Section 115Jb Is Akin To Section 115Jaof The Act; As Held By The Honourable Supremecourt In 2010 (327) Itr 305(Sc) [Ajanta Pharmalimited v. Commissioner Of Income Tax]. It Wasdeclared That Section 115Ja And The Successorsection 115Jb Are Self-Contained Codes Theapplication Of Which Is Notwithstandin

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 17TH DAY OF SEPTEMBER 2018 / 26TH BHADRA, 1940 ITA.No. 101 of 2012 AGAINST THE ORDER IN ITA NO.377/Coch/2010 OF THE INCOME TAXAPPELLATE TRIBUNAL, COCHIN BENCH DATED 29-02-2012 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX,KOTTAYAM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH SC FOR INCOME TAX RESPONDENT/RESPONDENT: M/S. NILGIRI TEA ESTATES LIMITED,ANCHERIL BANK BUILDINGS, P.O.BOX NO.1, BAKER JUNCTION, KOTTAYAM – 686 001.BY ADVS.SRI.BINU MATHEWSRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON17.09.2018,ALONG WITH ITA.NO.1776/2009 & CONNECTED CASES, THECOURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA No.1776 of 2009 and connected cases - 2 - ITA Nos.1776 of 2009, 1782 of 2009, 101 of 2012,16 of 2013 and 213 of 2014 - judgment dated17.09.2018.------------- Vinod Chandran, J. The above appeals arise from the ordersof the Income Tax Appellate Tribunal in the caseof two assessees; Harrisons Malayalam Limited andNilgiri Tea Estates Limited. Insofar as NilgiriTea Estate is concerned, two appeals,I.T.A.Nos.101/2012 and 213/2014, are from twoassessment years 2007-08 and 2008-09. 2. The three appeals, I.T.A.Nos. 1776/2009, 1782/2009 and 16/2013, arising from the order of the Tribunal in which HarrisonsMalayalam Limited is the assessee, are from thevery same assessment year, i.e. 2005-06.Therewere appeals filed by the Revenue and theassessee before the Tribunal. The appeals of theRevenue were dismissed and that of the assesseewas allowed hence the two appeals here. There wasalso an appeal from the order of the Commissioner ITA No.1776 of 2009 and connected cases - 3 - under Section 263 of the Income Tax Act, 1961('Act' for short). ITA Nos.101 of 2012, 213 of 2014 & 1752 of 2009 3. The common question arising in ITANos.101/2012 and 213/2014 as also 1782 of 2009 isas to whether in the facts and circumstances ofthe case, the proceeds from the sale ofagricultural land and rubber trees could be deemedto be agricultural income under Section 10 of theAct and the same granted exemption fromcomputation of income as per Section 115JB of theAct. 4. Section 115JB is akin to Section 115JAof the Act; as held by the Honourable SupremeCourt in 2010 (327) ITR 305(SC) [Ajanta PharmaLimited v. Commissioner of Income Tax]. It wasdeclared that Section 115JA and the successorSection 115JB are self-contained codes theapplication of which is notwithstanding anyprovisions in the Act. ITA No.1776 of 2009 and connected cases - 4 - 5. The question arose before this Court; when the proceeds received out of the sale ofrubber trees, for reason of the trees havingbecome old and unyielding; whether the amountscredited in the profit and loss account could beincluded in the computation of book profits as perSection 115JA. The contention raised before theDivision Bench of this Court was answered in 2011(203) Taxmann 63 [Commissioner of Income Tax,Cochin v. Thiruvambadi Rubber Factory Limited],where it was argued that the sale of agriculturalland is excluded from the computation of capitalgains under Chapter-IV of the Act and in anyevent, it would be agricultural income. TheDivision Bench answered both the questions againstthe assessee following the judgment of theHonourable Supreme Court in (2002) 255 ITR 273[Appollo Tyres Ltd. v. Commissioner of IncomeTax]. The Division Bench found that the proceedsof old and unyielding rubber trees cannot beagricultural income, especially when the assessee ITA No.1776 of 2009 and connected cases - 5 - ITA No.1776 of 2009 and connected cases - 5 - does not have a case that the same has beenreturned as agricultural income before the State,which is competent to assess agricultural incometax. Rubber tree was held to be an agriculturalasset from which income was derived for 20 to 25years; the sale of which, on becoming old andunyielding, cannot give rise to agriculturalincome. As to the contention that the exemptionto capital gains should apply in the computationof book profits under Section 115JA, the DivisionBench held that what is excluded under computationof book profits is specifically provided inclauses (i) to (ix) of the Explanation to Section115JA(2). Section 10(1) in Chapter-III thoughexcludes agricultural income; but Capital gain isassessable under Chapter-IV of the Act and notbeing an item falling under Chapter-III, exclusioncannot be permitted under clause(ii) to theExplanation to Section 115JA(2) of the Act, wasthe finding. The decision squarely applies in thecase of the assessees herein also. ITA No.1776 of 2009 and connected cases - 6 - 6. On the above reasoning, following the decision of the Division Bench of this Court, thequestion raised has to be answered in favour ofthe Revenue and against the assessee. 