Kerala H.C : The assessing authority invoked the legal fiction under s. 115JB of the IT Act, which enables the Revenue to arrive at fictitious conclusion regarding the total income of the assessee and assess the tax on such total income

High Court Of Kerala

Kerala State Electricity Board vs. DCIT

Section 43B, 115JB

Asst. Year 2002-03 to 2005-06

J. Chelameswar, C.J. & P.R. Ramachandra Menon, J.

IT Appeal Nos. 1703, 1710 & 1716 of 2009 and 127 of 2010

12th November, 2010

Counsel Appeared :

E.K. Nandakumar, for the Petitioner : Jose Joseph, for the Respondent

JUDGMENT

J. Chelameswar, C.J. :

These four appeals under s. 260A of the IT Act, 1961 are preferred by the Kerala State Electricity Board, a statutory corporation constituted under s. 5 of the Electricity Supply Act, 1948, aggrieved by the orders of the Tribunal, Cochin Bench. The dispute pertains to four assessment years viz. 2002-03 to 2005-06. The facts of the four appeals are similar; therefore, we state the facts in IT Appeal No. 1703 of 2009 corresponding to the asst. yr. 2002-03.

For the said assessment year, the appellant filed return declaring the current loss at Rs. 4,11,56,63,704. The return was subsequently revised and loss reduced to Rs. 2,03,81,27,595. The assessment was made under s. 143(3) of the IT Act. The assessing authority made substantial additions to the income return filed by the appellant and disallowed certain claims of the appellant.

It may be mentioned herein that the dispute revolves mainly around certain amounts collected by the appellant, pursuant to the statutory obligations created under s. 5 of the Kerala State Electricity Duty Act, 1963. Under s. 4 of the said Act, a duty is levied on the consumers of electricity specified in column (2) of the Schedule. Under s. 5, the appellant is obliged to collect from the consumer the above-mentioned duty and pay to the Government at the time and in the manner as prescribed by rule. Further details of the scheme of the said Act may not be necessary for the purpose of deciding this appeal. *Sec. 4. Levy of electricity duty on consumers.— Every consumer belonging to any of the classes specified in column (2) of the Schedule shall pay every month to the Government in the prescribed manner a duty calculated at the rate specified against that class in column (3) thereof : Provided that in cases where the supply of energy to a consumer is regulated by an agreement entered into between the Government or the licensee and the consumer it shall be competent for the Government either to reduce the rate at which duty is leviable on such consumer or to exempt such consumer from payment of duty under this section subject to, such terms and conditions as may be imposed by the Government. **Sec. 5. Collection and payment of electricity duty levied on consumers.—(1) Every licensee shall collect and pay to the Government at the time and in the manner prescribed, the electricity duty payable under s. 4 of this Act on the units of energy consumed by every consumer to whom energy is supplied by him. The duty so payable shall be a first charge on the amounts recoverable by the licensee for the energy consumed, and shall be a debt due by him to the Government. (2) When any consumer fails or neglects to pay at the time and in the manner prescribed, the amount of electricity duty due from him, the licensee may, without prejudice to the right of the Government to recover the amount under s. 8, after giving not less than seven clear days’ notice in writing to such consumer, cut off supply of energy to such consumer; and he may, for that purpose, exercise the power conferred on a licensee by sub-s. (1) of s. 34 of the Indian Electricity Act, 1910, for the recovery of any charge or sum due in respect of energy supplied by him.

It appears, for the asst. yr. 2002-03, the appellant collected an amount of Rs. 1,25,19,23,805 from the various consumers (of the electricity supplied by the appellant) the duty payable under s. 4 of the Kerala State Electricity Duty Act. But, the amount admittedly remained in the hands of the appellant by the date of assessment, though under s. 4, the amount is required to be paid to the Government. It is the case of the appellant that under an agreement between the State of Kerala and the appellant, the appellant is entitled to retain 1 per cent of the total amount collected from the consumer pursuant to s. 4 of the above-mentioned Act to enable the appellant to meet the expenditure involved in collecting the tax and the balance is liable to be paid to the State. The learned counsel for the appellant submits that such balance amount is either actually paid to the Government or adjusted in the accounts between the State and the appellant. The details of which may not be necessary for the purpose of the present appeal.

