Section 115JA of the Income-tax Act, 1961 - Minimum
alternate tax - Assessment year 1997-98 – Applicant-bank filed return in
respect of assessment year 1997-98 showing nil income – But in accordance with
provisions of section 115JA applicant bank computed book profit and paid
applicable taxes on that amount - While computing said book profit, applicant
did not include in same provision for taxation made by its foreign branches
under tax laws of those countries for reason that under clause (a) of
Explanation to sub-section (2) of section 115JA only provision made for payment
of income-tax under Act is contemplated and not provision in respect of
income-tax paid or payable in foreign countries - Department, however, added to
said book profit provision for taxation made by foreign branches of applicant
under tax laws of those countries on ground that section 115JA makes no
distinction between income-tax payable in India and that payable abroad -
Whether order of department was justified - Held, yes
Words and phrases: ‘Income-tax’ as
occurring in section 115JA of the Income-tax Act, 1961.
Circulars and Notifications: Circular No.
495 dated 22-9-1987 ; Circular No. 763 dated 18-2-1998.
Applicant bank filed return in respect of
the assessment year 1997-98 showing nil income. But in accordance with
provisions of section 115JA, applicant bank computed book profit and paid
applicable taxes on that amount. While
computing said book profit, the applicant had not included in same provision
for taxation made by its foreign branches under the tax laws of those countries
for the reason that under clause (a) of Explanation to
sub-section (2) of section 115JA only provision made for payment of income-tax
under the Act is contemplated and not provision in respect of income-tax paid
or payable in foreign countries. The
department, however, added to said book profit provision for taxation made by
foreign branches of the applicant under tax laws of those countries on ground
that section 115JA makes no distinction between income-tax payable in India and
that payable abroad. On the direction
of the Committee of Disputes, the applicant has sought for ruling on the
question as to whether provision for taxation made by the foreign branches of
the applicant bank under tax laws of those countries is required to be added to
book profits in terms of section 115JA.
Sub-section (1) of section 115JA begins
with a non-obstante clause. The opening words of this sub-section are -
'Notwithstanding anything contained in any other provisions of this Act'.
Sub-section (4), at the end of this section, says that save as otherwise
provided in this section, all other provisions of this Act shall apply to every
company, mentioned in this section. A careful reading of section 115JA shows
that so far as determination of book profit and the liability to pay minimum
tax based on book profit is concerned, this section is a self-contained code.
Therefore, in determining book profits and deemed income, it prevails over other
provisions of the Act. The section provides for levy of tax on certain
companies by deeming certain percentage of their book profit as taxable income
in relation to the assessment years 1997-98 to 2000-01. According to this
provision, if the total income of a company is less than 30 per cent of its
book profit, then 30 per cent of such book profit shall be deemed to be the
taxable income of that company. Sub-section (2) of section 115JA requires a
company to prepare its profit and loss account in accordance with the
provisions of Part-ll and III of Schedule-VI to the Companies Act, 1956. The Explanation
to this sub-section states that book profit means net profit as shown in the
profit and loss account, as increased, inter alia, by the amount of
income-tax paid or payable and the provision made for the same. The CBDT
Circular No. 763 dated 18-2-1998 elaborating the scope of this section, states
that the number of companies either paying no taxes or paying marginal taxes
has of late increased. Therefore, section 115JA has been inserted so as to levy
minimum tax on such companies. It is noticed that prior to insertion of section
115JA, a similar provision for levying minimum tax on book profit, namely,
section 115J, had been made from the assessment year 1989-90, but was
discontinued from the assessment year 1991-92. Explaining the reasons behind
the incorporation of the said provision, CBDT Circular No. 495 dated 22-9-1987
stated that it was an accepted cannon of taxation to levy taxes on the basis of
the ability to pay. As a result of various tax concessions and incentives,
certain companies making huge profits and also declaring substantial dividends
had been managing their affairs in such a way as to avoid payment of
income-tax. Accordingly, as a measure of equity, section 115J was introduced.
The purpose behind the enactment of sections 115J and 115JA remains essentially
the same and these circulars state the same reasons, albeit in slightly
different languages, for enactment of the provisions. [Para 5]
The Circular No. 495 dated 22-9-1987
nowhere differentiates between income earned in India and that earned abroad.
It also does not indicate that the ability to pay tax would be the post tax
ability. Above all, the said circular is only an elucidation by the executive
authorities of the reasons behind the enacting section 115J. The CBDT circulars
dated 22-9-1987 and 18-2-1998 cannot serve as an aid to interpret the statutory
provisions made in this regard. Section 115JA speaks of 'book profit' as
increased by income-tax paid or payable. For the purpose of calculating the
'book profit', the assessee has to prepare profit and loss account as per Parts
II and III of Schedule-VI to the Companies Act. These provisions require the
assessee to disclose every material feature while preparing profit and loss
account, so that it clearly reflects the result of the working of the company
as a whole. The profit and loss account has to set out various items relating
to the income and expenditure of the company arranged in the most convenient
way. Amounts of income-tax payable in India and abroad are to be separately
shown, as also the amount of relief from the Indian income-tax. Amounts set
aside to provisions made for meeting specific liabilities, contingencies,
commitments and also amounts withdrawn therefrom are also to be shown. The net
profit is arrived at as per the profit and loss account by taking into account
the profit made by the foreign branches as well. Thus the profit earned by
foreign branches is an integral part of the net profit. 30 per cent of net
profit so arrived at shall be deemed to be the total income of the assessee for
the relevant previous year. The main part of the Explanation to section
115JA(2) defines book profit and immediately thereafter ordains under clause (a)
that income-tax paid or payable for which provision has been made in profit and
loss account, shall be added to the net profit. In the context in which clause (a) of the Explanation
occurs, the expression ‘income-tax’ in clause (a) should be
referable to profits reflected in profit and loss account. [Para 7]
Section 2 which is a definition or
interpretation section, starts with the expression ‘unless the context
otherwise requires’. Modern statutes invariably contain an interpretation or
definition section which defines the main terms and expressions repeatedly used
in the statute. When a statute defines a particular term or expression, it is
that definition which has to be taken for construing the meaning of that term
or expression, wherever it occurs in the statute. Normally, it would not be
permissible to construe it in any other manner. In other words, once an
expression is defined in the Act, that expression wherever it occurs in the
Act, rules or notifications, made thereunder, should be understood in the same
sense, unless there is anything repugnant in the subject or context. At the
same time, it is also a settled position of law that even where an Act contains
a definition section, it does not necessarily apply in all the contexts in
which a defined word may be used. If a defined expression is used in a context
in which the definition would not fit, the context must be allowed to prevail
over the definition clause, and the word must be given its contextual meaning.
It is for this reason that the definition or interpretation section generally
contains an expression similar to the one used at the beginning of section
2. The expression 'income-tax' is used
in section 115JA in a general sense, and not with reference to the income-tax chargeable
under the provisions of the Act alone. No distinction between Indian and
foreign income- tax can be drawn by reference to section 2 (43) which
defines "tax". The contextual setting of clause (a) of Explanation
to sub-section (2) of section 115JA has to be kept in view. If so, there is no
justification to restrict the scope of the expression ‘income- tax’ to Indian
income- tax only. [Para 8]
As the applicant is a resident of India,
income earned by its branches abroad would also be chargeable to tax under
clause (c) of sub-section (1) of section 5. [Para 9]
In
the light of the above, the provision made by the foreign branches of the
applicant for payment of income-tax in those countries, is required to be added
to book profit in terms of section 115JA.
[Para 11]