Delhi High Court
Pr. Commissioner Of Income Tax- 9 vs M/S Tata Power Delhi Distribution Ltd. … on 13 January, 2025
Author: Swarana Kanta Sharma
Bench: Swarana Kanta Sharma
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 13.01.2025
+ ITA 687/2019
PR. COMMISSIONER OF INCOME TAX- 9 .....Appellant
Through: Mr. Indruj Singh Rai, SSC, Mr.
Sanjeev Menon, JSC, Mr.
Rahul Singh, JSC & Mr. Anmol
Jagga, Advocates
versus
M/S TATA POWER DELHI DISTRIBUTION LTD.
(FORMERLY KNOWN AS M/S NORTH DELHI POWER
LIMITED) .....Respondent
Through: Mr. Shashi M Kapila, Mr.
Pravesh Sharma and Mr. Sushil
Kumar, Advocates
CORAM
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MS. JUSTICE SWARANA KANTA SHARMA
JUDGMENT
SWARANA KANTA SHARMA, J.
1. The Revenue has preferred the present appeal under Section
260A of the Income Tax Act, 1961 [hereafter ‗the Act’] impugning an
order dated 29.10.2018 [hereafter ‗the impugned order’] passed by
the learned Income Tax Appellate Tribunal [hereafter ‗the learned
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ITAT’], in ITA No. 4848/Del/2010, in respect of the assessment year
(AY) 2006-07.
FACTUAL BACKGROUND
2. The respondent – M/s Tata Power Delhi Distribution Limited –
[hereafter ‗the assessee’] is a joint venture between Tata Power
Company Limited and the Government of NCT of Delhi, wherein Tata
Power Company Limited, along with Tata Sons Limited, holds 51% of
the shares, while the remaining 49% of the shares are held by the
Government of NCT of Delhi. The assessee is engaged in the power
generation and distribution of electricity in North and North West
Delhi.
3. For the AY 2006-07, the assessee filed its return of income
declaring a total income of ₹29,76,44,446/- under the normal
provisions, and ₹162,35,14,954/- as book profits under Section 115JB
of the Act. The return was processed under Section 143(1) of the Act
on 04.12.2007, at the declared returned income. The return was
selected for scrutiny, and a notice under Section 143(2) of the Act was
issued to the assessee on 12.10.2007, which was duly served upon the
assessee. Subsequently, further notices under Sections 143(2) and
142(1) of the Act, accompanied by detailed questionnaires, were
issued on 01.02.2008, 31.07.2008, 04.11.2008 and 17.11.2008.
4. On 23.12.2008, the learned Assessing Officer [hereafter ‗the
AO’] passed an order under Section 143(3) of the Act, assessing the
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total income of the assessee at ₹121,30,35,243/- and computing the
book profit under Section 115JB of the Act at ₹162,64,31,954/-. The
AO’s findings on the computation of book profit under Section 115JB
of the Act were that the assessee had reduced the book profit by
₹21,01,025/- on account of dividend income exempt under Section
10(34) of the Act. However, no expenditure related to the exempt
income was added back to the book profit as per the provisions of
Explanation (f) to Section 115JB(2) of the Act. The AO estimated
such expenditure at ₹29,17,000/- and added the same while computing
the book profit, which was finally assessed at ₹162,35,14,954. The
relevant findings of the AO are reproduced below:
―6. Computation of Book Profit u/s 115 JB
Assessee company while computing the book profit has
reduced the book profit by Rs. 21,01,025/- being the dividend
income exempt u/s 10 (34) of the I.T. Act. No expenditure
relatable to this exempt income were added back to the book
profit as per the provisions of explanation (f) of section 115JB
(2) of the I.T Act. As discussed above such expenditure are
estimated at Rs. 29,17,000/- same would be added back while
computing the book profit.‖
5. Aggrieved by the assessment order, the assessee filed an appeal
before the learned Commissioner of Income Tax (Appeals)-XVII
[hereafter ‗the CIT(A)’] on 02.02.2009. The CIT(A), by way of order
dated 26.08.2010, granted partial relief to the assessee, but also
enhanced the book profit by ₹27.52 crores. During the appellate
proceedings, the CIT(A) noted that the assessee had debited ₹27.52
crores in its profit and loss account as a provision for doubtful debts.
