Ita/1703/2009 Of Kerala State Electricity Board v. Dy.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.J.CHELAMESWAR & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON FRIDAY, THE 12TH NOVEMBER 2010 / 21ST KARTHIKA 1932 I.T.A.No.1703 of 2009 ---------------------------------- AGAINST THE ORDER IN I.T.A.No.110 (Coch)/2006 DATED 03.04.2009 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN (ASSESSMENT YEAR 2002-03) .................... APPELLANT/RESPONDENT IN ITA:- ----------------------------------------------------- KERALA STATE ELECTRICITY BOARD, VYDYUTHI BHAVAN, PATTOM, THIRUVANANTHAPURAM. BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS RESPONDENT/APPELLANT IN ITA:- ------------------------------------------------------ DY. COMMISSIONER OF INCOME TAX, CIRCLE 1 (1) THIRUVANANTHAPURAM. BY STANDING COUNSEL FOR INCOME TAX SHRI.JOSE JOSEPH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01/11/2010, ALONG WITH I.T.A.NO.1710 OF 2009 AND CONNECTEDCASES, THE COURT 12/11/2010 DELIVERED THE FOLLOWING:- ORDER ON I.A.NO.834 of 2010 in I.T.A.No.1703 of 2009 DISMISSED. Sd/- J.CHELAMESWAR, CHIEF JUSTICE. 12/11/2010Sd/- P.R.RAMACHANDRA MENON, JUDGE. - TRUE COPY - J. CHELAMESWAR, C.J. & P.R. RAMACHANDRA MENON J. ------------------------------------------------------ I. T Appeal Nos. 1703 of 2009, 1710 of 2009,1716 of 2009 and 127 of 2010 ------------------------------------------------------Dated, this the 12[th] day of November, 2010 JUDGMENT J. Chelameswar, C.J. These four appeals under Section 260A of the Income Tax Act1961 are preferred by the Kerala State Electricity Board, a statutorycorporation constituted under Section 5 of the Electricity Supply Act 1948,aggrieved by the orders of the Income Tax Appellate Tribunal, CochinBench. The dispute pertains to four assessment years viz. 2002-03 to2005-06. The facts of the four appeals are similar; therefore, we statethe facts in I.T. Appeal No. 1703 of 2009 corresponding to theassessment year 2002-03. 2. For the said assessment year, the appellant filed return declaring the current loss at `411,56,63,704/-. The return wassubsequently revised and loss reduced to `203,81,27,595/-. Theassessment was made under Section 143 (3) of the Income Tax Act. Theassessing authority made substantial additions to the income return filedby the appellant and disallowed certain claims of the appellant. 3. It may be mentioned herein that the dispute revolvesmainly around certain amounts collected by the appellant, pursuant tothe statutory obligations created under Section 5 of the Kerala State Electricity Duty Act, 1963. Under Section 4* of the said Act, a duty islevied on the consumers of electricity specified in column (2) of theSchedule. Under Section 5**, the appellant is obliged to collect from ----------------------------------------------------------------------------------------------------------------- *Sec.4. Levy of electricity duty on consumers.- Every consumer belongingto any of the classes specified in column (2) of the Schedule shall pay every month tothe Government in the prescribed manner a duty calculated at the rate specifiedagainst that class in column (3) thereof: Provided that in cases where the supply of energy to a consumer is regulatedby an agreement entered into between the Government or the licensee and theconsumer it shall be competent for the Government either to reduce the rate at whichduty is leviable on such consumer or to exempt such consumer from payment of dutyunder this section subject to, such terms and conditions as may be imposed by theGovernment. ----------------------------------------------------------------------------------------------------------------- *Sec.4. Levy of electricity duty on consumers.- Every consumer belongingto any of the classes specified in column (2) of the Schedule shall pay every month tothe Government in the prescribed manner a duty calculated at the rate specifiedagainst that class in column (3) thereof: Provided that in cases where the supply of energy to a consumer is regulatedby an agreement entered into between the Government or the licensee and theconsumer it shall be competent for the Government either to reduce the rate at whichduty is leviable on such consumer or to exempt such consumer from payment of dutyunder this section subject to, such terms and conditions as may be imposed by theGovernment. **Sec.5. Collection and payment of electricity duty levied on consumers.-(1) Every licensee shall collect and pay to the Government at the time and in themanner prescribed, the electricity duty payable under Section 4 of this Act on the unitsof energy consumed by every consumer to whom energy is supplied by him. The dutyso payable shall be a first charge on the amounts recoverable by the licensee for theenergy consumed, and shall be a debt due by him to the Government. (2) When any consumer fails or neglects to pay at the time and in the mannerprescribed, the amount of electricity duty due from him, the licensee may, withoutprejudice to the right of the Government to recover the amount under Section 8, aftergiving not less than seven clear days' notice in writing to such consumer, cut off supplyof energy to such consumer; and he may, for that purpose, exercise the powerconferred on a licensee by sub-section (1) of Section 34 of the Indian Electricity Act,1910, for the recovery of any charge or sum due in respect of energy supplied by him. the consumer the above mentioned duty and pay to the Government atthe time and in the manner as prescribed by Rule. Further details of theScheme of the said Act may not be necessary for the purpose of decidingthis appeal. 