M/S ATRIA POWER CORPROATION LTD.,,BANGALORE vs. ITO, BANGALORE

Per Sunil Kumar Yadav, Judicial Member This appeal is preferred by the assessee against the order of CIT(Appeals) inter alia on the following grounds:-

“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified in upholding that assessing the interest income from Fixed deposit appertaining to the business of generation of power as income liable to tax under the head 'Other Sources' instead of under the head "Business". He failed to appreciate that interest income from FD is in respect of deposits which are obliged to be made for carrying on the business of generation of power to fulfill certain obligations from

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out of the business funds and these monies have not been deposited solely with a view to earn any interest income and are liable to be taxed only under the head "Business" and not under the head "Other Sources". 3. The learned CIT[A] is not justified in upholding the restricting the claim u/s.80IA[4][iv] of the Act, in respect of the income computed under the head "Business" only and not in respect of income under the head "Other Sources" appertaining to the undertaking carrying on the business of generation of power, to which it is legitimately entitled to deduction u/s.80IA[4][iv] of the Act. 4. The appellant denies itself liable to be charged to tax u/s.115JB of the Act, in as much as, no tax is liable to be paid under normal provisions and consequently, the provisions of Section 115JB of the Act cannot be invoked. 5. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs. “ 2. During the course of pendency of the appeal, the assessee has filed application for admission of additional grounds on the ground that the additional grounds go to the root of the case, therefore the same may be adjudicated at the threshold. The additional grounds raised are as under:-

“1. The appellant denies itself liable to be taxed under the provisions of section 115JB of the Act since the appellant is an electricity company and the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 are not applicable to the

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appellant and consequently, the income determined u/s. 115JB of the Act being illegal deserves to be vacated. 2. The authorities below ought to have appreciated that the provisions of 115JB of the Act are not applicable to the appellant since the appellant is engaged in the generation and supply of electricity and under proviso to section 211[2] of the Companies Act, 1956, the appellant is exempted from preparing its books of account in terms of requirements under schedule VI to the Companies Act under the facts and in the circumstances of the appellant's case. 3. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered.” 3. Having carefully examined the additional grounds, we find that these additional grounds go to the root of the case, therefore the same are admitted and we prefer to adjudicate it along with other grounds of appeal.

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Court in the case of CIT v. Chinna Nachimuthu Constructions, 179 Taxman 272 (Kar), CIT v. Hajee Jaffar Shariff in ITA No.1521 of 2005 and by the Hon’ble Delhi High Court in the case of CIT v. Jaypee DSC Ventures Ltd., 335 ITR 132 (Del), in which it was held that wherever the fixed deposits were purchased on account of business exigencies, the interest income generated thereon shall be treated as business income and not income from other sources.

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its judgment dated 02.03.2010 again held that fixed deposits were given as security in order to avail credit facilities, therefore income earned is not income from other sources. For the sake of reference, we extract the observations of the Hon’ble High Court as under:-

“9. However, the learned counsel for the appeliants relied upon another decision of Apex Court in PANDIAN CHEMICALS L'ID.VS. COMMISSIONER OF INCOME TAX, to contend that with regard to deposits made with the Electricity Board, the interest on the said deposit would not be said to be derived from the industrial undertaking as it is a step removed from the industrial undertaking and therefore not liable for deduction under section 80HHC of the Act. 10. We are of the view that on the facts of the present case and taking into consideration the decisions referred to supra, the decision in PANDIAN CHEMICALS LTD VS, COMMISSIONER OF INCOME TAX would not be applicable to the present case. In the instant case as already stated for the purpose of its business that is export business, the Fixed Deposits were given as security in order to avail credit facilities and consequently on facts we are of the considered view that the decision in GONVIDA CHOUDHURY & SONS and CHIINNA NACHIMUTHU CONSTRUCTIONS are applicable and the decision of the Apex Court in PANDIAN CHEMICALS LTD. VS. COMMISSIONER OF INCOME TAX can be distinguished. Accordingly we answer the substantial questions of law raised in this appeal against the revenue and dismiss the appeal.” 8. The Hon’ble Delhi High Court while delivering the judgment on 11.03.2011 in the case of Jaypee DSC Ventures Ltd. (supra) has confirmed the view taken by the Hon’ble Karnataka High Court while holding that the amount of investment in fixed deposits which were kept in bank for furnishing of bank guarantee is business income, not income from other sources. The relevant observations of the Hon’ble Delhi High Court are extracted hereunder for the sake of reference:-

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“21. Keeping in view the aforesaid pronouncements in the field, the present controversy is to be adjudged. As is noticeable from the stipulations in the agreement, the performance guarantee by way of bank guarantee was required for faithful performance of its obligations. The non- submission of the guarantee would have entailed in termination of the agreement and NHAI would have been at liberty to appropriate bid security. That apart, the release of such performance security depended upon certain conditions. Thus, it is clearly evincible that the bank guarantee was furnished as a condition precedent to entering the contract and further it was to be kept alive to fulfill the obligations. Quite apart from the above, the release of the same was dependent on the satisfaction of certain conditions. Thus, the present case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest; on the contrary, the amount of interest was earned from fixed deposits which was kept in the bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. Therefore, we are disposed to think that the factual matrix is covered by the decisions rendered in Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Koshika Telecom Ltd. (supra) and, accordingly, we hold that the view expressed by the tribunal cannot be found fault with.” 9. In the light of the aforesaid judgments of different High Courts, it is clear that wherever the FDRs are purchased on account of business exigencies, the interest generated thereon would be business income and not income from other sources. But in the instant case, it is not borne out from the orders of lower authorities whether all FDRs are purchased for business exigencies or not. Therefore, we restore the matter to the file of the AO to examine the nature of FDRs and its purpose and to give a specific finding whether the FDRs were purchased for business purposes or not. If it is purchased for business purposes, the interest income earned

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thereon shall be treated as business income and not income from other sources in the light of aforesaid judgments of jurisdictional High Court.

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Act. In support of his contention, the ld. Counsel for the assessee has placed reliance upon the order of the Tribunal in the case of Karnataka Power Corporation Ltd. v. CIT in ITA No.711/Bang/2011 in which this Tribunal has categorically held that assessee being an electric company, provisions of Part II & III of Schedule VI to the Companies Act are not applicable. Therefore, the provisions of section 115JB are not applicable to the assessee.

