The Commissioner of Income-tax-­2 v. M/s. Tata Petrodyne Ltd
[Citation -2014-LL-1219-2]

Citation 2014-LL-1219-2
Appellant Name The Commissioner of Income-tax-­2
Respondent Name M/s. Tata Petrodyne Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 19/12/2014
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags carry forward and set off • unabsorbed depreciation • foreign exchange loss • subsidiary company • private company • memo of appeal • business loss • share capital • voting power • tax due
Bot Summary: Mr. Suresh y ba Kumar submits that the Tribunal erred in law in allowing the set off of brought forward losses and by holding that the Assessee Company was om deemed to be a company in which public is substantially interested. The Legislature has deliberately included Companies registered under section 25 of the Companies Act in the list of companies in which B public are substantially interested and excluded the deemed companies under section 43A of the Act. The company falling under section 43A of the Indian Companies Act, 1956 cannot be treated as company in which public is substantially interested. In the present case, item was invoked because in the Assessee company the voting power has been ou unconditionally acquired and to the extent indicated in item by a company to which the clause applies or any subsidiary of such company C if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous h year. After perusal of the share holding pattern, the Tribunal concluded ig that the shares of Tata Industries Limited have been transferred to H Tata Power Co. Ltd. It may be that, now, the voting power under section 2(18)(b) is acquired by the Tata Power Co. Ltd. but once that company falls within the definition of the term a company in which public are y ba substantially interested the Tribunal's conclusion cannot be faulted. At no stage, a point was raised that the company was not a private limited company and provisions under section 179 of the Income Tax B Act were unjustified. Ou 14 In the present case, the Assessee specifically argued that the Profit and Loss Account and balance sheet of the company has been prepared C and maintained in terms of section 211(3A) and section 211(3C) of the Indian Companies Act, 1956.


1 901.itxa28.13.doc sbw IN HIGH COURT OF JUDICATURE AT BOMBAY rt ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 28 OF 2013 ou Commissioner of Income Tax 2 ..Appellant Versus M/s. Tata Petrodyne Ltd.. ..Respondent C ........... Mr. Suresh Kumar for Appellant. Mr. Dinesh Vyas, Senior Advocate, i/b. Srihari M. Iyer for Respondent. h ........... igCORAM: S.C. DHARMADHIKARI AND A.A. SAYED, JJ. H DATE : 19th DECEMBER, 2014 P.C.: y This Appeal by Revenue challenges judgment and order ba passed by Income Tax Appellate Tribunal, Bench at Mumbai, dated 29th June, 2012 in Income Tax Appeal No.5108/Del/2004. om assessment year is 2001 02. Mr. Suresh Kumar, learned counsel, appearing in support of this Appeal invites our attention to questions at page 4 of paper book. He submits that all these questions which B have been formulated by Revenue are substantial questions of law and Appeal, therefore, deserves to be admitted. 1/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 2 901.itxa28.13.doc 2] Mr. Suresh Kumar submits that Assessee filed return of income rt declaring NIL income. That was processed under section 143(1) of Income Tax Act, 1961(for short I.T. Act). During assessment ou proceedings, Assessing Officer, inter alia, disallowed certain amount. That was towards foreign exchange loss, set off of brought forward losses C under section 79 of Income Tax Act. He also computed book profit at Rs.16,45,76,748/ under section 115JB of Income Tax Act. h order of assessment was passed on 19th March, 2004. ig H 3] Assessee preferred Appeal to Commissioner of Income Tax (Appeals) and which has been partly allowed. Assessee preferred further Appeal before Income Tax Appellate Tribunal. Mr. Suresh y ba Kumar submits that Tribunal erred in law in allowing set off of brought forward losses and by holding that Assessee Company was om deemed to be company in which public is substantially interested. It is this finding and conclusion which enabled Tribunal to eventually hold that section 79 of Income Tax Act is not applicable. However, B Assessee is private company and it cannot be held to be one in which public is substantially interested. Elaborating this submission by relying on ground in memo of Appeal, Mr. Suresh Kumar submits that other question in relation to section 115JB is also substantial question of 2/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 3 901.itxa28.13.doc law. book profit will have to be reduced by unabsorbed rt depreciation or brought forward losses. Mr. Suresh Kumar submits that this depreciation will not include amount of depletion of producing ou assets. C 4] Mr. Suresh Kumar, therefore, submits that Appeal be admitted. He has taken us through order of Assessment Officer and h relevant part of Commissioner's order. ig H 5] On other hand, Mr. Vyas, learned Senior Counsel, appearing on behalf of Assessee submits that somewhat identical question was decided by this Court in Income Tax Appeal No.1322 of 2012. He relies y ba upon our order dated 20th November, 2014. He submits that in this order Division Bench held that activity of Assessee therein(namely, om Respondent herein) is similar to that of Hindustan Oil Exploration Co.Ltd. There, in relation to similar activity this Court had decided that same falls within definition of term production . Secondly, B he also relies upon finding which has been rendered by this Court in that very order. He had also relied upon guidance note on accounting for oil and gas producing activities