Pursuant to the severe strictures passed by the Courts in CIT vs. Sairang Developers (Bom High Court) and ITO vs. Growel Energy Co. Ltd (ITAT Mumbai) regarding the mindless manner in which appeals are filed by the department, without regard to the harassment caused to the taxpayers, the CBDT has issued an Office Memorandum dated 17.07.2014 by which a Committee to study the appellate orders to examine the filing of appeals by the department has been set up. The Committee comprises of six high-level officers and they have been given clear and detailed terms of reference. The object of the Committee is to appraise the efficacy of existing dispute resolution forums of CsIT (A) &ITAT and to suggest steps to reduce litigation before these forums. The Committee is expected to submit its report within 8 weeks from the date of its constitution.
CHENNAI, JULY 22, 2014: THE issue before the Bench is - Whether when the MAT liability of the assessee is found out only because of the alertness of the AO, the levy of penalty u/s 271(1)(c) is legitimately warranted. And the HC's answer is YES.
Facts of the case
The assessee company runs a hotel business. It filed its return disclosing "nil" income. It had admitted income from business at Rs.1,51,92,970/- and the same was set off with carried forward loss of the earlier years. In the course of the scrutiny proceedings, it was seen that the assessee was liable to tax u/s 115JB. The AO was of the view that the assessee was liable to pay MAT u/s 115JB. The adjusted book profit for working out the MAT payable u/s 115JB was calculated by the AO. Thereafter proceedings for levy of penalty u/s 271(1)(c) was initiated for the failure of the assessee to compute the book profit and the MAT payable u/s 115JB. The AO was of the view that the assessee furnished inaccurate particulars of income. The plea of the assessee that there was no suppression of income based on their own calculation was rejected and therefore an appeal was preferred against the levy of tax u/s 115JB and the said appeal was stated to be pending. Since the assessee furnished inaccurate particulars, the Revenue proceeded to impose penalty u/s 271(1)(c). After hearing the assessee, the ACIT passed an order imposing penalty u/s 271(1)(c) holding that the assessee had furnished inaccurate particulars of income.
On appeal, the CIT(A) allowed the appeal holding that the liability as per the assessment order had arisen due to difference in interpretation u/s 115JB as to what constituted the eligible amount to set off while computing the book profit. The assessee had claimed the lower of the depreciation or loss before depreciation for the A.Ys 2002-03 and 2003-04. The AO had restricted the set off of business loss pertaining to the A.Y 2002-03 to Rs.21,47,324/-. The difference of Rs.39,34,105/-, in the opinion of the AO was not eligible for set off against the AY 2007-08 as it had been notionally set off against the AY 2006-07 in his assessment order. According to the assessee, there was a debit balance in the profit and loss account, comprising of accumulated loss under the provisions of Company Act, in their books of account. Therefore, they were entitled for the set off of lower of business loss or depreciation brought forward from the earlier accounting years. Their belief was that set off was available till there was actual profit before providing of depreciation. The lower of the depreciation/business loss for two F.Ys viz., 31-3-2002 and 31-3-2003 were claimed and from the F.Y 31-3-2004 onwards profits before depreciation was available. Therefore, this difference in set off was because of interpretation of the amount eligible for set off. Because of this, according to the assessee, there was no liability under the provisions of section 115JB, whereas according to AO there was a liability. The liability had arisen on account of difference in the interpretation of section 115JB. Therefore the assessee cannot be held to had concealed its income or had furnished inaccurate particulars, therefore the CIT(A) had deleted the penalty levied u/s 271(1)(c) be deleted.
On appeal before the Tribunal, the Revenue contended that penalty was liable to be imposed in terms of Section 271(1)(c), as the assessee had failed to compute the book profit and tax payable under Section 115JB. The Tribunal had accepted the submissions of the Revenue, partly allowed the appeal holding that the assessee failed to make proper computation and therefore penalty was rightly imposed by AO. The Tribunal also held that there was no dispute that the assessee had not made any computation of book profit u/s 115JB, while filing its return of income. The AO found out that the assessee had reported higher carried forward loss and thereby filed 'nil' return.