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by the Tribunal while dealing with the issue of applicability of provisions of section 115JB of the Act to the assessee’s case, no inference can be drawn from this order of the Tribunal while adjudicating the issue.

“115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on 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, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total

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income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,— (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company:” 16. By virtue of this amendment, the Legislature has brought those companies to which proviso to sub-section (2) of section 211 of the Companies Act applies within the network of provisions of section 115JB of the Act. As per the provisions of section 211(1), every balance sheet of a company shall be prepared in accordance with Part I & II of Schedule VI of the Companies Act, but as per proviso to sub-section (1), insurance or banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of balance sheet has been specified in or under the Act governing such class of company, are not required to prepare its profit & loss account in accordance with Part I of Schedule VI to the Companies Act. As per sub- section (3), the Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest. For the sake of reference, we extract the provisions of section 211 (1) to (3) hereunder:-

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“Form and contents of balance sheet and profit and loss account. 211. (1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading "Notes" at the end of that Part: Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of balance sheet has been specified in or under the Act governing such class of company. (2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto: Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company. (3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest. Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notifica- tion.”

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Representative placed reliance on the parity of reasoning of the following Tribunal decisions :- i) State Bank of Hyderabad V DCIT (ITA No.578 & 579/Hyd/2010 dt.7.9.2012); and ii) Decision of the co-ordinate bench of ITAT, Bangalore in the case of Syndicate Bank V DCIT (ITA Nos.668 and 669/Bang/2010 and 708 & 709/Bang/2010 dt.19.6.2013.) 11.2.1 We have heard both parties and perused and carefully considered the material on record. It is not in dispute that the assessee in the case on hand is an electric company engaged in the generation of power. The provisions of section 115JB(2) read as under : " 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)" The assessee, in the case on hand, however does not have to prepare its accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956, by virtue of proviso to section 211(2) thereto. The proviso to section 211 (2) of the Companies Act, 1956 reads as under : "Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which the form of profit and loss account has been specified in or under the Act governing such class of company" 11.2.2. As contended by the learned Authorised Representative the newly inserted Explanation - 3 to section 115JB of the Act is clear that the assessee is given an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956, OR in accordance with the provisions of the Act governing such company, w.e.f.

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1.4.2013. Since there is no dispute that the assessee is engaged in the generation of power and in an electricity company, it is governed by and bound to follow the relevant Electricity Act and Rules thereto in preparation of its financial statements. In this view of the matter and taking into consideration the judicial decisions cited and relied upon by the assessee, we are of the considered view that the provisions of section 115JB of the Act are not applicable to the assessee which is an electric company in the business of generation of power. In this view of the matter, the additional grounds of appeal raised by the assessee on the non-applicability of the provisions of section 115JB of the Act is allowed.” 18. This issue was again examined by the Delhi Bench of the Tribunal in the case of BSES Rajdhani Power Ltd. (supra) wherein the Tribunal has examined the issue in the light of various judicial pronouncements and has categorically held that the provisions of section 115JB were not at all applicable to the companies governed by special Acts, which includes power. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:-

“22.10 In view of the above, it is patently clear that the appellant prepares its annual accounts in accordance with the applicable laws, including provisions of the Delhi Electricity Reforms (Transfer Scheme), Rules, 2001 and is not required to and has not been strictly preparing its audited annual accounts as per Parts II and III of Schedule VI of the Companies Act, 1956. 22.11 In the aforesaid context, it may also be pertinent to note that prior to the amendment to sub-section (2) of section 115JB of the Income-tax Act, 1961 ('the Act'), the deeming provisions of the said section were not applicable to companies to which proviso to sub- section (2) of section 211 of the Companies Act applied. 22.12 This is clearly evident from a bare reading of the provisions of section 115JB of the Act, as applicable to the relevant year under consideration.

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22.13 The Learned AR submitted that on perusal of the aforesaid, it will kindly be noticed that the provisions of section 115JB of the Act applied during the relevant year only to companies required, under the law, to prepare its profit and loss account in accordance with Parts II and III of Schedule VI of the Companies Act and not otherwise. 22.14. It is of utmost importance to note that the Legislature re- introduced the MAT provisions vide Finance Bill, 1996: 220 ITR (St.) 107 and the Hon'ble Finance Minister while introducing this provision, inter-alia, stated as under: "90. Corporate tax rates have been reduced and simplified over the past few years and the results have been very encouraging with a significant increase in corporate taxes as a percentage of GDP. However, there are two issues which need to be addressed. The first is the promise made in the past that the corporate surcharge will be temporary. The other is the phenomenon of zero tax companies which, according to many observers, reflects an excessive degree of laxity in the tax regime. I propose to respond to the two issues as follows: (i) I am reducing the rate of surcharge on corporation tax from 15% to 7.5% and hope to take a similar step in my next budget. The reduced tax burden will benefit all companies big and small. (ii) I propose to introduce a "Minimum Alternate Tax" (MAT) on companies. In a case where the total income of the company, as computed under the Income Tax Act after availing of all eligible deductions, is less than 30 per cent of the book profit, the total income of such a company shall be deemed to be 30 per cent of the book profit and shall be charged to tax accordingly. The effective rate works out to 12 per cent of book profit calculated under the Companies Act. Companies engaged in the power and infrastructure sector will, however, be exempted from the levy of MAT." (emphasis supplied) 22.15 On the basis of the aforesaid, it would be noted that Legislature intended to exclude from the purview of MAT provisions under section 115JA of the Act (which were para-materia to section

