DAMODAR VALLEY CORPORATION,KOLKATA vs. ADDL. CIT, RANGE - 9, KOLKATA, KOLKATA

SHRI M.BALAGANESH, AM : These appeals of the assessee arise out of the orders of the Learned CIT(A)- VIII, Kolkata in Appeal No. 165/CIT(A)-VIII/Kol/10-11 dated 19-09-2011 for the Asst Year 2008-09 and Appeal No.294/CIT(A)-VIII/Kol/11-12 dated 17-01-2013 for the Asst Year 2009-10 as against the orders of assessments framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

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Ground nos. 1 to 5 of ITA No.451/Kol/2013 A.Y 2009-10 1. For that on the facts and in the circumstances of the case and in law, the CIT(Appeals) was grossly unjustified in rejecting the appellant's claim that the deeming provisions of Section 115JB are not applicable to

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the appellant and therefore total income was not assessable with reference to 'book profit'.

3.1. The brief facts of this issue is that the Learned AO invoked the provisions of section 115JB of the Act. Before the lower authorities, it was stated :-

a. that assessee is a statutory corporation established under the Act of Parliament namely Damodar Valley Corporation (DVC) Act, 1948 meant to provide for the establishment and regulation of the Corporation for the development of the Damodar Valley in the Provinces of Bihar and West Bengal.

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b. that assessee Corporation consists of 3 participating governments viz Union Government and the Provincial Governments of Bihar (now Jharkhand) and West Bengal. c. that assessee Corporation does not have equity capital and consequently does not have any shareholders. d. that the accounts of the Corporation are maintained in accordance and conformity with the provisions of DVC Act, 1948. The annual financial statements are prepared in the form prescribed under the said Act. e. that assessee Corporation does not prepare its annual accounts in accordance or conformity with Schedule VI of the Companies Act, 1956 and accordingly the net profit of the Corporation is not arrived at the provisions of Part II & III of Schedule VI to Companies Act, 1956. f. that assessee Corporation does not distribute its profits by way of dividend either to participating Governments or any other person.

In view of the above, the Learned AR argued that the provisions of section 115JB of the Act are not applicable to the assessee corporation.

3.2. In response to this, the Learned DR argued that the assessee filed its return by computing its income under normal provisions of the Act as well as under section 115JB of the Act and during assessment proceedings, it is only by way of a letter dated 20.12.2010, the asssessee sought to withdraw the applicability of section 115JB of the Act for the assessee and no revised return was filed for making this fresh claim. He placed reliance on the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd vs CIT reported in 284 ITR 323 (SC) in this regard. He further placed reliance on section 43 of DVC Act, 1948 which is as under:- Section 43 : Liability to pay Central Taxes

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(1) The Corporation shall be liable to pay any taxes on income levied by the Central Government in the same manner and to the same extent as a company.

(2) The Provincial Governments shall not be entitled to any refund of any such taxes paid by the Corporation.

He further argued that the provisions of section 58 of DVC Act, 1948 is a general provision whereas provisions of section 43 of DVC Act, 1948 is a special provision which provides that DVC has to pay Central Income Tax in the status of company. Accordingly he argued that the provisions of section 115JB of the Act is also applicable to the assessee corporation.

3.3. We have heard the rival submissions and perused the various case laws relied upon by the counsels for both the sides. The facts regarding the purpose of the assessee corporation and the manner in which it has been enacted are not reiterated for the sake of brevity. We find that in terms of the provisions of the DVC Act, 1948, the assessee Corporation is engaged in the business of generation of electricity, irrigation and flood control. We find that the annual report of assessee Corporation are to be prepared as per section 45 of DVC Act, 1948 which is as below:-

Section 45 - “Annual Report”

(1) The assessee Corporation shall prepare in such form as may be prescribed , an annual report within six months after the end of each financial year giving a true and faithful account of its activities during the financial year with particular reference to irrigation ; water supply ; electrical energy ; flood control ; navigation ; forestation ; soil erosion; use of land ; resettlement of displaced population ; sanitation and public health measures and economic and social welfare of the people.

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(2) The Annual Report shall also give a true and faithful account of the income and expenditure during the previous financial year , the net amount attributable to each of the three main objects and the distribution of the capital cost between the three participating governments and show the progressive total from the inception of the corporation and upto date financial results.

(3) The payments provisionally made by each of the three participating governments on the basis of the budget estimates shall be adjusted as soon as possible in accordance with the allocation made in the annual report.

(4) Printed copies of the annual report shall be made available to each of the three participating governments by the 15th day of October each year.

(5) The annual report shall be laid before the Central and the Provincial Legislatures concerned as soon as may be, after it is prepared.

3.3.1. We find that the provisions of section 46 of DVC Act, 1948 are as below:- Section 46 – “Other Annual Financial Statements”

(1) The corporation shall also prepare such other annual financial statements in such form and by such dates as may be prescribed.

(2) Printed copies of each such annual financial statements shall be made available to each of the three participating governments by such date as may be prescribed.

3.3.2. We find that the provisions of section 46 of DVC Act, 1948 are as below:- Section 47 – “Accounts and Audit”

The accounts of the corporation shall be maintained and audited in such manner as may, in consultation with Auditor General of India, be prescribed.

