Income Tax Appellate Tribunal - Ahmedabad
Gujarat State Road Transport Corpn. ... vs Department Of Income Tax on 18 February, 1998
IN THE INCOME TAX APPELLATE TRIBUNAL AT
AHMEDABAD
AHMEDABAD "B"BENCH
Before Shri G.D. Agarwal, Vice-President (AZ) and
Shri Mahavir Singh, Judicial Member
ITA No.2159/ Ahd/2006
[Asstt.Year 2003-04]
Incom e Tax Officer, W ard-4(2) -vs- Gujarat State Road Transport
Ahm edabad Corporation Ltd., Vahan,
Vyavahar Bhavan, Astodia,
Ahm edabad-380 022
PAN No. AAACG5587H
(Appellant) (Respondent)
Revenue by : Shri Alok Johri, CIT-DR
Assessee by: Shri Sunil H Talati, AR
ORDER
PER Mahavir Singh, Judicial Member:-
This appeal by Revenue is arising out of order of Commissioner of Income-tax (Appeals)-VIII, Ahmedabad in appeal No.CIT(A)-VIII /ITO/4(2)/ 031/06-07 dated21-07-2006. The assessment was framed by ITO Ward-4(2), Ahmedabad u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated10-03-2006 for assessment year 2003-04.
2. The first issue in this appeal of Revenue is against the order of CIT(A) in deleting the disallowance of expenditure on re-conditioning of buses and withdrawing depreciation. For this, Revenue has raised the following ground No.1:-
"1. The Ld. CIT(A) erred in law and don the facts of the case in deleting the disallowance of Rs.4,34,03,541/- made on account of claim of ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 2 expenditure on reconditioning of buses and withdrawing depreciation of Rs.5,22,635/-."
3. At the outset Ld. Counsel for the assessee, Shri Sunil H Talati stated that this is covered in favour of assessee in assessee's own case in ITA No. 22, 1871, 2794 and 3429/Ahd/2002 for assessment years 95-96, 97-98, 90- 91 and 91-92, wherein the Tribunal has held in para-7 to 11, which reproduced as under:-
"7. We have heard rival contentions and gone through case as also decisions relied upon. As has been pointed out by the learned AR of the taxpayer, expenditure of Rs.5.56 crores incurred during the period relevant to assessment year 1995-96 is merely 1 1/2 % of the total cost of the buses reflected in the Balance Sheet as on 31-3-1995.The expenditure is stated to be on reconditioning of buses at Naroda Workshop. The said expenditure has been incurred on Engines, F.I. pumps, automizers at Central workshop at Naroda and includes proportionate labour cost and overheads. In addition to that, assessee incurred expenditure on repairs and maintenance of the business on tyres and tubes, lubricants, spare parts batteries etc. Besides, the taxpayer also incurred capital expenditure of Rs.18.62 crores on body building over the chasis purchased. There seems to be no doubt that this expenditure has been incurred on maintenance and repairs of the old buses so as to bring the buses on roads and thus, is of revenue in nature. The tax payer had incurred heavy expenditure in repairing the buses so as to bring these "into working condition. Whether or not expenditure is towards current repairs, Hon'ble Supreme Court held in CIT Vs. Sarvana Spinning Mills P Ltd.,293 ITR 201 (SC) that "...........If an auto leveler is to be repaired then that repair would come within the connotation of the word "current repairs"
because it is a part of the carding machine. Even if in a given case, replacement of an autoleveler could come within the connotation of the word "current repairs" if the old part is not available in the market. It is a "current repair" because the carding machine remains an asset without any change even after repair or replacement of the auto leveler. To give an example, a compressor is an important part of an air-condition machine. Repair of the compressor will come in the connotation of the word "current repairs" in section 31 (i) of the said Act because the assessee does not replace the air-condition machine. At the highest, he replaces a part of the air-condition machine. So is the case of the ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 3 picture tube in a television set, when the picture tube is replaced the television se' is not placed, therefore, such repairs alone can come within the connotation of the ' "current repa/rs'1/n section 31(1) of the said Act as it stood at the material They are effected to preserve and maintain the asset, viz, air-conditioner riding machine........ ................. allowance is granted by clause (i) of section 31 in respect of amount expended on current repairs to machinery, plant or furniture used for the purpose of business, irrespective of whether the assessee is the owner of assets or has only used them. The expression "current repairs" denotes repairs which are attended to when the need for them arises from the viewpoint of a businessman. The word "repair" involves renewal. However, the words used in section 31 (i) are "current repairs". The object behind section 31(1) is to preserve and maintain the asset and not to bring in a new asset. In our view, section 31 (i) limits the scope of allowably of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of "current repairs". All repairs are not current repairs. Section 37(1) allows claims for expenditure which are not of capital nature. However, even section 37(1) excludes those items of expenditure which expressly fail in sections 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in sections 30 to 36. To decide the applicability of section 31(1) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is "current repairs". The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to "preserve and maintain" an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage.
This court in the case of Ballimal Naval Kishore v. CIT [1997] 2 SCO 449 approved the test formulated by Chagla C J. in the case of New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT [1956] 30 ITR 338 (Bom) as to when the expenditure can be said to have been incurred on current repairs. In that case it was observed as follows:
"The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 4 preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure.
If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure."
In the said judgment, it has been further observed by Chagla C. J. that the definition of the word "repair" does not create much difficulty, but the difficulty by the word "current" which qualifies the expression "repair". This adjective, namely, "current" is put in by the Legislature. It indicates that the Legislature did not intend that the assessee should be permitted' to claim allowance for all kinds of repairs, even though conceptually the expenditure may be revenue expenditure. The Legislature intended to stress that under section 31(1) the permissible deduction admissible is only for current repairs, therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question as to whether such an expenditure comes within the etymological meaning of the expression "current repairs". In other words, even if the expenditure is revenue, it may not fall in the connotation of "current repairs" in section 31(1). The test formulated above applies to cases where the assessee claims allowance under section 31(1). In the present case, the High Court has lost sight of the test to be applied for an expenditure to fall under section 31(1) as "current repairs". It has embarked on the test which was not applicable, viz., whether the expenditure is revenue or capital in nature. The above test was not relevant during the assessment years in question as the Explanation to section 31(1) was inserted later on.
