1. I.T.A. Nos. 1134 and 1226/Hyd/2004 are cross appeals arising out of the order of the CIT (Appeals) IV, Hyderabad, dated 7-10-2004, for asst. year 2000-1. I.T.A. No. 1132/Hyd/2004 is an appeal filed by the assessee against the order of the CIT (Appeals) IV, Hyderabad, dated 6-10-2004, for asst. year 2001-2. As some of the issues arising out of these appeals are similar, for the sake of convenience, these appeals were heard together and are disposed of by way of a common order. We first take up the appeals relating to asst. year 2000-1.
2. The assessee is a public limited company and is in the business of manufacture of Ferro Silicon and Ferro Chrome. For asst. year 2000-1, the assessee filed its return of income declaring a loss of Rs. 14,93,48,345 under the normal provisions and computed book profit under Section 115JA and showed tax liability of Rs. 12,33,167. The return was originally processed under Section 143(1). Later, a notice under Section 148 of the Income-tax Act, 1961, was served on the assessee on the ground that the assessee had claimed an amount of Rs. 20,00,35,094 as extraordinary item of expenditure. The Assessing Officer, vide his order dated 5-3-2004, disallowed the following amounts:(i) Disallowance of CC bills payable to APSEB due to tariff change and interest and supplementary bill raised by NTPC 20,00,35,094-00(ii) Disallowance of claim towards additional charges and Interest to APSEB 53,09,240-00(iii) Ad hoc Disallowance of Transportation charges 3,00,000-00 ----------------- The AO had also recomputed the book profit at Rs. 21,07,11,783 under Section 115JA of the Act. Aggrieved, the assessee carried the matter in appeal. The learned CIT (A) upheld the disallowance made by the AO on the issue of difference in tariff due to category change and interest on tariff difference from 1988 to 1993 amounting to Rs. 4,32,35,924 and Rs. 10,08,60,680 respectively. However, he held that the expenditure claimed to the tune of Rs. 5,59,38,495 being supplementary bill raised by NTPC for the period 1996 to 1999, is allowable. He held that the deduction claimed towards additional charges and interest on APSEB dues amounting to Rs. 53,09,240 is an allowable expenditure, by following the order of the Income-tax Appellate Tribunal in the assessee's own case on the same issue in earlier year. Disallowance under transportation charges was upheld. The AO's computation of profit under Section 115JA was also upheld by the CIT (A).
3. Aggrieved by the order of the CIT (A) upholding disallowance of difference in tariff due to category change and interest on tariff difference from 1988 to 1993 as well as computation of book profit under Section 115JA as made by the AO, the assessee has filed I.T.A.No. 1134/Hyd/2004. The Revenue has filed I.T.A. No. 1226/Hyd/2004 on the ground that the CIT (A) erred in directing the AO to allow deduction claimed by the assessee towards additional charges and interest on APSEB dues. It is pertinent to note that the decision of the CIT (A) on the issue of supplementary bills received from NTPC relating to the years 1996 to 1999 as on 29-2-2000 amounting to Rs. 5,59,38,495 in the regular assessment proceedings, has been accepted by the Revenue.
4. The first issue before us in this appeal is in grounds Nos. 2.a) and b) which read as under: 2.a) "The Commissioner of Income Tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing Rs. 4,32,35,924/- representing electricity charges on account of difference in tariff due to category change and interest thereon of Rs. 10,08,60,680/- on the ground that the said expenditure crystallized during the accounting year 2000-01 only.
2.b) "The Commissioner of Income Tax (Appeals) ought to have seen that as per Accounting Standard - 4, "Contingencies and Events Occurring After the Balance Sheet Date" issued by ICAI, the events which occur after balance sheet date and which have direct bearing on the financial statements that were to be approved by the Board subsequent to the balance sheet date shall have to be reflected in the financial statements and therefore the amounts payable to APSEB as per the High Court order dated 15-9-2000 were provided in the accounts for the year ended 31-3-2000 which were approved by the Board on 30-10-2000.
5. APSEB changed the category of the assessee from Category I to Category III and consequent to such change in classification, raised bills on the assessee for the period April 1988 to September 1993, which amounted to Rs. 27,44,67,534. The assessee booked the tariff expenditure based on the rate applicable to Category I for the above period of April 1988 to September 1993 amounting to Rs. 23,13,36,694.
This left a gap of Rs. 4,32,35,923. The assessee challenged the change of consumer status from Category I to Category III in Andhra Pradesh High Court by filing a writ petition. Hon'ble High Court delivered its judgment on the above issue on 15-9-2000, giving partial relief to the assessee. Consequent to the judgment of the High Court, the assessee provided for the difference in liability in the accounting year 1999-2000 relevant for the asst. year 2000-1. The case of the assessee is that though the financial year had ended on 31-3-2000, as the assessee had not finalized its accounts by the time the judgment of Hon'ble High Court was delivered, in terms of Accounting Standard-5, i.e. "NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES", and in terms Of Accounting Standard-4, i.e.
"CONTINGENCIES AND EVENTS OCCURING AFTER THE BALANCE SHEET DATE", the liability in question had to be taken Into account for the accounting year 1999-2000 relevant to assessment year 2000-1. The assessee also treated the interest on tariff difference due to category change from I to III amounting to Rs. 10,08,60,080, as revenue expenditure for the accounting year 1999-2000.
6. The learned Counsel for the assessee, Shri G. Sarangan, submitted that though the judgment of the Hon'ble Andhra Pradesh High Court was delivered subsequent to 31-3-2000, the accounts of the assessee had not been finalized and that in terms of Accounting Standards AS-4 and AS-5, the amounts had to be taken into account and necessarily shown as extraordinary items. He vehemently contended that the expenditure in question is allowable in asst. year 2000-1. He relied on the decision of the Income-tax Appellate Tribunal, Hyderabad Bench 'A', in the case of Sarvaraya Textiles Ltd. v. DCIT 54 ITD 612, and submitted that in that case High Court judgment was delivered on 2-4-1990 whereas the assessee made a claim on 31-3-1990 and the Tribunal held that the revenue expenditure in question was allowable for asst. year 1990-91.
For the proposition that events that occur after the balance sheet have to be taken into consideration and expenditure allowed, he relied upon the following decisions: 7. While submitting that the expenditure in question is allowable in asst. year 2000-1, Shri Sarangan made a concession and submitted that the assessee would not have any objection if this expenditure is allowed for asst. year 2001-2.
8. The learned departmental representative, Shri B.G. Reddy, submitted that the only issue is as to in which year this expenditure is allowable. Referring to the contentions of Shri Sarangan, he submitted that the expenditure in question could not be allowed either in the asst. year 2000-1 or in the asst. year 2001-2. He stated that the expenditure in question could be allowed in the year 2002-3 for the reason that APSEB had by letter dated 21-6-2001, which is at page 217 of the assessee's paper book, granted instalments facility to the assessee. This letter, he submits, was a demand notice and as the final demand notice of APSEB was raised in June 2001, the expenditure in question can be allowed only in the asst. year 2002-3.
