Ita/573/2012 Of Commissioner Of Income Tax-Ii v. M/S Multiplex Capital Ltd

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 17.05.2013+ITA No.1181/2011 COMMISSIONER OF INCOME TAX - II.....Appellant versusM/S MBL & Co. LTD......RespondentAND+ITA No.573/2012COMMISSIONER OF INCOME TAX - II.....AppellantversusM/S MULTIPLEX CAPITAL LTD.......RespondentAdvocates who appeared in this case:For the Appellant: Mr N.P. Sahni, Sr. Standing Counsel.For the Respondent: Mr Salil Aggarwal, Mr Ajay Wadhwa and,Mr P.C. Yadav, Advocates. CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1.These are appeals filed by the revenue under Section 260A of the IncomeTax Act, 1961 (hereinafter referred to as the “said Act'') challenging the decisions of the Income Tax Appellate Tribunal. The Tribunal has held that rebateavailable to an assessee under Section 88E of the Act was liable to be adjustedfrom the tax as payable irrespective of whether the tax was computed under theprovisions of Section 115JB of the Act or under the normal provisions of the Act.Both the appeals raise a common question of law, which has been framed asunder:- “Whether the Income Tax Appellate Tribunal is correct inholding that for the purpose of Section 115JB of the Act rebateunder Section 88E of the Act cannot be taken into considerationor is not relevant/material?” 2.As the issue involved in both these appeals is similar they are beingdisposed of together. 3.In ITA No.573/2012, the assessee company is a member of the NationalStock Exchange and the Bombay Stock Exchange and is, inter-alia, engaged inthe business of dealing in shares and securities listed on the two StockExchanges. The assessee filed a return of income for the assessment year 2007-2008 declaring an income of ` 3,66,77,400/- which was calculated as per normalprovisions of the Act. The tax payable on such income was calculated at` 3,17,981/- under the Act. The assessee had during the year paid SecurityTransaction Tax amounting of ` 1,07,19,814/- and hence claimed a rebate as perthe provisions of Section 88E of the Act on that count. Accordingly, the net taxpayable was claimed to be Nil. The profit and loss account of the assesseedisclosed an income of ` 3,55,71,182/- and under the Minimum Alternative Taxscheme, the tax payable as per section 115JB of the Act was calculated at` 35,57,118/-. The assessee claimed that even if tax was computed under theprovisions of Section 115JB of the Act, no tax was payable as the assessee was entitled to claim a credit of ` 1,07,19,814/- under Section 88E of the Act beingthe Security Transaction Tax borne by the assessee. 4.The return filed by the assessee was taken up for scrutiny and theAssessing Officer framed an assessment calculating the tax on book profits underSection 115JB of the Act at ` 39,09,336/-. The Assessing Officer further declinedto admit any rebate under Section 88E of the Act as he was of the view thatrebate under Section 88E of the Act could only be claimed on the tax payable asper normal computation under the Act and this rebate was not available on the taxas computed under Section 115JB of the Act. entitled to claim a credit of ` 1,07,19,814/- under Section 88E of the Act beingthe Security Transaction Tax borne by the assessee. 4.The return filed by the assessee was taken up for scrutiny and theAssessing Officer framed an assessment calculating the tax on book profits underSection 115JB of the Act at ` 39,09,336/-. The Assessing Officer further declinedto admit any rebate under Section 88E of the Act as he was of the view thatrebate under Section 88E of the Act could only be claimed on the tax payable asper normal computation under the Act and this rebate was not available on the taxas computed under Section 115JB of the Act. 5.Aggrieved by the order of the Assessing Officer, the assessee filed anappeal before CIT(Appeals).The CIT(Appeals) passed an order dated25.06.2010, inter-alia, allowing the challenge preferred by the assessee withregard to the rebate under Section 88E of the Act. The CIT(Appeals) held that ataxing statute needs to be interpreted strictly and there was nothing in thelanguage of Section 88E of the Act that limited the availability of rebate only onthe tax as calculated under the normal provisions of the Act. The revenuepreferred an appeal before the Income Tax Appellate Tribunal. The Tribunal alsodid not accept the contention on behalf of the revenue that rebate under Section88E of the Act would not be available against the tax as computed under Section115JB of the Act.The Tribunal held that Section 87 of the Act did notdifferentiate between the total income computed under the regular provisions oras calculated under Section 115JB of the Act. Section 115JB only provides foran alternative method of calculating taxable income and tax payable thereon, inrespect of those assessee's who although they disclosed a book profit butnonetheless, either did not pay any tax or paid a low tax as their computation ofincome under the normal provision was either a loss or significantly lower thanthe disclosed book profits. 