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115JB of the Act) companies engaged, inter-alia, in the power sector which were governed by a Special statute, which also regulates the manner in which accounts for such companies were to be prepared. 22.16 The appellant, is governed by the provisions of the Electricity Act, 2003 and accordingly prepares its annual accounts in accordance with the applicable Electricity Act/ DERC regulations, which are binding and mandatorily to be followed by the appellant. 22.17 It is was submitted that various Benches of the Tribunal have held that provisions of section 115JB of the Act shall not apply to companies referred in proviso to sub-sections (1) and (2) of Section 211 of the Companies Act, i.e., companies governed by Special Acts viz.,. Banking Regulation Act, 1949, Electricity Act, 2003, Insurance Regulatory Act, 1999 etc. Reference, in this regard, made to the following decisions:- - Kerala State Electricity Board v. DCIT: ITA Nos. 1703/1710 and 1716 of 2009 (Ker) = 2010-TIOL-827-HC- KERALA -IT - Maharashtra State Electricity Board v. JCIT: 82 ITD 422 (Mum.) = 2003-TIOL-87-ITAT-MUM - Reliance Energy Ltd. vs. ACIT: ITA No. 218/Mum/2005 (Mum.) - Krung Thai Bank PCL v. JDIT: 133 TTJ 435 (Mum.) 22.18 Accordingly, the provisions of section 115JB of the Act were, during the relevant year, not applicable to the appellant, contended the Learned AR. 22.19 The Learned AR submitted that the aforesaid contention of the appellant, is fortified by substantive amendments in section 115JB of the Act made by the Finance Act, 2012, with effect from April 1, 2013, which are discussed hereunder: 22.20 The scope of the deeming provisions of section 115JB of the Act was widened w.e.f. 01.04.2013, by including within the ambit of the said section, companies to which proviso to sub-section (2) of section 211 of Companies Act applied. The Learned AR referred sub- section (2) to section 115JB of the Act as substituted by the Finance Act, 2012 w.e.f. 01.04.2013.

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22.21 Thus, vide Finance Act, 2012 the scope of section 115JB of the Act was widened so as to include companies preparing profit and loss account in accordance with provisions of the relevant regulatory Act. 22.22 However, it may be noted that amendments by the Finance Act, 2012 imposing new tax burden on companies which was otherwise not provided under the Act, were, in no uncertain terms, made in provisions of section 115JB(2) with effect from April 1, 2013, meaning thereby that the deeming provisions are applicable to companies governed by special Acts only from assessment year 2013- 14 and onwards. 22.23 Memorandum explaining the provisions of the Finance Bill, 2012: 342 ITR (St.) 288, whereby sub-section (2) of section 115JB was substituted provides that the amendment is applicable w.e.f. 01.04.2013, that is for assessment years 2013-14 onwards. Relevant extract of the Memorandum is reproduced as under: "Minimum Alternate Tax (MAT) I. Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and one half per cent of its book profit in case tax on its total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB.

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II. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. III. It is also proposed to omit the reference of Part III of the Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act, 1956. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years. [Clause 46]" (emphasis supplied) 22.24 On perusal of the aforesaid, it will kindly be appreciated that the Legislature recognized that "as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or Electricity Company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts". In these circumstances, since the provisions of section 115JB of the Act were not applicable to such special category of companies, the Legislature made substantive amendments therein so as to make the said section applicable to such special category companies, including electricity company, with prospective effect from assessment year 2013-14 only. 22.25 The Learned AR contended that it is patently clear from the aforesaid amendment that prior to the amendment applicable from assessment year 2013-14, provisions of section 115JB of the Act were not at all applicable to an electricity company, such as the appellant up to the assessment year 2012-13. 22.26 Further, Explanation 3 to section 115JB of the Act, which provides an option to discoms to prepare accounts as per Schedule VI

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of the Companies Act or the governing law/special Act in respect of assessment years prior to 2013-14, has also been inserted as part of the substantive amendments applicable from assessment year 2013-14 and onwards. The said Explanation, cannot be given such retrospective effect resulting in imposition of fresh levy for assessment years up to AY 2012-13, which was not in accordance with the language of section 115JB of the Act, as it then stood and the legislative intent. The amendments to section 115JB of the Act made by the Finance Act, 2012 are, it was submitted, substantive in nature resulting in fresh liability to tax and would therefore, apply only prospectively; the same cannot, unless specifically mandated by the statute, be applied from retrospective effect. 22.27 Reliance in this regard was placed on the decision of the Constitution Bench of the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Private Limited: [TS-573-SC-2014-O]. To the same effect are the following decisions wherein it has been held that a provision imposing liability is governed by the normal presumption that is not retrospective: - S.S.Gadgil vs. Lal and Co. (1964) 53 ITR 231 (SC) - K.M.Sharma vs. ITO [TS-5013-SC-2002-O] - Gem Granites vs. CIT [TS-5022-SC-2004-O] - Sedco Forex International Drill Inc. vs. CIT (2005) [TS-14-SC- 2005-O]. 22.28 The fundamental principle reiterated in the aforesaid decision is lexprospicit non respicit: i.e., laws look forward and not backward. No section can be interpreted retrospectively unless it is mentioned in the section itself. 22.29 Specific reliance in this regard was placed on the decision of the Delhi Bench of the Tribunal in the case of Bank of Tokyo Mitsubishi UFJ Ltd. vs. ADIT: ITA No.5364 of 2010 wherein the Tribunal was adjudicating the issue regarding applicability of provisions of section 115JB to a foreign bank which was subject to tax in India on income earned by the branch in India (PE)and preparing its accounts as per requirements of Banking Regulation Act. The Tribunal while following the principles laid down by the

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Supreme Court in Vatika Township (supra) observed that the amendment to section 115JB of the Act by the Finance Act, 2012 was prospective since the same resulted in substantial change in computation provisions. 22.30 To the same effect are the following decisions, wherein amendment to sub-section (2) of section 115JB of the Act vide Finance Act 2012 has been held to be prospective: - State Bank of Hyderabad v. DCIT: ITA No. 578/Hyd./2010 (Hyd.) - ICICI Lombart General Insurance Co. Ltd. V. ACIT: 54 SOT 538 (Mum.) 22.31 Applying the aforesaid legal principles, the Finance Act, 2012, in no uncertain terms, clearly provides that the provision of section 115JB(2) and Explanation 3 to said sub-section shall come in force with effect from April 1, 2013 and will accordingly apply in relation to the assessment year 2013-14 and onwards. Meaning thereby, the amendment is specifically made applicable prospectively and not retrospectively, contended the Learned AR. 22.32 Furthermore, section 115JB of the Act is a deeming provision which results in an assessee having to pay tax, otherwise not payable, on artificial income. The said section should, therefore, be construed and interpreted strictly, viz, in a manner that leaves the assessee with a lower burden of having to bear an artificial tax liability contended the Learned AR. 22.33 It is a well-known principle of interpretation of fiscal statutes that in the event of any doubt in regard to interpretation, particularly in cases of taxation by employing legal fiction, the benefit of doubt, if any, should be given to the assessee and the interpretation beneficial to the taxpayer should be accepted. Reference was made to the following cases: - CIT v. Vegetable Products Ltd.: [TS-6-SC-1973-O] - CIT vs. J.K.Hosiery Factory : [TS-5013-SC-1986-O] - ACIT v. Thanthi Trust: 247 ITR 785 [TS-5005-SC-2001-O]

