Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Rajasthan Financial Corporation, Udyog Bhawan, Tilak Marg,Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 593 / 2008 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus Rajasthan Financial Corporation, Udyog Bhawan, Tilak Marg,Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 552 / 2009 Commissioner of Income Tax, Jaipur-II ----Appellant Versus Rajasthan Financial Corporation, Udyog Bhawan, Tilak Marg, Jaipur. ----Respondent D.B. Income Tax Appeal No. 157 / 2010 Commissioner of Income Tax, Jaipur-II ----Appellant Versus Rajasthan Financial Corporation, Udyog Bhawan, Tilak Marg, Jaipur. ----Respondent D.B. Income Tax Appeal No. 261 / 2016 Pr. Commissioner of Income Tax, Jaipur-II ----Appellant Versus M/S Rajasthan Financial Corporation, Udyog Bhawan, Tilak Marg, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur For Respondent(s) : Mr. N.M. Ranka Senior Counsel with Mr. N.K. Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 06/07/2017 In all these appeals, common questions of law and facts areinvolved, hence, they are decided by this common judgment. 1.By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal preferred by the department. 2.This Court while admitting the matter framed the followingquestions of law:- In DBITA No.593/2008 “1. Whether in the facts and circumstances of thecase the ITAT has not acted perversely and wasjustified in holding that the assessee cannot betermed as a company with in the meaning ofSection 2(18)(a) of the IT Act and consequentlysection 115JA is not applicable to the assessee.” In DBITA No.552/2009 “1. Whether in the facts and circumstances of thecase the ITAT has not acted perversely and wasjustified in holding that the assessee cannot betermed as a company with in the meaning ofSection 2(18)(a) of the IT Act and consequentlysection 115JB is not applicable to the assessee.”In DBITA No.157/2010 “1. Whether in the facts and circumstances of thecase the ITAT has not acted perversely and wasjustified in holding that the assessee cannot be termed as a company with in the meaning ofSection 2(18)(a) of the IT Act and consequentlysection 115JA is not applicable to the assessee.” In DBITA No. 261/2016 1. Whether in the facts and circumstances of thecase, the ITAT has not acted perversely and wasjustified in holding that the provision of section115JB of the IT Act are not applicable in the case ofassessee.? 3.Counsel for the appellant Mr. Mathur has taken us to the provisions of Section 115JA(2) alongwith Section 2(18)(a) of theIncome Tax Act which reads as under:- “'115JA.Deemed income relating to certain companies.—(1)Notwithstanding anything contained in any other provisions of this Act,where in the case of an assessee, being a company, the total income, ascomputed under this Act in respect of any previous year relevant to theassessment year commencing on or after the 1st day of April, 1997(hereafter in this section referred to as the relevant previous year) isless than thirty per cent. of its book profit, the total income of suchassessee chargeable to tax for the relevant previous year shall bedeemed to be an amount equal to thirty per cent. of such book profit. (2) Every assessee, being a company, shall, for the purposes of thissection prepare its profit and loss account for the relevant previous yearin accordance with the provisions of Parts II and III of Schedule VI tothe Companies Act, 1956 (1 of 1956): (2) Every assessee, being a company, shall, for the purposes of thissection prepare its profit and loss account for the relevant previous yearin accordance with the provisions of Parts II and III of Schedule VI tothe Companies Act, 1956 (1 of 1956): Provided that while preparing profit and loss account, the depreciationshall be calculated on the same method and rates which have beenadopted for calculating the depreciation for the purpose of preparing theprofit and loss account laid before the company at its annual generalmeeting in accordance with the provisions of section 210 of theCompanies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts thefinancial year under the Companies Act, 1956 (1 of 1956) which isdifferent from the previous year under the Act, the method and ratesfor calculation of depreciation shall correspond to the method and rateswhich have been adopted for calculating the depreciation for suchfinancial year or part of such financial year falling within the relevantprevious year. 4.The scheme of the State Financial Corporation Act, relevant provisions of which reads as under:- “3. Establishment of State Financial Corporations-(1) The State Government may, by notification inthe Official Gazette, establish a FinancialCorporation for the State under such name as maybespecifiedinthenotification.