9. On the issue as to whether the amount can be allowed in the impugned asst. year, he submitted that as on 31-3-2000, the liability in question had not crystallized. He referred to page 32 of the assessee's paper book as well as to the extraordinary item disclosed in the profit and loss account and the judgment of the Hon'ble High Court, which is at pages 223 to 285 of the assessee's paper book, at 233, and vehemently contended that the entire vires of the levy was challenged by the assessee before the High Court as violative of the Constitution.
He argued that when the very levy was challenged, the same could not be claimed as expenditure in the impugned asst. year as the judgment was delivered by the High Court on 15-9-2000 only. He further submitted that even after the judgment, the assessee had not paid the amount to APSEB but had indulged in protracted correspondence and on 21-6-2001, instalments were granted. He submitted that the liability in question was not an enforceable liability as on 31-3-2000. He submitted that there are contrary decisions of this Bench of the Tribunal on the issue as to whether the liability of the assessee was a contractual liability or a statutory liability. He submitted that Hyderabad Bench 'A' of the Tribunal, in the case of Coromandel Cements Limited, order dated 30-12-1996 in I.T.A. No. 1727/Hyd/1995 for asst. year 1994-95, had held that it is a contractual liability, whereas another Bench of the Tribunal in the case of Sarvaraya Textiles Ltd., 54 ITD 612, had considered the liability as a statutory liability. He admitted that this Bench of the Tribunal had followed the reported the decision in the case of Sarvaraya Textiles Ltd., while deciding the assessee's appeal in the earlier year and held that it is a statutory liability.
He submitted that in either case, i.e. if it is considered as a contingent liability or as a statutory liability, the same cannot be allowed in the impugned asst. year as no enforceable liability had arisen as on 31-3-2000. He relied on the judgment of Hon'ble Allahabad High Court in the case of CIT v. Kishorechand Shivcharan Lal 266 ITR 37, and submitted that the liability can be allowed only in the year in which it crystallized. He referred to AS-5 and submitted that the term 'prior period item' refers only to income or expenditure which arises in the current period as a result of error or omission in the financial statement of one amount or the other, and argued that the facts of the present case clearly point out that it is neither a result of error or omission and thus it cannot be termed as a prior period item. He also referred to paragraph 19 of the Standard and submitted that the issue in question does not come within the terms of AS-5.
10. We have heard rival contentions. On a careful consideration of the facts and circumstances of the case, we find that the only issue that is to be determined is as regards the year in which this revenue expenditure is allowable. The learned DR contends that this expenditure is allowable only in the asst. year 2002-3 as APSEB had finally raised demand notice in that year. The assessee contends that this expenditure is allowable in the asst. year 2000-1. The learned Counsel makes a concession stating that the assessee would not have any objection if this expenditure is allowed in the asst. year 2001-2. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that we need not go into the entire gamut of case laws relied upon by both the parties to determine the year in which the expenditure is allowable as the allowability of the expenditure itself is not disputed by the Revenue and as the assessee has made a concession in this case.
11. We first take up the Revenue's case. It states that the expenditure may be allowed in the asst. year 2002-3 and bases its statement on the letter from the Chief Engineer/Comml., A.P. TRANSCO, to the assessee, dated 21-6-2001, which is at page 217 of the assessee's paper book. We have perused this letter. On a careful examination of the same, we do not find that this is a demand notice raised by AP TRANSCO for the first time on the assessee as claimed by the learned departmental representative. In fact, only deferred payment facility has been granted in this letter. Consequent to the judgment of the Andhra Pradesh High Court dated 15-9-2000, the demand raised on the assessee by the Electricity Board got revived. Grant of instalments facility vide letter dated 21-6-2001 does not show that the liability has crystallised on the assessee during the previous year relevant to asst.
year 2002-3. Thus, this submission of the Revenue has necessarily to be rejected.
12. That leaves us with the contention of the assessee that the expenditure in question has to be allowed in the asst. year 2000-1 or, in the alternative, as a matter of concession, in the asst. year 2001-2. As the assessee has agreed that it would not press this ground of appeal if the expenditure is allowed in the year in which the judgment of the Hon'ble High Court has been delivered, and as the Revenue is not disputing the fact that the expenditure in question has to be allowed in one of the asst. years, we hold that this expenditure is to be allowed in the asst. year 2001-2. We point out that the Revenue has accepted the decision of the CIT (A) for the very same asst. year on the issue of supplementary bills raised by NTPC. The learned CIT (A) held that the notices were received during the year ended on 31-3-1990 and held that the same is allowable in this accounting year. Applying the same ratio as the judgment of the Hon'ble Andhra Pradesh High Court was received during the financial year 1-4-2000 to 31-3-2001, the same may he allowed in the asst. year 2001-2. While holding so, we note that the Special Bench of the Tribunal had, in the case of Indian Communication Network Pvt. Ltd. v.IAC of Income-tax Act (1994) 206 ITR (AT) 9G (Delhi), at page 114, observed: Before we part with this ground, we cannot help feeling that the litigation between the parties could have been avoided since it was quite immaterial, whether full deduction was allowed in one year or partly in one year and partly in the next, since the assessee is a company and rate of tax is uniform. The gain to one and the loss to the other is illusory since what: is deferred in one year, would have to be discharged in the next. In that sense, nobody has won and nobody has lost.
These observations found approval of Hon'ble Supreme Court in the case of Berger Paints India Ltd. v. CIT 26G ITR 99, at 103. The undisputed fact is that this expenditure of the assessee is a genuine business expenditure and has to be allowed while computing the profit of this concern. While so, the ratio approved by the Hon'ble Supreme Court in the case of Berger Paints (supra) supports our view on this issue.
13. In view of our above finding, we dismiss these grounds of the assessee for asst. year 2000-1.
14. The next issue is computation of book profit under Section 115JA of the Act. The relevant grounds of appeal are grounds 3(a), (b) and (c) which read as follows: 3.a) The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing Rs. 20,00,35,099/- representing, i) electricity charges of Rs. 4,32,35,924/- on account of difference in tariff due to category change, ii) interest thereon of Rs. 10,08,60,680/- and iii) additional charges and interest of Rs. 5,59,38,495/- on old dues payable to APSEB, while computing the book profit Under Section 115JA of the Art.
b) The Commissioner of Income-tax (Appeals) ought to have seen that the Appellant has prepared its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956, and the net profit as per its profit and loss account for the assessment year 2000 01 is Rs. 1,06,76,6847- only but not Rs. 20,94,61,783/- as adopted by the Assessing Officer.
c) The Commissioner of Income-tax (Appeals) ought to have seen that the Assessing Officer erred in disturbing the net profit arrived at in the Profit and loss account by disallowing expenditure of Rs. 20,00,35,099/- debited to P & L account in accordance with Parts II and III of Schedule VI to the Companies Act; 1956, while determining book profit Under Section 115JA of the Act.