As already mentioned, the facts of each of the other appeals are also similar, except the dates and amounts vary from year to year. In view of the fact that the assessing authority made certain additions to the income returned by the appellant and disallowed certain claims, the appellant carried the matter in appeals (aggrieved by the said assessment orders) before the CIT(A), Thiruvananthapuram. The appeals were allowed. Aggrieved by such appellate orders, the Revenue carried the matter before the Tribunal successfully. Hence the instant appeals by the assessee.

The legal controversy in this appeal (IT Appeal No. 1703 of 2009) is as follows : (1) The assessing authority invoked the legal fiction under s. 115JB of the IT Act, which enables the Revenue to arrive at fictitious conclusion regarding the total income of the assessee and assess the tax on such total income. (2) The assessing authority relying upon s. 43B of the IT Act, rejected the claim of the assessee that the amount collected by the assessee from the consumer under s. 5 of the Electricity Duty Act, is not the income of the assessee and consequently not exigible to tax under the provisions of the IT Act. Though, the first appellate authority accepted the submission of the assessee on the above-mentioned two questions of law, the Tribunal by the order under appeal confirmed the views of the assessing authority in rejecting the claim of the appellant.

The appellant is a statutory corporation constituted by the notification of the State of Kerala, pursuant to the powers vested in it by virtue of s. 5 of the Electricity Supply Act, 1948. Sec. 12 of the said Act declares the appellant to be a body corporate having perpetual succession and a common seal, with power to acquire and hold property both movable and immovable, capable of suing and being sued by the name specified in the notification issued under s. 5 of the said Act. Sec. 80 of the Act declares that the appellant shall be deemed to be a company within the meaning of the IT Act, 1922 and further declares that the appellant is liable to pay income-tax and supertax on its income, profits and gains. Sec. 80 reads as follows : “80. Provision relating to income-tax and super-tax—(1) For the purposes of the Indian IT Act, 1922 (11 of 1922), the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income-tax and super-tax accordingly on its income, profits and gains. (2) The State Government shall not be entitled to any refund of any such taxes paid by the Board.”

The IT Act, 1922 came to be repealed by s. 297(1) of the IT Act, 1961. Therefore, by virtue of operation under s. 18 of the General Clauses Act, 1897, reference to IT Act, 1922 in s. 80 of the Electricity Supply Act shall be understood to be reference to IT Act 1961.

8. Sec. 4 of IT Act, 1961 creates a charge of tax on the total income of every person. The expression “person” is defined under s. 2(31) as follows : “(31) ‘person’ includes— (i) an individual, (ii) an HUF, (iii) a company, (iv) a firm, (v) an AOP or a BOI, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.”It can be seen from the said definition that it includes a company and every artificial juridical person along with others. The expression “company” itself is defined

under s. 2(17) as follows : “(17) ‘company’ means— (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of country outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian IT Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company :

Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration;”

The expression “Indian company” occurring in the above definition is itself under s. 2(26) as follows : “(26) ‘Indian company’ means a company formed and registered under the Companies Act, 1956 (1 of 1956) and includes— (i) a company formed and registered under any law relating to companies formerly in force in any part of Indian [other than the State of Jammu & Kashmir and the Union territories specified in sub-cl. (iii) of this clause]; (ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared by the Board to be a company under cl. (17); (ii) in the case of the State of Jammu & Kashmir, a company formed and registered under any law for the time being in force in that State; (iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu andPondicherry, a company formed and registered under any law for the time being in force in that Union territory : Provided that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India.”

9. It can be seen from the above definitions, more particularly in s. 2(26) cl. (ia) that the appellant answers descriptions of the expression of an Indian company and therefore a company within the meaning of s. 2(17). Admittedly the appellant was being assessed as a company under the provisions of the IT Act, 1922. Therefore, irrespective of the fact whether it is an Indian company or not by virtue of the operations under cl. (iii) of s. 2(17), the appellant is a company for the purpose of IT Act, 1961. Even otherwise, as we have already noticed, since s. 80 of the Electricity Supply Act, makes a positive declaration that the appellant is a company for the purpose of IT Act, it is liable for the assessment under the various heads of tax, provided under the IT Act from time to time.

10. The two questions of law which require an examination in these appeals are : (i) whether s. 115JB is applicable to the appellant herein; and (ii) whether s. 43B of the IT Act is legally invocable on the facts and circumstances of the case.

