Where some of the amounts included in the book profits as per Explanation (h) to section 115JB were brought in by the Finance Act, 2008 with retrospective effect from 1st April, 2001, Whether assessee can be held to be liable for failing to make a provision for payment of advance tax which was not possible on the last date as per the law then prevailing. ?
No , the advance tax computation by the assessee for the year 2006-07 cannot be faulted and it cannot be said that the assessee is in default .Therefore, there is no liability to pay interest in terms of section 234B of the Income Tax Act, 1961.
The liability to tax although credited retrospectively could not entail the punishment of payment of interest with retrospective effect.
HIGH COURT OF BOMBAY
Commissioner of Income-tax, Mumbai
JSW Energy Ltd.
IT APPEAL NO.1468 OF 2013
APRIL 30, 2015
Tejveer Singh for the Appellant. Porus Kaka, Sr. Counsel Manish Kanth and Melvyn Fernandes for the Respondent.
1. We have heard Mr. Tejveer Singh in support of this appeal. This appeal by the revenue challenges the order passed on 22nd February, 2013 by the Income Tax, Appellate Tribunal, Bench at Mumbai in Income Tax Appeal No. 244 of 2010. The assessment year is 2006-07. The following three questions are proposed by the revenue as substantial questions of law :
“(1) Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal is right in setting aside and restoring back the issue to the file of the AO for denovo adjudication by relying on the judgment in the case of M/s. Godrej & Boyce Mfg. Co. Ltd. without considering that the revenue is in appeal before the Hon’ble Supreme Court on this issue ?
(2) Whether, on the facts and in circumstances of the case and in law, the Hon’ble Tribunal is right in law to hold that no interest u/s. 234B can be levied consequent to inclusion of various items while computing the book profit as per in the Explanation to section 115JB which has been brought on the statute by the Finance Act, 2008 with retrospective effect from 01, April 2001 ?
(3) Whether, on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal is right in law in deleting the addition of Rs. 8,94,26,631/- made by the AO u/s. 14A r.w. Explanation 1 of section 115JB of the Act the purpose of computing book profit u/s. 115JB of the Income Tax Act, 1961 ?”
2. It is contended by Mr. Tejveer Singh that the assessee filed a return of income declaring income of Rs. 7,76,31,388/- under the normal provisions of Income Tax Act, 1961 (for short “said Act”) and Rs. 1,23,15,74,564/- under the MAT provisions of section 115JB of the said Act.
3. The assessing officer noted that the assessee had earned dividend income of Rs. 6,42,35,165/- from shares in JSW Steels Ltd. The total investment of the assessee company from which the dividend was receivable has been illustrated in the assessment order. However, the assessing officer noted that the total interest expenses were shown by the assessee at Rs. 49,74,06,913/- during the year and investment to the tune of Rs. 154.47 crores made on 29th March, 2005 was directly related to the loans. After referring to the requisite details the assessing officer concluded that there was direct nexus between the interest on the loan of Rs. 143 crores and investment in the shares of JSW Steels Ltd. For the balance investment of Rs. 205 crores and other interest expenses the nexus could not be established by the assessee, that is why the assessee was called upon to show cause as to why the expenses should not be disallowed under section 14A and was also required to furnish the details of expenses liable to be disallowed under this provision. The assessee submitted detailed explanation as to why interest and other expenditure cannot be disallowed for earning of the dividend income. However, the assessing officer after applying Rule-8D calculated the disallowance of Rs. 8,94,26,131/-. The assessing officer while making MAT calculation under section 115JB has also added the expenditure to the book profit. Aggrieved by this order of the assessment officer, the appeal was preferred to the Commissioner of Income Tax (Appeals) and that appeal was allowed partly on 2nd December, 2009.
4. Aggrieved by the aforesaid order of the Commissioner of Income Tax, the assessee approached the Tribunal and it has allowed its appeal.
5. Mr. Tejveer Singh would submit that though question no. 1 as projected above has arisen from the order of restoration of the issue to the file of the assessing officer, what the Tribunal had missed is that while considering the issue afresh and directing restoration as above, the Tribunal deleted addition of Rs. 8,94,26,631 made by the assessing officer under section 14A read with Explanation 1 of section 115JB of the said Act for the purpose of computing book profit under that provision of Income Tax Act, 1961. Therefore, question nos. 1 and 3 are substantial questions of law.