15. The learned Counsel for the assessee submitted that these extraordinary items are to be disclosed below the line as per AS-4 and AS-5. He submitted that while the claim was under Section 1153A, the learned CIT (A) had wrongly stated the section as 115JB. He relied on the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT 255 ITR 273, which was followed by in CIT v. Loyal Textile Mills Ltd. 261 ITR 307 (Had), and in Kinetic Motor Co. Ltd. v. CIT, 262 ITR 330 (Bom), and submitted that the AO had no power whatsoever to alter the book profit declared by the assessee in its profit and loss account and that all that the AO had to do was to make adjustments that are specified in Explanation to sec, 1153A(2). He vehemently contended that the openditure representing electricity charges due to difference in tariff due to category change as well as interest thereon, and supplementary bills raised by NTPC, are ascertained liabilities and no adjustment is contemplated under Explanation to Section 1153A(2) while computing book profit under Section 1153A. He pointed out that the CIT (A) has allowed in the regular proceedings the expenditure being supplementary bills raised by NTPC to the tune of Rs. 5,159,38,495 on the ground that the demand notice was received within the accounting period relevant to this asst. year and has erred in rejecting the claim of the assessee while computing the book profit under Section 1153A. He pointed out that the Revenue has accepted this decision of the CIT (A).
16. The learned DR, on the other hand, countered the arguments of the learned Counsel for the assessee by drawing the attention of the Bench to AS-5. He submitted that Sub-section (2) of Section 211 of the Companies Act requires the assessee to disclose true and fair profits.
He pointed out that the expenditure in question is not a prior period item as it is neither an error nor an omission. He also stated that AS-4 is equally not applicable to the facts of the case as it refers to contingencies like events that occurred after the balance sheet date.
He referred to clause 8 of AS-4 and submitted that events that occurred after the balance sheet date are required to be indicated by way of adjustment and liabilities and not by way of charge to profit and loss account. He thus submitted that neither AS-5 nor AS-4 is applicable and that the company is in error in drawing up its profit and loss account as it has not complied with Part II of Schedule VI of the Companies Act. On a query from the Bench as to whether the AO had power to disturb the profits arrived at by the company under the Companies ALL, he greed that in view of the decisions referred to above, the adjustment in question falls within Explanation (c) of Section 115JA(2). He argued that the liability in question is not an ascertained liability and thus it should go to increase the book profit determined by the company under the Companies Act. He fairly submitted that the CIT (A), while allowing the expenditure claimed by the assessee on supplementary bills raised by NTPC in the regular assessment, had disallowed the claim of the assessee while computing book profits under Section 115JA.17. We have carefully considered rival submissions. Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT 255 ITR 273, held as follows: ...we are of the opinion, the Assessing Officer while computing the income under Section 115J 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 115J.In the light of this judgment, it is not open for the AO to determine book profits under the Companies Act by holding that the assessee has not properly followed AS-5 and AS-4. Though the learned DR advanced arguments on this issue, it is not for us to give a finding as to whether the assessee had rightly applied AS-5 or AS-4 or, for that matter, whether the assessee had arrived at the book profit under the Companies Act properly. This is beyond the jurisdiction of the AO.Thus, the entire issue bolls down to the fact as to whether the adjustment in question falls within the purview of Explanation to Sub-section (2) of Section 115JA. The learned DR states that it fails in Clause (c) of the Explanation, which reads as follows: Explanation.--for the purposes of this section, "hook 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-- (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; In our considered opinion, the liability in question cannot, by any stretch of imagination, be held as an unascertained liability. Once Hon'ble Andhra Pradesh High Court has delivered its judgment, the liability in question crystallised. As _ the same ascertained liability has been provided for in the books of account by the company while preparing its accounts under the Companies Act, 1956, the same cannot be a subject matter of adjustment under Explanation to Sub-section (2) of Section 115JA. It is surprising that the CIT (A) has, when he ordered allowance of the expenditure relatable to supplementary bills of NTPC in regular assessment proceedings, while considering the issue under Section 115JA, disallowed the claim of the assessee. Thus, as the adjustment in question does not fall within Explanation to Sub-section (2) of Section 115JA, we delete the disallowance and allow the ground of the assessee.
18. In this appeal, the Revenue challenges the direction of the CIT (A) allowing reduction of Rs. 53,09,240 being additional charges and interest payable by the assessee to the APSEB. The learned DR fairly submitted that the learned CIT (A) had followed the order of this Bench of the Tribunal in the assessee's own case on the same issue for asst.
years 1995-96 and 1996-97 and allowed the ground of appeal. We find that this Bench of the Tribunal had followed the order of another Bench of the Tribunal in the case of Sarvaraya Textiles reported in 54 ITD 612, while allowing the claim of the assessee on the same issue. The AO had disallowed this amount on the ground that the Revenue had carried the issue in appeal before the Hon'ble Andhra Pradesh High Court.
Respectfully following our own order in the assessee's own case on the very same issue, we uphold the order of the CIT (A) on this ground and dismiss the appeal of the Revenue.
19. This appeal by the assessee is directed against the order of the CIT (A) IV, Hyderabad, dated 6-10-2004, on the following grounds: 1. The order of the Commissioner of Income-tax (Appeals) - IV, Hyderabad, dated 06.10.2004 is erroneous, contrary to law and facts of the case.
2.a)The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in bringing long term capital gains of Rs. 31,43,80,590/- earned by the Appellant on sale of 26,80,000 equity shares of Andhra Pradesh Gas Power Corporation Ltd., to tax, while computing the income under normal provisions of the Act and also under special provisions of Section 115JB of the Act stating that the provisions of Section 10(23G) are not applicable to Appellant's case as the investment was made by the Appellant prior to 1.4.1998.
b) The Commissioner of Income-tax (Appeals) ought to have seen that Explanation 2 to Clause (23G) of Section 10 of the Act categorically declares that income by way of long term capital gains from investments made prior to 1.6.1998 by way of shares in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility, shall not be included in computing the total income. Therefore, when the Explanation specifically declares that long term capital gains on investments made prior to 1.6.1998 is eligible for exemption the CIT (Appeals) erred in law in holding that long term capital gains on investments made prior to 1.4.1998 is not eligible for exemption.
3.a)The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing surcharge and interest of Rs. 8,05,51,309/- [1,64,09,795 + 6,41,41,514] payable to APSEB on old dues while computing the income under normal provisions of the Act on the ground that no liability had crystallised during the assessment year 2001-02.
b) The Commissioner of Income-tax (Appeals) ought to have seen that the Appellant claimed the said deduction based on the demand notice dated 7.5.2001 (which is well before the date of finalisation of accounts for the year ended 31.3.2001) issued by APSEB for Rs. 10,20,43,506/- and hence liability to pay the surcharge and interest on old dues arose during the assessment year 2001-02 only. Therefore there is no justification in holding that no liability had crystallised during the assessment year 2001-02.
4.a)The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing depreciation of Rs. 7,60,62,291/- on revaluation of assets while computing the book profit Under Section 115JB of the Act.
b) The Commissioner of Income-tax (Appeals) ought to have seen that the Appellant has prepared its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 taking into account the depreciation on the same method and rates which were adopted for calculating the depreciation for the purpose of preparing profit and loss account laid before its annual general meeting in accordance with the provisions of Section 210 of the Companies Act, 1956.
c) The Commissioner of Income-tax (Appeals) ought to have seen that as per Explanation to Section 115JB "book profit" means the net profit as shown in the-profit and loss account for the relevant previous year prepared under Sub-section (2) of Section 115JB and increased by the items (a) to (f) and reduced by items (i) to (ix) specified in the said explanation. Hence the CIT (Appeals) is not justified in confirming the disallowance of depreciation by the Assessing Officer while arriving book profit Under Section 115JB. 5. For all of the above and such other grounds as may be urged at the time of hearing, it is most respectfully prayed that this Hon'ble Tribunal may be pleased to direct the respondent herein to allow the claim of the Appellant.
