CORPORATE TAX PLANNING AND MANAGEMENT READING

MATERIAL

Module 1 : BASIC CONCEPTS OF CORPORATE TAXATION (CO1: L1)

Topics​
1.1. Tax Planning and Corporate Planning
Corporate Taxation in India: Aims and Objectives
​
• Generates revenue for government financing of essential public services.​
• Promotes economic development through investment, innovation, and
entrepreneurship.​
• Stimulates specific sectors or activities, driving overall economic development.​
• Aims for income redistribution by taxing profits earned by corporations and
redistributing wealth to other sectors.​
• Promotes corporate social responsibility through environmental protection and
community development.​
• Enhances tax compliance by imposing penalties for non-compliance.​
• Supports small and medium-sized enterprises, fostering growth and competitiveness.​
• Manages inflation and maintains price stability.

Corporate Taxation Challenges in India

• Compliance Burden: India's complex tax regulations and processes create a
significant burden for companies, leading to high regulatory overheads and potential
deterrents.
• Tax Evasion and Avoidance: Corporations often engage in practices to reduce their
tax liability, such as underreporting income, overstating expenses, or using transfer
pricing to shift profits to low-tax jurisdictions.
• Impact on Small and Medium Enterprises (SMEs): The high corporate tax rate in
India (currently 30%) disproportionately affects SMEs, making it difficult for them to
compete with larger corporations and discouraging growth opportunities.
• Regulatory Complexity: The tax structure in India is complex, with multiple tax
rates, complex notifications, and a system of exemptions and concessions that can be
difficult to navigate.
• Retrospective Taxation: The implementation of retrospective tax amendments has
eroded investor confidence and discouraged long-term investments, creating
uncertainty and potential international penalties for India.
• Loss Carry-Forward Restrictions: Recent changes in the 2025 budget have restricted
the carry-forward of business losses in corporate restructuring, potentially making
mergers and acquisitions less attractive.
• Global Minimum Corporate Tax: The implementation of a global minimum
corporate tax presents challenges for India in aligning its tax laws with international
standards while protecting its own interests and tax authority.
• Transfer Pricing Issues: Transfer pricing remains a source of extensive litigation,
although recent measures aim to introduce multi-year arm's length pricing
mechanisms to reduce compliance efforts.

TAX Planning
Tax planning is a financial strategy that optimizes financial affairs to minimize tax
liability by using deductions, exemptions, allowances, and rebates. It involves full
compliance with tax laws, meeting all legal obligations and transactions, avoiding
colorable devices that may violate the statute, and avoiding deception to maintain the
legal spirit behind tax laws. Such a planning is essential for the proper functioning of
the corporate as the number of compliance's a corporate entity goes through is quite
wider as compared to an individual.
Key tax planning provisions for corporates in India

Section 37 This section allows businesses to deduct expenses incurred

wholly and exclusively for business purposes. Examples include
salaries, legal fees, insurance premiums, and other operational
costs. However, personal expenses, capital expenditures, illegal
payments, and corporate social responsibility (CSR) expenses
are not deductible.
Chapter VIA This chapter provides deductions for specific investments and
expenses to reduce taxable income. Common deductions
include:

1. Investments in provident funds, insurance policies (Section

80C)
2.Health insurance premiums (Section 80D)
3.Interest on education loans (Section 80E)
4.Donations to charities (Section 80G)
Section 115 BA This section offers a concessional tax rate of 25% for domestic
manufacturing companies. To qualify, the company must not use
old machinery and must satisfy specific conditions outlined in
the Act.
Section 115 BAA Income tax rate for domestic companies for the assessment year
starting from April 1, 2020, can be computed at a rate of
twenty-two percent under certain conditions, excluding sections
115BA and 115BAB.

Conditions for computation

1. Income should be calculated without any deductions specified
under various sections such as 10AA, 32, 32AD, 33AB, 33ABA,
35, 35AD, 35CCC, 35CCD, or under Chapter VI-A except for
80JJAA or 80M.
2. Loss carried forward or depreciation from previous
assessment years should not be set off if they are related to the
deductions mentioned in point 1.
3. Loss or allowance for unabsorbed depreciation deemed under
section 72A should not be set off if they are linked to the
deductions mentioned in point 1.
4. Depreciation can be claimed under section 32, excluding
clause (iia), in the manner prescribed.
 Provisos
1. Option Exercising Criteria:
• The section applies only if the option is exercised correctly
and before the due date for furnishing income returns for a
specific assessment year starting from April 1, 2020.
2. Validity of Option:
• If a person's option under section 115BAB is invalidated due
to certain violations, they can opt for an option under this
section.
3. Irreversibility of Option:
• Once an option is exercised for a previous year, it cannot be
withdrawn for that year or any other year.