Held that,
++ the findings of the Tribunal that in an admitted case of 'nil' return, without complying with the provisions of Section 115JB, where the assessee is liable to pay MAT and the non-compliance thereof results in imposition of penalty in terms of Section 271(1)(c), is correct. The Tribunal also found that only on account of the Assessing Officer's endeavour, the MAT liability came to be noticed. Therefore, there was a clear case of the assessee failing to furnish particulars necessary for the assessment and the case of the department that the assessee has furnished inaccurate particulars for the purpose of determining the tax under Section 115JB stands established;
++ as a result, penalty has to be levied as per the provisions of Section 271(1)(c) and the AO was justified in imposing such penalty. Hence, the findings of the Tribunal confirming the order of the Assessing Officer and reversing the order of the first Appellate Authority is correct. The issue in the present appeal is only relates to the penalty imposed u/s 271(1)(c), which we find is justified in the facts and circumstances of the case. In view of the above, we find that the issue decided by the Tribunal on the basis of the admitted case of the assessee by filing 'nil' return when they are liable to pay Minimum Alternate Tax is correct. Hence, the provisions of Section 271(1)(c) gets attracted. Accordingly, no question of law much less any substantial question of law arises for consideration in this Tax Case (Appeal). The Tax Case (Appeal) stands dismissed. No costs.
(See 2014-TIOL-1177-HC-MAD-IT)
Under various taxing statutes discretionary power vests in a functionary like Income Tax Officer, Dy. Commissioner of Income Tax, Commissioner, Income tax , Service tax and central excise adjudicators and the like in case of customs laws and such other taxation law. Such powers are expected to be exercised reasonably and in good faith following the principles of natural justice.
Pursuant to the severe strictures passed by the Courts in CIT vs. Sairang Developers (Bom High Court) and ITO vs. Growel Energy Co. Ltd (ITAT Mumbai) regarding the mindless manner in which appeals are filed by the department, without regard to the harassment caused to the taxpayers, the CBDT has issued an Office Memorandum dated 17.07.2014 by which a Committee to study the appellate orders to examine the filing of appeals by the department has been set up. The Committee comprises of six high-level officers and they have been given clear and detailed terms of reference. The object of the Committee is to appraise the efficacy of existing dispute resolution forums of CsIT (A) &ITAT and to suggest steps to reduce litigation before these forums. The Committee is expected to submit its report within 8 weeks from the date of its constitution.
Key Managerial Personnel under Companies Act, 2013
CS S. Dhanapal
Companies Act, 2013 (Act) has introduced many new concepts and Key Managerial Personnel is one of them. While the Companies Act, 1956 recognised only Managing Director, Whole Time Director and Manager as the Managerial Personnel, the Companies Act, 2013 has brought in the concept of Key Managerial Personnel which not only covers the traditional roles of managing director and whole time director but also includes some functional figure heads like Chief Financial Officer and Chief Executive Officer etc. These inclusions are in line with the global trends. "Company Secretary" has also been brought within the ambit of Key Managerial Personnel giving them the long deserved recognition of a Key Managerial Personnel of the Company. Another noteworthy feature of this concept is that it combines the important management roles as a team or a cluster rather than as independent individuals performing their duties in isolation to others.In the current write up, we have explored this concept of Key Managerial Personnel as put forth in the Companies Act, 2013 read with the relevant rules made thereunder.
WHO IS A KEY MANAGERIAL PERSONNEL?
The definition of the term Key Managerial Personnel is contained in Section 2(51) of the Companies Act, 2013. The said Section states as under:
"key managerial personnel", in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
The above definition is an exhaustive definition but point number (v) gives the power to the legislature to include some other personnel also within the definition of Key Managerial Personnel as may be deemed fit by them from time to time. As of now, no further prescription has been made pursuant to point number (v) and therefore, as on date, the definition is confined to the six personnel mentioned above.
Let us now proceed to understand how these six personnel are defined under the Act.
The above definitions depict that in the case of CEO and CFO, the designation is crucial to deem the person as CEO and CFO whereas in the case of MD and Manager the functions discharged or the role performed by an individual is taken as the test to deem them as the MD or Manager. The definition of whole time director is an inclusive definition and CS is defined to mean a CS as per the Company Secretaries Act, 1980who is duly appointed to perform the functions of a company secretary.
