I-T - Income being a share in AOP or BOIs is to be excluded while computing book profit u/s 115JB: ITAT
By TIOL News Service
JAIPUR, SEPT 28, 2018: THE ISSUE IS - Whether income being share in the association of persons or body of individuals shall be excluded while computing the book profit u/s 115JB of the Act and amendment in Section 115JB of the Act vide Finance Act, 2015 have retrospective effect. YES IS THE VERDICT.
Facts of the case
The assessee company had filed return for relevant AY. During assessment, the AO noted that the assessee deducted a sum of Rs. 37,60,20,402/- as share of profit from OMIL & JSC (JV) from the profits of the assessee as per Schedule VI of the I.T. Act. The AO was of the view that the share in the profit of joint venture was not deductible as per the provisions of Section 115JB of the Act. The AO noted that as per explanation to Section 115JB, only income which was exempt as per the provisions of Section 10 of the Act and credited to the P&L account, would be reduced while computing the book profit.The AO made an addition of this amount of Rs. 19.19 crores. On appeal, CIT(A) deleted the addition made by the AO.
Tribunal held that,
++ the provisions of Section 86 of the Act contemplates that no income tax shall be payable by the assessee in respect of his share in the income of association of persons or body of individuals and such share in the association or body is computed in the manner provided u/s 67A of the Act. Though, the share of profit in the association of persons or body of individuals as envisaged U/s 86 as well as Section 67A of the Act is not liable to income tax, however, the same shall be included in the total income of the assessee for the purpose of determining the average marginal rate of tax in terms of Section 66 of the Act. The second proviso to Section 86 set out the exception in the case where no income tax is chargeable on the total income of the association of persons or body of individuals then the share of a member shall be chargeable to tax as part of his total income and the benefit of Section 86 shall not be available to the member of association or body;
++ co-joint reading of Section 66, 67A and 86 of the Act reveals that the Income tax shall be payable by the assessee in respect of his share in the income of association of persons or body or individuals computed in the manner provided in Section 67A subject to the condition that the total income of such association or body or person is not exempt from income tax. However, such share of member shall be included while computing the total income for the purpose of average marginal tax. The share of a partner in the total income of the firm is exempt as per provisions of Section 10(2A) of the Act and consequently is excluded from the total income of the partner and therefore, the share shall be excluded while computing the book profit U/s 115JB of the Act as envisaged in clause (ii) of explanation (1) to the said Section. So far as second proviso to Section 86 of the Act is concerned, it refers to the association of persons or body of individuals whose total income is exempt from income tax and therefore, the reference in second proviso to Section 86 is made to the association of persons or body of individuals whose total income is exempt U/s 10 of the Act and not otherwise. Once the share in the joint venture which is treated as share in the association of persons is not hit by the second proviso to Section 86 then the same is akin the share from the partnership firm. Thus to bring it to the parity of share in partnership firm, the amendment in Section 115JB of the Act vide Finance Act, 2015 was brought by inserting clause (iic) w.e.f. 1/4/2016. Therefore, the purpose and intention to bring the amendment is to remove the mischief or hardship of the assessee on MAT in respect of the income being share in the association of persons or body of individuals which is otherwise not subject to income tax in accordance with the provisions of Section 86 of the Act;
++ thus, it was held that the amendment was brought to remove the hardship and bring the parity of the income being share in the association of persons or body of individuals, which is otherwise not liable to tax as per the provisions of Section 86 of the Act, the same shall have retrospective application. In absence of any contrary precedent brought to notice and to maintain the rule of consistency, it was decided to follow the decision of Mumbai Benches of the Tribunal in the case of M/s Goldgerg Finance Pvt. Ltd. Vs ACIT. In the result, appeal of the revenue is dismissed.
(See 2018-TIOL-1656-ITAT-JAIPUR)