6.The facts in the case of ITA No.1181/2011 are similar. In this case also,the assessee is a member of the National Stock Exchange and the Bombay StockExchange and carries on the business of dealing in securities listed on the saidStock Exchanges. The assessee disclosed an income of ` 8,12,68,281/- as per thenormal computation provisions under the Act. The book profits of the assesseewere higher and the income liable to tax under the MAT scheme was disclosed as`8,17,58,465/-.TheassesseehadborneSecurityTransactionTaxof` 3,37,07,299/- whereas the tax payable under the normal computationalprovisions of the Act worked out to be ` 2,43,80,484/-. The tax payable in termsof Section 115JB of the Act was computed as ` 81,75,847/-. Since the SecurityTransaction Tax borne by the assessee exceeded the tax payable as computedunder the normal provisions of the Act as well as under Section 115JB of the Act,the assessee declared that it was not liable to pay any tax. The Assessing Officerpassed an Assessment Order dated 22.12.2009 for the relevant assessment year,2007-2008, holding that the rebate under Section 88E was not available to theassessee while determining the tax payable as computed under the provisions ofSection 115JB. An appeal was preferred by the assessee before CIT (Appeals)challenging the aforesaid view of the Assessing Officer, which was allowed bythe order dated 29.03.2010. The revenue preferred an appeal before the IncomeTax Appellate Tribunal. The Tribunal upheld the decision of the CIT (Appeals)and found that there was no basis for declining the rebate under Section 88E tothe assessee with respect to the tax computed under Section 115JB. 7.Before proceeding to consider the rival contentions, it is appropriate toquote the relevant provisions of the Act. Section 115JB, Section 87 and Section88E of the Act are quoted below:- ''115JB – Special provision for payment of tax certaincompanies - (1) Notwithstanding anything contained in any 7.Before proceeding to consider the rival contentions, it is appropriate toquote the relevant provisions of the Act. Section 115JB, Section 87 and Section88E of the Act are quoted below:- ''115JB – Special provision for payment of tax certaincompanies - (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee,being a company, the income-tax, payable on the total incomeas computed under this Act in respect of any previous yearrelevant to the assessment year commencing on or after the 1stday of April, 2007, is less than ten per cent of its book profit,[such book profit shall be deemed to be the total income of theassessee and the tax payable by the assessee on such totalincome shall be the amount of income-tax at the rate of ten percent].'' xxxxxxxxxxxxxxxxxxxx “87 - Rebate to be allowed in computing income-tax - (1) Incomputing the amount of income-tax on the total income of anassessee with which he is chargeable for any assessment year,there shall be allowed from the amount of income-tax (ascomputed before allowing the deductions under this Chapter),in accordance with and subject to the provisions of sections 88,88A, 88B, 88C, 88D and 88E, the deductions specified in thosesections. (2) The aggregate amount of the deductions under section 88 orsection 88A or section 88B or section 88C or section 88D orsection 88E shall not, in any case, exceed the amount ofincome-tax (as computed before allowing the deductions underthis Chapter) on the total income of the assessee with which heis chargeable for any assessment year.'' xxxxxxxxxxxxxxxxxxxx “88E – Rebate in respect of Securities Transaction Tax - (1)Where the total income of an assessee in a previous yearincludes any income, chargeable under the head “Profits andgains of business or profession”, arising from taxable securitiestransactions, he shall be entitled to a deduction, from theamount of income-tax on such income arising from suchtransactions,computedinthemannerprovidedinsub-section(2), of an amount equal to the securities transaction taxpaid by him in respect of the taxable securities transactions entered into in the course of his business during that previousyear: Provided that no deduction under this sub-section shall beallowed unless the assessee furnishes alongwith the return ofincome, evidence of payment of securities transaction tax in theprescribed form: Provided further that the amount of deduction under this sub-section shall not exceed the amount of income-tax on suchincome computed in the manner provided in sub-section (2). (2) For the purposes of sub-section (1), the amount of income-taxontheincomearisingfromthetaxablesecuritiestransactions, referred to in that sub-section, shall be equal to theamount calculated by applying the average rate of income-taxon such income. Explanation.—For the purposes of this section, the expressions,“taxable securities transaction” and “securities transaction tax”shall have the same meanings respectively assigned to themunder Chapter VII of the Finance (No. 2) Act, 2004.'' 