7. However, the learned Senior counselappearing for the assessee in ITA Nos.101/2012 and213/14 draws a distinction insofar as the assesseehaving suffered losses in the consecutive yearsand the sale also being necessitated due to thelosses suffered. It is the contention of theassessee that the proceeds from the sale of theestate not being an income of a current orrecurring nature, was shown as an exceptional itemin the profit and loss account and the sameadjusted against the losses of the previous yearsas per accounting standards. We see that theAssessing Officer had considered the aspect andruled against the assessee. However, the Tribunalhas not considered this specific issue and hadmerely followed the decision in HarrisonsMalayalam Ltd. to grant exemption to the profit ITA No.1776 of 2009 and connected cases - 7 - received on sale of estate from computation of thebook profits. In such circumstances, we are of theopinion that the aforesaid appeals have to beremanded back to the Tribunal to consider theissue afresh. We do this despite the fact thatthe assessee has not filed an appeal, which wasnot necessary since the Tribunal had allowed theappeal on a different ground which we haveanswered against the assessee following theDivision Bench judgment of this Court. 8. In the above circumstances, in ITANos.101/2012 and 213/2014 there would be a remandfor consideration of the aforesaid question,which question of exemption alone arises in thetwo appeals filed by the Revenue before theTribunal. I.T.A.No.1782 of 2009 9. I.T.A. No.1782 of 2009, as we noticedherein above, is from the order of the Tribunal ITA No.1776 of 2009 and connected cases - 8 - 8. In the above circumstances, in ITANos.101/2012 and 213/2014 there would be a remandfor consideration of the aforesaid question,which question of exemption alone arises in thetwo appeals filed by the Revenue before theTribunal. I.T.A.No.1782 of 2009 9. I.T.A. No.1782 of 2009, as we noticedherein above, is from the order of the Tribunal ITA No.1776 of 2009 and connected cases - 8 - to the extent it allowed the assessee's appeal.One of the questions raised on computation ofbook profits, including the considerationreceived from the sale of Boyce Estate underSection 115JB was answered by the Tribunal infavour of the assessee. The alternate question onthe consideration received from the sale of BoyceEstate arises from the order of the CIT Appeals,which directed the same to be treated as capitalgains under Section 50B of the Income Tax Act,[1961, for brevity, the Act] for reason of therebeing sale of a going concern. There was alsodisallowance made with respect to the claimraised under Section 36(1)(va) of the Act on thecontributions made to Provident Fund and otherlabour welfare funds for reason of it being notwithin the due date of contribution as per thelabour welfare statutes. The next questionanswered in favour of the assessee by theTribunal is on the further direction of the CITAppeals to treat the loss suffered on sale of ITA No.1776 of 2009 and connected cases - 9 - shares of a subsidiary Company to be treated asspeculation loss and not long-term capital loss.The Tribunal, while allowing the said claim,reversed the order of the CIT appeals and alsodirected set off of long-term capital gains onsale of land with long-term capital loss on saleof shares. The additional questions, other thanthat answered herein above, thus arising in ITANo.1782 of 2009 from the order of the Tribunalare as follows: “(i)Whetherinthefactsandcircumstamnces, the Tribunal was right in inthefactsand law in deleting the disallowance ofemployees' contribution to Provident Fundand Welfare Fund made under Section 36(1)(va) and Section 224(1) of the Act. (ii) Whether, on the facts and in thecircumstances of the case is not the surplus arising out of sale of BoyceEstate liable to be brought to tax ascapital gain under Section 50B of the ITA No.1776 of 2009 and connected cases - 10 - Income Tax Act and the Tribunal is rightin law in interfering with the order ofCIT(A) on the issue?in law in interfering with the order ofCIT(A) on the issue? (iii)Whether, on the facts and in thecircumstances of the case; (i) did not the Tribunal err in setting aside the enhancement orderof the CIT(A) that long term capitalof the CIT(A) that