Section 115 BAB Income tax rate for domestic companies for the assessment year
beginning on or after April 1, 2020, can be computed at a rate of
fifteen percent, provided certain conditions in sub-section (2)
are met.

Conditions under sub section 2 ​

1. Conditions for Eligibility:
• The company must be set up and start manufacturing before
March 31, 2024.
• The business should not be a result of splitting up an existing
business.
• The company should not use any machinery previously used
for any purpose.
• It should not use a building previously used as a hotel or
convention center with claimed deductions.
 2. Business Restrictions:
• The company cannot engage in any business other than
manufacturing, research, or distribution related to its products.
• Certain businesses like software development, mining, or
printing are excluded from the definition of manufacturing.
3. Income Computation:
• The total income of the company should be calculated
without certain specified deductions.
• Losses or unabsorbed depreciation cannot be set off against
the income in certain cases.
4. Depreciation and Business Scope:
• The company must claim depreciation as per prescribed rules
under section 32.
• The scope of “manufacture or production of any article”
includes electricity generation.
Provisos
• Income not related to manufacturing or production will be
taxed at 22%.
• Deemed income under certain conditions will be taxed at
30%.
• Short term capital gains from assets without depreciation
will be taxed at 22%.

Depreciation Section 32 of the Income Tax Act, 1961

Transfer Pricing These provisions regulate transactions between related entities to
Provisions ensure they are conducted at arm’s length prices. They apply to
cross-border transactions within multinational groups.
Companies must maintain detailed documentation, submit audit
reports, and comply with reporting requirements to avoid
penalties for non-compliance.
 1.2. Different types of Company​
​

Different types of Company

Company [S 2 (47)] Different entities can be considered as a company under
the Indian tax laws:
• Indian companies
• Body corporates from foreign countries
• Institutions, associations, or bodies assessed as
companies before April 1, 1970
• Institutions, associations, or bodies declared as
companies by the Central Board of Direct
Taxes.
Indian Company[S 2(26)] An Indian company is defined as a company established
under the Companies Act, 1956, or under other specific
laws related to companies in different parts of India,
excluding Jammu and Kashmir and certain Union
territories. It also includes corporations established by
Central, State, or Provincial Acts, as well as institutions
or bodies recognized as companies by the Board under
section 2(17).
Criteria for Classification as an Indian Company:
To be considered an Indian company, the entity
must have its registered office located in India,
whether it is a company, corporation,
institution, association, or body formed and
registered under various laws across different
regions in India.
Inclusions in the Definition of Indian Company:
The definition of an Indian company extends to
entities formed and registered under specific
laws in Jammu and Kashmir, as well as in
Union territories like Dadra and Nagar Haveli,
 Goa, Daman and Diu, and Pondicherry,
provided their registered office is situated in
India.

Domestic Company • A domestic company in India is defined as either an

Indian company or any other company that has arranged
to declare and pay dividends within India in compliance
with section 194 of the Income-tax Act.
• An Indian company is automatically considered a
domestic company.
• For other companies to be classified as domestic, they
must arrange for the declaration and payment of
dividends within India from their taxable income.
• The definition of a domestic company may also be
applicable to foreign companies if they meet the
prescribed criteria for dividend declaration and payment
within India.

Company Requirements for Declaration and Payment of

Dividends in India

Share register must be maintained in India from April 1

of the assessment year.
General meetings for declaring dividends must be held
within India.
Dividends must be paid within India to all shareholders.

Foreign Company Foreign company means a company which is not a

domestic company
Company in which the 1. Companies Considered as Publicly Interested:
public are substantially • Companies owned by the Government, Reserve Bank,
interested in [section or with at least 40% shares held by them.
2(18)] • Section 25 companies dedicated to promoting various
sectors and prohibiting dividends.
• Companies without share capital declared as publicly
interested by the Central Board of Direct Taxes.
• Nidhi or Mutual Benefit Societies accepting deposits
prominently.
• Companies majority owned by cooperative societies
and listed on recognized stock exchanges.
• Public limited companies with shares held by the
Government, statutory corporations, or publicly
interested companies.
2. Criteria for Publicly Interested Companies:
• Companies listed on recognized stock exchanges with
public ownership.
• Companies where at least 50% of shares are owned by
cooperative societies without conditions.
• Onus on companies mainly owned by family members
to prove substantial public interest.
Widely held Company A company in which the public is substantially
interested.
Closely held company A company in which the public is not substantially
interested.
Investment Company Investment company means a company whose gross total
income consists mainly of income which is chargeable
under the heads “Income from house property”, “Capital
gains” and “Income from other sources”
1.3. Residential status & Incidence of Tax for Corporate Assessee

