Itta/100/2003 Of Commissioner Of Income Tax(Central) v. Commissioner Of Income-Tax[[1]] ~~.~~

* HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A No.100 OF 2003 % 23.09.2014 Commissioner of Income Tax (Central), Andhra Pradesh, Hyderabad. ..... Appellant And M/s. Nagarjuna Fertilizers and Chemicals Ltd., Nagarjun Hills, Hyderabad. .....Respondent ! Counsel for the appellant: Sri S.R. Ashok ^ Counsel for respondent : Sri S. Ravi < Gist: Head Note: ? Cases referred: [1] 2002 (255) S.C 273 HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A No.100 OF 2003 JUDGMENT:-(Per Hon’ble Sri Justice L. Narasimha Reddy) This appeal preferred by the revenue presents an important question oflaw which in turn would unfold as and when the discussion progresses. The respondent is a company incorporated under the Companies Actand was submitting the returns year after year. The disparity between theprofits that are posted by a company in its annual report on the one hand andthose that are shown in the returns filed under the Income Tax Act, 1961 (forshort, ‘the Act’) was a matter of serious concern for the revenue. After makingseveral efforts to fill up the gap, the Parliament enacted Section 115JA of theAct. According to this provision, wherever the profits of the company as reflected in the returns are less than 30% of what is posted in the books ofaccount submitted as part of its obligation under the Company Act, the taxleviable would be 30% of the latter. Obviously for this reason, the profit andloss account which is part of annual report of a company becomes relevant. For the assessment year in its book profits, the respondent posted asum of Rs.4,28,17,995/-. This included a sum of Rs.3,81,48,960/- which issaid to be interest on inter corporate deposits for the four consecutiveprevious years i.e., 1985-86 to 1988-89. A note was appended to the returnswith a request to exclude the amount of Rs.3,81,48,960/- from assessment bystating that the said amount is referable to the earlier assessment years andhas also suffered tax. In his order dated 31.03.1993, the Assessing Officer didnot accept that plea. Thereupon, the respondent filedI.T.A.No.77/CC.III/CIT(A)III/93-94 before the Commissioner of Appeals-III,Hyderabad. The plea of the appellant was that once the amount has sufferedtax and its inclusion in the book profit was only for the purpose of reflecting thefinancial state of affairs, there was no basis to bring it under the purview of thetax once again under Section 115J of the Act. That was accepted and theCommissioner partly allowed the appeal by deleting the profits for theassessment years 1986-87 and 1987-88 on the ground that Section 115J ofthe Act was not in force at the relevant point of time. However, he did notallow such deduction for the assessment year 1988-89 and 1989-90. Therespondent filed I.T.A.No.570/Hyd/94 before the Hyderabad Bench of theIncome Tax Appellate Tribunal (for short, ‘the Tribunal’). Revenue also filedI.T.A.No.796/Hyd/94 feeling aggrieved by the deletion of the component ofinterest from the purview of Section 115J of the Act for the assessment years1986-87 and 1987-88. Through its common order dated 21.06.2002, theTribunal accepted the contention of the respondent for all the four years and tothat extent, it has set aside the order of the Assessing Officer. Hence, thisappeal by the revenue. Sri S.R. Ashok, learned Senior Counsel for the appellant submits thatwhatever may have been the justification for the Commissioner and theTribunal for excluding the interest for the assessment years 1986-87 and1987-88 on the ground that Section 115J of the Act was not on the statute Sri S.R. Ashok, learned Senior Counsel for the appellant submits thatwhatever may have been the justification for the Commissioner and theTribunal for excluding the interest for the assessment years 1986-87 and1987-88 on the ground that Section 115J of the Act was not on the statute book at the relevant point of time; there was absolutely no basis for it, to allowdeduction of amount for the assessment years 1988-89 and 1989-90. Hesubmits that once the respondent has reflected the amount in the book profit,referable to Section 115J of the Act, neither the department nor the assesseehas any option to ignore the same in the context of levying tax under thatprovision. He placed strong reliance upon the judgment of the Supreme Courtin Apollo Tyres Ltd. V. Commissioner of Income-tax[[1]]. The learned Senior Counsel further submits that just as an AssessingOfficer cannot probe into the correctness or otherwise of the facts and figurescontained in a profit and loss account submitted by a company as a part of itsobligation under the Companies Act, the assessee also cannot pick up an itemfrom