6. Mr. Kaka, learned Senior Counsel appearing on behalf of the assessee submitted that very questions were projected and proposed as substantial questions of law in the case of CIT v. Essar Teleholdings Ltd. [IT Appeal No. 438 of 2012, dated 7-8-2014] and a appeal was preferred by the revenue in the case of the Essar Teleholdings Ltd. (supra) being Income Tax Appeal No. 438 of 2012 which was disposed of by this Court on 7th August, 2014 and by clarification. Mr. Kaka, therefore, submits that the assessee has no objection if the same clarification is issued so that interests of the revenue are not prejudiced but protected. He, therefore, submits that question nos. 1 and 3 do not arise from the order of remand or restoration back to the assessing officer.
7. Mr. Tejveer Singh would submit that clause (f) of Explanation (1) to section 115JB of the said Act cannot be lost sight of and the assessing officer must take note of it while reconsidering the issue. Hence the substantial of law would arise for determination and consideration.
8. We have found from reading of the impugned order of the Tribunal that insofar as the first question is concerned, the relevant facts have been referred in paragraphs 2 and 3 and in paragraph 4 to 6 the findings of the Commissioner and rival contentions have been noted. In paragraph 7 the Tribunal set aside the Commissioner’s order in the light of judgment of this Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT 328 ITR 81 and following that judgment the tribunal directed that the matter is required to be reconsidered by the assessing officer. He shall examine the relevant accounts, the nature of term loans and availability of interest free funds with the assessee. After examining all these details and account, and only if some reasonable disallowance can be adopted that should be worked out and in relation to earning of the dividend. The assessee was also directed to furnish necessary details and working before the assessing officer.
9. However, the tribunal also noted that by way of additional ground the assessee challenged disallowance under section 14A in calculation of book profit under section 115JB. The tribunal therefore heard both sides on additional ground and in paragraph 18 held that once the accounts are prepared in accordance with Indian Companies Act, 1956, they have been approved by the Registrar of Companies, then, the assessing officer must take those accounts into consideration. If the assessee has not debited any actual expenditure relating to the earning of the exempt income, therefore, the provisions of section 14A cannot be imported into the computation of book profit under section 115JB of the Income Tax Act, 1961. Therefore, even clause (f) of Explanation to section 115JB which refers to those amounts which are debited to the Profit and Loss account, alone can be added to the book profit, cannot apply. Then, the tribunal referred to the order passed in the case of Essar Teleholdings Ltd. (supra). Mr. Kaka, learned Senior Counsel is right that in case of Essar Teleholdings when similar issue was raised this Court did not entertain the appeal and in that regard, he relied upon the Division Bench order passed on 7th August, 2014. One of us (Shri S.C. Dharmadhikari, J.) was a party to this order. The said order reads as under :
‘IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.438 OF 2012
The Commissioner of Income Tax 5, … Appellant
M/s Essar Teleholdings Ltd. …. Respondent
Mr Abhay Ahuja with Ms Padma Divakar for Appellant.
None for Respondent.
CORAM : S.C. DHARMADHIKARI AND B.P. COLABAWALLA JJ.
DATE : 7TH AUGUST 2014.
1. We have heard Mr Ahuja, learned counsel appearing on behalf of the Appellant on the questions which have been termed as substantial questions of law. They are formulated in this Memo of Appeal by the Revenue at page 3. They read as under :
“(A) Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is right in setting aside and restoring back the issue to the file of AO for de novo adjudication in light of the provisions of Rule 8D ?
(B) Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is right in deleting the addition of Rs. 4.06 crores made by the AO u/s 14A of the Act for the purpose of computing book profit u/s 115JB(f) of the Income Tax Act 1961 ?”
