Sick Company Denied Section 115JB Exemption as Net Worth Turned Positive
Issue
Whether a company, previously declared a “sick industrial company” by the BIFR, is entitled to claim exemption from Minimum Alternate Tax (MAT) provisions under Section 115JB for the assessment year in which its net worth turns positive and it is discharged from the purview of the Sick Industrial Companies Act (SICA).
Facts
Status: The assessee-company was declared a “sick undertaking” by the Board for Industrial and Financial Reconstruction (BIFR), and a rehabilitation scheme was formulated.
Revival: During the relevant period, the company’s net worth turned positive. Consequently, the BIFR passed an order stating that the company had ceased to be a sick industrial company and discharged it from the purview of SICA.
The Claim: In its return of income for Assessment Year 2012-13, the assessee claimed exemption from the provisions of Section 115JB (MAT), likely relying on its history as a sick company.
AO’s Action: The Assessing Officer (AO) disallowed the exemption and levied MAT, arguing that since the net worth was positive, the statutory protection available to sick companies no longer applied.
Decision
The court ruled in favour of the revenue.
It held that the exemption from Section 115JB is available to a sick company only up to the assessment year in which its net worth becomes equal to or exceeds its accumulated losses.
Since the BIFR had explicitly recorded that the net worth had turned positive and discharged the company from SICA, the statutory condition for the exemption ceased to exist.
Therefore, the company could not seek exemption from MAT provisions for that year.
Key Takeaways
Net Worth is the Threshold: The exemption from MAT for sick companies is not indefinite. It contains a specific “sunset clause” tied to the company’s net worth turning positive.
Effect of BIFR Order: A BIFR order discharging a company from SICA serves as conclusive evidence that the company is no longer “sick” for the purposes of the Income Tax Act exemptions derived from that status.
Statutory Interpretation: Tax exemptions are strictly construed. Once the specific condition (negative net worth) is cured, the general provisions of tax law (like MAT) immediately apply.
IN THE ITAT MUMBAI BENCH ‘G’
Supertex Industries Ltd.
v.
Deputy Commissioner of Income-tax*
Justice C.V. Bhadang, President
and Ms. Padmavathy S., Accountant Member
and Ms. Padmavathy S., Accountant Member
IT Appeal No. 4649 (Mum) of 2018
[Assessment year 2012-13]
[Assessment year 2012-13]
OCTOBER 22, 2025
Dharan Gandhi for the Appellant. Swapnil Choudhary, Sr AR for the Respondent.
ORDER
Justice C.V. Bhadang, President.- By this appeal the assessee is challenging the order dated 07.05.2018 passed by the CIT(A)-9, Mumbai, [CIT(A) for short] by which the assessment order passed by the Assessing Officer (AO) u/s. 143(3) r.w.s. 147 of the Act has been confirmed. By order dated 09.03.2015, the Assessing Officer has computed the book profits of the assessee u/s. 115JB at Rs. 10,46,418/- and has levied tax accordingly. The appeal pertains to A.Y. 2012-13.
2. The brief facts are that the assessee is in the business of manufacture, processing, trading, export and import of polyester and synthetic yarns and trading in fabrics. The assessee was declared as a sick undertaking by Board for Industrial and Financial Reconstruction (BIFR) on 09.02.2005 and State Bank of India was appointed as Operating Agency to formulate a revival scheme. The scheme of revival of the assessee company was sanctioned by BIFR vide order dated 08.09.2008 (SS-08). Subsequently, the net worth of company became positive as per Audited Balance Sheet (ABS) as on 31.03.2009 and provisional balance sheet as on 30.03.2010. In such circumstances, the assessee requested BIFR to discharge it from the purview of SICA/BIFR. Accordingly, vide order dated 16.06.2010, BIFR held that the company ceased to be a sick industrial company and the revival of the company was sustainable. Following is the operative part of the order passed by BIFR on 16.06.2010.