Section 6(3) A company is considered a resident in India for tax

Residential Status of a purposes if it is either an Indian company or if its main
Company decision-making center is located in India. This
decision-making center is called the “place of effective
management,” and it is where important decisions about the
company’s operations and business strategy are made. This
definition helps determine which companies are subject to
Indian tax laws based on where they are managed and
controlled.
Place of Effective The concept of “Place of Effective Management” (POEM)
Management is crucial for determining the residence of a company
incorporated in a foreign jurisdiction. The POEM relies on
the substance over form and can vary based on individual
cases. A company can have multiple places of management
but only one place of effective management at a time. The
determination of POEM is essential annually, and it hinges
on whether the company actively conducts business outside
India.

In the case of a company actively engaged in business

outside India, the majority of board meetings held outside
India would indicate the place of effective management to
be outside India. To be considered as operating in “active
business outside India,” certain conditions must be met,
such as passive income being less than 50% of total
income, less than 50% of assets located in India, less than
50% of employees based in India or are residents, and
payroll expenses on such employees being less than 50% of
total payroll expenditure.
 Passive income of a company is the total income from
transactions with associated enterprises and income from
sources like royalty, dividend, capital gains, interest, or
rental income. Income by way of interest is not considered
passive income for banking companies or public financial
institutions regulated under the Indian Laws.

Guiding Principles to Determine the Place of Effective

Management
• The location where a company’s board actively governs
and makes key decisions is crucial.
• If the board delegates decision-making authority to
others without substantial involvement, the place of
effective management shifts to where these decisions are
made.
• Delegation to committees like an executive committee
can influence the company's effective management location.
• The company's head office location plays a significant
role in determining the place of effective management.
• Technological advancements have reduced the
importance of physical presence in decision-making.
• Shareholder decisions reserved by laws do not affect the
company’s place of effective management. Decisions like
selling assets, dissolution, or modification of rights mainly
impact the company’s existence and are not considered for
• Day-to-day operational decisions made by junior and
middle management do not play a role in determining the
Place of Effective Management.​

​
​
1.4. Taxation of Company-Computation of tax liability-Minimum Alternate Tax​

Taxation of Companies

Health &
MAT
Tax Regime Tax Rate Surcharge* Education
Applicability
Cess
4% of (Tax
- 7% (Income > Yes (15%
Standard Rate 30% +
₹1Cr ≤ ₹10Cr) book profit)
Surcharge)
- 12% (Income
> ₹10Cr)
4% of (Tax
- 7% (Income >
Section 115BA 25% + No
₹1Cr ≤ ₹10Cr)
Surcharge)
(Manufacturing - 12% (Income
companies) > ₹10Cr)
4% of (Tax
Section 115BAA 22% Flat 10% + No
Surcharge)
(Domestic
companies opting
out of exemptions)
4% of (Tax
Section 115BAB 15% Flat 10% + No
Surcharge)

Minimum Alternative Tax

INTRODUCTION -The main aim behind MAT is to prevent tax avoidance
by companies reducing or eliminating their tax liabilities
through deductions, incentives, and accounting practices.​
-Introduced in 1987, reintroduced in 1996, and initially
Implemented for 1988-89.​
 -Calculated as a percentage of the company's book profit,
subject to adjustments as prescribed by the Income Tax
Act.​
-The rate of Minimum Alternative Tax is specified in the
Income Tax Act and is periodically revised based on
prevailing economic conditions and government policies.
-It is applicable to Domestic Company,Foreign
Company,Private Limited and Public Company
-Not applicable to Life Insurance Company, Developer
of a SEZ, Unit in a Sez,Certain foreign Company(DTAA
exists,presumptive income u/s 44B,44BB or 44 BBA)
and companies opting for section 115 BAA and Section
115 BAB

Rate Higher of Actual Tax Liability or15% of book profit plus

Surcharge and cess @ 4%

Surcharge is Applicable based on the total income of the

company. For instance, if the total income exceeds ₹1
crore but does not exceed ₹10 crores, a surcharge of 7%
is applicable for companies with a turnover up to ₹400
crores, and 12% for others

