Commissioner Of Income Tax, Kota v. M/S Allen Career Institute, C-210/2, Talwandi, Kota

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 355 / 2011 COMMISSIONER OF INCOME TAX, KOTA ----Appellant Versus M/s ALLEN CAREER INSTITUTE, C-210/2, Talwandi, Kota ----Respondent Connected With D.B. Income Tax Appeal No. 537 / 2011 COMMISSIONER OF INCOME TAX, KOTA ----Appellant Versus M/s ALLEN CAREER INSTITUTE, C-210/2, Talwandi, Kota ----Respondent Connected with D.B. Income Tax Appeal No. 22 / 2015 Commissioner of Income Tax, Kota. ----Appellant Versus M/S Allen Carrier Institute, C-210/2, Talwandi, Kota. ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo Jain with Ms. Shiva Goyal For Respondent(s) : Mr. Mahendra Gargieya _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 12/09/2017 1.Since these three appeals arise out of the same orderthey are being decided by this common judgment. 2.By way of these appeals, the appellant has challengedthe judgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department and allowed the appeal ofthe assessee modifying the order of CIT partially. 3.This Court while admitting the ITA No.355/2011 hasframed following substantial question of law: “Whether in the facts and circumstances of the casethe ITAT is justified in considering the interest aspart of the book profit in contravention of Section40(b) i.e as per Section 40(b) the book profit has tobe computed in the manner laid down in Chapter-IVD?” 4.This Court while admitting the ITA No.537/2011 hasframed following substantial question of law: “Whether in the facts and circumstances of the casethe ITAT is justified in considering the interest aspart of the book profit in contravention of Section40(b) i.e as per Section 40(b) the book profit has tobe computed in the manner laid down in Chapter-IVD?” 5.This Court while admitting the ITA No.22/2015 has framed following substantial question of law: “Whether the Tribunal was legally justified indeleting the disallowance of Rs.2,30,00,796/- madeon account of remuneration to partners by takingthe interest earned on FDRs as part of book profitand business income under Section 28 specificallywhen it was “Income form other sources” and contrary to Section 40(b), Explanation 3 andSection 40(b) (v) (2)?” 6.Counsel for the appellant contended that the ChapterIV-D consist of Section 28 to 44 under heading of profits and gains of business or profession. 7.She has also relied upon Section 40(b)(v) read with Explanation 3 which reads as under:- “40(b)(v) Any payment of remuneration to anypartner who is a working partner, which isauthorised by, and is in accordance with, the termsof the partnership deed and relates to any periodfalling after the date of such partnership deed in sofar as the amount of such payment to all thepartners during the previous year exceeds theaggregate amount computed as hereunder:- [(a) on the first Rs. 3,00,000 of the book-profit or incase of a loss- Rs. 1,50,000 or at the rate of 90 per cent of thebook-profit, whichever is more; (b) on the balance of the book-profit- at the rate of 60 per cent :] Provided that in relation to any payment under thisclause to the partner during the previous yearrelevant to the assessment year commencing on the1[st] day of April, 1993, the terms of the partnershipdeed may, at any time during the said previousyear, provided for such payment.” 8.She contended that while considering the matter AO has specifically observed as under:- [(a) on the first Rs. 3,00,000 of the book-profit or incase of a loss- Rs. 1,50,000 or at the rate of 90 per cent of thebook-profit, whichever is more; (b) on the balance of the book-profit- at the rate of 60 per cent :] Provided that in relation to any payment under thisclause to the partner during the previous yearrelevant to the assessment year commencing on the1[st] day of April, 1993, the terms of the partnershipdeed may, at any time during the said previousyear, provided for such payment.” 