WHICH COMPANIES ARE MANDATORILY REQUIRED TO APPOINT KEY MANAGERIAL PERSONNEL
As per Section 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following class of Companies, namely
- Every listed company, and
- Every other public company having paid up share capital of Rs. 10 Crores or more
shall have the following whole-time key managerial personnel,—
(i) Managing Director, or Chief Executive Officer or manager and in their absence, a whole-time director;
(ii) Company secretary; and
(iii) Chief Financial Officer
Further, as per recently notified Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company other than a company which is required to appoint a whole time key managerial personnel as discussed above and which is having paid up share capital of Rs. 5 Crores or more shall have a whole time Company Secretary.
MANNER OF APPOINTMENT OF KMP- Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.
- If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of 6 months from the date of such vacancy.
RESTRICTIONS REGARDING APPOINTMENT OF KEY MANAGERIAL PERSONNEL:
♣ Same person not to act as Chairman and MD/CEO
It has been provided under the Act that the role or designation of Chairman and Managing Director or Chairman and Chief Executive Officer should not be assigned to the same person. In other words, the same person should not act as both Chairman and Managing Director or Chief Executive Officer of the Company.
However, in the following circumstances, the above restriction will not apply:
(a) the articles of the company contain provision for appointment of same person, or
(b) the company carries only a single business, or
(c) the company is engaged in multiple businesses and has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government
♣ Whole time KMP not to hold office in more than one company
It has been provided under the Act that a whole-time key managerial personnel shall not hold office in more than one company at the same time, except:
o In the company's subsidiary company,
o As a director in any other company with the permission of the Board
o As a MD, if he is the managing director or manager of one and of not more than one other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.
Further, it has also been provided that a whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of 6 months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel.
OTHER PROVISIONS REGARDING KMP
- A KMP is included within the meaning of "Officer in Default" under the Act.
- A document or proceeding requiring authentication by a company; or contracts made by or on behalf of a company, may be signed by any key managerial personnel or an officer of the company duly authorised by the Board in this behalf.
- Details regarding KMP, changes therein and the remuneration paid to them are required to be disclosed in the Annual Return of the Company.
- Explanatory statement should disclose the nature of concern or interest, financial or otherwise, of every key managerial personnel, in respect of each items of special business to be transacted at a general meeting.
- A person whose relative is employed as a KMP in a company is disqualified to be appointed as auditor in that company.
- A person is disqualified to be appointed as an independent director if he either himself or through his relative holds or has held the position of a key managerial personnel of the company or its holding, subsidiary or associate company in any of the 3 financial years immediately preceding the financial year in which he is proposed to be appointed.
- Company is required to maintain a register of the KMPs at its registered office containing particulars which shall include the details of securities held by each of them in the company or its holding, subsidiary, subsidiary of company's holding company or associate companies.
- A return of every appointment and change in KMP has to be filed with the ROC within 30 days of the appointment or the change as the case may be.
- The key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor's report but shall not have the right to vote.
- The remuneration policy of the KMP is to be recommended by the Nomination and Remuneration Committee who should ensure that the policy involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals. Such policy shall be disclosed in the Board's report.
- Every key managerial personnel shall, within a period of 30 days of his appointment, or relinquishment of his office, as the case may be, disclose to the company the particulars specified in sub-section (1) of section 184 relating to his concern or interest in the other associations which are required to be included in the register under that sub-section or such other information relating to himself as may be prescribed.
- Key Managerial Personnel are prohibited to make forward dealings and insider trading in securities of the company.
- Financial statements of a company are required to be signed either by the Chairperson of the company (where he is authorised by the Board) or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the Chief Financial Officer and the company secretary of the company, wherever they are appointed.
PENALTY FOR CONTRAVENTION
| On Company: | Fine which shall not be less than Rs. 1,00,000/- but which may extend to Rs. 5,00,000/- |
| On every director and key managerial personnel of the company who is in default | Fine which may extend to Rs. 50,000/- and where the contravention is a continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues. |
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