Receipt which do not fall under definition of ‘income’ would not be includible in ‘book profit’ u/s 115JB: ITAT

Forbes Campbell Finance Limited Vs. DCIT

(Order pronounced on 24th May, 2022)

The assessee is a resident corporate assessee who is engaged in providing financial services and making investments. An assessment was framed for the year u/s 143(3). While computing Tax Payable u/s 115JB, Ld. AO increased Book-Profits by a sum of Rs. 1682.92 Lacs, being write-off of losses of investment in the subsidiary company which would be equivalent to provision for loss. Since tax payable u/s 115JB was higher than the tax payable under normal computation, the assessee was directed to pay tax as per the provisions of Sec.115JB.

On appeal before CIT(A), it was held that items falling outside the purview of the computation provisions of the Income-tax Act, cannot be included in the ‘book profit’ under Section 115JB of the Act as the notional loss arising out of the capital reduction of equity shares of wholly-owned subsidiary company being one of them. Hence, the appeal was dismissed.

Appeal before ITAT: Aggrieved, the assessee filed appeal before the tribunal, which relied on Bennett Coleman & Co. Ltd. V/s Addl. CIT held that a loss on reduction of equity capital could at best be a notional loss as the shareholders’ percentage of shareholding before and after the reduction of share capital remained the same. Relying on Shivalik Venture Private Ltd V/s DCIT (173 TTJ 238), it held that the profit arising on transfer of capital asset by assessee to its wholly-owned subsidiary company is liable to be excluded from the net profit. If an item of receipt which does not fall under definition of ‘income’ at all, the same would fall outside purview of computation provisions of Act and therefore, would not be includible in ‘book profit’ u/s 115JB. Applying the analogy, a reverse conclusion was be drawn that such notional losses were not to be deducted while computing Book-Profits u/s 115JB. Hence, the tribunal concurred with the findings of CIT(A) and dismissed the appeal.

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