1.a)The Commissioner of Income-tax (Appeals)-IV in the appeal for the assessment year 2000-01, having held that the Appellant would be entitled for claim of expenditure of Rs. 4,32,35,924/- representing electricity charges on account of difference in tariff due to category change and interest thereon of Rs. 10,08,60,680/- in the assessment year 2001-02 since the demand notice is received during the previous year relevant to the assessment year 2001-02, ought to have directed the Assessing Officer to allow the above expenditure in the assessment year 2001-02.
b) The lower authorities failed to see that if the liability towards electricity charges on account of difference in tariff due to category change and interest thereon is crystallised only during the assessment year 2001-02, there is no justification in not allowing the said expenditure during the assessment year 2001-02.
2.a) The Assessing Officer ought to have seen that tax credit Under Section 115JAA should be given against the tax payable on total income and thereafter adjust TDS, advance tax, if any, and interest Under Section 234B and 234C could be levied only on balance tax payable.
b) The Assessing Officer ought to have adjusted MAT credit first against the tax payable and adjust thereafter TDS and advance tax and levy interest Under Section 234B only on balance of tax payable.
As admissibility of these additional grounds has not been strongly objected to by the learned DR, we admit the same.
20. We first consider grounds Nos. 3(a) and 3(b) which pertain to disallowance of additional charges and interest payable to APSEB. The assessee had received a demand notice from the APSEB on 7-5-2001 raising a demand of Rs. 10.20 crores representing amount of additional charges and interest payable to APSEB. The assessee claimed the same as an adjustment below the line while arriving at the profit for the year ending on 31-3-2001. The assessee explained that the interest of Rs. 1,64,09,795 on old dues for earlier years was payable on CC Bills up to 31-3-2000 and that the same could not be accounted in the normal course of business because of difficulty in reckoning any interest due to complexity of billing by AP Transco. Similarly, the additional charges were stated not to have been claimed in the earlier years. The AO disallowed the claim on the ground that the company was asked to produce relevant details of bills raised by APSEB, in respect of which the assessee claimed to have accounted for the interest as prior period expenses, but the assessee did not produce any bills. The AO held that the assessee had not produced any concrete evidence and that the assessee might have worked out these figures keeping in view some future contingency and no liability crystallised as no demand notice was issued by the concerned authorities and that demand notice was issued only after the close of the accounting period. He held that the Electricity Board did not raise any demand in the shape of additional charges or surcharge and interest for the asst. year 2000-1 and that the assessee had only recorded this expenditure as a contingent liability. He summarised the grounds of disallowance in the following manner: (1) The assessee chose to make claim of amounts pertaining to F.Y. 1992-93, 1993-94 and 1994-95 in the F.Y. 2000-01 which was never claimed as a liability earlier.
(2) As mentioned for F.Y. 1995-95 onwards the assessee claimed surcharge and interest in the income-tax returns and the same were allowed.
(3) The claim with regard to these items made by the assessee as Extraordinary Items were considered by the assessee company itself as contingent liability and event hat contingent liabilities were not claimed in earlier years.
On appeal, the learned CIT (A) upheld the findings of the AO by holding that the demand notice was issued on 7-5-2001 which was beyond the accounting period relevant for this assessment year and thus the liability had not crystallised during the financial year under consideration. He held that the assessee would be entitled to claim this expenditure in the next asst. year. Further aggrieved, the assessee is in appeal before the Tribunal.
21. The learned Counsel for the assessee submitted that the demand notice in question was received on 7-5-2001 which was well before the date of finalisation of accounts for the year 2001. He further submitted that a copy of the bill had been furnished to the AO and that the demand notice was accompanied by a calculation sheet which shows how the demand had been arrived at. He submitted that events occurring after the balance sheet date can be taken into account for the purpose of arriving at true and fair profits of the assessee company, and for this proposition, he relied on the following judgments: CIT v. Rameshwar Prosad Kejriwal & Sons (P) Ltd., 76 Taxman 124 (Cal) 22. The learned departmental representative, on the other hand, supported the order of the CIT. (A) and submitted that the demand notice itself was served on the assessee beyond the date of closure of accounts. He further submitted that the AO had clearly stated that the assessee had not produced the bills and that the liability, if any, can be allowed only in the asst. year 2002-03, relevant to financial year 2001-2. At this stage, the learned Counsel for the assessee stated that he has no objection if this expenditure is allowed during the asst.
year 2002-3. The learned DR stated that the verification of the bills has to take place and then only the liability in question can be allowed in the case of the assessee.
23. After considering the submissions of both parties carefully, and in view of our detailed discussion on similar issue in this order in connection with the earlier asst. year, at para 12, consistent with the view taken therein, we hold that the liability in question may be allowed as expenditure for asst. year 2002-3 relevant to financial year 2001-2, as the demand notice in question had been, served on the assessee on 7-5-2001. As the assessee claims that it had submitted a copy of the demand notice as well as the calculation sheet before the AO, and as the AO's findings are otherwise, in the interests of justice and as no prejudice would be caused to the Revenue, the demand notice and the calculation sheet may be produced by the assessee before the AO while considering the claim in respect of financial year 2001-2. These grounds for the impugned asst. year are dismissed with the aforesaid observations.
24. Grounds Nos. 4(a), (b) and (c) pertain to computation of book profit under Section 115JB. Brief facts are as follows. 25. The assessee had revalued its assets during the financial year 1998-99 relevant to asst. year 1999-2000. During the asst. year 2000-1, no claim for depreciation or adjustment was made by the assessee company on revaluation of assets. During the impugned asst. year, i.e. 2001-2, the assessee wrote off 1/5^th of the revaluation of assets under the head "depreciation" and reduced the book profit under the Companies Act. The AO, while computing income under the special provisions of Section 115JB, made an addition of Rs. 8.47.77.507 which represents depreciation debited to the profit and loss account on revaluation of assets, to the net profit, stating that - (1) The assessee wrote off 1/5^th of the amount of revaluation of assets under the head depreciation without adhering to the conditions laid down in Schedule-XIV of the Companies Act; (2) Because of debiting of depreciation of Rs. 7,60,62,291/- the book profits were reduced to that extent and it is not giving true and fair picture of profit/loss of the assessee company for the F.Y. 2000-01 i.e., A.Y. 2001-01.
Aggrieved of the same, the assessee carried the matter in appeal. The learned CIT (A) referred to AS-6 issued by the Institute of Chartered Accountants of India and rejected the claim of the assessee by holding that the depreciation of revalued assets is not an item which is allowable as a deduction in arriving at the book profit. Further aggrieved, the assessee is in appeal.
