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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under section 253 of the Income-tax Act (‘the Act’) is directed against the order of ld. CIT(A)-39, Mumbai dated 01.11.2010 which arised from assessment order passed under section 143(3) on 29.03.2005 for Assessment Year 2002-03.
The assessee has raised the following ground of appeal : 1. “On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in confirming the assessment on the appellant of a sum of Rs.1,98,01,451/- being the amount assessed as income of the AOP styled and named as LGE &C-Patel JV. On true reading of section 86, the impugned amount needs to be excluded from the total income of the assessee for computation “book profits” for MAT purposes u/s 115JB."
Brief facts of the case are that the assessee-company is engaged in the business of engineering, construction of dams and tunnels. The assessee- company filed its return of income on 31.10.2002 declaring income at Rs. 9,67,11,788/-. Subsequently, the assessee filed revised return on 04.03.2003 declaring total income at Rs. 49,70,380/- and claimed long term capital gain deduction of Rs. 9,67,11,788/- u/s 80IA(4). The return of income was selected for scrutiny. The assessing officer passed assessment order on 29.03.2005. In the assessment order the Assessing Officer (AO) disallowed the long term capital gain claimed u/s 80IA(4) and assessed total income of Rs.13,18,34,320/-. The assessee filed appeal before First Appellate Authority, wherein the assessee was allowed deduction u/s 80IA(4) vide order dated 27.04.2006. Against the order of ld. CIT (A) dated 27.04.2006 in allowing deduction u/s 80IA(4), the revenue filed appeal before the Tribunal. In the appeal of revenue the assessee filed its cross objection. The appeal of the revenue was dismissed by Tribunal. During the first appellate stage the assessee also raised additional ground of appeal
in its cross objection stating that the assessee’s share of income of Joint Venture L.G.P. & Patel Joint Venture was not taxable in its income as the Assessing Officer of the Joint Venture has already assessed the said income of the joint venture. The Tribunal while dismissing of the appeal raised query that assessee could have file appeal against such order, which 2 the assessee did not do, hence, how the Tribunal could not give direction in this regard as it was not subject matter dispute before ld CIT(A). The Ld. counsel for assessee prayed for suitable direction for the Assessing Officer.
4. The Assessing Officer while giving effect allowed relief of deduction u/s 80IA(4). However, the assessee’s income was less than the book profit.
Therefore, the assessee was taxed as per section 115JB. The assessee filed appeal before ld CIT(A) raising the grounds against the levy of MAT u/s 115JB, on the receipt from Joint venture. The appeal of the assessee was dismissed by ld CIT(A) in the order impugned before us holding that there is no provision u/s 115JB to deduct the profit earned from Joint Venture which was included in profit and loss account while determining the book profit for the purpose of section 115JB and thereby affirmed the action of Assessing Officer. Thus further aggrieved by the order ld CIT(A), the assessee has filed present appeal before us.
This appeal was decided vide order dated 28.08.2017. However, the order was recalled on 13.12.2018 on Miscellaneous Application filed by the assessee vide M.A. No. 182/Mum/2018. Thus, this appeal was fixed for hearing afresh.
We have heard the submission of Ld. authorized representative (AR) of the assessee and Ld. departmental representative (DR) for the Revenue and perused the record. The Ld. AR of the assessee submit that so far as the issue relating to the completion of book profit u/s 115JB is concerned, the 3 assessee treated the share of income from AOP in its book in the profit and loss account and once it is a part of net profit shown in the P&L account, then it has to be computed part of book profit as to adjustment as provided under Explanation 1 to section 115JB. The Ld. AR submits that the amendment has been brought by Finance Act, 2015 whereby clause (iic) have been inserted w.e.f. 01.04.2016, which provides that amount of income being share of assessee in the income AOP, no tax is payable in accordance with the provision of section 85 any such amount is credited to the profit and loss account, then the same shall be reduced while computing the book no profit. The Ld. AR submits that an amendment is curative in nature and should be applied retrospective. The provision is inserted is only for rationalizing the provision of computation of book profit which evident from the explanatory Note to Finance Act, 2015 dated 27.11.2015. In support of his submission, the Ld. AR of the assessee relied upon the decision of Tribunal in Goldgerg Finance Pvt. Ltd. v. ACIT (ITA No. 7496/Mum/2013) dated 19.01.2017.