such profit and loss account and seek exclusion thereof from the purviewof the tax. Sri S. Ravi, learned Senior Counsel for the respondent and SriPushyam Kiran, assisting him, submit that the amount of Rs.3,81,48,960/-constituted the interest on corporate deposits for four assessment years earlierto the assessment year in question and in respect of two such assessmentyears the provisions under Section 115J of the Act was not inexistence at allsince it came into effect, only from 1.4.1988. It is argued that even in respectof other two assessment years i.e., 1988-89 and 1989-90, there was absolutely no basis for the Assessing Officer to subject such amounts for taxtwice. since the amounts were subjected to tax in the correspondingassessment years. The learned counsel further submit that notwithstandingthe authenticity that is attached to the profit and loss account or the booksprofits that are reflected in the accounts that are prepared and submitted aspart of obligation under the Companies Act, the basic tenets such as that thesame amount cannot be brought under the tax twice cannot be ignored andthat the exercise to be undertaken by the Assessing Officer is contrary to theexplanation to Section 115J of the Act. Another contention of the learned counsel is that the ‘book profit’ referable to Section 115J of the Act takes in its fold only the income referableto the year, previous to the concerned assessment year and not any thing which has accrued to an assessee, much earlier, in point of time, particularly, an amount, that has suffered tax. According to the learned counsel, thejudgment in Apollo Tyres’ case (1 supra) does not operate as a bar for anassessee to plead the factum of the amount having been suffered to tax andthere is nothing in that judgment which prohibits the exercise in this behalf. The circumstances, in brief, that warranted the enactment of Section115J of the Act have already been taken note of. The provision reads as under: “115J. Special provisions relating to certain companies.- (1)Notwithstanding anything contained in any other provision of thisAct, where in the case of an assessee being a company (other thana company engaged in the business of generation or distribution ofelectricity), the total income, as computed under this Act in respectof any previous year relevant to the assessment year commencingon or after the 1st day of April, 1988 but before the 1st day of April,1991 (hereafter in this section referred to as the relevant previousyear), is less than thirty per cent of its book profit, the total income ofsuch assessee chargeable to tax for the relevant previous yearshall be deemed to be an amount equal to thirty per cent of suchbook profit. (1A) Every assessee, being a company, shall, for the purposes ofthis section, prepare its profit and loss account for the relevantprevious year in accordance with the provisions of Parts II and III ofSchedule VI to the Companies Act, 1956 (1 of 1956). (1A) Every assessee, being a company, shall, for the purposes ofthis section, prepare its profit and loss account for the relevantprevious year in accordance with the provisions of Parts II and III ofSchedule VI to the Companies Act, 1956 (1 of 1956). Explanation.—For the purposes of this section, “book profit” meansthe net profit as shown in the profit and loss account for the relevantprevious year prepared under sub-section (1A), as increased by— (a) the amount of income-tax paid or payable, and the provisiontherefore; or (b) the amounts carried to any reserves (other than the reservesspecified in section 80HHD or sub-section (1) of section 33AC), bywhatever name called; or (c) the amount or amounts set aside to provisions made for meetingliabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiarycompanies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income towhich any of the provisions of Chapter III applies; or (g) the amount withdrawn from the reserve account under section80HHD, where it has been utilised for any purpose other than thosereferred to in sub-section (4) of that section; or (h) the amount credited to the reserve account under section80HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section; (ha) the amount deemed to be the profits under sub-section (3) ofsection 33AC, if any amount referred to in clauses (a) to (f) is debited or, as thecase may be, the amount referred to in clauses (g) and (h) is notcredited to the profit and loss account, and as reduced by,— (i) the amount withdrawn from reserves (other than the reservesspecified in section 80HHD) or provisions, if any such amount iscredited to the profit and loss account : Provided that, where this section is applicable to an assessee in anyprevious year (including the relevant