(2) The Financial Corporation shall be a bodycorporate by the name notified under sub-section(1), having perpetual succession and a commonseal, with power, subject to the provisions of thisAct, to [acquire, hold and dispose of] property andshall by the said name sue and be sued. 36. General meetings-(1) A general meeting(hereinafter referred to as the annual generalmeeting) shall be held annually at a place in theState where there is an office of the Financial Corporation within [four months] from the date onwhich the annual accounts of the FinancialCorporation are closed and a general meeting maybe convened by the Board at any other time. [(2) The Shareholders present at the annual General meeting shall be entitled to discuss and adopt - (a) the balance sheet and profit and loss account ofthe Financial corporation made up the date on which it's accounts are closed and balanced; (b) the report of working of the Financial Corporation for the period covered by the accounts(c) the auditor's report on the balance sheet and accounts; and (d) proposals for declaration of dividend and capitalization of reserves. (3) The Shareholders present at an annual general meeting may also discuss any other matter to be transacted at such meetings in accordance with theprovisions of this Act.] 37. Audit[(1) The accounts of the FinancialCorporation shall be audited by auditors dulyqualified to act as the auditors under sub-section(1) of section 226 of the companies Act,1956(1 of1956), who shall be appointed by the FinancialCorporation in general meeting of shareholders outof the panel of auditors approved by the ReserveBank of India for such terms and on suchremuneration the Reserve Bank may fix.] (2) Every auditor shall be supplied with a copy ofthe annual balance sheet of the FinancialCorporation, and it shall be his duty to examine it,together with the accounts and vouchers relatingthereto, and every auditor shall have a listdelivered to him of all books kept by the FinancialCorporation and shall at all reasonable times haveaccess to the books, accounts and other documentsof the Financial Corporation and may in relation tosuch accounts examine and director or officer ofthe Financial Corporation. (2) Every auditor shall be supplied with a copy ofthe annual balance sheet of the FinancialCorporation, and it shall be his duty to examine it,together with the accounts and vouchers relatingthereto, and every auditor shall have a listdelivered to him of all books kept by the FinancialCorporation and shall at all reasonable times haveaccess to the books, accounts and other documentsof the Financial Corporation and may in relation tosuch accounts examine and director or officer ofthe Financial Corporation. (3) The auditors shall make a report to theshareholders upon the annual balance sheet andaccounts, and in every such report they shall statewhether in their opinion the balance sheet is a fulland fair balance sheet containing all necessary pproperly drawn up so as to exhibit a true andcorrect view of the state of affairs FinancialCorporation, and in case they had called for anyexplanation or information from the Board, whetherit has been given and whether it is satisfactory. 4. The State Government may, in consultation withthe Comptroller and Auditor General of India, atany time issue directions to the auditors requiringthem to report to it upon the adequacy ofmeasures taken by the Financial Corporation forthe protection of its shareholders and creditors orupon the sufficiency of their procedure in auditingthe affairs of the Financial Corporation and mayenlarge or extend the scope of the audit or directthat a different procedure in audit be adopted, ordirect that any other examination made by theauditors, if in its opinion public interest so requires.5. The Financial Corporation shall send a copy ofevery report of the auditors to the Comptroller &Auditor-General of India at least one month beforeit is placed before the shareholders. 6. Notwithstanding anything contained in thepreceding sub-sections, the Comptroller andAuditor-General of India may, either of his ownmotion or on a request received in this behalf froma State Government, undertake such audit and atsuch times as he may consider necessary: 7. Every Audit report under sub-section (6) shall beforwarded to the state Government and theGovernment shall cause the same to be laid beforethe Legislature of the State. 38. Returns.[(1) The Financial Corporation shallfurnish to the State Government, the [ Small Industries Bank] and the Reserve Bank suchstatements and returns in such form as the StateGovernment, the [Small Industrtes Bank] or theReserve Bank may require from time to time.] (3) The Financial Corporation shall furnish [To theState Govt., the [Small industries Bank] and theReserve Bank] within[four months] of the close ofeach financial year a statement in the prescribedform of its assets and liabilities as at the close ofthat year, together with a profit and loss accountfor the year, the auditors' report and report of theworking of the Financial Corporation during theyear and copies of the said statement, account andreports shall be published in the Official Gazetteand shall also be laid before the Legislature of theState. 