“4.4 Having considered the submissions made in the hearing and materials on the record, the Bench issued the following directions:-
(a) The company M/s. Supertex Industries Ltd ceases to be a sick industrial company, within the meaning of section 3(1)(o) ofthe SICA as its net worth has turned positive as per ABS as on 30.03.2009 and as per the Provisional Balance Sheet as on 31.03.2010. The revival of the company is sustainable. It is therefore discharged from the purview of SICA/BIFR.
(b) The un-implemented provisions of SS-08, as may be there, would be implemented by the company/promoters and concerned agencies and implementation would be monitored by the Board of Directors (BOD) ofthe company.
(c) The company is directed to pay MA fee of Rs.2.00 lakhs to MA(SBI) immediately.
(d) The Board discharges State Bank of India from the responsibility of Monitoring Agency (MA)
(e) The Special Director, ifany, appointed by the Board on company’s ‘Board of Directors’ (BOD), would stand discharged with immediate effect. The company would complete necessary formalities with the concerned ‘Registrar of Companies’ (ROC), as may be required.”.
(.Emphasis supplied).
3. The Director General of Income Tax (A) [DGIT for short] challenged the same before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) in appeal no.216/2010. The DGIT was mainly aggrieved by the direction given by the BIFR to implement the unimplemented provisions of SS-08 vide para 4.4(b) above. It was contended that once the company had become net worth positive and having been discharged from the provisions of SICA, such direction was not competent. The record discloses that AAIFR has dismissed the appeal vide order dated 29.09.2011, which has been confirmed by Delhi High Court.
4. The assessee filed its Return of Income (RoI) for the relevant year on 12.09.2012 declaring income as ‘Nil’ after claiming entire business income of Rs.1,70,50,855/-, being set off against brought forward business losses and unabsorbed depreciation. In this case, assessment was completed u/s. 143(3) of the Act vide order dated 09.03.2015 making no addition to the income declared by the assessee. However, the Assessing Officer computed the book profits u/s. 115JB of the Act at Rs. 10,46,418/- and levied tax accordingly.
5. In appeal, it was contended on behalf of the assessee that the Assessing Officer could not have invoked the provisions of Minimum Alternate Tax (MAT) u/s. 115JB of the Act without appreciating the fact that the appellant assessee was declared as a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985 (‘SICA’ for short). It was thus contended that the assessee was exempt from the provisions of section 115JB of the Act.
6. The learned CIT(A) found that the assessee company had come out of the provisions of SICA as per order dated 16.06.2010 passed by the BIFR and therefore, the assessee could not seek exemption from the provisions of section 115JB of the Act. The learned CIT(A) has found that the assessee having come out of the provisions of SICA in A.Y. 2008-09, was not entitled to such exemption in A.Y. 2012-13 to which present appeal relates.
7. Aggrieved by the impugned addition made the assessee has filed the present appeal on the following ground:
“On the facts and under the circumstances ofthe case and in law, the Learned Commissioner of Income Tax (Appeals) erred in upholding the Assessing Officer’s Action in computing tax of Rs.1,99,395/- by applying provisions of MAT u/s. 115JB, without appreciating the fact that the appellant was a sickcompany under BIFR and accumulates losses is still not recouped. Hence, it is exempt from provision of section 115JB of the Income Tax Act, 1961 even though the net worth of the company has become positive”
8. Earlier the appeal was dismissed by a Co-ordinate Bench vide order dated 20.09.2022 in Supertex Industries Ltd. v. DCIT [IT Appeal No. 4649(Mum) of 2018,dated 20-9-2022]. The assessee filed Miscellaneous Application No.433/Mum/2023 seeking rectification u/s. 254(2) of the Act, inter alia, on the ground that the Bench while dismissing the appeal failed to notice the provisions of section 32(1) of SICA along with Circular Nos. 523 Dated 05.10.1988 and 576 dated31.08.1990 issued by the CBDT. It was also contended that the Bench failed to consider the decision of Delhi High Court dated 23.03.2011 in the case of Director General of Income tax v. Board for Industrial & Financial Reconstruction, New Delhi [WP(C) Nos. 1940, 1942, 1943, 1945, 1946, 1948-1958 of 2011].
