Uttaranchal H.C : Section 115JB applies to a company entitled to the deductions mentioned in section 80-IC

High Court Of Uttaranchal

Sidcul Industrial Association Vs. State Of Uttarakhand

Section : 115JB,80-IC

Barin Ghosh, Cj. And Nirmal Yadav, J.

Writ Petition Nos. 1 To 3 Of 2010(M/B)

November  26, 2010 

JUDGMENT

Barin Ghosh, CJ. – Chapter II of Income-tax Act, 1961 (hereinafter referred to as the “Act”) provides the basis of charge. Section 4, contained therein, is the charging section. The said section, amongst others, prescribes that income-tax shall be charged in accordance with and subject to the provisions of the Act, in respect of total income. Section 5, also contained in Chapter II, defines the scope of total income.

2. Chapter III of the Act brings forth such incomes, which do not form part of total income. Chapter IV, while defines the nature of different heads of income, prescribes computation of total income under those heads, individually as well as collectively. One of the heads of income is ‘profits and gains of business or profession’. Chapter VI-A prescribes the deductions to be made in computing total income.

3. Chapter XII-B contains special provisions relating to certain companies. Section 115JB is contained in Chapter XII-B. The said section was inserted by the Finance Act, 2000, with effect from 1-4-2001. In terms thereof, notwithstanding anything contained in any other provision of the Act, if the assessee is a company and the income-tax payable by it on the total income, as computed under the Act, in respect of any previous year relevant to the assessment year commencing on or after 1-4-2007 is less than 10 per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and tax payable by the assessee, on such total income, shall be at the rate of 10 per cent. The section, therefore, contains a non obstante clause as well as a deeming clause.

4. Therefore, if a company, as entitled to, makes deductions to be made in computing total income in terms of various provisions contained in the Act, including those permissible under Chapter VI-A, and accordingly, income-tax payable by it on the total income, thus computed, is less than 10 per cent of its book profit, such book profit shall be deemed to be the total income of the company and it shall be liable to pay tax thereon at the rate of 10 per cent. In other words, in terms of section 115JB, the minimum tax liability of an assessee company is 10 per cent of its book profit. No such tax liability, however, is fastened to any other assessee, i.e., an individual, a partnership firm, Hindu Undivided Families, etc.

5. On 7-1-2003, the Joint Secretary to the Government of India, in the Ministry of Commerce and Industry, issued an Office Memorandum and, thereby, propounded a new industrial policy and other concessions for the State of Uttaranchal (now Uttarakhand) and the State of Himachal Pradesh. In the said policy, it was indicated, amongst others, that new industrial units and existing industrial units, on their substantial expansion, as defined in the policy and set-up in those areas as mentioned in the policy and in other areas as may be notified, would be entitled to, amongst others, 100 per cent income-tax exemption for the initial period of 5 years and, thereafter, 30 per cent for companies and 25 per cent for other than companies for a further period of 5 years for the entire States of Uttaranchal and Himachal Pradesh, from the date of commencement of commercial production. The said Office Memorandum directed, amongst others, the Ministry of Finance and Company Affairs (Department of Revenue) to amend Act/Rules/Notifications etc. and issue necessary instructions for giving effect to the decisions contained in the said Office Memorandum.

6. Subsequent thereto, by the Finance Act, 2003, section 80-IC was inserted in the Act. The said section became effective with effect from 1-4-2004. In terms thereof, an assessee, whose total income includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2) of the said section, became entitled to a deduction from such profits and gains, as specified in sub-section (3) thereof, in computing its total income. In sub-section (2) of the said section, it has been provided that the said section applies to any undertaking or enterprise, which has begun or begins to manufacture or produce any article or thing, or which manufactures or produces any article or thing and undertakes substantial expansion during the period beginning on 7-1-2003 and ending before 1-4-2012 in those areas as notified by the Board in the State of Himachal Pradesh or the State of Uttaranchal, provided the article or thing is not specified in the Thirteenth Schedule. In terms of sub-section (3) of the said section, such an undertaking or enterprise is entitled to deduction of 100 per cent of such profits and gains for assessment years commencing with the initial assessment year and, thereafter, 25 per cent or 30 per cent where the assessee is a company, of such profits and gains.

7. Therefore, in terms of section 80-IC, an assessee-company, which begins to manufacture or produce, or being a manufacturer or producer, undertakes substantial expansion, during the period between 7-1-2003 and 1-4-2012 through an undertaking or an enterprise situated in the notified areas of the State of Uttaranchal (now Uttarakhand), is entitled to 100 per cent deduction in computing its total income of the profits and gains made therefrom for the first 5 assessment years and, thereafter, 30 per cent thereof.

