities of (1) BSE, RBM PATI Joint Venture and (2) M/s.BSE/C&E Joint Venture on line-by-line basis which is in contravention of the provisions of Companies Act, 1956. Therefore, the provision of Sec. 115JB are not applicable and the fact can be seen from the computation of income where the income from the said two joint ventures was claimed as non-taxable income in the hands of the company. Therefore, the question of preparing computation statement u/s.115JB does not arise. However, the explanation submitted by the assessee was not accepted by the AO. The AO was of the view that any domestic company is liable to pay tax u/s.115JB and the assessee company has deliberately not furnished the computation to avoid the penalty u/s.271(1)(c). The AO referred to the Director's Report and the Auditor's Report filed by the assessee and held that the assessee had followed the Companies Act and the financial statements were prepared according to the Companies Act and hence, assessee's contention that provision of Sec.115JB is not applicable in their case is not acceptable. Accordingly, the AO computed the Book Profit at Rs.13,81,88,757/- and raised a tax demand of Rs.52,83,945/-.
The CIT(A) held that the assessee has been following the method / practice consistently wherein the return of income and the profits from the joint venture was excluded and the assessment have been completed on that basis. In the books of accounts the income and expenditure of the joint venture was mentioned separately in the different schedules. The said joint venture is separately taxable under the Income Tax Act and the share of profits from the joint venture are not taxed in the hands of the assessee by virtue of sec.86. Under the circumstances, the CIT(A) felt that taxing the share of the joint venture profits would amount to double taxation. He also cited various decisions where it was held that the method of accounting consistently followed cannot be rejected. He has referred to the decision of Mumbai Bench ITO Vs. Frigsales (India) Pvt Ltd (4 SOT 376) wherein it has been held that receipt which is not in the nature of income cannot be assessed to tax. Hence, the CIT(A) held that the book profit computed by the AO without reducing the share of income of joint venture is not proper and justified. On the basis of method of accounting followed by the assessee consistently and therefore directed the AO to reduce the share of joint venture while computing the book profit.
On appeal by the Revenue, the Tribunal held that,
++ the only issue to be considered is whether in computing the book profit u/s 115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded. It is clear that the share of income from joint venture has been included by the Assessee in their P&L account in their books of account. The only difference is that instead of including a single entry viz. assessee's share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares. This is the only a way of presentation of profits in the P&L Account; instead of single line entry showing share of profit from joint venture, the assessee's share in all the entries of the joint venture are incorporated in the accounts of the assessee's books. However, the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books. This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86. This would show that the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company;
++ the next issue to be considered is whether such profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB. No doubt this share of profits from the Joint ventures may not taxable in the computing the taxable income under the normal provision of Income Tax Act by the virtue of application of Sec.86 of the Income Tax Act, whether by virtue of such non taxability of the share of income from Joint Ventures , the same should be excluded while computing Book profits also;
++ it is settled proposition that for the purpose of sec 115JB, the profits as computed as per provisions of Sch VI to the Companies Act 1956 should be determined and the same should be increased or reduced as per explanations provided under that section;
++ In the instant case the share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books. It is the contention of the Assessee that as the income from JVs are not subject to tax under the normal provisions, the income should also be excluded for the purpose of computing Book Profits u/s 115JB. The only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB. None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP. The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act. But as per sec 86 of the Act, if the conditions stipulated therein are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person;
++ by sec 86, an assessee is exempted from paying tax on his share of income from AOP; but the share of income from AOP is not excluded from his total income as is done u/s 10. Under Explanation (ii) to sec 115JB the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account should be excluded from the Book profits. But the share profits of the AOP is exempt u/s 86 Of the Act and not u/s10, 11 or 12 of the Act. Hence the share of income from AOP, which has been credited to the P&L account of the Assessee cannot be excluded from Book profits unless the same has been exempted u/s 10;