ITA No2159/Ahd/2006 A.Y. 2003-04 . ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 5
Before concluding, one aspect needs to be discussed. It was submitted on behalf of the assessees, in the present case, that although the assessees had claimed deduction under section 31(1), they should be permitted to claim deduction under section 37(1) as on the facts it has been held by the Commissioner of Income-tax (Appeals), Tribunal and the High Court that the expenditure was revenue in nature. We find no merit in this contention. As stated above, even if the expenditure incurred is revenue in nature, still it may not fall in the connotation of the words" current repairs" under section 31(1) which test has not kept in mind. As held by Chagla C. J. in the case of New Shorrock Spinning and Manufacturing Co. Ltd. [1956] 30 ITR 338 (Bom) all repairs do not attract section 31(1) even though the expenditure is revenue in nature."
8. Following the aforesaid decision, Hon'bie Allahabad High Court in the case of CIT vs. Renu Sagar Power Co. Ltd.,298 ITR 94 (All) held that replacement of one turbine rotor in a turbo generator set, was current repairs and as such expenditure on such replacement was revenue in nature. Hon'bie Gujrat High Court in CIT Vs. Mihir Textiles, 8 DTR 156 (Guj) in the context of expenditure incurred for the purpose of running auto loom shed in a more efficient manner, while referring to the findings of Id. CIT(A) observed that "Thus, it is apparent that that both CIT (A) and Tribunal have recorded the findings of facts after appreciating evidence on record. The order of CIT(A) shows that CIT(A) examined in detail each and every item of expenditure fore recording the aforesaid findings. In the circumstances, the appellate authorities have rightly examined the issue of appreciating as to whether the quantum of expenditure is substantial when compared to gross block of assets so as to suggest that there is a replacement of assets on capital account. It has been found on facts that the expenditure is not very high when compared to gross block of assets in the light of depreciation claimed and allowed during the year which comes to the tune of Rs. 2.82 crores.
9. in the case under consideration also: the total value of buses as per Balance Sheet schedule at Pg.No.61 was Rs.299.29 crores as on 1-4-1994 and Rs.314.40 crores as on 31-3-1995 while total claim of depreciation is merely Rs. 28.67 crores. Thus, expenditure ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 6 of Rs.5.56 crores incurred during the period relevant to assessment year 1995-96 is merely 1 1/2 % of the total cost of the buses reflected in the Balance Sheet as on 31-3-1995. Thus, the aforesaid decision of Hon'bie Gujarat High Court supports the taxpayer.
10. Now adverting to the decisions relied upon by the Id. DR, we find that facts in the cited cases were quite different from the facts in the case under consideration as shall be demonstrated hereinafter. In CIT Vs. Shreyans Industries Ltd., 207 CTR (P&H) 281, issue was as to whether the expenditure of Rs. 70,79,862 incurred by the assessee under the head 'Building account', for the construction of drainage for disposal of effluents was capital or revenue. In the light of facts of the case, Hon'ble High Court held the expenses of Rs. 70,79,862 incurred by the assessee during the first year when the drain was dug out is nothing else but capital in nature as the same created an advantage for enduring benefit for the business. In this case, expenditure was incurred in digging a drain.
10.1 In CIT Vs. Hotel Lake End, 267 ITR 62 (Raj), the issue was whether the expenditure incurred in restoring the swimming pool and the boundary wall was allowable as revenue expenditure. Hon'le High Court held that expenses are incurred on construction of swimming pool and boundary wall, which are of enduring nature, it cannot be said that these expenses are revenue expenses especially when it is not denied that the expenses on sets are of enduring nature. Here expenditure was not found to be on preserving and maintaining any asset but for construction of swimming pool boundary was enduring benefit had been obtained.
10.2. In Jonas Woodhead & Sons Ltd. Vs. CIT, 224 ITR 342 (SC); the Income-tax Officer disallowed 1/4th of the Royalty claimed by the assessee company as revenue expenditure. The Royalty was in terms of the collaboration agreement between the assessee & foreign company. It was a composite payment for supply of technical know-how and services for setting up plant and manufacture of products. There was no embargo on manufacture even after the expiry of agreement. The High Court confirmed the order of the Income-tax Officer stating that the assessee acquired a benefit of enduring nature and any sum paid towards it would ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 7 constitute a capital expenditure. Hon'ble Apex Court held that the - Royalty paid by the company is a capital expenditure not allowable as a revenue expenditure on the ground that the benefit derived is of enduring nature and for long-term.
Merely because it was made at a certain percentage of the gross turnover, it cannot be held as revenue.
10.3 The decision in the case of CIT Vs. Ballimal Nawalkishore, 119 ITR 292 (Bom), has been affirmed by Hon'ble Supreme Court in Ballimal Nawalkishore & Another Vs. CIT.224 ITR 414. But in this case issue was of expenditure incurred on renovation of a cinema hail. Hon'ble Apex Court held that in this case what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. By no stretch of imagination, can it be said that the said repairs qualify as "current repairs" within the meaning of section 10(2)(v) of the 1922 Act. It was a case of total renovation and has rightly been held by High Court to be capital in nature, Hon'ble Supreme Court concluded.
10.4 In CIT Vs. Vasant Screens, 124 ITR 835 (Bom), the expenditure incurred was for converting a godown along with land taken on lease into a cinema theatre. Hon'ble High Court held that the very nature of the expenditure itself is such that during the period of the lease it brings into existence an enduring benefit or advantage to the assessee and, therefore, such expenditure is rightly classified by the taxing authorities as a capital expenditure.
10.5 In CIT Vs. Sharpedge Ltd., 249 ITR 319 (Del), the taxpayer allottees exercised the option under the hire purchase scheme and got the sheds on outright purchase basis as business assets, when they were required to pay interest. The issue was as to whether payment of interest under the said hire-purchase was capital expenditure or revenue in nature. Hon'ble High Court held that though the Tribunal has held that the shifting of the business to outright purchase was necessary for carrying on the business of the assessee more effectively, that per se did not make the expenditure revenue expenditure. Similarly, grant of rebate is also not determinative of the character of the expenditure. The interest ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 8 paid was in respect of the asset, which was acquired on an outright purchase basis that was intimately linked with the value of the asset. That determines the character of the expenditure and it was capital in nature.