3. In relation to the second question, Mr Ahuja stated that it is a substantial question of law simply because the Tribunal while remanding and restoring the case to the file of the Assessing Officer has given a finding with regard to the course to be adopted after restoration by the Assessing Officer. The Tribunal should not have done this. In such circumstances, the Appeal raises substantial questions of law. We are of the view that the Tribunal had only reiterated in paragraph 8 of the order under challenge delivered on 29th July 2011 the finding on the expenditure as per rule 8D r/w section 14A of the Income Tax Act 1961. In relation to that, the Tribunal held that Rule 8D is not applicable to the A.Y. Under consideration. Hence, applying the provisions of Rule 8D is not justified. The further finding of the Tribunal is only to bring to the notice of the Assessing Officer that he has to abide by clause (f) of Explanation 115JB of the Income Tax Act. In such circumstances, what the Tribunal has done is to invite attention of the Assessing Officer to the orders passed by the Tribunal, Delhi Bench. Beyond this, we do not think that the Tribunal has adjudicated the claim or has accepted the contentions raised before it by either side. In these circumstances and when the Assessing Officer is expected to determine the claim afresh and in accordance with law, we do not see any basis for the apprehension and which is voiced by Mr Ahuja. With this additional clarification, the Appeal does not raise any substantial question of law. Appeal is dismissed. No costs.
(B.P. COLABAWALLA, J.) (S.C. DHARMADHIKARI J.)’
10. Having held that the matter is sent back to the assessing officer for reconsideration and while working out the deduction in terms of section 14A read with Rule-8D, the assessing officer must take note of clause (f) of Explanation to section 115JB of the I.T. Act, then we do not think that questions 1 and 3 could be entertained. The same clarification as is given in the case of Essar Teleholdings Ltd. (supra) would govern the present case. The facts and circumstances being identical, we do not think that the appeal should be entertained on question Nos. 1 and 3.
11. Then, Mr. Tejveer Singh vehemently contended that in relation to question no. 2, the findings require detailed probe by this Court. He submits that the Tribunal was not right in law when it held that no interest under section 234B of the I.T. Act can be levied. Though several items have to be calculated while computing book profit and in terms of explanation to section 115JB of the I.T. Act, that explanation has been brought on the statute book and with retrospective effect from 1st April, 2001, therefore, this calculation of the tribunal is erroneous in law.
12. However, Mr. Kaka, learned senior counsel invited our attention to section 234B of the I.T. Act to submit that this is provision to recover interest for default in payment of advance tax. It directs payment of simple interest and in terms of this provision provided any assessee who is liable to pay advance tax under section 208 has failed to pay such tax or where the advance tax paid is less than 90% of the assessed tax. Thus, this is a provision whereunder interest could be recovered wherein advance tax for the assessment year fails to take note of the amendment to the Income Tax Act which is brought in subsequently. When the Parliament stepped into to amend the Act though with retrospective effect but in 2008, then, there is no default in payment of advance tax for the assessment year 2006-07. The computation of income based on which the advance tax was paid was in tune with the law prevailing on the date on which tax was due and payable. Any further addition in the income by way of amended provisions and which were incorporated subsequently, therefore, does not attract payment of interest as there is no default.
13. Mr. Kaka also invited our attention to section 115JB and particularly, insertion of clause (h) in Explanation (1). That clause reads as under :
“(h) The amount of deferred tax and the provision therefor.”
14. This clause has been substituted by Finance Act, 2008 with restrospective effect from 1st April, 2001. Prior to the same it read as under :
‘4. Substituted for the portion beginning with the words “if any amount referred” and ending with the words “as reduced by ” by the Finance Act, 2008, w.r.e.f. 1.4.2001.”
Prior to its substitution, read as under :
“If any amount referred to in clauses (a) to (g), is debited to the Profit and Loss account, and as reduced by….’
15. The Tribunal in this regard noted rival contentions and the admitted facts. It also relied upon and followed the judgment of Hon’ble Calcutta High Court in Emami Ltd. v. CIT 337 ITR 470
16. In paragraph 13 of the Tribunal’s impugned order the relevant portion from Calcutta High Court’s judgment has been extracted. The Calcutta High Court, therefore, found that the provisions would indicate that they are mandatory. There is no scope for waiving of the provision. However, in order to attract the provisions contained in section 234B and 234C of the Act, it must be established that the assessee had the liability to pay advance tax as provided under sections 207 and 208 of the I.T. Act within the time prescribed under section 211 of that Act. Noting the rival contentions, the Calcutta High Court proceeded to hold that the last date of relevant financial year was 31st March, 2001 and on that date, admittedly, the appellant before it had no liability to pay any amount of advance tax in accordance with the then law prevailing in the country. Consequently, the appellant paid no advance tax and submitted its regular returns on 31st October 2001, within the time fixed by law wherein it declared its total income and the book profit both as Nil. The amendment to section 115JB by virtue of Finance Act, 2002 and which was referred to in the Calcutta High Court judgment has retrospective effect from 1st April, 2001.
