Itxa/28/2013 Of The Commissioner Of Income Tax - 2 v. M/S. Tata Petrodyne Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 28 OF 2013 The Commissioner of Income Tax-2..Appellant -Versus-M/s. Tata Petrodyne Ltd.. ..Respondent ........... Mr. Suresh Kumar for the Appellant. Mr. Dinesh Vyas, Senior Advocate, i/b. Srihari M. Iyer for the Respondent............ CORAM: S.C. DHARMADHIKARIAND A.A. SAYED, JJ. DATE :- 19[th] DECEMBER, 2014 P.C.: This Appeal by the Revenue challenges the judgment and order passed by the Income Tax Appellate Tribunal, Bench at Mumbai, dated 29[th] June, 2012 in Income Tax Appeal No.5108/Del/2004. The assessment year is 2001-02. Mr. Suresh Kumar, learned counsel, appearing in support of this Appeal invites our attention to the questions at page 4 of the paper book. He submits that all these questions which have been formulated by the Revenue are substantial questions of law and the Appeal, therefore, deserves to be admitted. 1/12 2]Mr. Suresh Kumar submits that the Assessee filed a return of income declaring NIL income. That was processed under section 143(1) of the Income Tax Act, 1961(for short I.T. Act). During the assessment proceedings, the Assessing Officer, inter alia, disallowed certain amount. That was towards foreign exchange loss, set off of brought forward losses under section 79 of the Income Tax Act. He also computed the book profit at Rs.16,45,76,748/- under section 115JB of the Income Tax Act. The order of assessment was passed on 19[th] March, 2004. 3]The Assessee preferred an Appeal to the Commissioner of Income Tax (Appeals) and which has been partly allowed. The Assessee preferred a further Appeal before the Income Tax Appellate Tribunal. Mr. Suresh Kumar submits that the Tribunal erred in law in allowing the set off of brought forward losses and by holding that the Assessee Company was deemed to be a company in which public is substantially interested. It is this finding and conclusion which enabled the Tribunal to eventually hold that section 79 of the Income Tax Act is not applicable. However, the Assessee is a private company and it cannot be held to be one in which the public is substantially interested. Elaborating this submission by relying on the ground in the memo of Appeal, Mr. Suresh Kumar submits that the other question in relation to section 115JB is also a substantial question of 3 901.itxa28.13.doc law. The book profit will have to be reduced by the unabsorbed depreciation or brought forward losses. Mr. Suresh Kumar submits that this depreciation will not include the amount of depletion of producing assets. 4]Mr. Suresh Kumar, therefore, submits that the Appeal be admitted. He has taken us through the order of the Assessment Officer and the relevant part of the Commissioner's order. 5]On the other hand, Mr. Vyas, learned Senior Counsel, appearing on behalf of the Assessee submits that somewhat identical question was decided by this Court in Income Tax Appeal No.1322 of 2012. He relies upon our order dated 20[th] November, 2014. He submits that in this order the Division Bench held that the activity of the Assessee therein(namely, the Respondent herein) is similar to that of Hindustan Oil Exploration Co.Ltd. There, in relation to similar activity this Court had decided that the same falls within the definition of the term “production”. Secondly, he also relies upon a finding which has been rendered by this Court in that very order. He had also relied upon the guidance note on accounting for oil and gas producing activities issued by the Council of the Institute of Chartered Accountants of India. He relies upon section 211(3A) of the 4 901.itxa28.13.doc 4 901.itxa28.13.doc Indian Companies Act, 1956. The reliance is also placed upon a judgment of the Hon'ble Supreme Court in the case of M. Rajamoni Amma and Another V/s. Deputy Commissioner of Income Tax (Assessment) and Others reported in (1992) 195 ITR 873. Mr. Vyas has also placed reliance upon the similar controversy which was decided and in relation to M/s. Tata Industries Limited. He submits that throughout the Revenue itself has been terming this company as one in which public is substantially interested. For all these reasons, he submits that the findings recorded by the Tribunal do not raise any substantial question of law. 6]With the assistance of the learned counsel appearing for both sides, we have perused the memo of Appeal and the Annexures thereto. In relation to question No.1, the Assessing Officer and the Commissioner noted that the argument that the Assessee is a deemed public company and, therefore, falls within section 2(18)(b)(B)(c) of the Act, is not correct. The Legislature has deliberately included Companies registered under section 25 of the Companies Act in the list of companies in which public are substantially interested and excluded the deemed companies under section 43A of the Act. The company falling under section 43A of the Indian Companies Act, 1956 cannot be treated as company in which public is substantially interested. He relied upon the voting power as on 4/12 5 901.itxa28.13.doc the last day of the year to which losses pertain and the year in which claim of carry forward and set off of losses has been made. He concluded that the voting power has changed more than 51% and, therefore, the Appellant will not be entitled to the benefit of carry forward and set off of losses. He, therefore, upheld the order of the Assessing Officer. 