10.6 In Gujarat Mineral Dev.Corpn. Ltd. Vs. CIT, 143 ITR 822 (Guj), the issue was as to whether the expenditure incurred for the construction of a bridge for laying of pipes was in the capital field and, therefore, the loss incurred by the assessee on the bridge having been washed away on both the occasions could only be termed as capital loss and not business loss or revenue loss and, therefore, could not be deducted under s.28(i) of the Act. Hon'ble High Court upheld the view of the Tribunal that it was capital loss.
10. 7 As is evident from the facts in the afore-cited decisions, none of these decisions support the revenue. In the aforesaid cases, questions were of ovation of buildings or of royalty or purchase of buildings. Ld. DR has not demonstrated before us as to how these decisions are of any assistance to Revenue. In this connection, Hon'ble Supreme Court in the case CIT Vs. Sun Engineering Works Pvt. Ltd., 198 ITR 257 served:
"It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court A decision of this court' takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India [1971] 3 SCR 9; AIR 1971 SC 530, this court cautioned (at page 578 of AIR 1971 SC). "
Thus, reliance by the Revenue on the afore-cited decisions, which were rendered in a different context, not relevant to the facts in the case under consideration, is totally misplaced.
ITA No2159/Ahd/2006 A.Y. 2003-04 . ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 9
11. As is evident from the facts of the case in hand, expenditure had been incurred to "preserve and maintain" ah already existing asset, and the object of the expenditure was not to bring a new asset into existence or to obtain a new advantage The object behind section 31(i) is to preserve and maintain the asset and not to bring in a new asset. In the light of aforesaid decisions of Hon'ble Supreme Court in Sarvana Spinning Mills P Ltd.(supra) and of Hon'ble Guj'rat High Court in Mihir Textiles(supra) as also the facts, and circumstances of the case, we do not find any infirmity in the findings of Id. CIT(A), holding that the expenses are basically on repairs as these expenses not bring in to existence any new asset or advantage. Thus, ground no. 1 raised by the Revenue in all the four appeals is dismissed."
Respectfully following the decision of this Tribunal in assessee's own case cited supra, we dismiss this issue of revenue's appeal.
4. The next issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of employer's contribution to the Provident Fund u/s.43B of the Act. For this, Revenue has raised the following ground No.2:-
"2. Ld. CIT(A) erred in law and don the facts of the case in directing to allow the claim of deduction of Rs.5,75,12,229/- u/s.43B of the Income- tax Act, being the employer's contribution to the Provident Fund."
5. We find that the issue is squarely covered in favour of the assessee as the payments of these contribution are made within the due date of filling of return of income as noted by the Assessing Officer in his assessment order and Hon'ble Delhi High Court in the case of CIT v. P.M. Electronics Ltd. (2008) 220 CTR 635 (Del), wherein the issue has been discussed in para-4 as under:-
"4. On 27th Nov., 1998 the assessee had filed a return of income declaring a loss of Rs.8,92,888. On 11th May, 1999 the return was processed under s. 143(1)(a) of the Act. The case of the assessee was selected for scrutiny. Accordingly, a notice dt. 27th Sept., 1999 under s. 143(2) of the Act was issued to the assessee. In response to the notice and on examination of the details submitted by the assessee with respect to provident fund payments made both on ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 10 account of employer's and employees' share revealed that payments in the sum of Rs.17,94,042 were late as per the provisions of s. 36(1)(va) r.w s. 2(24)(x) and s. 43B. Consequently, the AO disallowed the deduction and added a sum of Rs.17,94,042 towards EPF contribution."
And subsequently decide this issue in para-10 to 14 of Hon'ble Delhi High Court, which read as under:-
"10. In view of the above, it is quite evident that the special leave petition was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertains to a period prior to the amendment brought about in s. 43B of the Act. The aforesaid position as regards the state of the law for a period prior to the amendment to s. 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma (supra). Applying the ratio of the decision of the Supreme Court in Vinay Cement (supra) a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT vs. Nexus Computer (P) Ltd. by a judgment dt. 19th Aug., 2008, passed in Tax Case (Appeal) No.1192/2008 [reported at (2008) 219 CTR (Mad.) 54 - Ed.] discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd. (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed & Ors.Vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97: 119 STC 505 at p. 526 in para 40 and noted the following observations :
"If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Art. 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court. Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex Court of the country. But, this does not amount to saying that the ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 11 order of the Court. Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties."
11. Upon noting the observations of the Supreme Court in Kunhayammed & Ors. (supra) the Division Bench of the Madras High Court in the case of Nexus Computer (P) Ltd. (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was law declared by the Supreme Court under Art. 141 of the Constitution.
12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra).
13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd. (supra).
14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed."
6. We find that the Hon'ble Delhi High Court in the case of P.M. Electronics Ltd. (supra) has decided this issue of payment of Employees contribution towards Provident Fund after considering the decision of Hon'ble Apex Court in the case of Vinay Cement (supra) and also distinguished the case law referred by the Ld. DR of Bombay High Court in Pamwi Tissues Ltd. (supra). Accordingly, following Delhi High Court in P.M. Electronics Ltd. (supra), we allow the claim of the assessee. Accordingly this issue of the Revenue's appeal is dismissed.
ITA No2159/Ahd/2006 A.Y. 2003-04 . ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 12
7. The next issue in this appeal of Revenue is against the order of CIT(A) in deleting the disallowance of guest house expenditure. For this, Revenue has raised the following ground No.3:-
"3. Ld. CIT(A) erred in law and on the facts of the case in deleting the disallowance of Rs.1,00,000/- in respect of claim of guest house expenses, which is not allowable as held in the case of Britannia Ind. Ltd. 278 ITR 546 (SC)."
8. At the outset Ld. Counsel for the assessee conceded that this issue is covered in favour of Revenue and against the assessee in assessee's own case ITA No. 22, 1871, 2794 and 3429/Ahd/2002 for assessment years 95- 96, 97-98, 90-91 and 91-92, wherein the Tribunal has held in para-18, which reproduced as under:-
"18. In the light of aforesaid decisions of Hon'ble Apex court and Bombay High Court, we have no alternative but to reverse the findings of the ld. CIT(A). Accordingly, order of the AO is restored and disallowance of expenditure on maintenance of guest house, including depreciation on building and furniture, is sustained. Ther4efore, ground nos. 2 and 3 of the appeal in AY 1990-91, 1995-96 & 1997-98 as also ground no. 3 in AY 1991-92 are allowed."