25. The learned Counsel for the assessee submitted that the Explanation to Sub-section (2) of Section 115JB defines book profit as net profit as shown in the profit and loss account for the relevant previous year and as increased/reduced by the various items mentioned therein. He submitted that adding back of depreciation on revaluation of assets is neither contemplated nor warranted under Clauses (a) to (f) of Explanation to Sub-section (2) of Section 115JB.26. The learned DR, on the other hand, vehemently contended that the procedure adopted by the assessee company for claiming this as a deduction... under the Companies Act is totally wrong. He submitted that Hyderabad Bench of the Tribunal in the case of Vijay Spg. Mills Ltd. v. Dy. CIT 73 ITR 344, had dealt at length with this issue and it was held therein that such a claim for depreciation on revalued portion of the assets is not an allowable expenditure under the Companies Act.
He drew the attention of the Bench to Clause (c) of Note 6 to annual accounts and submitted that while the assessee followed straight line method of calculation of depreciation on the original value of assets, it had written off 1/5^th of the revalued assets as depreciation during the year under consideration, which in other words is amortization of the revaluation amount over a period of 5 years. He submitted that this is not in accordance with Sections 205 to 323 of the Companies Act. He referred to Accounting Standards and submitted that any charge on revluation figure should go to the revaluation reserve and not to the profit and loss account. Thus, he submitted that additional depreciation debited to the profit and loss account has to be added to the book profit. On a query from the Bench, he submitted that he is not arguing that the adjustment in question was within Clauses (a) to (f) of Explanation to Sub-section (2) of Section 115JB.27. The learned Counsel for the assessee replied stating that the order of this Bench of the Tribunal in the case of Vijaya Spinning Mills (supra) cannot be applied in view of the later judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd., 255 ITR 273, wherein it was held that the AO has no power whatsoever to recast the profit of the company, which was arrived at as per the Companies Act and which was approved by the directors and by the shareholders in the Annual General Meeting. He reiterated his argument that as long as the issue in question does not fall within Clauses (a) to (f) of the Explanation to Sub-section (2) of Section 115JB, the adjustment in question should be held bad in law.
28. We have carefully considered rival submissions. Whatever may be the position under the Companies Act, the AO has no jurisdiction to go into the same as held by Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra). In the case of Vijay Spinning Mills (supra), the Bench had held that the method adopted by the assessee, i.e. charging of additional depreciation to profit and loss account, is permitted by the Accounting Standards as one of the methods. It also held that the Accounting Standards propose an alternative method and though the company chooses the first method, it is open to the AO to recomputed the profits under the Companies Act by adopting the alternative method suggested by the Accounting Standards. This proposition, that the AO is permitted to re-compute the profits under the Companies Act, has not been approved by the Hon'ble Supreme Court in the case of Apollo Tyres (supra). The working in question should start from book profit as arrived at by the company under the Companies Act. As far as the issue as to whether the profit should be reckoned below the line or above the line, is concerned, the issue has been discussed at length by this Bench of the Tribunal in the case of NCL Industries Ltd. v. JCIT 88 ITD 150, wherein it has followed the order of the Bangalore Bench of the Tribunal in the case of Sipani Automobiles Ltd. v. DCIT 46 ITD 280.
Respectfully following the ratio laid down therein, as well as applying the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres (supra), as the adjustment in question admittedly does not fall within Clauses (a) to (f) of Explanation to Sub-section (2) of Section 115JB, the adjustment is cancelled. The grounds of appeal taken by the assessee in this regard are allowed.
29. Now we deal with the additional grounds raised by the assessee, before we go into grounds Nos. 2(a) and 2(b). The additional grounds 1(a) and 1(b) deal with an issue similar to grounds Nos. 2(a) and 2(b) in the appeal for asst. year 2000-1. For the detailed reasons given while disposing of those grounds for asst. year 2000-1, these grounds are allowed during the year under consideration. The AO is directed to allow deduction of the difference in tariff due to category change and interest thereon. In the result, these grounds of appeal are allowed.
30. Additional grounds Nos. 2(a) and 2(b) pertain to the claim of the assessee seeking adjustment of MAT credit first against the tax payable and thereafter to adjust TDS and advance tax and then only to levy interest under Section 234B. As agreed by both the parties before us, the issue in question is covered in favour of the assessee and against the Revenue by the decision of the Cochin Bench of the Tribunal in the case of Synthetic Industries Chemicals Ltd. v. DCIT 90 ITD 851, Chandigarh Bench in the case of Philips India Ltd. v. ACIT 92 ITD 441, and Chennai Bench in the case of Chemplast Sanmar Ltd., 83 TTJ 427.
These decisions were followed by this Bench of the Tribunal in the case of Nagarjuna Fertilisers and Chemicals Ltd., I.T.A. Nos. 1001/Hyd/2003 and 724/Hyd/2004. In the result, these grounds are allowed.
31. Grounds Nos. 2(a) and 2(b) deal with the claim of the assessee for exemption from tax under Section 10(23G). Brief facts are as follows.
The assessee company had made an investment by way of equity shares of Andhra Pradesh Gas Power Corporation Ltd. (APGPCL in short), which is an enterprise carrying on infrastructure facility as contemplated under Clause (iii) of Explanation l(c) to Section 10(23G) of the Income-tax Act, 1961. APGPCL started generation of power after 31-3-1997 and completed the combined cycle of power generation by 23-12-1997. APGPCL is recognised as an industrial undertaking which is having infrastructure facility for generation of power and is notified under Section 10(23G) by Central Government.Nature of shares allotted Date of allotment No. of sharesOriginal shares 30-07-1990 21,44,000Original shares 09-03-1992 5,36,000Bonus shares 03-12-1996 19,29,600Rights shares 04-12-1996 29,48,000 The assessee company, during the financial year 2000-1, sold the rights shares purchased on 4-12-1996 numbering 26,80,000 to Hindustan Zinc Limited, Udaipur, for a consideration of Rs. 40 crores. The date of sale was 3-11-2000. The assessee claimed that the cost of the shares was Rs. 6,43,20,000 at a value of Rs. 24 per share. The capital gain was Rs. 33,56,80,000. After indexation, the long term capital gain was arrived at Rs. 31,43,80,590, The assessee claimed to have invested the amount of sale consideration in Konaseema EPS Oakwell Power Limited, an industrial undertaking, which is having infrastructure facility of generation of power and is also notified under Section 10(23G) by Central Government. The assessee claimed that these long term capital gains are exempt under Section 10(23G).
33. The AO relied on the Memorandum explaining the provisions in the Finance Bill (No.2), 1996, 220 ITR 257 (Statutes), as well as Circular No. 772 dated 23-12-1998 explaining the provisions, and rejected the contentions of the assessee for the following reasons: (1) The provisions allowing exemption in respect of income of long term capital gains arising as sale of investments are effective from 1-4-1997. Thus it is to be clearly noted that long term capital gains arising in respect of investments made before 1-4-1997 are not eligible for exemption Under Section 10(23G) of the IT. Act.
(2) At the time of introduction of the Section power generation projects are not brought into the ambit of Section 10(23G).
(3) The scope of exemption Under Section 10(23G) was widened and long term capital gains in respect of investments made in power generation projects were also brought into the ambit of 10(23G) w.e.f. 1-4-1998.
(4) The cut off date mentioned in respect of power generation project in that sub-section was 1-4-1993 i.e. for commencing the project but the investment should be made only after 1-4-1997 and then only the assessee would be eligible for exemption Under Section 10(23G).