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3.3.3. We find that the rules governing Accounts and Audit as prescribed in Section II of Damodar Valley Corporation (DVC) Rules, 1948 are as below:- “ACCOUNTS”

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accounts have been duly passed, communicated to the Participating Governments and the Audit Officer.

“AUDIT”

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3.3.4. We find that the provisions of section 58 of DVC Act, 1948 are as below:- Section 58 – Effect of other Laws The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything contained in any enactment other than this Act or any instrument having effect by virtue of any enactment other than this Act.

3.4. We find that when section 43 of DVC Act, 1948 was enacted, the provisions of section 115J / 115JA / 115JB of the Act were not there in the IT Act, 1961. Section 43 of DVC Act, 1948 only states that the corporation shall pay taxes on any income. The Book Profits contemplated u/s 115JB of the IT Act is only deemed income. The Book Profit is an alien to the basic concept of ‘income’. The provisions of section 115JB of the Act is also a deeming provision. Moreover, the amendment with effect from 1.4.2013 makes it very clear by removing the ambiguity present in the statute.

3.5. We find that the form of Balance Sheet of the Corporation is prescribed in Annexure II of the Damodar Valley Corporation Rules which is kept in Pages 38 to 40 of Paper Book of assessee and form of Revenue Account for the year ending 31st March is in page 43 to 44 of Paper Book of assessee. We find from the provisions of DVC Act, 1948, the assessee Corporation does not conduct any annual general meeting. We hold that Section 115JB of Income Tax Act overrides all other provisions of Income Tax Act as it starts with a non obstante clause. Hence it is an independent code by itself. In this section, the term ‘company’

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referred to should be construed as company as defined under Companies Act, 1956 only. The Section 115JB of the Act clearly states that the accounts are to be prepared in accordance with Part II of Schedule VI of Companies Act, 1956. We find lot of force in the arguments of the Learned AR that the computation provision states that ‘Net profit as per per Profit and Loss Account prepared as per Part II of Sch VI of Companies Act, 1956.’ We hold that Sec 211 of Companies Act, 1956 is not applicable to assessee herein, whereas it is very much applicable to companies defined under Companies Act, 1956. We hold that assessee Corporation is not a company under the Companies Act, 1956. Only for income tax assessment purposes, the assessee corporation is given the status of a company. We hold that when 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. We hold that the amendment in section 115JB came into effect only from 1.4.2013 vide Expln 3 inserted by Finance Act 2012. At the time of Finance Bill 2012 stage, amendment was proposed only in section 115JB(2) . Expln 3 was not proposed at that time. But when the Act was enacted, Expln 3 was inserted. Expln 3 states that assessee being a company to which section 211(2) of Companies Act applies. Admittedly, the accounts of assessee corporation are not prepared as per section 211(2) of Companies Act, 1956. We find that the Explanation 3 to section 115JB of the Act has been inserted by the Finance Act 2012 to clarify that only assesses being companies and to whom provisions of the Companies Act , 1956 are applicable come within the ambit of section 115JB of the Act. In other words, unless an assessee comes within the ambit of section 211 of the Companies Act, 1956, it was not covered by the Explanation 3 to section 115JB and as a necessary corollary section 115JB was not applicable to it. We further hold that amendment is brought only from 1.4.2013 and hence is not retrospective. Infact lot of amendments were brought in Finance Act 2012 with retrospective effect. But the amendment in Explanation 3 to Section 115JB of the Act was specifically made

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effective only from 1.4.2013 having prospective effect. Hence the legislature in its wisdom had intention only to prospectively tax the assessee corporation under MAT. We also find that the expression ‘ for the removal of doubts , it is hereby clarified’ used in Explanation 3 to section 115JB should not be construed as clarificatory in nature and thereby giving retrospective effect. Reliance in this regard was placed on the decision of the Hon’ble Apex Court in the case of Vatika Township case reported in 367 ITR 466 (SC). Moreover, the levy of MAT on assessee Corporation is a substantive levy on the assessee and hence can only be prospective.

3.6. The Notes to Clauses to Finance Act, 2012 on the subject of Minimum Alternate Tax (MAT) is reproduced below:- 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 of tax on its total income computed under the provisions of the Act is less than 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

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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. 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.”

3.7. In view of the above, we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee’s contention in fact stands more fortified. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of Companies Act, 1956 , section 211(2) and proviso thereon is not applicable and

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therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable.

3.8. The basic intention of MAT u/s 115JB is only to tax the book profits irrespective of nil or lesser taxable income due to various exemptions / deductions like sections 10A/ 10B/ 80IA / 80IB etc. The intention of MAT is that the companies were declaring huge profits as per their companies act and declaring dividends to its shareholders but paying nil tax or lesser tax under the IT act due to various exemptions / deductions like sections 10A/ 10B/ 80IA / 80IB. To justify the imposition, real income theory was stressed and it was held that the companies cannot be allowed to have two faces, one for shareholder and another for taxman. Section 115JA was enacted by restructuring the provisions of section 115J with certain minor changes and thereafter section 115JB was enacted by bringing minor changes in section 115JA. The provisions of section 115J, 115JA and 115JB are by and large similar to each other.

