CAIRN INDIA HOLDING LTD. V. ASSISTANT COMMISSIONER OF INCOME TAX ( INTL TAXN ) 1

TAXAP/213/2019

AI Insights

Cairn India Holding Ltd. appealed against the order of the Income Tax Appellate Tribunal, which involved the interpretation and application of clause (iii) in Explanation 1 to Section 115JB(2) of the Income Tax Act, 1961. This provision pertains to the computation of 'book profit' for the purpose of Minimum Alternate Tax (MAT). The main legal issues revolved around the constitutional validity of the provision, which was challenged on grounds of being arbitrary and discriminatory, particularly affecting companies without depreciable assets. The High Court of Gujarat, referencing a prior decision involving the same parties, upheld the provision's validity, emphasizing that it applies uniformly and does not create an unjust classification among companies.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 762371 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 25-06-2019
• Assessment Year: misc
• Other Referred Cases: Special Civil Application No.11581 of 2008, S.K. Dutta, ITO v. Lawarence Singh Ingty, Government of A.P. v. Laxmi Devi, State of A.P. v. Nallamilli Ramli Reddi, D. C. Bhatia v. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Book profit; Constitutional Validity; Discriminatory Taxation; Minimum Alternate Tax
• Section: 260; 115JB(2)

Judgement Text

"C/TAXAP/213/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 213 of 2019 ========================================================== CAIRN INDIA HOLDING LTD. Versus ASSISTANT COMMISSIONER OF INCOME TAX ( INTL TAXN ) 1 ========================================================== Appearance: MR TUSHAR HEMANI with MS VAIBHAVI K PARIKH for the Appellant ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 25/06/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.00. This Tax Appeal under section 260 of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the assessee and is directed against the order passed by the Income Tax Appellate Tribunal dated 01/08/2018 in ITA No.1613/Ahd/2014 for the A.Y. 2008-09. 2.00. The assessee has proposed the following questions as the substantial questions of law arising in the present Tax Appeal :- “(i). Whether the provisions of clause (iii) in Explanation 1 to Section 115JB(2) of the Act read with Explanation (b) thereto, which is rendered inapplicable in case either loss brought forward or unabsorbed Page 1 of 26 C/TAXAP/213/2019 ORDER depreciation is nil, despite the fact that no depreciation is actually provided or can be provided, are ultra vires the Income Tax Act, 1961 and also the Constitution of India and are liable to be struck down and set aside? (ii). Whether the aforesaid provision in context of an assessee not employing depreciable assets due to nature of business itself, use of labour intensive techniques or otherwise is arbitrary, discriminatory and unconstitutional inasmuch as the same creates an artificial distinction and denies legitimate deduction of actual business losses without intelligible differentia and is thus violative of Articles 14 and 19(1)(g) of the Constitution of India, and thus unconstitutional and void? (iii). Whether the aforesaid provision by taxing artificial profits runs contrary to the object of introduction of Section 115JB of the Act itself, the core object of the Income Tax Act, 1961 and the mandate of Article 265 of the Constitution of India and thus the provisions are ultra vires and invalid qua the Constitution of India? (iv). Whether the aforesaid provisions runs contrary to the normal provisions of the Act (i.e. other Minimum Alternative Tax provision Page 2 of 26 C/TAXAP/213/2019 ORDER under Section 115JB of the Act) which do not provide any such distinction (of 'whichever is less') between brought forward business loss and unabsorbed depreciation? (v). Whether the Income Tax Act, 1961 provide any such distinction between assessee carrying on same/similar business, based on the mode of acquisition/usage of depreciable fixed assets and create any such classification, especially in matters of set of losses and if it does, will the provision be not ultra vires the Act and also the Constitution of India and liable to be struck down and set aside?” 2.00. We are concerned in the present Tax Appeal with the provisions of clause (iii) in Explanation 1 to Section 115JB(2) of the Act read with Explanation (b) thereto. The main issue raised in the present Tax Appeal is with regard to the constitutional validity of the aforesaid provision. The constitutional validity is questioned on the premise that the provisions are violative of Articles 14 and 19(1)(g) of the Constitution of India. 