On appeal by the assessee, the learned CIT (A) upheld the findings of the AO.34. The learned Counsel for the assessee placed heavy reliance on Explanation 2 to Section 10(23G). He submitted that APGPCL is an infrastructure facility subsequent to insertion of Sub-clause (iii) of Clause (c) of Explanation 1 by Finance Act, 1997, with effect from 1-4-1998. He submitted that the assessee company falls within the definition of "infrastructure capital company" within Clause (a) of Explanation 1 to Section 10(23G). He argued that as could be seen from the provisions of Section 10(23G) as applicable from asst. year 1998-99 onwards, any income by way of long term capital gains of an infrastructure capital company from investments made by way of shares or long term finance in any enterprise carrying on the business of developing, maintaining and operating an infrastructure facility, is exempt from tax. This infrastructure facility, he argued, includes generation or generation and distribution of electricity or any other form of power where the project starts generating power on or after the first day of April 1993. He submitted that as all the ingredients are satisfied in the assessee's case, the capital gain in question on sale of shares of APGPCL was exempt under Section 10(23G). He took this Bench through Explanation 2 of Section 10(23G) as inserted by the Income-tax (Second Amendment) Act, 1998, with effect from 1-4-1999, and argued that in the light of the Explanation, the assessee is entitled to exemption of the long term capital gain even on investments made prior to 1-6-1998. He vehemently contended that there is no stipulation whatsoever in the Explanation that the investment should have been made between 1-4-1998 and 1-6-1998 as-contended by the Revenue. He argued that on a plain reading of the Explanation, no such interpretation can be given and that there is no merit whatsoever in the Revenue's stand that only investments made between 1-4-1998 and 1-6-1998 are covered by this Explanation. On the contrary, he submitted, as the infrastructure facility had to generate power on the first day of April 1993, the investment in question could be made any time after the first day of April 1993 and such investment when sold, long term capital gain derived therefrom would be eligible for exemption under Explanation 2 to Section 10(23G). He took this Bench through Section 10(23G) as it existed prior to 1998 and submitted that though Clause (c)(iii) of Explanation 1 to Section 10(23G) was not existing at the time of purchase of the shares, in view of Explanation 2 inserted thereafter, which is applicable to the impugned assessment year, the assessee company should rightly be allowed exemption under Section 10(23G).
35. The learned departmental representative, on the other hand, vehemently controverted the arguments of the learned Counsel for the assessee and submitted that in 1996, when the assessee had purchased the shares, it was not eligible for exemption under Section 10(23G) as a project for generation or generation and distribution of power was not included within the term "infrastructure facility". He referred to the paper book filed by him and specifically the Memorandum explaining the provisions in Finance (No.2) Bill, 1996, as reported in 220 ITR (Statutes) 257, and submitted that the incentive in question was provided only in order to attract further investments in this sector as urgent need had been felt for providing tax incentive to investors. He further referred to Board's Circular No. 762 dated 18-2-1998, which is reported in 230 ITR (Statutes) 22, paragraph 17.1, to reiterate his submission that the exemption in question was provided to attract further investment to the sector. He further referred to Board's Circular No. 763 dated 18-2-1998 reported in 230 ITR (Statutes) 61, paragraph 13.5, which reads as under: 13.5. Both power and telecommunication sectors are among the most vital sectors of the infrastructure on which the country's rapid economic advancement depends. Both these sectors also require massive investments for development. It is, therefore, necessary to provide tax exemption under the aforesaid provisions of Section 10 and Section 36 to attract investment in these areas.
He further referred to Circular No. 772 dated 23-12-1998, issued by CBDT, on the Explanation Notes on provisions relating to direct taxes, paragraph 10.3 of which reads as under: 10.3 The amended provisions would apply only in respect of investments made on or after June 1, 1998. Doubts had been expressed in different quarters about the continuance of exemption available under Section 10(23G) in respect of investments made prior to June 1, 1998, for the assessment year 1999-2000 and onwards. The Central Board of Direct-Taxes have clarified by way of a press release that the exemption available under the provisions of Section 10(23G), prior to its amendment by the Act, will continue to govern the investments made prior to June 1, 1998. The rules and forms in this regard have since been notified, vide Notification No. S. 0. 897(E), dated 12th October, 1998.
He filed extracts from the book on Law of Income-tax Volume 7(1), Fifth edition, by the learned authors Chaturvedi and Pithisaria, at page 327, under heading "Lacuna in the 1998-substituted Section 10(23G) removed", and submitted that Explanation 2 to Section 10(23G) inserted by the Income-tax (Second Amendment) Act, 1998, clarifies that the exemption available under Section 10(23G) is only in respect of investments made between 1-4-1998 and 31-5-1998 and shall continue to be governed by the provisions of Section 10(23G) as it stood between 1-4-1998 and 31-3-1999. He further referred to page 3617 of the same book, paragraph 33.1, and submitted that under Section 80-IA of the Act, exemptions were provided to undertakings which began to generate power during the period beginning on the 1^st day of April, 1993, and ending on the 31^st day of March, 1998. He argued that, logically, the exemption under Section 10(23G) would start from 1-4-1998 only. He further referred to the following extract from the Memorandum explaining provisions in Finance (No. 2) Bill 1998, 231 ITR (Statutes) 238: The country continues to require large investments in power. As the gestation period for such projects is long, to remove uncertainly from the minds of potential investors, the Bill propose to extend the benefit to undertakings, which commence generation, or generation and distribution of power on or before 31-3-2003.
The proposed amendment will take effect from 1^st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years.
36. Relying on the judgment of the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO, Eranakulam, and Anr. 131 ITR 597, the learned DR submitted that though it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision, the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. He submitted that while interpreting a statute, which is an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. Thus, he argued that Explanation 2 to Section 10(23G) has to be interpreted keeping in view the speech of the Finance Minister while moving the Bill and the circulars issued along with the Bill. He submitted that as all the circulars that were issued along with the bill explained the intent of the legislature, the Explanation should be read as applicable to the investments made between 1-4-1998 and 30-5-1998. He contended that the provision of exemption itself was introduced with effect from 1-4-1997 and thus it cannot be imputed to the period prior to 1-4-1997.
He submitted that when the provision itself was not existing for all those previous years, the question of allowing exemption under Section 10(23G) prior to 1-4-1997 does not arise. On the case laws relied upon by the learned Counsel for the assessee, which were submitted by way of a paper book, the learned DR submitted that they are not applicable to the facts of the case. He further submitted that the Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. 198 ITR 297, has clearly stated that the judgments have to be read as a whole and words and phrases from judgments should not be made dicta and sought to be put to use. He distinguished the judgments relied upon by the learned Counsel for the assessee.
37. Joining the issue, the learned Counsel for the assessee submitted that when a plain reading of Explanation 2 leaves no room for ambiguity, the question of using external aids such as circulars of the Board and Finance Minister's speech for interpretation of a statute simply does not arise. He once again took this Bench through Explanation 2 to Section 10(23G) and submitted that there is nothing in the Explanation to show that the exemption is restricted for investments which are made only after 1-4-1998 but before 1-6-1998.