3.9. The scope and effect of section 115JA was elaborated in the Department Circular No. 762 dated 18.2.1998. The relevant portion is reproduced hereunder:- “Alternate minimum tax on companies- 46.1 In recent times, the number of zero-tax companies and companies marginal tax has grown. Studies have shown that in spite of the fact that companies have entered substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance (No.2) Act, 1996, has inserted a new section 115JA of the Income-tax Act, so as to levy a minimum tax on companies who are 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

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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. “ 3.10. The Memorandum explaining the provisions in the Finance (No. 2) Bill, 1996 categorise the amendment under the caption “Rationalisation and Simplification”. The relevant portion is reproduce hereunder:- ‘RATIONALISATION AND SIMPLICATIONS Minimum Alternative tax on companies In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite 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. The new proposal provides for those companies to pay tax on 30% of the book profits, whose total income as computed under the Income-tax Act is less than 30% of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. “Book profits” is defined and certain adjustments are provided in the proposed section. The proposed amendment will take effect from 1-4-1997, and will accordingly, apply in relation to assessment year 1997-98 and subsequent years.”

3.11. We hold that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. The task of a judge is to go by the intent of the statute and fill the gaps. The two rules of most general application in construing a statute are that – first that it shall, if possible, be so interpreted UT RES MAGIS VALEAT QUAM PEREAT (that the thing may rather have effect than be destroyed) and secondly, that such a meaning shall be given to it as may carry out and effectuate to the fullest extent the intention of the legislature. Each law consists of two parts viz., of body, and soul . The letter of the law is the body of law and the sense and reason of the law is the soul of the law. Law to a large extent, lives in the language even if it expands with the spirit of the statute.

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3.12. Admittedly, the assessee corporation does not declare any dividends to shareholders and also paying huge income tax under IT Act. Applying this to the background of introducing the provisions of section 115JB of the Act, it can safely be concluded that it was never the intention of the legislature to impose MAT on corporations enacted by an Act of Parliament like assessee herein.

3.13. We place reliance on the following decisions in support of our findings rendered hereinabove on the impugned issue:-

A. Kerala State Electricity Board vs DCIT reported in (2010) 329 ITR 91 (Ker), wherein their Lordships of Kerala High Court held that :-

“ Section 115JB of the Income-tax Act, 1961 creates a legal fiction regarding the total income of assesses which are companies. The book profit of the company is deemed to be the total income of 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 whon in the various sub-clause 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. Sub-section (2) mandates that the profit and loss account of the 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

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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 authorized 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 section. Circular No.762 not only is binding on the Department, 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. 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.”

B. Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mumbai Tribunal), wherein it was held that :

“15. We find that sub-section (2) of section 115JA requires the company to prepare its Profit & Loss Account in accordance with the

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provisions of Parts II & III of Schedule VI to the Companies Act, 1956. The assessee was required to prepare its account in conformity with the provision of section 69 of the Electricity (Supply) Act. Besides proviso to section 115JA(2) provides that while preparing the annual accounts, depreciation has to be provided on the same rates, and as per the same method as was adopted for calculating depreciation for the purpose of preparing the Profit & Loss Account laid before the company at its AGM under section 210 of the Companies Act. This section cannot be applied in relation to the assessee. In fact, the very concept of a “meaning “is alien to MSEB. A meeting can be between two or more persons. In case of MSEB there is no other person. Similarly, second proviso to sub-section (2) provides that where a company has adopted or adopts a financial year under the Companies Act, 1956, which is different from the previous year under the Act, the methods and the rates of depreciation shall correspond to the method and rates, which have been adopted for calculating the depreciation, for which financial year or part of such financial year falling within or relevant previous year. 16. Only those companies, which are engaged in the generation or supply of electricity, will come within the ambit of section 616 of the Companies Act. For that it is necessary that assessee must be a company. If assessee is not a company, then provision of section 616( c) cannot be applied. For example, Tata Electric Company is a company registered under the Companies Act. It is company within the meaning of section 3 of the Companies Act. It is engaged in the business of generation or supply of electricity. As such it will come within the sweep of this provision. MSEB cannot be construed to be a company within the meaning of section 3 of the Companies Act, therefore, though it is engaged in the generation/distribution of electricity, it cannot be deemed as a company within the meaning of section 616( c). 17. Explanation to section 115JA defines the term “Book Profit” to mean the net profit as shown in the Profit & Loss Account for the relevant previous year prepared under sub-section (2)[ i.e. in accordance with Parts II & III of Schedule VI] as increased by…….. We have noted that assessee did not prepare its accounts under Parts II & III of Schedule VI. Assessee was under no legal obligation to do so. As such the definition of “Book Profit” cannot be applied in the case of the assessee. 18. According to section 2(17) read with section 2(26) of the Act, MSEB could be deemed to be a company for the purpose of Income-tax Act. The term company as defined in the said section is, NOMEN GENERALISSIMUM (term of the most general meaning) and its