Book profit=Net Profit+Positive Adjustments-Negative

Adjustments​
Computation of Book Positive Adjustments and Negative Adjustments
Profit made to Net Profit/Unadjusted Book Profits​
​
Positive Adjustments:​
• Income-tax paid or payable and provisions under the
Income-tax Act, 1961.​
• Amounts carried to reserves.​
• Amounts set aside for provisions made for meeting
liabilities.​
• Amount by way of provision for losses of subsidiary
companies.​
• Amount or amounts of dividends paid or proposed.​
• Amount of expenditure relatable to certain incomes.​
• Amount of Depreciation debited to Profit & Loss A/C.​
• Amount of deferred tax and provisions therefor.​
• Amount standing in revaluation reserve relating to
revalued asset on the retirement or disposal of such asset.
​
Negative Adjustments:​
• Amount withdrawn from reserves or provisions if any
such amount is credited to the profit and loss account.​
• Income exempt from tax: long-term capital gain,
income exempt under other clauses of Section 10,
income exempt under Sections 11 and 12, share of profit
from an AOP on which no income-tax is payable in
accordance with Section 86.​
• Depreciation debited to profit and loss account.​
• Amount withdrawn from revaluation reserve credited to
profit and loss account to the extent it does not exceed
the amount of depreciation on account of revaluation of
assets.​
• Aggregate amount of unabsorbed depreciation and loss
brought forward in case of a company against whom an
 application for corporate insolvency resolution process
has been admitted by the Adjudicating Authority.
​

AO power to alter Net Non-Compliance with the Companies Act: If the

Profit statement of profit and loss does not comply with the
Companies Act, the Assessing Officer can recalculate
the net profit. However, if there is no fraud or
misrepresentation involved, but merely a difference in
opinion regarding how certain amounts should be
recorded, the Assessing Officer cannot alter the profit
as reported by the assessee.

2. Accounting Policies and Standards are different:

When computing book profit under section 115JB, the
accounting policies, accounting standards, depreciation
methods, and rates used in preparing the statement of
profit and loss for the annual general meeting must be
followed. This ensures consistency in financial
reporting for both corporate and tax purposes.
MAT Credit (Section 115 When a company pays tax under MAT for any AY, the
JAA) amount which is payable in excess of actual tax liability
shall be eligible for the assessee to be carry forwarded
and set off in the subsequent 15 AYs

MAT Credit=Tax Paid u/s 115 JB- Tax payable under

other provisions

Scenarios in which MAT credit is not available​

a. Conversion of private limited company or unlisted
public company into LLP
 b. In case if a company opts for Section 115 baa his
unutilised MAT lapses

Alternative Minimum Tax

Meaning Alternative Minimum Tax (AMT) is a provision under
the Income Tax Act designed to ensure that taxpayers
pay a minimum amount of tax, even if they claim
significant deductions that reduce their regular tax
liability. It applies primarily to non-corporate taxpayers,
including individuals, Hindu Undivided Families (HUFs)
and firms
AMT is applicable when the adjusted total income
exceeds ₹20 lakhs and when the regular tax liability is
less than the AMT liability. It involves adding back
certain deductions claimed under various sections of the
Income Tax Act to calculate the adjusted total income

Adjusted Adjusted Total Income=Total Income+Deduction

Total Income claimed u/s 10 AA+Deduction claimed as chapter
VIA[80 IA to 80 RRB] except 80 P​
Add: Deduction claimed u/s 35 AD​
Less: Depreciation allowable on assets on which
deduction was claimed u/s 35 AD assuming that no such
deduction was allowable
Computation Higher of Actual tax payable or 18.5% of Adjusted Total
Income
Section The excess amount of AMT paid shall be available as
115JD​ AMT credit and allowed to be set off and carry forward
AMT Credit upto 15 A.Y
 CASE LAWS
​
1.Union of India (UOI) and Ors. vs. Azadi Bachao Andolan and Ors.
MANU/SC/1219/2003
​
FACTS OF THE CASE​
​
A. INDO MAURITUS DTAA​
​
• India has entered into several agreements with other countries to avoid double
taxation and prevent fiscal evasion.​
• The Agreement between India and Mauritius, dated 1-4-1983, aims to prevent
double taxation, encourage mutual trade and investment, and provide certainty in tax
affairs.​
• The agreement defines terms used and includes a residuary clause.​
• The Central Government in the Ministry of Finance (Department of Revenue) in
India and the Commissioner of Income Tax in Mauritius are the "competent
authority".​
• Article 4 provides the scope of application of the Agreement.​
• The term "resident of a Contracting State" refers to any person liable to taxation
therein by reason of domicile, residence, place or management.​
• An individual resident of both Contracting States is determined by the rules of the
Contracting State in which they have a permanent home, their "center of vital
interests", habitual abode, nationality, or a place of effective management.​
• A person other than an individual resident of both Contracting States is deemed a
resident of the Contracting State in which its place of effective management is
situated.​
​
Taxation Jurisdiction in the Agreement​
​
• The agreement allocates taxing jurisdiction to different contracting parties for
different income heads.​
• Rules are stipulated for taxing dividends, interest, royalties, capital gains, income
from independent personal services, dependent personal services, directors fees,
income of artists and athletes, governmental functions, students and apprentices,
professors, teachers and research scholars, and other income.​
​
Capital Gains Taxation​
​
• Gains from the alienation of immovable property may be taxed in the Contracting
State where the property is situated.​
• Gains from the alienation of movable property forming part of the business property
of a permanent establishment or movable property pertaining to a fixed base available
to a resident for independent personal services may be taxed in that other State.​
• Gains from the alienation of ships and aircraft operated in international traffic and
movable property pertaining to their operation are taxable only in the Contracting
State where the place of effective management is situated.​
​
Mutual Agreement Procedure​
​
• A resident of a Contracting State can present his case to the competent authority of
the Contracting State of which he is a resident within three years of receipt of notice
of the action giving rise to taxation not in accordance with the Convention.​
• The competent authority will attempt to resolve the case by mutual agreement with
the other Contracting State.