8.She contended that while considering the matter AO has specifically observed as under:- “It may be also seen that these FDRs not made asa business necessity without which the business ofthe assessee cannot be run and in fact these FDRsare made out of surplus fund available withassessee. In this background, as held earlier,income from bank FDRs etc. cannot said to bebusiness income and the same is to be treated asincome from other sources. The following case laws are also relied upon. IMadhya Pradesh State IndustriesCorporation Ltd. Vs. CIT (1968) 69 ITR 824 (MP). IIShamas Tabrez Vanti (In Re) (2005) 273 ITR 299 the Authority of Advance Ruling. III Murli Investment Company vs. CIT, 167 ITR 368(Raj.) IV CIT vs. Rajasthan Land Development Corporation211 ITR 597 (Raj.) VCIT vs. Monarch Tools Pvt. Ltd. (2002) 260 ITR258. Considering, these facts the remuneration topartners is calculated as under:- Net Profit as Rs.15,14,59,810/-per P & L a/c (Before appropriation)LessIncome chargeable to tax under Rs.2,16,07,375/-income From other sources (-) (Interest from Rs.4,43,714/-Rs.2,20,51,089/-bank FDRs)Rs.41,551/-+ 41,551/-Interest from other sources Add. Donation (+) as per Rs.16,41,704/-Computation Add.On (+) Rs.1,26,892/-account of disallowance of vehicle expenses and depreciation onvehicle as per computation.Less Interest on(-) 2,05,79,959/-capital Add.(Expenses (+) 1,62,139/-diallowance as per (Para I to IV) Rs.11,07,17,946/- 9.She contended that the AO after taking into account has rightly assessed the income and held that FD income is not abusiness income and the reasons adopted by the AO was wronglyset aside by the CIT(A) and it is contended that the Tribunal whileconsidering the matter has observed as under:- “2.Rs.87,55,582/-: 2.1 The ld. CIT(A) erred in law aswell as on the facts of the case in confirming thedisallowance of the claim of remuneration paid to thepartners under Section 40b(v)(2) of the IT Act ofRs.87,55,582/-(Rs.5,30,95,260/-claimedlessRs.4,43,39,678/- allowed) by the AO by holding thatinterest on FDR of Rs.2,16,07,375/-, was an incomeunder the head ‘income form other sources’ and not‘income from profits and gains of business orprofession’, hence will not be a part of book profit forthe purpose of Section 40b(v), which is totally contraryto the provisions of law and facts. Hence, such interestincome be held and directed to be treated as eligibleincome being a part of book profit for the purpose ofsection 40(b). The disallowance so made and confirmedby the ld. CIT(A) being totally contrary to the provisionsof law and facts of the case, kindly be deleted in full.” 2.2 Alternatively and without prejudice to theabove, such interest on FDR Rs.2,16,07,375/- be heldand directed to be treated as ‘income from profits andgains of business or profession’ under the facts andcircumstances of the case and the diallowance so madekindly be deleted in full” 10.It is contended that the Tribunal has wrongly allowed the appeal of the assessee. She has relied upon full bench decisionof this Court reported in [2015] 376 ITR 53 (Raj.), RelianceTrading Corporation and Ors. vs. The ITO, Jaipur and Ors.,observed as under:- 2.2 Alternatively and without prejudice to theabove, such interest on FDR Rs.2,16,07,375/- be heldand directed to be treated as ‘income from profits andgains of business or profession’ under the facts andcircumstances of the case and the diallowance so madekindly be deleted in full” 10.It is contended that the Tribunal has wrongly allowed the appeal of the assessee. She has relied upon full bench decisionof this Court reported in [2015] 376 ITR 53 (Raj.), RelianceTrading Corporation and Ors. vs. The ITO, Jaipur and Ors.,observed as under:- “37.In sub-Section (3) of Section 80HHC of theAct, the words used are. “ derived from”. In our view,the words “derived from”’ are of restricted meaning, andare not as wide as are “attributable to”. The ‘stand-alone’ provision of Section 80HHC of the Act has to beconstrued on its own wordings. A distinction sought tobe made in respect of the definition of “profit of thebusiness” under sub-section (baa) of the Explanation, tomean the profits of the business as computed under thehead “Profits and gains of business of profession”’ whichincorporates the entire procedure for and gains ofbusiness or profession”, which incorporates the entireprodeure for computing the business income underSection 28 to 44 of the Act. Dehors Section 