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meaning in the CONTEXT of section 115JA is to be gathered from the connection in which it is used and from the subject-matter to which it is applied. The definition as given in section 2 of the Act begins with the qualifying words, “UNLESS THE CONTEXT OTHERWISE REQUIRES”. Text and context are the basis of interpretation. If the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. Word in section is skin of the living though. It may vary in colour and content according to the context. It is a settled rule of interpretation canonized in the dictum: EX PRAECEDENTIBUS ET CONSEQENTIBUS OPTIMA FIT INTERPRETATIO” ( the best interpretation is made from the context). Whether the same meaning, as has been given in the interpretation clause, should be given to the word wherever it occurs, will depend upon the context. Therefore, it becomes necessary not only to look at the words but also to look at the context, the collocation and the objects of such words relating to such matter. 19. It is true that the word used in section 115JA of the Act is ‘company’. The heading of this section is “Deemed income relating to certain companies. The provision begins with a non obstante clause. It applies to every assessee being a company. The panoply o the section is erected over the structure of Companies Act, 1956. The Minimum Alternate Tax (MAT) on companies was introduced by the Finance (No.2) Act, 1996 with effect from 1-4-1997. This was necessitated due to the rise in the number of zero tax companies. 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. To curb this mischief MAT was introduced by inserting section 115JA. This is a deeming provision. It is a trite law that deeming provision should be narrowly watched, jealously regarded and never to be pressed beyond its true limits. It is applicable to a company. The assessee is not a company. It is not required to distribute any dividend. As such it does not come within the mischief of this section……”

Hence we find lot of force in the arguments of the Learned AR that the text has to be understood in the context in which provision has been enacted which is also endorsed by the Mumbai Tribunal in 82 ITD 422.

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C. ICICI Lombard General Insurance Co Ltd vs ACIT reported in 2012 – TIOL-690-ITAT-Mum in ITA No. 2398/Mum/2009 dated 10.10.2012 for Asst Year 2003-04, wherein it was held that :

The proviso to section 211(2) of the Companies Act creates an exemption of applicability of subsection (2) inter alia in respect of insurance companies or banking companies or any other companies engaged in generation and supply of electricity for which a form of profit and loss account has been specified in or under the Act governing such class of company. Even if an insurance company does not disclose any matter in the balance sheet and profit and loss account because the same is not required to be disclosed by the Insurance Act shall not be treated as non-disclosure of a true and fair view of the state of affairs of the company as the said condition has been relaxed by subsection (5) of section 211 of the Companies Act. In order to align the provisions of the IT Act with the Companies Act , an amendment has been brought in to the statute by the Finance Act 2012 whereby section 115JB has been amended w.e.f. 1.4.2013 and therefore, prior to 1.4.2013, the amended provisions of section 115JB cannot be applied in case of Insurance, Banking, Electricity generation and distribution companies and other class of companies , which are not required to prepare their accounts and particularly Balance Sheet and profit and loss account as per Part II and III of Schedule VI of the Companies Act . Thus, when the Insurance Companies, Banking companies and electricity generation and distribution companies are treated in the same class as per the provisions of section 211 of the Companies Act in preparing the final accounts, then those companies cannot be treated differently for the purpose of section 115JB and accordingly, the provisions of section 115JB are not applicable in the case of the assessee.

D. Bank of India vs Addl CIT reported in 2014 (5) TMI 929 :n ITA No. 1498/Mum/2011 dated 9.4.2014– ITAT Mumbai, wherein it was held that : 6. Ground No. 5 is regarding applicability of provisions of section 115JB in case of Bank. 6.3 Having considered the rival submissions as well as relevant material on record, we note that this issue has been considered by this Tribunal in the series of decisions including the decision relied upon by the Ld. AR of the assessee. In the case of ICICI Lombard General Insurance (supra)

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the coordinate bench of this Tribunal has considered and decided an identical issue in para 6 as under:- As discussed above, the assessee is following the accounting policies under the Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts 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 & 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 AY 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the present case.” Following the decisions of the coordinate Benches of this Tribunal, we hold that when the insurance companies, banking companies and electricity generation and distributions companies are treated in the same class as per the provisions of sec. 211 of the Companies Act in preparing their final accounts, then these companies cannot be treated differently for the purpose of sec. 115JB and accordingly, the provisions of sec. 115JB are not applicable in the case of the assessee.” Accordingly, this issue is decided in favour of the assessee and against the revenue”. Though, section 115JB has been amended to bring all the Companies in its ambit vide Finance Act 2012, w.e.f 1.4.2013, however, the said amendment is not applicable in the assessment year under consideration. Following the decision of co-ordinate bench of this Tribunal we decide this issue in favour of the assessee. 3.14. We find that the assessee corporation initially was of the opinion that the provisions of section 115JB of the Act are indeed applicable to the corporation. Later during the course of assessment proceedings the assessee corporation vide letter dated 20.12.2010 informed the Learned AO that the provisions of section 115JB of the Act are not applicable to the assessee corporation as by that time the law on the impugned issue had started evolving and various judicial decisions had