3.00. We take notice of the fact as very fairly pointed out by Mr.Tushar Hemani, the learned counsel appearing for the assessee that this Court had the occasion to consider the constitutional validity of the very same provision in the case of very same assessee in the judgement rendered in the Special Civil Application No.11581 of 2008 decided on 21/10/2010. Page 3 of 26 C/TAXAP/213/2019 ORDER 4.00. This Court, in the aforesaid decision, while upholding the validity of provisions of clause (iii) in Explanation 1 to Section 115JB(2) of the Act, has held as under :- “7. The principal and only challenge in the present petition is to the constitutional validity of clause (iii) of Explanation 1 of section 115JB of the Act on the ground that the same is discriminatory and arbitrary inasmuch as while computing the book profit the same provides for reduction from the net profit of loss brought forward or unabsorbed depreciation whichever is less, which means that if either of the two are absent the assessee would not be entitled to reduction in the book profit. Thus, the provision has been challenged as being discriminatory towards those assessees like the petitioner, who do not have capital asset based infrastructure and as such would not have any unabsorbed depreciation. Thus, despite having substantial brought forward loss, the petitioner in the light of the provisions of clause (iii) of the Explanation to section 115JB of the Act is still liable to pay tax on the book profit without the same being reduced by the amount of brought forward loss. [7.1] It is in the background of the aforesaid facts that the petitioner has challenged the constitutional validity of the provisions of clause (iii) of the Explanation to section 115 JB of the Page 4 of 26 C/TAXAP/213/2019 ORDER Act. Before adverting to the facts of the case as well as to the contentions advanced on behalf of the respective parties, it may be pertinent to take note of the legislative history as well as the relevant statutory provisions. [7.2] A new Chapter XII-B, containing section 115J, came to be inserted by the Finance Act, 1987, with effect from 1st April, 1988. The new section made provision for levy of minimum tax on book profits of certain companies. Referring to the proposed section 115J, the Minister for Finance in the Budget Speech (Finance Bill, 1987), explained the rationale behind its introduction in the following words: “80. It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called `zero-tax’ highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a `minimum corporate tax’ on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit. In other words, Page 5 of 26 C/TAXAP/213/2019 ORDER a domestic widely held company will pay tax of at least 15 per cent of its book profit. This measure will yield a revenue gain of approximately Rs.75 crores.” [7.3] In the Memorandum explaining provisions in Finance Bill, 1987 in relation to “New provisions to levy minimum tax on “Book profits” of certain companies”, it has been stated thus: “Under the existing provisions of the Income Tax Act, certain deductions are allowed in the computation of profits and gains of business or profession. Various deductions are also allowed under Chapter VI-A of the Income Tax Act in computing total income. As a result of these concessions, certain companies making huge profits, are managing their affairs in such a way as to avoid payment of income-tax. With a view to making the tax system more progressive, a new Chapter XIIB is proposed to be inserted in the Income Tax Act. Under the proposed amendment, in the case of any company whose total income as computed under the other provisions of the Income Tax Act in respect of any previous year is less than 30 per cent of its book profit, the total income of such taxpayer chargeable to tax shall be deemed to be Page 6 of 26 C/TAXAP/213/2019 ORDER the amount equal to 30 per cent of such book profit. For the purposes of the aforesaid provisions, “book profit” means the net profit as shown in the profit and loss account in the relevant previous year prepared in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956, subject to adjustments in respect of any amount of income tax paid or payable, any amount carried to any reserve set aside to meet any provision, or provision for loss of subsidiary companies or any amount set apart for declaration of dividends which are taken into the profit and loss account prepared in accordance with the Sixth Schedule as above. However, the expenditure relating to income as well as the receipts relating to incomes to which the provisions of Chapter III of the Income Tax Act apply, will be excluded from the computation of the “book profit”. Thirty per cent of such “book profit” shall be treated as total income of the company to which the provisions of this new Chapter (section 115J) apply. It has also been provided that the aforesaid provisions shall not affect determination of the amount to be carried forward to the subsequent years under the provisions of section 32(2), 32A(3), 