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- UOI v. Onkar Kanwar : [TS-5021-SC-2002-O] - CIT v. A. J. Abraham Anthraper : [TS-5230-HC-2004(Kerala)-O] - Vijay Omprakash Bansal v. CIT : [TS-6051-HC-2001(Bombay)-O] - CIT v. L.G Balakrishnan: [TS-5374-HC-2001(Madras)-O] - CIT v. Quantas Airlines Ltd.: [TS-5297-HC-2002(Delhi)-O] - Southern Roadways Ltd. vs. CWT: [TS-5676-HC-2000(Madras)-O] 22.34 Having regard to the legal position discussed supra, the Learned AR submitted that the provisions of section 115JB of the Act were not at all applicable to companies governed by special Acts (which includes power companies) in respect of assessment years falling prior to April 1, 2013 and thereby the appellant was not liable to pay tax under the provisions of the said section for the assessment year under consideration. Even though the appellant, under a misconception of law, had declared income under the deeming provisions of section 115JB of the Act, still the assessing officer was under duty to correctly assess income of the appellant in accordance with the provisions of the Act. 23. The learned CIT(DR) on the other hand tried to justify the action of the Assessing Officer in framing the assessment under sec. 115JB of the Act. He submitted that the decisions relied upon by the Learned AR having distinguishable facts are not applicable in the case of the assessee. He pointed out that the assessee itself had declared income under the deeming provisions of sec. 115JB of the Act, thus, the assessee has no grievance in this regard and the issue raised in the additional ground may be decided in favour of the Revenue. 24. We find that in support of the issue that deeming provisions of sec. 115JB of the Act were not applicable in the case of the assessee during the assessment year under consideration, the Learned AR has cited provisions of different laws and has placed reliance on several decisions. We thus prefer to examine provisions of different laws on the issue first. It was claimed that books of account of the assessee are drawn in accordance with the statutory provisions as applied to an electricity company, i.e. the Repealed Electricity

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(Supply) Act, 1948 and the Delhi Electricity Reforms (Transfer Scheme) Rules, 2001 and provisions of the Companies Act, 1956 to the extent the same are not inconsistent with the Electricity Act/DERC Regulation. It was submitted in other words that in case of any variation/conflict in the aforesaid provisions, the assessee is bound to mandatorily follow/adopt the specific provisions of Electricity Act/DERC Regulation, which are specifically related to its area of operations, although the basic form for preparation and presentation of accounts would be prescribed by Schedule-VI to the Companies Act. It was submitted that overriding mandate of Electricity Act, 2003 in respect of electricity company vis-à-vis other Acts, is specifically provided in sec. 174 of the Electricity Act, 2003. 24.1 For a ready reference, the provisions laid down under sec. 174 of the Electricity Act, 2003 are reproduced hereunder: S.174 "Save as otherwise provided in section 173, the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act." 24.2 Perusal of the above provisions make it clear that these provisions shall override the provisions of all other Acts. The Learned AR has also referred the provisions laid down under sec. 616 of the Companies Act, 1956 to support his contention that even the Companies Act, 1956 and the Companies Act, 2013 (Section 1(4)) also provided/provides that the provisions of the said Act would apply in respect of an Electricity Company only in so far as the said provisions are not inconsistent with the Electricity Act. For a ready reference, the aforesaid provisions of the Companies Act, 1956 and the Companies Act, 2013 are being reproduced hereunder: Section 616 of the Companies Act, 1956: "616. Application of Act to insurance, banking, electricity supply and other companies governed by special Acts. The provisions of this Act shall apply-- (a) to insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 ; (4 of 1938.)

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(b) to banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Companies Act, 1949 ; (10 of 1949.) (c) to companies engaged in the generation or supply of electricity, except in so far as the said provisions are inconsistent with the provisions of The Indian Electricity Act, 1910, (9 of 1910) or] the Electricity Supply Act, 1948 ; (54 of 1948.) (d) to any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; (e) to such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification in the Official Gazette, specify in this behalf, subject to such exceptions, modifications or adaptations, as may be specified in the notification.] Application of Act to Government Companies" Further, Section 1(4) of the Companies Act, 2013 reads as under: "1. Short title, extent, commencement and application (1) This Act may be called the Companies Act, 2013. …………………….. (4) The provisions of this Act shall apply to- (a) companies incorporated under this Act or under any previous company law; (b) insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999; (c) banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949; (d) companies engaged in the generation or supply of electricity, except in so far as the said provisions are inconsistent with the provisions of the Electricity Act, 2003;

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(e) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; and (f) such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as may be specified in the notification…." 24.3 On perusal of the above provisions of the Companies Act, we find substance in the contention of the Learned AR that the provisions of the Act would apply in respect of an Electricity Company only in so far as the said provisions are not inconsistent with the Electricity Act. 24.4 The Learned AR has also referred the provisions laid down under sec. 181 of the Electricity Act with this submission that the said provisions provide power to the State Commission to make regulation. For a ready reference, relevant extracts of section 180 of the Electricity Act, 2003 is being reproduced hereunder: "180. Powers of State Commissions to make regulations. (1) The State Commissions may, by notification, make regulations consistent with this Act and the rules generally to carry out the provisions of this Act. (2) In particular and without prejudice to the generality of the power contained in sub-section (1), such regulations may provide for all or any of the following matters, namely: (a) period to be specified under the first proviso of section 14; (b) the form and the manner of application under sub-section (1) of section 15; ……………… ……………….. (zc) the terms and conditions for the determination of tariff under section 61;

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……………… (zg) issue of tariff order with modifications or conditions under subsection(3) of section 64; (zo) any other matter which is to be, or may be, specified. (3) All regulations made by the State Commission under this Act shall be subject to the condition of previous publication." 24.5 On perusal of the above provisions, we concur with the submission of the assessee that under the Electricity Act, 2003, the State Commission is empowered to make regulations. In view of the above discussed provisions of Electricity Act, 2003 and Companies Act, it is clear that the very basis of recognition of Revenue and expense is regulated by the DERC and not strictly as per the provisions of the Companies Act. It is also an established position of law that provisions of a specific Act would override the provisions of all other Acts, which is supported by the decisions relied upon by the assessee including the decision so Hon'ble Supreme Court in the case of TRO vs. Custodian - Special Court at - 934 (supra). Thus, it can be safely arrived at a conclusion that the assessee prepares its annual account in accordance with the applicable laws including provisions of the Delhi Electricity Reforms (Transfer Scheme), Rule 2001 and is not required to and has not been strictly preparing its audited annual account as per Parts II and III of Schedule-6 of the Companies Act, 1956. 24.6 Further contention of the Learned AR remained that prior to the amendment to sub-section (2) of sec. 115JB of the Income-tax Act, 1961, the deeming provisions of the said section were not applicable to Companies to which proviso to sub-section (2) of sec. 211 of the Companies Act were abolished. To examine this contention, we have gone through the provisions of sec. 115JB of the Income-tax Act, 1961, as applicable to the relevant year under consideration, reproduced hereunder: "Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed

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under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one-half per cent. (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) ………………..". 24.7 On the reading of above provisions laid down under sec. 115JB of the Act relevant for the year, we find that the provisions are applied during the relevant year only to the companies required under the law, to prepare its profit and loss account in accordance with Parts-II and III of Schedule-VI of the Companies Act and not otherwise. 24.8 The Learned AR in his submission has also reproduced hereinabove the speech of Hon'ble Finance Minister while reintroducing the MAT provisions vide Finance Bill, 1996 - 220 ITR (Statute) 107 with the submission that the Legislature intended to exclude it from the purview of MAT provisions under sec. 115JA of the Act (which were para materia to sec. 115JB of the Act) Companies engaged, inter alia, in the power sector which were governed by a Special Statute, which also regulates the manner in which accounts for such companies were to be prepared. Having gone through the said speech of the Hon'ble Finance Minister, we concur with the above submission of the assessee about the intention of the legislature. 24.9 In view of the above discussion, we agree with the submission of the Learned AR that the assessee is governed by the provisions of the Electricity Act, 2003 and accordingly supposed to prepare its annual accounts in accordance with the applicable Electricity Act/DERC Regulation, which are binding and mandatory to be followed by the assessee. 24.6 The cited decisions by the Learned AR in the cases of Kerala State Electricity Board, vs. DCIT (supra), Maharashtra State

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Electricity Board vs. JCIT (supra), Reliance Energy Ltd. vs. ACIT (supra) and Crung Thai Bank PCL vs. JDIT (supra) also support the contention of the assessee that provisions of sec. 115JB of the Act shall not apply to Companies referred in proviso to sub-sections (1) and (2) of sec. 211 of the Companies Act, i.e. companies covered by Special Acts viz. Banking Regulation Act, 1949, Electricity Act, 2003, Insurance Regulatory Act, 1999 etc. We accordingly hold that provisions of sec. 115JB of the Act were not applicable to the assessee during the year under consideration as the same is also fortified by substantive amendments in section 115JB of the Act by the Finance Act, 2012 w.e.f. 01.04.2013. Sub-section (2) to section 115JB of the Act as substituted by the Finance Act, 2012 w.e.f. 01.04.2013 reads as under: "Special provision for payment of tax by certain companies 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on 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, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company."

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24.7 Simultaneously, Explanation 3 to aforesaid sub-section (2) of section 115JB of the Act was inserted by Finance Act, 2012 w.e.f. 01.04.2013 which reads as under: "Explanation 3.-For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company." 24.8 We thus find that vide Finance Act, 2012, the scope of section 115JB of the Act was widen so as to include companies preparing profit and loss account in accordance with provisions of the relevant Regulatory Act. However, the amendments by the Finance Act, 2012 imposing new tax burden on companies which was otherwise not provided under the Act, were, in no uncertain terms, made in provisions of sec.115JB (2) w.e.f. 01.04.2013. In other words, the deeming provisions are applicable to companies governed by special Act only from assessment year 2013-14 and onwards. The memorandum explaining the provisions of the Finance Bill, 2012-240 ITR (St.) 288 whereby sub-section (2) of sec. 115JB was substituted provides that the amendment is applicable w.e.f. 01.0.2013 i.e. for the assessment year 2013-14 onwards. The relevant extracts of the memorandum has been reproduced hereinabove in the submissions of the Learned AR. From the aforesaid amendments, it is clear that prior to amendment applicable from the assessment year 2013-14, provisions of sec. 115JB of the Act were not applicable to an electricity company such as the assessee up to the assessment year 2012-13. 24.9 The Explanation-3 to section 115JB of the Act which provides an option to prepare its accounts as per Schedule-VI of the Companies Act or the governing law/special Act in respect of assessment year prior to 2013- 14, has also been inserted as per the substantive amendments applicable from assessment year 2013-14 and onwards. The amendments to section 115JB of the Act made by Finance Act, 2012 are substantive in nature resulting in fresh liability

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to tax and would, therefore, apply only prospectively. The same cannot unless specifically mandated by the statute, be applied from retrospective effect. In this regard, we find support from the ratios laid down by the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Pvt. Ltd. (supra), wherein the Hon'ble Supreme Court has been pleased to discuss elaborately the general principles concerning interpretation of amendments with retrospective effect. The relevant excerpts of the observations of the Hon'ble Supreme Court are being reproduced hereunder: "General Principles concerning retrospectivity …………………………….. ……………………………… 31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit: law looks forward not backward. As was observed in Phillips vs. Eyre (1870) LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 32. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd (1994) 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the

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legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. ……………………….. …………………………………… Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 35. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labeled as "declaratory statutes". The circumstances under which a provision can be termed as "declaratory statutes" is explained by Justice G.P. Singh7 in the following manner: "Declaratory statutes: The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : "For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed

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retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law." The above summing up is factually based on the judgments of this Court as well as English decisions. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. MohanlalBhagwandas&Anr.(1968) 3 SCR 623, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: "The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional juris-diction was before the amendment derived from s. 115, Code of Civil Procedure, and the legislature has by the amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act." 36. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See Controller of Estate Duty Gujarat-I v. M.A. Merchant 1989 Supp (1) SCC 499. We would also like to reproduce hereunder the following observations made by this Court in the case of Govinddas v. Income- tax Officer (1976) 1 SCC 906, while holding Section 171 (6) of the