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been rendered. We find that the assessee could not make this claim in the form of a revised return as the time limit for filing the revised return u/s 139(5) of the Act had admittedly expired and hence assessee had no other option but to make its request in the form of a letter before the Learned AO. At this juncture, we are aware of the decision rendered by the Hon’ble Apex Court in the case of Goetze (India) Ltd vs CIT in 284 ITR 323 (SC). But we find that the same decision specifically states that the claim could be made before the appellate authorities. In this regard, we would like to state that the revenue should not be unjustly enriched and only the due taxes should be collected. We find that the provisions of section 115JB of the Act is a code by itself. It imposes tax not on “income” but on “book profits”. Section 115JB of the Act creates a statutory fiction under which “book profit” of a company assessee is regarded as ‘total income’. The deeming fiction of the IT Act can only be applied to a ‘company’ proper. Section 115JB which is a deeming provision of the IT Act cannot be applied to any other bodies which are not companies incorporated under the provisions of the Companies Act. In this regard, we place reliance on the following decision to support our view :-

CIT vs M/s Pruthvi Brokers & Shareholders Pvt Ltd in ITA No. 3908 of 2010 dated 21.6.2012 for Asst Year 2004-05 (Bombay High Court)

The questions raised before the Bombay High Court is as below:-

(i) Whether, an assessee can amend a return filed by him for making additional claim for deduction other than filing a revised return ?

(ii) Whether , on the facts and circumstances of the case, the Hon’ble Income Tax Appellate Tribunal, in law, was right in holding that a claim of deduction not made in the original return and not supported by a revised return, is admissible ?

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(iii) Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal, in law, was right in not appreciating the fact that the AO has no power to entertain a claim made by an assessee after filing a original return otherwise than by filing a revised return ? 3. The question that arises in this appeal is whether the CIT(Appeals) and / or the ITAT had the jurisdiction to consider a new / additional claim. Deduction subsequently raised before the Assessing Officer which, through inadvertence, was not claimed in the return of income filed by the respondent.

We find well founded, Mr.Mistri’s submission that even assuming that the Assessing Officer is not entitled to grant a deduction on the basis of a letter requesting an amendment to the return filed, the appellate authorities are entitled to consider the claim and to adjudicate the same.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 22 451/Kol/2013-A-AM

account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part viz. “if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made….” Clearly relate to cases where the ground was available when the return was filed and the assessment order was made but “could not have been raised” at that stage. The words are “could not have been rasied” and not “were not in existence”. Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz. where “the ground became available on account of change of circumstances or law”.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 23 451/Kol/2013-A-AM

term deposits with banks. The interest received on such deposits was offered by the assessee itself for tax and the assessment was completed on that basis. Even before the Commissioner of Income Tax (Appeals), the inclusion of this amount was neither challenged by the assessee nor considered by the Commissioner of Income Tax (Appeals). The assessee filed an appeal before the Tribunal. The inclusion of the amount was not objected to even in the grounds of appeal as originally filed before the Tribunal.

Subsequently, the assessee by a letter, raised additional grounds to the effect that the said sum could not be included in the total income. The assessee contended that on a erroneous admission, no income can be included in the total income. It was further contended that the ITO and the Commissioner of Income Tax (Appeals) had erred and failed in their duty in adjudicating the matter correctly and by mechanically including the amount in the total income. It is pertinent to note that the assessee contended that it was entitled to the deduction in view of two orders of the Special Benches of the Tribunal and the assessee further stated that it had rasied these additional grounds on learning about the legal position subsequently. The Tribunal declined to entertain these additional grounds. But the Supreme Court held that we fail to see why the tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 24 451/Kol/2013-A-AM

3.15. Apart from the above decisions, we also find that the following cases also supports the contentions of the assessee on the impugned issue :-

* UCO Bank vs DCIT reported in (2015) 64 taxmann.com 51 (Kolkata Tribunal) in ITA No.1768 / Kol / 2009 dated 27.11.2015 for Asst Year 2002-03

* A.P.S.E.B. vs JCIT reported in (2004) 91 ITD 259 (HYD ITAT) in ITA No. 1055 (HYD) of 20052 dated 5.4.2004 for Asst Year 1997-98

3.16. In view of the aforesaid provisions of the Act, our findings given thereon with respect to the facts and various judicial precedents relied upon hereinabove and further in view of the fact that no contrary decisions being brought to our knowledge on the same issue, we accordingly hold that

- the assessee is a statutory corporation not registered under the Companies Act, 1956 and hence the provisions of section 115JB of the act are not applicable to the assessee corporation ;

– the amendment brought in section 115JB of the Act read with Explanation 3 thereon by the Finance Act 2012 is applicable only with effect from Asst Year 2013-14 onwards in line with the Notes to Clauses of Finance Act 2012 ; and

– a statutory claim could be made by way of a letter before an appellate authority even without filing a revised return if the facts with regard to the same are already available on record before the lower authorities and they remain undisputed.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 25 451/Kol/2013-A-AM

Accordingly the ground nos. 1 to 4 raised by the assessee in ITA No. 1622 / Kol / 2011 for the Asst Year 2008-09 and ground nos. 1 to 5 raised by the assessee in ITA No. 451 / Kol / 2013 for the Asst Year 2009-10 are allowed.

Ground nos. 6 & 7 of ITA No.451/Kol/2013 A.Y 2009-10

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 26 451/Kol/2013-A-AM

delete the disallowance and/or reduce the disallowance ix] s.14A; in assessing total income both as per computational provisions as also book profits, if any.

