July 2008
S. 115JB : Capital receipts which do not constitute income, cannot be brought to tax by S. 115JB.
By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
Reading Time 3 mins
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34 (2008) 21 SOT 79 (Mum.)
ITO v. Su-raj Jewellery (India) Ltd.
ITA Nos. 8800 and 8801 (Mum.) of 2004
A.Ys. 1997-98 and 2001-02.
Dated : 10-10-2007
S. 115JB of the Income-tax Act, 1961 — Capital receipts which
do not constitute income under the Act cannot be brought to tax by employing
mechanism of S. 115JB.
For A.Y. 2001-02, the assessee credited certain capital
receipts to its profit & loss appropriation account and claimed that such
capital receipts did not form part of its book profits for the purpose of MAT
profit u/s.115J since they were not liable to tax. The Assessing Officer
rejected the claim of the assessee and included these sums in book profits for
the purpose of calculating MAT. The CIT(A), however, upheld the assessee’s
claim.
The Tribunal also allowed the assessee’s claim. The Tribunal
noted as under :
(1) The intention of bringing S. 115JB on the statute was
that companies should be made to pay taxes on the basis of the net profits
shown in their profit and loss account. For the purpose of computing the MAT
profit u/s.115JB, business profits as declared in the profit and loss account
are to be considered by the Assessing Officer after making certain
adjustments.
(2) In this case, the assessee was not liable to pay any
tax on the capital receipt i.e., gain arising on transfer of its assets
to holding company. Such profit was exempt from tax u/s.47(v).
(3) Although for computing the MAT profit u/s.115JB,
business profits shown in the profit and loss account are to be adopted, in
case the said profits include certain receipts which are not in the nature of
income, the same are to be excluded before making any calculations in that
regard.
(4) Further, S. 349 of the Companies Act clearly provides
that credit for the profit arising on sale of any immovable property or fixed
assets of capital nature should not be taken into profit and loss account and,
accordingly, the profits/ gains arising on transfer of assets to the holding
company were not includible in the profits of the assessee-company.
(5) The CIT(A) had rightly held that capital receipts which
do not constitute income under the Act cannot be brought under the tax net by
employing the mechanism of S. 115JB and the said Section has not intended to
bring all non-income items within the domain of the Act.