80HHC ofthe Act, the consistent approach is that where thestatutory provision takes of “income derived form” thebusiness activity in question, the nexus theory should beapplied in order to determine whether a particular itemof income is business income or not. 41. While applying the direct and proximate nexustest, we are of the view that where the interest earneddoes not have direct and proximate nexus, with theincome form the business or export, the interest cannotbe deducted as income from export under Section80HHC (3)(a) of the Act, and has to be given the sametreatment for tax, as “income from sources” underSection 56 of the Act.” 11.She contended that the view taken by the Tribunal is required to be reversed. 12.Mr. Gargieya, counsel for respondent has taken us tothe order of the Tribunal as well as CIT(A) and contended asunder:- “It may be also seen that these FDRs not made as abusiness necessity without which the business of theassessee cannot be run and in fact these FDRs aremade out of surplus fund available with assessee. Inthis background, as held earlier, income from bank FDRsetc. cannot said to be business income and the same isto be treated as income from other sources. Thefollowing case laws are also replied upon. IMadhya Pradesh State Industries Corporation Ltd.Vs. CIT (1968) 69 ITR 824 (MP). IIShamas Tabrez Vanti (In Re) (2005) 273 ITR 299the Authority of Advance Ruling. III Murli Investment Company vs. CIT, 167 ITR 368(Raj.) IV CIT vs. Rajasthan Land Development Corporation211 ITR 597 (Raj.) VCIT vs. Monarch Tools Pvt. Ltd. (2002) 260 ITR258. Considering these facts it is argued that the remuneration to partners is calculated as under:- Net Profit as per P& L a/c(Before appropriation) Rs.11,05,67,193/- Less Income chargeable to tax under income from other sources (Interest from bank FDRs)Rs.1,73,21,273/-Interest from other sources Rs.2,88,686/-(-)Rs.1,76,09,959/-Add Donation as per computation(+)Rs.1,68,9604/-Add(+)Rs.1,30,142/-On account of disallownace of vehicleexpenses and depreciation on vehicleas per computation Less--Interest on capital ()Rs.1,43,62,637/Add (Expenses disallowance as per (Para I to IV)(+)2,08,026/--Rs.8,06,22,369/ On this book profit of Rs.8,06,22,369/-,the allowable partners remuneration is arrived atRs.3,23,01,448/- whereas the assessee has claimedthe remuneration at Rs.3,92,48,924/-. The excesspartners remuneration to the extent ofRs.69,47,476/- is disallowed and added in theincome of the assessee. This being a wrong claim,proceeding u/s 271(1)(c) of IT Act, 1961 is alsoinitiated. from other sources (Interest from bank FDRs)Rs.1,73,21,273/-Interest from other sources Rs.2,88,686/-(-)Rs.1,76,09,959/-Add Donation as per computation(+)Rs.1,68,9604/-Add(+)Rs.1,30,142/-On account of disallownace of vehicleexpenses and depreciation on vehicleas per computation Less--Interest on capital ()Rs.1,43,62,637/Add (Expenses disallowance as per (Para I to IV)(+)2,08,026/--Rs.8,06,22,369/ On this book profit of Rs.8,06,22,369/-,the allowable partners remuneration is arrived atRs.3,23,01,448/- whereas the assessee has claimedthe remuneration at Rs.3,92,48,924/-. The excesspartners remuneration to the extent ofRs.69,47,476/- is disallowed and added in theincome of the assessee. This being a wrong claim,proceeding u/s 271(1)(c) of IT Act, 1961 is alsoinitiated. With these remarks the income of theassessee is computed as under:- Total income as per ITNS-150 dated 24.4.2007 Add Rs.57972440/- 1. Disallowed out of telephone expenses asdiscussed in para-IRs.69,772/-discussed in para-IRs.69,772/- 2. Disallowed out of interest payment as discussed in para-IIRs.6,000/- 3. Disallowed out of function expenses as discussed in para-IIIRs.1,25,484/- 4. Disallowed out of insurance expenses on the vehicles as discussed in para-IVRs.6,770/-5. Addition on account of wrong claim of Rs.69,47,476/- Rs.71,55,502/-partners remuneration as discussed in para-VTotal Income Rs.6,51,27,942/-Total Income R/o Rs.6,51,27,940/- Assessed u/s 143(3) of IT Act 1961 on totalincome of Rs.6,51,27,940/- issued notice & challan aftergiving credit for pre-paid taxes Charged interest u/s234B & 234C as per ITNS 150 which is part of this order.Penalty proceedings u/s 271 (1)(c) of IT Act 1961 areinitiated separately.” 