4.1. The brief facts of this issue are that the assessee derived exempt income during the asst year 2008-09 under appeal as below:-

Interest on tax free bonds of RBI 120,37,87,527 Interest on PF investments u/s 10(25) 18,15,99,358 Dividend on shares of Power Trading Corpn Ltd & Bokaro Power Supply Co. Ltd 2,35,28,025 ---------------------- 140,89,14,910 ----------------------

4.2. The total investments held by the assessee as at the end of the financial year ending 31st March are as follows:- 31.3.2008

Tax Free Bonds issued by RBI and guaranteed by West Bengal Government and Jharkhand Government 1294.83 Crores

Shares in Joint Venture Companies - Bokaro Power Supply Co Ltd 84.025 - Power Trading Corporation Ltd 10.000 - Maithon Power Ltd 59.778 - DVC EMTA Ltd 0.013 ------------- 153.82 Crores

Advances 17.50 Crores --------------------- 1466.15 Crores ---------------------

4.3. The RBI Tax Free Bonds were allotted to the assessee in March 2003 in satisfaction of power arrear claims of West Bengal and Jharkhand State Electricity

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 27 451/Kol/2013-A-AM

Board (WBSEB & JSEB). Income by way of power tariff was paid to DVC (assessee herein) in the form of ‘Tax free bonds’. As such no borrowed funds were utilized. In other words, the assessee had recovered its power tariff dues from WBSEB & JSEB in the form of Tax Free Bonds.

4.4. The assessee corporation had set up a Provident Fund Scheme which is recognized by the Government of India under the provisions of the Provident Fund Act, 1925. The Provident Fund schem is implemented as per the DVC’s Provident Fund Regulations as approved by and notified by the Central Government. As per approved rules, the corporation receives contributions which are invested in specified securities. The interest earned thereon is eligible for exemption u/s 10(25) of the Act. The assessee corporation has moe than 11000 employees on its roll and the corporation has to maintain extensive records relating to PF contributions made by the employees and investments made in various securities. In order to maintain records of such Provident Fund contributions and its investments, the corporation has established a Provident Fund Cell within its accounts department and total salary paid to employees working in that cell worked out to Rs. 55,41,573/-. The Learned AR argued that the personnel in the said provident fund cell are entrusted with collection of PF contributions from employees, its accounting, complying with various statutory rules, settlement of provident fund claims, collection of income and accounting of income & investment etc. The Learned AR argued that the employee cost of the said provident fund cell does not pertain only to earning of interest income. Accordingly the assessee disallowed 20% of such salaries amounting to Rs. 11,08,315/- as attributable to the interest income earning activity which does not form part of total income.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 28 451/Kol/2013-A-AM

4.5. The Learned AR argued that the assessee is the co-promoter of Bokaro Power Supply Co. Ltd jointly promoted with Steel Authority of India Ltd (SAIL), another PSU. The investment has been made with a view to expand the existing business of pweor generation and distribution of the assessee. In order to take benefit of synergies enjoyed by Public Sector Undertaking, a joint venture was formed at the instance of the Central Government. The main objective for making investment was to expand the existing business activities. Similarly, the assessee corporation acquired shareholding in Power Trading Corporation Ltd which has been established by the Government of India and Public Sector Power Companies have contributed to its share capital. The Power Trading Corporation Ltd has provided window to power generating companies for carrying on trade in surplus power so that the power generating companies do not incur losses due to lack of demand in their command areas. Thus the investment in Power Trading Corporation Ltd was also made in the course of assessee’s principal business. The investment in shares of Bokaro Power Supply Co Ltd and Power Trading Corporation Ltd have been made by the corporation out of its own funds and not borrowed funds.

4.6. The Learned AO directly invoked the provisions of Rule 8D (2)(ii) and Rule 8D(2)(iii) of the IT Rules and made disallowance u/s 14A of the Act to the tune of Rs. 20,03,61,070/- under normal provisions of the Act and a sum of Rs. 41,16,36,422/- under the provisions of section 115JB of the Act. This action of the Learned AO was upheld by the Learned CITA. Aggrieved, the assessee is in appeal before us.

4.7. The Learned AR reiterated the facts which are mentioned hereinabove. He further argued that the assessee had made a disallowance of Rs. 11,08,315/- u/s 14A of the Act with some rational basis as admittedly according to him, no expenditure were incurred for making investments in RBI tax free bonds and shares

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 29 451/Kol/2013-A-AM

in Bokaro Power Supply Co Ltd and Power Trading Corporation Ltd and income earned thereon. He further argued that the assessee had derived exempt income in the form of interest on Provident fund investments for which some expenditure could have been incurred by the assessee which is worked out for disallowance at Rs. 11,08,315/- and accordingly pleaded that Rule 8D of the Rules cannot be made applicable in the facts of the instant case. He also further stated that the assessee has been consistently making this disallowance on the basis of 20% of employee cost in provident fund cell of the assessee corporation in earlier and even in subsequent years. He further placed on record a copy of the assessment order passed u/s 143(3) of the Act for the Asst Year 2010-11 wherein the disallowance u/s 14A of the Act made by the assessee has been accepted by the Learned AO. He further argued that the assessee had made earned taxable interest income of Rs. 248.78 crores and paid interest on its borrowings amounting to Rs. 211.01 crores and earned a net interest income of Rs. 37.77 crores. He argued that the assessee had sufficient own funds to make the investments and no part of borrowed funds were utilized for the same. Hence in any case, the provisions of Rule 8D(2)(ii) of the IT Rules cannot be applied in the facts of the instant case. In response to this, the Learned DR vehemently supported the orders of the lower authorities.