Even otherwise, he submitted, the exemption was sought to be given for a "long term capital gain". He argued that if an exemption for long term capital gain is contemplated for the asst. year 1999-2000, then it necessarily means that the investment should have been made prior to 1-4-1998, as the asset in question should have been held for more than 12 months, for resulting in a long term capital gain. According to the learned Counsel, any other interpretation would lead to a position that the use of the term "long term capital gain" for the asst. year 1999-2000 would be meaningless. Even otherwise, he submitted, even in the Board's circular No. 772 dated 23-12-1998, it is clearly stated that as doubts had been expressed in different quarters about the continuance of exemption available under Section 10(23G) in respect of investments made prior to June 1, 1998, for the assessment year 1999-2000 and onwards, the Board clarified that the exemption "will continue to govern the investments made prior to June 1, 1998" and would be governed by Section 10(23G) as it existed before 1^st June 1998. He submitted that the Explanation is retroactive and for this proposition he relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. Plantation Corporation of Kerala Ltd. 247 ITR 155, at page 174. Further, relying on that judgment, he submitted that Explanation is what is states and has to be given liberal interpretation. He took this Bench through all the Circulars, Memorandum explaining the provisions, notes to clauses and submitted that in none of these it was specifically stated that past acquisitions do not merit exemption. He disputed the observations of the learned authors Chaturvedi and Pithisaria and submitted that there is no basis for the note given therein. He reiterated that there are only two parameters laid down by the Explanation and that if these two parameters are satisfied, the exemption should be given: the first being that the investment in question should be prior to 1-6-1998 and the second being that the infrastructure facility should generate power after 1-4-1993. He vehemently contended that the capital gain arises only on sale of an asset and thus the date of acquisition of an asset has no relevance whatsoever. He reiterated his argument that the exemption for long term capital gain for the asst. year 1999-2000 as contemplated in the Explanation as well as in the Board's circular No.772 at para 10.3, cannot be availed of unless and until the investment in question was made prior to 1-4-1998. He prayed for relief.
38. We have carefully considered rival contentions and gone through the relevant provisions of law as well as the case laws relied upon by both the parties. Before we deal with the issue, it is necessary to reproduce the section in question for ready reference: I Finance (No. 2) Act, 1996, introduced Section 10(23G) which reads as follows: (23G) any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made by way of shares or long-term finance-in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility, which fulfils the conditions specified in Sub-section (4A) of Section 80-IA. (a) "infrastructure capital company" means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility ; (b) "infrastructure capital fund" means such fund operating under a trust deed, registered under the provisions of the Registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility ; (c) "infrastructure facility" shall have the meaning assigned to it in Clause (ca) of Sub-section (12) of Section 80-IA ; II Section 10(23G) was again amended by Finance Act, 1997, as follows: (i) the words, brackets, figures and letters, "which fulfils the conditions specified in Sub-section (4A) of Section 80-IA" shall be omitted ; (ii) in the Explanation, for Clause (c), the following clause shall be substituted, namely: (i) a road, highway, bridge, airport, port, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette ; which fulfils the conditions specified in Sub-section (4A) of Section 80-IA ; (ii) a water supply project, irrigation project, sanitation and sewerage system which fulfils the conditions specified in Sub-section (4A) of Section 80-IA ; (iii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1st day of April, 1993 ; (iv) a project for providing telecommunication services on or after the 1st day of April, 1995 ; III Again, vide Finance (No. 2) Act, 1998, some more vital conditions were introduced in Section 10(23G), which read as follows: (h) for Clause (23G), the following clause shall be substituted, namely: "(23G) any income by way of dividends, other than dividends referred to in Section 115-0, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made on or after the 1st day of June, 1998 by way of shares or long-term finance in any enterprise wholly engaged in the business of developing, maintaining and operating any infrastructure facility and which has been approved by the Central Government on an application made by it in accordance with the rules made in this behalf and which satisfies the prescribed conditions.
(a) 'infrastructure capital company' means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise wholly engaged in the business of developing, maintaining and operating infra structure facility; (b) 'infrastructure capital fund' means such fund operating under a trust deed, registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to an enterprise wholly engaged in the business of developing, maintaining and operating infrastructure facility.
(i) a road, highway, bridge, airport, port, rail system, a water supply . project, irrigation project, sanitation and sewerage system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in Sub-section (4A) of Section 80-IA; (ii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after the 1st day of April, 1993; (iii) a project for providing telecommunication services on or after the 1st day of April, 1995; (iv) a project for housing which fulfils the conditions specified in Sub-section (4F) of Section 80-IA; (d) "long-term finance" shall have the meaning assigned to it in Clause (viii) of Sub-section (1) of Section 36; Explanation 2.- For the removal of doubts, it is hereby declared that any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made before the 1st day of June, 1998 by way of shares or long-term finance in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility shall not be included and the provisions of this clause as it stood immediately; before its amendments by the Finance (No. 2) Act, 1998 (21 of 1998) shall apply to such income.
39. The first issue that arises is as to whether this amendment by way of inserting of Explanation regarding investments made before the first day of June 1998, is a prospective legislation or a declaratory legislation and thus has to be construed as retroactive. The Full Bench of Hon'ble Supreme Court of India, in the case of Shyam Sunder v. Ram Kumar 39. Lastly, it was contended on behalf of the appellants that the amending Act whereby new Section 15 of the Act has been substituted is declaratory and, therefore, has retroactive operation. Ordinarily when an enactment declares the previous law, it requires to be given retroactive effect. The function of a declaratory statute is to supply an omission or to explain a previous statute and when such an Act is passed, it comes into effect when the previous enactment was passed. The legislative power to enact law includes the power to declare what was the previous law and when such a declaratory Act is passed, invariably has been held to be retrospective. Mere absence of use of the word "declaration" in an Act explaining what was the law before may not appear to be a declaratory Act but if the court finds an Act as declaratory or explanatory, it has to be construed as retrospective. Conversely where a statute uses the word "declaratory", the words so used may not be sufficient to hold that the statute is a declaratory Act as words may be used in order to bring into effect new law.
40. Craies on Statute Law, 7^th Edn. stated the statement of law thus: If a doubt is felt as to what the common law is on some particular subject, and an Act is passed to explain and declare the common law, such an Act is called a declaratory Act.
41. G.P. Singh on Principles of Statutory Interpretation quoting Craies stated thus; For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament : deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word "declared" as well as the word "enacted". But the use of the words vit is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form.
If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended.In Keshavlal Jethalal Shah v. Mohanlal Bhagwandas this Court, while interpreting Section 29(2) of the amending Act, held thus: (AIR p. 1339, para 8) An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. Section 29(2) before it was enacted was precise in its implication as well as in its expression; the meaning of the words used was not in doubt, and there was no omission in its phraseology which was required to be supplied by the amendment.In R. Rajagopal Reddy v. Padmini Chandrasekharan it was held thus: (SCC Headnote) Declaratory enactment declares and clarifies the real intention of the legislature in connection with an earlier existing transaction or enactment, it does not create new rights or obligations. If a statute is curative or merely declaratory of the previous law retrospective operation is generally intended....A clarificatory amendment of the nature will have retrospective effect, and therefore, if the principal Act was existing . law when the Constitution came into force the amending Act also will be part of the existing law. If a new Act is to explain an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.