++ the very fact that a specific explanation u/s 115JB for excluding income to which sec 10, 11 or 12 of the Act applies, would show that unless specifically excluded under Explanation to sec 115JB, all amounts credited to the P&L, whether or not taxable under the normal provisions of the Act, would have to be included in computing the Book profits. In fact, explanation (ii) to Sec.115JB was amended w.e.f. 1.4.07 to exclude or carve out from the exclusion the amounts arising from sale of listed securities which is exempt from taxation under the normal provision u/s.10(38). This would show that even though a particular type of income is exempt or non-taxable in the normal provisions of Income Tax Act would still be taxable as book profits u/s.115JB as long as the amount has been credited to the profit & loss and cannot be reduced or excluded in any of the explanations container us/115JB. Therefore if as a legal proposition the income exempt under the normal provisions of income tax will not form part of the Book profits is to be accepted, the explanation (ii) to sec 115JB referred to above is redundant. It therefore follows that all amounts credited to the P&L account of the company should be considered for the purpose of computing Book profits u/s 115JB, unless specifically excluded by any of the explanations under that section;
++ as held by the Apex Court in the case of CIT Vs. HCL COMNEK (2008-TIOL-182-SC-IT) the provision of diminution of value of assets even though would be allowable under the normal provisions of Income Tax Act has to be reduced in computing the book profit (this of course was nullified by the retrospective amendment brought in by the Finance No.2 Act 2009 with retrospective effect from 1.4.2001). Thus, taxability of an amount under the normal provisions of the Income Tax Act has no relationship with the amount to be included / excluded for the purpose of computing the book profits. The adjustments have to be made only on the basis of explanations contained u/s.115JB. In the instant case, the share of profit from the joint venture company represents share of profits from AOP. U/s.10(2A) only the share of profits from a firm governed by the partnership act is excluded from computation of total income. In computing the book profit also the share of profits from the firms would have to be excluded in view of explanation (ii) to sec.115JB. But the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of sec 86, cannot be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
Revenue's appeal allowed
ORDER
Per: Asha Vijayaraghavan:
This appeal preferred by the revenue is directed against the order of CIT(A)-II, Hyderabad dated 28/01/2009 for the assessment year 2002-03.
2. The revenue has raised the following grounds of appeal:
1. The order of the CIT(A) is erred both in law and facts.2. The CIT(A) ought to have appreciated the adjustments made while computing the book profits u/s.115JB.3. The CIT(A) erred in not appreciating the fact that the joint ventures are assessed as Association of Persons (AOP) and share of profit from such AOP is not exempted u/s.10 of the Act.4. The CIT(A) ought to have considered the fact that share profit from AOP, though no tax is payable on such profit in view of the provisions of sec.86, cannot be reduced from the book profit u/s.115JB.5. Any other ground that may be urged at the time of hearing of appeal.
3. The Assessee filed return of income for AY 2002-03 on 31.10.2002 admitting a total income of Rs. !,98,86,905/-. This was processed u/s 143(1) on 5.2.2003. Subsequently AO noticed that that there was escapement of income and issued notice u/s 148 for reopening the Assessment. The AO observed that the assessee company had not furnished any computation of Book Profit as per sec.115JB and accordingly, the assessee company was asked to file computation of income u/s.115JB of the Act. The appellant company vide its reply dated 7.11.06 stated that the reply had already been filed in response to the notice u/s.154 and contended that there was no computation u/s.115JB since the said provision is not applicable in their case. It was also stated by the appellant that the financial statements were prepared combining the assets and liabilities, income and expenditure of jointly controlled entities of (1) BSE, RBM PATI Joint Venture and (2) M/s.BSE/C&E Joint Venture on line-by-line basis which is in contravention of the provisions of Companies Act, 1956. Therefore, the provision of Sec.115JB are not applicable and the fact can be seen from the computation of income where the income from the said two joint ventures was claimed as non-taxable income in the hands of the company. Therefore, the question of preparing computation statement u/s.115JB does not arise. However, the explanation submitted by the assessee was not accepted by the AO. The AO was of the view that any domestic company is liable to pay tax u/s.115JB and the assessee company has deliberately not furnished the computation to avoid the penalty u/s.271(1)(c). The AO referred to the Director's Report and the Auditor's Report filed by the assessee and held that the assessee had followed the Companies Act and the financial statements were prepared according to the Companies Act and hence, assessee's contention that provision of Sec.115JB is not applicable in their case is not acceptable. Accordingly, the AO computed the Book Profit at Rs.13,81,88,757/- and raised a tax demand of Rs.52,83,945/-.