4.8. We have heard the rival submissions and perused the materials available on record. At the outset, we find that the Learned AO had adopted the disallowance figure u/s 14A of the Act at Rs. 20,03,61,170/- under normal provisions of the Act and at Rs. 41,16,36,422/- under the provisions of section 115JB of the Act. There seems to be apparent mistake on adoption of figures by the Learned AO while computing the book profits u/s 115JB of the Act. However, we have already held that the assessee corporation is not liable to pay tax on the book profits u/s 115JB of the Act and accordingly, the issue of whether the disallowance u/s 14A of the Act could be added to the book profits u/s 115JB of the Act,

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 30 451/Kol/2013-A-AM

becomes infructuous. Accordingly the ground raised by the assessee in this regard is allowed.

Disallowance u/s 14A under normal provisions of the Act

4.8.1. We find that the assessee had disallowed a sum of Rs. 11,08,315/- u/s 14A of the Act (being 20% of employee cost of provident fund cell employees) with some rational basis in consonance with the consistent method followed by the assessee over the years. The Learned AR also stated that similar disallowance made by assessee has been accepted by the Learned AO in earlier and in subsequent years. We also find from the scrutiny assessment order for the Asst Year 2010-11, the disallowance u/s 14A of the Act made by the assessee was not disturbed by the Learned AO. We also find that the Learned AO had directly embarked on Rule 8D(2) without recording satisfaction in terms of Rule 8D(1) of the Rules with cogent reasons as to why the figure disallowed by the assessee u/s 14A of the Act is incorrect. We also find that the interest income earned by the assessee corporation of Rs. 248.78 crores is more than the total interest paid on loans amounting to Rs. 211.01 crores thereby making a net interest income of Rs. 37.77 crores which is offered to tax. In this scenario, it has to be seen whether the interest expenditure was relatable to the investment activity is to be looked into. We also find from the balance sheet of the assessee that it has got sufficient own funds to the tune of Rs. 16270,34,38,528/- (16270 crores) and whereas the investments made by the assessee is only Rs. 1466.15 crores including the investments in tax free bonds of RBI and investment in Bokaro Power Supply Co Ltd and Power Trading Corporation Ltd.

4.8.2. On availability of own funds with the assessee for making investments

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 31 451/Kol/2013-A-AM

We also find that the assessee has got sufficient own funds to make these investments and the Learned AO had not brought any nexus between the borrowed funds vis a vis the investments made by the assessee. Without doing the same, he cannot directly presume that the investments were made out of borrowed funds. If the action of the Learned AO and Learned CITA are to be upheld, then no assessee could make any investments when there is a interest bearing loan to be repaid. The fact of making the investments has to be viewed from the point of commercial expediency and from the point of view of businessman and not from the view point of the revenue. It is well settled that businessman knows his interest best. We place reliance on the decision of Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities & Power Ltd ( 313 ITR 340 ) (Bom) in support of our view that if the own funds are available with the assesee and if the same are more than the investments made by the assessee, then it has to be presumed that the investments were made out of own funds and not out of borrowed funds. Hence the provisions of Rule 8D(2)(ii) cannot be invoked in these circumstances.

4.8.3. On non-application of Rule 8D(2)(ii) as the assessee had earned net taxable interest income

Reliance placed on the coordinate bench decision of this tribunal in the case of DCIT vs M/s Trade Apartment Ltd in ITA No. 1277 / Kol / 2011 dated 30.3.2012 for the Asst Year 2008-09 , wherein the grounds raised and decision taken thereon are as below:-

(1) That on the facts and circumstances of the case, ld. CIT(A) erred in law in deleting the disallowance of Rs. 9,86,306/- under Rule 8D(2)(ii) being a part of total disallowance u/s 14A since he opined in the instant case that there cannot be any interest expenditure left where interest income is more than interest expenditure.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 32 451/Kol/2013-A-AM

Held 4. As learned CIT(A) has rightly observed, once there is no net interest expenditure , as is the case before us – upon setting off interest credited to profit and loss account, no part of interest debited can be disallowed as attributable to earning tax free dividend. The CIT(A) was thus quite justified in deleting the interest disallowance.

4.8.4. On non recording of satisfaction in terms of Rule 8D(1)

We find that the Learned AO had directly embarked on Rule 8D(2) without recording satisfaction in terms of Rule 8D(1) of the Rules with cogent reasons as to why the figure disallowed by the assessee u/s 14A of the Act is incorrect. We find that the Learned AO had straight away embarked upon computing disallowance under Rule 8D(2)(iii) of the Rules. We find that this issue has been elaborately dealt with in the following cases :-

CIT vs Ashish Jhunjhunwala in G.A.No. 2990 of 2013 in ITAT No. 157 of 2013 dated 8.1.2014 rendered by Calcutta High Court

" While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case, it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at ½% of the total value. In view of the above and respectfully following the coordinate bench decision in the case of J.K. Investors (Bombay) Ltd., supra, we uphold the order of CIT (A)".

