INDO RAMA SYNTHETICS (I) LTD. versus C.L.T., NEW DELHI

Citation: [2011] 1 S.C.R. 853 · Decided: 05-01-2011 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Dismissed

Judgment (excerpt)

[2011] 1 S.C.R. 853 
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INDO RAMA SYNTHETICS (I) LTD. 
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v. 
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C.l.T., NEW DELHI 
(Civil Appeal No.33 of 2011) 
JANUARY 5, 2011 
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[S.H. KAPADIA, CJI., K.S. PANICKER 
RADHAKRISHNAN AND SWATANTER KUMAR, JJ.) 
Income Tax Act, 1961 - s.115JB(2)- Explanation, Clause c 
(i) read with proviso - Appel/ant-assessee had revalued its 
fixed assets as on 31st March, 2000 (relevant to assessment 
year 2000-01) - Resultant surplus stood added to the cost of 
the assets - Revaluation reserve of equivalent amount was 
created on the liability side - During assessment year 2001-
02, Rs.26, 11, 74,0001-, being the differential depreciation, 
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transferred out of revaluation reserve and credited to P & L 
Account which the A.O. disallowed and consequently said 
sum of Rs. 26, 11, 7 4, 0001- stood added back to the net profits 
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Challenge to, by assessee -
Held: Clause (i) of the 
explanation to s. 115JB(2) mandates reduction from the net 
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profits the amount(s) withdrawn from the reserves earlier 
created, provided such amount(s) is credited to P & L Account 
- Adjustment made in the P & L Account was primarily in the 
nature of contra adjustment in the P & L Account and not a 
case of effective credit in the P & L Account (as contemplated 
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in clause (i) of Explanation) - Assessee credited amount to 
the extent of the additional depreciation from the revaluation 
reserve only to present a more healthy balance sheet to its 
shareholders enabling the assessee possibly to pay out a 
good dividend - The proviso to clause (i) of the Explanation 
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to s. 115JB(2) comes in the way of the claim for reduction 
made by the assessee under clause (i) to the Explanation -
As the am_ount of revaluation reserves had not gone to 
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854 
SUPREME COURT REPORTS 
[2011) 1 S.C.R. 
A 
increase the book profits at the time it was created, the benefit 
of reduction cannot be allowed. 
MAT provisions - Object of- Held: Is to bring out the real 
profit of the companies - The thrust is to find out the real 
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working results of the company. 
The appellant-assessee is a widely held quoted 
limited company engaged in the business of manufacture 
of yarn and polyester. The assessee had revalued its 
fixed assets as on 31st March; 2000 and the resultant 
C surplus of Rs.288,58, 19,000/- stood added to the cost of 
the assets on the asset side of the balance sheet and to 
equalize both sides thereof the revaluation reserve of an 
equivalent amount was created on the liability side of the 
balance sheet. The figure of profit remained untouched 
D during the assessment year 2000-01 so far as the 
re,valuation of assets to the tune of Rs.288,58, 19,000/- was 
cqncerned. During the assessment year 2001-02, an 
amount of Rs.26, 11,74,000/-, being the differential 
de;preciation, was transferred out of the said revaluation 
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reserve of Rs.288,58,19,000/- and credited to the P & L 
Account which the AO disallowed and consequently the 
said sum of Rs. 26,11,74,000/- stood added back to the 
net profits. The A.O., while computing the book profit 
under Section 115JB of the Act, did not allow reduction 
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of the afore-stated amount of Rs.26, 11, 7 4,000/- on the 
ground that the revaluation reserve stood created in the 
assessment year 2000-01 and· had not been added back 
while computing the book profit in that year in terms of 
the proviso to clause (i) of explanation to Section 11 SJB. 
G This order was upheld by the C.l.T. (A) and by the ITAT 
and by the High Court. Hence ttie present appeal. 
Dismissing the appeal, the Court 
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HELD:1. Book profit is not defined in the Income Tax 
H Act, 1961. It is Income computed under the company law. 
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INDO RAMA SYNTHETICS (I) LTD. v. C.l.T. NEW 
855 
DELHI 
By virtue of the MAT provisions, in the case of a 
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\ company whose total income as computed under the 
normal provisions of the Act is less than 30% of the book 
profit, the total income chargeable to tax will be 30% of 
the book profit as computed. For the purposes of Section 
115J, book profit will be the net profit as shown in the P 
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& L Account prepared in accordance with the provisions 
of Schedule VI to Companies Act, 1956 after certain 
adjustments. The net profit will be increased by income 
1tax paid or payable, amount carried to any reserve, 
provision made for liabilities etc. provided the amount(s) c 
is debited to the P & L Account. The amount so arrived 
at is to be reduced by item (i) to item (vii) in

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