Relief u/s 54EC cannot be denied to the Assessee merely invoking MAT provisions: Madras HC [Read Judgment]

Madras High Court

The division bench of the Madras High Court, in a recent decision, held that the assessee cannot be denied the benefit provided under s. 54EC of the Income Tax Act, 1961 solely on ground that the provisions relating to Minimum Alternative Tax is applicable in his case.

In the instant case, the assessing officer denied the benefit of s. 54EC to the assessee on ground that the provisions of Minimum Alternate Tax (MAT) is applicable to the assessee. On appeal, both adjudicating authorities decided in favour of the assessee by quashing the order. Aggrieved with the order, the Revenue preferred an appeal before the High Court.

“The allowance or otherwise of the claim under Section 54AC has to be seen in the context of the provisions of Section 115 JB which is a self contained code of assessment. The levy of tax is on the ‘book profits’ after effecting various upward and downward adjustments as set out in terms of the Explanation thereto. The provisions of sub-section (5) of s.115 JB open the assessment to the application of all other provisions contained in the Income tax Act except if specifically barred by that section itself. “

While analyzing the provision, the Court said that the plain language of Section 115 JB thus admits of the grant of relief under section 54 EC in an assessment.

The Revenue relied on the decision of apex Court in in the case of Apollo Tyres Ltd vs CIT (255 ITR 273) and Bombay High Court in the case of Commissioner of Income Tax Vs. Veekaylal Investments (P) Ltd (249 ITR 597), in which the claim under section 54EC was rejected for the purpose of computation of tax under Section 115 JB of the Act.

While dismissing the contention, the Court observed “The Supreme Court, in the case of Apollo Tyres, (supra) is to the effect that the assessing officer is not empowered to embark on an enquiry with regard to the entries in the profit and loss account maintained in accordance with the provisions of the Companies Act 1956 and approved in the AGM except to the extent of effecting modifications in accordance with the Explanation to section 115J. The Bombay High Court in the case of Veekaylal Investments (supra) considers the inclusion of capital gain for the purposes of assessment under section 115 J. Both judgements are rendered in the context of Section 115 J which does not contain a provision analogous to sub-sections (4) of section 115 JA or (5) of section 115 JB of the Act.”

“While an assessment u/s 115J would be concluded exclusively on the basis of the book profits as adjusted by the items set out in the Explanation thereunder, in an assessment in terms of sections 115 JA or JB, the adjusted book profits would be further subjected to the effect of other provisions of the Act that are specifically brought into play by virtue of sub-sections (4) of section 115JA and (5) of section 115JB”. The Court added.

Read the full text of the Judgment below.