issued by Council of Institute of Chartered Accountants of India. He relies upon section 211(3A) of 3/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 4 901.itxa28.13.doc Indian Companies Act, 1956. reliance is also placed upon judgment rt of Hon'ble Supreme Court in case of M. Rajamoni Amma and Another V/s. Deputy Commissioner of Income Tax (Assessment) and ou Others reported in (1992) 195 ITR 873. Mr. Vyas has also placed reliance upon similar controversy which was decided and in relation C to M/s. Tata Industries Limited. He submits that throughout Revenue itself has been terming this company as one in which public is h substantially interested. For all these reasons, he submits that findings ig recorded by Tribunal do not raise any substantial question of law. H 6] With assistance of learned counsel appearing for both sides, we have perused memo of Appeal and Annexures thereto. In y relation to question No.1, Assessing Officer and Commissioner ba noted that argument that Assessee is deemed public company and, therefore, falls within section 2(18)(b)(B)(c) of Act, is not om correct. Legislature has deliberately included Companies registered under section 25 of Companies Act in list of companies in which B public are substantially interested and excluded deemed companies under section 43A of Act. company falling under section 43A of Indian Companies Act, 1956 cannot be treated as company in which public is substantially interested. He relied upon voting power as on 4/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 5 901.itxa28.13.doc last day of year to which losses pertain and year in which rt claim of carry forward and set off of losses has been made. He concluded that voting power has changed more than 51% and, therefore, ou Appellant will not be entitled to benefit of carry forward and set off of losses. He, therefore, upheld order of Assessing Officer. C 7] In relation to this question, Tribunal firstly reproduced section h 2(18)(b)(B)(c) of Act in para 19 of its order, thereafter, it referred to ig share holding pattern of Assessee. H 8] It, then, concluded that chart shows that shares of Tata Industries Limited have been transferred to Tata Power Co. Ltd. Both Tata y Industries Limited and Tata Power Co. Ltd. are companies in which public ba is substantially interested. shares of these companies are traded in stock exchange. It, therefore, accepted argument of Assessee's om counsel that facts of present case are covered by provision, namely, definition of term company in which public is B substantially interested. 9] We have perused that definition in Income Tax Act, 1961. Firstly, such company should not be private company as defined in 5/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 6 901.itxa28.13.doc Indian Companies Act, 1956. Secondly, conditions specified in item rt (A) or item (B) are fulfilled. In present case, item (B) was invoked because in Assessee company voting power has been ou unconditionally acquired and to extent indicated in item (B) by company to which clause applies or any subsidiary of such company C if whole of share capital of such subsidiary company has been held by parent company or by its nominees throughout previous h year. After perusal of share holding pattern, Tribunal concluded ig that shares of Tata Industries Limited have been transferred to H Tata Power Co. Ltd. It may be that, now, voting power under section 2(18)(b) is acquired by Tata Power Co. Ltd. but once that company falls within definition of term company in which public are y ba substantially interested , then, Tribunal's conclusion cannot be faulted. 10] There is material on record to indicate that as to how Tata om Industries Limited and Tata Power Co. Ltd. have been treated by Department/Revenue as companies in which public are substantially B interested. 11] reliance placed on judgment of Hon'ble Supreme Court in case of M. Rajamoni Amma and Another V/s. Deputy Commissioner 6/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 7 901.itxa28.13.doc of Income Tax (Assessment) and Others (supra) would indicate that rt Hon'ble Supreme Court was considering ambit and scope of section 43A of Indian Companies Act, 1956 and for purposes of ou satisfying conditions stipulated therein. Particularly, after amendment to this provisions by Act 31 of 1988 and by Act 51 of 2000. C Be that as it may, that Hon'ble Supreme Court rendered its decision in 1992 when section 43A came to be amended by Act 31 of 1988 and prior h thereto by Act 41 of 1974. However, Hon'ble Supreme Court was ig concerned with situation where Directors/Appellants before H Hon'ble Supreme Court were on Board of company known as M/s. Rajmohan Cashews Ltd. assessment was completed and demand was raised of Rs.56,00,000/ . amount was not paid for various y ba reasons. Directors were held responsible and liable to pay tax due in view of provisions of Section 179 of Income Tax Act, 1961. This om order was challenged but Appellants/Directors could not succeed. At no stage, point was raised that company was not private limited company and, therefore, provisions under section 179 of Income Tax B Act were unjustified. However, subsequently this objection was raised but it was rejected by Commissioner of Income Tax. Writ Petitions were filed before High Court and they came to be dismissed. letter was produced that company has become public limited 7/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 8 901.itxa28.13.doc company by virtue of section 43A of (1A) of Companies Act with effect rt from 1st October, 1975. This letter was dated 26 th February, 1977 but no copy or record of this letter was found in office of Registrar of ou Companies and, therefore, Writ Petition came to be dismissed by