13.It is also contended that the A.O. has considered the business income and the same was partly allowed by the CIT(A)and no interference is called for. 14 He has relied upon decision in case CIT vs. J.J. Industries (2013) 385 ITR 531 (Guj.) wherein it has been observed as under:- “6. The question, therefore, arises whether theinterest income earned by the assessee-firm fromthe fixed deposit receipts should be ignored for thepurpose of working-out the book profit to ascertainthe ceiling of the partners remuneration. 7. The Tribunal has proceeded on the basis that forthe purpose of ascertaining such ceiling on the basisof book profit, the profit shall be in the profit and lossaccount and is not to be classified in the differentheads of income under Section 40 of the Act. Theinterest income, therefore, cannot be excluded forthe purposes of determining the allowable deduction of remuneration paid to the partners under Section40B of the Act. 8. Counsel for the revenue vehemently contendedthat for the purpose of ascertaining the limit, onlybusiness income would be relevant and not any otherincome. In the present case, however, we need notenter into such controversy. The assessee had heldout that it is in the business of purchasing raw cottonand ginning the same. It is a seasonal business. Theinterest income was generated out of spare fundsinvested in the fixed deposit. Such income wasdeclared as part of the business income and that ishow even the Assessing Officer had accepted thesame. That being the position, and the AssessingOfficer in the assessment taxed such income asbusiness income, we do not see any question of lawarising. The correctness of the Tribunal’s view on thespecific issue may be gone into in an appropriatecase.” 15.He has also relied upon decision in case MD Serajuddin& Brothers vs. Commissioner of Income Tax (2012) 80 DTR 46(Cal) which reads as under:- 15.He has also relied upon decision in case MD Serajuddin& Brothers vs. Commissioner of Income Tax (2012) 80 DTR 46(Cal) which reads as under:- “The said chapter nowhere provides that method ofaccounting for the purpose of ascertaining net profitshould be the only income from business alone and notfrom other sources. Section 29 provides how the incomefrom profits and gains of business or profession shouldbe computed and this has to be done as provided underSection 30 to 43D. By virtue of Section 5 of the said Actthat total incomes of any previous years includes allincome from whatever source derived. Thus for thepurpose of Section 40(b)(v) read with Explanation therecannot be separate method of accounting forascertaining net profit and/or book-profit. The saidsection nowhere provides as rightly pointed byMr.Khaitan, learned Senior Advocate that the net profitas shown in the profit and loss account not the profitcomputed under the head-profit and gains of business orprofession.” 16.The 3[rd] judgment which has been relied on it in thecase of Apollo Tyres Ltd. vs. CIT (2002) 255 ITR 273/122 Taxman562 (SC), wherein it has been observed as under:- “5.For deciding this issue, it is necessary for us toexamine the object of introducing Section 115J in theIT Act which can be easily deducted from the BudgedSpeech of the then Hon’ble Finance Minister of Indiamade in the Parliament while introducing the saidsection which is as follows : “It is only fair and proper that the prosperous shouldpay at least some tax. The phenomenon of so-called“zero-tax” highly profitable companies deservesattenion. In 1983, a new s.80VVA was inserted in theAct so that all profitable companies pay some tax. Thisdoes not seem to have helped and is being withdrawn. Inow propose to introduce a provision whereby everycompany will have to pay a “minimum corporate tax” onthe profits declared by it in its own accounts. Under thisnew provision, a company will pay tax on at least 30 percent of its book profit. In other words, a domesticwidely-held company will pay tax of at least 15 per centof its book profit. This measure will yield a revenue gainof approximately Rs.75 crores.” The above speech shows that the IT authorities wereunable to bring certain