previous year), the amountwithdrawn from reserves created or provisions made in a previousyear relevant to the assessment year commencing on or after the1st day of April, 1988 shall not be reduced from the book profitunless the book profit of such year has been increased by thosereserves or provisions (out of which the said amount waswithdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of ChapterIII applies, if any such amount is credited to the profit and lossaccount; or (iii) the amounts as arrived at after increasing the net profit by theamounts referred to in clauses (a) to (f) and reducing the net profitby the amounts referred to in clauses (i) and (ii) attributable to thebusiness, the profits from which are eligible for deduction undersection 80HHC or section 80HHD; so, however, that such amountsare computed in the manner 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 of depreciation whichwould be required to be set off against the profit of the relevantprevious year as if the provisions of clause (b) of the first proviso tosub-section (1) of section 205 of the Companies Act, 1956 (1 of1956), are applicable. (2) Nothing contained in sub-section (1) shall affect thedetermination of the amounts in relation to the relevant previousyear to be carried forward to the subsequent year or years under theprovisions of sub-section (2) of section 32 or sub-section (3) ofsection 32A or clause (ii) of sub-section (1) of section 72 or section73 or section 74 or sub-section (3) of section 74A or sub-section (3)of section 80J. (iv) the amount of the loss or the amount of depreciation whichwould be required to be set off against the profit of the relevantprevious year as if the provisions of clause (b) of the first proviso tosub-section (1) of section 205 of the Companies Act, 1956 (1 of1956), are applicable. (2) Nothing contained in sub-section (1) shall affect thedetermination of the amounts in relation to the relevant previousyear to be carried forward to the subsequent year or years under theprovisions of sub-section (2) of section 32 or sub-section (3) ofsection 32A or clause (ii) of sub-section (1) of section 72 or section73 or section 74 or sub-section (3) of section 74A or sub-section (3)of section 80J. We felt it necessary to extract the entire provision to understand theconcept of book profit, adopted for the purpose of that Section. From aperusal of the explanation, it becomes clear that notwithstanding the freedomgiven to an assessee to state its book profit in its annual report submitted aspart of its obligation under the Companies Act; he is kept under obligation tobe truthful. The book profit is liable to be increased or decreased, depending upon the factors that are mentioned in the explanation. One central theme thatruns across all through, is that the profit and loss shall be with reference to therelevant previous year, as is evident from the following expression occurring inexplanation: “profit and loss account for the relevant previous year”. In its profit and loss account, referable to Section 115J of the Act, therespondent reflected the book profit of Rs.4,28,17,995/-. In page No.26 of itsbalance sheet which is part of 14[th] annual report for the year 1989-90, therespondent stated as under: “Interest on inter corporate deposits in respect of earlieryears after profit and loss account is Rs.3,81,48,960/-.” In the note on account that are mentioned in the schedule-12, the following explanation is furnished with reference to the said amount: “15. Pursuant to the change in the accounting policy of theCompany, interest income on inter Corporate Depositsamounting to Rs.400.90 lakhs including Rs.381.49 lakhspertaining to earlier years, which was hitherto netted off from‘Expenditure During Construction Pending Allocation’ has nowbeen credited to interest income in the Profit and LossAccount. Consequent to this change in the accounting policyas compared to earlier years, the profit for the year is higher byRs.400.90 lakhs and Reserves and Surplus and ExpenditureDuring Construction Pending Allocation are higher byRs.400.90 lakhs.” It is on the basis of this, that the respondent claimed deduction of sumof Rs.3,81,48,960/- from the book profits. The Assessing officer, however, didnot agree. The fact that these very amounts have been subjected to tax in theearlier assessment years was agreed to, even by the Assessing Officer. Thesame is evident from the following paragraph. “2. Pursuant to Note No.5 of Notes to accounts interest on intercorporate deposits pertaining to the financial years ended31.3.86; 31.3.88 and 31.3.89 corresponding to the Assessmentyears 1986-87, 87-88, 88-89 and 89-90 aggregating to Rs.3,81,48,960 has been credited to the profit and loss