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This amount was required to be added back to the book profit under
Clause (i) of Explanation 1 to Section 115JB of the Act, but the
assessee had failed to do so. Consequently, a show cause notice under
Section 251(2) of the Act was issued on 04.08.2010, proposing the
enhancement of book profit by ₹27.52 crores. After considering the
assessee’s reply, the CIT(A) concluded that ₹27.52 crores on account
of the provision for doubtful debts needed to be added to the taxable
income for the purpose of Minimum Alternate Tax [hereafter ‗MAT’].
As a result, the assessee’s income under MAT was enhanced from
₹162.35 crores to ₹189.87 crores, leading to an additional tax liability
of ₹2.32 crores, excluding interest, which was admitted by the
assessee. The relevant findings of the CIT(A) are reproduced below:
―6.2 I have carefully considered the submissions of the
appellant. It is clear from the above that an amount of Rs. 27.52
crores on account of provision for doubtful debts requires to be
added in taxable income for the purpose of MAT. Accordingly,
the income of the appellant company under MAT is enhanced
from Rs. 162.25 crores to 189.87 crores, which will result into
additional tax liabilities of Rs.2.32 crores, excluding interest as
admitted by the appellant. The AO is directed to issue revised
notice of demand, after verification of tax calculation and
applicable interest as per law.‖
6. Aggrieved by the order of the CIT(A), the assessee filed an
appeal (ITA No. 4848/Del/2010) before the learned ITAT, challenging
the enhancement of book profit under Section 115JB of the Act. The
learned ITAT allowed the assessee’s appeal and directed the deletion
of the additions made to enhance the book profit. The learned ITAT
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relied on the decision of the Kerala High Court in Kerala State
Electricity Board v. Deputy Commissioner of Income-tax: (2010)
329 ITR 91, and held that the ratio of this decision applied to the
present case. The learned ITAT observed that no exceptional
circumstances had been brought to its notice to deviate from the ratio
laid down in the said decision. The relevant extract of the impugned
order is extracted hereunder:
―34. Grounds No. 5 to 7 are in respect of the enhancement of
profit under section 115 JB. Argument of the Ld. AR is that the
assessee is a company engaged in the business of distribution of
electricity and in view of the decision reported in Kerala State
Electricity Board vs. DCIT (2010) 3 29 ITR 0091, the provisions
under section 115 JB have no application to the assessee. There
is no dispute as to the nature of business conducted by the
assessee. Ld. DR relied upon the orders of the authorities below.
***
36. Above decision is applicable to the facts of the case in hand
on all fours. No circumstances are brought to our notice not to
follow the ratio laid down in the above decision. We, therefore,
while respectfully following the same hold that section 115 JB
has no application to the facts of the case in hand and
accordingly the additions made to enhance the book profits
under section 115 JB are directed to be deleted.‖
7. Aggrieved by the decision of the learned ITAT, the Revenue
has preferred the present appeal.