44. From the aforesaid decisions, the legal principle that emerges is that the function of a declaratory or explanatory Act is to supply an obvious omission or to clear up doubts as to meaning of the previous Act and such an Act comes into effect from the date of passing of the previous Act.
Similar is the judgment of the Hon'ble Supreme Court in the case of W.P.I.L. Ltd., Ghaziabad, v. Commissioner of Central Excise, Meerut, U.P., 2005-ITOL-51-SC-CX-LB, which has been relied upon by the learned Counsel for the assessee.
40. When this Explanation is read with Circular No. 772 dated 23-12-1998 issued by Central Board of Direct Taxes on the Explanatory Note to provisions relating to Direct Taxes, paragraph 10.3, it is clear that this Explanation is. a, declaratory statute inserted to supply an obvious omission and to clear doubts. The new Act, i.e.
"Explanation 2", is to explain an earlier Act and thus would be without object unless constructed retrospectively. The law applicable to investments made prior to 1-6-1998 is declared to remove doubts. Thus, we are of the opinion that the Explanation is declaratory or explanatory and has to be construed as retrospective as it is retroactive in nature.
41. The second issue is the argument of the Revenue that the investment should have been made between the first day of April 1998 and the first day of June 1998 for being eligible for the deduction. A plain reading of Explanation 2, as introduced by Finance Act, 1999, does not permit such an interpretation. All that it says is that the investment should be made before the first day of June 1998. Hon'ble Delhi High Court in the case of CIT v. Nestle India Ltd. 2005-TIOL-58-HC-DEL-IT, held in paragraph 10 as follows: 10. It is settled canon of interpretation of law that wherever a provision uses plain and simple language free of ambiguity such provision should be given its plain" meaning without addition or subtraction of any expression into the language of the provisions.
Once the time of deposit is specified in the statute itself, it will be unfair to dissect the language to give a meaning which would frustrate the very relief that is sought to be granted to an assessee by the provisions.Vikrant Tyres Ltd. v. First Income-tax Officer It is settled principle in law that the courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process, the courts must adhere to the words of the statute and the so-called equitable construction of those words of the statute is not permissible. The task of the court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the taxpayer is brought within the net he is caught, otherwise he has to go free. This principle in law is settled by this Court in India Carbon Ltd. v. State of Assam wherein this Court held (page 464) "Interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf". A Constitution Bench of this Court speaking through one of us (S.P. Bharucha J.) in 4 SCC 192 reiterated the proposition laid down in the India Carbon Ltd.'s case [1997] 106 STC 460 in the following words (headnote of [1999] 4 SCC): "The Act in question is a taxing statute and, therefore, must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise.
Thus, the interpretation sought to be placed by the Revenue is not the correct' interpretation of law. There is no warrant for adding the date "1-4-1998" to the enactment. The words "before 1^st day of June 1998" cannot be read as "between 1^st day of April 1998 and 1^st day of June 1998".
42. The reliance placed by the Revenue on the speech of Hon'ble Finance Minister as well as the word in Board's circular does not come to the rescue of the Revenue as it is well settled theft these cannot override the provisions of the Act. Hon'ble Supreme Court in the case of Kerala Finance Corporation v. CIT 210 ITR 129, held (as per head note) as follows: A circular of the Central Board of Direct Taxes under Section 119 of the Income-tax Act, 1961, cannot override or detract from the Act, inasmuch as what Section 119 has empowered is to issue orders, instructions or directions for the "proper administration" of the Act or for such other purposes specified in Sub-section (2) of the section. Such an order, instruction or direction cannot override the provisions of the Act; that would be destructive of all the known principles of law as that would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament.
42. Even going by the speech of the Hon'ble Finance Minister or by the Board's circular, we do not find at any place a mention that the investment in question for the purposes of claiming exemption under Explanation to Section 10(23G), as introduced by the Finance Act, 1999, should have been made between 1-4-1998 and 1-6-1998. On the contrary, by Finance Act, 1997, 'infrastructure facility', to the extent relevant to this case, is defined as "a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1st day of April, 1993" [Emphasis supplied]. This implies that the investment should have been made prior to 1^st April 1993, as, otherwise, it would never be possible for a company to generate power on 1-4-1993. It would be anomalous to hold that the generation should start on or after 1993 but the investment should be made on or after 1-4-1998. Looking at the issue from another angle, if a long-term capital gain has to arise in 1997, as contemplated by the Act, then the investment must necessarily be made much before that date. For these reasons, we agree with the argument of the learned Counsel for the assessee that as the investment in question was made prior to 1-6-1998, Explanation 2 is squarely applicable to the case of the assessee.
43. Having come to this conclusion, the next question before us is as to which are the provisions of the Act that are applicable to the assessee's case as the investment in question was made prior to the 1^st day of June 1998. A plain reading of Explanation 2 introduced by Finance Act, 1999, shows that the provision as it stood immediately before its amendment by Finance (No. 2) Act, 1998 (21 of 1998) shall apply to such income. The term "immediately before" means provision existing in the Finance Act, 1997, has to be applied in this case.
44. For ready reference, the provision as it stood immediately before the amendment by Finance (No. 2) Act of 1998, to the extent relevant to this case is extracted below: (23G) any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made by way of shares or long-term finance in any enterprise carrying on the business of developing, maintaining and, operating any infrastructure facility.
(iii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1st day of April, 1993 ; 45. The following facts and issues have not been disputed by the Revenue - (b) That the company, Andhra Pradesh Gas Power Corporation Ltd., is-an infrastructure facility within the meaning of Sub-clause (iii) of Clause (b) of Explanation to Section 10(23G), as Central Government had notified that undertaking as an infrastructure facility and as it had started generation of power after 1^st April 1993.
(c) That the company falls within the definition of "infrastructure capital company" envisaged in Section 10(23G).
With these undisputed facts, we examine the issue of exemption of the long-. term capital gain.
46. As Section 10(23G) as it existed immediately before amendment by Finance (No. 2) Act, 1998, clearly states that any income by way of long-term capital gain of an infrastructure capital fund is exempt under Section 10(23G), we have no hesitation whatsoever in holding that the capital gain in question is exempt from tax under Section 10(23G) as per the provisions of the statute existing in '. 1997 read with Explanation 2 introduced by Finance Act, 1999. Explanation 2 mandates that income by way of long-term capital, gain of an infrastructure capital company from investments made before 1-6-1998, by way of shares in any enterprise which is an infrastructure facility shall not be included in the total income, i.e., it shall not form part of total income. Thus, this ground of the assessee is allowed.
47. Coming to the computation of book profits, i.e. reduction of this long-term capital gain, which is exempt under Section 10(23G), from the book profits of the company under the special provisions of Section 115JB, we are of the considered opinion that the revenue authorities have committed an. error, as the disallowance is in violation of Sub-section (2) of Section 115JB, Explanation (ii), which reads as follows: the amount of income to which any of the provisions of Section 10 or-section 10A or Section 10B or Section 11 or Section 12 apply, if any such amount is credited to the profit and loss account; 48. In the result, the appeals of the assessee are allowed in part and the appeal of the Revenue is dismissed.