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Income- Tax Act to be prospective and inapplicable for any assessment year prior to 1st April, 1962, the date on which the Income Tax Act came into force: "11. Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospectively and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be constued as prospective only." 37. In the case of C.I.T., Bombay v. Scindia Steam Navigation Co. Ltd. (1962) 1 SCR 788, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year……………." 24.6 Similar view has been expressed by the Hon'ble Supreme Court in the other cited decisions in the cases of S.S. Gadgil vs. Lal & Co. (supra), Sedco Forex International Drill Inc. vs. CIT (supra) etc. Thus, it is clear and an established position of law that no section can be interpreted retrospectively unless is mentioned in the section itself. 24.7 The Delhi Bench of the ITAT in the case of Bank of Tokyo Mitsubishi UFJ Ltd. vs. ADIT (supra) while following the principles laid down by the Hon'ble Supreme Court in Vatika Township (supra) observed that the amendment to sec. 115JB of the Act by Finance Act, 2012 was prospective since the same resulted in substantial change in computation provisions. In that case, the ITAT

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was adjudicating the issue regarding applicability of provisions of sec. 115JB of the Act to a foreign bank which was subject to tax in India on income earned by the Branch in India (P.E) and preparing its accounts as per requirements of Banking Regulation Act. The relevant finding in that case are being reproduced hereunder: "74……….In our opinion this explanation cannot be held to be retrospective in operation because it has brought in a substantial change in the computation provision. Till the insertion of this amendment, various decisions clearly held that in case of Banking Companies, Electricity Companies and Insurance Companies, since they were governed by Special Acts and the profit and loss account was not prepared as per part II of schedule VI to the Companies Act, therefore, the computation provisions failed. Accordingly, in view of the decision of Supreme Court in the case of B.C. Srinivasa Setty (supra), the law till the insertion of this explanation was that the provisions of section 115JB were not applicable on account of impossibility of computation as the accounts were not prepared in accordance with part II, schedule VI to the Companies Act. Now by incorporating Explanation 3, the Companies governed by Special Acts which come within the ambit of company u/s 2(17) are covered by the provisions of section 115JB. Therefore, this amendment brings substantial change in the taxability of companies governed by the special acts and, therefore, cannot be held to be retrospective. In this regard we also find strength from the ratio laid down by the Supreme Court in its decision dated 16.9.2014 in the case of CIT v. Vatika Township (P.) Ltd. In Civil Appeals arising out of SLP(C) No. 1362 of 2009 and others. The five judges Bench of the Supreme Court strikes down division Bench ruling on retrospective applicability of proviso to section 113 of the Income Tax Act holding the proviso to operate prospectively. Laying down perusal principles governing retrospectivity, the Supreme Court has been pleased to rule that unless contrary intention appears, a legislation is presumed not to be intended to have retrospective operation, current law ought to govern current activities, law passed today cannot apply to past events." 24.8 The Mumbai Bench of the ITAT in the case of Reliance Instruments Ltd. vs. ACIT & Ors. (supra) has also expressed similar view. Relevant para Nos. 38 and 39 are being reproduced hereunder:

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"38. Having heard the rival submissions and after perusing the relevant material on record we find that the Tribunal in assessee's own case in assessment year 2001-02 in para 29 has held as under: "As discussed above, the assessee is following the accounting policies wider the Electricity Supply Act and prepared its accounts in view of those very policies. Following those very policies, the account's in accordance with Part II & III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II and II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon'ble Supreme Court and the decision of the Tribunal for A.Y. 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the relevant case." 39. Similar view has been taken by the Tribunal in assessment years 2002-03 and 2003-04 as has been discussed in para 14 of the said order and also in the order for A.Y. 2004-05. Respectfully following the precedents, we accept the assessee's claim and hold that the provisions of sec. 115JB cannot be upheld." Again the Bangalore Bench of the ITAT in the case of Syndicate Bank vs. DCIT (supra) has decided the issue in favour of the assessee, a banking company. Relevant para Nos. 98 & 99 thereof are being reproduced hereunder: "98. We have considered the rival submissions of the learned counsel for the assessee. We find that this issue was considered by the Mumbai Bench of the Tribunal in the case of Krung Thai Bank PCL (supra) and on the above issue held as follows: "5. Learned counsel for the assessee, however, contends that the provisions of MAT do not apply to the assessee, and, for this reason, very foundation of impugned reassessment proceedings is devoid of legally sustainable merits. His line of reasoning is this. The provisions of MAT can come into play only when the assessee prepares its profit and loss account in accordance with Schedule VI to the Companies Act. It is pointed out that, in terms of

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the provisions of sec. 115JB(2), every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and III of Schedule VI to the Companies Act. Unless the profit and loss is so prepared, the provisions of Sec. 115JB cannot come into play at all. However, the assessee is a banking company and under proviso to sec. 211(2) OF THE Act, the assessee is exempted from preparing its books of account in terms of requirements of Schedule VI to the Companies Act, and the assessee is to prepare its books of account in terms of the provisions of Banking Regulation Act. It is thus, contended that the provisions of sec. 115JB do not apply in the case of banking companies which are not required to prepare the profit and loss account as per the requirements of Part II and III of Schedule VI to the Companies Act. Since the provisions of sec. 115JB do not apply to the assessee company, the reasons recorded for reopening the assessment are clearly wrong and insufficient. We are urged to quash the reassessment proceedings on this short ground. 6. Learned Departmental Representative, on the other hand, vehemently relies upon the orders of the authorities below and submits that there is no specific exclusion clause for the banking companies, and in the absence of such a clause, it is not open to us to infer the same. The submission of the learned counsel, according to the departmental representative, are clearly contrary to the legislative intent and plain wording of the statute. 7. The plea of the assessee is indeed well taken, and it meets our approval. The provisions of sec. 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax under sec.115JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Sec. 211(2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The

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provisions of Section 115JB cannot thus be applied to the case of banking company". The Hon'ble Kerala High Court in its recent decision in the case of Kerala State Electricity Board vs. DCIT (2010) - 329 ITR 91 (Ker.) after detailed deliberation and referring the CBDT understanding (Circular No. 762 dated 18.2.1998 - 230 ITR (Statute)- 12) that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infra-structure facility as a matter of policy, are not brought within the purview of the amendment (115JA) for the reason that such a policy would promote the infra-structural development of the country and that such an understanding of the CBDT is binding on the department, has also been pleased to arrive at a conclusion, relevant paragraphs thereof are being reproduced hereunder: "11. Before we examine the first question a brief survey of the history of section 115JB is necessary. Chapter XII-B was inserted by the Finance Act of 1987 in the Income-tax Act. Section 115J was introduced for the first time by the said Chapter. The relevant portion of the said section reads as follows: "Section 115J. Special provisions relating to certain companies.-(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), 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, 1988 but before the 1st day of April, 1991 (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. (1A) 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)