long term capital loss suffered on sale of shares wasassessable as speculation loss withinthe meaning of Explanation to Section73?assessable as speculation loss withinthe meaning of Explanation to Section73? (ii) The Tribunal is right in law in holding that the loss is in thenature of capital loss?nature of capital loss? (iv) Whether, on the facts and in thecircumstances of the case;circumstances of the case; (a) did not the Tribunal err inallowing set off of long term capitalallowing set off of long term capital gains on sale of land with long termcapital loss on sale of shares;capital loss on sale of shares; ITA No.1776 of 2009 and connected cases - 11 - (b) is not the Tribunal wrong in finding that the loss on sale ofshares is not a speculation loss?" 10. On the first question herein beforeframed, this Division Bench has answered thequestion against the assessee and in favour ofthe Revenue in Popular Vehicles and Service (P)Ltd. v. Commissioner of Income Tax [2018 (406)ITR 150 (Ker). Hence the aforesaid question hasto be answered in favour of the Revenue andagainst the assessee. (a) did not the Tribunal err inallowing set off of long term capitalallowing set off of long term capital gains on sale of land with long termcapital loss on sale of shares;capital loss on sale of shares; ITA No.1776 of 2009 and connected cases - 11 - (b) is not the Tribunal wrong in finding that the loss on sale ofshares is not a speculation loss?" 10. On the first question herein beforeframed, this Division Bench has answered thequestion against the assessee and in favour ofthe Revenue in Popular Vehicles and Service (P)Ltd. v. Commissioner of Income Tax [2018 (406)ITR 150 (Ker). Hence the aforesaid question hasto be answered in favour of the Revenue andagainst the assessee. 11. The second question arising hereinbefore is on whether the sale of Boyce Estate hasto be treated as capital gain under Section 50Bof the Act. The learned Senior Standing Counselfor the Revenue admits that it cannot be treatedboth as being included under the MinimumAlternate Tax (MAT) and under Section 50B, butprays that the alternate contention be left openfor consideration, if at all the Hon'ble SupremeCourt interferes with the finding of this Court ITA No.1776 of 2009 and connected cases - 12 - that it is possible of computation under the MATScheme as provided in 115JB. 12. Having gone through the order of theTribunal, we do not think that such a questionneed be left open. We find that the Tribunal haselaborately considered the agreement, by whichthe plantation was sold. The break-up ofconsideration is available in the order of theCIT appeals, which is as follows: 13. On a reference to the agreement, the Tribunal had also noticed that the transferspecifically excluded various items being the ITA No.1776 of 2009 and connected cases - 13 - rubber manufactured, stored or in stock or in theprocess of manufacture upto the date of sale, therubber tapped from the said estate prior to thedate of sale, benefit of all contracts in so faras they were referable to sale or production ofthe rubber for the period prior to the date ofsale, cash in hand and Bank balance, allunadjusted profits, all investments, all bookdebts, all securities, deposits and other liquidassets of Boyce Estate prior to the date of sale,all refunds and subsidies and excess paymentsmade by Boyce Estate to any persons, Government,Revenue or public authorities or other concernsfor the period up to the date of sale. Thesubject matter of sale was only the assetspecified in the schedule and the Annexure to theagreement and did not include all the assetscomprised in the Boyce Estate. Though BoyceEstate was the unit, which can be considered as agoing concern, the sale as such was not of thegoing concern. The fact that the employees were ITA No.1776 of 2009 and connected cases - 14 - taken over by the purchasing Company was only aprudent measure to avoid any retrenchmentcompensation being paid, especially since thepurchasing Company was intending to carry on thebusiness of plantation as carried on by theassessee. 