11. Before we examine the first question a brief survey of the history of s. 115JB is necessary. Chapter XII-B was inserted by the Finance Act of 1987 in the IT Act. Sec. 115J was introduced for the first time by the said chapter. The relevant portion of the said section reads as follows : “Sec. 115J. Special provisions relating to certain companies.—(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (1A) Every assessee, being a company, shall, for the purposes of this section, prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956). Explanation.—For the purposes of this section, ‘book profit’ means the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (1A), as increased by— ………… if any amount referred to in cls. (a) to (f) is debited or, as the case may be, the amount referred to in cls. (g) and (h) is not credited to the P&L a/c , and as reduced by,— …………” It can be seen from cl. (1) that the provision creates a legal fiction regarding the total income chargeable to tax. Such a fiction is applicable only to those assessees which—(a) are companies except the companies engaged in the business of either generation or distribution of electricity, (b) that such a fiction is made applicable to the companies only with reference to the previous year relevant to the assessment year commencing after 1st April,

1988 and ending with the 1st April, 1991, (c) the “total income” of the company as computed under the Act is less than thirty per cent of its “book profit”. The fiction being that the total income for the purpose of assessment shall be deemed to be 30 per cent of the book profit. In other words, the section prescribes 30 per cent of the book profits of those companies falling within the purview of the section shall be treated as the total income of the company for the purpose of income-tax, irrespective of the fact that according to the accounts of the company the “total income” is less than thirty per cent of the book profit. The expression “book profit” itself is explained in the section as meaning, the net profit as shown in the P&L a/c for the relevant previous year prepared as per the prescription under sub-s. (1A) and either increased or decreased by various amounts specified in the various subsequent sub-clauses appended to the Explanation, the details of which are not necessary for the purpose of this case. However, the operation of s. 115J came to an end with asst. yr. 1991-92 onwards.

12. Subsequently, s. 115JA came to be inserted in the IT Act by Finance Act 2 of 1996, w.e.f. 1st April, 1997. The scheme of s. 115JA is almost similar to the scheme of s. 115J. Two major points of difference are that the new section is applicable with reference to the previous year relevant to the assessment year commencing from 1st April, 1997 and ending with 1st April, 2001. Secondly, the express exclusion of the companies engaged in the business of either generation or distribution of electricity is absent under s. 115JA. The third and most important change is that two provisos are added to sub-s. (2) stipulating that—

“Provided that while preparing P&L a/c, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the P&L a/c laid before the company at its annual general meeting in accordance with the provisions of s. 210 of the Companies Act, 1956 (1 of 1956) :
Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation or depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year.” The further details of s. 115JA may not be necessary for the present purpose.

13. Then came s. 115JB, which was inserted in the IT Act by Finance Act of 2000 w.e.f. 1st April, 2001. The relevant portion as it stands today reads as follows : “115JB. Special provision for payment of tax by certain companies.—(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007 is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent.
(2) Every assessee, being a company shall for the purposes of this section, prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956) : Provided that while preparing the annual accounts including P&L a/c,— (i) the accounting policies; (ii) the Accounting Standards followed for preparing such accounts including P&L a/c; (iii) the method and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts including P&L a/c and laid before the company at its annual general meeting in accordance with the provisions of s. 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,— (i) the accounting policies; (ii) the Accounting Standards adopted for preparing such accounts including P&L a/c; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, Accounting Standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including P&L a/c for such financial year or part of such financial year falling within the relevant previous year.” The scheme of the s. 115JB is similar to s. 115J and s. 115JA. The difference insofar as it is relevant for the present purpose between s. 115JB and its forerunners (ss. 115J and 115JA) is as follows : All the 3 sections (ss. 115J, 115JA and 115JB) create legal fictions regarding the ‘total income’ [a defined expression under s. 2(45) of the Act] of the companies. While the earlier two sections mandate the Department to make the assessment on a fictitious amount of ‘total income’ where the actual amount of total income computed in accordance with the IT Act is less than 30 per cent of the book profits of the company, s. 115JB mandates the Department to resort to the fiction in those cases where the tax payable on the basis of the ‘total income’ computed in accordance with the IT Act is less than a specified

percentage (7 per cent for the years in issue) of the book profit. Further, ss. 115JA and 115JB also stipulate a definite manner of preparing the annual accounts including the P&L a/cs. More specifically, s. 115JB stipulates that the accounting policies, accounting standards, etc. shall be uniform both for the purpose of income-tax as well as for the information statutorily required to be placed before the annual general meeting conducted in accordance with s. 210 of the Companies Act, 1956.