7]In relation to this question, the Tribunal firstly reproduced section 2(18)(b)(B)(c) of the Act in para 19 of its order, thereafter, it referred to the share holding pattern of the Assessee. 8]It, then, concluded that the chart shows that shares of Tata Industries Limited have been transferred to Tata Power Co. Ltd. Both Tata Industries Limited and Tata Power Co. Ltd. are companies in which public is substantially interested. The shares of these companies are traded in the stock exchange. It, therefore, accepted the argument of the Assessee's counsel that the facts of the present case are covered by the provision, namely, the definition of the term “a company in which public is substantially interested.” 9]We have perused that definition in the Income Tax Act, 1961. Firstly, such a company should not be a private company as defined in the 6 901.itxa28.13.doc Indian Companies Act, 1956. Secondly, the conditions specified in item (A) or item (B) are fulfilled. In the present case, item (B) was invoked because in the Assessee company the voting power has been unconditionally acquired and to the extent indicated in item (B) by a company to which the clause applies or any subsidiary of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. After perusal of the share holding pattern, the Tribunal concluded that the shares of Tata Industries Limited have been transferred to Tata Power Co. Ltd. It may be that, now, the voting power under section 2(18)(b) is acquired by the Tata Power Co. Ltd. but once that company falls within the definition of the term “a company in which public are substantially interested”, then, the Tribunal's conclusion cannot be faulted. 10]There is material on record to indicate that as to how Tata Industries Limited and Tata Power Co. Ltd. have been treated by the Department/Revenue as companies in which public are substantially interested. 10]There is material on record to indicate that as to how Tata Industries Limited and Tata Power Co. Ltd. have been treated by the Department/Revenue as companies in which public are substantially interested. 11]The reliance placed on the judgment of the Hon'ble Supreme Court in the case of M. Rajamoni Amma and Another V/s. Deputy Commissioner 7 901.itxa28.13.doc of Income Tax (Assessment) and Others (supra) would indicate that the Hon'ble Supreme Court was considering the ambit and scope of section 43A of the Indian Companies Act, 1956 and for the purposes of satisfying the conditions stipulated therein. Particularly, after the amendment to this provisions by Act 31 of 1988 and by Act 51 of 2000. Be that as it may, that the Hon'ble Supreme Court rendered its decision in 1992 when section 43A came to be amended by Act 31 of 1988 and prior thereto by Act 41 of 1974. However, the Hon'ble Supreme Court was concerned with a situation where the Directors/Appellants before the Hon'ble Supreme Court were on the Board of a company known as M/s. Rajmohan Cashews Ltd. The assessment was completed and a demand was raised of Rs.56,00,000/-. The amount was not paid for various reasons. The Directors were held responsible and liable to pay the tax due in view of provisions of Section 179 of the Income Tax Act, 1961. This order was challenged but the Appellants/Directors could not succeed. At no stage, a point was raised that the company was not a private limited company and, therefore, provisions under section 179 of the Income Tax Act were unjustified. However, subsequently this objection was raised but it was rejected by the Commissioner of Income Tax. The Writ Petitions were filed before the High Court and they came to be dismissed. The letter was produced that the company has become a public limited 7/12 8 901.itxa28.13.doc company by virtue of section 43A of (1A) of the Companies Act with effect from 1[st] October, 1975. This letter was dated 26[th] February, 1977 but no copy or record of this letter was found in the office of the Registrar of Companies and, therefore, the Writ Petition came to be dismissed by holding that this was a fabricated document. We are not concerned as much with the facts before the Hon'ble Supreme Court but what is material for our purposes that after the Registrar of companies disclosed that the letter relied upon by the Appellants was in its file that the Hon'ble Supreme Court held that being a public limited company the proceedings against the Directors for recovery of the tax due cannot be taken and certainly cannot be proceeded with. Before us the situation is that if the Assessee answers the definition in the Income Tax Act, 1961 which we have referred and in detail above, then, no reliance can be placed on section 79 of