8.Minimum Alternate Tax (MAT) scheme was introduced by insertingsection 115J in the Act by the Finance Act, 1987. The Finance Minister in hisspeech indicated the object of introducing the said scheme as under: ''It is only fair and proper that the prosperous should pay atleast some tax. the phenomenon of so-called ''zero tax'' highlyprofitable companies deserves attention. In 1983, a new section80VVA was inserted in the Act so that all profitable companiespay some tax. this does not seem to have helped and is beingwithdrawn. I now propose to introduce a provision wherebyevery company will have to pay a ''minimum corporate tax'' onthe profits declared by it in its own accounts. Under this newprovision, a company will pay tax on at least 30 percent of itsbook profit. In other words, a domestic widely held companywill pay tax of at least 15 percent of its book profit. Thismeasure will yield a revenue gain of approximately Rs 75crores.'' ''It is only fair and proper that the prosperous should pay atleast some tax. the phenomenon of so-called ''zero tax'' highlyprofitable companies deserves attention. In 1983, a new section80VVA was inserted in the Act so that all profitable companiespay some tax. this does not seem to have helped and is beingwithdrawn. I now propose to introduce a provision wherebyevery company will have to pay a ''minimum corporate tax'' onthe profits declared by it in its own accounts. Under this newprovision, a company will pay tax on at least 30 percent of itsbook profit. In other words, a domestic widely held companywill pay tax of at least 15 percent of its book profit. Thismeasure will yield a revenue gain of approximately Rs 75crores.'' The MAT scheme was improvised further and section 115JB was introduced inthe Act by the Finance Act, 2000 w.e.f. 01.04.2001. At the material time, the rateof MAT was prescribed at 7.5%. The purpose of introducing the MAT schemewas to tax profitable companies who otherwise were not liable to pay tax onaccount of various deductions and higher depreciation available to them incomputing the taxable income under the normal provisions of the Act. Theimport of Section 115JB of the Act is to provide an alternative method ofcomputation of tax by accepting the book profits as shown by the assessee, albeitwith certain adjustments as specified in Explanation 1 of Section 115JB (2) of theAct and levying tax on the same as alternative to the tax computed under theother provisions of the Act. Thus, in cases where assessee’s taxable income, ascomputed under various provisions of the Act, results in the tax payable thereonbeing lower than the tax as computed under Section 115JB, the tax under theminimum alternative tax scheme as contained in Section 115JB would bepayable. As held by the Supreme Court in the case of,Apollo Tyres Ltd. v.CIT:(2002) 255 ITR 273 (SC), the Assessing Officer while computing the taxpayable under Section 115J of the Act was not required to make any assessmentas to the profits of the assessee but was required to accept the audited finalaccounts and compute the tax at the rate specified. 9.It is also relevant to consider the scheme of the Act. Section 4 of the Actprovides for the basis of charge of Income Tax with respect to the total incomeand is the charging section. Section 5 of the Act provides for the scope of totalincome of a person. Chapter III of the Act provides for certain income and certainentities whose incomes are not liable to be included in the total income which iseligible to tax. Chapter IV of the Act provides for computation of income undervarious heads of income. Chapter V of the Act provides for income of thepersons which are to be clubbed while computing the income of an assessee. 9.It is also relevant to consider the scheme of the Act. Section 4 of the Actprovides for the basis of charge of Income Tax with respect to the total incomeand is the charging section. Section 5 of the Act provides for the scope of totalincome of a person. Chapter III of the Act provides for certain income and certainentities whose incomes are not liable to be included in the total income which iseligible to tax. Chapter IV of the Act provides for computation of income undervarious heads of income. Chapter V of the Act provides for income of thepersons which are to be clubbed while computing the income of an assessee. Chapter VI of the Act provides for the aggregation set off and carry forward oflosses.Chapters IV, V and VI of the Act thus provide for the machineryprovision for computing the total income of an assessee. Chapter VI A of the Actprovides for deduction which are allowable from the total income of an assesseeas computed under the Chapters IV, V and VI of the Act. The resulting income istaxable under the Act. The Act has other machinery provisions in aid forcomputing, collection and recovery of tax. Chapter VIII of the Act provides forrebate and reliefs in respect of tax payable by an assessee. It can be seen from thescheme of the Act that there are extensive machinery provisions for computing oftotal income of an assessee and the tax payable thereon. The tax as determined issubject to rebate as may be available under the Chapter VIIIA of the Act. Section87(1) of the Act provides that the rebate as available under Sections 88, 88A,88B, 88C, 88D and 88E will be allowed to an assessee in computing the incometax payable by him on the total income of the assessee. There is a cleardistinction in the scope of chapter VIIIA of the Act and other provisions whichspecify deductions that are available to an assessee in computing his totalincome. Whereas deductions allowed in computing the total income are a part ofthe machinery section to determine the total income of the assesse, the rebatesunder the Chapter VIIIA of the Act provide for certain deductions from the taxpayable as computed on the total income of an assessee. 