J.B. Koshy, J. Petitioners are questioning the constitutional validity of section 115J of the Income Tax Act.
The above section was introduced by the Finance Act, 1987 (Act 11 of 1987). It was introduced as a special provision relating to certain companies for taxation of companies whose total income is computed less than 30 per cent of their book profits. According to the petitioners, the above provision seeks to tax hypothetical income not accrued by the assessee and the same is vitiated and is liable to be struck down as it violates article 19 of the Constitution. It is contended that the section by a legal fiction deems an assessee's income as 30 per cent of its book profits even in cases where on computation under the Income Tax Act the income is found to be below 30 per cent of the book profits. Similar provision is not applicable to partnerships and is violative of article 14 of the Constitution of India. It is argued that concept of income as contemplated under entry 82 of list I of the 7th Schedule to the Constitution of India permitting levy of taxes on income contemplates real income and not hypothetical income and, therefore, levy of income-tax under section 143(1A) is illegal and liable to be struck down. Consequently, it is submitted that, levy of additional tax under section 143(1A) is also illegal and no interest can be charged under section 234B on the above.
2. The, object of insertion of section 115J of the Income Tax Act, 1961, was to ensure levy of minimum tax on what are known as "prosperous zero-tax companies". Under the scheme of the section, where the total income of companies as computed under the provisions of the Income Tax Act, in respect of the previous year relevant to the assessment year is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J(1). Sub-section (2) provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section (1) of section 115J. The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J. An assessee is enabled to claim carry forward and set off losses, unabsorbed allowance in view of the specific provisions of the Income Tax Act enabling an assessee to claim. But because of this provision a company will have to pay tax at least 30 per cent of its book profit. Therefore, what is taxed is not fictional or hypothetical income. Under law though it is permissible to bring to tax hypothetical income, what is really done under section 115J is not exactly bringing to tax hypothetical income. What is really done is to limit or restrict or curtail deduction carry forward and set off of losses, unabsorbed depreciation, unabsorbed allowance, etc. etc. Ordinarily these deductions are permissible in view of the provisions introduced in the statute by Parliament and the Parliament is equally competent to take away or restrict or limit such allowances for a definite purpose.
2. The, object of insertion of section 115J of the Income Tax Act, 1961, was to ensure levy of minimum tax on what are known as "prosperous zero-tax companies". Under the scheme of the section, where the total income of companies as computed under the provisions of the Income Tax Act, in respect of the previous year relevant to the assessment year is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J(1). Sub-section (2) provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section (1) of section 115J. The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J. An assessee is enabled to claim carry forward and set off losses, unabsorbed allowance in view of the specific provisions of the Income Tax Act enabling an assessee to claim. But because of this provision a company will have to pay tax at least 30 per cent of its book profit. Therefore, what is taxed is not fictional or hypothetical income. Under law though it is permissible to bring to tax hypothetical income, what is really done under section 115J is not exactly bringing to tax hypothetical income. What is really done is to limit or restrict or curtail deduction carry forward and set off of losses, unabsorbed depreciation, unabsorbed allowance, etc. etc. Ordinarily these deductions are permissible in view of the provisions introduced in the statute by Parliament and the Parliament is equally competent to take away or restrict or limit such allowances for a definite purpose.
3. Various concessions and allowances are given as per various provisions enabling the companies to arrange their tax affairs in such a way as to become "zero-tax" companies and legislature by this section restricted or curtailed or limited such concessions to the extent as provided in section 115J so that they can pay some tax. This is not unreasonable so as to make it violative of article 14 or 19 of the Constitution of India. What is done by legislature is to limit the allowances and nothing else.
3. Various concessions and allowances are given as per various provisions enabling the companies to arrange their tax affairs in such a way as to become "zero-tax" companies and legislature by this section restricted or curtailed or limited such concessions to the extent as provided in section 115J so that they can pay some tax. This is not unreasonable so as to make it violative of article 14 or 19 of the Constitution of India. What is done by legislature is to limit the allowances and nothing else.
4. We see no ground to hold that section 115J is illegal or unconstitutional. In this connection we refer to the decision of the Delhi High Court in National Thermal Power Corporation Ltd. v. Union of India & Ors. (1991) 192 ITR 187 (Del) and the decision of the Andhra Pradesh High Court in Suryalatha Spinning Mills Ltd- v. Union of India (1997) 223 ITR 713 (AP).
4. We see no ground to hold that section 115J is illegal or unconstitutional. In this connection we refer to the decision of the Delhi High Court in National Thermal Power Corporation Ltd. v. Union of India & Ors. (1991) 192 ITR 187 (Del) and the decision of the Andhra Pradesh High Court in Suryalatha Spinning Mills Ltd- v. Union of India (1997) 223 ITR 713 (AP).
5. With regard to levy of additional tax and interest is concerned, in view of the decision of this court in Kerala State Coir Corporation Ltd. v. Union of India (1994) 210 ITR 121 (Ker), liability to pay interest is also automatic. The contentions of the assessee cannot be accepted as admittedly tax payable was not paid in time. We see no ground to hold that additional tax or interest charged is illegal.
5. With regard to levy of additional tax and interest is concerned, in view of the decision of this court in Kerala State Coir Corporation Ltd. v. Union of India (1994) 210 ITR 121 (Ker), liability to pay interest is also automatic. The contentions of the assessee cannot be accepted as admittedly tax payable was not paid in time. We see no ground to hold that additional tax or interest charged is illegal.
In the above circumstances, the original petition is dismissed.