holding that this was fabricated document. We are not concerned as C much with facts before Hon'ble Supreme Court but what is material for our purposes that after Registrar of companies disclosed h that letter relied upon by Appellants was in its file that Hon'ble ig Supreme Court held that being public limited company proceedings H against Directors for recovery of tax due cannot be taken and certainly cannot be proceeded with. Before us situation is that if Assessee answers definition in Income Tax Act, 1961 which we y ba have referred and in detail above, then, no reliance can be placed on section 79 of Income Tax Act. Section 79 provides for carry forward om and set off losses in case of certain companies. That refers to change in share holding pattern taking place in previous year in case of company, not being company in which public are substantially B interested. Therefore, prohibition which is carved out by this section becomes applicable. Obviously, therefore, if it is company in which public are substantially interested, applicability of section 79 is ruled out. In present case, we are not concerned with section 43A of 8/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 9 901.itxa28.13.doc Indian Companies Act. So long as record indicated, share holding rt pattern and details which are set out at para 20 of Tribunal's order which was undisputed, then, Tribunal was justified in directing ou Assessing Officer to allow claim of brought forward losses. We do not see any substantial question of law arising for determination and C consideration in this Appeal. Once factual position and emerging from record is noticed, then, Assessee satisfies condition stipulated h and specified in section 2(18). first question, therefore, cannot be ig termed as substantial question of law. H 12] As far as second question is concerned, that is also arising out of same issue as noted above. We do not see how question Nos.2 and y ba 3 can be termed as substantial questions of law and once we have taken above view. om 13] In relation to question No.4 we find that reliance placed by Mr. Vyas on observations made by us in case of this very Assessee in Income B Tax Appeal No.1322 of 2012 is well placed. In para 7 of order passed in that Appeal identical argument was noticed. If there is explanation given by Assessee and which is in accordance with view taken and guidelines issued by Institute of Chartered 9/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 10 901.itxa28.13.doc Accountants of India (ICAI), then, Tribunal's conclusion can be held to rt be justified. ou 14] In present case, Assessee specifically argued that Profit and Loss Account and balance sheet of company has been prepared C and maintained in terms of section 211(3A) and section 211(3C) of Indian Companies Act, 1956. accounting standards which have been h issued by ICAI are applied and followed. depletion on producing ig properties has been calculated as per guidance Note on accounting of H oil and gas producing activities issued by ICAI. Mr. Suresh Kumar could not dispute that these accounting standards and guidelines were specifically relied upon before Commissioner (Appeals). reliance y ba thereon is to be found in para 10.1 of his order. However, he still proceeds to uphold order passed by Assessing Officer. While om correcting Commissioner on this count, Tribunal notes argument of both sides. From para 25 onwards, it refers to contention and particularly whether Assessee can claim depletion of producing B properties as depreciation . Tribunal refers to notes of computation. Mr. Suresh Kumar would only rely upon computation to support order of Assessing Officer. However, Assessee may have in note made particular statement but once section 115JB of 10/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 11 901.itxa28.13.doc Income Tax Act was noticed by Tribunal, then, it rightly referred to rt obligation of Assessee to tax book profit after taking credit of brought forward business loss or unabsorbed depreciation whichever is ou less as per books of account. Assessee had to prepare Profit and Loss Account for relevant previous year in accordance with Part II and C Part III of Schedule VI to Indian Companies Act, 1956. Since, Tribunal found that guidance can be taken from Notes of h accounting standards issued by ICAI on depreciation accounting and ig we have held that such course was permissible, then, Tribunal was H justified in referring to para 4 of this guidance Note and thereafter relying upon it. Once guidance Note indicates that depreciation also includes depletion of natural resources through process of extraction or y ba use, then, Tribunal was justified in eventually directing that Assessing Officer must recompute book profit under section 115JB om after allowing claim of depletion in producing properties as claimed by Assessee. We have referred to relevant provisions in Indian Companies Act, 1956. Section 211(3C) of that Act specifically refers to B standards of accounting and which have been laid down by ICAI. In these circumstances, view taken by Tribunal on this count cannot be termed as perverse. We do not see how substantial question of law would arise for our determination and consideration. In such 11/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: 12 901.itxa28.13.doc circumstances, question No.4 is also not substantial question of law. rt 15] As result of above discussion, Appeal fails and it is, ou accordingly, disposed of without any order as to costs. C (A. A. SAYED, J.) (S.C. DHARMADHIKARI, J.) h ig H wadhwa y ba om B 12/12 ::: Downloaded on - 14/08/2015 11:22:05 ::: The Commissioner of Income-tax-­2 v. M/s. Tata Petrodyne Ltd
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