9. The Co-ordinate Bench vide order dated 03.05.2024 has allowed the Miscellaneous Application and restored the matter mainly on the ground of nonconsideration of decision of Delhi High Court in Board for Industrial & Financial Reconstruction, New Delhi (supra).
10. We have heard parties. Perused record. The parties have filed written submissions. We have gone through the same.
11. It is submitted by learned AR that in terms of order dated 16.06.2010 of BIFR, the authorities were obliged to implement part of the sanctioned scheme which remained unimplemented. It is pointed out that the said order has been confirmed in appeal by AAIFR and later by Delhi High Court. The learned counsel has pointed out para 20E of the SS-08 in order to submit that the DGIT was also interpreting the said para as being binding upon the department and, therefore, the department has chosen to challenge the order of the BIFR before the AAIFR. The revenue was claiming that after the net worth of the company has turned positive and company has been discharged from the provisions of the SICA/BIFR, no exemption can be claimed u/s. 115JB of the Act. It is pointed out that this contention of the Revenue has not been accepted. The learned counsel has also placed reliance on the two Circulars issued by the CBDT and the observations of the Delhi High Court in the case of Board for Industrial & Financial Reconstruction, New Delhi (supra).
12. The learned DR has submitted that once the net worth of the company had turned positive and has been specifically discharged by the order of BIFR from the provisions of SICA in A.Y. 2008-09, the protection from the provisions of section 115JB of the Act was clearly not available in the A.Y. 2012-13.
13. We have carefully considered the rival submissions made. It can be seen that scheme of revival of the assessee company was sanctioned by BIFR on 08.09.2008 (SS-08) and the assessee was discharged from the provisions of BIFR vide order dated 16.06.2010. Thus, the company was a sick company from 08.09.2008 to 16.06.2010.
14. In the present appeal we are concerned with clause 20E of SS-08 which reads as under:
“20. RELIEFS/CONCESSIONS: CUT-OFF-DATE 01.04.2007
A. SBI, IDBI and ICICI
B. U.T. OF DADRA AND NAGAR HAVELLI.
C. ELECTRICITY BOARD (U. T. OF DADRA AND NAGAR HAVELLI)
D. COMMERCIAL TAXES DEPT.
E. CENTRAL GOVERNMENT
D.I.T
i. To consider to exempt from the provisions of Sections 41(1), 43(B), 72,79,80 read with 139 and Section 115-JB of Income Tax Act, 1961.
F. C.P.F. AUTHORITY:
G. ESIC
H. WORKERS
I (a) SUNDRY CREDITORS
J. SEBI:
K. BSE:
L. EXISTING SHAREHOLDERS:
(Emphasis supplied)
This clause has to be read along with the directions issued by BIFR dated 16.06.2010 vide Para 4.4(b) reproduced above. Thus, even accepting that the benefit of the scheme and the concession made during its operation would continue even after the company has been discharged on its net worth becoming positive, all that the scheme directed the department was to consider “exemption”. In this case the learned Assessing Officer has considered this aspect and found that the assessee is not entitled to exemption u/s. 115JB of the Act for A.Y. 2012-13.
15. The learned AR has strenuously urged that the fact that the department felt aggrieved by para 4.4(b) of the order dated 16.06.2010 would indicate that even the department was of the view that there is a binding direction so far as the grant of exemption from the operation of section 115JB is concerned. We are unable to accept the same. A conjoint reading of clause 20(E) of SS-08 with para 4.4 (b) would at the highest indicate that the department would be obliged to consider the exemption under the various sections including section 115JB as mentioned in para 20(E) of the scheme.
16. Section 32 of the SICA on which strong reliance is placed reads as under:
“32. Effect of the Act on other laws. –
(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association ofan industrial company or in any other instrument having effect by virtue of any law other than this Act.
