LexMALAYALA MANORAMA CO. LTD. versus COMMISSIONER OF INCOME TAX, TRIVANDRUM
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[2008] 6 S.C.R 211 MALAYALA MANORAMA CO. LTD. v. COMMISSIONER OF INCOME TAX, TRIVANDRUM (Civil Appeal Nos. 5420-5423 of 2002) APRIL 10, 2008 [ASHOK BHAN AND DALVEER BHANDARI, JJ.] Income Tax Act, 1961 - s.115J: A B Assessment Years 1988-89 and 1989-90 - Company consistently charging depreciation in its books of account at C rates prescribed in the Income-tax Rules - Whether in respect of such a company, the Income Tax Officer has jurisdiction under s.115J of the Income Tax Act to rework net profits by substituting the rates prescribed in Schedule XIV of the Companies Act, 1956 - Held: The Assessing Officer does not D have jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to s. 115J - Companies Act, 1956 - Schedule XIV The question which arose for consideration in the E present appeals is whether in respect of a company consistently charging depreciation in its books of account at the rates prescribed in the Income-Tax Rules, the Income Tax Officer has jurisdiction under section 115J of the Income Tax Act, 1961 to rework net profits by substituting the rates prescribed in Schedule XIV of the F ,; > Companies Act, 1956. Allowing the appeals, the Court HELD:1.1.The whole purpose of section 11 SJ of the Income Tax Act, 1961 was to tax a company which had no G taxable income, but showed a book profit. [Para 7] [219-F] 1.2. The controversy involved in this case is no longer res integra. A three Judge Bench of this Court in 211 H 212 SUPREME COURT REPORTS [2008) 6 S.C.R. A Apollo Tyres's case has clearly interpreted section 115J of the 1961 Act. There is no scope for any further discussion. In the Apollo Tyres's case, this Court examined the object of introducing section 115J in the 1961 Act. The Court held ·that the purpose of introducing this section was that the B Income Tax Authorities were unable to bring certain companies within the net of income tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net C that section 115J was introduced in the 1961 Act with a deeming provision which makes the company liable to pay tax on at least 30% of its book profits as shown in its own account. For the said purpose, section 11 SJ makes the income reflected in the companies' books of accounts 0 as the deemed income for the purpose of assessing the tax. While so looking into the accounts of the company, an Assessing Officer under the Income Tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided E by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy F that the accounts of the company are maintained in accordance with the requirements of the Companies Act. lnspite of all these procedures contemplated under the provisions of the Companies Act, the Court observed that it is difficult to accept the argument of the Revenue that it G is still open to the Assessing Officer to rescrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. The Court categorically held that the Assessing Officer while computing the income under H Section 115-J has only the power of examining whether MALAYALA MANORAMA CO. LTD. v. COMMNR. OF 213 INCOME TAX, TRIVANDRUM the books of account are certified by the authorities under A the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the B Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J. [Paras 13, 28] [229-A, B; 222-B, F, G; 223-A-G] Apollo Tyres Ltd. etc. v. Commissioner of Income Tax, C Kochi etc.(2002) 9 sec 1- relied on. Commissioner of Income Tax v. Sona Woolen
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