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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 (1A), as increased by - if any amount referred to in clauses (a ) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by,-" It can be seen from clause (1) that the provision creates a legal fiction regarding the total income chargeable to tax. Such a fiction is applicable only to those assessees which - (a) are Companies except the Companies engaged in the business of either generation or distribution of electricity, (b) that such a fiction is made applicable to the Companies only with reference to the previous year relevant to the assessment year commencing after 1-4-1988 and ending with the 1-4-1991, (c) the "total income" of the Company as computed under the Act is less than thirty per cent of its "book profit". The fiction being that the total income for the purpose of assessment shall be deemed to be 30 per cent of the book profit. In other words, the section prescribes 30 per cent of the book profits of those Companies falling within the purview of the section shall be treated as the total income of the Company for the purpose of Income-tax, irrespective of the fact that according to the accounts of the Company the "total income" is less than thirty per cent of the book profit. The expression "book profit" itself is explained in the section as meaning, the net profit as shown in the profit and loss account for the relevant previous year prepared as per the prescription under sub-section (1A) and either increased or decreased by various amounts specified in the various subsequent sub-clauses appended to the Explanation, the details of which are not necessary for the purpose of this case. However, the operation of section 115J came to an end with 1991- 92 assessment year onwards. 12. Subsequently, section 115JA came to be inserted in the Income-tax Act by Finance Act 2 of 1996, with effect from 1-4-1997. The scheme of section 115JA is almost similar to the scheme of section 115J. Two major points of difference are that the new section is applicable with reference to the previous year relevant to the assessment year commencing from 1-4-1997 and ending with 1-4-

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2001. Secondly, the express exclusion of the Companies engaged in the business of either generation or distribution of electricity is absent under section 115JA. The third and most important change is that two provisos are added to sub-section (2) stipulating that : "Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation or depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year." The further details of section 115JA may not be necessary for the present purpose. 13. Then came to section 115JB, which was inserted in the Income-tax Act by Finance Act of 2000 with effect from 1-4-2001. The relevant portion as it stands today reads as follows:- "115JB. Special provision for payment of tax by certain companies.- (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the incometax, payable on 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, 2007 is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent. (2) Every assessee, being a company shall for the purposes of this section, prepare its profit and loss account for the relevant

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previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing the annual accounts including profit and loss account,- (i)the accounting policies; (ii)the accounting standards followed for preparing such accounts including profit and loss account; (iii)the method and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i)the accounting policies; (ii)the accounting standards adopted for preparing such accounts including profit and loss account; (iii)the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year failing within the relevant previous year". The scheme of the section 115JB is similar to section 115J and section 115JA. The difference insofar as it is relevant for the present purpose between section 115JB and its fore-runners (Sections 115J and 115 JA) is as follows: All the 3 sections (Ss.115J, 115JA and 115JB) create legal fictions regarding the 'total income' (a defined expression under section 2(45)

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of the Act) 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 Income-tax Act is less than 30 per cent of the book profits of the Company, section 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 Income- tax Act is less than a specified percentage (7- per cent for the years in issue) of the book profit. Further, sections 115JA and 115JB also stipulate a definite manner of preparing the annual accounts including the profit and loss accounts. More specifically, Section 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 section 210 of the Companies Act, 1956. 14. It may be mentioned here that under section 166 of the Companies Act every Company is mandated to hold a general meeting in each year. Section 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 profit and loss account for the period. Parts II and III of Schedule VI to the Companies Act specify the method and manner of maintaining the profit and loss account. 15. However, the appellant though is by definition a Company under the Income-tax Act and deemed to be a Company for the purpose of Income-tax Act, (by virtue of the declaration under section 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 to convene an annual general meeting or place its profit and loss account in such general meeting. As a matter of fact, a general meeting contemplated under section 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 section 69 of the Electricity Supply Act, the appellant is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet, etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. The prescription of the rules in this regard is required to be

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made in consultation with the Comptroller and Auditor-General of India and also the State Governments. Such accounts of the appellant are required to be audited by the Comptroller and Auditor-General of India or such other person duly authorised by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report is required to be laid annually before the State Legislature and also to be published in the prescribed manner and copies of such publication shall be made available for sale at a reasonable price, obviously for the benefit of the general public who wish to scrutinise the accounts. 16. Thus, it can be seen that coming to the maintenance of the accounts, the appellant though is deemed to be a "Company" - both by virtue of operation of section 80 of the Income-tax Act for the purpose of Income-tax Act and by virtue of the definition of the expression "Company" under the Income-tax Act (which is already examined earlier) - the appellant is required to keep and maintain its accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act. Therefore, the question is whether the legal fiction contemplated under section 115JB can be pressed into service while making the assessment of Income-tax payable by the appellant. 17. It must be remembered that section 115JB creates a legal fiction regarding the total income of the assessees which are Companies. The book profit of the Company is deemed to be total income of the assessee in the circumstances specified in the said section, which are already noticed earlier. The expression "book profit" for the purpose of the said section is explained in the section itself to mean the net profit as increased or decreased by the various amounts shown in the various sub-clauses of the Section. The "net profit" itself must be the net profit as shown in the profit and loss account of the Company. Sub-section (2) mandates that the profit and loss account of the Company is required to be prepared in the manner specified therein. Though in view of the requirement under section 69 of the Electricity Supply Act the appellant is required to maintain accounts in a different form than the one contemplated under section 115JB(2), the prescription under section 69 is only regarding the general duty of the appellant for the purpose of Electricity Supply Act. Nothing in theory prevents the Parliament from obligating the appellant to prepare another profit and loss

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account as prescribed under section 115JB(2) for the purpose of the Income-tax Act. The question is whether such an obligation is created under section 115JB(2) insofar as the appellant is concerned. In examining the said question, the legislative history and the mischief sought to be cured by the Legislature in making the special deeming provision, in our opinion, would be relevant. 18. Coming to the legislative history of section 115JB and its fore-runners - Sections 115J and 115JA - we have already noticed that they provided for the determination of the total income of the Companies by a fictitious process. However, at the earliest point of time when such a fictitious process is invented, i.e. when section 115J was introduced, the section expressly excluded from its operation bodies like the appellant. Coming to section 115JA, though such express exclusion is absent, the Central Board of Direct Taxes issued a Circular No. 762, dated 18th February, 1998 - [which is binding on the Department, see K.P. Varghese v. ITO [TS-11-SC-1981-O] and Ranadey Micronutrients v. Collector of Central Excise 1996 (87) ELT 19 (SC) 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, in our opinion, 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. 19. The Circular No. 762 not only is binding on the respondents, but also explains the purpose in introducing section 115JA. The relevant portion reads as follows:- "46.1 In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance Act has inserted a new section 115JA of the Incometax Act, so as to levy a minimum tax on companies who are

