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DATE: August 30, 2017 (Date of pronouncement)
DATE: September 2, 2017 (Date of publication)
AY: 2005-06
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CITATION:
S. 115JB: As Insurance companies are required to prepare accounts as per the Insurance Act and not as per Schedule VI to the Companies Act, s. 115JB does not apply. Insurance companies are not taxed on commercial profits but on profits as computed under the Insurance Act. Accordingly, income earned on sale/redemption of investments is not chargeable to tax

The different benches of the ITAT have, in other cases, consistently held that during the period when Rule 5(b) was not operational the profit on sale of investments made by general insurance companies cannot be brought to tax. In Bajaj Allianz General Insurance Co. Ltd. v. Additional Commissioner of Income Tax (2010) 130 TTJ (Pune) 398, the ITAT addressed the specific question of whether a logical conclusion could be drawn that an income that is not taxed in terms of Rule 5(b) could, even after such amendment was deleted, be taxed in the hands of the insurance company. It was held that income which was earlier taxable under one specific clause could not be brought to tax after the deletion of such clause

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DATE: August 4, 2017 (Date of pronouncement)
DATE: August 16, 2017 (Date of publication)
AY: -
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CITATION:
S. 115JA/ JB Book Profits: Clause (i) to the Explanation was inserted to supersede HCL Comnet 305 ITR 409 (SC). Accordingly, a mere provision for bad debts has to be added back for computation of book profit u/s 115JA/JB. However, in terms of Vijaya Bank 323 ITR 166 (SC), if there is a simultaneous reduction from the loans and advances on the asset side of the balance sheet, the provision amounts to a write-off of the debt which is not hit by clause (i) of the Explanation to section 115JB

By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause(i) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (i) to the explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the explanation to section 115JB

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DATE: July 18, 2017 (Date of pronouncement)
DATE: July 27, 2017 (Date of publication)
AY: 2004-05
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S. 115JB: The AO is not entitled to add to the "book profits" the amounts arising from sale of land which are directly credited to the Capital Reserve Account in the balance sheet rather than routing it through Profit and Loss Account in the manner provided as per Part II and Part III of Schedule VI to the Companies Act, 1956

The learned counsel for the Appellant submits that Tribunal was not justified in not accepting the reworking of the book profits by the Assessing Officer as per the provisions of Section 115JB of the Income Tax Act. The Assessee had directly credited the profit of Rs.2,84,84,000/ arising from sale of land to Capital Reserve Account in the balance sheet rather than routing it through Profit and Loss Account in the manner provided as per Part II and Part III of Schedule VI to the Companies Act, 1956

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Posted on by Rakesh Fanindra Joshi — 2 Comments ↓
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DATE: January 13, 2017 (Date of pronouncement)
DATE: March 17, 2017 (Date of publication)
AY: 2004-05
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CITATION:
S. 41(1)/ 115JB: Entire law explained whether remission of a loan can be assessed as income u/s 41(1) and if not whether the same can be added to "book profit" for purposes of MAT tax u/s 115JB

Waiver of loan taken for acquisition of a capital asset and on capital account cannot be taxed u/s 41(1), as it is neither on revenue account nor a remission of a trading liability so as to attract tax in the year of remission. A capital surplus thus, in respect of waiver of loan amount cannot be regarded as being amount available for distribution through the profit & loss account. This follows from the very definition of expression ‘capital reserve’ that it must be accounted directly to the credit of the capital reserve account instead of being credited to the profit & loss account so as to ensure that it is not left for being distributed through the profit & loss account

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DATE: June 6, 2016 (Date of pronouncement)
DATE: July 8, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Mesne profits (amount received from a person in wrongful possession of property) is a capital receipt and not chargeable to tax either as income or as "book profits" u/s 115JB. As the department has implicitly accepted Narang Overseas vs. ACIT 100 ITD (Mum) (SB), it cannot file an appeal on the issue in the case of other assessees

The Special Bench of the Tribunal in Narang Overseas Pvt. Ltd held that the same is capital in nature. There is no doubt that the issue arising herein is also with regard to the character of mesne profits received by the Assessee. In this case also, the amounts are received by the Assessee from a person in wrongful possession of its property i.e. after the relationship of landlord and tenant has come to an end. Once the Special Bench order of the Tribunal in Narang Overseas Pvt. Ltd has taken a view on the character of mesne profits, then unless the Revenue challenges the order of the Special Bench of the Tribunal it would be unfair of the Revenue to pick and choose assessees where it would follow the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. The least that is expected of the State which prides itself on Rule of Law is that it would equally apply the law to all assessees’s

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DATE: February 9, 2016 (Date of pronouncement)
DATE: March 30, 2016 (Date of publication)
AY: 2011-12
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CITATION:
S. 115JA/115JB: Capital receipts (such as subsidy & carbon credits), which have no income element, have to be excluded from book profits even if credited to the P&L A/c

The genesis of Sec 115J, thereafter section 115JA and now section 115JB was to ensure that the assessee, while making profit from operations, should not enjoy tax free status due to various deductions available under the Income Tax Act. There was never any intention of the legislature to tax what is not income at all. In a recent decision, the Hon’ble Apex Court in the case of Indo Rama Synthetics (I) Ltd -vs- CIT (2011) 330 ITR 363 (SC) has held that the object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Inclusion of receipt in the computation of MAT would defeat two fundamental principles, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. The real working result can be arrived at only after excluding this receipt which has been credited to P&L a/c and not otherwise

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DATE: June 30, 2015 (Date of pronouncement)
DATE: July 29, 2015 (Date of publication)
AY: 1999-00
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CITATION:
S. 28(va)/ 115JA: non-compete consideration received prior to insertion of s. 28(va) is not taxable. Amount credited to reserves without a corresponding debit to the P&L A/c cannot be added to the "book profits"

To invoke clause (b) of the Explanation below Section 115JB (identical to Section 115JA) of the Act, two conditions must be satisfied cumulatively viz. there must be a debit of the amount to the Profit and loss account and the amount so debited must be carried to Reserves. Admitted position in this case is that there is no debit to the Profit and loss account of the amount of Reserves. The impugned order has in view of the self evident position taken a view that in the absence of the amount being debited to Profit and Loss account and taken directly to the reserve account in the balance sheet, the book profits as declared under the Profit and Loss account cannot be tampered with

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DATE: October 17, 2014 (Date of pronouncement)
DATE: October 24, 2014 (Date of publication)
AY: 2008-09
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CITATION:
Various arguments on the applicability of s. 14A & Rule 8D where the AO has not recorded satisfaction, where the shares are held in strategic/ subsidiary companies, held as stock-in-trade, where there are surplus funds and the quantum of disallowance under Explanation (f) to s. 115JA/ 115JB considered

(i) When it is said that rule 8D is mandatory (i.e., AY 2008-09 onwards), all that is meant is where the said expenditure cannot be reasonably ascertained with reference to the assessee’s accounts, toward which the AO is to issue …

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