Indian Government's Circular No. 682 on Mauritius Taxation​

• The Central Board of Direct Taxes clarified that capital gains from alienation of
Indian company shares in Mauritius are taxable only in Mauritius.​
• This led to Foreign Institutional Investors (FIIs) investing in Indian companies with
the expectation of profit without taxation in India.​
• In 2000, income tax authorities issued show cause notices to FIIs in India, claiming
they were shell companies incorporated in Mauritius, operating through Mauritius,
and not "residents" of Mauritius.​
• This led to panic and hasty withdrawal of funds by FIIs.​
• The Indian Finance Minister clarified that the views of income-tax officers were
specific to specific cases and did not reflect the government's policy on denial of tax
benefits to FIIs.

C. Writ Petitions​
• Azadi Bachao Andolan challenged Circular No. 789: MANU/DTCR/0005/2000
issued by the Central Board of Direct Taxes.​
• The petitioner sought a direction/order to initiate a process to revise, modify, or
terminate the terms of the Indo-Mauritius Double Taxation Avoidance Agreement.​
• The petitioner also sought to declare and delimit the powers of the Central
Government under section 90 of the Income Tax Act, 1961 in entering into
agreements with countries outside India.​
• The Central Board of Direct Taxes was questioned about the issuance of instructions
through circulars to statutory authorities under the Income Tax Act, particularly those
beneficial to certain taxpayers but injurious to Public Interest.​

High Court Findings​

• The circular was quashed on several grounds: no direction has been issued, it does
not show it has been issued under section 119 of the Income Tax Act, 1961, it cannot
issue any instruction that would be ultra vires the provisions of the Income Tax Act,
1961, the Income Tax Officer is entitled to lift the corporate veil to see whether a
company is a resident of Mauritius or not, and the conclusiveness of a certificate of
residence issued by the Mauritius Tax Authorities is neither contemplated under the
DTAC, nor under the Income Tax Act.​
• "Treaty Shopping", by which a resident of a third country takes advantage of the
provisions of the Agreement, is illegal and necessarily forbidden.​
• Section 119 of the Income Tax Act, 1961 enables the issuance of a circular for a
strictly limited purpose, and any purpose other than the purpose contemplated by
section 90 of the Act would be ultra vires the provisions of section 90 of the Income
Tax Act.​
• The circular interfered with the quasi-judicial function of the assessing officer and
took away the power of the assessing authority to pass orders to show that the
assessee is a resident of a third country having only paper existence in Mauritius, only
to take advantage of the double taxation avoidance agreement.
Supreme Court:​
The key issue in Union of India and Ors. vs. Azadi Bachao Andolan and Ors. was
whether Circular No. 789 issued by the Central Board of Direct Taxes, which clarified
the application of the Indo-Mauritius Double Taxation Avoidance Convention
(DTAC), was ultra vires the Income Tax Act, 1961. The Supreme Court reasoned that
the circular was within the powers conferred by Section 90 of the Income Tax Act,
which allows the government to enter into agreements for avoiding double taxation,
and that treaty shopping, while controversial, was not illegal. The final disposition
was that the Supreme Court set aside the Delhi High Court's judgment, upholding the
validity of the circular. The court referenced the principle that tax treaties should be
interpreted liberally to promote international trade and investment, and emphasized
that the circular was consistent with the DTAC and the legislative intent of Section 90.
​
2.KIFS International LLP vs. ACIT, Circle-5(2)(1), Ahmedabad (08.02.2024 -
ITAT Ahmedabad) : MANU/IB/0042/2024
Facts:

KIFS Securities Pvt. Ltd. (KSPL), KIFS International Pvt. Ltd. (KIPL), and KIFS
Trade Capital Pvt. Ltd. (KTPL) underwent a composite scheme, transferring KSPL's
stockbroking business to KTPL and amalgamating other businesses with KIPL from
April 1, 2015. Approved by the Gujarat High Court on December 21, 2015, this
scheme resulted in KIPL issuing shares to KSPL shareholders as per a valuation
report from SSPA & Co., Chartered Accountants. KIPL accounted for this under the
purchase method, claiming the excess consideration over KSPL's net assets as
Goodwill, amounting to Rs.3,08,87,75,944/-. Disputed by the Assessing Officer and
upheld by the First Appellate Authority, the disallowed depreciation of
Rs.3,37,57,114/- forms the basis of the current appeal.
​
Issue:​
Whether Assessee is eligible to claim depreciation under section 32?

Held:
1. In the instant case, the business of KSPL was acquired by KIPL by way of a court
approved scheme of amalgamation and it is for this acquisition of business, KIPL had
discharged the consideration in form of issue of equity shares to the shareholders of
KSPL. In order to determine the consideration, the enterprise value of the business
undertaking of KSPL was arrived at Rs. 289.30 crores on the basis of the valuation
report obtained from SSPA & Co. Chartered Accountants, which represents the fair
value to be paid for acquiring the business undertaking as a whole Including all
tangible assets and intangible assets. KSPL was engaged in stock broking business as
well as other business relating to depository participant. The company had a strong
customer base. Furthermore, the company also had a wide network and efficient
technological process & systems. These benefits represent 'any other business or
commercial rights of similar nature being intangible assets' as referred to in section
32(1) of the Act which is eligible for depreciation under the Act. The amount of
consideration (in form of issue of shares) paid in excess of net assets of KSPL is
attributable to such intangible benefits which is nothing but represents payment
towards goodwill. The excess consideration discharged by KIPL over net assets of
KSPL represents the amount paid by KIPL towards acquisition of bundle of business
and commercial rights which represents goodwill. In the absence of such intangible
asset, KIPL would have to commence the business from scratch and go through the
gestation period whereas by acquiring the aforesaid business rights along with the
tangible assets, the appellant got an up and running business. Such excess payment
thus denotes goodwill which in no way can be regarded as outcome of revaluation of
any amount. Considering the ratio laid down by the Hon'ble Supreme Court in case of
Smits Securities (supra) thus, KIPL is eligible for depreciation on goodwill
recognized in course of the Scheme under section 32 of the Act and as a consequence,
the Appellant is also eligible to claim depreciation under section 32 of the Act as the
case made out by the appellant appears to have merit and deserves to be allowed

3.Income Tax Officer, Ward-1(1)(2) vs. Atria Hydel Power Ltd. (28.08.2019 -
ITAT Bangalore) : MANU/IL/0326/2019
FACTS

Assessee, a company engaged in the business of generation and sale of power, filed its
return of income for Assessment Year 2010-11 on 25.09.2010 declaring NIL income,
after claiming deduction of Rs. 2,88,05,381/- under section 80IA of the Income Tax
Act, 1961 (in short 'the Act'). The case was selected for scrutiny and the assessment
was concluded under section 143(3) of the Act vide order dated 30.11.2012, wherein
the assessee's income under the normal provisions of the Act was determined at Rs.
15,62,505/- and Book Profits under section 115JB of the Act were computed at Rs.
2,90,91,196/-. Aggrieved, the assessee filed an appeal before the CIT(A)-14,
Bengaluru, who disposed of the appeal vide order dated 07.11.2018, allowing the
assessee partial relief

ISSUE

Whether CIT(A) justified in holding that Section 115JB of ITA are not applicable to
assessee company, which is company engaged in business of generation of power?​
​
HELD​
​
There can be no escape from the position that the assessee company is caught within
the mischief of section 115JB, notwithstanding that the tax payable by it on its total
income computed under the normal provisions of the Act is Rs. Nil. It would be
anomalous to hold that where tax of Re. 1/- is payable on the total income computed
under the normal provisions of the Act, then section 115JB would be attracted, but it
would not be attracted when the tax payable on the total income is Rs. Nil either
because the total income is nil or is a negative figure. It is well settled that the section
has to be interpreted in such a manner as to avoid absurdity and also in such a manner
as to advance the cause and suppress the mischief.