72, 73, 74, 74A and 80J relating to unabsorbed depreciation, unabsorbed investment allowance, unabsorbed loss and unabsorbed deduction relating to tax Page 7 of 26 C/TAXAP/213/2019 ORDER holiday. As a consequential amendment, Chapter VIB of the Income Tax Act relating to restriction on certain deductions in the case of companies, is proposed to be omitted. These amendments will take effect from 1st April 1988 and will, accordingly, apply in relation to the assessment year 1988-89 and subsequent years.” [7.4] The scope and effect of the provisions of section 115J had been elaborated in the departmental circular No.495 dated 22nd September, 1987. The portion of the said circular insofar as the same is relevant for the present purpose reads as under: “[36.3] Section 115J, therefore, involves two processes. Firstly, an assessing authority has to determine the income of the company under the provisions of the Income Tax Act. Secondly, the book profit is to be worked out in accordance with the Explanation to section 115J(1) and it is to be seen whether the income determined under the first process is less than 30 per cent of the book profit. Section 115J would be invoked if the income determined under the first process is less than 30 per cent of the book profit. The Explanation to sub-section (1) of section Page 8 of 26 C/TAXAP/213/2019 ORDER 115J gives the definition of the “book profit” by incorporating the requirement of section 205 of the Companies Act in the computation of the book profit. Brought forward losses or unabsorbed depreciation whichever is less would be reduced in arriving at the book profits. Sub-section (2), however, provides that the application of this provision would not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set off, and deduction under section 80J, to the extent not set off as computed under the Income Tax Act.” [7.5] The present petition relates to Section 115JB of the Act, which came to be inserted by Finance Act, 2000 with effect from 1.4.2000, and insofar as the same is relevant for the present purpose reads thus: 115-JB. Special provision for payment of tax by certain companies.- (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total Page 9 of 26 C/TAXAP/213/2019 ORDER income of the assessee and the tax payable by the assessee on such total income shall be the amount of income tax at the rate of ten per cent. (2)Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956: Provided that while preparing the annual accounts including profit and loss account,- (I) the accounting policies; (ii)the accounting standards adopted for preparing such accounts including profit and loss account; (iii)the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of Section 210 of the Companies Act, 1956: Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956, which is different from the previous year under this Act,- (I)the accounting policies; (ii)the accounting standards adopted for preparing Page 10 of 26 C/TAXAP/213/2019 ORDER such accounts including profit and loss account; (iii)the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation-1.—For the purposes of this section, ‘book profit’ means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by— (a)xxxx to (h)xxxx if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by xxxx (iii)the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.- For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation, is nil; or Page 11 of 26 C/TAXAP/213/2019 ORDER Explanation.- For the purposes of this clause, the loss shall not include depreciation; or xxxxx [7.6] Chapter XII-B came to be inserted in the Income Tax Act by the Finance Act, 1987 with effect from 1.4.1987. Under the provisions of the Income Tax Act, certain deductions are allowed in the computation of profits and gains of business or profession. Various other deductions are also allowed under Chapter VI-A of the Act in computing total income. As a result of these concessions, certain companies making huge profits were managing their affairs in such a way as to avoid payment of income-tax. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax, but the same does not appear to have helped. Hence, the same was withdrawn and Chapter XII-B came to be inserted introducing section 115J of the Act, a provision whereby every company would have to pay “minimum corporate tax” on the profits declared by it in its own accounts. As the number of zero tax companies and companies paying marginal tax had grown, Minimum Alternate Tax was levied from assessment year 1997-98 by virtue of the provisions of section 115JA which came to be inserted by the Finance Act, 1996 with effect from 1.4.1997. However, the efficacy of the said provisions had declined in view of the exclusions of various sectors from the operation Page 12 of 26 C/TAXAP/213/2019 ORDER of MAT and the credit system. It had also led to