4. It appears, for the assessment year 2002-03, the appellant collected an amount of `125,19,23,805/- from the variousconsumers (of the electricity supplied by the appellant) the duty payableunder Section 4 of the Kerala State Electricity Duty Act. But, the amountadmittedly remained in the hands of the appellant by the date ofassessment, though under Section 4, the amount is required to be paid tothe Government. It is the case of the appellant that under an agreementbetween the State of Kerala and the appellant, the appellant is entitled toretain 1% of the total amount collected from the consumer pursuant toSection 4 of the above mentioned Act to enable the appellant to meet theexpenditure involved in collecting the tax and the balance is liable to bepaid to the State. The learned counsel for the appellant submits that suchbalance amount is either actually paid to the Government or adjusted inthe accounts between the State and the appellant. The details of whichmay not be necessary for the purpose of the present appeal. 5. As already mentioned, the facts of each of the otherappeals are also similar, except the dates and amounts vary from year toyear. In view of the fact that the assessing authority made certainadditions to the income returned by the appellant and disallowed certain claims, the appellant carried the matter in appeals (aggrieved by the saidassessment orders) before the Commissioner of Income Tax,Thiruvananthapuram. The appeals were allowed. Aggrieved by suchappellate orders, the Revenue carried the matter before the Income TaxTribunal successfully. Hence the instant appeals by the assessee. 5. As already mentioned, the facts of each of the otherappeals are also similar, except the dates and amounts vary from year toyear. In view of the fact that the assessing authority made certainadditions to the income returned by the appellant and disallowed certain claims, the appellant carried the matter in appeals (aggrieved by the saidassessment orders) before the Commissioner of Income Tax,Thiruvananthapuram. The appeals were allowed. Aggrieved by suchappellate orders, the Revenue carried the matter before the Income TaxTribunal successfully. Hence the instant appeals by the assessee. 6. The legal controversy in this appeal (I.T. Appeal No. 1703of 2009) is as follows: (1) The assessing authority invoked the legal fictionunder Section 115JB of the Income Tax Act, which enables the revenue toarrive at fictitious conclusion regarding the total income of the assesseeand assess the tax on such total income. (2) The assessing authorityrelying upon Section 43B of the Income Tax Act, rejected the claim of theassessee that the amount collected by the assessee from the consumerunder Section 5 of the Electricity Duty Act, is not the income of theassessee and consequently not exigible to tax under the provisions of theIncome Tax Act. Though, the first appellate authority accepted thesubmission of the assessee on the above mentioned two questions of law,the Tribunal by the order under appeal confirmed the views of theassessing authority in rejecting the claim of the appellant. 7. The appellant is a statutory corporation constituted by thenotification of the State of Kerala, pursuant to the powers vested in it byvirtue of Section 5 of the Electricity Supply Act 1948. Section 12 of thesaid Act, declares that the appellant to be a body corporate havingperpetual succession and a common seal, with power to acquire and hold property both movable and immovable, capable of suing and being suedby the name specified in the notification issued under Section 5 of the saidAct. Section 80 of the Act, declares that the appellant shall be deemed tobe a company within the meaning of the Income Tax Act, 1922 andfurther declares that the appellant is liable to pay income tax and super-tax on its income, profits and gains. Section 80 reads as follows: “80. Provision relating to income tax and super-tax -- (1) For thepurposes of the Indian Income Tax Act, 1922 (11 of 1922), the Board shall bedeemed to be a company within the meaning of that Act and shall be liable toincome tax and super-tax accordingly on its income, profits and gains. (2) The State Government shall not be entitled to any refund of anysuch taxes paid by the Board”. The Income Tax Act, 1922 came to be repealed by Section 297(1) of theIncome Tax Act 1961. Therefore, by virtue of operation under Section 18of the General Clause Act, 1897, reference to Income Tax Act 1922 inSection 80 of the Electricity Supply Act shall be understood to be referenceto Income Tax Act 1961. 