(2) Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the provisions of section 72A of the Income-tax Act, 1961 (43 of 1961), shall, subject to the modifications that the power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking with another company.”
There cannot be any manner of doubt that the Act has an overriding effect to the extent provided in section. However, that cannot enlarge the ambit of the scheme SS-08 and the order passed by the BIFR/AAIFR.
17. It is significant to note that after the draft scheme was formulated by BIFR, the Directorate of Income Tax (Recovery) had made certain submissions. Summary record of the hearing as contained in paras 8 and 10 before the BIFR dated 08.09.2008 reads as under:
“8. The representative of Directorate of Income Tax (Recovery) submitted thatthe word “to consider” be added before the reliefs sought from Directorate of Income Tax (Recovery) vide Para 20 (E) (i) of Page 21 of DRS. Similarly, sub-Para (ii) Para 20 (E) of Page 21 of DRS may be deleted as it does not relates to the Income Tax Department. The Bench agreed with the request of the representative.
9….
10. Having considered the facts on record and the submissions made at today’s hearing, the Bench noted thatthere was a broad agreement on the provisions contained in the Draft Rehabilitation Scheme circulated vide order dated 3.7.2008, with the changes mentioned below. Taking note of the above, the Bench sanctioned the scheme (hereinafter called the ‘sanctioned scheme’) in exercise of powers conferred under section 18 (4) of the Act read with section 19 (3) of the Act with modifications as detailed under:
| S. No. | Page No. & Para | Existing Provisions in the DRS. | Modified Provisions in the Sanctioned Scheme |
| 1 | Para 20 (B) | U.T. OF DADRA AND NAGAR HAVELI AND GOVT. OF GUJRAT | U.T. OF DADRA AND NAGAR HAVELI |
| 2 | Para No. 20(D) | To exempt the unutlised entitlements of Rs.706.05 lakhs and enhancement of terminal date of availing exemption upto the date of sanction of scheme by the Board | deleted- |
| 3 | Para No. 20(D) | Non-fiscal reliefs (Government of Gujarat and U.T. of Dadra and Nagar Haveli. | Non-fiscal reliefs (Government of U.T. of Dadra and Nagar Haveli. |
| 4 | Para No. 20(E) Sub Para (i) | To exempt from the provision of Sections 41 (1), 43(B), 72, 79, 80 read with 139 and Section 115-JB of Income Tax Act, 1961 | To consider to exempt from the provision of Sections 41 (1), 43(B), 72,79,80 read with 139 and Section 115-JB of Income Tax Act, 1961. |
| 5 | Para No. 20(E) Sub Para (ii) | To allow all other benefits to be by the granted Central Government to Sick companies. from time to time. | deleted |
| 6 | Para No. 20 (J)(iii) | Nil | The existing equity share capital of the company shall be reduced by 80% in terms of section 18 (2) of the SICA without the requirement of following the provisions of Sections 81 & 100-103 of the Companies Act. 1956 and without following any other SEBI or other guidelines in this regard |
18. A perusal of the scheme, which was eventually framed would clearly indicate that this suggestion was accepted vide para 20E sub para (i) above. It can thus clearly be seen that there is no binding direction which can be read into para 20(E) of SS-08 read with para 4.4 of the order dated 16.06.2010. All that the direction would mean is that post the discharge of the assessee form SICA/BIFA the department would be obliged to consider to continue the exemption u/s. 115JB of the Act.
19. There cannot be any manner of dispute that section 32 of SICA gives an overriding effect to the provisions of the said Act including the Income tax Act. That is also the import and spirit of the Circulars dated 5.10.1988 and 31.08.1990 by the CBDT. However, the question which falls for determination in this appeal is what is the effect after the company has come out of the red and has been discharged from the provisions of SICA/BIFR. In order to contend that the exemption u/s. 115JB continues even thereafter, the assessee has placed reliance on para 4.4(b) of the order dated 16.06.2010, which in our humble view is misplaced.