4. On appeal before the CIT(A), the appellant submitted that while preparing its annual accounts right from the Assessment Year 2000-01, it has been disclosing its share in the joint venture in its accounts. For the year under consideration it has mentioned in its annual accounts (point no.2 of notes on accounts) as under:
02. Share of Joint Venture: "the share of each of the assets liabilities, income and expenses of jointly controlled entities (i) BSE, RTBM PATI Joint Venture and (2) M/s.BSE/C&C Joint Venture is combined on line-by-line basis with similar items of the company. Accordingly, each of the assets and liabilities and profits are increased by Rs.4452.36 lakhs and Rs.1039.19 lakhs respectively."
5. The appellant also stated that the statutory auditors in their report clearly qualified this issue at para no.2(vi) which reads as under:
"In our opinion and to the best of our information and according to the explanation given to us, the said balance sheet and P&L A/c read together with the notes thereon and subject to note(2) with regard to the combining of assets and liabilities and income and expenses of jointly controlled entity give the information required by the Companies Act, 1956 in the manner so require and give true and fair…..
6. The appellant also stated that while filing its return of income, in the statement of computation of Income, it has been deducting the share of profit from the firms (which firms are separately assessed to tax) so as to arrive at the book profit for the purpose of computing taxable income right from the year of getting share from the joint venture i.e. from AY 2000-01 onwards. In course of the assessment proceedings for the AY 2000-01, while issuing the notice u/s.142 and 143(2) the assessee was asked information with regard to the MAT and the assessee vide its letter dt.20.11.2002 had explained in detail the applicability of MAT. After thoroughly examining the contention and explanation of the assessee in regard to applicability of MAT u/s.155 JB and after satisfying himself with the explanation during the hearing, the AO completed the assessment u/s.143(3) without invoking the provision of sec.115JB. Similarly for the AY 2001-02 the AO had raised the same issue and the assessee vide its letter dt.20.11.02 and contented and explained in regard to nonapplicability of MAT provisions as was explained for the AY 2000-01. The AO again completed the assessment u/s.143(3) without invoking the provision of sec.115JB vide order dated 27.2.2003. Even for the AY under appeal, the assessment was originally completed u/s.143(1) without any adjustment. And after a lapse of two years, the AO issued notice u/s.154 proposing therein certain disallowances including invocation of sec.115JB for which the assessee vide its letter dated 28.4.2005 filed on 2.5.05 objected to the proposal. Subsequently, the AO issued notice u/s.148 which has been contested by the assessee vide its letter dated 12.12.06. The appellant further contended that after duly considering the statutory provisions of the Act and the material evidences furnished by the assessee, relief u/s.115JB was granted. Although grant of excess relief could be ground for re-opening the assessment, unless the grant of excess relief is on account of failure on part of the assessee to disclose fully, all the material facts concluded assessments cannot be reopened as was held in the case of Parikh Petrol Chemicals Agencies Vs ACIT (266 ITR 196 & 201). Without prejudice to the above, it was submitted that the precondition of applicability of section 115JB as enumerated in this provision is to prepare a P&L A/c for the relevant previous year in accordance to the provisions of Part II and III of Schedule VI to the Companies Act, 1956 and while preparing the annual accounts including the P&L A/c, the accounting policies, the accounting standards adopted, the methods and rate adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts and laid before the Company as its AGM. The appellant also referred to the provisions contained in sec.115JB regarding exclusion of exempted income and inclusion of any expenditure relatable to exempted income and submitted that the action of the AO in determining the book profit invoking the provisions of sec.115JB is unjustified, unwarranted and invalid.
