ACIT, TRIVANDRUM vs. KERALA STATE ELECTRICITY BOARD, TRIVANDRUM

Per CHANDRA POOJARI, AM:

These appeals filed by the Revenue are directed against the different orders of

the CIT(A), Trivandrum and pertain to the assessment years 2005-06 and 2006-07.

ITA No. 52/Coch/2019 : AY 2005-06

No.52/Coch/2019:

I.T.A. Nos.52&53/Coch/2019 2. The Ld. Commissioner of Income-tax (Appeals) ought to have noticed that the reassessment proceedings u/s 147 was initiated as per explanation 2c(iii) & (iv) given under provisos to section 147 whereby excessive relief allowed and excessive loss or any other allowance admitted are deemed to be a case where income chargeable to tax has escaped assessment, i.e. the reopening was done on the income which has been made subject of excessive relief under the Act and excessive loss or any other allowance under this Act has been computed.

on 31.10.2005 declaring total income of Rs. Nil. The assessment under section

143(3) of the I.T. Act was completed on 24.12.2007 by assessing total income at

Rs.3,81,97,748/- under normal provisions and Rs. 204,41,69,768/- under section

115JB of the Act. Subsequently, the Assessing Officer issued notice under section

148 of the Act on 30.03.2010. The assessment under section 143(3) r.w.s. 147 of

the Act was completed on 31.12.2010 by assessing total income at Rs.

3,81,97,748/- and Rs. 204,41,69,768/- under section 115JB of the Act. The reasons

for reopening the assessment were communicated to the assessee vide letter dated

27.09.201. While computing the total income, the Assessing Officer reckoned

Rs.155,00,21,113/- towards electricity duty collected by the assessee and payable

I.T.A. Nos.52&53/Coch/2019 to Govt. which remained unpaid and added back to the returned income and the

actual amount was Rs.155,00,21,113/-. Thus, the loss was assessed to the effect of

Rs.51,04,72,328/-. Thus, while computing the total income, the Assessing Officer

omitted to add back Rs.15,83,00,000/- being short provision of interest on Govt.

loans and Rs.123,36,00,000/- being penal interest on State Govt. loans and belated

interest payment of electricity duty. In the order giving effect to CIT(A)’s order

totaling mistake appeared which resulted in short to the tune of Rs.14,00,00,000/-

with a potential tax effect of Rs.5,12,29,500/- Thus, the Assessing Officer had

reason to believe that income chargeable to tax had escaped assessment within the

meaning of section 147 of the Act.

of second proviso to section 147 of the Act. It was submitted that the issues dealt

with have been the subject matter of the regular assessment' proceedings u/s.

143(3) originally completed vide order 24.12-2007. It was submitted that the

previous CIT(A) had given directions to the Assessing Officer for allowing claims

after verification of the facts/documents vide order dated 26.02.2008. It was

submitted that the assessment to electricity duty and other statutory levies

aggregating to Rs.215,25,23,965/- was against the order of Jurisdictional High

reported 'in (2010) 329 1TR 91 allowing the issue in favour of the assessee.

Hence, the reassessment order dt.31.12.2010 may be quashed / set aside as illegal.

4.1 The CIT(A) observed that from the reasons stated for reopening of the

assessment, it was evident that there were arithmetical errors in the computation of 3

I.T.A. Nos.52&53/Coch/2019 income in the original assessment order and the assessment was reopened for

purely for correcting those arithmetical mistakes. However, while disposing the

appeal against the original assessment order, the CIT(A) had discussed all these

issues and decided in the appeal order passed on 26.02.2008. The appeal effect

giving order was passed by the Assessing Officer on 31.03.2008. Thus, according to

the CIT(A), the reopening was made on issues which were under appeal before

CIT(A). The CIT(A) referred to the relevant provisions of section 147 of the Act are

as under:

"Income escaping assessment.

