PCIT-9 Vs Tata Power Delhi Distribution Ltd. (Delhi High Court)
Conclusion: Section 115JB of the Income Tax Act, 1961, as it stood prior to its amendment by virtue of Finance Act, 2012, would be inapplicable to an electricity generation company. The provision applied to electricity companies only after the amendment and the impugned reassessment proceedings, for the AYs preceding the amendment, could not be sustained.
Held: Assessee-M/s Tata Power Delhi Distribution Limited was a joint venture between Tata Power Company Limited and the Government of NCT of Delhi. Assessee was engaged in the power generation and distribution of electricity in North and North West Delhi. For the AY 2006-07, 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. During scrutiny, AO assessed the total income of the assessee at ₹121,30,35,243/- and computing the book profit under Section 115JB at ₹162,64,31,954/-. AO‘s findings were that assessee had reduced the book profit by ₹21,01,025/- on account of dividend income exempt under Section 10(34). 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). AO estimated and added the same while computing the book profit, which was finally assessed at ₹162,35,14,954. CIT(A) noted that the assessee had debited ₹27.52 crores in its profit and loss account as a provision for doubtful debts. This amount was required to be added back to the book profit under Clause (i) of Explanation 1 to Section 115JB, but assessee had failed to do so. 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 [MAT‘]. 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 assessee. Assessee contended that combined reading of second proviso to Section 129(1) of the Companies Act, Clause (b) of sub-section (2) of Section 115JB, and the Memorandum explaining the provisions made in the Finance Bill, 2012, made it clear that prior to the said amendment, MAT provisions as contemplated under Section l l5JB were not applicable to electricity, banking and insurance companies, and would apply only prospectively i.e. with effect from 01.04.2013. The primary issue for our determination was whether Section 115JB would be applicable to the assessee, who was engaged in the business of electricity generation and distribution, during the period relevant to AY 2006-07. It was held that pre-amendment, sub-section (2) of the provision prescribed that companies must prepare their profit and loss account in accordance with provisions of Parts II and III of Schedule VI of the Companies Act, 1956. However, 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. Post-amendment, sub-section (2) of Section 115JB created two different classes of companies: (i) those companies which are required to prepare their accounts as per Schedule VI to the Companies Act, 1956; and (ii) companies, like electricity companies, which were allowed to prepare their accounts according to their respective regulatory Acts. 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). It thus held that the provision applied to electricity companies only after the amendment and the impugned reassessment proceedings, for the AYs preceding the amendment, could not be sustained. Reliance was placed on a Memorandum issued by the Finance Department, clarifying that the amendments were prospective in nature and applicable from AY 2013-14 onwards. In the case of Commissioner of Income-tax-LTU v. Union Bank of India (2019) where the Bombay High Court held that Section 115JB of the Act, prior to its amendment in 2012, could not be made applicable to a banking company as the machinery provision provided in the sub-subsection (2) of Section 115JBwas wholly unworkable and in-operable in the case of a banking company and, therefore, when the machinery provision failed, the charging section could have no applicability. Accordingly, Court dismissed the Department’s appeal.