7. The CIT(A) held that the assessee has been following the method / practice consistently wherein the return of income and the profits from the joint venture was excluded and the assessment have been completed on that basis. In the books of accounts the income and expenditure of the joint venture was mentioned separately in the different schedules. The said joint venture is separately taxable under the Income Tax Act and the share of profits from the joint venture are not taxed in the hands of the assessee by virtue of sec.86. Under the circumstances, the CIT(A) felt that taxing the share of the joint venture profits would amount to double taxation. He also cited various decisions where it was held that the method of accounting consistently followed cannot be rejected. He has referred to the decision ofMumbai Bench ITO Vs. Frigsales (India) Pvt Ltd (4 SOT 376) wherein it has been held that receipt which is not in the nature of income cannot be assessed to tax. Hence, the CIT(A) held that the book profit computed by the AO without reducing the share of income of joint venture is not proper and justified. On the basis of method of accounting followed by the assessee consistently and therefore directed the AO to reduce the share of joint venture while computing the book profit.
8. Aggrieved the revenue is in appeal before us.
9. We have heard both the parties and perused the record as well as gone through the orders of the authorities below. The main contention of the assessee before the lower authorities appears to be that the assessee company has been disclosing its share in joint ventures while preparing its annual accounts and the same is being mentioned in the annual accounts in the notes to the accounts. It is also stated by the assessee that financial statements were prepared combining the assets and liabilities income and expenses of jointly controlled entities (i) BSE, RTBM PATI Joint Venture and (2) M/s.BSE/C&C Joint Venture on line-by-line basis which is contravention of the provision of Companies Act and therefore the provision of Sec.115 JB will not be applicable. For the earlier years, the Assessing officer has completed the assessment without invoking the provisions of sec 115JB. Therefore the provisions of sec 115JB is not applicable to them.
10. But we find that the CIT(A) has found that provisions fo sec 115JB are applicable to the Assessee, even though the assessee had submitted that the accounts they have prepared is not in accordance with Schedule VI. The Assessee have not come on appeal against the direction of CIT(A) that the book profits should be computed after excluding the profits from joint venture. Therefore the question of applicability of computation of book profit to the assessee is not being agitated. In any event the assessee being a company, there cannot be any doubt the provision of book profit u/s.115 JB will be applicable to the assessee.
11. The only issue to be considered is whether in computing the book profit u/s.115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded. It is clear that the share of income from joint venture has been included by the Assessee in their P&L account in their books of account. The only difference is that instead of including a single entry viz. assessee's share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares. This is the only a way of presentation of profits in the P&L Account; instead of single line entry showing share of profit from joint venture, the assessee's share in all the entries of the joint venture are incorporated in the accounts of the assessee's books. However, the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books. This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86. This would show that the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company.
12. The next issue to be considered is whether such profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB. No doubt this share of profits from the Joint ventures may not taxable in the computing the taxable income under the normal provision of Income Tax Act by the virtue of application of Sec.86 of the Income Tax Act, whether by virtue of such non taxability of the share of income from Joint Ventures , the same should be excluded while computing Book profits also.
13. Sec 115JB reads as under:
Special provision for payment of tax by certain companies.115JB. (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, 2012, is less than 82eighteen 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 85Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or(b) being a company, to which the proviso to subsection (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 account;(iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) :Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,—(i) the accounting policies;(ii) the accounting standards adopted for preparing such accounts including profit and loss account;(iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year.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—(a) the amount of income-tax paid or payable, and the provision therefor; or(b) the amounts carried to any reserves, by whatever name called , other than a reserve specified under section 33AC; or(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or(d) the amount by way of provision for losses of subsidiary companies; or(e) the amount or amounts of dividends paid or proposed ; or(f) the amount or amounts of expenditure relatable to any income to which 88[section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or](g) the amount of depreciation,(h) the amount of deferred tax and the provision therefor,(i) the amount or amounts set aside as provision for diminution in the value of any asset,(j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset,if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account:Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 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 Explanation below the second proviso to section 115JA, as the case may be; or](ii) the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or(iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or(iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or](iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.Explanation.-For the purposes of this clause,-(a) the loss shall not include depreciation;(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or](iv) to (vi)…..(vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section(1) of section 171 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.Explanation.-For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or(viii) the amount of deferred tax, if any such amount is credited to the profit and loss account.
