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II. Direct Taxes Case Laws:
1. Laxmi Automatic Loom Works Ltd. Vs. DCIT, W.P.(C) 5036/2016, Date of Order: 05.12.2016, High Court of Delhi
Issue:
Whether the assessee company was liable to pay capital gains tax
on the assets transferred by it under the Modified Rehabilitation Scheme
when its financial position was improving and it had shown
profitability and availability of surplus funds?
Held_Yes
Brief Facts:
The assessee company was engaged in textile machinery manufacture and
became sick in 2001. The scheme of revival was for the same was
sanctioned by the Board for Industrial and Financial Reconstruction
(BIFR) in 2003. As per the scheme, the net worth of the company was to
turn positive by 2005-06 and accumulated losses was to be finished by
2006. While on the contrary, there was a sharp decrease in the net worth
of the company. Seeing this, BIFR reviewed and modified the
rehabilitation scheme in 2009. Following which, application was filed by
the assessee requesting BIFR to direct Income Tax Authorities to exempt
capital gains tax on the sale of the assets which was to be undertaken
as per Modified Rehabilitation Scheme. Later in 2012, the Joint Director
of Income Tax rejected the assessee’s request for the exemption of
capital gains tax which was based on certain projected figures of
expected profits in the future years. Aggrieved by which, the assessee
filed the writ petition in the High Court. As the case was pending for
decision, meanwhile the assessee filed its Return of Income for A.Y.
2010-11. The Assessment Order was passed for A.Y. 2010-11 without
including the Capital gains tax on the transfer of the assets. Following
which the Writ Petition was dismissed as infructuous. After the series
of events, and in compliance with the direction of the Hon’ble High
Court, the Income Tax Authorities rejected the assessee’s request
regarding Capital Gains exemption on the basis that the company has the
surplus fund available with it as per the latest audited financial
statements. Aggrieved by which, the Writ Petition was filed in the High
Court.
Held:
It was held that the assessee company achieved net worth and moved
out of rehabilitation state in 2011. The company’s functioning after
rehabilitation indicates that the company has surplus funds but less
than half the projected profits with regard to the modified scheme.
Hence, the company has shown profitability in the recent years.
Therefore, the liability to pay Capital gains tax was upheld while the
Revenue was directed not to charge any interest or penalty on such tax
in this case for the duration for which the matter remained pending
before the Income Tax Authorities.
(Please click here for judgment)
2. M/s. B&B Infratech Ltd. Vs. ITO, I.T.A. No. 172/2016, Date of Order: 09.11.2016, High Court of Karnataka
Issue:
Whether the calculation of ‘Book Profit’ for the purpose of tax
liability as per the provisions of Section 115JB of the I.T. Act, 1961
can be altered on any subject or item which otherwise is not falling in
the explanation to Section 115JB of the Act?
Held: No
Brief Facts:
Assessee has submitted books of accounts showing profit of
Rs.43,97,427/-. However, assessee claimed a deduction of Rs.43,00,000/-
as capital receipt under the head “other income” and filed “NIL” return
of income. During the assessment proceedings, the contention of the AO
was that ‘Book Profit’ is defined u/s 115JB of the act and will apply
notwithstanding any other provision of the act. There is no scope of any
deduction other than as provided by way of explanation u/s 115JB of the
Act. The AO ultimately concluded the assessment proceedings by treating
the book profit of Rs.43,97,427/- as the income chargeable to tax.
Held:
IT was held by the Hon’ble Karnataka High Court that, “The provisions
of the Section 115JB of the act has an overriding effect upon other
provisions of the said act and when the mechanism or operation of the
area is a complete code by itself, any deduction which is otherwise not
provided by the explanation would be outside the scope of operation of
Section 115JB of the act.”
The appeal of the assessee is denied.
(Please click here for judgment)
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