Exempt Income Not To Be Considered For The Purpose Of Computation Of Book Profit U/s 115jb: Itat Mumbai

Facts of the case:

• The assessee had received a sales tax subsidy of Rs. 36,15,49,828/- from the Government of Karnataka for setting up a new industrial unit in the backward area of the state.
• The refund of sales tax subsidy was routed through the profit and loss account and hence, the same was considered as part of the book profits under section 115JB of the I.T. Act, 1961.
• Sales tax subsidy being capital receipt, the same is not taxable under the MAT provisions and accordingly, the issue was raised before the Tribunal.

Contentions

• Assessee: According to the Learned Authorized Representative for the assessee, a receipt that is held to be a capital in nature and not chargeable to tax under the normal provisions of the Act, the same cannot be taxed under section 115JB of the Act as well and hence outside the purview of Income Tax Act.
• Department: According to the Learned Department Representative, the book profit as referred u/s 115JB shall be computed irrespective of the fact that whether particular receipt is taxable under normal provisions of the income tax act or not, hence there is no question of deduction of sales tax subsidy, being capital receipt from book profit computed under section 115JB of the I.T. Act, 1961.

Conclusion:

According to ITAT, when a receipt is not in the character of income as defined under section 2(24) of the Income Tax Act, 1961 then it cannot form part of the book profit u/s 115JB of the Income Tax Act, 1961.

• Further the sales tax subsidy received by the assessee is a capital receipt and does not come within the definition of income under section 2(24) of the I.T. Act, 1961 and when a receipt is not a in the nature of income, it cannot form part of book profit u/s 115JB of the I.T. Act, 1961.
• Since, section 115JB is a deeming fiction, any item which do not suffice the requirement of clause specified therein, the adjustments could not be made to the book profits respectively.

Source: [2019] 112 taxmann.com 55 (Mumbai – Trib.) ITAT MUMBAI BENCH ‘E’ Assistant Commissioner of Income-tax v. JSW Steel Ltd.