10.Section115JBoftheActprovidesforcomputationmethodfordetermining the total income of an assessee as an alternative to the total incomeas computed under Chapters IV, V, VI, VIA of the Act and under otherprovisions of the Act. Section 115JB also specifies the rate at which tax ispayable on the income as determined under the said section. Section 88Eprovides for remission of tax to the extent of Securities Transaction Tax as paidby the assesse provided the condition specified therein is satisfied, namely, the 10.Section115JBoftheActprovidesforcomputationmethodfordetermining the total income of an assessee as an alternative to the total incomeas computed under Chapters IV, V, VI, VIA of the Act and under otherprovisions of the Act. Section 115JB also specifies the rate at which tax ispayable on the income as determined under the said section. Section 88Eprovides for remission of tax to the extent of Securities Transaction Tax as paidby the assesse provided the condition specified therein is satisfied, namely, the income of the assessee includes income chargeable under the head “Profits andgains of business or profession”, arising from taxable securities transactions, andthe assessee furnishes alongwith the return of income, evidence of payment ofsecurities transaction tax in the prescribed form. We find that there is no reasonwhy the remission in tax which is available under Section 88E of the Act to anassessee be not available on the tax as computed under the Minimum AlternativeTax scheme as both Section 115JB of the Act as well as the other provisions ofthe Act referred above have been enacted to provide the machinery for computingtotal income of an assessee which is exigible to income tax. The rebate underSection 88E of the Act provides for certain rebates available on the tax payableby an assessee. In our view, there would be no rationale to limit the plain wordsof Section 88E of the Act and hold that the rebate in payment of the tax is onlyapplicable to tax as determined under the normal provisions of the Act and notavailable with respect to minimum alternative tax as computed under Section115JB of the Act. The purpose of Section 88E of the Act is to grant an assessee,to a limited extent, credit in tax on account of Security Transaction Tax alreadyborne by him in respect of the business carried out by him in dealing in securities.This rebate would be equally applicable to tax as computed under Section 115JBof the Act as under the normal provisions of the Act. A division bench of theHigh Court of Karnataka has, in the case ofCommissioner of Income Tax v. M/sHorizon Capital Ltd.: ITA No.434/2010 decided on 24.10.2011, held that therebate under Section 88E of the Act would be available to tax as payable underSection 115JB of the Act. The relevant extract from the said judgment is quotedbelow:- 15.Under Section 88E, where the total income of anassessee in a previous year includes any income chargeableunder the head “Profits and gains of business of profession”,arising from taxable securities transactions, he shall be entitled toa deduction, from the amount of income-tax on such income arising from such transactions. Section also provides the limit towhich deductions shall be given. 16.Therefore, it is clear that the assessee is liable to paySecurities Transaction Tax when he enters into securitiestransaction.Tax is payable simultaneously after realizing theconsideration.However, if that transaction is included in thetotal income of the assessee where the total income is assessedeither under the provisions of the Act or under Section 115JBwhen tax chargeable on such income is arrived at, he is given thebenefit of tax deductions of the amount, which he has paid undersection 88E by virtue of Section 87. When under Section 82A,the assessee is made liable to pay tax with an assurance that itwill be deducted and 87 of the Act gives effect to such promisemade under the statute. That is the reason why the word used torebate. The amount paid is handed back to the assessee. In otherwords, payment of tax twice on the same income is avoided. 17.Therefore, the contention that this benefit is notavailable to the assessee whose total income is assessed underSection 115JB has no substance. In other words, when the totalincome is assessed and the tax chargeable is computed, it is fromthat tax which is chargeable, the tax paid under Section 88E isgiven deduction, by way of rebate, under Section 87 of the Act.This is the legislative intent. That is a promise to give deductionof the tax already paid. This is the mode in which tax alreadypaid is handed back at the time of final computation. Therefore,the judgment referred by the Tribunal is strictly in accordancewith law and does not suffer from any legal infirmity, whichcalled for interference. We do not see any substantial questionof law involved in this appeal, which merits admission. Theappeal is dismissed.'' 11.We are also of the view, and accordingly hold, that the Income TaxAppellate Tribunal was correct in holding that the provisions of Sections 87 and88E of the Act apply to the total income computed under Section 115JB of theAct and the assessee would be entitled to a deduction to the extent of the SecurityTransaction Tax borne by him during the course of business in the relevantprevious year. 12.The question framed in the present appeals is answered against therevenue and appeals are dismissed. No order as to cost. VIBHU BAKHRU, J BADAR DURREZ AHMED, JMAY 17, 2013MK