GIE Jewels vs. Income Tax Officer (08.12.2017 - ITAT Jaipur) :

MANU/IJ/0165/2017
FACTS
The assessee is a partnership firm and engaged in the business of manufacturing,
exports of silver and Gold jewellery as well as precious and semi precious stones.
During the assessment proceedings completed u/s. 143(3) the Assessing Officer
accepted the return of income however, charged interest u/s. 234B because the
assessee did not pay the advance tax as per the provisions of section 115JC r.w.s. 208
of the Income Tax Act. The assessee subsequently filed an application u/s. 154 of the
I.T. Act and submitted that there is an apparent mistake on record of the assessment
for charging interest u/s. 234B. The assessee contended before the AO that the
provisions of section 234B were not applicable for charging interest on account of
non-payment of advance Alternative Minimum Tax (AMT). The AO rejected the
application filed by the assessee u/s. 154 of the Act. The assessee challenged the
action of the AO rejecting the application u/s. 154 before the ld. CIT(A) and
contended that the provisions of section 234B were not applicable on alternative
minimum tax liability u/s. 115JC. The ld. CIT(A) has impressed with the contention
of the assessee and upheld the decision of the AO in levying interest u/s. 234 and
rejecting the application filed by the assessee u/s. 154 of the Act. The Assessee filed
an appeal before the ITAT

ISSUE​
Whether the assessing officer has erred in holding in treating AMT as Income Tax to
be deposited in Advance as per the provisions of Section 208 of the Income Tax Act,
1961 and charged interest u/s. 234B by alleging default in depositing advance tax.

HELD
Section 115J/115JA of the Income Tax Act, India, are special provisions that provide
for tax payable in advance on current income during any financial year. These
provisions were inserted by the Finance Act, 1987, Finance Act of 1996, and Finance
Act, 2000. The question of whether a company liable to pay tax under either provision
does not take importance as all other provisions of the Act shall apply to the MAT
Company.
The question remains whether the assessee, which is a MAT Company, was not in a
position to estimate its profits of the current year prior to the end of the financial year
on 31st March. The Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT
held that the liability of the assessee to pay tax under Section 115J of the Act arose
only if the total income as computed under the provisions of the Act was less than
30% of the book profit. The court held that the liability would arise only after the
profit is determined in accordance with the provisions of the Companies Act, 1956.

The Karnataka High Court distinguished its own decision in the case of Jindal
Thermal Power Company Ltd. v. Dy. CIT, holding that Section 115JB, with which the
company is concerned, is a self-contained code pertaining to MAT, which imposed
liability for payment of advance tax on MAT companies. Therefore, interest under
Sections 234B and 234C shall be payable on failure to pay advance tax in respect of
tax payable under Section 115JA/115JB.

In conclusion, the substantial question of law is answered in favor of the revenue and
against the assessee, and the order of the Tribunal cannot be sustained.

Tata Sons Ltd vs DCIT & Others

Facts

The assessee-company, of which more than 70 per cent shares were held by four
public trusts, filed its return claiming itself to be a company in which the public were
substantially interested on the ground that since the public at large were beneficiaries
of the trusts, automatically, by virtue of the trusts’ shareholding in the
assessee-company, it, i.e., public, became substantially interested in the
assessee-company. The Assessing Officer rejected said claim on the ground that the
assessee did not fulfil the conditions laid down under section 2(18). On appeal, the
Commissioner (Appeals) upheld the impugned action. On second appeal, while the
Accountant Member held the company to be a company in which the public were
substantially interested, the Judicial Member disagreed with the same.

ISSUE
Whether the company is a company in which the Public are Substantially
Interested?