companies with the net ofincome-tax because these companies were adjustingtheir accounts in such a manner as to attract no tax orvery little tax. It is with a view to bring such of thesecompanies within the tax net that s. 115J, wasintroduced in the IT Act with a deeming provision whichmakes the company liable to pay tax on at least 30 percent of its book profits as shown in its own account. Forthe said purpose, s. 115J makes the income reflected inthe companies books of accounts as the deemed incomefor the purpose of a assessing the tax. If we examinethe said provision in the above background, we noticethat the use of words “in accordance with the provisionsof Parts II and III of Sch. VI to the Companies Act” wasmade for the limited purpose of empowering theassessing authority to rely upon the authentic statementof accounts of the company. While so looking into theaccounts of the company, an AO under the IT Act has toaccept the authenticity of the accounts with reference tothe provisions of the Companies Act which obligates thecompany to maintain its account in a manner provided by the Companies Act and the same to be scrutinisedand certified by statutory auditors and will have to beapproved by company in its general meeting andthereafter to be filed before the Registrar of Companieswho has a statutory obligation also to examine andsatisfy that the accounts of the company are maintainedin accordance with the requirements of the CompaniesAct. In spite of all these procedures contemplated underthe provisions of the Companies Act, we find it difficultto accept the argument of the Revenue that it is stillopen to the AO to re-scrutinise this account and satisfyhimself that these accounts have been maintained inaccordance with the provisions of Companies Act. In ouropinion, reliance placed by the Revenue on sub-s. (1A)of S. 115J of the IT Act in support of the abovecontention is misplaced. Sub-s. (1A) of s.115J does notempower the AO to embark upon a fresh inquiry inregard to the entries made in the books of account ofthe company. The said sub-section, as a matter of fact,mandates the company to maintain its account inaccordance with the requirements of the Companies Actwhich mandate, according to us, is bodily lifted from theCompanies Act into the IT Act for the limited purpose ofmaking the said account so maintained as a basis forcomputing the company’s income for levy of income tax.Beyond that, we do not think that the said sub-sectionempowers the authority under IT Act to probe into theaccounts accepted by the authorities under theCompanies Act. If the statute mandates that incomeprepared in accordance with the Companies Act shall bedeemed income for the purpose of s.115J of the Act,then it should be that income which is acceptable to theauthorities under Companies Act. There cannot be twoincomes one for the purpose of Companies Act andanother for the purpose of income tax both maintainedunder the same Act. If the legislature intended the AOto reassess the company’s income, then it would havestated in s. 115J that “income of the company asaccepted by the AO. In the absence of the same and onthe language of s. 115J, it will have to held that viewtaken by the Tribunal is correct and the High Court haserred in reversing the said view of the Tribunal. Therefore, we are of the opinion the AO while computingthe income under s.115J has only the power ofexamining whether the books of account are certified bythe authorities under the Companies Act as having beenproperly maintained in accordance with the CompaniesAct. The AO thereafter has the limited power of makingincrease and reductions as provided for in the Explanation to the said section. To put it differently, theAO does not have the jurisdiction to go behind the netprofit shown in the P&L a/c except to the extentprovided in the Explanation to s.115J.” 17.The 4[th] judgment which has been relied on it in the case of CIT v/s Hycron India Ltd. (2008) 219 CTR 288 (Raj.),wherein it has been observed as under under:- “10. Thus it is clear, that for all purposes, profits andgains of business or profession, and income from othersources, are treated, by the Act to be different species ofincome. In this backgrounds, s. 2(24) as such, does notcategories separately, profits and gains of business orprofession. Thus expression “profits and gains” as usedin s. 2(24), is wider expression, and is not confined to“profits and gains of business or profession”. 