Case Note & Summary
The appeal was filed by Sri Hariram Hotels (P) Ltd. against the order of the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, relating to the assessment year 2003-04. The appellant-assessee, a private limited company, had sold land held as an investment and earned capital gain, which was credited to the profit and loss account. The Assessing Officer included this capital gain in the book profit for computing Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) confirmed the addition, and the ITAT upheld the same. The appellant then filed an appeal under Section 260-A of the Act before the High Court. The substantial question of law was whether the Tribunal was justified in holding that income from capital gain should be included for computing book profit under Section 115JB. The court noted that the capital gain arose from the sale of land held as an investment, not as stock-in-trade. The profit and loss account showed the capital gain as an item, but the Explanation to Section 115JB provides that book profit is the net profit as shown in the profit and loss account prepared under the Companies Act, subject to certain adjustments. The court held that capital gain on sale of investment is not part of book profit for MAT purposes, as the Explanation does not require inclusion of such capital gains. The court allowed the appeal, setting aside the orders of the ITAT and the lower authorities, and answered the question in favor of the assessee.
Headnote
A) Income Tax - Minimum Alternate Tax - Book Profit - Section 115JB of the Income Tax Act, 1961 - Capital Gain - The issue was whether capital gain on sale of land held as investment should be included in book profit for computing MAT under Section 115JB. The court held that capital gain credited to the profit and loss account but not forming part of book profit as per the Explanation to Section 115JB cannot be included for MAT purposes. The Tribunal's order was set aside and the appeal was allowed. (Paras 2-5) B) Income Tax - Capital Gain - Treatment in Profit and Loss Account - Section 115JB of the Income Tax Act, 1961 - The court examined whether capital gain on sale of investment property, which was credited to the profit and loss account, should be included in book profit. Relying on the Explanation to Section 115JB, the court held that only profits as per the profit and loss account prepared under the Companies Act are relevant, and capital gain on sale of investment is not part of book profit. (Paras 3-5)
Issue of Consideration
Whether on the facts and circumstances of the case, the Tribunal is justified in holding that the income from capital gain should be included for the purpose of computing Book Profit under Section 115JB of the Income Tax Act, 1961?
Final Decision
The appeal is allowed. The order of the ITAT and the lower authorities are set aside. The question of law is answered in favor of the assessee, holding that capital gain on sale of land held as investment is not includible in book profit under Section 115JB.
Law Points
- Capital gain on sale of investment property not includible in book profit under Section 115JB
- MAT provisions apply only to profits as per profit and loss account prepared under Companies Act
- capital gain credited to P&L account but not part of book profit as per Explanation to Section 115JB