8. On 20-2-2008, the Principal Secretary, Industrial Development, Uttarakhand, by a letter, sought certain clarifications from the Central Board of Direct Taxes. In that, it was stated that representations have been received from companies contending that they have set-up industries in the State of Uttarakhand believing that the minimum tax, prescribed in section 115JB, would not be applicable to them, on the assumption and belief that 100 per cent income-tax exemption for initial 5 years, and 30 per cent thereafter for a further period of 5 years, would be applicable to them. The object of the said letter was to obtain clarification in that regard. The Central Board of Direct Taxes, by a letter dated 5-6-2008, made it clear that section 115JB will apply.

9. Accordingly, these writ petitions have been filed. One of them is by a Company and other two are by Associations of Companies. Since the facts and circumstances of the case and the matters complained of are same and similar, with consent of the parties, we have heard them together and propose to dispose of the same by the present judgment and order.

10. The contention of the petitioners, as highlighted by the learned counsel appearing in support of the writ petitions, is that in relation to the assessee-companies, covered by section 80-IC, section 115JB is not applicable. They seek a declaration to that effect. The contention on the part of the respondents, representing the Union of India, is that, as yet, assessment of tax liability of any of the companies, being the petitioner in one writ petition and represented by the other petitioners, has not yet been done and the letter of the Central Board of Direct Taxes dated 5-6-2008, being clarificatory in nature, the writ petitions are premature.

11. We think, in the facts and circumstances of the case as depicted above, and when it was clearly depicted in the policy, referred to above, that even a company will be entitled to 100 per cent income-tax exemption for the first 5 years and 30 per cent, thereafter, for the next 5 years of the profits and gains made by it by manufacturing or producing any article or thing through new industrial units or existing industrial units on their substantial expansion, defined and set-up in the areas mentioned in the said policy and situated in the State of Uttarakhand, it became entitled to approach the Court to determine, in the backdrop of what has been done in terms of the directions contained in the said policy by inserting section 80-IC, whether such income-tax exemption is available to them or not and, accordingly, an attempt made to know the same cannot be said to be a premature attempt.

12. It is the contention of the petitioners that at the time of pronouncement of the said policy, section 115JB was already a part of the Act. Despite that, it was announced that 100 per cent tax exemption for first 5 years and, thereafter, 30 per cent, shall be available to the companies, who would set-up new industrial units or who, having existing industrial units, would carry out substantial expansion thereof. The policy directed the Ministry of Finance and Company Affairs to amend the Act/Rules/Notifications etc. and to issue necessary instructions for giving effect to the decision to give such exemption. It is the contention of the petitioners that in terms thereof, section 80-IC was inserted in the Act. While section 80-IC was inserted, it was declared to be a special provision. It was contended that section 115JB is not notwithstanding the provisions contained in the Act, which were part and parcel of the Act at the time section 115JB was inserted. It was contended that section 115JB was not inserted in contemplation of what more may become part and parcel of the Act. On that premise, it was contended that section 115JB did not apply to the companies, which are covered by section 80-IC of the Act. It was submitted that the same should be reasonable and rational construction in the backdrop of existence of section 115JB in the Act, pronouncement of the policy of 100 per cent exemption for first 5 years and 30 per cent thereafter for the next 5 years, and insertion of section 80-IC in the Act. It was also contended by and on behalf of the petitioners that section 115JB cannot be read harmoniously with section 80-IC, which should be read with the said policy, and since the enacting part of section 80-IC, in the backdrop of the policy, is clear, the same should be taken to control section 115JB.

13. On the other hand, it is the contention of the respondents, representing the Union of India, that section 80-IC is a part of the Act and section 115JB is notwithstanding anything contained in the Act and, accordingly, notwithstanding anything contained in section 80-IC, section 115JB will apply.

14. The first thing that is required to be considered is whether in the matter of construction of the provisions of the Act, one can take notice of the policy. The policy talked about giving of exemption of income-tax. The policy has been made by the Executive Government. The Act nowhere authorises the Government or the Executive Government to exempt income-tax. In other words, the Legislature, while making the Act, did not authorise the Executive Government to exempt any assessee from paying income-tax. The policy to exempt income-tax, propounded by the Executive Government, was, therefore, subject to acceptance thereof by the Legislature. The policy also made the same clear.

