2002 Supreme(SC) 608

2002(4) Supreme 126
SUPREME COURT OF INDIA
(From Kerala High Court)
Chief Justice of India and N. Santosh Hegde and D.M. Dharmadhikari, JJ.
Apollo Tyres Ltd. -Appellants
versus
Commissioner of Income Tax, Kochi -Respondent
Civil Appeal No. 6100 of 1998
With
C.A. Nos. 2518-2519 of 1999
Decided on 2-5-2002
Counsel for the Parties :
For the Appellant : G.C. Sharma, Senior Advocate, Rajiv Tyagi, Anoop Sharma, R. K. Raghavan, Ms. Anjali Sharma, Advocates.
For the Respondent : M. L. Verma, Sr. Advocate, K.C. Kaushik, Ms. Neera Gupta, Preetesh Kapur, B.V. Balaram Das, Advocate for Ms. Sushma Suri, Advocate/ Advocates.

IMPORTANT POINT
An assessing officer while assessing a Company for Income Tax under Section 115J of I.T. Act, 1961 cannot question the correctness of the profit and loss account prepared by the assessee company and certified by the statutory auditors of the Co. as having prepared in accordance with requirements of Parts II and III of Schedule VI of the Companies Act, 1956. But the assessing officer thereafter has the limited power of making increases and reductions as provided for in the explanation to the said section.

Headnote:(i) Income Tax Act, 1961-Section 115-J-Computation of income of a company under-Whether assessing officer can question the P & L A/c prepared by the assessee Company and certified by statutory auditors of the Company having been prepared in accordance with Parts II & III of Schedule VI of the Companies Act, 1956? (Tribunal holding No but High Court holding Yes -Appeal by Assessee to Supreme Court-Appeal allowed-High Court affirmed with limited power of assessing officer to make increases or reductions as provided for in Expl. to the Section 115J.

       Held : We notice that the use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an assessing officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and, the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Inspite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the assessing officer to re-scrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on sub-section (1A) of Section 115-J of the IT Act in support of the above contention is misplaced. (Para 8)

       Therefore, we are of the opinion, the assessing officer while computing the income under Section 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J. (Para 9)

       (ii) Income Tax Act, 1961-Section 32AB and Section 72 of I.T. Act r/w 32(3) of U.T.I. Act, 1964-Whether the dividend income earned by the assessee Company from its investment made in the units of UTI can be included in computing the profit of eligible business u/s. 32AB of I.T. Act? (Yes)-Whether the business of buying and selling of units of UTI by the assessee Company amounts to a speculation business or not, for the purpose of allowing set off as to the loss suffered by the Company in such and business? (No)-High Court affirmed-Appeal dismissed.

       Held : A perusal of Section 32AB, as it stood at the relevant time, shows that if an assessee has a total income including the income chargeable to tax under the head "profits and gains of business or profession and if the income from such business is derived from an "eligible business" and if the assessee has out of such income utilised any amount during the previous year for purchase of new plant or machinery then it is entitled to a set off of a sum equal to 20% of the profit of such eligible business as computed in the accounts of the assessee which account has been audited in accordance with sub-section (5) of Section 32AB. The dispute in the present case is in regard to the question whether the assessee s investment in the UTI is business, and if so, is it a business which qualifies to be an "eligible business" under Section 32AB ? In regard to the first aspect, we must note that the tribunal as a question of fact based on material on record has come to the conclusion that the investment in the UTI by the assessee company is in the course of its business and its business of manufacture and sale of tyres and sale and purchase of units of the UTI are common in nature and both the businesses are intertwined and interlaced. This finding is accepted by the High Court also. We also find that this business of the assessee company of buying and selling of units is a business as contemplated under Section 32AB of the Act. The question then is: is it an eligible business under the said section ? The term "eligible business is defined under sub-section (2) of Section 32AB. As per that definition, all business of an assessee company will be an eligible business unless it falls under the type of business enumerated in sub-clauses (a) and (b) of Section 32AB(2). It is nobody s case that this business of the assessee company is one of those businesses which fall under business enumerated in clauses (a) and (b) of sub-section (2) of Section 32AB. Therefore, there is no doubt that the business of the assessee company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under Section 32AB so long as it is held that the investment in the units of the UTI by the assessee company is in the course of its "eligible business". Therefore, in our opinion, the dividend income earned by the assessee company from its investment in the UTI should be included in computing the profits of eligible business under Section 32AB of the Act. (Paras 11 & 12)

       Held further : Relying on the above provision of the UTI Act, the Revenue contends that if the UTI is a company and income from its units is dividend then ipso facto the units will have to be shares, therefore, the business of purchase and sale of units conducted by the assessee company will have to be deemed to be a business in shares which business, according to the Revenue, attracts Explanation to Section 73. On this basis, it is contended that the business of purchase and sale of units by the assessee company amounts to a business of speculation. Both the tribunal and the High Court have considered this argument as also the effect of Section 32(3) of the UTI Act and have come to the conclusion that the provision of the said Act is limited for the purpose of assessment of dividend income under the Act, and for deduction of tax at source. They have held that the legal fiction created by Section 32(3) of the UTI Act cannot be carried any further. We have examined the provisions of the UTI Act and we are of the opinion that even though the said Section creates a fiction to make the UTI as a deemed company and distribution of income received by the unit holder as a deemed dividend, by virtue of these deemed provisions, it cannot be said that it also makes the unit of the UTI a deemed share. In our opinion, a deeming provision of this nature as found in Section 32(3) should be applied for the purpose for which the said deeming provision is specifically enacted, which in the present case is confined only to deeming the UTI as a company and deeming the income from the units as a dividend. If as a matter of fact, the Legislature had contemplated making the units as also a deemed share then it would have stated so. In the absence of any such specific deeming in regard to the units as shares it would be erroneous to extend the provisions of Section 32(3) of the UTI Act to the units of UTI for the purpose of holding that the unit is a share. For these reasons, we are in agreement with the finding of the High Court on this point also. (Para 14)

       Held finally : Based on our finding in regard to point Nos. 2 and 3 formulated by us hereinabove, C,A. Nos. 2518-19/99 are dismissed with costs. (Para 16)