11. In this background, the language of s. 10B, again,provide for exemption, with respect to any “profits andgains” derived by the assessee, and is not confined to“profits and gains of business and profession” asprovided under s. 14D. case of CIT v/s Hycron India Ltd. (2008) 219 CTR 288 (Raj.),wherein it has been observed as under under:- “10. Thus it is clear, that for all purposes, profits andgains of business or profession, and income from othersources, are treated, by the Act to be different species ofincome. In this backgrounds, s. 2(24) as such, does notcategories separately, profits and gains of business orprofession. Thus expression “profits and gains” as usedin s. 2(24), is wider expression, and is not confined to“profits and gains of business or profession”. 11. In this background, the language of s. 10B, again,provide for exemption, with respect to any “profits andgains” derived by the assessee, and is not confined to“profits and gains of business and profession” asprovided under s. 14D. 12. Then for the definition of “profits and gains”, we areleft to seek assistance from other sources. Dictionarymeaning, as such, does not provide much of assistance.Then in Re Arthur Average Assocn. For British, Foreign &Colonial Ships, Ex p. Hargorove & Co. (1875), L.R. 10Ch.App. 545, the meaning of word “gain” has been givenas acquisition, and has no other meaning. Gain issomething obtained or acquired, and is not limited topecuniary gain. Regarding “profit”, in general, the profitmeans the price received over the cost of purchasing andhandling the goods, it means pecuniary gain, as held inStratton vs. Cartmell, 42 A. 2d 419, 422, 114 Vt. 191. InOliver vs. Halstead, 86 S.E. 2d 858, 859, 196 Vz. 992,the word “profit”, as ordinarily used, is held to mean, thegain made upon any business or investment, and doesnot include compensation for labour. Then in George E.Warren Co. vs. U.S., D.C. Mass, 76 F. Supp. 587, 591, ithas been held, that “Profits” is capable of numerousconstructions, and for any given use, its meaning mustbe derived from the context. Likewise, in Gulf RefiningCo. vs. Stanford 30 So. 2 d 516,517, 202 Miss. 602, 173A.L.R. 1099, it has been held, that ‘profit’ is an elasticand ambiguous word, often properly used in more thanone sense; its meaning in a written instrument is governed by the intention of the parties appearingtherein, but any accurate definition thereof must alwaysinclude, the element of gain. Similar definition has beengiven in various other judgments. 18. 13. If considered from these stand points, there is noescape for the conclusion, that the income derived by theassessee, from Wolkem India Ltd., does fall within theexpression “profits and gains.” The 5[th] judgment which has been relied on it in the case Berger Paints India Ltd. V/s CIT (2004) 187 CTR 193 (SC),wherein it has been observed as under:- “9.In view of the judgments of this Court in Union ofIndia vs. Kaumudini Narayan Dalal (2001) 168 CTR(SC) 3 : (2001) 249 ITR 219 (SC), CIT vs. NarendraDoshi (2002) 174 CTR (SC) 411 : (2002) 254 ITR 606(SC) and CIT vs. Shivsagar Estate (2002) 177 CTR (SC)107 : (2002) 257 ITR 59 (SC), the principle establishedis that if the Revenue has not challenged thecorrectness of the law laid down by the High Court andhas accepted it in the case of one assessee, then it isnot open to the Revenue to challenge its correctness inthe case of other assessees, without just cause. The 5[th] judgment which has been relied on it in the case Berger Paints India Ltd. V/s CIT (2004) 187 CTR 193 (SC),wherein it has been observed as under:- “9.In view of the judgments of this Court in Union ofIndia vs. Kaumudini Narayan Dalal (2001) 168 CTR(SC) 3 : (2001) 249 ITR 219 (SC), CIT vs. NarendraDoshi (2002) 174 CTR (SC) 411 : (2002) 254 ITR 606(SC) and CIT vs. Shivsagar Estate (2002) 177 CTR (SC)107 : (2002) 257 ITR 59 (SC), the principle establishedis that if the Revenue has not challenged thecorrectness of the law laid down by the High Court andhas accepted it in the case of one assessee, then it isnot open to the Revenue to challenge its correctness inthe case of other assessees, without just cause. 