Principal Commissioner Of Income Tax, Ajmer v. M/S Ajmer Vidyut Vitran Nigam Ltd., Vidyut Bhawan, Panchsheelnagar, Makarwali Road, Ajmer

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 158/2019 Principal Commissioner Of Income Tax, Ajmer ----Appellant Versus M/s Ajmer Vidyut Vitran Nigam Ltd., Vidyut Bhawan, PanchsheelNagar, Makarwali Road, Ajmer Pan Aacca8562 E ----Respondent Connected With D.B. Income Tax Appeal No. 159/2019 Principal Commissioner Of Income Tax, Ajmer ----Appellant Versus M/s Ajmer Vidyut Vitran Nigam Ltd., Vidyut Bhawan, PanchsheelNagar, Makarwali Road, Ajmer Pan Aacca8562 E ----Respondent D.B. Income Tax Appeal No. 160/2019 Principal Commissioner Of Income Tax, Ajmer ----AppellantVersus M/s Ajmer Vidyut Vitran Nigam Ltd., City Power House, JaipurRoad, Ajmer Pan - Aacca 8562 E ----Respondent D.B. Income Tax Appeal No. 161/2019 Principal Commissioner Of Income Tax, Ajmer ----Appellant Versus M/s Ajmer Vidyut Vitran Nigam Limited, Vidyut Bhawan,Panchsheel Nagar, Makarwali Road, Ajmer Pan Aacca8562 E ----Respondent D.B. Income Tax Appeal No. 163/2019Principal Commissioner Of Income Tax, Ajmer ----Appellant M/s Ajmer Vidyut Vitran Nigam Ltd., Vidyut Bhawan, PanchsheelNagar, Makarwali Road, Ajmer Pan Aacca8562 E ----Respondent D.B. Income Tax Appeal No. 164/2019 Principal Commissioner Of Income Tax, Ajmer ----Appellant Versus M/s Ajmer Vidyut Vitran Nigam Ltd., Vidyut Bhawan, PanchsheelNagar, Makarwali Road, Ajmer Pan Aacca8562 E ----Respondent D.B. Income Tax Appeal No. 165/2019 Principal Commissioner Of Income Tax, Ajmer ----Appellant Versus M/s Ajmer Vidyut Vitran Nigam Limited, Vidyut Bhawan,Panchsheel Nagar, Makarwali Road, Ajmer Pan Aacca8562 E ----Respondent D.B. Income Tax Appeal No. 166/2019 Principal Commissioner Of Income Tax, Ajmer ----Appellant Versus M/s Ajmer Vidyut Vitran Nigam Limited, Vidyut Bhawan,Panchsheel Nagar, Makarwali Road, Ajmer Pan Aacca8562 E ----Respondent For Appellant(s) : Mr. Nikhil Simlote on behalf of Mr. R.B. MathurFor Respondent(s): Mr. Gunjan Pathak with Mr. Aditya Bohra andMs. Ishita Rawat HON'BLE THE CHIEF JUSTICE MR. AKIL KURESHI HON'BLE MS. JUSTICE REKHA BORANA Order 17/11/2021 These appeals are filed by the Revenue to challenge acommon order passed by the Income Tax Appellate Tribunal inseveral appeals concerning the same assessee namely M/s AjmerVidyut Vitran Nigam Limited (hereinafter to be referred as ‘theassessee or the Electricity Company’). In all these appealsquestions are repetitive. These questions can be brieflysummarised as under:- Question No.1 raised by the Revenue pertains todisallowance of depreciation on the capital assets which accordingto the Revenue were not existing or available for verification. Question No.2 pertains to disallowance of prior periodexpenses. Question No.3 pertains to applicability of Section 115JB ofIncome Tax Act, 1961(for short ‘the Act’) to the assessee. It is clarified that in some of the appeals all the threequestions arise whereas in some appeals two out of thesequestions are involved. However since these questions are basedon identical facts and relate to the different assesment yearsconcerning the assessee giving rise to different income taxappeals, we have heard the learned counsel for the parties andaddressed these issues as involving in Income Tax AppealNo.158/2019 where all three questions arise. With respect to the second question noted above pertainingto disallowance of prior period expenses, it is undisputed positionthat the issue is covered against the department by the judgmentof this Court and against which the Revenue had abandoned theappeals before the Supreme Court. In that view of the matter, this question is not entertained without recording independentreasons. With respect to the second question noted above pertainingto disallowance of prior period expenses, it is undisputed positionthat the issue is covered against the department by the judgmentof this Court and against which the Revenue had abandoned theappeals before the Supreme Court. In that view of the matter, this question is not entertained without recording independentreasons. Coming to the question of disallowance of depreciation,record would suggest that in the previous round of litigation, theHigh Court had remanded the question back to the ITAT. Whiledoing so, the opportunity was also given to the Assessing Officerto verify the existence of the assets on which the assessee wasclaiming depreciation. Learned counsel for the assessee statedthat the Assessing Officer opined that assets are spread overacross the vast areas in the State and it is not possible for him tomake physical verification of all the assets. Be that as it may, theTribunal proceeded to decide the question of law on the basis ofmaterial available