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having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Income-tax Act, is more than 30 per cent of the book profit, tax shall be charged on the same. 46.3 The effective minimum alternate tax, at the existing rates of taxation works out to 12 per cent of the book profits. 46.4 Income arising from free trade zone (FTZ), export oriented undertakings (EOUs), charitable activities, investment by a venture capital company and other exempted incomes (section 10) are excluded from the purview of the alternate tax. 46.5 Since the alternate tax is applicable only where the normal total income computed is less than 30 per cent of the book profits, so long as the enterprises (other than FTZ units and EOUs) earning income from export profits do not have their component of export income higher than 70 per cent of the book profits, the provisions of section 115JA will not be attracted. In other words, the MAT will apply only to such cases where export profits forming part of book profits of an assessee exceed 7 per cent of the total profits. 46.6 Companies engaged in the business of generation and distribution of power and those enterprises engaged in developing, maintaining and operating infrastructure facilities under sub-section (4A) of section 80-IA are exempted from the levy of MAT, so that the incentive given to infrastructure development is not affected." It can be seen from the above that the legislature took note of the fact that a number of Companies paying marginal tax and also zero-tax has grown. Such Companies earned substantial book profits and paid handsome dividends to the shareholders without paying any tax to the exchequer. Such a result was achieved by such Companies by taking advantage of the then existing legal position which permitted the adoption of dual accounting policies and practices, one for the purpose of computation of Income-tax and another for the purpose of determining the book profits for the purpose of payment of dividends.

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Therefore, the amendment was made to plug the loophole in the law. However, 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 (Section 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. 20. If that is the background in which section 115JA is introduced into the Income-tax Act, section 115JB, which is substantially similar to section 115JA, in our opinion, cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of section 115JA." 24.8 Under the above facts and circumstances, we thus hold that even though the assessee, under a misconception of law, had declared income under the deeming provisions of sec. 115JB of the Act, still the Assessing Officer was under its duty bound to make correct assessment of income of the assessee in accordance with the provisions of the Act. As per above discussion and the ratios laid down in the cited decisions, we hold that the provisions of sec. 115JB of the Act were not at all applicable to companies governed by special Acts which also includes power companies, in respect of assessment years falling prior to 01.04.2013 and thereby the assessee was not liable to pay tax under the provisions of the said sections for the assessment years under consideration. 19. This aspect was also examined by the Hon’ble Kerala High Court in the case of Kerala State Electricity Board (supra) and has concluded that provisions of section 115JB cannot be invoked in the case of State Electricity Board as it was governed by different law. The relevant observations of this Hon’ble Court is also extracted hereunder for the sake of reference:-

“Section 115JB of the Income-tax Act, 1961 creates a legal fiction regarding the total income chargeable to tax. Such a fiction is applicable only to those assessees which are companies. The book profit of the company is deemed to be the total income

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of the assessee in the circumstances specified in the section. The expression "book profit" for the purpose of the section is explained to mean the net profit as increased or decreased by the various amounts shown in the various sub-clauses of the section. The "net profit" itself must be the net profit as shown in the profit and loss account of the company. Sub-section (2) mandates that the profit and loss account of the company is required to be prepared in the manner specified therein. Section 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 section 210 of the Companies Act, 1956. Though the Kerala State Electricity Board, a statutory corporation constituted by virtue of section 5 of the Electricity (Supply) Act, 1948 answers the description of an Indian company and therefore a company within the meaning of section 2(17) of the Income-tax Act, 1961 it is not a company for the purpose of the Companies Act, 1956. It is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. On the other hand, under section 69 of the Electricity (Supply) Act, 1948, the Board is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet, etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. Such accounts of the Board are required to be audited by the Comptroller and Auditor-General of India or such other person duly authorised by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report are required to be laid annually before the State Legislature and also to be published in the prescribed manner. At the earliest point of time when section 115J was introduced, the section expressly excluded from its operation bodies like the Electricity Board. Though such express exclusion is absent in section 115JA, the Central Board of Direct Taxes issued Circular No. 762 dated February 18, 1998 excluding bodies like the Electricity Board from the operation of the section. Circular No. 762 not only is binding on the Department,

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but also explains the purpose in introducing section 115JA which was to tax zero-tax companies. 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 section 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. Section 115JB, which is substantially similar to section 115JA cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of section 115JA. Where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply. The Electricity Board or bodies similar to it, which are totally owned by the Government, either State or Central, have no shareholders. Profit, if at all, made would be for the benefit of entire body politic of the State. Therefore the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, the fiction fixed under section 115JB cannot be pressed into service against the Electricity Board while making the assessment of the tax payable under the Income-tax Act. Section 43B(a) deals with "any sum payable by the assessee by way of tax, duty, . . . under any law for the time being in force". The words, "by way of tax" 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 principal and agent is created by a statute. Section 43B(a) deals with amounts payable to the sovereign qua sovereign, not amounts payable to the sovereign qua principal. Therefore section 43B cannot be invoked in the case of the Electricity Board with regard to electricity duty collected by it

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pursuant to the obligation under section 5 of the Kerala Electricity Duty Act, 1963. [The court made it clear that it had not decided whether the amount should be treated as income for the purpose of the Act.]” 20. We have also considered the order of the Tribunal in assessee’s own case for the AY 2005-06 and we find that the assessment order was passed on 23.12.2008, much before the amendment brought in sub-section (2) of section 115JB of the Act. Therefore, no inference can be drawn from this order while adjudicating the impugned issue.

Pronounced in the open court on this 22nd day of December, 2017.

Sd/- Sd/- ( A.K. GARODIA ) ( SUNIL KUMAR YADAV) Accountant Member Judicial Member

Bangalore, Dated, the 22nd December, 2017. / Desai Smurthy /

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Copy to:

By order

Senior Private Secretary ITAT, Bangalore.