QUESTION OF LAW
8. The present appeal was admitted on the following Question of
Law, for this Court’s consideration:
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―Whether in the facts and circumstances of the case,
and in law, the ITAT was justified in deleting the
additions made on account of Book Profit under
Section 115 JB of the Income-tax Act, 1961?‖SUBMISSIONS BEFORE THIS COURT
Submissions on Behalf of the Revenue
9. The learned counsel appearing for the Revenue contended that
Section 115JB of the Act, a successor to Section 115JA, is a
standalone provision aimed at bringing ―zero tax companies‖ into the
tax net. The objective of MAT, introduced through Section 115JB of
the Act, is to ensure that companies with substantial book profits pay
taxes despite availing tax concessions. It was argued that what was
exempt under the erstwhile Section 115JA of the Act cannot be
presumed to be exempt under the new regime unless expressly
provided for. The learned counsel contended that the reliance placed
on the Kerala High Court’s decision in Kerala State Electricity Board
v. Deputy Commissioner of Income-tax (supra) is fallacious, since
that decision pertained to Section 115JA of the Act and the Court had
relied on Central Board of Direct Taxes [hereafter ‗CBDT’] Circular
No. 762, which specifically exempted electricity companies under the
erstwhile regime. He however contended that the Kerala High Court
failed to consider that Section 115JA of the Act was a precursor to
Section 115JB and that Section 115JA was replaced with Section
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had declined in view of ―exclusion of various sectors from the
operation of MAT and the credit system‖ as evident from the
Explanatory Notes to Finance Act, 2000 which had inserted Section
115JB of the Act. It was also argued that the fact that power
generation and distribution companies are not exempted was evident
from the fact that it does not find mention in the exempted categories
of companies, as evident from para 43.5 of the Explanatory Notes to
Finance Act, 2000 which read as follows: ―43.5 The export profits
under sections 10A, 10B, 80HHC, 80HHE and 80HHF are kept out of
the purview of this provision as these are being phased out. The new
provisions also exempt companies registered under section 25 of the
Companies Act.‖
10. Next, it was argued that the decision in Kerala State Electricity
Board v. Deputy Commissioner of Income-tax (supra) is
distinguishable as it involved a wholly government-owned board
operating under the Electricity Supply Act, 1948, whereas the present
assessee is a joint venture with 51% private shareholding, and
therefore, the said decision would not be applicable to the facts of the
present case. The learned counsel for the Revenue further contended
that the principles laid down in said decision have been impliedly
overruled by the Hon’ble Supreme Court in Andhra Pradesh Power
Coordination Committee v. Lanco Kondapalli Power Ltd.: (2016) 3
SCC 468. In the said case, the Hon’ble Supreme Court noted that
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generating companies till 31.03.2001; however, MAT, under Section
115JB of the Act, was made applicable to all the targeted corporate
entities, including power-generating companies, from 01.04.2001
onwards.
11. On behalf of the Revenue, it was further contended that
Explanation 3, inserted by the Finance Act, 2012, is a clarificatory
amendment which clarifies that the companies referred to in the
second proviso to Section 129(1) of the Companies Act, 2013,
namely ―any company engaged in the generation of supply of
electricity‖ has an option for any assessment year prior to 01.04.2012
to prepare its statement of profit and loss either in accordance with the
Companies Act, 2013 or in accordance with provisions of any special
act governing such company. However, this clarification does not
grant exemption from MAT but instead outlines procedural flexibility.
12. It was argued that reliance placed on the Bombay High Court’s
decision in Commissioner of Income-tax-LTU v. Union Bank of
India: (2019) 13 ITR-OL 655 is also misplaced, as the findings therein
are ex-facie contrary to the provisions of the Act and per incuriam.
The Revenue has challenged this decision before the Hon’ble Supreme
Court, where leave has been granted, which places the finality of this
judgment in jeopardy. It was contended that Bombay High Court erred
in not considering that proviso to Section 115JB(2) of the Act
provides an assessee to prepare annual accounts, including profit and
loss account, in accordance with the provisions of Section 210 of the
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Companies Act, 1956; and in this regard, it is relevant to note that for
the purpose of Section 210, the contents ‗Balance Sheet’ and ‗Profit &
Loss Account’ are enumerated under Section 211 of the Companies
Act, 1956, and the said Section 211 as well as the Accounting
Standards (AS)-5 carves out an exception for the
insurance/banking/electricity companies to prepare balance sheet as
per the governing Act. Thus, the option to the assessee to prepare its
profit and loss account as per the governing Act was always available
under Section 115JB of the Act, and to further clarify this position of
law and for the sake of removal of doubts, the insertion of Explanation
3 to Section 115JB of the Act was rightly done vide the Finance Act,
2012.
13. In light of the above submissions, it is prayed that the order of
the learned ITAT to the aforesaid extent be set aside, and the additions
made by the CIT(A) under Section 115JB of the Act, for the purpose
of computing book profits, be restored.
Submissions on Behalf of the Assessee
14. On behalf of the assessee, it was submitted that Section 115JB
of the Act creates a legal fiction regarding the expression ―total
income‖ as defined in Section 2(45) of the Act, and Section 115JB(2)
mandates that where the tax payable on the ―total income‖ computed
under the normal provisions of the Act is less than a specified
percentage of the ―book profit‖ determined under the Companies Act,
the specified percentage of the ―book profit‖ becomes the total
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income. It was contended that the preparation of the profit and loss
account in accordance with Part II and III of Schedule VI of the
Companies Act is mandatory under Section 115JB of the Act.
