ORDER
Deepak R. Shah, A.M.
1. This appeal by assessee is arising out of the order of learned CIT(A)-III, Bangalore, dt. 14th June, 2001.
2. It is an appeal against rectification carried under Section 154 to an intimation issued under Section 143(1)(a) of the IT Act (the Act), for asst. yr. 1997-98.
3. The assessee filed return of income declaring nil income. The return was processed on 8th Sept., 1998 by making certain prima facie adjustments by way of deduction under Section 80-IA. The income was computed at Rs. 1,73,880 in the said intimation. Subsequently it was noticed that the book profit as per the provision of Section 115JA of the Act is more than the income assessed and accordingly the intimation under Section 143(1)(a) was sought to be rectified. The AO in the order under Section 154 dt. 24th March, 2000 computed the income under Section 115JA being 30 per cent of the book profit at Rs. 6,38,865, Interest under Section 234B was also charged. The said interest under Section 234B was later cancelled in view of the decision of Hon’ble Karnataka High Court. Learned CIT(A) held that income as per the provision of Section 115JA is computed correctly and no two views are possible in this regard. Hence this appeal.
4. Learned counsel for assessee has invited our attention to Section 115JA which was introduced by Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997. The CBDT issued a Circular No. 762, dt. 11th Feb., 1998 by way of explanatory note on the amendment carried out by the said Finance Act [(1998) 230 ITR (St) 12]. In paras 46.1 and 46.2, the provisions, of Section 115JA were explained as under :
“46.1 In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite 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 Section 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.”
4.1 Referring the above, Shri Shankar accordingly submitted that Section 115JA will be directed only when–
1. The total income of the assessee as computed under the Act is less than 30 per cent of its book profit, and
2. The company is distributing dividend.
In the present case, the company is not distributing dividend and hence the provision of Section 115JA is not applicable. He submitted that the intention of legislature has been reflected in the Board circular cited (supra). It is settled law that circular issued by CBDT is binding upon the IT authorities. For this proposition he relied upon the decision of Hon’ble Supreme Court in UCO Bank v. CIT (1999) 237 ITR 889 (SC) and the case of Merman Lines Ltd. v. CIT (1971) 82 ITR 913 (SC) and Navnit Lal C. Javeri v. K.K. Sen, Asstt. CIT (1965) 56 ITR 198 (SC). Thus to invoke the provision of Section 115JA as interpreted by CBDT so long as the company is not distributed dividend the provision will not be attracted. To this extent there is a promissory estoppel and applying such doctrine as explained in the case of State of Punjab v. Nestle India Ltd. and Anr. (2004) 269 ITR 97 (SC), the income cannot be computed by resorting to provision of Section 115JA. In the end, he submitted’ that the present case is a rectification of an intimation under Section 143(1)(a). The contention put forth above is one of the possible view and hence even if two views are possible, Section 154 cannot be resorted to as held by Hon’ble Supreme Court -in the case of T.S. Balram, ITO v. Volkart Brothers and Ors. (1971) 82 ITR 50 (SC) and that of Hon’ble Karnataka High Court in the case of God Granites v. Under Secretary, CBDT and Ors. (1996) 218 ITR 298 (Kar).
4.2 Learned senior Departmental Representative, Shri Korde while relying upon the orders of authorities below submitted that what is to be looked into is the actual provision in the Act. Section 115JA nowhere provides that company which is not distributing dividends are not covered under Section 115JA. Section 115JA provides that where the total income computed as per the regular provision of the Act is less than 30 per cent of the book profit, such book profit is deemed to be the total income of the assessee. Since in the present case, total income computed being Rs. 1,73,880 and which is less than 30 per cent of the book profit, the mistake is apparent on which no two different views are possible. He relied upon the decision in the case of Nicco Corporation Ltd. v. CIT (2005) 272 ITR 58 (Cal).
5. We have carefully considered the relevant facts and arguments advanced. The Finance (No. 2) Bill, 1996, introduced in the Lok Sabha on 22nd July, 1996, explained the intention of Section 115JA as thus :
“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. The new proposal provides for those companies to pay tax on 30 per cent of the book profits, whose total income as computed under the IT Act is less than 30 per cent of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. ‘Book profits’ is defined and certain adjustments are provided in the proposed section.” When the Bill was moved for approval before the Parliament replying the debate, provision of Section 115JA, Hon’ble Finance Minister, Shri P. Chidambaram replied to Lok Sabha thus :
“A large number of suggestions have been received from trade associations, companies and various sections of industry on the proposal regarding MAT. The matter has been raised by many Hon’ble Members also.
Over the years, the IT Act has added many provisions that confer concessions and incentives. These exemptions and deductions have been introduced in the statute to serve many objectives which were considered desirable, social and economic objectives. In addition to adding to the complexity in administering the law, these concessions have reduced the capability of the Government to raise revenue.
No doubt, companies plan their affairs in a manner so as to pay the minimum amount of tax. While we may not decry this, profit making companies that pay no tax to the exchequer continue to pay their shareholders handsome dividends. In recent times, the number of zero-tax companies and companies paying marginal tax has grown. A number of studies have been conducted. A study conducted by the Directorate of Income-tax, Special Investigation, New Delhi, in 1995 revealed that out of 217 companies which showed good profits of Rs. 5813 crores for asst. yrs. 1991-92 to 1993-94, that is three assessment years, no corporation tax was paid as the return or the assessed taxable income was computed as nil. However, out of the big profits of Rs. 5813 crores, dividends at varying rates were declared and distributed by many of these companies.”
From the above it is seen that the minimum alternate tax was sought to be introduced in respect of those companies where even though there is book profit and companies who pay dividend, tax is not payable as per the provision of the Act. This is how the law is interpreted by CBDT in its Circular No. 762 dt. 18th Feb., 1998 (supra). It is settled law that benevolent circular issued by CBDT is binding upon all the IT authorities working under it. The circular issued by CBDT under Section 119 having the effect of relaxing the rigour of law and providing for uniform application of law in consonant with the legislature intent cannot be treated as inconsistent with provision of statute. This position has been made clear by Hon’ble Supreme Court in UCO Bank case (supra) as well as other cases cited (supra) relied by learned counsel for assessee. Though the intention is not echoed in the actual provision in the Act, it is one of the possible views. In the present case it is seen that the company has never declared any dividend and hence provisions of Section 115JA are not applicable as per the circular of CBDT cited (supra). Thus it can be said that two possible views are emanating in the present case. In view of ‘the ratio laid down by Hon’ble Supreme Court in the case of Volkart Brothers and Ors. (supra), an order cannot be rectified under Section 154 when two views are possible on the subject-matter. Hon’ble Karnataka High Court in God Granites’ case (supra) held that prima facie adjustment is not permissible in an intimation under Section 143(1)(a) where two plausible views are existing. In the present case, it is seen that rectification under Section 154 was effected to an intimation under Section 143(1)(a). What cannot be made by way of prima facie adjustment in Section 143(1)(a) cannot be done indirectly by resorting to Section 154. We accordingly set aside the order passed under Section 154.
5.1 Learned Departmental Representative relied on the Hon’ble Karnataka High Court in the case of Nicco Corporation Ltd. (supra). From the facts it is not clear whether the said company was distributing dividend or not. In absence of the said fact which is very relevant for the issue on hand, we are unable to apply the said decision to hold against the assessee. In the result, the appeal is allowed.