legal complications. Hence, in its place section 115JB came to be inserted by the Finance Act, 2000, with effect from 1.4.2001, which is simpler in application. The provisions of section 115JB as originally inserted provided that all companies having book profit under the Companies Act, prepared in accordance with Part-II and Part-III of Schedule-VI to the Companies Act, shall be liable to pay a minimum alternate tax at a lower rate of 7.5%, as against the then existing effective rate of 10.5% of the book profits. These provisions were made applicable to all corporate entities without any exception. [7.7] Thus, section 115JB of the Act provides for a Minimum Alternate Tax (MAT) on companies. Under the provisions of this section, as applicable to the assessment year under consideration a company is required to pay at least 10% of its book profit as tax. In case the tax liability of a company under the regular provisions is more than this amount, the provisions of MAT will not apply and the company shall pay regular tax as per the regular scheme. Under the provisions of section 115JB of the Act, a deeming fiction has been introduced whereby in case where the tax payable by a company is less than 10% of its book profit, such book profit is deemed to be the total income of the assessee and the tax payable by the assessee on such income is the amount of income tax at the rate of 10%. Sub-section (2) of section 115JB of the Act provides for the manner Page 13 of 26 C/TAXAP/213/2019 ORDER in which the profit and loss account has to be prepared. The Explanation to section 115JB defines “book profit” to mean the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section (2), as increased by clauses (a) to (g) thereunder. If any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by clauses (I) to (vii) thereunder. Clause (iii) of the Explanation to section 115JB of the Act provides for reducing the net profit as shown in the profit and loss account by the amount of loss brought forward or unabsorbed depreciation, whichever is less, as per the books of account. The explanation to clause (iii), inter alia, provides that the provisions of the said clause would not be applicable if the amount of loss brought forward or unabsorbed depreciation is `Nil’. In the circumstances, in the absence of either brought forward loss, or unabsorbed depreciation, an assessee would not be entitled to compute the book profit by reducing the net profit by the amount of brought forward loss or unabsorbed depreciation, as the case may be. Section 115JB of the Act opens with a non- obstante clause. From the scheme of the section as noted hereinabove, it is apparent that section 115JB is a self contained Code and will apply notwithstanding any of the provisions of the Act. [7.8] In the facts of the present case, the petitioner does not have any unabsorbed depreciation as per its books of account and as Page 14 of 26 C/TAXAP/213/2019 ORDER such while computing its book profit, it is not entitled to the benefit of reduction of the net profit under clause (iii) of the Explanation to section 115JB. The petitioner has therefore, challenged the constitutional validity of the said provision contending that the policy behind the enactment is to tax zero-tax paying prosperous companies, whereas as a result of the operation of the impugned provision, which does not permit reduction of the net profit by brought forward loss in the absence of unabsorbed depreciation while computing the book profit, even a company like the petitioner who has no actual income in the year under consideration, is liable to pay tax at the specified rate on its book profit. According to the petitioner, the impugned provision insofar as the same provides for reduction of the book profit in case of companies having both brought forward loss and unabsorbed depreciation to the extent of the lesser of the two, is violative of Article 14 of the Constitution of India vis-a-vis those companies who have either only brought forward loss or unabsorbed depreciation. It is accordingly contended that the classification made by the legislature by virtue of the impugned provision which seeks to classify companies on the basis as to whether they have both carried forward loss as well as unabsorbed depreciation in their books of account or only either of the two, has no nexus to the object sought to be achieved, viz., to tax prosperous companies. Page 15 of 26 C/TAXAP/213/2019 ORDER [7.9] In this regard it may be germane to refer to the decision of a Constitution Bench of the Supreme Court in S.K. Dutta, ITO v. Lawarence Singh Ingty, (1968) 68 ITR 271, wherein it was held thus: “It is not in dispute that taxation laws must also pass the test of Article 14. That has been laid down by this Court in Moopil Nair v. State of Kerala, [1961] 3 S.C.R. 77. But as observed by this Court in East India Tobacco