However, the assessee, as a company engaged in the generation and
distribution of electricity, is required by the Electricity Act, 2003 and
the Electricity (Supply) Act, 1948, to prepare its accounts under these
special statutes, and not under the Companies Act.
15. It is argued that the issue in this case – that is whether the MAT
provisions under Section 115JB of the Act are applicable to the
assessee for the period relevant to AY 2006-07, i.e., prior to the
amendment introduced by the Finance Act, 2012 – was addressed by
the Kerala High Court in Kerala State Electricity Board v. Deputy
Commissioner of Income-tax (supra) and later by the Bombay High
Court in Commissioner of Income-tax-LTU v. Union Bank of India
(supra). It is submitted that the Kerala High Court held that Section
115JB of the Act was inapplicable to electricity companies because
the machinery provisions in Sub-section (2) are inoperable for such
companies, and the same render the charging section unenforceable. It
was argued that the Kerala High Court relied on the judgment of the
Hon’ble Supreme Court in Commissioner of Income Tax v. B.C.
Srinivasa Setty: (1981) 128 ITR 294, which held that a charging
section and its machinery provisions constitute an integrated code, and
the inoperability of the machinery provisions negates the applicability
of the charging section. This principle was reaffirmed by the Hon’ble
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Supreme Court in Commissioner of Income Tax v. Eli Lilly and Co.
(India) P. Ltd: (2009) 312 ITR 225, which clarified that the failure of
a computation provision implies the inapplicability of the charging
section.
16. The assessee submitted that the Finance Act, 2012 introduced a
substantive amendment to Section 115JB of the Act, granting
electricity, banking, and insurance companies the option to prepare
their profit and loss accounts either under their governing statutes or in
accordance with the provisions of Part III Schedule VI to the
Companies Act. Further, the Explanation (3) to sub-section (2) of
Section 115JB of the Act, inserted by the Finance Act, 2012, states
that in case of a company to which second proviso to section 129(1) of
the Companies Act, 2013 is applicable, would have an option to
prepare its statement of profit and loss either in accordance with the
provisions of Part III Schedule VI to the Companies Act, or in
accordance with the provisions of the Act governing such company. It
was thus contended that a combined reading of second proviso to
Section 129(1) of the Companies Act, Clause (b) of sub-section (2) of
Section 115JB of the Act, and the Memorandum explaining the
provisions made in the Finance Bill, 2012, makes it clear that prior to
the said amendment, MAT provisions as contemplated under Section l
l5JB of the Act were not applicable to electricity, banking and
insurance companies, and would apply only prospectively i.e. with
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effect from 01.04.2013. Therefore, it was prayed that the impugned
order be upheld and the present appeal be dismissed.
ANALYSIS & FINDINGS
17. The primary issue for our determination is whether Section
115JB of the Act would be applicable to the assessee, who is engaged
in the business of electricity generation and distribution, during the
period relevant to AY 2006-07.
18. In this regard, the relevant extract of Section 115JB of the Act,
as it stood at the relevant time, i.e. during AY 2006-07, is set out
below:
―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 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,
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
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 polices ;
(ii) the accounting standards adopted for preparing such
accounts including profit and loss account ;
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(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 falling within the relevant
previous year…‖
19. Plainly, Section 115JB of the Act creates a legal fiction
regarding the ‗total income’. It provides that if a company’s income
tax liability, calculated under the normal provisions of the Act, is less
than 10% of its book profit for a given financial year, then the book
profit will be treated as the company’s total income, and the company
will be required to pay income tax at the rate of 10% on this deemed
total income.
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20. Sub-section (2) of Section 115JB of the Act mandates as to how
the companies must prepare their profit and loss account for the
purpose of this section. It specifies two important things:
(i) Firstly, that the accounts should comply with the provisions of
Parts II and III of Schedule VI of the Companies Act, 1956; and
(ii) Secondly, that the same accounting policies, standards, and
methods for calculating depreciation used in preparing the accounts
for the annual general meeting under Section 210 of the Companies
Act, 1956 must also be used for the purpose of this section.
21. At this juncture, it would be relevant to note that in terms of
Section 210 of the Companies Act, 1956, Board of Directors of every
company, including the assessee, are required to lay before the
company, its balance sheet as well as profit and loss account.
However, it is an undisputed fact that as per Section 211 of the
Companies Act, 1956, the electricity companies (such as the assessee)
are required to prepare their balance sheet as well as the profit and loss
accounts as per the provisions of the special statutes governing such
companies, and not as per Schedule VI of the Companies Act, 1956.
Section 211 of of the Companies Act, 1956, in this respect, reads as
under:
―211. Form and Content of Balance Sheet and Profit and
Loss Account
***
(2) Every profit and loss account of a company shall give a true
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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.‖
22. Thus, the accounts, laid down in the annual general meeting of
an electricity company, would have been prepared in accordance with
the special statutes, such as the Electricity Act, 2003 and the
Electricity (Supply) Act, 1948. However, as noted above, sub-section
(2) of Section 115JB of the Act clearly mandates that the accounts
prepared must comply with Schedule VI of the Companies Act, 1956,
and use the same accounting policies, standards, etc. as those adopted
for preparing accounts for the annual general meeting under Section
210 of the Companies Act, 1956; whereas the electricity companies
are not required to prepare their accounts in terms of Schedule VI of
the Companies Act, 1956.
23. Therefore, in view of the aforesaid, it would prima facie appear
that Section 115JB of the Act, as it stood during AY 2006-07, would
become inapplicable to an electricity company.
24. This also becomes clear in light of the amended Section 115JB
of the Act. The relevant portion of Section 115JB of the Act, as it read
post amendment by Finance Act, 2012, is set out below:
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―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 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 :
Provided that while preparing the annual accounts including
profit and loss account,–
(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 be the same as have been adopted for the purpose of
preparing such accounts including 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
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25. Clearly, the amended sub-section (2) of Section 115JB of the
Act created two different classes of companies.
(i) Firstly, those companies which are required to prepare their
accounts as per Schedule VI to the Companies Act, 1956. Such
companies, for the purpose of this section, would prepare their profit
and loss account as per Schedule VI to the Companies Act, 1956 only.
(ii) Secondly, those companies which are not required to prepare their
accounts as per Schedule VI to the Companies Act, 1956, in view of
proviso to sub-section (2) Section 211 of the Act. Such companies, for
the purpose of this section, would prepare their profit and loss account
as per the provisions of the Acts governing such companies.
26. Therefore, the amended Section 115JB of the Act takes into
account the anomaly discussed in preceding paragraphs, insofar as the
applicability of Section 115JB of the Act to electricity companies, etc.
is concerned, and aims to resolve the same by including the electricity
companies, etc. within its ambit by way of sub-section 2(b). The intent
of this amendment is also amplified in the Memorandum Explaining
the Provisions made in the Finance Bill, 2012, in relation to MAT.
The relevant extract of the Memorandum reads as under:
― Minimum Alternate Tax (MAT)
I. Under the existing provisions of section 115JB of the Act,
a company is liable to pay minimum alternate tax 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 minimum alternate tax liability. Book profit for this
purpose is computed by making certain adjustments to the
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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 the
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 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 minimum alternate tax
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
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 April 1, 2013 and
will, accordingly, apply in relation to the assessment year 2013-
14 and subsequent assessment years.‖
(Emphasis supplied)
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27. The Memorandum clarified that the amendment to Section
115JB of the Act was introduced to address inconsistencies between
the Act and the Companies Act, 1956, particularly concerning
electricity companies and similar entities. In this regard, the
Memorandum, in clear and unambiguous terms, clarified that
previously, Section 115JB of the Act required all the companies to
prepare their profit and loss accounts as per Schedule VI of the
Companies Act, 1956. However, certain companies, like electricity
companies, were allowed to prepare their accounts according to their
respective regulatory Acts. This created inconsistencies while
applying MAT provisions. The new amendment allowed such
companies to compute their book profits under Section 115JB of the
Act using accounts prepared as per their regulatory Acts, thereby
aligning the provisions of the Act with the Companies Act, 1956, and
ensuring consistency in tax computation for these special categories of
companies. However, the Memorandum also clarified that these
amendments were prospective in nature and applicable from AY
2013-14 onwards.
28. We also note that the same issue was considered and decided by
the Kerala High Court in Kerala State Electricity Board v. Deputy
Commissioner of Income-tax (supra), against the Revenue. The Court
analysed the history of the provisions, including its precursors i.e.
Section 115J and 115JA of the Act, and observed that Section 115J of
the Act expressly excluded from its scope ―a company engaged in the
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business of generation or distribution of electricity‖. Thereafter, such
express exclusion was missing in Section 115JA of the Act, which
succeeded Section 115J; however, Circular No. 762, dated 18.02.1998,
issued by the CBDT provided that the companies engaged in the
business of generation and distribution of power were exempted from
the levy of MAT. The Court held that the same could be inferred in
respect of Section 115JB of the Act also, which was substantially
similar to Section 115JA of the Act.
29. The Bombay High Court in Commissioner of Income-tax-LTU
v. Union Bank of India (supra) also answered a similar question
(though in context of banking companies) against the Revenue. It held
that Section 115JB of the Act, prior to its amendment in 2012, cannot
be made applicable to a banking company as the machinery provision
provided in the sub-subsection (2) of Section 115JB of the Act was
wholly unworkable and in-operable in the case of a banking company
and, therefore, when the machinery provision fails, the charging
section can have no applicability. It was observed that on one hand, in
terms of Section 210 of the Companies Act, 1956, the bank would be
under an obligation to lay before the Annual General Meeting its
annual accounts including the profit and loss account, which would be
prepared as per the Banking Regulation Act, 1949. On the other hand,
sub-section (2) of Section 115JB of the Act requires preparation of the
accounts in terms of the Companies Act, 1956, and proviso to sub-
section (2) require maintaining the same parameters in relation to the
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accounting policies, accounting standards and method and rate of
depreciation, as adopted for the purpose of preparing the accounts,
which would ultimately be laid before the Annual General Meeting. It
was observed that a banking company, may either in terms of sub-
section (2) of Section 115JB of the Act, prepare additional accounts as
per Schedule VI of the Companies Act, 1956, or fulfil the
requirements of the proviso to sub-section (2), but it cannot fulfill both
the conditions. The Court further expressed that after the amendment
in the year 2012, Section 115JB of the Act had been bifurcated into
two parts, and the second part now allowed the companies, such as
insurance or banking company or any company engaged in the
generation or supply of electricity, to prepare their profit and loss
account as per their respective regulatory Acts for the purpose of
Section 115JB of the Act also. Thus, it was held that Section 115JB of
the Act , as it stood prior to its amendment by virtue of Finance Act,
2012, would not be applicable to a banking company.
30. Further, the Bombay High Court in the above-noted case had
also dealt with an argument of the Revenue that Explanation 3 to sub-
section (2) of Section 115JB of the Act, inserted by Finance Act,
2012, was a clarificatory amendment, which clarified that companies
such as banking, insurance or electricity companies, have an option for
any AY prior to 01.04.2012 to prepare their profit and loss account
either in accordance with the Companies Act, 1956 or in accordance
with provisions of any special act governing such company. In this
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regard, the Bombay High Court observed that firstly, in the original
form, sub-section (2) of Section 115JB of the Act did not offer any
option to a banking company, insurance company or electricity
company to prepare its profit and loss account at its choice either in
terms of its governing Act or as per terms of Section 115JB of the Act.
Secondly, by virtue of this explanation, if an anomaly which has been
noticed is sought to be removed, the same had not been achieved
inasmuch as it was not a case of retrospective legislative amendment,
and when the plain language of sub-section (2) of Section 115JB of
the Act did not permit any ambiguity, one cannot say that the
legislature by introducing a clarificatory or declaratory amendment
can cure a defect without resorting to retrospective amendment, which
in the present case has not been done, since the amendment was a
prospective amendment.