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:

Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any

I.T.A. Nos.52&53/Coch/2019 appeal, reference or revision, which is chargeable to tax and has escaped assessment." [Emphasis Supplied]

4.2 Therefore, according to the CIT(A), as per the second proviso to the section

147 of the Act, the assessment cannot be reopened on issues which are under

appeal. The CIT(A) observed that clearly, the reasons recorded by the Assessing

Officer for reopening of assessment are subject matters of appeal before the

CIT(A). In view of the same, it was held that the reopening made under section 147

of the Act by issue of notice under section 148 of the Act on 30.03.2010 was invalid.

Accordingly, the CIT(A) deleted the additions made under this order and allow the

grounds raised by the assessee on the validity of reopening of the assessment.

of the Assessing Officer.

regarding reasons recorded for the re-opening of the assessment by the Assessing

Officer was already a subject matter of appeal before the CIT(A) and the CIT(A)

considered the issue on the above reasons for re-opening of the assessment and

gave relief. Further, the same additions were the subject matter of appeal before the Tribunal in assessee’s own case in ITA No. 785/Coch/2008 dated 23rd February,

2010 wherein the appeal of the Department was partly allowed in the case of

original assessment which was completed u/s. 143(3) of the Act.

I.T.A. Nos.52&53/Coch/2019 6.1 Further, the CIT(A) vide order dated 26.02.2008 had made observations on

the following issues as under:

6.2 On the first issue regarding addition of electricity duty payable and supply

surcharge payable, the CIT(A) concurring with the contention of the assessee

observed that the electricity duty payable u/s. 4(1) of the Kerala State Electricity

Duty Act, 1963 amounting to Rs.15,50,02,113. Electricity duty u/s. 3(1) of the

above Act amounting to Rs. 54,98,40,000 and supply surcharge payable under the

above Act amounting to Rs.5,26,62,852/- levied and unpaid are not to be treated as

the income of the assessee for the assessment year on the ground that the same

are trading receipts covered by section 43B of the Act. The electricity Duty u/s.

4(1) of the Act and supply surcharge payable under Kerala State Electricity Duty

Act, 1963 are not items of trading receipts being amounts collected by the Board

only as an intermediary agent and there is no liability on the part of the Board to

make payment of these sums to the Govt. if it is not collected from the consumers

and on these grounds it was held by ITAT, Ahmedabad Bench in the case of

Ahmedabad Electricity Co. (P) Ltd. vs. ITO that such duties/supply discharge

collected by Electricity companies are not in the same nature of sales or other taxes,

which are levied under other Statutes since in those cases there is a statutory duty

to make payment of said tax or duty even if there is no collection from the

customer. The appeal of the assessee was allowed by the ITAT, Cochin Bench in

ITA No. 121/Coch/1989 dated 08/03/1994 following the decision of the ITAT,

Ahmedabad Bench cited supra. The issue was duly considered and allowed by the

I.T.A. Nos.52&53/Coch/2019 CIT(A) in the appeals for the preceding assessment years 2002-03 to 2004-05 vide

order 20.11.2006 and for AY 2004-05 vide order dated 22/03/2007, relying on the

orders of the CIT(A) for the preceding assessment year 2002-03 vide order dated

31/10/2005 and the additions were deleted. Following the orders passed by the

CIT(A) in the earlier assessment years, additions made on account of electricity duty

payable and supply surcharge payable were deleted.

6.3 On the second issue relating to the addition prior period expenses, the CIT(A)

observed that expenditure was identified by C&AG as relatable to the assessment

year 2005-06 and this was duly debited under prior period expenses in the accounts

of the board for the financial year relevant to assessment year 2006-07. According

to the CIT(A), since the assessee being wholly owned by public sector undertaking

is governed by the directions of C&AG, the claim of the assessee was in order.

Therefore, the CIT(A) directed the Assessing Officer to allow deduction for the

expenditure of Rs.15,83,00,000/- for the relevant assessment year after due

verification of the supporting evidences of the expenditure by affording a reasonable

opportunity of hearing to the assessee and Assessing Officer was directed to pass a

speaking order on the issue.