14. The Apex Court in the case of APOLLO TYRES Vs. CIT 255 ITR 273 = (2002-TIOL-185-SC-IT)has clarified that the profit and loss as disclosed in the accounts approved by the share holders should alone be taken and the AO can only make adjustments thereon as provided for in the explanations under that section. Once an item has been credited to the profit & loss account (in this case net profit of B.Seenaiah & Co (Projects) Ltd from joint ventures) the same should be included in computing the book profits of the joint venture u/s.115JB unless they can be excluded or reduced as per any of the explanations contained u/s.115JB. Merely because a particular amount which is included in the profit & loss account in the books is not taxable under the normal provision of the Income Tax Act, it would not entitle the assessee to exclude the same in computing the book profits. The Mumbai High Court in the case of M/s. Eschjay Forgings ( 251 ITR 50) = (2003-TIOL-442-HC-MUM-IT) have held that loss on foreign exchange arising from foreign currency liability utilized for purchase of plant and machinery, even though should be capitalized u/s.43A as per the normal provisions of the Income Tax Act, should be allowed as a revenue deduction for the purpose of computing book profits as that amount has been debited to the profit and Loss accounts of the Assessee. Similarly, the Bombay High Court in that case also held that provision for wealth tax which was not specifically excluded under the explanation to sec.115JB should also be reduced from the book profits. Thus it is settled proposition that for the purpose of sec 115JB, the profits as computed as per provisions of Sch VI to the Companies Act 1956 should be determined and the same should be increased or reduced as per explanations provided under that section.
15. In the instant case the share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books. It is the contention of the Assessee that as the income from JVs are not subject to tax under the normal provisions, the income should also be excluded for the purpose of computing Book Profits u/s 115JB. But as held by the Apex Court and other High Courts, the only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB. None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP. The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act. But as per sec 86 of the Act, if the conditions stipulated therein are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person.
16. By sec 86, an assessee is exempted from paying tax on his share of income from AOP; but the share of income from AOP is not excluded from his total income as is done under sec 10. Under Explanation (ii) to sec 115JB the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account should be excluded from the Book profits. But the share profits of the AOP is exempt under sec 86 Of the Act and not under sec10, 11 or 12 of the Act. Hence the share of income from AOP, which has been credited to the P&L account of the Assessee cannot be excluded from Book profits unless the same has been exempted under sec 10.
17. The very fact that a specific explanation u/s 115JB for excluding income to which sec 10, 11 or 12 of the Act applies, would show that unless specifically excluded under Explanation to sec 115JB, all amounts credited to the P&L, whether or not taxable under the normal provisions of the Act, would have to be included in computing the Book profits. In fact, explanation (ii) to Sec.115JB was amended w.e.f. 1.4.07 to exclude or carve out from the exclusion the amounts arising from sale of listed securities which is exempt from taxation under the normal provision u/s.10(38). This would show that even though a particular type of income is exempt or non-taxable in the normal provisions of Income Tax Act would still be taxable as book profits u/s.115JB as long as the amount has been credited to the profit & loss and cannot be reduced or excluded in any of the explanations container us/115JB. Therefore if as a legal proposition the income exempt under the normal provisions of income tax will not form part of the Book profits is to be accepted, the explanation (ii) to sec 115JB referred to above is redundant. It therefore follows that all amounts credited to the P&L account of the company should be considered for the purpose of computing Book profits u/s 115JB, unless specifically excluded by any of the explanations under that section.
