The Inapplicability of Section 115JB to Electricity Companies Prior to the 2012 Amendment

1. Introduction

The case titled PR. Commissioner of Income Tax-9 v. M/S Tata Power Delhi Distribution Ltd. (formerly known as M/S North Delhi Power Limited) was decided by the Delhi High Court on January 13, 2025. It involved a challenge by the Revenue (Income Tax Department) against an order of the Income Tax Appellate Tribunal (ITAT). The central question was whether the provisions for Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act, 1961 (the Act) apply to a company engaged in the generation and distribution of electricity for the assessment year (AY) 2006-07.

M/s Tata Power Delhi Distribution Ltd. (the assessee) is a joint venture company between Tata Power and the Government of NCT of Delhi, with 51% of the shares held by the Tata entities and the remaining 49% by the Government of NCT of Delhi. In the background of this dispute, during the AY 2006-07, the assessee filed its return declaring certain income, but the Assessing Officer (AO) made additions under Section 115JB, contending that the assessee was liable to pay MAT. The assessee contested this, asserting that electricity companies were not covered by Section 115JB prior to the amendments introduced by the Finance Act, 2012.

2. Summary of the Judgment

The Revenue appealed to the High Court after the ITAT deleted certain additions under Section 115JB concerning the assessee’s book profits. The Delhi High Court upheld the ITAT’s view, holding that, prior to the 2012 amendment, Section 115JB was inapplicable to electricity companies because the mandatory requirement to prepare accounts as per Parts II and III of Schedule VI of the Companies Act, 1956 could not be satisfied by a company governed by special statutes such as the Electricity Act, 2003.

The Court clarified that the Finance Act, 2012 had introduced amendments to Section 115JB(2) specifically allowing entities like electricity, banking, and insurance companies to use their own statutory accounting standards to compute “book profits.” However, this amendment was prospective and applicable from AY 2013-14 onwards. Therefore, for the year 2006-07, M/s Tata Power Delhi Distribution Ltd. was not liable under MAT provisions.

3. Analysis

3.1 Precedents Cited

• Kerala State Electricity Board (KSEB) v. Deputy Commissioner of Income-tax (2010) 329 ITR 91 (Ker): This decision was heavily relied upon by the ITAT and endorsed the principle that Section 115JB does not apply to electricity companies because, structurally, they cannot comply with the mandatory computation framework under Sub-section (2) of Section 115JB.
• Andhra Pradesh Power Coordination Committee v. Lanco Kondapalli Power Ltd. (2016) 3 SCC 468: The Revenue argued that this Supreme Court judgment purportedly implied electricity companies would be covered under Section 115JB post-2001. However, the Delhi High Court highlighted the subsequent Supreme Court order of 2022, which dismissed the Revenue’s appeals on a similar issue involving MAT applicability to electricity companies.
• Commissioner of Income Tax-LTU v. Union Bank of India (2019) 13 ITR-OL 655 (Bom HC): Though this case was about a banking company, the Bombay High Court similarly held that, under the unamended Section 115JB, companies required to prepare accounts under a separate statute were not bound by MAT. This decision formed part of a coherent line of cases rejecting MAT’s applicability in those circumstances.
• Principal Commissioner of Income Tax v. Ajmer Vidyut Vitran Nigam Ltd (2022) 447 ITR 186 (Raj HC): The Rajasthan High Court reiterated the Kerala High Court view and decided in favor of the electricity company, exempting it from MAT pre-amendment. This ruling was also affirmed by the Supreme Court.

3.2 Legal Reasoning

The High Court began by examining the statutory scheme of Section 115JB, which creates a “deeming” fiction of treating book profits as total income when a company's taxable income falls below a specific threshold. The crux of the issue lay in Sub-section (2) of Section 115JB, which requires the preparation of a profit and loss account “in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956.” However, Section 211 of the Companies Act provides that electricity, banking, and insurance companies shall prepare their financial statements in accordance with the respective regulatory statutes (in this case, the Electricity Act, 2003, and earlier the Electricity (Supply) Act, 1948), rather than Schedule VI of the Companies Act.

Consequently, the Court determined that, for the period before the Finance Act, 2012, there was a structural inconsistency: electricity companies could not meet an essential condition of Section 115JB(2) because they were barred from using Parts II and III of Schedule VI of the Companies Act for their profit and loss statements. The High Court pointed out that the 2012 amendment to Section 115JB(2) divided companies into two categories:

1. Companies required to prepare their accounts per Schedule VI to the Companies Act
2. Companies permitted or mandated to prepare accounts under an alternate regulatory statute (e.g., electricity, banking, insurance), which could now use those alternate formats for purposes of Section 115JB as well

Because the Finance Act, 2012 explicitly stated that this amendment would operate prospectively from AY 2013-14, the Court reasoned that the unamended law did not cover electricity companies such as the assessee for earlier assessment years.

3.3 Impact

The ruling cements the principle that electricity distribution or generation companies, prior to the 2012 amendment, are not subject to MAT under Section 115JB. By clarifying that the legislative intent in 2012 was to prospectively close the gap and bring such companies into the MAT net, the Delhi High Court’s decision provides:

• Certainty for pre-2013 disputes: Electricity companies facing litigation for assessment years before 2013-14 now have binding authority from multiple High Courts and the Supreme Court confirming non-applicability of Section 115JB.
• Prospective liability post-2013: Following the 2012 amendment, these entities are compelled to compute MAT based on their regulatory accounts for AYs after 2013-14.
• Uniform approach across jurisdictions: Similar decisions by the Kerala, Bombay, and Rajasthan High Courts, as affirmed by the Supreme Court, produce uniformity and predictability for electricity sector taxpayers nationwide.

4. Complex Concepts Simplified

• Minimum Alternate Tax (MAT): A mechanism introduced to ensure that companies with large “book profits” under accounting standards do not avoid paying corporate tax by relying on deductions or exemptions under normal tax provisions. If a company’s income tax liability under normal computation falls below a specified percentage of its “book profit,” Section 115JB deems the “book profit” to be the taxable income.
• Schedule VI to the Companies Act, 1956: Prescribes a standard format for a company’s profit and loss account and balance sheet. Notably, certain types of companies, such as those in the electricity, banking, or insurance businesses, prepare their accounts using specialized statutes rather than Schedule VI.
• Finance Act, 2012 Amendment: Resolved the mismatch by allowing designated companies to compute MAT on the basis of their respective statutory formats (rather than Schedule VI). This amendment was explicitly made effective from AY 2013-14 onward.

5. Conclusion

The Delhi High Court’s verdict in PR. Commissioner of Income Tax-9 v. M/S Tata Power Delhi Distribution Ltd. reaffirms that, prior to the Finance Act, 2012, Section 115JB of the Income Tax Act was inapplicable to electricity companies. The crucial inconsistency lies in the requirement under Section 115JB(2) to follow the format in Parts II and III of Schedule VI of the Companies Act, even though electricity companies operate under a different accounting regime prescribed by the Electricity Act and related enactments.

By harmonizing with similar rulings from the Bombay High Court and the Rajasthan High Court, and endorsed by the Supreme Court, this decision brings greater clarity and consistency to the law. Henceforth, electricity companies will only fall under Section 115JB from AY 2013-14 onwards—pursuant to the express legislative command in the Finance Act, 2012.

Ultimately, this ruling underscores the principle that a charging section and its machinery provisions form an integrated code. In scenarios where the machinery provisions (here, the method of preparing accounts) are incompatible, the charging section (here, Section 115JB) cannot be enforced. This ensures fairness and respect for the specialized statutory frameworks governing specific classes of companies.