8. Section 4 Income Tax Act 1961 creates a charge of tax on the total income of every person. The expression “person” is definedunder Section 2(31) of as follows: “(31) “person” includes -- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not,or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses”.sub-clauses”. It can be seen from the said definition that it includes a company and every artificial juridical person along with others. The expression“company” itself is defined under Section 2 (17) as follows: “(17) “company” means -- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of country outside India, or the total income of every person. The expression “person” is definedunder Section 2(31) of as follows: “(31) “person” includes -- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not,or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses”.sub-clauses”. It can be seen from the said definition that it includes a company and every artificial juridical person along with others. The expression“company” itself is defined under Section 2 (17) as follows: “(17) “company” means -- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of country outside India, or (iii) any institution, association or body which is or wasassessable or was assessed as a company for any assessmentyear under the Indian Income-tax Act, 1922 (11 of 1922), or which isor was assessable or was assessed under this Act as a company forany assessment year commencing on or before the 1[st] day of April,1970, or (iv)any institution, association or body, whether incorporatedor not and whether Indian or non-Indian, which is declared bygeneral or special order of the Board to be a company: Provided that such institution, association or body shall be deemed to be a company only for such assessment year ofassessment years (whether commencing before the 1[st] day of April,1971, or on or after that date) as may be specified in thedeclaration;” The expression of “Indian Company” occurring in the above definition is itself under Section 2 (26) as follows: “(26) “Indian Company” means a company formed and registered under theCompanies Act, 1956 (1 of 1956) and includes -- (i) a company formed and registered under any law relating to companiesformerly in force in any part of Indian (other than the State of Jammu andKashmir [and the Union territories specified in sub-clause (iii) of this clause]); [(ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared by the Board to be acompany under clause (17);] (ii) in the case of the State of Jammu and Kashmir, a company formed andregistered under any law for the time being in force in that State; [(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa,Daman and Diu and Pondicherry, a company formed and registered under anylaw for the time being in force in that Union territory:] Provided that the [registered or, as the case may be, principal office of thecompany, corporation, institution, association or body] in all cases is in India”. 9. It can be seen from the above definitions; more particularly in Section 2(26) clause (ia) that the appellant answers descriptions of theexpression of an Indian Company and therefore a company within themeaning of Section 2(17). Admittedly the appellant was being assessedas a company under the provisions of the Income Tax Act 1922. Therefore, irrespective of the fact whether it is an Indian Company or notby virtue of the operations under clause 3 of Section 2(17), the appellantis a company for the purpose of Income Tax Act 1961. Even otherwise,as we have already noticed, since Section 80 of the Electricity Supply Act,makes a positive declaration that the appellant is a company for thepurpose of Income Tax Act, it is liable for the assessment under thevarious heads of tax, provided under the Income Tax Act from time totime. 10. The two questions of law which require an examination inthese appeals are - (i)whether Section 115 JB is applicable to the appellant herein; and (ii)whether Section 43B of the Income Tax Act is legally invocableon the facts and circumstances of the case. Therefore, irrespective of the fact whether it is an Indian Company or notby virtue of the operations under clause 3 of Section 2(17), the appellantis a company for the purpose of Income Tax Act 1961. Even otherwise,as we have already noticed, since Section 80 of the Electricity Supply Act,makes a positive declaration that the appellant is a company for thepurpose of Income Tax Act, it is liable for the assessment under thevarious heads of tax, provided under the Income Tax Act from time totime. 10. The two questions of law which require an examination inthese appeals are - (i)whether Section 115 JB is applicable to the appellant herein; and (ii)whether Section 43B of the Income Tax Act is legally invocableon the facts and circumstances of the case. 11. Before we examine the first question a brief survey of thehistory of Section 115JB is necessary. Chapter XII-B was inserted by theFinance Act of 1987 in the Income Tax Act. Section 115J was introducedfor the first time by the said Chapter. The relevant portion of the saidSection reads as follows: “S.115J. Special provisions relating to certain companies.- (1)Notwithstanding anything contained in any other provision of this Act, where in thecase of an assessee being a company (other than a company engaged in thebusiness of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment yearcommencing on or after the 1[st] day of April, 1988 but before the 1[st] day of April,1991 (hereafter in this section referred to as the relevant previous year), is lessthan thirty per cent of its book profit, the total income of such assessee chargeableto tax for the relevant previous year shall be deemed to be an amount equal tothirty per cent of such book profit. (1A) Every assessee, being a company, shall, for the purposes of thissection, prepare its profit and loss account for the relevant previous year inaccordance with the provisions of Parts II and III of Schedule VI to the CompaniesAct, 1956 (1 of 1956) Explanation.