* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No. 851/2009
Reserved on : September 16, 2009
Pronounced on: September 22, 2009
INDO RAMA SYNTHETICS (I) LTD ...Appellant
Through: Mr. Ajay Vohra, Ms. Kavita Jha, Ms.
Akansha Aggarwal and Mr. Sriram
Krishna, Advocates.
VERSUS
COMMISSIONER OF INCOME TAX ....Respondent
Through: Mr. Sanjeev Sabharwal, Advocate.
CORAM:
HON'BLE MR. JUSTICE A. K. SIKRI
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be reported in the Digest? Yes
%
VALMIKI J. MEHTA, J
1 The present appeal under Section 260-A of the Income Tax Act, 1961 has
been filed by the appellant company against the order dated 16.1.2009 passed
by the Income Tax Appellate Tribunal for the Assessment Year 2001-2002
ITA 851/2009 Page 1
whereby the Tribunal has held that for the purpose of computing "book profit"
under Section 115 JB of the Act, the amount withdrawn from the revaluation
reserve and credited to the profit and loss account is not to be reduced from the
net profit as per the profit and loss account unless the book profit had been
increased by the amount of the reserve in the year of the creation of such
reserve.
2 The appellant company is engaged in the business of manufacture of,
inter alia, yarn and polyester. For the assessment year 2001-2002, the appellant
company computed "book profit" under Section 115 JB of the Act, after
reducing the net profit by the amount withdrawn from the revaluation reserve
created on revaluation of the fixed assets. The Assessing Officer did not allow
the said reduction on the ground that since the revaluation reserve had been
created in the Assessment Year 2000-2001 and had not been added back while
computing book profit for that year, in terms of the proviso to clause (i) of
Explanation-1 of Section 115 JB, such reduction was not permissible. The
CIT(A) upheld the order of Assessing Officer and held that reduction from net
profit in arriving at the book profit is permissible in respect of withdrawal from
any reserve created after 01.04.1997 and can only be done if the book profit
had been increased by the amount of reserve in the year of the creation of such
reserve.
ITA 851/2009 Page 2
3 That the relevant provision of Section 115 JB proviso to clause-(i) of
Explanation 1 reads as under:-
"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, 2001, is less than
seven and one-half 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 seven and one-half
per cent.
(2) Every assessee, being a company, shall; for the purposes of this section, prepare
its profit and loss account for the relevant previous year in accordance with the
provisions of Parts II and III of Schedule VI of the Companies Act; 1956 (1 of
1956):
...
Explanation 1- For the purposes of this section, “book profit” means the net profit
as shown in the profit and loss account for the relevant previous year prepared
under sub-Section (2), as increased by-
….. …. …. ….
if any amount referred to in clauses (a) to (h) is debited to the profit and loss
account, and as reduced by-
(i) the amount withdrawn from any reserve or provision (excluding a reserve
created before the 1st day of April, 1997 otherwise than by way of a debit to
the profit and loss account), if any such amount is credited to the profit and
loss account
Provided that where this section is applicable to an assessee in any previous
year , the amount withdrawn from reserves created or provisions made in a
previous year relevant to the assessment year commencing on or after the 1 st
day of April, 1997 shall not be reduced from the book profit unless the book
profit of such year has been increased by those reserves or provisions (out of
which the said amount was withdrawn) under this Explanation or Explanation
below second proviso to section 115JA, as the case may be ;or]
…. …. ….”
ITA 851/2009 Page 3
4. The Tribunal while interpreting said section has very effectively and
exhaustively looked at the issue and given the finding with which we concur.
The ITAT has held as under:-
“61. Now looking into the provision of section 115 JB of the Act, we
find that proviso to clause 1 of the explanation inserted/substituted w.e.f.
1.4.97, the reserves of any nature, except other than reserve specified under
section 33 AC, if debited to P&L Account is to be added back to the book
profits of the assessee company. As per clause (i) the amount withdrawn
from any reserve or provision, if any, such amount credited to P&L Account
is required to be reduced from P&L Account after adjustment as specified in
causes (a) to (f). From the amended provision it is clear that prior to the
insertion/substitution of clause (i) of aforesaid explanation it was open to the
assessee to reduce the sum withdrawn from revaluation reserve, while
computing book profit, amounts withdrawn from provision/reserve and
credited to P&L Account, even if in the year in which the provision/reserve
had been created but the amount of such reserve had not been added back
while computing book profit for that year, not withstanding that the reserve
had been debited to the P&L Account. From the comparison of the
provisions of section 115JB it is clear that prior to insertion of the proviso to
clause (i) of the explanation of section 115 JB the assessee was entitled to
reduce the sum from revaluation reserve while computing book profit under
section 115JB of the Act even if in the year in which the provision/reserve
had been created but the amount of such reserve has not been added back
while computing book profit for that year not withstanding that the reserve
had been debited to P&L Account. However, after the insertion of the
proviso to clause (i) of explanation to section 115JB of the Act, in similar
facts and circumstances, the assessee has been deprived from this benefit by
clearly mandating that in case the amount of such reserve has not been
added back by the assessee in AY 2000-01, i.e. when the assessee company
created the revaluation reserve while computing the book profit for that
year, then the amount is statutorily to be included while computing the book
profits under section 115JB of the Act. What we interpreted herein above is
just a result of a plain reading of the relevant provisions, which are devoid
of any ambiguity or doubt so no other meaning could be ascribed thereto.
We are further of the opinion that the Tribunal is bound to give literal
interpretation to ambiguous provisions of the Act and not interpret them in
any other manner which are against the wisdom of the creators of the statute
who created/amended the provision with the intention that the same is to be
followed while considering the issues depending on the application thereof.
Hence, we are also duty bound to adhere to the plain meaning of the section
in the manner as indicated above and apply the same while deciding the
issue.”
ITA 851/2009 Page 4
5. Before us, the learned counsel for the appellant/assessee has again urged
what was urged by him before the Tribunal that the appellant company simply
acted on the basis of accounting standards prescribed by ICAI on the treatment
of reserve created on revaluation of fixed assets and that revaluation reserve is
essentially in the nature of an adjustment entry to balance both sides of the
balance sheet and there is no question of taking the same to the profit and loss
account and, therefore, the issue of adjusting the book profit on account of
creation of the revaluation reserve does not arise.
6. We are of the opinion that since there is no dispute that the provision of
clause (i) of Explanation-1 to Section 115 JB is applicable to the issue in
question and the language of the same being plain and clear, we agree with the
view of the Tribunal on the interpretation of this provision as stated by it in para
61 and as reproduced by us above. In fact, it is not disputed that the assessee
company takes benefit of additional depreciation on account of revaluation of
the fixed assets by increasing the revaluation reserve in the relevant assessment
year 2000-2001 and consequently, the same definitely has the effect of reducing
the net profit for the said Assessment Year. Looking to the scheme of the
provision of Section 115 JB, and which is a Minimum Alternate Tax (MAT)
provision and so introduced by the legislature to be applicable to those
companies which avoid paying tax by debiting in the profit and loss account,
various expenses/entries etc as specified in Section 115 JB Explanation-1 such
ITA 851/2009 Page 5
as Income Tax paid or payable, amounts carried to any reserve, provision of
losses for subsidiary companies, the amount of depreciation etc as provided in
the provision. A normal literal interpretation of the provision is, therefore, the
order of the day with respect to this MAT provision.
7. We, therefore, have no reason to disagree with the view taken by the
Tribunal. No question of law arises in the present appeal and the same is
therefore dismissed.
VALMIKI J.MEHTA, J
A.K. SIKRI, J
September 22 , 2009
ib
ITA 851/2009 Page 6