43. Provision relating to income-tax and super-tax.-For the purpose of the [income tax act, 1961(43 of1961)], the financial corporation shall be deemedto be a company within the meaning of that Actand shall be liable to income tax and super-taxaccordingly on its income, profits and gains: Provided that any sum paid by the StateGovernment under the guarantee en in pursuanceof [section 7 or section 8] shall not be treated asthe income, profits and gains of the FinancialCorporation and any interest on debentures,[bonds or deposits] paid by the financialcorporation out of such sum shall not be treated asexpenditure incurred by it: 43. Provision relating to income-tax and super-tax.-For the purpose of the [income tax act, 1961(43 of1961)], the financial corporation shall be deemedto be a company within the meaning of that Actand shall be liable to income tax and super-taxaccordingly on its income, profits and gains: Provided that any sum paid by the StateGovernment under the guarantee en in pursuanceof [section 7 or section 8] shall not be treated asthe income, profits and gains of the FinancialCorporation and any interest on debentures,[bonds or deposits] paid by the financialcorporation out of such sum shall not be treated asexpenditure incurred by it: Provided further that in the case of any shareholdersuch portion of a dividend as has been paid out of asuch sum advanced by the State Government shallbe deemed to be [his] income from "interest onsecurities” [and the income tax shall be payablethere on as if it were the interest receivable on anysecurity of a State Government issued income taxfree] within the meaning of section8 of that Act.[43-A. Delegation of powers.- The Board may, bygeneral or special order, delegate to the managingdirector or to any other officer of the FinancialCorporations [or to any committee appointed undersection 21] subject conditions and limitations, ifany, as may be specified in the order such of its powers and duties under this Act as it may deemnecessary. [43-B. Reports to the Board.- The minutes of everymeeting of the committee appointed under section21 shall, after confirmation thereof at the nextmeeting of the committee, laid before the Board atthe next following meeting of the Board.” 5.He further sought to rely upon the judgment reported in 255ITR 273 (Apollo Tyres Ltd. vs. Commissioner of Income Tax)wherein speaking for the bench, the Supreme Court observed asunder:- “The above speech shows that the income taxauthorities were unable to bring certain companieswithin the net of income-tax because thesecompanies were adjusting their accounts in such amanner as to attract no tax or very little tax. It iswith a view to bring such of these companies withinthe tax net that section 115J was introduced in theIncome tax Act with a deeming provision whichmakes the company liable to pay tax on at least 30per cent of its book profits as shown in its ownaccount. For the said purpose, section 115J makesthe income reflected in the company's books ofaccount the deemed income for the purpose ofassessing the tax. If we examine the said provisionin the above background, we notice that the use ofthe words "in accordance with the provisions ofParts II and III of Schedule VI to the CompaniesAct" was made for the limited purpose ofempowering the assessing authority to rely uponthe authentic statement of accounts of thecompany. While so looking into the accounts of thecompany, an Assessing officer under the Income taxAct has to accept the authenticity of the accountswith reference to the provisions of the CompaniesAct which obligates the company to maintain itsaccount in a manner provided by the Companies Actand the same to be scrutinised and certified by thestatutory and will have to be approved by thecompany in its general meeting and thereafter to befiled before the Registrar of Companies who has astatutory obligation also to examine and satisfy thatthe accounts of the company are maintained in accordance with the requirements of theCompanies. In spite of all these procedurescontemplated under the provisions of theCompanies Act, we find it difficult to accept theargument of the Revenue that it is still open to theAssessing Officer to rescrutinise this account andsatisfy himself that these accounts have beenmaintained in accordance with the provisions of theCompanies Act. In our opinion, reliance placed bythe Revenue on sub-section section (1A) of Section115J of the Income tax Act in