HELD​
On a reading of the provision of section 2(18), it is apparent that a company in which
public are substantially interested is said to be acompany which is enumerated in
various clauses of this definition clause. [Para 11]
The fact that a substantial shareholding to the extent of 78.71 per cent in the assessee
was in the hands of four public trusts, which had been functioning in accordance with
law and in public interest, was not in dispute. It may be that the general public are the
beneficiaries in a public trust and are persons interested in the public trust but that did
not mean that public were substantially interested in the company of which the shares
were held by the four charity trusts. It was the trust as such that could be said to have
substantial interest in the company and not the beneficiaries thereof. Trusts being four
only which held more than 70 per cent (exactly 78.71 per cent), it could not be said
that public were substantially interested in the company. Holding of more than 70 per
cent shares by four trusts could not be equated with such holding by public. [Para 22]
The term ‘held by’ may be as stated by the assessee a narrower concept than the
concept ‘substantially interested’. But both are associated with public, and the public
trusts are held to be not public in itself. It gives the same result, in the first case shares
held by public and in the later case public is substantially interested. If the trusts are
not public, both fail. Clause (d) in the earlier definition under section 2(18)(b)(B)
making holding of shares by public, was deleted, though certain more companies were
included under the coverage of section 2(18). That would show that even when public
holding was one of the criteria to determine the character of the company in which
public are substantially interested, the shareholding by trust was not held to be public.
It would all the more logical that such shareholding by the trust cannot be taken as a
criteria when such requirement of holding by public is deleted from the
definition of the such a company. [Para 24] It was necessary to resort independently to
the natural and ordinary meaning of the term "company in which the public are
substantially interested", in the instant appeal.
The argument of the assessee had no force. The public at large having interest in those
trusts could not be said to have interest in the company when the shares in that were
held by those trusts and, therefore, it is not a case of destroying the natural and
ordinary meaning of the term. Even as per natural and ordinary meaning of the term ‘a
company in which public are substantially interested’,
the shares held by the charitable trusts could not make their members to have an
interest in the company. [Para 26]
It is a cardinal principle in construction of enactments that unless the context
otherwise requires, the definition of an expression contained in the Act should prevail
throughout the Act. Whenever a different meaning is sought to be given to that
expressionoccurring at different places in the Act, it is necessary to point out why the
context requires different meaning to be given to the same
expression occurring at different places in the Act. ‘Unless the context otherwise
requires’ means that should have been used elsewhere in the Act in different context.
If one were to interpret those words in that context, one may ignore the definition
given under section 2(18). [Para 30]
The assessee’s further contention, that whereas the term ‘means’ is exhaustive in
nature, the expression ‘is said to be’ is illustrative in nature and, therefore, the
categories of companies expressly specified in section 2(18) are illustrative and are in
addition to those companies, which are on ordinary and natural meaning, companies
in which public are substantially interested, had no force. The
words ‘is said to be’ certainly could not be equated with the term ‘include’ so as to
make the definition as inclusive one and leaving the scope of a general meaning
which is not stated in the definition. The term ‘is said to be’ gives an impression that
it is used to give an exhaustive description of the term ‘a company in which public is
substantially interested’. It is more near to denoting to the same thing as the word
‘means’. It is more so when one reads it with the opening words ‘unless the context
otherwise requires’. The intention of the Legislature in drafting section 2(18) could
well have read as "a company in which the public are substantially interested", means
the enumerated companies. It is true that instead of using the term ‘mean’, the
Legislature used the term ‘is said to be’. But that does not make any difference as it is
in contradiction to the word ‘include’. This does not lead one to conclude that the
Legislature did not intend to travel beyond the normal meaning of a company in
which public are substantially interested. It is true
that most of the categories mentioned in section 2(18) are of the nature as would not
have otherwise also been categorised as widely held companies. According to the
sub-clause (a) of section 2(18), a company in which at least 40 per cent of the shares
are held by the Government, etc., is regarded as a widely held company, even though
it has been registered as a private company. Similarly, sub clause (aa ) includes a
company which is registered under section 25 of the Companies Act, 1956. These
companies are generally entitled like chambers of commerce, clubs, etc., which are
essentially non-profit making concerns and in the absence of share capital,
in the ordinary sense of the term, it could not have been classified as a widely held
company. But these are specific inclusions in the definition and cannot drive home the
proposition that by using the term ‘is said to be’, the Legislature has tried to rope in
certain categories of companies which otherwise would not have been regarded as
companies in which public are substantially interested. The result could have flowed
if the Legislature used the term ‘mean’ instead of ‘is said to be’. [Para 31]
The theory that section 2(18) only seeks to enlarge and add additional categories in
the term "a company in which the public are substantially interested" could not be
accepted. Section 2(18) does not include but defines what a company in which the
public are substantially interested is said to be. On the said analysis, it was clear that
in relation to each of the categories, it was doubtful whether such companies could
definitely be regarded as a "company in which the public are substantially interested".
[Para 34]
It was in order to obviate those difficulties that the definition of a "company in which
the public are substantially interested" in section 2(18) has been amended in order to
provide that a company which is registered under section 25 of the Companies Act
will be regarded as a company in which the public are substantially interested without
the application of the various tests as to the composition of the ownership of the
shares in, and control over the affairs of the company. Further, in order to cover the
entities which are not registered as companies but are declared to be companies for
tax purposes and to companies limited by guarantee which are not registered under
section 25, the CBDT has been empowered to direct that any such entity or company
shall be treated as a company in which the public are substantially interested having
regard to the objects of the company, the nature and composition of its
membership and other relevant considerations. [Para 35]

Thus, it was evident that the items enumerated in the definition clause are all those
which are widely held companies. But as they were not finding inclusion in the
definition, a need was felt to incorporate them specifically. Therefore, there was no
force in the submission of the assessee that some companies which were not of the
nature of widely held companies were also included. In any case, even if
that were so, it did not help in importing a company in the definition if that does not
satisfy the requirements of a company enumeratedtherein. [Para 39]
In view of that, the assessee-company was not a company in which public were
substantially interested. [Para 40].In the result, the appeal on that point was to be
dismissed. [Para 41]