14. The learned Standing Counsel for theGovernment of India specifically pointed out thatthe Tribunal decision inAccelerated FreezeDrying Co. Ltd. case relied on, was overturnedby a Division Bench of this Court in AcceleratedFreeze Drying Co. Ltd. v. International CreativeFoods (P) Ltd. [(2011) 337 ITR 440 (Ker)].However, on a reading of the said decision, wefind that therein also the consideration agreedwas the aggregate value for the land, building,machinery and all equipment with liabilityspecifically mentioned in the agreement enteredinto between the parties. The facts are quitedistinct in this case. The liabilities were notsold and the sale agreement did not include ITA No.1776 of 2009 and connected cases - 15 - 14. The learned Standing Counsel for theGovernment of India specifically pointed out thatthe Tribunal decision inAccelerated FreezeDrying Co. Ltd. case relied on, was overturnedby a Division Bench of this Court in AcceleratedFreeze Drying Co. Ltd. v. International CreativeFoods (P) Ltd. [(2011) 337 ITR 440 (Ker)].However, on a reading of the said decision, wefind that therein also the consideration agreedwas the aggregate value for the land, building,machinery and all equipment with liabilityspecifically mentioned in the agreement enteredinto between the parties. The facts are quitedistinct in this case. The liabilities were notsold and the sale agreement did not include ITA No.1776 of 2009 and connected cases - 15 - investments and deposits was the clear finding ofthe Tribunal. All the investments, deposits,receivables, stock and such other current assetsin the form of financial and other assetsremained with the assessee Company along with theliabilities. Only those assets enumerated in theSchedules and Annexure were sold to the vendee.The consideration had also been specificallyassigned to the sale of immovable property andseparate consideration has been assigned to thesale of movable properties including vehicles,buildings and so on and so forth. We do not findany reason to interfere with the finding of factby the Tribunal that there is no case of slumpsale for a lumpsum consideration. However, theconsideration is not attributable to anyparticular item of asset. We hence decline toanswer the question framed for reason of thefindings of facts being unassailable raising noquestion of law. ITA No.1776 of 2009 and connected cases - 16 - 15. The next question is on thespeculation loss found by the CIT appeals, whichwas overturned by the Tribunal in its order. Theassessee had purchased shares in one M/s.HarisonUniversal Flowers Limited by way of directsubscription; which was a subsidiary of theassessee Company. The direct subscription ofshares was carried out in the accounting periodsfrom 1995-1996 to 1998-1999. In the subject year,ie.2005-2006, there was a sale of share effected,on which a loss was suffered, which was returnedby the assessee under the head long-term capitalgains. The Assessing Officer assessed it ascapital gains, while the CIT appeals directed itto be treated as speculation loss. The Tribunalfound that the assessee had held the shares as aninvestment and not as a stock in trade. The lossarising out of the sale of shares would hence bein the nature of capital loss and not in thenature of speculation loss, was the clearfinding. There was also no evidence on record to ITA No.1776 of 2009 and connected cases - 17 - show that the assessee was indulging in thebusiness of buying and selling of shares. Theshares held by the assessee Company were clearlyinvestments and on finding no dispute on facts,the Tribunal directed it to be treated as capitalgains. Again, we refuse to answer the thirdquestion raised for reason of the Tribunal havinganswered it on facts and there arising noquestion of law. When the third question is thusanswered in favour of the assessee, necessarilythe fourth question also, in the matter of setoff, has to be answered in favour of the assesseeand against the Revenue. We hence partly allow ITA No.1782 of 2009.I.T.A.No.1776 of 2009 16. This is an appeal from the order ofthe Tribunal to the extent it rejected theRevenue's appeal. One of the issues raised iswith respect to disallowance allowed to RPGEnterprises, which, the learned Senior Counselappearing for the Revenue submits, the Revenue is ITA No.1776 of 2009 and connected cases - 18 - not pressing. We, hence, uphold the order of theTribunal to that extent. 17. The next question raised is whether the Tribunal was correct in having confirmed theorder of the CIT (Appeals) deleting the addition We hence partly allow ITA No.1782 of 2009.I.T.A.No.1776 of 2009 16. This is an appeal from the order ofthe Tribunal to the extent it rejected theRevenue's appeal. One of the issues raised iswith respect to disallowance allowed to RPGEnterprises, which, the learned Senior Counselappearing for the Revenue submits, the Revenue is ITA No.1776 of 2009 and connected cases - 18 - not pressing. We, hence, uphold the order of theTribunal to that extent. 