support of the abovecontention is misplaced. Sub-section (1A) of section115J does not empower the Assessing officer toembark upon a fresh inquiry in regard to the entriesmade in the books of account of the company. Thesaid sub-section, as a matter of fact mandates thecompany to maintain its account in accordance withthe requirements of the Companies Act whichmandate, according to us, is bodily lifted from theCompanies Act into the Income tax Act for thelimited purpose of making the said account somaintained as a basis for computing the company'sincome for levy of income tax. Beyond that, we donot think that the said sub-section empowers theauthority under the Income tax Act to probe intothe accounts accepted by the authorities under theCompanies Act. If the statute mandates that incomeprepared in accordance with the Companies Actshall be deemed income for the purpose of section115J of the Act, then it should be that income whichis acceptable to the authorities under theCompanies Act. There cannot be two incomes onefor the purpose of the Companies Act and anotherfor the purpose of income-tax both maintainedunder the same Act. If the Legislature intended theAssessing Officer to reassess the company'sincome, then it would have stated in section 115Jthat "income the company as accepted by theAssessing Officer". In the absence of the same andon the language of section 115J, it will have to heldthat view taken by the Tribunal is correct and theHigh Court has erred in reversing the said view ofthe Tribunal.” 6.Counsel for the respondent has relied the judgment of KeralaHigh Court in the case of Kerala State Electricity Board vs. DeputyCommissioner of Income Tax reported in [2010] 329 ITR 91 (Ker.) has considered the case without considering the provisions ofSection 43 of the State Financial Corporation Act and held as under:- “The scheme of section 115JB is similar to section115J and section 115JA. The difference in so far as itis relevant for the present purpose between section115JB and its fore-runners (section 115J and 115JA)is as follows: All the three sections (sections 115J, 115JA and115JB) create legal fictions regarding the "totalincome" (a defined expression under section 2(45) ofthe Act) of the companies. While the earlier twosections mandate the Department to make theassessment on a fictitious amount of "total income"where the actual amount of total income computed inaccordance with the Income tax Act is less than 30per cent of the book profits of the company, section115JB mandates the Department to resort to thefiction in those cases where the tax payable on thebasis of the "total income computed in accordancewith the Income-tax Act is less than a specifiedpercentage (7 percent for the year in issue) of thebook profit. Further, sections 115JA and 115JB alsostipulate a definite manner of preparing the annualaccounts including the profit and loss accounts. Morespecification 115JB stipulates that the accountingpolicies, accounting standards etc., shall be uniformboth for the purpose of income-tax as well as for theinformation statutorily required to be placed beforethe annual general meeting conducted in accordancewith section 210 of the Companies Act, 1956. It may be mentioned here that under section 166 ofthe Companies Act every company is mandated tohold a general meeting in each year Section 210mandates that every year the board of directors of thecompany in the general meeting shall lay before thecompany a balance-sheet as at the end of therelevant period and also a profit and loss account forthe period. Parts II and III of Schedule VI to theCompanies Act specify the method and manner ofmaintaining the profit and loss account. However, the appellant though is by definition acompany under the Income-tax Act and deemed tobe a company for the purpose of the Income Tax Act,(by virtue of the declaration under section 80 of theElectricity (Supply) Act, it is not a company for thepurpose of the Companies Act. Therefore, theappellant is not obliged to either to convene an annual general meeting or place its profit and lossaccount in such general meeting. As a matter of fact,a general meeting contemplated under section 166 ofthe Companies Act is not possible in the case of theappellant as there are no shareholders for theappellant-Board. On the other hand, under section 69of the Electricity (Supply) Act, the appellant isobliged to keep proper accounts, including the profitand loss account, and prepare an annual statementof accounts, balance-sheet etc., in such form as mayprescribed by the Central Government and notified inthe Official Gazette. The prescription of the rules inthis regard is required to be made in consultationwith the Comptroller and Auditor-General of Indiaand also the State Government. Such accounts of theappellant are required to be audited by