accountfor the assessment year 90-91. The assessing officer at the time of making assessment for the above said assessment years hasnot considered the claim of the company and has included theabove sum for assessment purposes. Since this amount hasalready been assessed by way of regular assessment u/s.143(3)the same is not considered in the computation statement to arriveat the taxable income/loss for the year under assessment.” The only basis for him to disallow the deduction was that the saidamount was not reflected under Section 115J of the Act at any point of timeand once they are reflected in the current assessment year, there is no way, that the amount can be ignored. of making assessment for the above said assessment years hasnot considered the claim of the company and has included theabove sum for assessment purposes. Since this amount hasalready been assessed by way of regular assessment u/s.143(3)the same is not considered in the computation statement to arriveat the taxable income/loss for the year under assessment.” The only basis for him to disallow the deduction was that the saidamount was not reflected under Section 115J of the Act at any point of timeand once they are reflected in the current assessment year, there is no way, that the amount can be ignored. The plea of the appellant that once the amount, representing theinterest on corporate deposit for the four years has been subjected to tax, thatcannot be brought under the purview of the tax either directly or indirectly, didweigh only in part with the Commissioner. The yardstick adopted by him wasthat for the two years 1986-87 and 1987-88, Section 115J of the Act was noton the statute book and as such, the interest on corporate deposits for thosetwo assessment years cannot be the subject matter of the assessment year1994-95. As regards the other two subsequent assessment years, he took theview that as the interest for the two years not having been reflected in the bookprofits under Section 115J of the Act, they are liable to be brought under thepurview of tax, for the current assessment year. In the appeals preferred bythe appellant as well as the respondent, the Tribunal was impressed by thefact that the amount for the subsequent two years also has been subjected totax, earlier. At more places than one, it emphasised this. In the course of itsdiscussion, the Tribunal took the assistance of precedents and observed asunder: “It is the fundamental rule of law on taxation that unless otherwiseexpressly provided, income cannot be taxed twice. LaxmipatSinghania v. CIT (72 ITR 291) (SC) Taxing Statute should not beinterpreted in such a manner that its effect will be to cast a burdentwice over the payment of tax on the taxpayer unless the language of the statute is so compellingly certain that the courthas no other alternative than to accept it. (Tata Steel & Iron Co.,v. Union of India 75 ITR 676). In other words, there can be doubletaxation if the legislature has distinctly enacted it. A plan readingof Section 115J does not, to our mind, employ the languageexpressly or impliedly to subject to tax the same item of income twice. Though there is no specific provision u/s.115J fordeducting income that has been taxed in the earlier year, thoughcredited to profit and loss account in a subsequent year whilecomputing the book profits liable to tax, the proposition laid downby the special bench of the Tribunal in the case of Sutlej CottonMills Propounds such a theory. The general concept of taxationdoes not allow the taxation of income twice.” It is on this basis, that the Tribunal excluded the interest on corporatedeposits, for all the four years. The principal contention urged by the learned Senior Counsel for thedepartment is that the facts and figures furnished in the profit and loss accountby a company as a part of its obligation under the Companies Act which in turnreferable under Section 115J of the Act are to be taken on their face value; andjust as the department is precluded from analysing or correcting them, theassessee also cannot be permitted to ignore any component mentionedtherein. There cannot not be any quarrel with this proposition. The judgmentof the Supreme Court in Apollo Tyres’s (1 supra) is to the effect that the profitand loss account referable to Section 115J of the Act is subjected to severalverifications under the mechanism of the Companies Act and the same cannotbe the subject matter of scrutiny by the Income Tax Assessing Officer. Evenwhile conceding inviolability the profit and loss accounts of a company, theirLordships kept intact the freedom of Assessing Officer to undertake scrutiny with reference to explanation. The relevant portion reads as under: with reference to explanation. The relevant