17. The next question raised is whether the Tribunal was correct in having confirmed theorder of the CIT (Appeals) deleting the addition made by the AO invoking the provisions ofSections 37 and 14A of the IT Act, beingre-plantation expenses. The AO found that theexpenditure was dis-allowable under Section 14Aof the Act. In this context, the decision of theHon'ble Supreme Court in Commissioner of IncomeTax v. Essar Teleholdings Ltd. [(2018) 401 ITR445], which held that the applicability ofSection 14A can only be from the assessment year2007-08 has to be noticed. We, hence, answer thequestion in favour of the assessee and againstthe Revenue, upholding the order of the Tribunal.18. The further question raised is on thejustification in treating the considerationreceived on sale of shade trees as long termcapital loss entitled to be carried forward from ITA No.1776 of 2009 and connected cases - 19 - the earlier years. We see that the Tribunal hadconsidered the facts and had held that the orderof the CIT (Appeals) directing deletion of suchdeduction in the capital gains has to be setaside, on facts. The Tribunal has also held thatit being long term capital loss,is entitled to becarried forward. We do not see any question oflaw arising from the order of the Tribunal and,hence, uphold the order to that extent. 19. Accordingly, I.T.A.No.1776 of 2009 isrejected. I.T.A.No.16 of 2013 20. This appeal arises from the order ofthe Tribunal, which interfered with Annexure-Border of the Commissioner under Section 263 ofthe IT Act. The issues dealt with under Section263 were (i) the income from the sale of oldrubber trees, (ii) indexation allowed in the caseof sale proceeds of Grevellea trees, (iii)proportionate interest paid relatable to the ITA No.1776 of 2009 and connected cases - 20 - investment in subsidiary companies dis-allowableunder Section 14A and (iv) dis-allowance ofexpenses claimed under the head "share transferexpenses". 21. As far as income from the sale of oldrubber trees, the decision to treat it assubjected to Central Income Tax would go contraryto the findings of a Division Bench of this Courtin CIT v. Thiruvambadi Rubber Company [(2011) 203Taxmann 63]. We, hence, do not think that anyinterference can be caused to the order of theTribunal on that count. 22. With respect to the issue of indexation allowed of sale proceeds of Grevelleatrees, the Tribunal has found that the said issuewas the subject matter of an appeal before theCIT (Appeals) and then before the Tribunal. UnderClause (c) of Explanation to Section 263(1) sincethe issue was subject matter of appeal, therecould not have been any suo motu power exercisedby the Commissioner under Section 263. We are in ITA No.1776 of 2009 and connected cases - 21 - agreement with the findings of the Tribunal andwe answer the question of law against the Revenueand in favour of the assessee. 23. On the disallowance under Section14A, we have already held, following the decision of the Hon'ble Supreme Court inEssarTeleholdings Ltd., that the same would beapplicable only from 2007-08. We, hence, answerthe said issue in favour of the assessee andagainst the Revenue. ITA No.1776 of 2009 and connected cases - 21 - agreement with the findings of the Tribunal andwe answer the question of law against the Revenueand in favour of the assessee. 23. On the disallowance under Section14A, we have already held, following the decision of the Hon'ble Supreme Court inEssarTeleholdings Ltd., that the same would beapplicable only from 2007-08. We, hence, answerthe said issue in favour of the assessee andagainst the Revenue. 24. The last question is of expenditureincurred of a sum of Rs.1,24,664/- in connectionwith the transfer of shares. The Tribunal hasfound that as a matter of fact the said expenseshave been incurred in connection with themaintenance of share-holders' register. TheTribunal has relied on the instructions issued bythe CBDT, vide F.No.10/25/63-IT(A.a) dated18.06.1964, wherein it was clarified that "theremuneration paid by the Company to its Registrarfor performing duties in connection with the ITA No.1776 of 2009 and connected cases - 22 - Company's legal obligations to be dischargedunder the Company Law, should be regarded as revenue expenditure". We do not think that thefinding on the said issue also calls for anyinterference. 25. On the aforesaid findings, we rejectI.T.A.No.16 of 2013 upholding the order of theTribunal. Ordered accordingly. Parties are left to suffer their respective costs. Sd/- K. VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE //True Copy// P.A to Judge. ITA No.1776 of 2009 and connected cases - 23 - APPENDIX '-PETITIONERS EXHIBITS: ANNEXURE A:COPY OF THE ASSESSMENT ORDER UNDERSECTION 143(3)INCOME TAX ACT 1961 DATED23.12.2009 ANNEXURE B: COPY OF THE CIT(A)'s ORDER IN ITANO.32/CIT (A) – IV/KTM/09 – 10 DATED12.03.2010. ANNEXURE C: COPY OF THE ITAT's ORDER IN ITANO.377/Coch/2010 DATED 29.02.2012. RESPONDENT'S EXHIBITS:- NIL