- For the purposes of this section, “book profit” means the net profit asshown in the profit and loss account for the relevant previous year prepared undersub-section (1A), as increased by - xxxxxxxxx if any amount referred to in clauses (a) to (f) is debited or, as the case maybe, the amount referred to in clauses (g) and (h) is not credited to the profit and lossaccount, and as reduced by, - It can be seen from clause (1) that the provision creates a legal fictionregarding the total income chargeable to tax. Such a fiction is applicableonly to those assessees which - (a) are Companies except the Companiesengaged in the business of either generation or distribution of electricity,(b) that such a fiction is made applicable to the Companies only withreference to the previous year relevant to the assessment yearcommencing after 1[st] April, 1988 and ending with the 1[st] April, 1991, (c) xxxxxxxxx if any amount referred to in clauses (a) to (f) is debited or, as the case maybe, the amount referred to in clauses (g) and (h) is not credited to the profit and lossaccount, and as reduced by, - It can be seen from clause (1) that the provision creates a legal fictionregarding the total income chargeable to tax. Such a fiction is applicableonly to those assessees which - (a) are Companies except the Companiesengaged in the business of either generation or distribution of electricity,(b) that such a fiction is made applicable to the Companies only withreference to the previous year relevant to the assessment yearcommencing after 1[st] April, 1988 and ending with the 1[st] April, 1991, (c) the “total income” of the Company as computed under the Act is less thanthirty per cent of its “book profit”. The fiction being that the total incomefor the purpose of assessment shall be deemed to be 30% of the bookprofit. In other words, the Section prescribes 30% of the book profits ofthose Companies falling within the purview of the Section shall be treatedas the total income of the Company for the purpose of income tax,irrespective of the fact that according to the accounts of the Company the“total income” is less than thirty per cent of the book profit. Theexpression “book profit” itself is explained in the Section as meaning,the net profit as shown in the profit and loss account for the relevantprevious year prepared as per the prescription under sub-section (1A) andeither increased or decreased by various amounts specified in the varioussubsequent sub-clauses appended to the Explanation, the details of whichare not necessary for the purpose of this case. However, the operation ofSection 115J came to an end with 1991-92 assessment year onwards. 12. Subsequently, Section 115JA came to be inserted in theIncome Tax Act by Finance Act 2 of 1996, with effect from 1.4.1997. Thescheme of Section 115JA is almost similar to the scheme of Section 115J.Two major points of difference are that the new Section is applicable withreference to the previous year relevant to the assessment yearcommencing from 1[st] April, 1997 and ending with 1[st] April, 2001.Secondly, the express exclusion of the Companies engaged in the businessof either generation or distribution of electricity is absent under Section 115JA. The third and most important change is that two provisos areadded to sub-section (2) stipulating that - “Provided that while preparing profit and loss account, the depreciationshall be calculated on the same method and rates which have been adopted forcalculating the depreciation for the purpose of preparing the profit and lossaccount laid before the company at its annual general meeting in accordancewith the provisions of section 210 of the Companies 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 is different fromthe previous year under the Act, the method and rates for calculation ordepreciation shall correspond to the method and rates which have been adoptedfor calculating the depreciation for such financial year or part of such financialyear falling within the relevant previous year”. The further details of Section 115JA may not be necessary for the presentpurpose. 13. Then came to Section 115JB, which was inserted in theIncome Tax Act by Finance Act of 2000 with effect from 1.4.2001. Therelevant portion as it stands today reads as follows:- “115JB. Special provision for payment of tax by certain companies.-(1) Notwithstanding anything contained in any other provision of this Act, where inthe case of an assessee, being a company, the income-tax, payable on the totalincome as computed under this Act in respect of any previous year relevant to the The further details of Section 115JA may not be necessary for the presentpurpose. 13. Then came to Section 115JB, which was inserted in theIncome Tax Act by Finance Act of 2000 with effect from 1.4.2001. Therelevant portion as it stands today reads as follows:- “115JB. Special provision for payment of tax by certain companies.