11.The decision in Lakhanpal National Ltd’s case whichclearly laid down the interpretation of s. 43B wasfollowed by the judgments of the Madras High Courtand Bombay High Court and was again followed by thedecision of Special Bench of the Tribunal none of whichhave been challenged. In these circumstances, theprinciple laid down in Union of India vs. KaumudiniNarayan Dalal (supre), CIT vs. Narendra Doshi (supra)and CIT vs. Shivsagar Estate (supra) clearly applies.We see no ‘just cause’ as would justify departure fromthe principle. Hence, in our view the Revenue could nothave been allowed to challenge the principle laid downin Lakhanpal National Ltd’s case (supra) which wasfollowed by the IAC in the case of the assessee in thethree assessment years in question. We are, therefore,of the view that the CIT, the Tribunal and the CalcuttaHigh Court erred in permitting the Revenue to raise acontention contrary to what was laid down by theGujarat High Court in Lakhanpal National Ltd.’s case.This decision has been subsequently followed by thedecisions of the Bombay High Court in CIT vs. BharatPetroleum Corpn. Ltd. (supra) and the Madras HighCourt in Chemicals & Plastic India Ltd. vs. CIT (supra) as well as the decision of the Special Bench in IndianCommunication Network (P) ltd. vs. IAC (Supra), whichhave all remained unchallenged.” 19.He also drew our attention to Section 115J which reads as under:- “115J. (1) Notwithstanding anything contained inany other provision of this Act, where in the caseof an assessee being a company (other than acompany engaged in the business of generation ordistribution of electricity), the total income ascomputed under this Act in respect of any previousyear relevant to the assessement yearcommensing on or after the 1[st] day of April, 1988(but before the 1[st] day of April, 1991) (hereafter inthis section referred to as the relevant previousyear), is less than thirty per cent of its book profitthe total income of such assessee chargeable totax for the relevant previous year shall be deemedto be an amount equal to thirty per cent of suchbook profit. (1A) Every assessee, being acompany, sale, for the purposes of this section,prepare its profit and loss account for the relevantprevious year in accordance with the provisions ofPart-II and III of Schedule VI to the CompaniesAct, 1956. Explanation-- For the purposes of this section,“book profit” means the net profit as shown in theprofit and loss account for the relevant previousyear, as increased by-- (a) The amount of of income tax paid or payableand the provisions therefor, or (b) the amounts carried to any reserves (otherthan the reserves specified in Section 80HHD [orsub-section (1) of section 33AC])], by whatevername called; or (c) the amount or amounts set aside to provisionsmade for meeting liabilities, other than ascertainedliabilities; or (d) the amount by way of provision for losses ofsubsidiary companies; or (e) the amount or amounts of dividends paid orproposed; of (f) the amount or amounts of expenditure relatableto any income to which any of the provisions ofChapter-III [applies, or] Explanation-- For the purposes of this section,“book profit” means the net profit as shown in theprofit and loss account for the relevant previousyear, as increased by-- (a) The amount of of income tax paid or payableand the provisions therefor, or (b) the amounts carried to any reserves (otherthan the reserves specified in Section 80HHD [orsub-section (1) of section 33AC])], by whatevername called; or (c) the amount or amounts set aside to provisionsmade for meeting liabilities, other than ascertainedliabilities; or (d) the amount by way of provision for losses ofsubsidiary companies; or (e) the amount or amounts of dividends paid orproposed; of (f) the amount or amounts of expenditure relatableto any income to which any of the provisions ofChapter-III [applies, or] (g) the amount withdrawn form the reserveaccount under section 80 HHD, where it has beenutilized for any purpose