On the other hand, the Ld. DR for the Revenue supported the order of AO/CIT(A). The Ld. DR further submits that the matter has not been examined by the Assessing Officer/CIT(A). In accordance with the provision contended in clause (iic) inserted under Explanation-1 to section 115JB. Therefore, the matter may be restored to the Assessing Officer for examined the issue afresh. 4
We have considered the submission of the ld representatives of the parties and have gone through the orders of the authorities below. The limited question for our consideration is whether in case of Member of AOP, when no income is payable on the share of member of AOP in certain situation.
In accordance with the provision of section 86, should the same income be brought to tax under MAT liability. We have noted that the Co-ordinate Bench of Mumbai Tribunal in Goldgerg Finance Pvt. Ltd. (supra), vide consideration, the similar issue held that when the share of income member of AOP was not taxable in term of section 86 then it should not be taxed under MAT also. The Co-ordinate Bench passed the following order
“10. We have heard the rival contentions and perused the relevant findings given in the impugned order. The addition of share income of AOP in the book profit has been made on the ground that the assessee itself has credited the share income from AOP in the P&L account and consequently the book profit has to be computed on the basis of amount shown in the P&L account. On a perusal of Explanation to Section 115JB specifically the second part dealing with exclusion/reduction from the book profit it can be seen that clause (ii) permits certain deduction from book profit with regard to the amount ofincome to which the provisions of sections 10, 11 or 12 applies if such amount has been credited to the P&L account. The said clause reads as under:- “the amount of income to which any of the provisions of section 10 [other than the provisions contained in clause (38) thereof] or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or”
Section 10 includes section 10(2A) also which provides for exemption of share income of partner from the partnership firm. Thus, if share income of partner is credited to the profit & loss account, then, Explanation 1 to sec 115JB envisages its exclusion or deduction from book profit. However, there was no such 5 enabling provision for the share income from the AOP which can be excluded from the computation of book profit. In order to extend this benefit and to provide remedial measures in the case of AOP also, a new clause has been inserted by the Finance Act, 2015 w.e.f. 1.4.2016, which reads as under:
“(iic) the amount of income, being the share of the assessee in the income of an association of persons or body of individuals, on which no income tax is payable in accordance with the provisions of section 86 if any, such amount is credited to the profit and loss account; or”
The rationale behind this section has been explained in the Explanatory notes to the Finance Act 2015 in the following manner:-
“Rationalising the provisions of section 115JB
The existing provisions contained in section 115JB of the Act provide that in the case of a company, if the tax payable on the total income as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after 1st day of April, 2012, is less than eighteen and one-half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be eighteen and one-half percent of book profit. This tax is termed as minimum alternate tax (MAT). Explanation below subsection (2) of section 115JB provides that the expression "book profit" means net profit as shown in the profit and loss account prepared in accordance with the provisions of the Companies Act, or in accordance with the provisions of the Act governing a company as increased or reduced by certain adjustments, as specified in the section.
Section 86 of the Act provides that no income-tax is payable on the share of a member of an AOP, in the income of the AOP in certain circumstances. However, under the present provisions, a company which is a member of an AOP is liable to MAT on such share also since such income is not excluded from the book profit while computing the MAT liability of the member. In the case of a partner of a firm, the share in the profits of the firm is exempt in the hands of the partner as per section 10(2A) of the Act and no MAT is payable by the partner on such profits.
In view of the above, it is proposed to amend the section 115JB so as to provide that the share of a member of an AOP, in the income of the AOP, on which no income-tax is payable in accordance with the provisions of section 86 of the Act, should be excluded while computing the MAT liability of the member under 115JB of the Act. The expenditures, if any, debited to the profit loss account, corresponding to such income (which is being proposed to be excluded from the MAT liability) are also proposed to be added back to the book profit for the purpose of computation of MAT.”
