[S.115JB Income Tax Act] Delhi HC Rejects Dept's Appeals Against Tata Power's Joint Venture With Delhi Govt For Supply Of Electricity

A division bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma thus dismissed the Department's appeals against Tata Power Delhi Distribution Limited, a joint venture of Tata Power with the Delhi government for purposes of power generation and distribution of electricity in two districts of Delhi.

Section 115JB prescribes MAT (Minimum Alternate Tax). Prior to amendment it stipulated that if a company's income tax liability, calculated under the normal provisions of the Act, is less than 10% of its book profit for a given financial year, then the book profit will be treated as the company's total income, and the company will be required to pay income tax at the rate of 10% on this deemed total income.

The Department had sought to make certain additions under Section 115JB, to the book profit declared by the joint venture for the period relevant to AY 2006-07 and AY 2007-08.

Tata Power Delhi claimed that the provision would apply only prospectively, i.e. with effect from 01.04.2013 and thus, notices for the above mentioned AYs are not sustainable.

At the outset, the High Court noted that prior to amendment, Section 115JB had an anomaly for the reason of which it could not be applied to electricity companies.

Pre-amendment, sub-section (2) of the provision prescribed that companies must prepare their profit and loss account in accordance with provisions of Parts II and III of Schedule VI of the Companies Act, 1956.

However, as per Section 211 of the Companies Act, 1956, the electricity companies (such as the assessee) are required to prepare their balance sheet as well as the profit and loss accounts as per the provisions of the special statutes governing such companies, and not as per Schedule VI of the Companies Act, 1956.

“In view of the aforesaid, it would prima facie appear that Section 115JB of the Act, as it stood during AY 2006-07, would become inapplicable to an electricity company,” Court observed.

Post-amendment, sub-section (2) of Section 115JB created two different classes of companies: (i) those companies which are required to prepare their accounts as per Schedule VI to the Companies Act, 1956; and (ii) companies, like electricity companies, which were allowed to prepare their accounts according to their respective regulatory Acts.

“Therefore, the amended Section 115JB of the Act takes into account the anomaly discussed in preceding paragraphs, insofar as the applicability of Section 115JB of the Act to electricity companies, etc. is concerned, and aims to resolve the same by including the electricity companies, etc. within its ambit by way of sub-section 2(b),” the High Court further noted.

It thus held that the provision applies to electricity companies only after the amendment and the impugned reassessment proceedings, for the AYs preceding the amendment, cannot be sustained.

Reliance was placed on a Memorandum issued by the Finance Department, clarifying that the amendments were prospective in nature and applicable from AY 2013-14 onwards.

The High Court also referred to Commissioner of Income-tax-LTU v. Union Bank of India (2019) where the Bombay High Court held that Section 115JB of the Act, prior to its amendment in 2012, cannot be made applicable to a banking company as the machinery provision provided in the sub-subsection (2) of Section 115JB of the Act was wholly unworkable and in-operable in the case of a banking company and, therefore, when the machinery provision fails, the charging section can have no applicability.

Accordingly, the Court dismissed the Department's appeal.

Appearance: Mr. Indruj Singh Rai, SSC, Mr. Sanjeev Menon, JSC, Mr. Rahul Singh, JSC & Mr. Anmol Jagga, Advocates for Appellant; Mr. Shashi M Kapila, Mr. Pravesh Sharma and Mr. Sushil Kumar, Advocates for Respondent

Case title: Pr. Commissioner Of Income Tax- 9 v. M/S Tata Power Delhi Distribution Ltd. (Formerly Known As M/S North Delhi Power Limited)

Citation: 2025 LiveLaw (Del) 52

Case no.: ITA 687/2019

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