Aruppukottai Sri Jayavilas Ltd. vs The Commissioner of Income Tax, Madurai

R. Sudhakar, J—Aggrieved by the order of the Income Tax Appellate Tribunal, Chennai Bench ''D'' dated 19.01.2007 passed in ITA No. 1738 (Mad.) 2003, this Tax Case (Appeal) is filed by the assessee.

On 23.04.2007, while admitting the tax case appeal, this Court framed the following question of law for consideration :

" Whether on the facts and in the circumstances of the case, the Income - tax Appellate Tribunal was right in holding that in arriving at the Book Profits for the purpose of Section 115JA of the Income Tax Act, 1961, the Assessing Officer was right in adding a sum of Rs. 4,71,41,600/- which was directly credited to the ''Capital Reserve'' Account on account of revaluation of 4000 Equity Shares in Shri Ramalinga Mills Ltd. by transfer to its subsidiary company without consideration as per the directions in the Arbitration Award and confirmed by Court Decree ? "

The Tribunal in this case, relied upon the decision rendered in the case of Kumudam Printers Pvt. Ltd. in ITA No. 1748/Mds/1998 dated 14.07.2004, and came to the conclusion that,

" 7........... The important thing to be noted is that while calculating the total income under the Income-tax Act, the assessee is required to take into account income by way of capital gains under Sec. 45 of the Income-tax Act. In the circumstances, while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under Sec. 115J. Even under Clause 3 (ii) (b) of Part II of Schedule VI to the Companies Act, 1956, profits or losses in respect of transactions or transactions of an exceptional or non-recurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits. This view was fortified by this Tribunal vide order dated 14.7.2004 in the case of Kumudam Printers Pvt. Ltd., in ITA No. 1748/Mds/1998. In the case relied on by the learned Counsel for the Assessee in the case of Sutlej Cotton Mills Ltd., (supra), the Tribunal has categorically held that any revaluation of fixed asset or investment does not indicate accrual of any profit because profit or loss will arise only on sale or disposal and not on revaluation of such unrealized profit and revaluation cannot be brought to tax. We are in complete agreement with this decision. In the present case, there is no question of revaluation. The Assessee has not revalued the investments. On the other hand, it has transferred Unquoted Equity Shares. Therefore, the ratio of this decision relied on by the Assessee is against the Assessee. Accordingly, we reverse his order on this issue and restore that of the Assessing Officer. "

The assessee has distinguished the decision of Kumudam Printer''s case which finds place in paragraph 4 of the order of the Tribunal.

At the time of final hearing, it is brought to our notice that the Tribunal''s order passed in the case of Kumudam Printers came to be challenged before this Court in T.C. (A) No: 826 of 2004 and by an order dated 22.03.2011, this Court had set aside the order passed by the Tribunal and remanded the matter back to the Tribunal. The said order reads as follows :

" 7. A reading of the order of the Tribunal shows that all that the Tribunal considered in its order was only as regards the computation of book profits. Referring to the Bombay High Court decision reported in The Commissioner of Income Tax, Mumbai City-II Vs. M/s. Veekaylal Investment Co. P. Ltd., (2001) 166 CTR 96 : (2001) 249 ITR 597 : (2001) 3 MhLj 461 : (2001) 116 TAXMAN 104 , the Tribunal held that the capital gains on the sale of capital asset was liable to be included for the purpose of computing book profits and thereby allowed the Revenue''s appeal. When the assessee had raised a specific ground on the validity of reopening of the assessment on the ground of limitation and jurisdiction under Section 147 before reversing the order of the Commissioner of Income Tax (Appeals) and succeeded therein, the Tribunal should have considered the issue on limitation and jurisdiction under Section 147 before reversing the order of the Commissioner of Income Tax (Appeals). Since the issue on jurisdiction and limitation touch on the very reopening of the assessment, we feel, the proper course herein would be to set aside the order of the Tribunal, remand the matter back to the Tribunal with a direction to consider the issue of limitation and the jurisdiction under Section 147 to reopen the assessment. "

Since the basis on which the order under appeal viz. Kumudam Printer''s case, itself has been set aside both on limitation as well as on merits, we deem it fit that the Tribunal, in the instant case also, has to go into the merits of the assessee''s claim de hors the decision in Kumudam Printer''s case and both the Department and the assessee will be entitled to put forward their rival contentions on merits and the Tribunal will have to decide the issue de hors the decision rendered in Kumudam Printer''s case decided by the Tribunal.

In the result, this Tax case appeal stands disposed of by making a open remand of the matter to the Tribunal. There shall be no orders as to the costs.