20. In this regard it is also relevant to look at the provisions of clause (vii) to Explanation 1 to section 115JB which is applicable to the present case that reads as under –
115 JB – Special provision for payment of tax by certain companies.
(1)& (2) ****************
Explanation 1.—For the purposes of this section, “book profit” means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by—
(a) to (k) ***************** or
if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, and as reduced by,—
(i) to (vi) **************
(vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under subsection (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
Explanation.—For the purposes of this clause, “net worth ” shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of1986); or
************************
From the plain reading of the above provisions it is clear that the profits of sick company will be reduced from the book profits under section 115JB and that the exclusion of such profit would end in the AY during which the net worth of the company becomes equal to or exceeds the accumulated losses. In other words, as per the provisions of section 115JB, the profits of the sick company will not be considered while computing the book profits provided the net worth of the company remains negative. It is an admitted fact that the net worth of the assessee has become positive as on 31.03.2009 and the assessee basis such fact has requested BIFR to discharge it from the purview of SICA/BIFR. Given this when we apply the modified directions issued by BIFR dated 16.06.2010 in para 20(E) of SS-08 read with para 4.4, where it is stated that the exemption from provisions of section 115JB is “to be considered” then it would not correct to exclude the profits of the year under consideration while computing book profits since the net worth of the assessee has become positive. Accordingly on that count also in our considered view, the claim of the assessee cannot be sustained.
21. We now propose to deal with the decision of the Delhi High Court in the case of Board for Industrial & Financial Reconstruction (supra). Para 3 of the order would indicate that the common question which arose before the Delhi High Court was whether the discharge of the reference by the BIFR (on the sick industrial company’s net worth becoming positive) would entitle the department to withdraw the concessions which form part of a sanctioned scheme. It can be seen from para 6 that the contention on behalf of the department was that with the net worth turning positive and the reference pending before the BIFR being discharged, the Department ought to be in a position to recover its dues de hors the concessions incorporated in the sanctioned scheme. We find that the case clearly turned on its own facts in which the department was seeking withdrawal of the concessions specifically incorporated in the scheme after the company became net worth positive. In the present case, there is no claim for withdrawal of any concessions granted. Thus, in our humble opinion, the present case is clearly distinguishable on facts.
22. Upon a query being made as to what happened to the subsequent assessment years, the learned AR submitted that the exemption from section 115JB was claimed by the assessee till A.Y. 2019-20. It is submitted that there were two assessments after current A.Y. 2012-13 i.e. in A.Y. 2014-15 and A.Y.2019-20, out of which a similar issue did not arise for consideration for A.Y. 2019-20. In so far as A.Y. 2014-15 is concerned the assessee had claimed in its computation of income, set off of brought forward losses of Rs.1,38,02,500/-from the current year business profit. It was seen that the business loss was prior to A.Y. 2006-07 and could not be allowed which had already lapsed in A.Y. 2013-14. It was on this ground that the case was re-opened. The assessee in response placed reliance on the orders passed by BIFR/AAIFR and Delhi High Court decision in Board for Industrial & Financial Reconstruction (supra). On this basis for A.Y. 2014-15 the benefit of section 72 of the Act was allowed by the Assessing Officer.
23. We have already noted that under the scheme SS-08 the department was obliged to consider the exemption under various sections including section 72 and section 115JB of the Act, which ought to be made on a year-to-year basis post the discharge of the assessee from SICA/BIFR. For A.Y. 2014-15, the issue was pertaining to set off of the carry forward losses beyond eight years, which the learned Assessing Officer in his discretion allowed for that year. For the year under consideration i.e. A.Y. 2012-13, the Assessing Officer after considering the issue has disallowed the claim of exemption. As noticed earlier the only contention on behalf of the assessee is that the conjoint reading of clause 20E of SS-08 and 4.4B of the order of BIFR dated 16.06.2010 makes it mandatory to grant exemption u/s. 115JB of the Act, which we are unable to accept.
24. In the result, the appeal is without any merit. It is accordingly dismissed.