Respectfully following the decision of this Tribunal we reverse the order of CIT(A) and this issue of Revenue's appeal is allowed.
9. The next issue in this appeal of Revenue is against the order of CIT(A) in deleting the disallowance of depreciation on 'new addition asset'. For this, Revenue has raised the following ground No.4:-
"4. Ld. CIT(A) erred in law and on the facts of the case in deleting the disallowance of depreciation amounting to Rs.2,60,53,207/- on new addition of assets."
10. We have heard rival contentions and gone through facts and circumstances of the case. We find that the Assessing Officer disallowed depreciation claim of these items of assets on the ground that requisite details as to the utility were not furnished. The assessee before CIT(A) argued that the A.O failed to appreciate that the assessee-company being subject to audit ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 13 by CAG and various additions to building and furniture are at various divisions/units according to the consistent system that their claim being allowed all these years based on certified depreciation statement, the disallowance ought not to have been made. The CIT(A) allowed the claim of the assessee by giving following findings in his appellate order:-
"6.1 I find that such disallowance was deleted in earlier years also. However, the depreciation claimed as per Income-tax Rules are being verified by the Tax Auditors and the appellant had furnished a certificate in this regard. As no specific finding has been given as to wrong claim and the disallowance was mainly for want of details from various divisions, in the light of the appellant's claim, the disallowance cannot be sustained. Auditing by a statutory auditor of CAG and other designated persons cannot be dismissed as unreliable. Accordingly, the AO is directed to allow depreciation on assets put to use during the year as per the annexure of depreciation furnished by the appellant, in this regard."
We find that the Revenue could not convert that depreciation claimed is not as per Income-tax Rules not verified by the Tax Auditors. It is also fact the assessee has furnished a certificate in this regard no specific finding has been given as to wrong claim and the disallowance was mainly for want of details from various divisions. We find that the findings of CIT(A) that the auditing by a statutory auditor of CAG and other designated persons cannot be dismissed as unreliable is correct. Accordingly, we are of the view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the same. This issue of Revenue's appeal is dismissed.
11. The next issue in this appeal of Revenue is against the order of CIT(A) in holding that assessee is not liable to pay MAT on the book profit computed u/s 115JB of the Act. For this, Revenue has raised the following ground No.5:-
"5. Ld. CIT(A) erred in law and o the facts of the case in holding that the assessee is not liable to pay MA on the book profit computed u/s.115JB of the Income-tax Act, at Rs.5,06,71,79,260/- by the Assessing Officer."
ITA No2159/Ahd/2006 A.Y. 2003-04 . ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 14
12. The brief facts leading to the above issue are that assessee is engaged in providing transport facility to the public, which is fully owned Corporation of State Government of Gujarat. The assessee-corporation has huge accumulated losses both under the provisions of income-tax as well as per the books of account. During the year under consideration the assessee had filed its return of income on 30-11-2003 declaring total income at Nil after considering the losses allowable. The assessee is a body-corporate assessed as company under the I.T. Act. During the financial year 2002-03, assessee received an amount of Rs.1088.63 crores as subsidy and reimbursement of losses incurred for uneconomic routes, student concession losses, city service losses and 20% fare as per the directions of the state Government. After incorporating the same in the profit and loss account, the assessee has disclosed net profit of Rs.897,98,75,418/-. The total income of the assessee, after making various adjustments was of Rs.3,74,39,18,534/- and after setting of brought forward losses, the total taxable income was Nil. On verification of books of account of the assessee, it is found that in spite of huge profit in the profit and loss account no book profit u/s.115JB of the Act is reflected and assessee was also required to submit computation of book profit in the prescribed Form No.29B as per I.T. Rules, 1962. However, no such computation of book profit was given. The assessee claimed that the Corporation was established by an Act of state Legislation passed in 1950 as amended in 1982. The Corporation was established by an Act called Road transport Corporation Act, 1950. The assessee also submitted copy of the Act along with its rules. The assessee claimed that the status as "Corporation"
and not a "Company". The assessee-corporation was not established under the Companies Act, 1956 in case of company registered under Companies Act, the registrar of companies being part of ministry/department of company affairs has to issue certificate of incorporation and certificate of commencement of business. No such formalities were completed in case of the assessee. The assessee contented that Section 115JB is applicable to the assessee-corporation assessed as "company" which prepares its profit ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 15 and loss account in accordance with the provision of part(ii) and (iii) of Schedule-VI of Companies Act. The company has never prepared profit and loss account and balance sheet as per Companies Act. The company prepares its account as per Clause 19 to 28 of Chapter-VI of GSRTC Act. The assessee-corporation is not required to call Annual General Meeting in accordance to provision of Section 210 of the Companies Act. The assessee- corporation also refers to Circular No.762 dated 18-02-1998 of CBDT. The assessee also relied on decision of ITAT Mumbai in the case of Maharashtra State Electricity Board v. JCIT (1982) 82 ITD 422 (Mum) and the assessee also claimed that income of Rs.1088.63 crores was receipts and credits of losses of earlier years made good in this year by the Sate Government. As such assessee's income is not at all in the nature of income of the current year.
13. But the Assessing Officer noted that SRTC is a "body Corporate" as all other State Road Transport Corporations and nothing else. The management by Board of Directors, it's share capital, conduct of meeting are all mentioned in the Act, this proves beyond doubt that for all practical purpose, GSRTC is a company and utility and status of the State Road Transport Corporation guided under the Road Transport Corporation Act, 1950, which are also defined in detail by the Hon'ble Supreme Court in the case of Andhra Pradesh Sate Road Transport Corporation v ITO (1964) 52 ITR 524 (SC) two important ratios have been laid down in this judgement.