on record. Before the Tribunal on behalf of theassessee it was contended that the assessee had fixed assetsvalued at Rs.115.21 crores received through transfer uponfinancial restructuring plan. It was pointed out that even thestatutory auditor for the Financial Year 2002-03 (Assessment Year2003-04) of the company in the statutory audit report filed alongwith return of income tax had specified that the fixed assets ofRs.115.21 crores transferred through FDR was physically notavailable at the Head office station. It was contended that only onsuch basis the depreciation could not have been disallowed. It waspointed out that the assessee is a Government owned companyand the existence of the assets cannot be doubted. The Tribunal while accepting the contentions of the assesseenoted that at the time of conversion of the Rajasthan StateElectricity Board into five distribution companies including theassessee, some of its fixed assets had been vested in the assesseecompany. The written down value of the assets was reflected in the block of assets and corresponding shares were issued by thecompany and the assets of Rs.115.21 crores were transferredthrough the financial restructure plan. Thus these assets wereacquired by the assessee in the process of division and transfer ofassets and liability of the erstwhile Rajasthan Electricity Boardbetween five distribution companies and therefore such claimcannot not be stated to be a bogus claim. The Tribunal referred tothe 5[th] proviso to Section 32(1) of the Act and stated thatdepreciation could be disallowed only subject to the restrictionsprovided therein. Having heard learned counsel for the parties and havingperused the documents on record, we do not see any error in theview taken by the Tribunal. The facts on record clearly establishthat the assessee company came into existence upon theconversion of the State Electricity Board into five electricitydistribution companies. The assets and liabilities were distributedamongst these five companies and in the process the assesseereceived certain assets. The cost of acquisition of the transferercompany as well as the written down value were reflected in thebooks of accounts required to be statutorily maintained andaudited. As pointed out by the counsel for the assessee, suchassets would include machinery and other hardware eveninspection of which would not be easy for the Assessing Officer.However only on the ground that such assets were notimmediately available for physical verification the claim ofdepreciation could not have been disallowed. No question of lawarises. This question is therefore not entertained. Coming to the last question of applicability of Section 115JBof the Act, we notice that other High Courts have under similar Coming to the last question of applicability of Section 115JBof the Act, we notice that other High Courts have under similar circumstances come to the conclusion that the said provisionsprior to its amendment in the year 2012, would not cover theelectricity company. The Kerela High Court in case of KerelaState Electricity Board Vs. Deputy Commissioner of IncomeTax reported in (2010) 329 ITR 0091 had taken such a view insimilar circumstances. It was observed as under “It can be seen from the above that the legislaturetook note of the fact that a number of Companiespaying marginal tax and also zero-tax has grown. SuchCompanies earned substantial book profits and paidhandsome dividends to the share holders withoutpaying any tax to the exchequer. Such a result wasachieved by such Companies by taking advantage ofthethen existing legal position which permitted theadoption of dual accounting policies and practices, onefor the purpose of computation of income tax andanother for the purpose of determining the bookprofits for the purpose of payment of dividends.Therefore, the amendment was made to plug theloophole in the law. However, the CBDT understoodthat Companies engaged in the business of generationand distribution of electricity and Enterprises engagedin developing, maintaining and operating infrastructurefacilities, as a matter of policy, are not brought withinthe purview of the amendment (Section 115JA) for thereason that such a policy would promote theinfrastructural development of the country. Such anunderstanding of the CBDT is binding on thedepartment. 