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2010 (1) Supreme 649
SUPREME COURT OF INDIA
S.H. Kapadia and Aftab Alam, JJ.
M/s. Dynamic Orthopedics Pvt. Ltd. — Appellant(s)
versus
Commissioner of Income Tax, Cochin, Kerala —Respondent(s)
Civil Appeal No. 8419 of 2003
Decided on : 16-02-2010
Facts of the Case :
Issue in consideration in present case was whether the Income Tax Appellate Tribunal was, on the facts and circumstances of this case,justified in upholding the order of the Commissioner of Income Tax (Appeals) directing the Assessing Officer to allow the claim of depreciation as per the Income Tax Rules, 1962, for the purposes of computing the book profit under Section 115J of the Income Tax Act, 1961?
Findings of the Court :
Held Section 115J of the Act imposes tax on a deemed income. Section 115J of the Act is a special provision relating only to certain Companies. The said section does not make any distinction between public and private limited companies. Section 115J(1A) of the Act is to be read in strict sense. By legislative incorporation, only Parts II and III of Schedule VI to 1956 Act have been incorporated legislatively into Section 115J of the Act. Therefore, question of applicability of Parts II and III of Schedule VI to 1956 Act does not arise. If a Company is a MAT Company, then be it a private limited company or a public limited company, for the purposes of Section 115J of the Act, the assessee-Company has to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to 1956 Act alone.Once a Company falls within the ambit of it being a MAT Company, Section 115J of the Act applies and, under that section, such an assessee-Company was required to prepare its profit and loss account only in terms of Parts II and III of Schedule VI to 1956 Act. The reason being that rates of depreciation in Rule 5 of the Income Tax Rules, 1962, are different from the rates specified in Schedule XIV of 1956 Act. In fact, by the Companies (Amendment) Act, 1988, linkage between the two has been expressly de-linked.Hence, what is incorporated in Section 115J is only Schedule VI and not Section 205 or Section 350 or Section 355.Registry directed to place appeal before Chief Justice for appropriate directions as matter needs re-consideration by a larger Bench of this Court.
Result : Ordered accordingly
ORDER
S.H. Kapadia, J.
1. A short question which arises for determination in this civil appeal is - whether the Income Tax Appellate Tribunal was, on the facts and circumstances of this case, justified in upholding the order of the Commissioner of Income Tax (Appeals) directing the Assessing Officer to allow the claim of depreciation as per the Income Tax Rules, 1962, for the purposes of computing the book profit under Section 115J of the Income Tax Act, 1961?
2. In this civil appeal, we are concerned with Assessment Year 1990-1991.
3. The appellant-assessee is a private limited cfxompany engaged in the manufacture and sale of Orthopaedic appliances. In the Return of Income filed, the assessee returned an income of Rs.1,50,730/-. In the Profit and Loss Account, depreciation was provided at the rates specified in Rule 5 of the Income Tax Rules, 1962 [‘Rules’, for short]. While completing the assessment of income, the Assessing Officer re-computed the book profit for the purpose of Section 115J of the Income Tax Act, 1961, [‘Act’, for short], after allowing depreciation as per Schedule XIV to the Companies Act. The rates of depreciation specified in Schedule XIV to the Companies Act, 1956 [‘1956 Act’, for short] were lower than the rates specified under Rule 5 of the Rules. Being aggrieved by the assessment order, the assessee took up the matter before the Commissioner of Income Tax [Appeals] [‘C.I.T.(A)’, for short], who came to the conclusion that the assessee was a private limited company. It was not a subsidiary of a public company. Therefore, placing reliance on Section 355 of 1956 Act, the C.I.T. (A) held that Section 350 of 1956 Act was not applicable to the assessee and, in the circumstances, the Income Tax Officer had erred in providing depreciation at the rates specified under Schedule XIV to 1956 Act. Consequently, the C.I.T.(A) held that the assessee was right in providing depreciation in its accounts as per Rule 5 of the Rules. Aggrieved by the decision of the C.I.T.(A), I.T.A. No.115 of 1993 was preferred by the Department to the Income Tax Appellate Tribunal [‘Tribunal’, for short]. By judgement and order dated 13th January, 1999, the Tribunal held that, since the assessee was a private limited company, Section 349 and Section 350 were not applicable to the facts of the case and, in the circumstances, the Income Tax Officer had erred in directing the assessee, which was a private limited company, to provide for depreciation as per Schedule XIV to 1956 Act, which was not applicable to the private limited companies [See Section 355 of 1956 Act]. Consequently, the appeal filed by the Department before the Tribunal stood dismissed.
4. Aggrieved by the said decision of the Tribunal, the Department preferred I.T.A. No.66 of 1999 before the High Court of Kerala which held that Section 115J of the Act was introduced in Assessment Year 1988-1989 to take care of the phenomenon of prosperous ‘zero tax’ Companies which had continued despite the enactment of Section 80VVA of the Act. These Companies were paying no income tax though they had profits and though they were declaring dividends. Consequently, Section 115J of the Act was inserted to levy a minimum tax on book profits of certain Companies. According to the High Court, Section 115J of the Act read with Explanation clause (iv), as it stood at the material time, was a piece of legislation by incorporation and, consequently, the provisions of Section 205 of 1956 Act stood incorporated into Section 115J of the Act, hence, the Income Tax Officer was right in directing the assessee to provide for depreciation at the rate specified in Schedule XIV to 1956 Act and not in terms of Rule 5 of the Rules. Hence, this civil appeal is filed by the assessee.
5. To answer the controversy, we quote hereinbelow the relevant provision(s) of the Companies Act, 1956, Income Tax Act, 1961, as it stood at the material time, as also Income Tax Rules, 1962: “Provisions of the Companies Act, 19
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