15. The Legislature, while enacting section 80-IC, made it a part of Chapter VI-A of the Act, where provisions have been made for deductions to be made in computing total income. Section 80-IC also, in so many terms, allows deductions to be made in computing total income. If the assessee is a company and comes within the purview of section 80-IC, it is entitled to deductions, to the extent specified therein, to be made in computing its total income. Section 80-IC does not exempt an assessee, covered by the said section, from paying income-tax. In the premises, action of the Legislature, while inserting section 80-IC, should be deemed to be an action contrary to what had been provided in the said policy of the Executive Government. In the premises, while interpreting section 80-IC of the Act, the contents thereof cannot be influenced by the provisions of the said policy.

16. On and after insertion of section 80-IC, the companies, which are entitled to the benefits thereof, became entitled to deduct the income made by them from the profits and gains derived by them from an undertaking or an enterprise of the nature mentioned in the said section. As a result of such deduction, if a company has only such profits and gains as mentioned in section 80-IC, that company would not be liable to pay any income-tax, but by virtue of section 115JB, if the same is applicable to the company, it will be liable to pay such tax as mentioned in section 115JB. The contention appears to be that in such view of the matter, section 80-IC and section 115JB cannot be read harmoniously and as the incorporating part of section 80-IC is clear, the same should be taken to control section 115JB.

17. Section 80-IC deals with a matter totally alien to section 115JB and, accordingly, there cannot be any question that both cannot be read harmoniously. Section 80-IC allows deduction. Section 115JB says that if allowing such deduction, income-tax payable is less than what has been mentioned in section 115JB, the assessee, if it is a company, will be liable to pay income-tax to be ascertained in the manner and to the extent prescribed in section 115JB. Since these two sections deal with two different situations, they play their role in two different situations and, accordingly, should be read to ascertain the purpose thereof as depicted by the clear words mentioned therein. Whereas section 80-IC grants deduction to all assessees and, accordingly, a company is also entitled to such deduction; section 115JB applies only to a company and comes into play only when, after such deduction, income-tax payable by it is less than what has been mentioned therein and thereupon fastens a totally new income-tax liability to the extent mentioned therein.

18. It is true that when section 115JB was inserted, there was no contemplation that, in future, section 80-IC would be inserted. Therefore, at the time when section 115JB was inserted, it was not intended to control section 80-IC. However, a look at section 115JB would make it amply clear that, from the day one, section 115JB controlled income-tax payable on the total income as computed under the Act and, in the matter of computing income-tax on the total income, after insertion of section 80-IC, all assessees, including a company, became entitled to deductions prescribed in section 80-IC. Therefore, even after insertion of section 80-IC, when the total income, as computed after taking into consideration all deductions, including the deductions available under section 80-IC of the Act, is less than what has been mentioned in section 115JB, it would be the obligation of the assessee-company to pay such tax as mentioned in section 115JB.

19. Had the Legislature exempted an assessee from paying income-tax, the matter would have been different. But that has not been done. The Legislature allowed a deduction. If, after such deduction, income-tax payable is less than what has been mentioned in section 115JB, by reason of the plain words used in section 115JB, an assessee, being a company, is liable to pay such tax as mentioned in section 115JB. In the circumstances, I am of the view that if by virtue of section 80-IC, no income-tax is payable by an assessee, being a company, it would be liable to pay income-tax to the extent as mentioned in section 115JB and that was and still is the very object of inserting section 115JB in the Act.

20. It was urged that the Central Government is estopped by principles of promissory estoppel to claim any income-tax after having had expressly granted 100 per cent exemption from paying Income-tax for the first 5 years. A promise made contrary to statute is not enforceable. At the time such promise was made, the Executive Central Government had no authority to exempt payment of income-tax by any class of assessee. The promise, to that effect, was subject to acceptance thereof by the Legislature, as was clearly depicted in the policy. The Legislature did not accept the same. To that extent, the promise is not enforceable.

21. It was contended that a company will be liable to pay tax despite getting 100 per cent deduction, but as against that, any other assessee will not be liable to pay any tax, that is discrimination. However, vires of section 115JB, on that ground, has not been challenged. I would, therefore, not venture to go into that question except noting that on and from the date of insertion of section 115JB, an assessee, being a company, became liable to pay the tax mentioned in the said section, but not any other assessee.

22. We would, thus, conclude the matter holding that section 115JB will apply to an assessee, being a company, if it is entitled to the deductions mentioned in section 80-IC of the Act.