It may be mentioned here that under s. 166 of the Companies Act every company is mandated to hold a general meeting in each year. Sec. 210 mandates that every year the board of directors of the company in the general meeting shall lay before the company a balance sheet as at the end of the relevant period and also a P&L a/c for the period. Parts II and III of Sch. VI to the Companies Act specify the method and manner of maintaining the P&L a/c. However, the appellant though is by definition a company under the IT Act and deemed to be a company for the purpose of IT Act (by virtue of the declaration under s. 80 of the Electricity Supply Act) it is not a company for the purpose of Companies Act. Therefore, the appellant is not obliged to either convene an annual general meeting or place its P&L a/c in such general meeting. As a matter of fact, a general meeting contemplated under s. 166 of the Companies Act is not possible in the case of the appellant as there are no shareholders for the appellant board. On the other hand, under s. 69 of the Electricity Supply Act, the appellant is obliged to keep proper accounts, including the P&L a/c, and prepare an annual statement of accounts, balance sheet, etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. The prescription of the rules in this regard is required to be made in consultation with the Comptroller & Auditor General of India and also the State Governments. Such accounts of the appellant are required to be audited by the Comptroller & Auditor General (C&AG) of India or such other person duly authorised by the C&AG of India. The accounts so prepared along with the audit report are required to be laid annually before the State legislature and also to be published in the prescribed manner and copies of such publication shall be made available for sale at a reasonable price, obviously for the benefit of the general public who wish to scrutinise the accounts. Thus, it can be seen that coming to the maintenance of the accounts, the appellant though is deemed to be a “company”—both by virtue of operation of s. 80 of the IT (sic-Electricity Supply) Act for the purpose of IT Act and by virtue of the definition of the expression “company” under the IT Act (which is already examined earlier)—the appellant is required to keep and maintain its accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act. Therefore, the question is whether the legal fiction contemplated under s. 115JB can be pressed into service while making the assessment of income-tax payable by the appellant.

It must be remembered that s. 115JB creates a legal fiction regarding the total income of the assessees which are companies. The book profit of the company is deemed to be total income of the assessee in the circumstances specified in the said section, which are already noticed earlier. The expression “book profit” for the purpose of the said section is explained in the section itself to mean the net profit as increased or decreased by the various amounts shown in the various sub-clauses of the section. The “net profit” itself must be the net profit as shown in the P&L a/c of the company. Sub-s. (2) mandates that the P&L a/c of the company is required to be prepared in the manner specified therein. Though in view of the requirement under s. 69 of the Electricity Supply Act the appellant is required to maintain accounts in a different form than the one contemplated under s. 115JB(2), the prescription under s. 69 is only regarding the general duty of the appellant for the purpose of Electricity Supply Act. Nothing in theory prevents the Parliament from obligating the appellant to prepare another P&L a/c as prescribed under s. 115JB(2) for the purpose of the IT Act. The question is whether such an obligation is created under s. 115JB(2) insofar as the appellant is concerned. In examining the said question, the legislative history and the mischief sought to be cured by the legislature in making the special deeming provision, in our opinion, would be relevant.

Coming to the legislative history of s. 115JB and its fore-runners— ss. 115J and 115JA—we have already noticed that they provided for the determination of the total income of the companies by a fictitious process. However, at the earliest point of time when such a fictitious process is invented, i.e. when s. 115J was introduced, the section expressly excluded from its operation bodies like the appellant. Coming to s. 115JA, though such express exclusion is absent, the CBDT issued a Circular No. 762, dt. 18th Feb., 1998 [(1998) 145 CTR (St) 5]—(which is binding on the Department, see K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) and Ranadey Micronutrients vs. CCE 1996 (97) ELT 19 (SC) excluding the bodies like the appellant from the operation of the said section. Though under the normal rules of interpretation of statutes the omission of a clause which existed in the statute at some point of time by a subsequent amendment would indicate that the legislature intended not to give the benefit of such clause any more to those who were getting the benefit of such exclusion clause, in our opinion, it is not an absolute rule. The other attendant circumstances, the context, the history and the mischief sought to be remedied by the amendment are all required to be examined before reaching at definite conclusion. *These two circulars of the CBDT are, as we shall presently point out, binding on the Tax Department in administering or executing the provision enacted in sub-s.(2), but quite apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of sub-s. (2). The rule of construction by reference to contemporanea expositio is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory Construction, 1940 Edition, where it is stated in para 219 that “administrative construction (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive”.

19. The Circular No. 762 not only is binding on the respondents, but also explains the purpose in introducing s. 115JA. The relevant portion reads as follows : “46.1 In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance Act has inserted a new s. 115JA of the IT Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the IT Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the IT Act, is more than 30 per cent of the book profit, tax shall be charged on the same.

