M/S.APOLLO TYRES LTD. vs. C.I.T., KOCHI,KERALA

C.A. No.-006100-006100 - 1998Supreme Court02 May 20028 pages
For Petitioner: RAJIV TYAGIFor Respondent: SUSHMA SURI
AI SummaryPartly Allowed

What were the facts?

These appeals by Apollo Tyres Ltd. (assessee) and the Commissioner of Income Tax (revenue) stem from a judgment of the Kerala High Court concerning assessment years not explicitly stated. The primary dispute revolves around the Assessing Officer's (AO) recomputation of the assessee's profit and loss account under Section 115-J of the Income Tax Act, 1961, specifically regarding the provision for arrears of depreciation. The assessee contended that the AO could not question accounts certified by statutory auditors and accepted by the company and Registrar of Companies. The High Court, however, held the AO had the authority to examine accounts for compliance with Section 115-J(1A) and make necessary adjustments. The appeals also concern dividend income from UTI units and whether the business of buying and selling UTI units constitutes speculation.

What did the Supreme Court hold?

The Supreme Court held as follows: On the first issue, the Court allowed the assessee's appeal. It found that the AO's authority under Section 115-J was limited to the computation of book profit as defined, and he could not re-examine the correctness of the profit and loss account prepared in accordance with the Companies Act and certified by auditors. The Court clarified that the AO's role was not to re-audit the accounts. On the second issue, the Court dismissed the revenue's appeal, holding that the dividend income earned by the assessee from its investment in UTI units should be included in computing the profits of the eligible business under Section 32AB. The Court found that the assessee's business of buying and selling UTI units was an eligible business as defined under Section 32AB(2) and the dividend income was derived from this eligible business. On the third issue, the Court dismissed the revenue's appeal, agreeing with the Tribunal and High Court that the business of buying and selling UTI units is not speculative. The Court held that the deeming provision in Section 32(3) of the UTI Act, which treats UTI as a company and unit income as dividend, does not extend to deeming the units themselves as shares for the purpose of Section 73. The Court stated that such a deeming provision should be applied only for the specific purpose for which it was enacted.

What were the issues?

1. Whether an Assessing Officer, while assessing a company under Section 115-J of the Income Tax Act, can question the correctness of the profit and loss account prepared by the assessee and certified by its statutory auditors as compliant with Schedule VI of the Companies Act? - Assessee's contention: The AO lacks the authority to re-examine accounts that have been duly certified by auditors, accepted by the company's general meeting, and registered with the Registrar of Companies. - Revenue's contention: The AO has the power to examine the accounts for compliance with Section 115-J(1A) and make necessary adjustments if they are not in accordance with the Companies Act. 2. Whether dividend income earned by the assessee from its investments in Unit Trust of India (UTI) units can be included in computing the profit of an eligible business under Section 32AB of the Income Tax Act? - Assessee's contention: The dividend income should be included as the investment in UTI units constitutes an eligible business. - Revenue's contention: Not explicitly recorded, but implied by their challenge to the inclusion. 3. Whether the business of buying and selling UTI units by the assessee company amounts to a speculation business for the purpose of set-off of losses under Section 73 of the Income Tax Act? - Assessee's contention: The business of buying and selling UTI units is not speculative. - Revenue's contention: Relying on Section 32(3) of the UTI Act, the revenue argued that since UTI is deemed a company and its unit income is deemed dividend, the units should be treated as shares, making the business speculative under Explanation to Section 73.

Which sections of the Income-tax Act were involved?

Section 115-J,Section 32AB,Section 73,Section 32(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8 CASE NO.: Appeal (civil) 6100 of 1998 Appeal (civil) 2518-2519 of 1999 PETITIONER: APOLLO TYRES LTD. Vs. RESPONDENT: CKOOMCMHIISSIONER OF INCOME TAX, DATE OF JUDGMENT: 02/05/2002 BENCH: CJI, N. Santosh Hegde & D.M. Dharmadhikari

JUDGMENT: SANTOSH HEGDE, J These appeals arise out of a common judgment delivered by a Division Bench of the Kerala High Court in ITR Nos.70/1994 and 43/1997.

Civil Appeal No.6100/1998 is preferred by the assessee company and Civil Appeal Nos. 2518-19/1999 are preferred by the C.I.T., Ernakulam.

Though a number of questions came up for consideration before the High Court, in these appeals, based on the arguments addressed before us, we are mainly concerned with the following three questions : (i) Can an Assessing Officer while assessing a company for income tax under Section 115-J of the Income Tax Act question the correctness of the profit and loss account prepared by the assessee company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act ? (ii) Wheth

The order continues below.

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