ITAT, ‘I’ BENCH Determination of charge under section 115JB of IT Act, 1961

Determination of charge under section 115JB of IT Act, 1961

Charge under section 115JB is to be determined with reference to 7.5 per cent of book profits; the process of determination of book profit is to be preceded with the comparison of liability for income-tax under normal provisions of income-tax which may be nil also; the income-tax payable cannot be circumscribed by positive figure only and, therefore, to say that those companies where income-tax payable being Rs. 1/- would be covered and not the Zero tax companies, would not be correct.



ITAT, ‘I’ BENCH, MUMBAI

DCW Ltd.

v.

DCIT

ITA No. 4175/Mum/2005

January 18, 2009

RELEVANT EXTRACTS:

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13. We have considered the rival submissions and perused the record of the case. There is no quarrel with the proposition that if a charging provision fails then subject cannot be taxed. In this regard, we may reproduce the observations from the two decisions relied upon by Ld Counsel for the assessee :

1, i] C.W.T v.Ellis Bridge Gymkhana & Others, 229 ITR 1 (SC)

The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.

ii) Vikrant Tyres Ltd v. ITO, 247 ITR 821 (SC)

It is settled principle in law that the Courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other., meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process the Courts must adhere to the words of the statute and the so-called equitable construction of those words of the statute is not permissible. The task of the Court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply the meaning to the facts of the case and in that process if the taxpayer is brought within the net he is caught, otherwise he has to go free. This principle in law is settled by this court in India Carbon Ltd vs. State of Assam (1997) 106 STC 460; (1997) 6 SSC 479 wherein this Court held (page 464), "interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf. A Constitution Bench of this Court speaking through one of us (S.P. Bharucha j) in the case of V.V.Sugars vs. Government of A.P. (1999) 114 STC 47; (3 999) 4 SSC 192 reiterated the proposition laid down in the India Carbon Ltd's case (1997) 106 STC

460 in the following words (head note of (1999) 4 SCC: "The Act in question is a taxing statute and/therefore, must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise."

It is equally settled position of law that each general word appearing in a section should be given its full meaning having due regard to the context in which it is used. It should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it, and in interpreting the same it would not be reasonable to import any limitation on the same. It is also one of the cardinal principles of interpretation that a construction that will render a provision of an enactment wholly or partially meaningless or futile is not to be adopted by the court. The courts should endeavour to interpret the provisions of a statute in a manner that will achieve the object of provision, avoid mischief, advance the cause of justice, provide the remedy intended by the statute, make the law workable and enforceable instead of reducing it to a redundant or dead letter and best harmonize with and effectuate the object of legislation.

In the backdrop of this settled position of law, we proceed to examine the provisions of Section 115JB, which admittedly is a charging section. But at the same time, we have to keep in mind that Section 115JB is a code by itself and, thus, contain substantive as well as procedural provisions. Therefore, which part of the section precisely creates the charge, has to be specifically identified before arriving at any conclusion. If we closely examine section 115JB, having due regard to the punctuation, we find that there is comma between 'Income-tax' and 'payable' and further there is comma before 'is less*. Therefore, full effect will have to be given to the phrase following comma after the phrase 'Income-tax', As per the terms of this section, we find that it will be attracted if Income-tax payable in respect of total income computed under the Act is less than seven and one-half percent of its book profit. Thus, tax payable under the provisions of the Act should be less than seven and one-half percent of its book profit. Consequently, if the tax payable is more than seven and one-half percent of its book profit, then this section will not be attracted. Therefore, the dividing line for determining the applicability or non-applicability of the section is seven and one-half percent of its book profit as compared to tax payable, which actually creates the charge. The charge is not with reference to income tax payable but with reference to book profits. Charge under section 115JB is to be determined with reference to 7.5% of book profits. The process of determination of book profit is to be preceded with the comparison of liability for income tax under-normal provisions of income tax which may be nil also. The income tax payable cannot be circumscribed by positive figure only.

If we accept the interpretation as suggested by Ld. Counsel for the assessee, then full effect to the term "less" appearing after the comma cannot be given. The word 'less' will lose its relevance. The purpose of comma after the term "Income-tax" and before the term 'less' is to qualify term "payable" by tine term "less" and, therefore, to say that those companies where Income-tax payable being Rs. l/- would be covered and not the Zero tax companies, would not be correct. The term 'payable' used in the section cannot be limited only to the positive figure and if the income tax payable is zero still the requirements of section would be met. The submissions of Ld Counsel for the assessee that income tax payable should be given literal meaning cannot be accepted as the same is duly punctuated. In our opinion, the terms of section are unambiguous and literal construction of the phrase dealing with chargeability does not lead to any other interpretation than as discussed earlier.

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