46.3 The effective minimum alternate tax, at the existing rates of taxation works out to 12 per cent of the book profits.

46.4 Income arising from free trade zone (FTZ), export-oriented undertakings (EOUs), charitable activities, investment by a venture capital company and other exempted incomes (s. 10) are excluded from the purview of the alternate tax.

46.5 Since the alternate tax is applicable only where the normal total income computed is less than 30 per cent of the book profits, so long as the enterprises (other than FTZ units and EOUs) earning income from export profits do not have their component of export income higher than 70 per cent of the book profits, the provisions of s. 115JA will not be attracted. In other words, the MAT will apply only to such cases where export profits forming part of book profits of an assessee exceed 7 per cent of the total profits.

46.6 Companies engaged in the business of generation and distribution of power and those enterprises engaged in developing, maintaining and operating infrastructure facilities under sub-s. (4A) of s. 80-IA are exempted from the levy of MAT, so that the incentive given to infrastructure development is not affected.” It can be seen from the above that the legislature took note of the fact that a number of companies paying marginal tax and also zero-tax has grown. Such companies earned substantial book profits and paid handsome dividends to the shareholders without paying any tax to the exchequer. Such a result was achieved by such companies by taking advantage of the then existing legal position which permitted the adoption of dual accounting policies and practices, one for the purpose of computation of income-tax and another for the purpose of determining the book profits for the purpose of payment of dividends. Therefore, the amendment was made to plug the loophole in the law. However, the CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (s. 115JA) for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the CBDT is binding on the Department. If that is the background in which s. 115JA is introduced into the IT Act, s. 115JB, which is substantially similar to s. 115JA, in our opinion, cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of s. 115JA. Another submission made by the learned counsel for the appellant is that in view of the judgments of the Supreme Court in CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) and CIT vs. Eli Lilly & Co. (India) (P) Ltd. (2009) 223 CTR (SC) 20 : (2009) 21 DTR (SC) 74 : (2009) 312 ITR 225 (SC), where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply. It was held in B.C. Srinivasa Setty’s case (supra) as follows : “Sec. 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by s. 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by s. 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the IT Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head”. In Eli Lilly & Company (India) (P) Ltd. case (supra) also, the apex Court has held as follows : “On the question as to whether there is any interlinking of the charging provisions and the machinery provisions under the 1961 Act, we may, at the very outset, point out that in the case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) this Court has held that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.” Another reason is that the appellant or bodies similar to the appellant, which are totally owned by the Government—either State or Central—have no shareholders. Profit, if at all, made by the appellant would be for the benefit of entire body politic of the State of Kerala. In the final analysis, all taxation is meant for the welfare of the people in a constitutional republic. Therefore the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, we are of the opinion that the fiction fixed under s. 115JB cannot be pressed into service against the appellant while making the assessment of the tax payable under the IT Act.

Coming to the next question of whether s. 43B of the Act was properly invoked, s. 28 of the IT Act provides that the various kinds of income specified under the said section are chargeable to income-tax under the head “Profits and gains of business or profession”. Sec. 29 declares that : “The income referred to in s. 28 shall be computed in accordance with the provisions contained in ss. 30 to 43D.” Sec. 43B insofar as it is relevant for our purpose reads as follows : “43B. Certain deductions to be only on actual payment.—Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of— (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in cl. (ii) of sub-s. (1) of s. 36 or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing or (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances or (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him :”

The scheme of the section, insofar as it is relevant for the present, is as follows : It recognises that different kinds of assessees are liable to pay various kinds of imposts under various laws operating on such assessees and other legal dues specified under cls. (1) to (4). It provides for the deduction of such amounts of imposts or specified legal dues while computing the total income of such assessees, if such amounts representing the imposts or other legal dues payable or otherwise deductible under some provisions of the Act or other from the computation of the total income of the year in which such amounts are actually paid. Coming to the taxes or other imposts contemplated under cl. (a) the question whether the amounts are taxes or other imposts contemplated under s. 43B(a) is required to be determined. The opening clause of s. 43B— “Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act”—is relevant. Then it must be decided whether such amounts are liable to be included in the total income of the assessee under some provisions or the other of the IT Act. Then the further question as to in which previous year the deduction of such amounts from the total income of the appellant arises.