6.4 On the third issue regarding disallowance of deduction of penal interest on

State Government loans and on belated payment of electricity duty u/s. 3(1) of

Kerala Electricity Duty Act, 1963, the CIT(A) observed that claim is liable to succeed

considering that C&AG had entered into a finding that this expenditure relates to the

I.T.A. Nos.52&53/Coch/2019 current year in question and therefore, directed the Assessing Officer to allow

deduction of the sum of Rs.1,23,36,00,000/- as expenditure incurred wholly and

exclusively for the purpose of business after due verification of the supporting

documentary evidences by giving an opportunity to the assessee to adduce

evidence and also accepting the submission that the interest paid is only of a

compensatory nature and the Assessing Officer was asked to pass a speaking order

on the issue.

6.5 When these issues were subject matter of appeal before the CIT(A) in the case

of original assessment, in our opinion, the Assessing Officer cannot re-visit the same

by re-opening the assessment u/s. 147 of the Act and also in view of second

proviso to section 147 which reads as follows:

“Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment." [Emphasis Supplied]

6.6 Further, the Jurisdictional High Court in assessee’s own case reported in

(2010) 329 ITR 91 has deleted the addition made u/s. 43B with regard to supply

surcharge, inspection fee and electricity duty and liability u/s. 115JB of the Act in

favour of the assessee. Being so, in our opinion, re-opening of the assessment is

bad in law and hence, the assessment order passed u/s. 147 of the Act vide order

dated is 31.12.2010 is quashed. The appeal of the Revenue in ITA No.52/Coch/2019

is dismissed.

I.T.A. Nos.52&53/Coch/2019 ITA No. 53/Coch/2019 : AY 2006-07

53/Coch/2019:

(i) The Learned Commissioner of Income-tax(Appeals) failed to note that the Hon'ble Kerala High Court's decision in assessee's own case for the earlier years (A Ys 2002-03 to 2005-06) reported in 329 1TR 91 and relied on by him on the issue of disallowance u/s 43B, has not become conclusive as the SLP filed by the department against this order is pending for decision before the Hon'ble Apex Court.

(ii) The Learned Commissioner of Income tax (Appeals) ought to have noticed that the electricity duty payable to Govt. of Kerala were receipts by the assessee which were kept outside the P & L account to take a stand that these are not expenses to be disallowed u/s 43B and ought to have upheld the additions made by the Assessing Officer.

(iii) The electricity charges are in the nature of payments receivable by the Govt. of Kerala and M/s. KSEB is a person who is managing the business of collection of these charges (as this activity is vested with this board and governed by the Electricity Duty Act, 1963 read with Electricity Supply Act,1948) and hence clearly it is an income from business u/s 28(ii)(d). Hence the duty collected by the assessee constitutes trading receipts received during the ordinary course of its business and consequently when the payment is made to the Govt., the deduction under the Income Tax Act is allowed as business expenditure. Thus if any sum is not paid/within the due date fixed by the statute under Electricity Duty Act, it is to be disallowed u/s. 43B of the Income Tax Act. (iv) The Ld. CIT(A) ought to have brought his attention to the decision of Hon'ble High Court of Gujarat on identical issue as reported in CIT vs. Ahmedabad Electricity Company (262 ITR 97) wherein the Hon’ble High Court has held, after an analysis of the provisions of Bombay Electricity Duty Act, 1958, whose provisions are analogous to the provisions of the Kerala State Electricity Duty Act, 1963, that "the liability of the electricity company to pay the duty collected to the Government had been spelt out in clear terms in the relevant statute and it cannot be held as not liable to pay the duly collected to the State Government on the ground that the relationship is only one of principal qua agent and hence provisions of section 43B is applicable".

