THE COMMISSIONER OF INCOME TAX, COCHIN vs. THE THIRUVAMBADI RUBBER CO.LTD

There is no controversy on the facts in this case in as much as assessee is assessable on book profit for all the four years above stated and in the Profit and Loss Account prepared by the assessee under Part II and Part III of Schedule VI to the Companies Act referred to in Section 115JA(2) of the Act based on which book profit assessment has been made, assessee has credited sale proceeds of old and unyielding rubber trees as income. The Honourable Supreme Court has settled the procedure for book profit assessment in the decision in APPOLLO TYRES by holding that additions and deductions permissible from the Profit and Loss Account prepared under the Companies Act for the purpose of determining book profit are those specifically stated in Explanation to Section 115JA(2) of the Act. We notice that the Tribunal has considered the decision of this court in COMMISSIONER OF INCOME TAX VS. RAJAGIRI RUBBER & 115JA(2) of the Act. For easy reference we extract hereunder the relevant provisions of the Act: “Deemed income relating to certain companies. 115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 but before the 1st day of April, 2001 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956): ............. ............. Explanation:- For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section(2), as increased by-- ............. if any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by,-- (i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account: ............ (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or .............” In deciding the case in favour of the assessee the Tribunal has followed the decision of the Bombay High Court in COMMISSIONER OF INCOME TAX Vs. M/S.AKSHAY TEXTILES TRADING & AGENCIES P. LTD. reported in 203 Taxation 303 (Bom) wherein the Bombay High Court held that capital gains cannot be considered as part of book profit for the purpose of assessment under Section 115JA of the Act. However, the clear finding of the Tribunal is that sale proceeds of old and unyielding rubber trees is "agricultural income" which to our mind is very strange and unacceptable because assessee itself has no case that sale proceeds of old and unyielding rubber trees is agricultural income because if such a claim is advanced, assessee which is regularly exigible to agricultural income tax will have to pay agricultural income tax which assessee has not admittedly paid. Besides this, the finding of the Tribunal is exactly contrary to the decision of the Honourable Supreme Court in KAILAS RUBBER COMPANY's case reported in 60 ITR 435 wherein the Honourable Supreme Court held that rubber tree is a capital asset. Any one familiar with rubber cultivation very well knows that rubber tree takes 6 to 7 years for maturity and on maturity, tapping starts to take yield in the form of latex from the tree and the tree can be economically tapped for 20-25 years and thereafter when the yield is very low and the tree COMPANY's case. We do not find any provision in clauses (i) to (ix) of Explanation to Section 115JA(2) to exclude capital gains in the computation of book profit. In fact, what clause (ii) says is that income exempt from tax under Chapter III of the Income Tax Act only are excludable from Profit and Loss Account in computing the book profit. Though Section 10(1) in Chapter III excludes agricultural income, going by the above decisions of the Honourable Supreme Court we are unable to uphold the finding of the Tribunal that sale proceeds of old and unyielding rubber trees is also agricultural income which position assessee itself does not canvass because if the assessee take such a position, assessee should have paid huge amount of agricultural income tax which would be more than the tax payable on book profit under the Central Act. Capital gain is assessable under Chapter IV of the Income Tax Act and is not an item falling under Chapter III to permit exclusion under clause (ii) to Explanation to Section 115JA(2) of the Act as held by the Tribunal. Since we do not find any provision in clauses (i) to (ix) of Explanation to Section 115JA(2) to exclude capital gain from Profit and Loss Account, we cannot uphold the order of the Tribunal allowing deduction in computation of book profit. In our view, it is immaterial whether capital gain included in the Profit and Loss Account prepared under the Companies Act is otherwise assessable to income tax or not for the purpose of book profit. Since the assessee has included the sale proceeds of assets as income in the Profit and Loss Account prepared under Part II and Part III of Schedule VI to the Companies Act for the purpose of assessment of book profit under Section 115JA(2), the assessee has no escape but to pay tax on the book profit including such income. We, therefore, allow the appeals filed by the Revenue by reversing the orders of the Tribunal and by restoring the assessments. Even though some of the appeals decided by the Tribunal were against the orders of the CIT (Appeals) against rectified orders issued by the Assessing Officer under Section 154 of the Act, such an issue is not specifically raised or decided by the Tribunal. However, for the sake of finality, we hold that if book profit assessment originally made were not in accordance with the statutory provision, then the Assessing Officer was certainly free to rectify the assessment to make it in compliance with statutory provisions which exhaustively deals with the scheme of book profit assessment. We, therefore, allow the appeals by reversing the orders of the Tribunal and by restoring the assessments, whether original or rectified under Section 154 of the Act. C.N.RAMACHANDRAN NAIR Judge BHABANI PRASAD RAY JudgeP.S. to Judge pms