[Emphasis added is ours]
This has been further explained and clarified by the CBDT Circular in the similar manner. From the reading of above clarification it is ostensible that, the background and intention behind for such an insertion of clause was that, in case of a partner of a firm, the share in the profit of the firm which is exempt in the hands of the partner in terms of section 10(2A), there were no liability to pay MAT by the partner on such profit. However, this benefit was lacking in the case of share of a member of an AOP where in certain circumstances was not taxable in hands of member in terms of section 86 were not excluded from the book profit while computing the MAT liability of the member. It was felt by the legislature that the share of member of an AOP on which no income tax is payable in accordance with the provisions of section 86 should be excluded while computing the MAT liability of the member u/s 115JB. It was further provided that expenditure if any debited to the P&L account corresponding to such income which is to be excluded from the MAT liability shall be added back to the book profit for the purpose of computation of MAT. The intention of the legislature which can be gauged by the Explanatory notes to the amending Act, was to provide similar remedy which was applicable to the partners whose share income from the profit of the firm was not liable for MAT. If a provision has been brought to extend the benefit to certain class of assessees which was earlier applicable to other class of assessees on a similar circumstances and is remedial in nature, then, the same has to be reckoned as retrospective. It is quite a trite proposition that explanatory Act which is curative in nature or any remedial statute is brought in the statute either to remedy unintended consequence or to provide benefit which is applicable to particular class of assessee and is 7 extended to other class of assessee, then, on reasonable interpretation it should be declared as retrospective in operation. In our opinion, if an amendment in law has been brought by the legislature in the statute which is curative in nature, to avoid unintended consequence and to provide similar benefit to other class of assessee, then, it has to be treated as retrospective in nature even though it has not been stated specifically by the amending Act. This proposition find strong support from the judgments of the Hon’ble Supreme Court in the case of Allied Motors (P) Ltd. Etc. v. CIT, 224 ITR 677 and in the case of CIT v. Alom Extrusions Ltd. 319 ITR 306. The Hon’ble Apex Court while interpreting the proviso to section 43B brought in the statute with a particular date was treated as curative and was held to be applicable retrospectively. The relevant observation of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd. following the ratio of in the case of Allied Motors (P) Ltd. (supra) reads as under:-
“Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988 (i.e. the date on which the related legal provision was introduced). Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364: (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant salestax law should be disallowed under s. 43B of the Act while computing the business income of the previous year? That was a case which related to asst yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed by the assessee which was on account of salestax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e.f. 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Ltd. Etc. (supra). However, the assessee contended that even though the first proviso came 8 to be inserted w.e.f. 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when s. 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Ltd. Etc. (supra). This Court, in Allied Motors (P) Ltd. Etc. (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act 2003 not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the Returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay 9 the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under s. 43B of the Act. In our view, therefore, Finance Act 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988 when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003.”
Thus, we are of the opinion that the clause (iic) inserted in Explanation 1 to section 115JB by the Finance Act 2015 is remedial and curative in nature as it was brought in the statute to provide similar benefit to the member of the AOP which was earlier applicable to the partner of the firm, therefore, it is to be reckoned as retrospective. This proposition can be viewed from another angle that, the amending Act had sought to bring parity between similar kind of situation faced by two class of assessees, where in one case, statute envisaged that if the income of the assessee is not taxable, that is, in case of partner the share income from the partnership firm, then it cannot be taxed as book profit under MAT liability. Similarly, in second case also, that is, in case of member of an AOP where no income-tax is payable on the share of a member of an AOP in certain situations in terms of section 86, should also not be brought to tax under MAT liability. The legislature by this amendment has thus removed this imparity between two classes of assessees so that mischief or prejudice caused to other class of assessees should be removed. The mischief which has been sought to be remedied is that the share income of the member of the AOP which was not taxable in terms of section 86 was getting taxed under MAT while computing the book profit. This was also never the purpose of section 115JB to tax any income or receipts which is otherwise not taxable under the Act. If the intention of legislature was always that income which is not taxable under the normal provisions of the Act should not be brought to tax under MAT also, then it has to be interpreted that such a benefit has to be given to all and where the income is otherwise not taxable under the Act cannot be brought to be taxed under MAT. Therefore, any remedy brought by an amendment to remove the disparity and curb the mischief has to be reckoned as curative in nature and 10
hence, is to be held retrospectively. Accordingly, this issue is allowed in favour of the assessee.”
Considering the fact of the present case, when the share of AOP was not taxable under the normal provision of the Income Tax Act than it cannot be brought to be taxed under MAT. No contrary law would brought to over notice to take the other view. Therefore, respectively following the decision of Co-ordinate Bench in Goldgerg Finance Pvt Ltd (supra), we direct the Assessing Officer to not to brought income received by the assessee from AOP. In the result, the ground raised by the assessee is allowed.
In the result the appeal of the assessee is allowed. Order pronounced in the open court on 22nd this day of May 2019