(a) All State Road Corporations are taxable under the Central Act. The relevant portion of the judgement is quoted as below:
"The main point which we are examining at this stage is: is the income derived by the appellant from its trading activity, income of the State under article 289(1)? In our opinion, the answer to this question must be in the negative. Far from making any provision which would make the income of the corporation the income of the State, all the relevant provisions emphatically bring out the separate personality of the corporation and proceed on the basis that the trading activity is run by the corporation and the profit and loss that would be made as a result of the trading ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 16 activity would be the profit and loss of the corporation. There is o provision in the Act which has attempted to lift the veil from the face of the corporation and thereby enable the shareholders to claim that despite the form which the organization has taken, it is the shareholders who run the trade and who can claim the income coming from it as their own. Therefore, we are satisfied that the income derived by the appellant from its trading activity cannot be said to be the income of the State under article 289(1)"
(b) All State Road Transport Corporation are liable to pay income tax in the status of a company. The relevant portion of the judgement is quoted as below "The Advocate-General, no doubt, attempted to derive some support to his argument by relying on section 343 of the State Financial Corporations ct, 1951 (63 of 1951), as well as section 43 of the Damadar Valley Corporation Act, 1948 (14 of 1948). Section 43 which occurs sin both the said Acts provides that 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. It is urged that where the Legislature wanted to provide for the liability of the corporation to pay the taxes on income levied by the Central Government, it has made specific provisions in that behalf and since no such provision has been made in the Act, it follows that the legislature intended that no tax should be levied on the income earned by the corporation established under the Act. We do not think there is any substance in the argument. The whole object which section 43 is presumably intended to active is to provide that the tax should be levied on the basis that the corporation is a company and nothing more. If no such provision was made in the Act, that has no bearing on the liability of the corporation to pay the tax on its income."
Accordingly, the Assessing Officer assessed the assessee as company under the provisions of section 115JB of the Act.
14. Aggrieved, assessee preferred appeal before the CIT(A) and he allowed claim of assessee by holding as under in para-7.4.1 to 7.4.3 of his appellate order, which reads as under:-
"7.4.1 In the case of appellant, it is a Corporation established under the Special Act of the Road Transport Corporation Act, 1950. No doubt, the Appellant-Corporation is liable to tax under the normal provisions of the ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 17 Act as deeming company but when it comes to taxation under special provision, it is the legislative intent of that provision that should be considered and not the general provision, as held by the Hon'ble ITAT Mumbai Bench cited above. It is the context that is vital and it cannot be viewed without its proper appreciation. The observation of the AO that many other State Government Undertakings have paid tax under MAT is of no avail as such entities are incorporated under the Company Law. No material has been brought on record by the AO to show otherwise. Hence sections 2(17) and 2(26) by themselves cannot render the Appellant-Corporation liable for taxation u/s.115JB. As contended by the learned counsel for the appellant, clause (vii) of explanation to section 115JB(2) could not be applied to the appellant's case as the appellant is not a Company under the Companies Act. AII the benefit of he above provision is made available then there would not be any profit chargeable to ax u/s. 115JB even if the prior period adjustments were deemed to be income of the current year without prejudice to the other grounds. Holding an entity as liable under the deeming provisions but denying an exemption otherwise allowable would run counter to judicial conscience. This is a mute point which the AO did not address. An assessee not having operating profits for the period covered by the accounts cannot be held to be liable u/s.115JB. As pointed out earlier, the computation u/s.115JB was prompted by the prior period adjustments shown in the appropriation account. In a decision favourable to the Revenue, the Hon'ble ITAT Madras 'D' Bench in the case of Sree Rajendra Mills Ltd. V. DCIT held that prior year expenses should not be deducted in computing the book profit u/s.115JB. If the same rationale is applied then the prior period adjustments in the Appropriation Account not being cash receipts but only credit entries to reduce the dues to the State Government cannot be added to the current year operational results in computing the book profit u/s. 115JB. The Appellant-Corporation did not receive any cash assistance in respect of above prior period adjustments and in this respect the observation of the AO vide para 8.22 that during the year under consideration, there was huge profit to the appellant as per profit and loss account is without proper appreciation of facts and legal position. The AO went on observing that declaration of payment of dividend was an appropriation and had no bearing on its taxability. This is not relevant to the facts obtaining in this case. The AO also stated that the decision of Mumbai Tribunal was snot a binding authority in the State of Gujarat and the Department must be challenging its decision before the Hon'ble Bombay High Court. The reliance of the AO on the decisions of Apex Court in the case of Sahney Steel and Press Works Ltd. V. CIT 228 ITR 253 (SC) and Sree Ayyanar Spining and Weaving Mills Ltd. V CIT 240 ITR 253 106 (Mad) and Steel Authority of India Limited 263 ITR 211 and that of Hon'ble Delhi High Court in the case of NTPC V. ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 18 Union of India (192 ITR 187) are of no assistance in deciding this issue as they were rendered in different factual situations and legal contexts.
7.4.2 To sum up, the following inferences could be arrived.
(i) The Appellant-Corporation had no national profit for the current year.
(ii) Prior period adjustments in the Appropriation Account did not represent current year profit much less any cash assistance from the State Government.
(iii) Prior period adjustments are mere book entries for restating the assets and liability and cannot be construed as income occurred during the relevant accounting period.
(iv) Section 115JB is a self-contained code and taxability under the general provisions does not render an entity automatically liable to levy u/s.115JB.
(v) If a deeming provision could be applied to bring an entity under the ambit of section 115JB then the exemption available to such a legal entity shall be available and in the case of the appellant they cannot avail tithes as they cannot file an application before B.I.F.R. as the appellant is not a Company.
(vi) The net worth of the Appellant-Corporation is minus and as such clause (vii) of explanation to Section 115JB(2) must have been made available.
(vii) In the light of the decisions of the Hon'ble ITAT Mumbai Bench and Hon'ble ITAT Madras Bench cited above, the appellant is either not liable to taxation u/s.115JB or is not having any taxable profit u/s.115JB, if prior period adjustment are excluded.
7.4.3 In view of the above discussion and the judicial pronouncements obtaining in support of appellant's grounds, I am to hold that the A[penalty proceedings-Corporation is not liable to tax u/s.115JB either in law or on facts, there being no operational book profit for the year under consideration. To hold otherwise would lead to absurdity of levying tax u/s./115JB in respect of an appellant who is fit enough to be a case under BIFR. In this view of the matter, I direct the AO to delete the book profit computation."
Aggrieved, Revenue came in appeal before the Tribunal.