23. Learned counsel for the petitioners cited a judgment of the Hon’ble Supreme Court rendered in the case of Aswini Kumar Ghose v. Arabindo Bose AIR 1952 SC 369. In that case, whether a non obstante clause contained in a statute controls another statute was the subject-matter of dispute. The said case has no application in the instant case, inasmuch as, a non obstante clause, contained in the self-same statute, is under consideration in the instant case. The learned counsel for the petitioners also cited the judgment of the Hon’ble Supreme Court in the case of A.G. Varadarajulu v. State of Tamil Nadu [1998] 4 SCC 231. In that case, it was held that the non obstante clause controlled partition or transfer and not anything other than partition or transfer dealt with in the statute. In the instant case, the non obstante clause controlled income-tax payable on the total income as computed under the Act, obviously after the deductions are allowed. In such situation, that case has no application to the present case.

24. For the purpose of highlighting that equitable considerations will prevail in certain cases, when the Court can modify the language of a statutory provision, the learned counsel for the petitioners cited a judgment of the Hon’ble Supreme Court rendered in the case of CIT v. J.H. Gotla [1985] 156 ITR 323. In that case, though profit and loss from the business of the assessee’s wife or minor child was to be included in the total of the assessee, it was held by the Assessing Officer that the same cannot set off the business loss of the assessee. In that background, two sections were read in conjunction so as to not to make the statute a mockery. In the instant case, having regard to the plain and clear words used in the statute, there is no necessity of giving any meaning to any of the sections under consideration, nor there is any obligation to read them in conjunction, for one gives deductions and the other deals with a situation when tax liability, after such deductions, is less than what had been provided therein.

25. For the proposition that where two interpretations are possible, one favourable to the assessee should be preferred, learned counsel for the petitioners cited a judgment of the Hon’ble Supreme Court in the case of CIT v. J.K. Hosiery Factory [1986] 159 ITR 85. In the instant case, there is no scope of two interpretations of either of the sections under consideration.

26. The Hon’ble Supreme Court, in the case of KSL & Industries Limited v. Arihant Threads Ltd. [2008] 9 SCC 763, as cited by the learned counsel for the petitioners, dealt with non obstante clauses contained in two different statutes, which has no application to the present case. In Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 (SC), as cited by the learned counsel for the petitioners, the Hon’ble Supreme Court was dealing with a case of promissory estoppel. Having concluded that a case of promissory estoppel has been made out and noting that the Government, by virtue of section 4A of the U.P. Sales Tax Act, 1948, was competent to give exemption, the Hon’ble Supreme Court held that a case of promissory estoppel has been made out to compel the Government to grant the promised exemption. As aforesaid, the Executive Government has no power to grant exemption to any assessee from paying income-tax. That case, therefore, has no application.

27. In the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625 (SC), as cited by the learned counsel for the petitioners, in the backdrop of the fact that the legal title of a house property let out was still not conveyed to the assessee, it was held that liability to pay income-tax, as owner, is on the person, who receives or in entitled to receive the income from the property in his own right and, accordingly, requirement of registration of the sale-deed is not warranted in the context of section 22 of the Act. The learned Judges, thus concluding, took note of updating of the Act as was made by the Legislature. A situation of that nature, in the instant case, has not yet cropped-up. The concept of exemption has not yet been introduced in the Act.

28. In Central Bank of India v. State of Kerala [2010] 153 Comp. Cas. 497 (SC), as cited by the learned counsel for the petitioners, the Hon’ble Supreme Court was concerned with resolution of conflict between Central and State Legislations, with which, we are not concerned in the instant case.

29. The learned counsel for the petitioners, lastly, cited the judgment of the Hon’ble Supreme Court rendered in the case of R.S. Raghunathv. State of Karnataka AIR 1992 SC 81. In that case too, the Hon’ble Supreme Court was concerned with two enactments. It was held, one of those enactments was special and the other was a general and the non obstante clause, in the general statute, did not affect the special statute. It was contended that since section 80-IC is a special provision, section 115JB does not affect the same. Section 115JB, being a part of Chapter XII-B of the Act, is also a special provision contained in the later part of the statute and, unless the context otherwise requires, should be deemed to control section 80-IC. Furthermore, as aforesaid, while section 80-IC, as a special provision, allows deductions, section 115JB, as a special provision, imposes a tax liability on an assessee, being a company, if its tax liability, assessed after grant of such deductions, is less than what has been provided therein.

30. In the circumstances, the writ petitions are disposed of by declaring that an assessee, being a company and entitled to deductions under section 80-IC, would be liable to pay income-tax, if it comes within the provisions of section 115JB to the extent mentioned therein. There shall be no order as to costs.

[Citation 331 ITR 491]

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