Long term capital gain cannot be excluded from net profit for purpose of computing book profit under section 115JB

Citation: Rain Commodities Ltd. Vs. DCIT (ITA No. 673/Hyd/2009)

Court: ITAT, HYDERABAD BENCH, SPECIAL BENCH ‘B’, HYDERABAD

Merely because the long term capital gain is exempt under section 47(iv) under the normal provision of the Act, it is not correct to say that it is also to be reduced from the net profit for the purpose of computing book profit under section 115JB of the Act when the Explanation to section 115JB does not provide for any deduction in terms of section 47(iv)

Facts:

Rain Commodity Limited (‘Assessee’) is a company and filed its return of income for the assessment year (‘A.Y.’) 2004- 05 declaring a loss under normal provisions of the Income tax Act (IT Act). In spite of book profit, no income was offered to tax under section 115JB i.e. Minimum Alternate Tax (MAT). The assessment was completed under section 143(3) of the IT Act reducing the loss declared under normal provisions of the IT Act after making an adjustment on account of deferred revenue expenditure. Upon examination of records, the Commissioner of Income Tax (‘CIT’) assumed his jurisdiction under section 263 of the IT Act for revision on the ground that Assessee was liable to pay MAT on the book profit as declared by the Assessee in the profit and loss account. During the previous year, the Assessee sold certain capital assets to its 100 per cent subsidiary and contended that such transfer cannot be regarded as transfer as per section 47(iv) of the IT Act and therefore, no capital gains on account of such transfer would be liable to tax in the hands of the Assessee. Therefore, the Assessee submitted that if such capital gains are also reduced from the book profits, the Assessee would not have any positive book profit liable for tax under the provisions of MAT.

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