17. In the present case, what the assessee has pointed out is that some of the amounts included in the book profits as per Explanation (h) to section 115JB were brought in by the Finance Act, 2008 with retrospective effect from 1st April, 2001. The assessee cannot be held to be liable for failing to make a provision for payment of advance tax which was not possible on the last date as per the law then prevailing. Thus, clause (h) which is reproduced above having been brought in with retrospective effect but by Finance Act 2008, the advance tax computation by the assessee for the year 2006-07 cannot be faulted and it cannot be said that the assessee is in default and therefore, there is any liability to pay interest in terms of section 234B of the Income Tax Act, 1961.
18. In the case of Star India (P.) Ltd. v. CCE 280 ITR 321 the Hon’ble Supreme Court held that the service of “broadcasting” was made a taxable service with effect from July 16, 2001, by the Finance Act, 2001. The appellant disputed its liability to make any payment for service tax on the ground that it did not broadcast. The Commissioner, however, held against the appellant. The matter was carried before the Commissioner of Income Tax (Appeals) and during pendency of appeal the Finance Act, 2001 was amended by the Finance Act, 2002. The effect of amendment, inter alia, was to make an agent, such as the appellant, before the Supreme Court, liable to pay service tax as broadcaster.
19. The Supreme Court noted that the Appellants’ appeal pending before the Commissioner was rejected by him on the basis of this amendment. The tribunal also maintained this order and that part of the order passed by the Commissioner was not challenged in appeal. However, the appellant was aggrieved by the fact that the tribunal held it liable to pay interest on the amount which it was required to pay by reason of the 2002 amendment. The assessee contended that once the amendment was brought in, pending the appeal, there was no question of applying section 234B or any analogus provision and payment of interest. It is in that regard that the Hon’ble Supreme Court held as under :
“7. In any event, it is clear from the language of the validation clause, as quoted by us earlier, that the liability was extended not by way of clarification but by way of amendment to the Finance Act with retrospective effect. It is well established that while it is permissible for the Legislature to retrospectively legislate, such, retrospectivity is normally not permissible to create an offence retrospectively. There were clearly judgments, decrees or orders of courts and Tribunals or other authorities, which required to be neutralised by the validation clause. We can only assume that the judgments, decree or orders, etc., had, in fact, held that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the valuation section which says that no act or acts on the part of any person shall be punishable as an offence which would not have been so punishable if the section had not come into force.
8. The liability to pay interest would only arise on default and is really in the nature of a quasi-punishment. Such liability although created retrospectively could not entail the punishment of payment of interest with retrospective effect.”
20. The Supreme Court held that the liability to pay interest would only arise on default and is really in the nature of a quasi punishment. The liability to tax although credited retrospectively could not entail the punishment of payment of interest with retrospective effect. It is this principle which has been laid down which is followed by the Calcutta High Court. It is that principle relied upon by the Calcutta High Court which has been applied by the Tribunal to the facts and circumstances of the present case. We do not think that the assessee before us can be called upon to pay interest in terms of section 234B, once the explanation was introduced or brought in with retrospective effect but by Finance Act, 2008. Then, there was no liability to pay interest in terms of this provision. That was because the assessee cannot be termed as defaulter in payment of advance tax. The advance tax computation on the basis of the unamended (sic) provision therefore could not have been entertained.
21. We do not see any broader or wider question arising for our determination as the view taken even on this question is neither perverse or neither vitiated by any error of law apparent on the face of the record.
22. As a result of the above discussion, none of the three questions proposed and projected are substantial questions of law. The appeal fails and is dismissed. No costs.