I.T.A. Nos.52&53/Coch/2019 3. The Ld. Commissioner of Income-tax(Appeals) erred in concluding that the appellant is not liable for MAT u/s 1 15JB:

(i) The Learned Commissioner of Income-tax(Appeals) failed to note that the Hon'ble Kerala High Court's decision in assessee's own case for the earlier years (A Ys 2002-03 to 2005-06) reported in 329 ITR 91 and relied on by him on the issue of liability u/s. 115JB has not become conclusive as the SLP filed by the department against this order is pending for decision before the Hon'ble Apex Court.

(ii) The Learned Commissioner of Income-tax (Appeals) ought to have noticed that the decision of Hon'ble HC of Kerala on the applicability of sec. 115JB to the assessee was wrongly based on CBDT Circular No. 762 dated 18.02.1998 which pertains only to sec. 115J & 115JA and not sec. 115JB. Section 115JB of the Income-tax Act has come into effect from 01.04.2001 onwards.

disallowed the Supply surcharge, Inspection fee, Electricity Duty under section 43B

of the Act as the said amounts were not paid during the relevant previous year.

section 43B of the Act to the assessee was considered by the High Court of Kerala

(329 ITR 91) and held in favour of the assessee for AYs 2002-03 to 2005-06.

Following the decision of the jurisdictional High Court cited supra, the CIT(A)

deleted the addition made under section 43B of the Act.

the Jurisdictional High Court in assessee’s own case (329 ITR 91) wherein it was

held as under:

“On a plain reading of s. 43B the only clause if at all is relevant in the context of the facts of the appellant's case is cl. (a) which deals with "any sum payable by the assessee by way of tax, duty, ...........under any law for the time being 10

I.T.A. Nos.52&53/Coch/2019 in force". The words, 'by way of tax' are relevant as they are indicative of the nature of liability. The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign. Whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation continues to be fiduciary even in a case wherein the relationship of the principal and agent is created by a statute. When s. 43B(a) speaks of the sum payable by way of tax etc., the said provision is dealing with the amounts payable to the sovereign qua sovereign, but not the amounts payable to the sovereign qua principal. Therefore s. 43B cannot be invoked in making the assessment of the liability of the appellant under the IT Act with regard to the amounts collected by the appellant pursuant to the obligation cast on the appellant under s. 5 of the Electricity Duty Act, 1963.

It is clarified that the above conclusion does not mean that the said amount is either exempted from the liability of income-tax or it should be treated as income for the purpose of the Act. Those questions will have to be independently examined, having regard to the other provisions of the IT Act, primarily by the assessing authority.”

In view of the above judgment of the Jurisdictional High Court, we are inclined to

dismiss this ground of appeal of the Revenue.

computed the income chargeable under section 115JB of the Act in the return of

income filed. The Assessing Officer had computed MAT income under 115JB of the

Act at Rs. 331,75,83,578/-.

that the issue of MAT tax liability was covered in favour of the assessee by the

decision of Hon'ble High Court of Kerala vide order dated 12.11.2010 for AY 2002-

03 to 2005-06. Following the decision of jurisdictional High Court, the CIT(A) held

I.T.A. Nos.52&53/Coch/2019 that the assessee wass not liable for MAT tax under section 115JB of the Act and

allowed this ground of the assessee.

the Jurisdictional High Court in assessee’s own case (329 ITR 91) wherein it was

held as under:

“All the 3 sections (ss. 115B, 115JA and 115JB) create legal fictions regarding the 'total income' [a defined expression under s. 2(45)] of the companies. While the earlier two sections mandate the Department to make the assessment on a fictitious amount of ‘total income' where the actual amount of total income computed in accordance with the IT Act is less than 30 per cent of the book profits of the company, s. 115JB mandates the Department to resort to the fiction in those cases where the tax payable on the basis of the 'total income' computed in accordance with the IT Act is less than a specified percentage (7 per cent for the years in issue) of the book profit. Further, ss. 115JA and 115J8 also stipulate a definite manner of preparing the annual accounts including the P&L a/cs. More specifically, s. 115JB stipulates that the accounting policies, accounting standards, etc. shall be uniform both for the purpose of income-tax as well as for the information statutorily required to be placed before the annual general meeting conducted in accordance with s. 210 of the Companies Act, 1956. It may be mentioned here that under s. 166 of the Companies Act every company is mandated to hold a general meeting in each year. Sec. 210 mandates that every year the board of directors of the company in the general meeting shall lay before the company a balance sheet as at the end of the relevant period and also a P&L a/c for the period. Parts II and HI of Sch. VI to the Companies Act specify the method and manner of maintaining the P&L a/c. However, the appellant though is by definition a company under the IT Act and deemed to be a company for the purpose of IT Act (by virtue of the declaration under s. 80 of the Electricity Supply Act) it is not a company for the purpose of Companies Act. Therefore, the appellant is not obliged to either convene an annual general meeting or place its P&L a/c in such general meeting. As a matter of fact, a general meeting contemplated under s. 166 of the Companies Act is not possible in the case of the appellant as there are no shareholders for the appellant board. On the other hand, under s. 69 of the Electricity Supply Act, the appellant is obliged to keep proper accounts, including the P&L a/c, and prepare an annual statement of accounts, balance sheet, etc. in such form as may be prescribed by the Central Government. Thus, the appellant though is deemed to be a "company"—both by virtue of operation -of s. 80 of the Electricity Supply Act for the purpose of 12

I.T.A. Nos.52&53/Coch/2019 IT Act and by virtue of the definition of the expression "company" under the IT Act—the appellant is required to keep and maintain its accounts in a manner specified by the Central Government, and not in the manner specified in the Companies Act.” When s. 115B was introduced, the section expressly excluded from its operation bodies like the appellant. Coming to s. 115JA, though such express exclusion is absent, the CBDT issued a Circular No. 762, dt. 18th Feb., 1998 excluding the bodies like the appellant from the operation of the said section. Though under the normal rules of interpretation of statutes the omission of a clause which existed in the statute at some point of time by a subsequent amendment would indicate that the legislature intended not to give the benefit of such clause any more to those who were getting the benefit of such exclusion clause, it Is not an absolute rule. The other attendant circumstances, the context, the history and the mischief sought to be remedied by the amendment are all required to be examined before reaching at definite conclusion. As per Circular No. 762, dt. 18th Feb., 1998, the CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (s. 115JA) for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the CBDT is binding on the Department. If that is the background in which s. 115JA is introduced into the IT Act, s. 115JB, which is substantially similar to s, 115JA, cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of s. 115JA.

Another reason is that the appellant or bodies similar to the appellant, which are totally owned by the Government—either State or Central—have no shareholders. Profit, if at all, made by the appellant would be for the benefit of entire body politic of the State of Kerala. In the final analysis, all taxation is meant for the welfare of the people in a constitutional republic. Therefore the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, the fiction fixed under s. 115JB cannot be pressed into service against the appellant while making the assessment of the tax payable under the IT Act.

Assessee, a statutory corporation constituted under s. 5 of the Electricity Supply Act, 1948, is not a company for the purpose of Companies Act and is not required to keep and maintain its accounts in the manner specified in the said Act and, therefore, the fiction laid down in s. 115JB is not applicable while making the assessment of the assessee.”

I.T.A. Nos.52&53/Coch/2019 In view of the above judgment of the Jurisdictional High Court, we are inclined to

dismiss this ground of appeal of the Revenue. Thus, the appeal of the Revenue in

ITA No. 53/Coch/2019 is dismissed.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 8th August, 2019 GJ Copy to: 1. Kerala State Electricity Board, Vaidyuthi Bhavan, Pattom, Trivandrum. 2. The Assistant Commissioner of Income-tax, Circle-1(1), Trivandrum. 3. The Commissioner of Income-tax(Appeals), Trivandrum. 4. The Pr. Commissioner of Income-tax, Trivandrum. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin

I.T.A. Nos.52&53/Coch/2019