CIT vs R.E.I. Agro Ltd in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 rendered by Calcutta High Court

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 33 451/Kol/2013-A-AM

“The Assessing Officer also disallowed the expenditure under section 14A of the Income Tax Act, 1961 without first recording that he was not satisfied with the correctness of the claim as regards the claim that “no expenditure” was made by the assessee.

Challenging the order of the tribunal, the present appeal has been filed.

We have heard Mr.Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed”. Hence we hold that the action of the Learned AO in directly embarking on Rule 8D(2) of the Rules without recording any satisfaction as mandated in Rule 8D(1) of the Rules is not appreciated and hence no disallowance u/s 14A of the Act by applying Rule 8D(2) of the Rules could be made in the facts of the instant case. In the instant case the assessee corporation had disallowed a sum of Rs. 11,08,315/- and no adverse inference has been brought on record and no satisfaction has been recorded with cogent reasons by the Learned AO as to why the said figure computed by the assessee is incorrect. Without satisfying the requirement contemplated in Rule 8D(1) , the Learned AO had directly proceeded to apply Rule 8D(2) in the instant case. Hence the disallowance u/s 14A of the Act cannot be made in the instant case of the assessee corporation for the Asst Years 2008-09 and 2009-10.

Accordingly the ground nos. 5 & 6 raised by the assessee in ITA No. 1622 / Kol / 2011 for the Asst Year 2008-09 and ground nos. 6 & 7 raised by the assessee in ITA No. 451 / Kol / 2013 for the Asst Year 2009-10 are allowed.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 34 451/Kol/2013-A-AM

5.1. The brief facts of this issue is that the assessee corporation paid the first installment of advance tax payable on or before 15.6.2008 by 16.6.2008 with a delay of one day. The reason for this delay was that 15.6.2008 was a sunday and accordingly the Learned AO charged interest u/s 234C for the said quarter. This action of the Learned AO was also upheld by the Learned CITA. Aggrieved the assessee is in appeal before us on the following grounds of ITA No.451/Kol/2013 for AY 2009-10:-

Ground nos. 8 & 9 of ITA No.451/Kol/2013 A.Y 2009-10 8. For that on the facts and in the circumstances of the case the CIT(A) erred in upholding the levy of interest u/s. 234C of the Act for the alleged deferment of the first installment of advance tax due on 15.06.2008 even though the appellant had not committed any such default as the advance tax was paid on 16.06.2008 being Monday and in terms of the CBDT’s Circular the AO could not treat the payment made on the first available working day to be the payment beyond the due date. 9. For that on the facts and in the circumstances of the case interest levied u/s.234C of the IT Act in relation to alleged default of not paying first installment of advance tax within due date, be cancelled. “

5.2. The Learned AR placed reliance on the CBDT Circular No. 676 dated 14.1.1994 in support of his contentions and stated that the assessee corporation had not committed any default in paying installment of advance tax and hence no interest u/s 234C of the Act is chargeable in the hands of the assessee corporation. In response to this, the Learned DR argued that there is no provision in the IT Act to condone the delay and hence the interest u/s 234C of the Act is chargeable in the instant case.

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 35 451/Kol/2013-A-AM

5.3. We have heard the rival submissions and find that the assessee had paid the first installment of advance tax on 16.6.2008 (Monday) as the last date of paying advance tax i.e 15.6.2008 (Sunday) was a holiday. Hence the provisions of section 10 of General Clauses Act could come to the rescue of the assessee. For the sake of convenience, the Circular No. 676 dated 14.1.1994 on which the Learned AR placed heavy reliance is reproduced hereunder:- Circular No. 676. dated 14-1-1994 SECTION 211. INSTALMENTS OF ADVANCE TAX

1197. Whether, in case last day for payment of any instalment of advance tax is day on which receiving bank is closed, assessee can make payment on next immediately following working day, and in such cases mandatory interest leviable under sections 234B and 234C would not be charged

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 36 451/Kol/2013-A-AM

leviable under sections 234B and 234C of the Income-tax Act, 1961 would not be charged.

Circular: No. 676, dated 14-1-1994.

Respectfully following the aforesaid circular and section 10 of General Clauses Act, we hold that the assessee had not committed any default in payment of first instalment of advance tax and hence we direct the Learned AO not to charge interest u/s 234C in the instant case for the first quarter. Accordingly, the ground nos. 8 & 9 in ITA No. 451/Kol/2013 raised by the assessee are allowed.

To sum up, the appeals of the assessee in ITA No. 1622/Kol/2011 for the Asst Year 2008-09 and ITA No. 451/Kol/2013 for the Asst Year 2009-10 are allowed. Order pronounced on 13.01.2016

Sd/- Sd/- ( N.V. Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member)

Date 13/01/2016 Copy of the order forwarded to: The Appellant: M/s. Damodar Valley Corporation, DVC Towers, 4th Fl., VIP .1. Road, Kol-54. 2 The Respondent-Additional Commissioner of Income Tax, Range-9/DCIT, Cir-9, Aaykar Bhavan, P-7 Chowringhee Sq, Kol-69.

3 /The CIT, 4.The CIT(A)

ITA Nos. 1622/Kol/2011 & M/s. Damodar Valley Corporation 37 451/Kol/2013-A-AM