the Income Tax Act. Section 79 provides for carry forward and set off losses in case of certain companies. That refers to a change in the share holding pattern taking place in a previous year in the case of a company, not being a company in which the public are substantially interested. Therefore, the prohibition which is carved out by this section becomes applicable. Obviously, therefore, if it is a company in which public are substantially interested, applicability of section 79 is ruled out. In the present case, we are not concerned with the section 43A of the 8/12 9 901.itxa28.13.doc 9 901.itxa28.13.doc Indian Companies Act. So long as the record indicated, the share holding pattern and the details which are set out at para 20 of the Tribunal's order which was undisputed, then, the Tribunal was justified in directing the Assessing Officer to allow the claim of brought forward losses. We do not see any substantial question of law arising for determination and consideration in this Appeal. Once the factual position and emerging from the record is noticed, then, the Assessee satisfies the condition stipulated and specified in section 2(18). The first question, therefore, cannot be termed as a substantial question of law. 12]As far as the second question is concerned, that is also arising out of the same issue as noted above. We do not see how the question Nos.2 and 3 can be termed as substantial questions of law and once we have taken the above view. 13]In relation to question No.4 we find that reliance placed by Mr. Vyas on the observations made by us in the case of this very Assessee in Income Tax Appeal No.1322 of 2012 is well placed. In para 7 of the order passed in that Appeal an identical argument was noticed. If there is an explanation given by the Assessee and which is in accordance with the view taken and guidelines issued by the Institute of Chartered 9/12 Accountants of India (ICAI), then, the Tribunal's conclusion can be held to be justified. 14]In the present case, the Assessee specifically argued that the Profit and Loss Account and balance sheet of the company has been prepared and maintained in terms of section 211(3A) and section 211(3C) of the Indian Companies Act, 1956. The accounting standards which have been issued by the ICAI are applied and followed. The depletion on producing properties has been calculated as per the guidance Note on accounting of oil and gas producing activities issued by the ICAI. Mr. Suresh Kumar could not dispute that these accounting standards and the guidelines were specifically relied upon before the Commissioner (Appeals). The reliance thereon is to be found in para 10.1 of his order. However, he still proceeds to uphold the order passed by the Assessing Officer. While correcting the Commissioner on this count, the Tribunal notes the argument of both sides. From para 25 onwards, it refers to the contention and particularly whether the Assessee can claim depletion of producing properties as “depreciation”. The Tribunal refers to the notes of computation. Mr. Suresh Kumar would only rely upon the computation to support the order of the Assessing Officer. However, the Assessee may have in the note made a particular statement but once section 115JB of 10/12 11 901.itxa28.13.doc 10/12 11 901.itxa28.13.doc the Income Tax Act was noticed by the Tribunal, then, it rightly referred to the obligation of the Assessee to tax the book profit after taking credit of brought forward business loss or unabsorbed depreciation whichever is less as per books of account. The Assessee had to prepare a Profit and Loss Account for the relevant previous year in accordance with Part-II and Part-III of Schedule VI to the Indian Companies Act, 1956. Since, the Tribunal found that the guidance can be taken from the Notes of accounting standards issued by the ICAI on depreciation accounting and we have held that such a course was permissible, then, the Tribunal was justified in referring to para 4 of this guidance Note and thereafter relying upon it. Once the guidance Note indicates that depreciation also includes the depletion of natural resources through the process of extraction or use, then, the Tribunal was justified in eventually directing that the Assessing Officer must recompute the book profit under section 115JB after allowing the claim of depletion in producing properties as claimed by the Assessee. We have referred to the relevant provisions in the Indian Companies Act, 1956. Section 211(3C) of that Act specifically refers to the standards of accounting and which have been laid down by the ICAI. In these circumstances, the view taken by the Tribunal on this count cannot be termed as perverse. We do not see how a substantial question of law would arise for our determination and consideration. In such 11/12 wadhwa 12 circumstances, the question No.4 is also not a substantial question of law. 15]As a result of the above discussion, the Appeal fails and it is, accordingly, disposed of without any order as to costs. (A. A. SAYED, J.) (S.C. DHARMADHIKARI, J.)