20. If that is the background in which Section 115JA isintroduced into the Income Tax Act, Section 115JB,which is substantially similar to Section 115JA, in ouropinion, cannot have a different purpose and need notbe interpreted in a manner different from theunderstanding of the CBDT of Section 115JA.” 22. Another reason is that the appellant or bodiessimilar to the appellant, which are totally owned by theGovernment - either State or Central - have no shareholders. Profit, if at all, made by the appellant wouldbe for the benefit of entire body politic of the State ofKerala. In the final analysis, all taxation is meant forthe welfare of the people in a Constitutional Republic.Therefore the enquiry as to the mischief sought to beremedied by the amendment becomes irrelevant.Therefore, we are of the opinion that the fiction fixedunder Section 115JB cannot be pressed into service against the appellant while making the assessment ofthe tax payable under the Income Tax Act.” In case of Commissioner of Income Tax and Ors. Vs.Union Bank of India and Ors. reported in (2019) 308 CTR0797 (BOM), a Division Bench of Bombay High Court wasconsidering the question whether the unamended provision ofSection 115JB of the Act would apply to a banking company.Referring to and relying upon the Kerela High Court judgment inKerela State Electricity Board (supra) in the context of abanking company, it was held and observed as under:- against the appellant while making the assessment ofthe tax payable under the Income Tax Act.” In case of Commissioner of Income Tax and Ors. Vs.Union Bank of India and Ors. reported in (2019) 308 CTR0797 (BOM), a Division Bench of Bombay High Court wasconsidering the question whether the unamended provision ofSection 115JB of the Act would apply to a banking company.Referring to and relying upon the Kerela High Court judgment inKerela State Electricity Board (supra) in the context of abanking company, it was held and observed as under:- “9. In terms of sub-section (1) of Section 115JB of theAct thus notwithstanding anything contained in any ofthe provisions of the Act in case of an assessee being acompany where the income tax payable on the totalincome as computed under the Act, is less thanprescribed percentage of its book profit, such bookprofit shall be deemed to be the total income of theassessee. In so far as the language used under sub-section (1) of Section 115JB is concerned, the samepauses no challenge. Subsection (1) of Section 115JBtakes within its swip all companies with no furtherbifurcation or distinction between companies. However,the question that calls for our consideration is whetherthe machinery provision provided under sub-section (2)of Section 115 JB of the Act is workable when it comesto the banking companies and such other specialcompanies governed by the respective Acts. In thecontext, the question would also be of the legislativeintent to cover such companies within the swip ofSection 115JB of the Act. These questions arise becauseof the language used in sub-section (2) of Section115JB. These provisions we may peruse more minutely.As per sub-section (2) of Section 115JB, every assesseebeing a company would for the purposes of the saidsection prepare its profit and loss account for therelevant previous year in accordance with the provisionsof Parts II and III of Schedule VI of the Companies Act,1956. It is undisputed that the respondent-a bankingcompany is not required to prepare its accounts inaccordance with the provisions of Parts II and III ofSchedule VI of the Companies Act, 1956. The accountsof the banking company are prepared as per theprovisions contained in Banking Regulation Act, 1949.The counsel for the revenue may still argue thatirrespective of such requirements, for the purposes ofthe said Act and special requirements of Section 115JB of the Act, a banking company is obliged to prepare itsprofit and loss account as per the provisions of theCompanies Act, as mandated by sub-section (2) ofSection 115JB of the Act. His contention would be thatsuch legislative mandate is not impermissible. 10. At the first blush, this argument seems attractive. of the Act, a banking company is obliged to prepare itsprofit and loss account as per the provisions of theCompanies Act, as mandated by sub-section (2) ofSection 115JB of the Act. His contention would be thatsuch legislative mandate is not impermissible. 10. At the first blush, this argument seems attractive. However, when we read sub-section (2) further, certaincomplications arise in this line of argument. The firstproviso to sub-section (2) of Section 115JB providesthat while preparing annual accounts including profitand loss account the accounting policies and accountingstandards adopted for preparing the account and themethod and rules adopted in calculating thedepreciation shall be the same as have been adopted forthe purpose of preparing such accounts and laid beforethe company at its Annual General Meeting inaccordance with provisions of Section 210 of theCompanies Act, 1956. There is no dispute that therespondent-bank in terms of Section 210 of theCompanies Act, 1956 is also required to lay its accountsbefore the Annual General