Co. v. State of Andhra Pradesh, [1963] 1 S.C.R. 404, 409, in deciding whether the taxation law is discrimi- natory or not, it is necessary to bear in mind that the State has a wide discretion in selecting persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some person or objects and not others; it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14. It is well settled that a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably.” [7.10] If one examines the impugned provision in the light of the principles enunciated in the Page 16 of 26 C/TAXAP/213/2019 ORDER aforesaid decision, it is apparent that all assessees falling within the ambit of section 115JB of the Act are special class of assessees, viz. Those companies in whose case the income tax payable upon determining their total income under the provisions of the Income Tax Act is less than 10% of their book profit. While examining the constitutional validity of the impugned provision, what has to be seen is whether, within the class, there is any discrimination. On a plain reading of clause (iii) of the Explanation to section 115JB of the Act, it is apparent that the same applies uniformly and equally to all companies falling within the ambit of section 115JB, without any discrimination. The provision does not create any class within the class of assessees falling within the ambit of section 115JB. The fact that in a given case an assessee may not have any unabsorbed depreciation or any brought forward loss in its books of account, as a consequence of which the assessee would not be entitled to reduction of the book profit under the impugned provision, is a mere fortuitous circumstance. The legislature, while enacting a provision is not required to meet with or envisage every fortuitous circumstance that may arise while implementing such provision. Merely because in a given circumstance, the provision may act to the disadvantage of a particular assessee would not render the provision arbitrary, nor can it be said that the same violates the equality clause. Page 17 of 26 C/TAXAP/213/2019 ORDER [7.11] In Government of A.P. v. Laxmi Devi, (2008) 4 SCC 720, the Supreme Court has analyzed and explained the power of judicial review of statutes. It has been held in the said decision that while the court has the power to declare a statute to be unconstitutional, it should exercise great restraint in this connection. In the opinion of the Court, there is one and only one ground for declaring an Act of the legislature (or a provision in the Act) to be invalid, and that is if it clearly violates some provision of the Constitution in so evident a manner as to leave no manner of doubt. It was further held that as regards fiscal or tax measures greater latitude is given to such statutes than to other statutes. All decisions in the economic and social spheres are essentially ad-hoc and experimental. Since economic matters are extremely complicated, this inevitably entails special treatment for special situations. The State must, therefore, be left with wide latitude in devising ways and means of fiscal or regulatory measures, and the court should not, unless compelled by the statute or by the Constitution, encroach into this field, or invalidate such law. As regards economic and other regulatory legislation, judicial restraint must be observed by the court and greater latitude must be given to the legislature while adjudging the constitutionality of the statute because the court does not consist of economic or administrative experts. [7.12] The Court in the said decision was Page 18 of 26 C/TAXAP/213/2019 ORDER dealing with the provisions of the Stamp Act, 1899 (as in A.P.), and held that it is well settled that stamp duty is a tax, and hardship is not relevant in construing taxing statutes which are to be construed strictly. That there is no equity in a tax. If the words used in a taxing statute are clear, one cannot try to find out the intention and the object of the statute. The Court held that, the High Court, therefore, fell in error in trying to go by the supposed object and intendment of the Stamp Act, and by seeking to find out the hardship which will be caused to a party by the impugned amendment of 1998. [7.13] In the case of State of A.P. v. Nallamilli Ramli Reddi, (2001) 7 SCC 708, the Supreme Court held, what Article 14 of the Constitution prohibits is “class legislation” and not “classification for purpose of legislation”. If the legislature reasonably classifies persons for legislative purposes so as to bring them under a well-defined class, it is not open to challenge on the ground of denial of equal treatment that the law does not apply to other persons. The test of permissible classification is twofold: (I) that the classification must be founded on intelligible differentia which distinguishes persons grouped together from others who are left out of the group, and (ii) that differentia must have a rational connection with the object sought to be achieved. Article 14 does not insist upon classification, which is scientifically perfect or logically complete. A classification would be Page 19 of 26 C/TAXAP/213/2019 ORDER justified unless it is patently arbitrary. If there is equality and uniformity in each group, the law will not become discriminatory, though due to some fortuitous circumstance arising out of peculiar situation some included in a class get an advantage over others so long as they are not singled out for special treatment. [7.14] In the case of D. C. Bhatia v. Union of India, (1995) 1 SCC 104, the Supreme Court held that if there is some nexus between the object sought to be achieved and the classification, the legislature is presumed to have acted in proper exercise of its constitutional power. The classification in practice may result in some hardship. But, a statutory discrimination cannot be set aside, if there are facts on the basis of which this statutory discrimination can be justified. The Court can only consider whether the classification has been done on an understandable basis having regard to the object of the statute. The Court will not question its validity on the ground of lack of legislative wisdom. The classification cannot be done with mathematical precision. The Court cannot act as a superlegislature. [7.15] In the facts of the present case, as noted hereinabove, the principal grievance ventilated is that the petitioner is put to undue hardship inasmuch as clause (iii) of the explanation to section 115JB of the Act does not Page 20 of 26 C/TAXAP/213/2019 ORDER permit reduction of book profit to the extent of brought forward loss, in case where a company does not have any unabsorbed depreciation as per its books of account. The constitutional validity of the said provision is also challenged on the ground of absurdity on the ground that though the petitioner does not have any income in the year under consideration, merely because the petitioner has shown book profit under the Companies Act, 1956, the petitioner becomes liable to pay tax under the provisions of section 115JB of the Act, without being in a position to set off the brought forward losses of the earlier years, which is absurd as the petitioner does not have any income in the year under consideration. [7.16] The Income Tax Act, 1961 is indubitably a fiscal statute. The legislature has over the years been devising ways and means to prevent companies from avoiding total payment of income-tax by resorting to the various deductions and allowances made under the Act. In its attempt to bring all companies under the tax net, the legislature has formulated a scheme as contained under section 115JB of the Act with a view to ensure that all companies pay at least some tax. The provision also provides for the manner of computation of income thereunder, which is a special provision for certain companies. Section 115JB of the Act including clause (iii) of the Explanation thereto, which is impugned in the present petition applies uniformly to all companies. The said provision Page 21 of 26 C/TAXAP/213/2019 ORDER does not draw any distinction between companies as a class and applies to all companies which fall within its ambit; viz. Companies in whose case the income tax payable on the total income as computed under the normal provisions of the Act in respect of the previous year relevant to the assessment year is less than 10% of their book profits. The provision does not intend to make any classification between a capital asset infrastructure company and a capital intensive company with no capital assets. If, as a consequence of implementing the provisions of the section, some companies are put to some hardship, it does not mean that the legislature has created a distinct class of companies. As held by the Apex Court in State of A.P. v. Nallamilli Ramli Reddi (supra), a classification would be justified unless it is patently arbitrary. If there is equality and uniformity in each group, the law will not become discriminatory; though due to some fortuitous circumstance arising out of peculiar situation some included in a class get an advantage over others so long as they are not singled out for special treatment. [7.17] Under the Scheme of the Act, an assessee is entitled to carry forward its losses as well as unabsorbed depreciation and set off of the same in its regular assessment. It is only if after determining the total income of the company under the normal provisions, the income tax payable is less than 10% of its book profit that the income of such company is to be Page 22 of 26 C/TAXAP/213/2019 ORDER computed under section 115JB of the Act and the company becomes liable to pay tax at the rate of 10% of its book profit as computed under the provisions of section 115JB. The computation includes reduction of the book profit under clause (iii) of the Explanation to section 115JB of the Act. Thus, it is not as if the assessee company is deprived of any right by virtue of the provisions of section 115JB of the Act. [7.18] In the case of the petitioner company, the petitioner itself had debited the expenditure incurred by it to the profit and loss account and thereafter, had assigned its participating interest in the UJV to M/s Cairn India Ltd. Before it actually started making any profit in relation to the business and as such, was not in a position to set off its losses against the income earned by it. In the year under consideration, it is an admitted position, that the petitioner had a book profit of Rs.11,64,67,873/- as per its books of account as maintained in accordance with provisions of the Companies Act, 1956 and as such, became liable to pay income tax in respect thereof under section 115JB of the Act. It is also not as if the petitioner was not permitted to set off its brought forward losses against its income. In fact it is only after computing the income under the provisions of the Income Tax Act after allowing all allowable deductions, because the income tax payable works out to less than ten per cent of book profits that the petitioner has become liable to be assessed under provisions of section 115JB Page 23 of 26 C/TAXAP/213/2019 ORDER of the Act on its book profits. Thus, merely because, in the peculiar facts and circumstances of the case of the petitioner, the petitioner has not been able to set off its losses against its income while computing its income under section 115JB of the Act, the same would not render the statutory provisions unconstitutional or invalid. In the circumstances, the challenge to the provisions of section 115JB of the Act must necessarily fail. [7.19] Though not specifically pleaded in the petition, at the time of hearing of the petition it had been urged that in case where the plain literal interpretation produces an absurd or manifestly unjust result which could never have been intended by the Legislature, the Court may fine tune the language used by the Legislature and produce a rational result. It was submitted that since the plain and literal interpretation produces an absurd and unjust result inasmuch as the petitioner who has no income is required to pay tax, the provision is required to be read down by the Court. [7.20] Insofar the prayer that the provisions may be read down is concerned, it is well settled that the Doctrine of Reading Down is an internal aid to construe the words or phrase in a statute to give it a reasonable meaning. The object of reading down is to keep the operation of the statute within the purpose of the Act and Page 24 of 26 C/TAXAP/213/2019 ORDER constitutionally valid. Thus, in order to save a statute or a part thereof from being struck down it can be suitably read down. However, reading down is not permissible in such a manner as would fly in the face of the express terms of the statutory provisions. It is a very well settled legal position, that if the Court while construing a provision, finds that the same is ambiguous, the Court instead of striking it down, may read it down so as to save the constitutional validity. Moreover, the rule of reading down applies only where two views are possible as to the meaning of the statutory language. (See Delhi Transport Corporation v. D.T.C. Mazdoor Congress, 1991 Supp (1) SCC 600, C.B. Gautam v. Union of India , (1993) 1 SCC 78, and Rapti Commission Agency v. State of U.P., (2006) 6 SCC 522). [7.21] In the present case, the Court does not find the impugned provision to be in any manner unconstitutional, hence, the question of reading it down to save its constitutional validity does not arise. Besides, the provisions of clause (iii) of the Explanation to section 115JB are clear and ambiguous and it is not possible to take two views as to the meaning of the statutory language. Hence, the request to read down the provision also does not merit acceptance. Consequently, the question of directing the respondents to allow reduction of the brought forward losses of Rs.11,67,85,411/- of the petitioner company from the net profit in order to compute book profits under section 115JB of the Page 25 of 26 C/TAXAP/213/2019 ORDER Act in absence of any unabsorbed depreciation in the assessment year under consideration, also cannot be accepted. 8. For the foregoing reasons, the Court does not find any merit in the petition. The petition, therefore, fails and is accordingly, rejected. Notice is discharged. No order as to costs.” 5.00. Thus, the proposed questions of law are no longer res-integra in view of the aforesaid decision of this Court. In the result, this Tax Appeal fails and is hereby dismissed. Sd/- (J. B. PARDIWALA, J) Sd/- (A. C. RAO, J) RAFIK... Page 26 of 26 "