-(1) Notwithstanding anything contained in any other provision of this Act, where inthe case of an assessee, being a company, the income-tax, payable on the totalincome as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1[st] day of April, 2007 is less than tenper cent of its book profit, such book profit shall be deemed to be the total incomeof the assessee and the tax payable by the assessee on such total income shall bethe amount of income-tax at the rate of ten per cent. (2) Every assessee, being a company shall for the purposes of this section,prepare its profit and loss account for the relevant previous year in accordance withthe provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of1956): Provided that while preparing the annual accounts including profit and lossaccount,- (i)the accounting policies; (ii)the accounting standards followed for preparing such accountsincluding profit and loss account; (iii)the method and rates adopted for calculating the depreciation shallbe the same as have been adopted for the purpose of preparing such accountsincluding profit and loss account and laid before the company at its annual generalmeeting 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 thefinancial year under the Companies Act, 1956 (1 of 1956), which is different fromthe previous year under this Act,- (i)the accounting policies; (ii)the accounting standards adopted for preparing such accountsincluding profit and loss account; (iii)the method and rates adopted for calculating the depreciation, shallcorrespond to the accounting policies, accounting standards and the method andrates for calculating the depreciation which have been adopted for preparing suchaccounts including profit and loss account for such financial year or part of suchfinancial year failing within the relevant previous year”. The scheme of the Section 115JB is similar to Section 115J and Section115JA. The difference in so far as it is relevant for the present purposebetween Section 115JB and its fore-runners (Sections 115J and 115 JA) isas follows: All the 3 Sections (Ss.115J, 115JA and 115JB) create legal fictionsregarding the 'total income' (a defined expression under Section 2(45)ofthe Act) of the Companies. While the earlier two sections mandate thedepartment to make the assessment on a fictitious amount of 'totalincome' where the actual amount of total income computed in accordancewith the I.T Act is less than 30% of the book profits of the Company,Section 115JB mandates the department to resort to the fiction in thosecases where the tax payableon the basis of the 'total income'computed in accordance with the I.T.Act is less than a specifiedpercentage (7½% for the years in issue) of the book profit. Further,Sections 115JA and 115JB also stipulate a definite manner of preparingthe annual accounts including the profit and loss accounts. Morespecifically, Section 115JB stipulates that the accounting policies,accounting standards, etc. shall be uniform both for the purpose of incometax as well as for the information statutorily required to be placed, beforethe annual general meeting conducted, in accordance with Section 210 ofthe Companies Act, 1956. 14. It may be mentioned here that under Section 166 of the 14. It may be mentioned here that under Section 166 of the Companies Act every Company is mandated to hold a general meeting ineach year. Section 210 mandates that every year the Board of Directors ofthe Company in the general meeting shall lay before the Company abalance sheet as at the end of the relevant period and also a profit andloss account for the period. Parts II and III of Schedule VI to theCompanies Act specify the method and manner of maintaining the profitand loss account. 15. However, the appellant though is by definition a Companyunder the Income Tax Act and deemed to be a Company for the purposeof Income Tax Act, (by virtue of the declaration under Section 80 of theElectricity Supply Act) it is not a Company for the purpose of CompaniesAct. Therefore, the appellant is not obliged to either to convene an annualgeneral meeting or place its profit and loss account in such generalmeeting. As a matter of fact, a general meeting contemplated underSection 166 of the Companies Act is not possible in the case of theappellant as there are no share holders for the appellant Board. On theother hand, under Section 69 of the Electricity Supply Act, the appellant isobliged to keep proper accounts, including the profit and loss account, andprepare an annual statement of accounts, balance sheet, etc. in such formas may be prescribed by the Central Government and notified in theofficial gazette. The prescription of the rules in this regard is required tobe made in consultation with the Comptroller and Auditor-General of India and also the State Governments. Such accounts of the appellant arerequired to be audited by the Comptroller and Auditor-General of India orsuch other person duly authorised by the Comptroller and Auditor-Generalof India. The accounts so prepared along with the audit report is requiredto be laid annually before the State Legislature and also to be published inthe prescribed manner and copies of such publication shall be madeavailable for sale at a reasonable price, obviously for the benefit of thegeneral public who wish to scrutinise the accounts. 16. Thus, it can be seen that coming to the maintenance ofthe accounts, the appellant though is deemed to be a “Company” - bothby virtue of operation of Section 80 of the Income Tax Act for the purposeof Income Tax Act and by virtue of the definition of the expression“Company” under the Income Tax Act (which is already examined earlier)- the appellant is required to keep and maintain its accounts in a mannerspecified by the Central Government, but not in the manner specified inthe Companies Act. Therefore, the question is whether the legal fictioncontemplated under Section 115JB can be pressed into service whilemaking the assessment of income tax payable by the appellant. 