theComptroller and Auditor-General of India or suchother person duly authorised by the Comptroller andAuditor-General of India. The accounts so preparedalong with the audit report is required to be laidannually before the State Legislature and also to bepublished in the prescribed manner and copies ofsuch publication shall be made available for sale at areasonable price, obviously for the benefit of thegeneral public who wish to scrutinise the accounts. Thus, it can be seen that coming to the maintenanceof the accounts, the appellant though is deemed to bea "company"-both by virtue of operation of section 80of the Electricity (Supply) Act, for the purpose of theIncome-tax Act and by virtue of the definition of theexpression “company” under the Income tax Act(which is already examined earlier-the appeallant isrequired to keep and maintain its accounts in amanner specified by the Central Government, but notin the manner specified in the Companies Act.Therefore, the question is whether the legal fictioncontemplated under section 115JB can be pressedinto service while making the assessment of income-tax payable by the appellant. It must be remembered that Section 115JB creates alegal fiction regarding the total income of theassessees which are companies. The book profit of thecompany is deemed to be total income of theassessee in the circumstances specified in the saidsection, which are already noticed earlier. Theexpression "book profit” for the purpose of the saidsection is explained in the section itself to mean thenet profit as increased or decreased by the variousamounts shown in the various sub-clauses of thesection. The "net profit” itself must be the net profitas shown in the profit and loss account of the It must be remembered that Section 115JB creates alegal fiction regarding the total income of theassessees which are companies. The book profit of thecompany is deemed to be total income of theassessee in the circumstances specified in the saidsection, which are already noticed earlier. Theexpression "book profit” for the purpose of the saidsection is explained in the section itself to mean thenet profit as increased or decreased by the variousamounts shown in the various sub-clauses of thesection. The "net profit” itself must be the net profitas shown in the profit and loss account of the company. Sub-section (2) mandates that the profitand the loss account of the company is required to beprepared in the manner specified therein. Though inview of the requirement under section 69 of theElectricity (Supply) Act the appellant is required tomaintain accounts in a different form than the onecontemplated under section 115JB(2), the prescriptionunder section 69 is only regarding the general duty ofthe appellant for the purpose of the Electricity(Supply) Act. Nothing in theory prevents Parliamentfrom obligating the appellant to prepare another profitand loss account as prescribed under section 115JB(2)for the purpose of the Income-tax Act. The question iswhether such an obligation is created under section115JB (2) in so far as the appellant is concerned. Inexamining the said question, the legislative historyand the mischief sought to be cured by the Legislaturein making the special deeming provision, in ouropinion, would be relevant.” 7.Counsel for the respondent contended that even in the order of AO, CIT(A) or the Tribunal when firstly the matter wasconsidered on 28[th] February, 2007, no such contention was taken.Even such contention was not taken in the memo of appeal andfor the first time, argument is canvassed that the provision ofIncome Tax will govern the field. 8.Counsel for the department cannot satisfy the Court thatState Financial Corporation Act governs the assessee to pay taxunder the Income Tax Act. The principle of State FinancialCorporations Act is to be interpreted while considering the matterof State Financial Corporation and the defence of non-payment ofIncome Tax under the State Financial Corporation Act is notpermissible but while assessment is done under the Income TaxAct that is founded under law and statutory obligation. 9.We have heard counsel for both the sides. 10.Before proceeding with the matter, the question of law whichhas been framed is very clear whether the respondent assesseewill be governed under Section 115 JA read with Section 2(18)(a).On a plain reading as reproduced above and in view of forgoingconclusion and even as per statement of Mr. Mathur, it will not becovered. However, he has tried to take support of Section 43which is misconceived. While interpreting the taxing statute, theCourt has to rely upon the taxing statute and not any otherprovisions. 11.In that view of the matter, the issue is answered in favour ofthe assessee against the department. 12.The appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/132-135