ITA No2159/Ahd/2006 A.Y. 2003-04 . ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 19
15. Before us the Ld. CIT-DR filed following written submissions:-
"WRITTEN SUBMISSIONS In this case various hearing had already been made and it was considered by the Hon'ble Bench that besides other ground which is to be considered on merits, the ground related to the applicability of section 115JB in this case i.e. applicability of the provision of Minimum Alternative Tax is to be considered first. This case was treated as heard with pronouncement on 04/08/2010 that " issue of applicability of section 115JB for such corporation will be referred to Special Bench by the Bench itself. However, the case was again placed for reconsideration in view of the latest decision of Hon'ble Kerala High Court in the case of Kerala State Electricity Board vs.DCIT 329 ITR 91. It was, therefore, requested that the written submission will be made in this regard. These written submissions are limited to the issue under consideration and for the sake of brevity the arguments taken on 04/08/2010 related to provisions of definition of company and corporation like appellant falls therein are not repeated.
The issue of applicability of section 115JB has to be considered with the history and legislature intention of promulgamating such provision of Minimum Alternative Tax i.e. MAT. It is, therefore, the following submissions along with various judicial interpretation start with the first such enactment vide Finance Act,1987 for bringing in section 115J of the Act. It is important to consider that basic intention of subsequent such section i.e. section 115JA or 115JB are on the same principle.
As per Circular IMo.495 dtd. 22/09/1987 being Explanatory notes on the provision of the Finance Act,1987 (for section 43 of the Finance Act,1987 when the provision to levy minimum tax on "book profit" of certain companies were enacted) explain at Para 36.3 that income provides that the application of this provision would not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set off, and deduction under s. SOJ, to the extent not set off as computed under the IT Act."
ITA No2159/Ahd/2006 A.Y. 2003-04 . ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 20
This clearly reflect that section 115J is a self contained code (as held subsequently by various court of law including Hon'ble Supreme Court in the case of Appolo Tyre) It has two important limb i.e.
(a) Charging section i.e. 115J(i)
(b) Machinery section i.e. 115J(1A) This is as per standard framing of provision by the legislature that to implement the charging section particularly in such special deeming case (example 80HHC, 80IB etc.) the same is provided with machining section by which such changing section being implemented.
The charging section does not differentiate in any manner any of the company if it fulfill the definition of company as per provision of section 2(17) for charging of tax since if start with a non absonate clause, i.e. "notwithstanding any thing contained in any other provision of this Act".
Importantly it excluded i.e. 115J when promulgated excluded "company in the business of generation or distribution of electricity"
and no other company.
Both section 115J(1A) and this exclusion was inserted by the Direct Tax Law (Amendment) Act,1989 w.e.f.1.4.89 while the section 115J was introduced by Finance Act,1987 w.e.f.1.4.88. Circular No.550 dated 01/01/1990 vide para 24, further explained the nature and scope of section 115J. Para 24(2) clearly reflect the intention of the legislature shown therein that the companies who are having different accounting year were not required to prepare computation of book profit as on 31st March because, they are having different previous year, it was made clear that the same is against legislature intention and amendment was made to make it mandatory that all companies will prepare their P & L a/c. for the previous •year ending on 31st March to determine book profit for the purpose of this section even if it is having different accounting year for the requirement under Companies Act. If we plainly analyze the language of section 115J(lA),it is unambiguous which stipulates that Every assessee, Being a Company, Shall, ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 21 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 and III of Schedule VI to the Companies Act,1956 (1 of 1956) Therefore, this machinery provisions provide that if an assessee being a company then it is mandatory (word use shall) to prepare its P & L A/c. as per part 2 and 3 of Schedule 6 of the Companies Act for the purpose of this section (emphasize supplied). It is, therefore, to implement the charge of section 115J(1) of the Act for computation of book profit for all the assesses, who are companies to prepare its final account as per provisions of Schedule VI part 2 and 3 of Companies Act. This is an additional requirement if that company is not preparing its final accounts according to this Schedule. Section 115J(1A) or section 115J in totality nowhere stipulate that if any assessee being company not requiring to prepare its final accounts as per Schedule VI of the Companies Act then it is excluded from the charge of Section 115J. It is only the company engage in the business of generated or distribution of electricity, which is exempted from the charge.
In the case of Padmasundara Rao (Deed.) v.State of Tamil Nadu [20021 255 ITR 147 The Supreme Court pointed out that the plain language of the statute is best understood as the declaration of the intention of the Legislature. The court cannot seek to supply omissions as such an attempt would tantamount to power to legislate, which it does not have. The plain inference cannot be dismissed on the ground that it would be unreasonable or that the language is contrary to the obvious intention of the Legislature.
The Supreme Court in Prakash Nath Khanna v.CIT [20041 266 ITR 1 (SCI adopting the rule of plain words for the expression "in due time", understood the expression to mean the time limit under section 139(1) and not the extended time limit for filing belated return under section 139(4). The Supreme Court ruled that interpretation should avoid "the danger of a priori determination of the meaning with one's own preconceived nations" and that the court interprets the law and cannot legislate. It referred to two other principles of construction one relating to casus omissus and the other requiring a statute to be read as a whole. It also referred to the rule that the interpretation should avoid a result, which is ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 22 manifestly absurd or anomalous. Interpretation should also not be unreasonable, so as to defeat the obvious intention of legislature.
The oft-repeated issue as to whether interpretation should be strict or liberal had come up again in CIT v. Punjab Financial Corporation [20021 254 ITR 6 (P&H lFFBI wherein the High Court reiterated the law, that the fiscal statute should be construed strictly in respect of a charging provision or a provision imposing penalty, but not other parts of the statute, which contain the machinery provisions or what is ordinarily understood as procedural law following the decision of the Supreme Court in CIT v.National Taj Traders [19801 121 ITR 535. A machinery provision has to be construed in a manner, that it sub serves the objective of the statute as was pointed out in Sardar Harvinder Sine Seigal v.Asst.CIT [19971 227 ITR 512 (Gauhati). A charge upon the subject must be imposed by clear and unambiguous language, so that nothing is left to the intendment, a proposition which has received repeated recognition of the Supreme Court, as for example, in Hansraj Gordhandas v.H.H.Dave, Asst.Collector.Central Excise and Customs AIR 1970 SC 755. Indian courts have recognized the dictum of Rowlatt J. In Cape Brandy Syndicate v.lRC [19211 1 KB 64. Such a view has been taken even recently in Federation of Andhra Pradesh Chambers of Commerce and Industry v.State of Andhra Pradesh [20011 247 ITR 36(SC) and CIT v. Plantation Corporation of Kerala Ltd.[20011 247 ITR 155(SC).