18. As held by the Apex Court in the case of CIT Vs. HCL COMNEK 305 ITR 409 = (2008-TIOL-182-SC-IT) the provision of diminution of value of assets even though would be allowable under the normal provisions of Income Tax Act has to be reduced in computing the book profit (this of course was nullified by the retrospective amendment brought in by the Finance No.2 Act 2009 with retrospective effect from 1.4.2001). Thus, taxability of an amount under the normal provisions of the Income Tax Act has no relationship with the amount to be included / excluded for the purpose of computing the book profits. The adjustments have to be made only on the basis of explanations contained u/s.115JB. In the instant case, the share of profit from the joint venture company represents share of profits from AOP. Under sec.10(2A) only the share of profits from a firm governed by the partnership act is excluded from computation of total income. In computing the book profit also the share of profits from the firms would have to be excluded in view of explanation (ii) to sec.115JB. But the share of profits from AOP, which may be exempt from taxation in the hands of the members by the virtue of sec 86, cannot be excluded while computing the Book profits of the members of AOP, under any of the explanations u/s 115JB.
19. In this context the decision of the Special Bench 'B' Hyderabad in the case of Rain Commodities Limited vs. DCIT, Circle 3(1), Hyderabad (40 SOT 265) (Hyd) (SB) = (2010-TIOL-355-ITAT-HYD-SB) wherein the Tribunal has held as follows:
"Thus, from a reading of the section 115JB as well as analyses of various High Courts and Supreme Court decisions, the inescapable conclusion is that the book profits have to be calculated on the net profits computed as per Parts II and III of Schedule VI to the Companies Act, 1956 and as adjusted by the amounts mentioned in the Explanation. No further rebates or deductions after such adjustments, notwithstanding the fact whether any income is taxable or not under the normal provisions of the Income Tax Act. Computation of income under the normal provisions and the book profits are two parallel computations. While normally followed method of accounting in the books may also be taken for the purpose of computing income under the IT Act, the actual computation of book profits will not affect or be governed by the computation of income under the normal provisions of the IT Act. In fact only because of the govt felt that companies availing of various deductions permitted under the IT Act showed a low income for the purpose of IT Act but was also able to show healthy profits as per books were introduced. By again importing deductions allowed under the normal provisions of IT Act into computation of book profits, we will be negating the very purpose for which these sections were introduced. To sum up, we hold that in the absence of any provision for exclusion of capital gains exempted in the computation of book profit under the provisions contained in Explanation to section 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed."
20. In the course of arguments the learned counsel for the assessee had stated that the joint venture is in the nature of a firm and hence share of income should be excluded in computing book profits. However, no copy of return of income of Joint Venture brought on record to suggest that Joint Venture was assessed as a firm so as to exclude its income from the computation of book profit u/s 115JB of the Act. Being so, we cannot find any merit in the argument of the learned counsel that the share of income of the joint venture should be excluded from the book profit of the assessee. Accordingly, appeal of the revenue is allowed.
21. In the result, appeal of the revenue is allowed.
(Pronounced in the open court on 21.6.2013.)
On Monday, 4 November 2013 6:32 AM, "info@cliofindia.com" <info@cliofindia.com> wrote:
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ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS
F Capital gains : Loss on conversion of US 64 units into 6.75 per cent. tax-free bonds under 2002 Act after indexation of cost cannot be claimed as long-term capital loss : Schrader Duncan Ltd. v. Addl. CIT (Mumbai) p. 512
F Cash credits : Where genuineness of transaction and creditworthiness of creditor not established, treatment of sum as unexplained credit proper : Dy. CIT v. A. Audinarayana Reddy (Hyd) p. 580
F TCS : Where sale by way of auction, tender "or any other similar mode", "any other similar mode" not restricted and applies to retail sale, seller liable to collect tax at source : Bharti Auto Products v. CIT (Rajkot) 611 [SB]
F Where assessee not able to claim depreciation due to seizure of assets by bank, notional depreciation cannot be attributed, computation of capital gains by assessee u/s. 50 confirmed : KLN Agrotechs P. Ltd. v. ITO (Bangalore) p. 648
F Where compensation paid for breach of agreement is capital receipt section 115JA not applicable : Parle Soft Drinks P. Ltd. v. Joint CIT (Mumbai) p. 663
F Where assessee's business of hiring and leasing of vehicles to third parties, higher rate of depreciation to be allowed : Parle Soft Drinks P. Ltd. v. Joint CIT (Mumbai) p. 663
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