17. It must be remembered that Section 115JB creates a legalfiction regarding the total income of the assessees which are Companies.The book profit of the Company is deemed to be total income of theassessee in the circumstances specified in the said Section, which arealready noticed earlier. The expression “book profit” for the purpose of 17. It must be remembered that Section 115JB creates a legalfiction regarding the total income of the assessees which are Companies.The book profit of the Company is deemed to be total income of theassessee in the circumstances specified in the said Section, which arealready noticed earlier. The expression “book profit” for the purpose of the said Section is explained in the Section itself to mean the net profit asincreased or decreased by the various amounts shown in the varioussub-clauses of the Section. 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 profit and loss account of the Company is required tobe prepared in the manner specified therein. Though in view of therequirement under Section 69 of the Electricity Supply Act the appellant isrequired to maintain accounts in a different form than the onecontemplated under Section 115JB(2), the prescription under Section 69 isonly regarding the general duty of the appellant for the purpose ofElectricity Supply Act. Nothing in theory prevents the Parliament fromobligating the appellant to prepare another profit and loss account asprescribed under Section 115JB(2) for the purpose of the Income Tax Act.The question is whether such an obligation is created under Section 115JB(2) in so far as the appellant is concerned. In examining the said question,the legislative history and the mischief sought to be cured by theLegislature in making the special deeming provision, in our opinion, wouldbe relevant.18. Coming to the legislative history of Section 115JB and itsfore-runners - Sections 115J and 115JA - we have already noticed thatthey provided for the determination of the total income of the Companiesby a fictitious process. However, at the earliest point of time when such afictitious process is invented, i.e. when Section 115J was introduced, the Section expressly excluded from its operation bodies like the appellant.Coming to Section 115JA, though such express exclusion is absent, theCentral Board of Direct Taxes issued a Circular - No.762 dated 18[th]February 1998 - (which is binding on the Department, see K.P.Varghese v. I.T.O. [(1981) 131 ITR 597(SC)]* and RanadeyMicronutrients v. Collector of Central Excise [1996 (97) ELT 19 (SC)]excluding the bodies like the appellant from the operation of the saidSection. Though under the normal rules of interpretation of statutes theomission of a clause which existed in the statute at some point of time bya subsequent amendment would indicate that the legislature intended not --------------------------------------------------------------------------------* These two circulars of the CBDT are, as we shall presently point out, binding onthe tax department in administering or executing the provision enacted in sub-s.(2),but quite apart from their binding character, they are clearly in the nature ofcontemporanea expositio furnishing legitimate aid in the construction of sub-s.(2). The rule of construction by reference to contemporanea expositio is awell-established rule for interpreting a statute by reference to the exposition it hasreceived from contemporary authority, though it must give way where the languageof the statute is plain and unambiguous. This rule has been succinctly andfelicitously expressed in Crawford on Statutory Construction, 1940 Edn., whereit is stated in paragraph 219 that “administrative construction (i.e.,contemporaneous construction placed by administrative or executive officerscharged with executing a statute) generally should be clearly wrong before it isoverturned; such a construction, commonly referred to as practical construction,although non-controlling, is nevertheless entitled to considerable weight, it is highlypersuasive”. to give the benefit of such clause any more to those who were getting thebenefit of such exclusion clause, in our opinion, it is not an absoluterule. The other attendant circumstances, the context, the history and themischief sought to be remedied by the amendment are all required to beexamined before reaching at definite conclusion. 19. The Circular No.762 not only is binding on therespondents, but also explains the purpose in introducing Section 115JA.The relevant portion reads as follows:- “46.1In recent times, the number of zero-tax companies andcompanies paying marginal tax has grown. Studies have shown that in spite ofthe fact that companies have earned substantial book profits and have paidhandsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance Act has inserted a new section 115JA of theIncome-tax Act, so as to levy a minimum tax on companies who are havingbook profits and paying dividends but are not paying any taxes. The schemeenvisages the payment of a minimum tax by deeming 30 per cent of the bookprofits computed under the Companies Act, as taxable income, in a case wherethe total income as computed under the provisions of the Income-tax Act, isless than 30 per cent of the book profit. Where the total income as computedunder the normal provisions of the Income-tax Act, is more than 30 per cent ofthe book profit, tax shall be charged on the same. 46.3The effective minimum alternate tax, at the existing ratesof taxation works out to 12 percent of the book profits. 