In the case of Dy.CIT v.Central Concrete and Allied Products Ltd. [19991 236 ITR 585 (Cal.) The High Court found that nothing "is static in taxing laws" and that such variations cannot be questioned "unless fiscal law in question is manifestly discriminatory". Where the law is clear, it is not open to the courts to interfere with the same. It has given the following definition of substantive and procedural law.
"Substantive law is that part of law which creates, defines and regulates rights as opposed to 'adjective or remedial law' which prescribes the method of enforcing the rights and obtaining redress for their invasion [see Black's Law Dictionary].
ITA No2159/Ahd/2006 A.Y. 2003-04 . ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 23
Procedural law means the mode of procedure by which the legal rights are enforced as distinguished from the substantive law which gives or defines the rights".
In the light of the above definition of substantive and procedural law, it was felt that it was a case of determination of quantum of interest and not the manner of determining the interest with the result that it should be understood as a substantive provision, so that it cannot have retrospective operation. The amended provision, it was found, was also constitutionally valid not being discriminatory in the sense in which it was canvassed.
In view of the different meanings which may be assigned to the same word, problems of interpretation may arise. The meaning of industrial undertaking is one such expression which may be found to have different interpretations in different fact situations. But where there is a definition in the enactment, such definition should have application in respect of the entire enactment and not merely for the section for which the definition is given, so that the definition under section 33B was held applicable for section 32A as well in CIT v.G.S.Atwal andCo.(Gua) [2002] 254 ITR592(Cal.) The authority of advance ruling in the case of XYZ IN RE 234 ITR 335(AAR) has made it clear that provisions of section 115JA were applicable to companies incorporated in Netherlands. Besides the fact that such foreign companies are not required to maintain its books of account as per Companies Act of Indian.
Hon'ble I.T.A.T. 'D' Bench, Mumbai in the case of Maharashtra State Electricity Board vs. JCIT 82 ITD 422(Mumbai) at para 15 fully recognized of above discussed proposition i.e. the requirement of preparation of final accounts as per Schedule 6 of the Companies Act was not a essential requirement but was for the purpose of charging section i.e. 115JA in the case.
As per Hon'ble members referred latest decision of Hon'ble Kerala High Court in the case of Kerala State Electricity Board Vs.Dy. CIT 329 ITR 91 (Ker.), it was considered by the Hon'ble Kerala High Court that v initially section 115 expressly excluded from its operation bodies like the Electricity Board. Though such exclusion were absent in section 115JA, the CBDT issued Circular No.762, dated February 18,1998 excluding bodies like the Electricity Board ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 24 from the operation of the section. This circular was considered by the Hon'ble High Court binding on the department and also as explaining the purpose of introducing section 115JA. At para 29, Hon'ble High Court considered the appellant argument that where the computation provision cannot be applied in the particular case, it is indicative of the fact that the charging section also would not apply. The reference was made to section 45 and Hon'ble Supreme Court decision in the case of B.C.Srinivasa Setty 128 ITR 294(SC). However, with due respect to the Hon'ble Kerala High Court, Hon'ble High Court failed to recognize the plain meaning of section 115J(1A), 115JA(2) and 115JB(2) of the Act with simple and unambiguously emphasis that for the purpose of charging section, the final account is to be reconstructed as per Schedule 6 of the Companies Act. A factual question therefore arises is whether financial result of any company or corporation prepared in whatever manner or as per their own method can be prepared as per Schedule VI of the Companies Act? If an answer to this question is yes then ratio of Hon'ble Kerala High Court does not apply. Once again it is to be emphasise that machinery section does not stipulated that " if financial results are not as per Schedule VI of the Companies Act, the same is excluded from the ambit of section 115JB, 115J,115JA rather it says the same can be got prepared to implement the charging of tax as per charging section.
It is needless to emphasise that any assessee being company or corporation can be under statutory obligation to prepare its final account as per their own Act or guidelines of Company Act or as per other statutory institution according to their field of operation but their financial account and result can easily be prepared in accordance with Schedule VI of the Companies Act with the help of any chartered accountant. In many cases of company or corporation such financial account and Results are prepared in different form for different purposes for example final account are drawn for Income-tax purposes, final accounts are drawn for presenting before committee of share holders, final accounts are drawn to avail credit limit from Banks etc. But the same can be prepared as required u/s.H5J(lA) or u/s.H5JB(2) as per Schedule VI of Company Act also.
Since MAT or in this respect section 115J or 115JA or 115JB were introduced with the intention to tax zero tax companies for ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 25 augmenting revenue collection. It is, therefore, as per Hon'ble Supreme Court in the case of Commissioner of Income-tax vs. Budharaja & Co. & Another etc. 204 ITR 412 that "It would not be reasonable or permissible for the court to rewrite the section or substitute words of its own for the actual words employed by the legislature in the name of giving effect to the supposed under lying object. After all, the under lying object of any provision has to be gathered on a reasonable interpretation of the language employed by the legislature. A liberal interpretation which advances the purpose and object under lying the provision should be adopted. But, it cannot be carried to the intent of doing violence to the plain and simple language and in the enactment."
16. On the other hand, Ld. counsel for the assessee, Shri Sunil H Talati filed following written submissions in reply to Ld. CIT-DR's submissions:-
In connection with the Ground No.5 of the Department's Appeal with regard to levy of Minimum Alternate Tax u/s.115JB as directed by the Hon'ble Bench the undersigned has to submit as under:
1.GSRTC is not at all a Company as envisaged under Sec.
2(17) of the Companies Act. It is a Corporation under the Road Transport Corporation Act, 1950 and not at all under the Companies Act.
2. Right from 1988 when Sec. 115J was introduced and thereafter when Sec. 115JA was introduced in 1997 and when Sec. 115JB was introduced in 2001, never this Corporation has been charged MAT on Book profit, though there were years when the Corporation had surplus income.
3. In fact GSRTC is a Charitable Trust as the object of the Trust is of public utility being free or concessional road transport to poor and needy. The copies of the permission /recognition granted under sec. 11 and 12 for earlier and subsequent years are enclosed.