other than those referredto in sub-section (4) of that section; or (h) the amount credited to the reserve accountunder section 80 HHD, to the extent that amounthas not been utilised within the period specified insub-section (4) of that section; (ha) the amount deemed to be the profits undersub-section (3) of section 33AC] [if any amount referred to in clauses (a) to (f) isdebited or, as the case may be, the amountreferred to in clauses (g) and (h) is not credited] tothe profit and loss account, and as reduced by,-- (h) the amount withdrawn from reserves [(otherthan the reserves specified in section 80HHD)] ofprovisions if any such amount is credited to the[profit and loss account: Provided that, where this section is applicable toan assessee in any previous year (including therelevant previous year), the amount withdrawnfrom reserves created or provisions made in aprevious year to the assessment year commencingof or after the 1[st] day of April, 1988 shall not bereduced form the book profit unless the book profitof such year has been increased by those reservesor provisions (out of which the said amount waswithdrawn) under this explanation; or] (ii) the amount of income to which any of theprovisions of Chapter III applies, if any suchamount is credited to the profit and loss account;or (iii) the amounts [as arrived at after increasing thenet profit by the amounts referred to in clauses (a)to (f) and reducing the net profit by the amountsreferred to in clauses (I) and (ii)] attributable tothe business the profits from which are eligible forreduction under section 80HHC or section 80HHD; so, however, that such amounts are computed inthe matter specified in sub section (3) or sub-section (3A) of Section 80HHC or sub-section (3)of section 80HHD as the case may be; or] (iv) the amount of the loss or the amount ofdepreciation which would be required to be set offagainst the profit of the relevant previous year asif the provisions of clause (b) of the first proviso tosub-section (1) of section 205 of the CompaniesAct, 1956 (1 of 1956), are applicable. (2) Nothing contained in sub-section (1) shall affectthe determination of the amounts in relation to therelevant previous year to be carried forward to thesubsequent year or years under the provisions ofsub-section (2) of section 32 or sub-section (3) ofsection 32A or clause (ii) of sub-section (1) orsection 72 or section 73 or Section 74 or sub-section (3) of section 74A or sub-section (3) ofsection 80J]” 20.In view of above, it is contended that the Tribunal has not committed any error. 21.We have heard counsel for parties. (2) Nothing contained in sub-section (1) shall affectthe determination of the amounts in relation to therelevant previous year to be carried forward to thesubsequent year or years under the provisions ofsub-section (2) of section 32 or sub-section (3) ofsection 32A or clause (ii) of sub-section (1) orsection 72 or section 73 or Section 74 or sub-section (3) of section 74A or sub-section (3) ofsection 80J]” 20.In view of above, it is contended that the Tribunal has not committed any error. 21.We have heard counsel for parties. 22.Taking into consideration, the FDR which was investedby the assessee was never the part of business, in that view of thematter, the income which has been earned in the FDR cannot beconsidered as part of the income of the business. In that view ofthe matter the contention raised by learned counsel for appellantthat Section 40(b)(v) of Explanation, the Tribunal and the CIThave seriously committed error and the view taken by the AOrequired to be allowed is not sustainable. It was never intention ofthe legislation to differentiate Section 40(b) falling under ChapterIV-D which income is to be considered as business income takinginto consideration the purpose of Section 115 J and granting benefit for initiation of the entries, it is investment of surplusfunds of the respondents which is not part of the business income.Therefore, the same proviso will not apply in the facts of the case. 23.Thus, the issue is answered in favour of departmentand against the assessee. 24.The appeals stand allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Chouhan/11-13