46.4Income arising from free trade zone (FTZ), exportoriented undertakings (EOUs), charitable activities, investment by a venture capital company and other exempted incomes (section 10) are excluded fromthe purview of the alternate tax. 46.5Since the alternate tax is applicable only where thenormal total income computed is less than 30 per cent of the book profits, solong as the enterprises (other than FTZ units and EOUs) earning income fromexport profits do not have their component of export income higher than 70 percent of the book profits, the provisions of section 115JA will not be attracted. Inother words, the MAT will apply only to such cases where export profits formingpart of book profits of an assessee exceed 7- per cent of the total profits. 46.6Companies engaged in the business of generationand distribution of power and those enterprises engaged in developing,maintaining and operating infrastructure facilities under sub-section (4A)of section 80--IA are exempted from the levy of MAT, so that the incentivegiven to infrastructure development is not affected”. It can be seen from the above that the legislature took note of the factthat a number of Companies paying marginal tax and also zero-tax hasgrown. Such Companies earned substantial book profits and paidhandsome dividends to the share holders without paying any tax to theexchequer. Such a result was achieved by such Companies by takingadvantage of the then existing legal position which permitted the adoptionof dual accounting policies and practices, one for the purpose ofcomputation of income tax and another for the purpose of determining thebook profits for the purpose of payment of dividends. Therefore, theamendment was made to plug the loophole in the law. However, the CBDT understood that Companies engaged in the business of generation anddistribution of electricity and Enterprises engaged in developing,maintaining and operating infrastructure facilities, as a matter of policy,are not brought within the purview of the amendment (Section 115JA) forthe reason that such a policy would promote the infrastructuraldevelopment of the country. Such an understanding of the CBDT is bindingon the department. 20. If that is the background in which Section 115JA is understood that Companies engaged in the business of generation anddistribution of electricity and Enterprises engaged in developing,maintaining and operating infrastructure facilities, as a matter of policy,are not brought within the purview of the amendment (Section 115JA) forthe reason that such a policy would promote the infrastructuraldevelopment of the country. Such an understanding of the CBDT is bindingon the department. 20. If that is the background in which Section 115JA is introduced into the Income Tax Act, Section 115JB, which is substantiallysimilar to Section 115JA, in our opinion, cannot have a different purposeand need not be interpreted in a manner different from the understandingof the CBDT of Section 115JA. 21. Another submission made by the learned counsel for theappellant is that in view of the judgment of the Supreme Court in C.I.T. v.B.C.Srinivasa Setty [(1981) 128 ITR 294 (SC)] and CIT v. Eli Lilly andCo. (India) P.Ltd. [(2009) 312 ITR 225 (SC)], where the computationprovision could not be applied in a particular case, it is indicative of thefact that the charging Section also would not apply. It was held inB.S.Srinivasa Setty's case (supra) as follows:- “Section 45 is a charging section. For the purpose of imposing the charge,Parliament has enacted detailed provisions in order to compute the profits orgains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactionsencompassed by s.45 must fall under the governance of its computationprovisions. A transaction to which those provisions cannot be applied must beregarded as never intended by s.45 to be the subject of the charge. This inferenceflows from the general arrangement of the provisions in the I.T.Act, where undereach head of income the charging provision is accompanied by a set of provisionsfor computing the income subject to that charge. The character of the computationprovisions in each case bears a relationship to the nature of the charge. Thus, thecharging section and the computation provisions together constitute an integratedcode. When there is a case to which the computation provisions cannot apply atall, it is evident that such a case was not intended to fall within the chargingsection. Otherwise, one would be driven to conclude that while a certain incomeseems to fall within the charging section there is no scheme of computation forquantifying it. The legislative pattern discernible in the Act is against such aconclusion. It must be borne in mind that the legislative intent is presumed to rununiformly through the entire conspectus of provisions pertaining to each head ofincome. No doubt there is a qualitative difference between the charging provisionand a computation provision. And ordinarily the operation of the chargingprovision cannot be affected by the construction of a particular computationprovision. But the question here is whether it is possible to apply the computationprovision. That pertains to the fundamental integrality