4.The Assessing Officer has mislead the factual position by mentioning on Page 17 in Para 8.10 of the Order that large ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 26 number of Corporations of the Government of Gujarat are treating itself as companies and paying tax under MAT. Out of five names mentioned, Item No.4 i.e. Gujarat State Financial Services Ltd., the Assessing Officer himself has mentioned as Limited, which proves that it is a Limited Co.
From the Website of Ministry of Corporation Affairs and Individual Websites of these five companies, it is 100% beyond doubt that all these are companies registered under the Companies Act. They are governed and monitored by Registrar of Companies and have to prepare its books of account as per Schedule-VI of the Companies Act. They are also having their Articles and Memorandum of Associations filed with R.O.C. and every year they are required to file its Annual Return with R.O.C. This is not at all the fact with GSRTC, inasmuch as;
(i) It is not a company,
(ii) It is 100% owned by State Government and Central Government.
(iii) It is not at all registered as a Company with Registrar of Companies, Ministry of Corporate Affairs.
(iv) It is not required to prepare its accounts as per Schedule-VI of the Companies Act.
(v) It is not required to file its Articles and Memorandum of Association with R.O.C. and therefore, the decision of Bombay Tribunal in the case of Maharashtra Electricity Board is fully applied as correctly held by C.I.T. (Appeals).
(vi) Additionally, Sec. 115 JB (2) clearly mentions as under:
"115JB. ........
(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):
ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 27
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;2
(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 it annual general meeting in accordance with the provisions of section 210 of the Companies Act 1956(1 of 1956):"
The proviso of section also provides that the accounts of the Company are to be laid before the Annual General Meeting in accordance with the provisions of Sec. 210 of the Companies Act. GSRTC has not to hold any Annual General Meeting, which has not to lay its accounts in any Annual General Meeting and provisions of Sec. 210 of the Companies Act are not at all applicable to this Corporation.
(vi) Lastly, the accounts of GSRTC are not at all prepared as per Schedule-VI of the Companies Act, the Accounting policies and Accounting standards of the Companies Act and ICAI are not at all applicable to it, but the Accounting Standards in accordance with Sec. 33 of the Road Transport Act are applicable to it.
Coming to the incorrect mentioning by the Assessing Officer right from Page 10, Para-8 onwards it is to be clarified as under: Page-
12. Para 8.2 The assessee is not at all Company and as clarified by the Board in Circular No. 72 dated 6-1-1972 is not at all applicable to the GSRTC. Such Corporation is treated as Company only for the purpose of status and rate of Income tax applicable and nothing further.
Page 14 The Government Companies are the five Companies, which are stated by the Assessing Officer and therefore, the Assessing ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 28 Officer has not typed the word "Limited" after the name of the company intentionally to mislead the authorities. If one visits the Website of R.O.C., all these Corporations are having the word "Limited" at the end with a Corporate Identification No. (CIN), which is not the case with GSRTC.
The reproduction of Rules from Page 14, Para 8.5 onwards, nowhere treats the company as envisaged for the purpose of MAT. On Page 16, Para 8.7, the decision of Andhra Pradesh State Road Transport Corporation was not at all related to MAT, but it was dealing with whether it is a Charitable Trust or not and therefore, the entire judgement is misquoted without reference to the fact.
Para-8.10 as stated above, the Assessing Officer has purposely not mentioned the word "Limited". In Para 8.12 on Page 18 , the conclusion is erroneously arrived at because the reliance placed on N.T.P.C. Ltd. 192 ITR 187, in Para 16 is again a Company registered under the Companies Act.
With regard to reference of declaration of dividend in Para 8.18 from Page 20 to 22 one has to appreciate the intention of Legislature on introducing MAT. It was to certain companies, who are showing good profit in book but taking the advantage of the Income tax, the taxable income was worked out at NIL. To circumvent this MAT is introduced to tax the companies where dividend is declared. Circular No. 762 is irrelevant as GSRTC is not declaring dividend, never declared dividend and is not entitled to declare dividend legally also inasmuch as the profit is going to Central Government and State Government for the benefit of general public at large and not to any shareholder.
The decision quoted on Page 22 of Maharashtra State Electricity Board 82 ITD 422 (Mum) clearly applies to the assessee but the Assessing Officer has tried to distinguish the facts erroneously without reference to the context.
Therefore, it is submitted that the Corporation is not at all covered by Sec, 115JB and therefore, there is no question of levying any tax under MAT.
ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 29
ON FACTS
On facts the learned C.I.T. (Appeals) has very clearly observed that as per audited accounts of C & A.G. and Tax Auditors there was a net loss of Rs. 187 Crores during the year ending 31-03- 2003. The credit shown in the Profit & Loss Account is not as a profit or income of the year but is an item of appropriation. Therefore, in Schedule- K it is shown beyond the Profit & Loss as Appropriation. This is because the credit of income of Rs.1088.63 crores were granted by Government of Gujarat to compensate the losses of earlier years. C.I.T. (Appeals) on Page 8 and 9 in Para 7.3 has further verified the facts and observed that there were no cash subsidy received from Government but it is only adjustment of previous losses of Government owned Corporation waived by Government. This is not at all in the nature of income of the current year and cannot be remotely also taken as income for MAT.
The assessee relied on the decision of Sree Rajendra Mills Ltd. vs. Deputy Commissioner of Income Tax 63 TTJ (Mad) 697, wherein it is held that item shown in the Profit & Loss Account as Appropriation cannot be an income."
18. We find in view of the above facts, submissions of the both the sides and arguments that the issue is covered in favour of the assessee and against the Revenue by the decision of Hon'ble Kerala High Court in the case of Kerala Sate Electricity Board v. DCIT (2010) 329 ITR 91 (Ker) and in view of the decision of Hon'ble Kerala High Court in the case of Kerala State Electricity Board (supra) the issue is fully covered in favour of the assessee and against the Revenue, respectfully following the same, we uphold the order of CIT(A) on this issue. This issue of Revenue's appeal is dismissed.
19. In the result, Revenue's appeal is partly allowed.
Order pronounced on this day of 28th Feb, 2011
Sd/- Sd/-
(G.D.Agarwal) (Mahavir Singh)
(Vice President) (Judicial Member)
Ahmedabad,
Dated : 28/02/2011
ITA No2159/Ahd/2006 A.Y. 2003-04 .
ITO Wd-(2), A'bd v. GSRTC Ltd. A.Y.2003-04 Page 30
*Dkp
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-VIII, Ahmedabad
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad