KERALA STATE ELECTRICITY BOARD V. DY.COMMISSIONER OF INCOME TAX

ITA/1703/2009

AI Insights

The case involves the Kerala State Electricity Board (KSEB), a statutory corporation, appealing against the orders of the Income Tax Appellate Tribunal, Cochin Bench, which had upheld the additions made to the income of KSEB by the assessing authority under Section 143(3) of the Income Tax Act. The primary legal issues were the applicability of Section 115JB, which pertains to the minimum alternate tax for companies, and Section 43B, which restricts deductions to actual payments made. The tribunal had earlier accepted the revenue's position that the amounts collected by KSEB as electricity duty were taxable, leading to the present appeal.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 756029 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 12-11-2010
• Assessment Year: misc
• Other Referred Cases: K.P. Varghese v. I.T.O., Ranadey Micronutrients v. Collector of Central Excise, C.I.T. v. B.C.Srinivasa Setty, CIT v. Eli Lilly and Co. (India) P.Ltd.
• Laws Referred To: Income Tax Act 1961, Electricity Supply Act 1948, Kerala State Electricity Duty Act, 1963, Companies Act, 1956
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: E K NANDAKUMAR; A K JAYASANKAR NAMBIAR; K JOHN MATHAI; P BENNY THOMAS
• Keywords: Assessment Year; Book profit; Electricity Duty; Income tax appeal; Legal fiction
• Section: 143(3); 43B; 115JB; 5; 4

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.J.CHELAMESWAR & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON FRIDAY, THE 12TH NOVEMBER 2010 / 21ST KARTHIKA 1932 I.T.A.No.1703 of 2009 ---------------------------------- AGAINST THE ORDER IN I.T.A.No.110 (Coch)/2006 DATED 03.04.2009 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN (ASSESSMENT YEAR 2002-03) .................... APPELLANT/RESPONDENT IN ITA:- ----------------------------------------------------- KERALA STATE ELECTRICITY BOARD, VYDYUTHI BHAVAN, PATTOM, THIRUVANANTHAPURAM. BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS RESPONDENT/APPELLANT IN ITA:- ------------------------------------------------------ DY. COMMISSIONER OF INCOME TAX, CIRCLE 1 (1) THIRUVANANTHAPURAM. BY STANDING COUNSEL FOR INCOME TAX SHRI.JOSE JOSEPH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01/11/2010, ALONG WITH I.T.A.NO.1710 OF 2009 AND CONNECTED CASES, THE COURT 12/11/2010 DELIVERED THE FOLLOWING:- ORDER ON I.A.NO.834 of 2010 in I.T.A.No.1703 of 2009 DISMISSED. Sd/- J.CHELAMESWAR, CHIEF JUSTICE. 12/11/2010 Sd/- P.R.RAMACHANDRA MENON, JUDGE. - TRUE COPY - J. CHELAMESWAR, C.J. & P.R. RAMACHANDRA MENON J. ------------------------------------------------------ I. T Appeal Nos. 1703 of 2009, 1710 of 2009, 1716 of 2009 and 127 of 2010 ------------------------------------------------------ Dated, this the 12th day of November, 2010 JUDGMENT J. Chelameswar, C.J. These four appeals under Section 260A of the Income Tax Act 1961 are preferred by the Kerala State Electricity Board, a statutory corporation constituted under Section 5 of the Electricity Supply Act 1948, aggrieved by the orders of the Income Tax Appellate Tribunal, Cochin Bench. The dispute pertains to four assessment years viz. 2002-03 to 2005-06. The facts of the four appeals are similar; therefore, we state the facts in I.T. Appeal No. 1703 of 2009 corresponding to the assessment year 2002-03. 2. For the said assessment year, the appellant filed return declaring the current loss at `411,56,63,704/-. The return was subsequently revised and loss reduced to `203,81,27,595/-. The assessment was made under Section 143 (3) of the Income Tax Act. The assessing authority made substantial additions to the income return filed by the appellant and disallowed certain claims of the appellant. 3. It may be mentioned herein that the dispute revolves mainly around certain amounts collected by the appellant, pursuant to the statutory obligations created under Section 5 of the Kerala State I.T.A.No.1703 of 2009 & - 2 - connected cases. Electricity Duty Act, 1963. Under Section 4* of the said Act, a duty is levied on the consumers of electricity specified in column (2) of the Schedule. Under Section 5**, the appellant is obliged to collect from ----------------------------------------------------------------------------------------------------------------- *Sec.4. Levy of electricity duty on consumers.- Every consumer belonging to any of the classes specified in column (2) of the Schedule shall pay every month to the Government in the prescribed manner a duty calculated at the rate specified against that class in column (3) thereof: Provided that in cases where the supply of energy to a consumer is regulated by an agreement entered into between the Government or the licensee and the consumer it shall be competent for the Government either to reduce the rate at which duty is leviable on such consumer or to exempt such consumer from payment of duty under this section subject to, such terms and conditions as may be imposed by the Government. **Sec.5. Collection and payment of electricity duty levied on consumers.- (1) Every licensee shall collect and pay to the Government at the time and in the manner prescribed, the electricity duty payable under Section 4 of this Act on the units of energy consumed by every consumer to whom energy is supplied by him. The duty so payable shall be a first charge on the amounts recoverable by the licensee for the energy consumed, and shall be a debt due by him to the Government. (2) When any consumer fails or neglects to pay at the time and in the manner prescribed, the amount of electricity duty due from him, the licensee may, without prejudice to the right of the Government to recover the amount under Section 8, after giving not less than seven clear days' notice in writing to such consumer, cut off supply of energy to such consumer; and he may, for that purpose, exercise the power conferred on a licensee by sub-section (1) of Section 34 of the Indian Electricity Act, 1910, for the recovery of any charge or sum due in respect of energy supplied by him. I.T.A.No.1703 of 2009 & - 3 - connected cases. the consumer the above mentioned duty and pay to the Government at the time and in the manner as prescribed by Rule. Further details of the Scheme of the said Act may not be necessary for the purpose of deciding this appeal. 4. It appears, for the assessment year 2002-03, the appellant collected an amount of `125,19,23,805/- from the various consumers (of the electricity supplied by the appellant) the duty payable under Section 4 of the Kerala State Electricity Duty Act. But, the amount admittedly remained in the hands of the appellant by the date of assessment, though under Section 4, the amount is required to be paid to the Government. It is the case of the appellant that under an agreement between the State of Kerala and the appellant, the appellant is entitled to retain 1% of the total amount collected from the consumer pursuant to Section 4 of the above mentioned Act to enable the appellant to meet the expenditure involved in collecting the tax and the balance is liable to be paid to the State. The learned counsel for the appellant submits that such balance amount is either actually paid to the Government or adjusted in the accounts between the State and the appellant. The details of which may not be necessary for the purpose of the present appeal. 5. As already mentioned, the facts of each of the other appeals are also similar, except the dates and amounts vary from year to year. In view of the fact that the assessing authority made certain additions to the income returned by the appellant and disallowed certain I.T.A.No.1703 of 2009 & - 4 - connected cases. claims, the appellant carried the matter in appeals (aggrieved by the said assessment orders) before the Commissioner of Income Tax, Thiruvananthapuram. The appeals were allowed. Aggrieved by such appellate orders, the Revenue carried the matter before the Income Tax Tribunal successfully. Hence the instant appeals by the assessee. 6. The legal controversy in this appeal (I.T. Appeal No. 1703 of 2009) is as follows: (1) The assessing authority invoked the legal fiction under Section 115JB of the Income Tax Act, which enables the revenue to arrive at fictitious conclusion regarding the total income of the assessee and assess the tax on such total income. (2) The assessing authority relying upon Section 43B of the Income Tax Act, rejected the claim of the assessee that the amount collected by the assessee from the consumer under Section 5 of the Electricity Duty Act, is not the income of the assessee and consequently not exigible to tax under the provisions of the Income Tax Act. Though, the first appellate authority accepted the submission of the assessee on the above mentioned two questions of law, the Tribunal by the order under appeal confirmed the views of the assessing authority in rejecting the claim of the appellant. 7. The appellant is a statutory corporation constituted by the notification of the State of Kerala, pursuant to the powers vested in it by virtue of Section 5 of the Electricity Supply Act 1948. Section 12 of the said Act, declares that the appellant to be a body corporate having perpetual succession and a common seal, with power to acquire and hold I.T.A.No.1703 of 2009 & - 5 - connected cases. property both movable and immovable, capable of suing and being sued by the name specified in the notification issued under Section 5 of the said Act. Section 80 of the Act, declares that the appellant shall be deemed to be a company within the meaning of the Income Tax Act, 1922 and further declares that the appellant is liable to pay income tax and super- tax on its income, profits and gains. Section 80 reads as follows: “80. Provision relating to income tax and super-tax -- (1) For the purposes of the Indian Income Tax Act, 1922 (11 of 1922), the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income tax and super-tax accordingly on its income, profits and gains. (2) The State Government shall not be entitled to any refund of any such taxes paid by the Board”. The Income Tax Act, 1922 came to be repealed by Section 297(1) of the Income Tax Act 1961. Therefore, by virtue of operation under Section 18 of the General Clause Act, 1897, reference to Income Tax Act 1922 in Section 80 of the Electricity Supply Act shall be understood to be reference to Income Tax Act 1961. 8. Section 4 Income Tax Act 1961 creates a charge of tax on the total income of every person. The expression “person” is defined under Section 2(31) of as follows: “(31) “person” includes -- (i) an individual, I.T.A.No.1703 of 2009 & - 6 - connected cases. (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses”. It can be seen from the said definition that it includes a company and every artificial juridical person along with others. The expression “company” itself is defined under Section 2 (17) as follows: “(17) “company” means -- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of country outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company: Provided that such institution, association or body shall be deemed to be a company only for such assessment year of assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration;” I.T.A.No.1703 of 2009 & - 7 - connected cases. The expression of “Indian Company” occurring in the above definition is itself under Section 2 (26) as follows: “(26) “Indian Company” means a company formed and registered under the Companies Act, 1956 (1 of 1956) and includes -- (i) a company formed and registered under any law relating to companies formerly in force in any part of Indian (other than the State of Jammu and Kashmir [and the Union territories specified in sub-clause (iii) of this clause]); [(ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared by the Board to be a company under clause (17);] (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State; [(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory:] Provided that the [registered or, as the case may be, principal office of the company, corporation, institution, association or body] in all cases is in India”. 9. It can be seen from the above definitions; more particularly in Section 2(26) clause (ia) that the appellant answers descriptions of the expression of an Indian Company and therefore a company within the meaning of Section 2(17). Admittedly the appellant was being assessed as a company under the provisions of the Income Tax Act 1922. I.T.A.No.1703 of 2009 & - 8 - connected cases. Therefore, irrespective of the fact whether it is an Indian Company or not by virtue of the operations under clause 3 of Section 2(17), the appellant is a company for the purpose of Income Tax Act 1961. Even otherwise, as we have already noticed, since Section 80 of the Electricity Supply Act, makes a positive declaration that the appellant is a company for the purpose of Income Tax Act, it is liable for the assessment under the various heads of tax, provided under the Income Tax Act from time to time. 10. The two questions of law which require an examination in these appeals are - (i) whether Section 115 JB is applicable to the appellant herein; and (ii) whether Section 43B of the Income Tax Act is legally invocable on the facts and circumstances of the case. 11. Before we examine the first question a brief survey of the history of Section 115JB is necessary. Chapter XII-B was inserted by the Finance Act of 1987 in the Income Tax Act. Section 115J was introduced for the first time by the said Chapter. The relevant portion of the said Section reads as follows: “S.115J. Special provisions relating to certain companies.- (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed I.T.A.No.1703 of 2009 & - 9 - connected cases. under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (1A) 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 (1 of 1956) Explanation.- 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 (1A), as increased by - xxx xxx xxx if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by, - xxx xxx xxx”. It can be seen from clause (1) that the provision creates a legal fiction regarding the total income chargeable to tax. Such a fiction is applicable only to those assessees which - (a) are Companies except the Companies engaged in the business of either generation or distribution of electricity, (b) that such a fiction is made applicable to the Companies only with reference to the previous year relevant to the assessment year commencing after 1st April, 1988 and ending with the 1st April, 1991, (c) I.T.A.No.1703 of 2009 & - 10 - connected cases. the “total income” of the Company as computed under the Act is less than thirty per cent of its “book profit”. The fiction being that the total income for the purpose of assessment shall be deemed to be 30% of the book profit. In other words, the Section prescribes 30% of the book profits of those Companies falling within the purview of the Section shall be treated as the total income of the Company for the purpose of income tax, irrespective of the fact that according to the accounts of the Company the “total income” is less than thirty per cent of the book profit. The expression “book profit” itself is explained in the Section as meaning, the net profit as shown in the profit and loss account for the relevant previous year prepared as per the prescription under sub-section (1A) and either increased or decreased by various amounts specified in the various subsequent sub-clauses appended to the Explanation, the details of which are not necessary for the purpose of this case. However, the operation of Section 115J came to an end with 1991-92 assessment year onwards. 12. Subsequently, Section 115JA came to be inserted in the Income Tax Act by Finance Act 2 of 1996, with effect from 1.4.1997. The scheme of Section 115JA is almost similar to the scheme of Section 115J. Two major points of difference are that the new Section is applicable with reference to the previous year relevant to the assessment year commencing from 1st April, 1997 and ending with 1st April, 2001. Secondly, the express exclusion of the Companies engaged in the business of either generation or distribution of electricity is absent under Section I.T.A.No.1703 of 2009 & - 11 - connected cases. 115JA. The third and most important change is that two provisos are added to sub-section (2) stipulating that - “Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation or depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year”. The further details of Section 115JA may not be necessary for the present purpose. 13. Then came to Section 115JB, which was inserted in the Income Tax Act by Finance Act of 2000 with effect from 1.4.2001. The relevant portion as it stands today reads as follows:- “115JB. 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 I.T.A.No.1703 of 2009 & - 12 - connected cases. 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 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 (1 of 1956): Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies; (ii) the accounting standards followed 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 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (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 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 failing within the relevant previous year”. I.T.A.No.1703 of 2009 & - 13 - connected cases. The scheme of the Section 115JB is similar to Section 115J and Section 115JA. The difference in so far as it is relevant for the present purpose between Section 115JB and its fore-runners (Sections 115J and 115 JA) is as follows: All the 3 Sections (Ss.115J, 115JA and 115JB) create legal fictions regarding the 'total income' (a defined expression under Section 2(45)of the Act) of the Companies. While the earlier two sections mandate the department to make the assessment on a fictitious amount of 'total income' where the actual amount of total income computed in accordance with the I.T Act is less than 30% of the book profits of the Company, Section 115JB mandates the department to resort to the fiction in those cases where the tax payable on the basis of the 'total income' computed in accordance with the I.T.Act is less than a specified percentage (7½% for the years in issue) of the book profit. Further, Sections 115JA and 115JB also stipulate a definite manner of preparing the annual accounts including the profit and loss accounts. More specifically, Section 115JB stipulates that the accounting policies, accounting standards, etc. shall be uniform both for the purpose of income tax as well as for the information statutorily required to be placed, before the annual general meeting conducted, in accordance with Section 210 of the Companies Act, 1956. I.T.A.No.1703 of 2009 & - 14 - connected cases. 14. It may be mentioned here that under Section 166 of the Companies Act every Company is mandated to hold a general meeting in each year. Section 210 mandates that every year the Board of Directors of the Company in the general meeting shall lay before the Company a balance sheet as at the end of the relevant period and also a profit and loss account for the period. Parts II and III of Schedule VI to the Companies Act specify the method and manner of maintaining the profit and loss account. 15. However, the appellant though is by definition a Company under the Income Tax Act and deemed to be a Company for the purpose of Income Tax Act, (by virtue of the declaration under Section 80 of the Electricity Supply Act) it is not a Company for the purpose of Companies Act. Therefore, the appellant is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. As a matter of fact, a general meeting contemplated under Section 166 of the Companies Act is not possible in the case of the appellant as there are no share holders for the appellant Board. On the other hand, under Section 69 of the Electricity Supply Act, the appellant is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet, etc. in such form as may be prescribed by the Central Government and notified in the official gazette. The prescription of the rules in this regard is required to be made in consultation with the Comptroller and Auditor-General of India I.T.A.No.1703 of 2009 & - 15 - connected cases. and also the State Governments. Such accounts of the appellant are required to be audited by the Comptroller and Auditor-General of India or such other person duly authorised by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report is required to be laid annually before the State Legislature and also to be published in the prescribed manner and copies of such publication shall be made available for sale at a reasonable price, obviously for the benefit of the general public who wish to scrutinise the accounts. 16. Thus, it can be seen that coming to the maintenance of the accounts, the appellant though is deemed to be a “Company” - both by virtue of operation of Section 80 of the Income Tax Act for the purpose of Income Tax Act and by virtue of the definition of the expression “Company” under the Income Tax Act (which is already examined earlier) - the appellant is required to keep and maintain its accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act. Therefore, the question is whether the legal fiction contemplated under Section 115JB can be pressed into service while making the assessment of income tax payable by the appellant. 17. It must be remembered that Section 115JB creates a legal fiction regarding the total income of the assessees which are Companies. The book profit of the Company is deemed to be total income of the assessee in the circumstances specified in the said Section, which are already noticed earlier. The expression “book profit” for the purpose of I.T.A.No.1703 of 2009 & - 16 - connected cases. the said Section is explained in the Section itself to mean the net profit as increased or decreased by the various amounts shown in the various sub-clauses of the Section. The “net profit” itself must be the net profit as shown in the profit and loss account of the Company. Sub-section (2) mandates that the profit and loss account of the Company is required to be prepared in the manner specified therein. Though in view of the requirement under Section 69 of the Electricity Supply Act the appellant is required to maintain accounts in a different form than the one contemplated under Section 115JB(2), the prescription under Section 69 is only regarding the general duty of the appellant for the purpose of Electricity Supply Act. Nothing in theory prevents the Parliament from obligating the appellant to prepare another profit and loss account as prescribed under Section 115JB(2) for the purpose of the Income Tax Act. The question is whether such an obligation is created under Section 115JB (2) in so far as the appellant is concerned. In examining the said question, the legislative history and the mischief sought to be cured by the Legislature in making the special deeming provision, in our opinion, would be relevant. 18. Coming to the legislative history of Section 115JB and its fore-runners - Sections 115J and 115JA - we have already noticed that they provided for the determination of the total income of the Companies by a fictitious process. However, at the earliest point of time when such a fictitious process is invented, i.e. when Section 115J was introduced, the I.T.A.No.1703 of 2009 & - 17 - connected cases. Section expressly excluded from its operation bodies like the appellant. Coming to Section 115JA, though such express exclusion is absent, the Central Board of Direct Taxes issued a Circular - No.762 dated 18th February 1998 - (which is binding on the Department, see K.P. Varghese v. I.T.O. [(1981) 131 ITR 597(SC)]* and Ranadey Micronutrients v. Collector of Central Excise [1996 (97) ELT 19 (SC)] excluding the bodies like the appellant from the operation of the said Section. Though under the normal rules of interpretation of statutes the omission of a clause which existed in the statute at some point of time by a subsequent amendment would indicate that the legislature intended not -------------------------------------------------------------------------------- * These two circulars of the CBDT are, as we shall presently point out, binding on the tax department in administering or executing the provision enacted in sub-s.(2), but quite apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of sub-s. (2). The rule of construction by reference to contemporanea expositio is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory Construction, 1940 Edn., where it is stated in paragraph 219 that “administrative construction (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive”. I.T.A.No.1703 of 2009 & - 18 - connected cases. to give the benefit of such clause any more to those who were getting the benefit of such exclusion clause, in our opinion, it is not an absolute rule. The other attendant circumstances, the context, the history and the mischief sought to be remedied by the amendment are all required to be examined before reaching at definite conclusion. 19. The Circular No.762 not only is binding on the respondents, but also explains the purpose in introducing Section 115JA. The relevant portion reads as follows:- “46.1 In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance Act has inserted a new section 115JA of the Income-tax Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Income-tax Act, is more than 30 per cent of the book profit, tax shall be charged on the same. 46.3 The effective minimum alternate tax, at the existing rates of taxation works out to 12 percent of the book profits. 46.4 Income arising from free trade zone (FTZ), export oriented undertakings (EOUs), charitable activities, investment by a venture I.T.A.No.1703 of 2009 & - 19 - connected cases. capital company and other exempted incomes (section 10) are excluded from the purview of the alternate tax. 46.5 Since the alternate tax is applicable only where the normal total income computed is less than 30 per cent of the book profits, so long as the enterprises (other than FTZ units and EOUs) earning income from export profits do not have their component of export income higher than 70 per cent of the book profits, the provisions of section 115JA will not be attracted. In other words, the MAT will apply only to such cases where export profits forming part of book profits of an assessee exceed 7- per cent of the total profits. 46.6 Companies engaged in the business of generation and distribution of power and those enterprises engaged in developing, maintaining and operating infrastructure facilities under sub-section (4A) of section 80--IA are exempted from the levy of MAT, so that the incentive given to infrastructure development is not affected”. It can be seen from the above that the legislature took note of the fact that a number of Companies paying marginal tax and also zero-tax has grown. Such Companies earned substantial book profits and paid handsome dividends to the share holders without paying any tax to the exchequer. Such a result was achieved by such Companies by taking advantage of the then existing legal position which permitted the adoption of dual accounting policies and practices, one for the purpose of computation of income tax and another for the purpose of determining the book profits for the purpose of payment of dividends. Therefore, the amendment was made to plug the loophole in the law. However, the CBDT I.T.A.No.1703 of 2009 & - 20 - connected cases. understood that Companies engaged in the business of generation and distribution of electricity and Enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (Section 115JA) for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the CBDT is binding on the department. 20. If that is the background in which Section 115JA is introduced into the Income Tax Act, Section 115JB, which is substantially similar to Section 115JA, in our opinion, cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of Section 115JA. 21. Another submission made by the learned counsel for the appellant is that in view of the judgment of the Supreme Court in C.I.T. v. B.C.Srinivasa Setty [(1981) 128 ITR 294 (SC)] and CIT v. Eli Lilly and Co. (India) P.Ltd. [(2009) 312 ITR 225 (SC)], where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging Section also would not apply. It was held in B.S.Srinivasa Setty's case (supra) as follows:- “Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can I.T.A.No.1703 of 2009 & - 21 - connected cases. be applied for determining the chargeable profits and gains. All transactions encompassed by s.45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by s.45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the I.T.Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision. That pertains to the fundamental integrality of the statutory scheme provided for each head”. In Eli Lilly and Co. (India) P.Ltd. case (supra) also, the apex Court has held as follows:- “On the question as to whether there is any inter-linking of the charging provisions and the machinery provisions under the 1961 Act, we may, at the very outset, point out that in the case of CIT v. B.C.Srinivasa Setty reported in I.T.A.No.1703 of 2009 & - 22 - connected cases. [1981] 128 ITR 294 this court has held that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section”. 22. Another reason is that the appellant or bodies similar to the appellant, which are totally owned by the Government - either State or Central - have no share holders. Profit, if at all, made by the appellant would be for the benefit of entire body politic of the State of Kerala. In the final analysis, all taxation is meant for the welfare of the people in a Constitutional Republic. Therefore the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, we are of the opinion that the fiction fixed under Section 115JB cannot be pressed into service against the appellant while making the assessment of the tax payable under the Income Tax Act. 23. Coming to the next question of whether Section 43B of the Act was properly invoked, Section 28 of the Income Tax Act provides that the various kinds of income specified under the said Section are chargeable to income tax under the head “profits and gains of business or profession”. Section 29 declares that - “The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D”. I.T.A.No.1703 of 2009 & - 23 - connected cases. Section 43B in so far as it is relevant for our purpose reads as follows: “43B. Certain deductions to be only on actual payment.- Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in clause (ii) of sub-section (1) of section 36 or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing or (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances or (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him:” The scheme of the section, in so far as it is relevant for the present, is as follows: I.T.A.No.1703 of 2009 & - 24 - connected cases. It recognises that different kinds of assessees are liable to pay various kinds of imposts under various laws operating on such assessees and other legal dues specified under clauses (1) to (4). It provides for the deduction of such amounts of imposts or specified legal dues while computing the total income of such assessees, if such amounts representing the imposts or other legal dues payable or otherwise deductible under some provisions of the Act or other from the computation of the total income of the year in which such amounts are actually paid. Coming to the taxes or other imposts contemplated under clause (a) the question whether the amounts are taxes or other imposts contemplated under Section 43B(a) is required to be determined. The opening clause of Section 43B - “Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act” - is relevant. Then it must be decided whether such amounts are liable to be included in the total income of the assessee under some provisions or the other of the I.T. Act. Then the further question as to in which previous year the deduction of such amounts from the total income of the appellant arises. 24. The assessment order in so far it relates to the issue of the applicability of Section 43B of the Income Tax Act reads as follows: “During the course of hearing, the assessee has objected to the disallowance u/s.43-B in respect of the electricity duty collected on the ground that the duty is collected on behalf of the Government of Kerala as their Agent I.T.A.No.1703 of 2009 & - 25 - connected cases. and credited to the Government account periodically as directed by the Govt. Further it was stated this issue was decided in its favour by the CIT(A) and ITAT. I have carefully considered this argument. It is found that the ITAT's decision in this respect has not been accepted by the department and a further appeal is pending before the Hon'ble High Court of Kerala for the assessment year 1991-92. Under section 5(1) of the Kerala State Electricity Duty Act, 1963 the assessee shall collect electricity duty payable by consumers (including those generate energy for their own consumption) u/s 4(1) of the Act, 1963 and pay the duty so collected to the government every month after retaining 1% thereof towards collection charges. During the previous year relevant for the assessment year 2002-03 the assessee has collected a sum of Rs.126,45,69,500/- towards electricity duty u/s 4(1) and as such a sum of Rs.1,25,19,23,805/- was payable to the Govt. after retaining the collection charges. But the assessee has not paid the same to the Govt. within the due date. The assessee has not produced any order granting exemption from remitting the duty collected within the due date. In the circumstances, electricity duty u/s 4(1) not remitted within the time amounting to Rs.125,19,23,805/- is disallowed u/s 43B of the Income Tax Act, 1961.” 25. In substance, though it is not clearly indicated in the assessment order, the case of the revenue is that Section 43B(a) is attracted; whereas the case of the appellant is that the said Clause is applicable only in those cases where any sum is payable by the assessee qua tax, duties, cess or fee under any law for the time being in force. But in the instant case, the amount in question is not an amount payable by the assessee qua tax but the amount collected by the assessee as the agent of the State of Kerala towards the tax payable by the consumer of I.T.A.No.1703 of 2009 & - 26 - connected cases. electricity to the State of Kerala. 26. The first appellate authority accepted the stand of the assessee in the light of a decision of the Income Tax Appellate Tribunal, Cochin Bench dated 03.04.2009. However, by the order under appeal, the Income Tax Appellate Tribunal, Cochin Bench held that Section 43B can be properly invoked where the assessee has in fact collected the amounts from the consumer. In other words, the submission of the assessee that the amount was collected on behalf of the State of Kerala pursuant to the statutory obligation to collect such an amount and the assessee is only an agent of the Government of Kerala holding the said amount and liable to account for and pay the said amount to the State of Kerala as an agent, but not as the assessee who has a primary liability to pay tax under the Kerala Electricity Duty Act, 1963 is not accepted. The relevant portion of the Appellate Tribunal's order is in paragraph 10 of the order under appeal and it reads as follows: “10. Therefore, in the light of the judgments of the Hon'ble Gujarat High Court, by holding that the assessee is bound to make payment of duty or suffer the consequences of section 43B, we make it clear that the assessee is not hit by provisions of section 43B where the assessee has not collected duty from the consumers and where the assessee has not make any collections and no claim for deductions but only has made provisions for the payment of the electricity duty. The Assessing Officer is directed to examine the facts and the amounts covered by the above two exceptions shall be taken outside the purview of section 43B. In these circumstances, we uphold the order of the Assessing I.T.A.No.1703 of 2009 & - 27 - connected cases. Officer on this point and set aside the order of the CIT(A) and hold that the assessee is liable for the discipline of section 43B. This ground is accordingly decided in favour of the Revenue, subject to the above two exceptions.” 27. On a plain reading of Section 43B we are of the opinion that the only clause if at all is relevant in the context of the facts of the appellant's case is Clause (a) which deals with “any sum payable by the assessee by way of tax, duty, ........... under any law for the time being in force”. In our opinion, the words, 'by way of tax' are relevant as they are indicative of the nature of liability. The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign. Whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation, in our opinion, continues to be fiduciary even in a case wherein the relationship of the principal and agent is created by a statute. We are of the opinion that, when Section 43B(a) speaks of the sum payable by way of tax etc; the said provision is dealing with the amounts payable to the sovereign qua sovereign, but not the amounts payable to the sovereign qua principal. We are therefore of the opinion that Section 43B cannot be invoked in making the assessment of the liability of the appellant under the Income Tax Act with regard to the amounts collected by the appellant pursuant to the obligation cast on the appellant under Section 5 of the Electricity Duty Act, 1963. I.T.A.No.1703 of 2009 & - 28 - connected cases. 28. We must make it clear that the above conclusion of ours does not mean that the said amount is either exempted from the liability of Income Tax or it should be treated as income for the purpose of the Act. Those questions will have to be independently examined, having regard to the other provisions of the Income Tax Act, primarily by the assessing authority. The appeals are allowed as indicated above. Sd/- J. Chelameswar Chief Justice Sd/- P. R. Rmachandra Menon Judge kmd/vku/ttb - true copy - "