31. Similarly, the Rajasthan High Court in Principal Commissioner
of Income Tax v. Ajmer Vidyut Vitran Nigam Ltd: (2022) 447 ITR
186 dealt with the issue, i.e. whether Section 115JB of the Act applied
to an electricity company prior to its amendment in 2012. The
Rajasthan High Court, in this regard, relied on the decisions of the
Kerala High Court in Kerala State Electricity Board v. Deputy
Commissioner of Income-tax (supra) and the Bombay High Court in
Commissioner of Income-tax-LTU v. Union Bank of India (supra),
and taking note of the same, the Court dismissed the appeal of the
Revenue.
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32. It will be apposite to note that all the afore-mentioned three
decisions in Kerala State Electricity Board v. Deputy Commissioner
of Income-tax (supra), Commissioner of Income-tax-LTU v. Union
Bank of India (supra) and Principal Commissioner of Income Tax v.
Ajmer Vidyut Vitran Nigam Ltd (supra) were challenged by the
Revenue before the Hon’ble Supreme Court by way of Special Leave
Petitions. The main grounds of the present appeal, as well as the
contentions raised in the written submissions filed on behalf of the
Revenue, were that the decisions in aforesaid cases were bad in law,
contrary to the provisions of the Act, and that SLPs against the same
were pending before the Hon’ble Supreme Court.
33. However, concededly, during the pendency of the present
appeal, the appeals preferred against the decisions in Kerala State
Electricity Board v. Deputy Commissioner of Income-tax (supra) and
Principal Commissioner of Income Tax v. Ajmer Vidyut Vitran
Nigam Ltd (supra) i.e. Civil Appeal No. 151/2015 and SLP (C) No.
11435/2022 respectively, were decided vide a common order dated
16.08.2022 by a Three-judge Bench of the Hon’ble Supreme Court,
wherein all the appeals preferred by the Revenue were dismissed and
the decisions in Kerala State Electricity Board v. Deputy
Commissioner of Income-tax (supra) and Principal Commissioner of
Income Tax v. Ajmer Vidyut Vitran Nigam Ltd (supra), amongst
certain other decisions, were upheld. The relevant extract of order
dated 16.08.2022 of the Hon’ble Supreme Court is set out below:
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―CIVIL APPEAL NO. 151 OF 2015
Heard Mr. Arijit Prasad, learned senior advocate in support
of the Revenue and Mr. Ritin Rai, learned senior advocate for
the assessee.
The judgment under appeal was rendered by the Division
Bench of the Kerala High Court in I.T.A. No.1710 of 2009
dated 12.11.2010.
We have gone through the circumstances on record and
considered the rival submissions. In our view, no interference is
called for. We, therefore, dismiss this appeal.
No costs.
Pending applications, if any, also stand disposed of.
***
SLP(C) No.11435/2022, 11393/2022 and 12257/2022
Since the issue involved in the instant matters stand covered
by the dismissal of Civil Appeal No.151 of 2015, the instant
matters are also dismissed.
Pending applications, if any, also stand disposed of.‖
34. Thus, the primary argument of the Revenue that the decisions of
Kerala High Court, Bombay High Court and Rajasthan High Court are
contrary to law and fails to appreciate the statutory framework, etc. are
now unmerited, in view of the decision of the Hon’ble Supreme Court
by virtue of which the judgments delivered by the Kerala High Court
and Rajasthan High Court on the same issue, in favour of electricity
companies and against the Revenue, have been upheld and affirmed.
35. Insofar as the reliance placed by the Revenue on decision of the
Hon’ble Supreme Court in Andhra Pradesh Power Coordination
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shall suffice to note that the said decision was delivered by a Bench of
Two-judges whereas the order dated 16.08.2022 passed in Civil
Appeal No. 151/2015 was delivered by a Bench of Three-judges of the
Hon’ble Supreme Court.
36. Therefore, in view of the aforesaid, the question of law as
framed is answered in favour of the assessee and against the Revenue.
37. In view thereof, we are of the opinion that the order of the
learned ITAT does not suffer from any infirmity or error and, is,
therefore upheld.
38. The appeal is accordingly dismissed.
SWARANA KANTA SHARMA, J
VIBHU BAKHRU, ACJ
JANUARY 13, 2025/at
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