Meeting. However, suchaccounts would necessarily be prepared in accordancewith the provisions of Banking Regulation Act, 1949 andnever be those which even had it been possible to beprepared, in accordance with Parts II and III ofSchedule VI of the Companies Act, 1956. Theapplicability of this proviso therefore, in case of abanking company wouldimmediately createcomplications. On one hand, in terms of Section 210 ofthe Companies Act, 1956, the bank would be under anobligation to lay before Annual General Meeting itsannual accounts including the profit and loss account.These accounts would be prepared in terms provisionscontained in Banking Regulation Act, 1949. Sub-section(2) requires preparation of the accounts in terms of theCompanies Act. Proviso to sub-section (2) would requiremaintaining the same parameters in relation to theaccounting policies, accounting standards and methodand rate of depreciation as adopted for the purpose ofpreparing the accounts, which would ultimately be laidbefore the Annual General Meeting. A Banking companyin terms of sub-section (2) of Section 115JB canprepare additional accounts as per provisions of Parts IIand III of Schedule VI of the Companies Act or fulfill therequirements of the proviso to sub-section (2) butcannot fulfill both the conditions. 11. This legal dichotomy emerging from the provisionsof sub-section (2) of Section 115JB particularly havingregard to the first proviso contained therein in case of abanking company, would convince us that machineryprovision provided in subsection (2) of section 115JB ofthe Act, would be rendered wholly unworkable in such asituation. In a well known judgment the Supreme courtin case of Commissioner of Income-Tax, Bangalore Vs.B.C.ShrinivasaSettyVol.MANU/SC/0285/ 1981MANU/SC/0285/ 1981 : 128 ITR 294 had observedthat in the Income Tax Act, a charing section and thecomputing provisions together constitute an integratedcode. In a case where the computation provision cannot apply, it would be evident that such a case was notintended to fall within the charging section. It was acase of charging a partnership firm for transfer of acapital asset in the nature of goodwill. The SupremeCourt was of the opinion that it would not be possible toenvisage a cost of acquisition of goodwill. Sincecomputation of capital gain cannot be done withoutascertaining the cost of acquisition, it was held that nocapital gain tax can be levied. 1981MANU/SC/0285/ 1981 : 128 ITR 294 had observedthat in the Income Tax Act, a charing section and thecomputing provisions together constitute an integratedcode. In a case where the computation provision cannot apply, it would be evident that such a case was notintended to fall within the charging section. It was acase of charging a partnership firm for transfer of acapital asset in the nature of goodwill. The SupremeCourt was of the opinion that it would not be possible toenvisage a cost of acquisition of goodwill. Sincecomputation of capital gain cannot be done withoutascertaining the cost of acquisition, it was held that nocapital gain tax can be levied. 12. For the completeness of the discussion, we maynote that section 211 of the Companies Act, 1956pertains to form of contents of balance-sheet and profitand loss account, sub-section (1) of Section 211provided that every balance sheet of a company shallgive true and fair view on the state of affairs of thecompany at the end of the financial year and would besubject to the provisions of the said section and be inthe form set out in the Forms 1 and 2 of schedule VI.This sub-section contained a proviso providing thatnothing contained in said sub-section would apply to abanking company or any company engaged ingeneration or supply of electricity or to any other classof company for which a form of balance sheet shall bespecified in or under the Act governing such company.Thus, Companies Act, 1956 excluded the insurance orbanking companies, companies engaged in generationor supply of electricity or companies for which balance-sheet was specified in the governing Act, from thepurview of sub-section (1) of Section 211 of theCompanies Act, 1956 and as a consequence from thepurview of Section 115JB of the Act. 21. In the result, we hold that sub-section 115JB as itstood prior to its amendment by virtue of Finance Act,2012, would not be applicable to a banking company.We answer the question No. 2 in favour of the assesseeand against the revenue. In view of this, question ofcorrectness of the order of rectification passed by theAssessing Officer becomes unimportant. Question No. 1is therefore not answered. All the appeals aredismissed.” In view of such legal position, question No.3 is also not entertained. In the result, all the appeals are dismissed. (REKHA BORANA),J