24. The assessment order insofar it relates to the issue of the applicability of s. 43B of the IT Act reads as follows : “During the course of hearing, the assessee has objected to the disallowance under s. 43B in respect of the electricity duty collected on the ground that the duty is collected on behalf of the Government of Kerala as their agent and credited to the Government account periodically as directed by the Government. Further it was stated this issue was decided in its favour by the CIT (A) and Tribunal. I have carefully considered this argument. It is found that the Tribunal’s decision in this respect has not been accepted by the Department and a further appeal is pending before the Hon’ble High Court of Kerala for the asst. yr. 1991-92. Under s. 5(1) of the Kerala State Electricity Duty Act, 1963 the assessee shall collect electricity duty payable by consumers (including those generate energy for their own consumption) under s. 4(1) of the Act, 1963 and pay the duty so collected to the Government every month after retaining 1 per cent thereof towards collection charges. During the previous year relevant for the asst. yr. 2002-03 the assessee has collected a sum of Rs. 1,26,45,69,500 towards electricity duty under s. 4(1) and as such a sum of Rs. 1,25,19,23,805 was payable to the Government after retaining the collection charges. But the assessee has not paid the same to the Government within the due date. The assessee has not produced any order granting exemption from remitting the duty collected within the due date. In the circumstances, electricity duty under s. 4(1) not remitted within the time amounting to Rs. 1,25,19,23,805 is disallowed under s. 43B of the IT Act, 1961.”

25. In substance, though it is not clearly indicated in the assessment order, the case of the Revenue is that s. 43B(a) is attracted, whereas the case of the appellant is that the said clause is applicable only in those cases where any sum is payable by the assessee qua tax, duties, cess or fee under any law for the time being in force. But in the instant case, the amount in question is not an amount payable by the assessee qua tax but the amount collected by the assessee as the agent of the State of Kerala towards the tax payable by the consumer of electricity to the State of Kerala.

26. The first appellate authority accepted the stand of the assessee in the light of a decision of the Tribunal, Cochin Bench, dt. 3rd April, 2009. However, by the order under appeal, the Tribunal, Cochin Bench held that s. 43B can be properly invoked where the assessee has in fact collected the amounts from the consumer. In other words, the submission of the assessee that the amount was collected on behalf of the State of Kerala pursuant to the statutory obligation to collect such an amount and the assessee is only an agent of the Government of Kerala holding the said amount and liable to account for and pay the said amount to the State of Kerala as an agent, but not as the assessee who has a primary liability to pay tax under the Kerala Electricity Duty Act, 1963 is not accepted. The relevant portion of the Tribunal’s order is in para 10 of the order under appeal and it reads as follows : “10. Therefore, in the light of the judgments of the Hon’ble Gujarat High Court, by holding that the assessee is bound to make payment of duty or suffer the consequences of s. 43B, we make it clear that the assessee is not hit by provisions of s. 43B where the assessee has not collected duty from the consumers and where the assessee has not made any collections and no claim for deductions but only has made provisions for the payment of the electricity duty. The AO is directed to examine the facts and the amounts covered by the above two exceptions shall be taken outside the purview of s. 43B. In these circumstances, we uphold the order of the AO on this point and set aside the order of the CIT(A) and hold that the assessee is liable for the discipline of s. 43B. This ground is accordingly decided in favour of the Revenue, subject to the above two exceptions.”

27. On a plain reading of s. 43B we are of the opinion that the only clause if at all is relevant in the context of the facts of the appellant’s case is cl. (a) which deals with “any sum payable by the assessee by way of tax, duty, ……….. under any law for the time being in force”. In our opinion, the words, ‘by way of tax’ are relevant as they are indicative of the nature of liability. The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign. Whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation, in our opinion, continues to be fiduciary even in a case wherein the relationship of the principal and agent is created by a statute. We are of the opinion that, when s. 43B(a) speaks of the sum payable by way of tax etc., the said provision is dealing with the amounts payable to the sovereign qua sovereign, but not the amounts payable to the sovereign qua principal. We are therefore of the opinion that s. 43B cannot be invoked in making the assessment of the liability of the appellant under the IT Act with regard to the amounts collected by the appellant pursuant to the obligation cast on the appellant under s. 5 of the Electricity Duty Act, 1963.

28. We must make it clear that the above conclusion of ours does not mean that the said amount is either exempted from the liability of income-tax or it should be treated as income for the purpose of the Act. Those questions will have to be independently examined, having regard to the other provisions of the IT Act, primarily by the assessing authority.

The appeals are allowed as indicated above.

[Citation : 329 ITR 91]