of the statutory schemeprovided for each head”. In Eli Lilly and Co. (India) P.Ltd. case (supra) also, the apex Court has held as follows:- “On the question as to whether there is any inter-linking of the chargingprovisions and the machinery provisions under the 1961 Act, we may, at thevery outset, point out that in the case of CIT v. B.C.Srinivasa Setty reported in [1981] 128 ITR 294 this court has held that the charging section and thecomputation provisions together constitute an integrated code. When there is acase to which the computation provisions cannot apply at all, it is evident thatsuch a case was not intended to fall within the charging section”. In Eli Lilly and Co. (India) P.Ltd. case (supra) also, the apex Court has held as follows:- “On the question as to whether there is any inter-linking of the chargingprovisions and the machinery provisions under the 1961 Act, we may, at thevery outset, point out that in the case of CIT v. B.C.Srinivasa Setty reported in [1981] 128 ITR 294 this court has held that the charging section and thecomputation provisions together constitute an integrated code. When there is acase to which the computation provisions cannot apply at all, it is evident thatsuch a case was not intended to fall within the charging section”. 22. Another reason is that the appellant or bodies similar tothe appellant, which are totally owned by the Government - either State orCentral - have no share holders. Profit, if at all, made by the appellantwould be for the benefit of entire body politic of the State of Kerala. In thefinal analysis, all taxation is meant for the welfare of the people in aConstitutional Republic. Therefore the enquiry as to the mischief sought tobe remedied by the amendment becomes irrelevant. Therefore, we are ofthe opinion that the fiction fixed under Section 115JB cannot be pressedinto service against the appellant while making the assessment of the taxpayable under the Income Tax Act. 23. Coming to the next question of whether Section 43B of theAct was properly invoked, Section 28 of the Income Tax Act provides thatthe various kinds of income specified under the said Section arechargeable to income tax under the head “profits and gains of business orprofession”. Section 29 declares that - “The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D”. Section 43B in so far as it is relevant for our purpose reads as follows: “43B. Certain deductions to be only on actual payment.- Notwithstanding anything contained in any other provision of this -Act, a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessee by way of tax, duty, cess or fee, bywhatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way ofcontribution to any provident fund or superannuation fund or gratuity fund or anyother fund for the welfare of employees, or (c) any sum referred to in clause (ii) of sub-section (1) of section 36 or (d) any sum payable by the assessee as interest on any loan orborrowing from any public financial institution or a State financial corporation or aState industrial investment corporation, in accordance with the terms andconditions of the agreement governing such loan or borrowing or (e) any sum payable by the assessee as interest on any loan oradvances from a scheduled bank in accordance with the terms and conditions ofthe agreement governing such loan or advances or (f) any sum payable by the assessee as an employer in lieu of any leaveat the credit of his employee, shall be allowed (irrespective of the previous year in which the liability to paysuch sum was incurred by the assessee according to the method of accountingregularly employed by him) only in computing the income referred to in section28 of that previous year in which such sum is actually paid by him:” The scheme of the section, in so far as it is relevant for the present, is asfollows: (e) any sum payable by the assessee as interest on any loan oradvances from a scheduled bank in accordance with the terms and conditions ofthe agreement governing such loan or advances or (f) any sum payable by the assessee as an employer in lieu of any leaveat the credit of his employee, shall be allowed (irrespective of the previous year in which the liability to paysuch sum was incurred by the assessee according to the method of accountingregularly employed by him) only in computing the income referred to in section28 of that previous year in which such sum is actually paid by him:” The scheme of the section, in so far as it is relevant for the present, is asfollows: It recognises that different kinds of assessees are liable to payvarious kinds of imposts under various laws operating on such assesseesand other legal dues specified under clauses (1) to (4). It provides for thededuction of such amounts of imposts or specified legal dues whilecomputing the total income of such assessees, if such amountsrepresenting the imposts or other legal dues payable or otherwisedeductible under some provisions of the Act or other from the computationof the total income of the year in which such amounts are actually paid.Coming to the taxes or other imposts contemplated under clause (a) thequestion whether the amounts are taxes or other imposts contemplatedunder Section 43B(a) is required to be determined. The opening clause ofSection 43B - “Notwithstanding anything contained in any other provisionsof this Act, a deduction otherwise allowable under this Act” - isrel