portion reads as under: “There cannot be two incomes one for the purpose of theCompanies Act and another for the purpose of income-taxboth maintained under the Company’s income, then itwould have stated in Section 115J that “income of thecompany as accepted by the Assessing Officer”. In theabsence of the same and on the language of section 115J,it will have to held that view taken by the Tribunal is correctand the High Court has erred in reversing the said view ofthe Tribunal.” Two aspects becomes relevant in this regard. The first is whether theinterest on corporate deposits of the respondent that is mentioned in the profitand loss account for the assessment year 1994-95 can be treated as the one“for the relevant previous year” which expression occurs at more places thanone in Section 115J of the Act”. Even the Assessing Officer did not doubt the plea of the respondent that the amount is referable to four assessment yearsand the corresponding break up was also given. The reason for which therespondent has shown the interest referable to four earlier years in the profitsand loss of account for the assessment year 1994-95 are not immediatelybefore us. However, on the undisputed facts, those figures cannot be said tobe the income or book profit “for the relevant previous year”. Secondly, one of the cardinal principles of taxation is that no amountshall be brought under the purview of the taxation, unless there is specificlegislative sanction for it. If one takes into account the complex andcomplicated scheme under the Act, it is evident that the Parliament has takenevery precaution to ensure that no amount is subjected to taxation twice,unless the relevant provision specifically permits of it. There is nothing in theAct which permits the interest on corporate deposits, to be taxed twice. From a perusal of the order of the Assessing Officer, it becomes clearthat for their own reasons, the respondent did not want to reflect the income oncorporate deposits for the four years mentioned above, in any form whatever. However, the Assessing Officers who dealt with the returns for thecorresponding years, did bring those interests directly under the purview of thetax and the tax was levied. Though the facility to bring those very amountsunder Section 115J of the Act was available for two assessment years 1988-89 and 1989-90, that was not resorted to, obviously because an AssessingOfficer is precluded from making any additions, deletions, or alterations to theprofit and loss account, referable to Section 115J of the Act. The reason is thatit is only the authorities under the Companies Act that are conferred with thepower to scrutinise such accounts. Therefore, a straight forward way ofbringing those amounts under tax was adopted and tax was levied. With thatthe said amounts are no longer available to be dealt with under the Act in anyform whatever. Therefore, the mere inclusion of those amounts in the profit and lossaccount referable to under Section 115J of the Act for the assessment year1994-95 did not make much of difference from the point of view of income tax. Bringing those amounts to tax once again, may be, under Section 115J of the Act could have resulted in anomaly if not absurdity. It is too well known that noprovision can be understood or interpreted in such a way as to lead an absurdor anomalous situation. This principle gets attracted with added vigour, whena situation is brought about, by operation of two different enactments. Though the judgment of the Supreme Court in Apollo Tyres’s case (1supra) was not in existence when the matter was decided by theCommissioner or the Tribunal, we do not find any thing in the orders passedby them which runs contrary to the principle laid down by the Supreme Court,therein. We do not find any force in the appeal. The appeal is accordingly dismissed. Miscellaneous Petitions, if any,pending in this appeal shall stand disposed of. There shall be no order as tocosts. _____________________________ Though the judgment of the Supreme Court in Apollo Tyres’s case (1supra) was not in existence when the matter was decided by theCommissioner or the Tribunal, we do not find any thing in the orders passedby them which runs contrary to the principle laid down by the Supreme Court,therein. We do not find any force in the appeal. The appeal is accordingly dismissed. Miscellaneous Petitions, if any,pending in this appeal shall stand disposed of. There shall be no order as tocosts. _____________________________ L. NARASIMHA REDDY, J ____________________________ CHALLA KODANDA RAM, J Date:23.09.2014Note:L.R copy to be marked.Ks/gk HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM ks/gk [1]2002 (255) S.C 273 I.T.T.A No.100 OF 2003 Date:23.09.2014