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Income Tax Appellate Tribunal, A BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
This appeal is filed by the assessee against the Order of National Faceless Appeal Centre (NFAC) vide DIN and Notice No.ITBA/NFAC/S/250/2024-25/1066076044(1). The Revenue has raised the following grounds:
The Ld. cIT (A), NaFAC has erred in law by ruling a decision that the provisions of the section 115JB are not applicable to the banking companies, relying on the decision of the Hon'ble ITAT, Delhi in Del/ 2020, in the case of CIT Vs Punjab National Bank (successor of Oriental Bank of Commerce) and subsequent Order of Delhi High Court in ignoring the fact that provisions of section l15JB of the Income Tax Act, 1961, clearly applies to the banking companies.
2. The decision of the Ld. CIT (A), NaFAC is opposed to the provisions of the 'Explanation 3 of the Section 115JB of the Income Tax Act, 1961, which was inserted by Finance Act, 2012.
The Ld. CIT (A), NaFAC has failed to appreciate that provisions of the Section 115JB of the Income Tax Act, 1961, cover all the companies to which the second proviso to sub-section (1) of section 129 of the Companes Act, 2013 is applicable, with liberty to prepare its profit and loss account in accordance withSchedule II of the Companies Act, 2013, or in accordance with its Regulatory Act.
4. The Ld. CIT (A), NaFAC has failed to take cognizance of the Section 11 of Banking Companies (Acquisition and Transfer of Undertakings) Act 197O which provides that every corresponding new bank shall be deemed to be an Indian company for the purposes of Income-tax Act, 1961. 5. The Ld. CIT (A), NaFAC has erred in law by relying upon the decision of Hon'ble Delhi High Courtin dated 20.10.2023 in the case of CIT Vs Punjab National Bank (successor of Oriental Bank of Commerce), since in the said decision, the Hon'ble High Court has not adjudicated the SQL raised by the Revenue related to additions made undersection 115JB, by rejecting the same only on technical grounds without making any comments Over the issue on merits.
The brief facts of the case are that the assessee is in the business of banking filed its return of income declaring Nil income and claimed refund of Rs.19,06,99,560/-. The assessee bank is owned by Government of India undertaking. A notice under section 143(1)(a) of the Act was issued on 11.08.2022 intimating that there was incorrect claim which attracted adjustment as specified under section 143(1)(a) of the Act with respect to addition of income tax provision to book profit under section 115JB of the Act amounting to Rs.11,49,64,55,264/-. The assessee submitted response disagreeing with the proposed adjustment on 17.08.2022. The return was processed under section 143(1)(a) of the Act and made adjustment making addition under section 115JB of the Act amounting to Rs.11,49,64,55,264/-.
ITA No.2058/Bang/2024 Page 3 of 19 After denying the submissions of the assessee, the CPC added the total income of the assessee at Rs.26,43,80,59,650/- under regular provisions after making addition of Rs.26,43,80,59,650/- pertaining to recovery from bad debts written of accounts. The AO, CPC, also computed the income of the assessee under section 115JB of the Act adding the provision of Rs.45,66,54,00,000/- without considering def erredt tax of Rs. 34,16,89,44,736/- and determining book profit of Rs.4,56,55,450/- and tax liability of Rs.7,97,86,58,688/-. Further, as the tax computed under section 115JB of the Act was more than the tax computed under the regular provision of the Act, the AO confirmed the demand under provision of section 115JB of the Act. The AO made various disallowances also. The assessee filed rectification application under section 154 of the Act which was disposed off by the AO against which the assessee filed appeal before the CIT(A). On 06.01.2023, the learned CIT(A) partly allowed the appeal of the assessee. After considering the reply of the assessee dated 30.05.2024 and also relying on the judgment of ITAT Delhi in and also following the judgment of Hon’ble Delhi High Court in held that the provision of section 115JB of the Act is not applicable to the assessee.
3. Aggrieved from the Order of the learned CIT(A), the Revenue has filed appeal before the Tribunal. The ld. DR relied on the Order of the AO and submitted that the amended provisions of section 115JB of the Act is applicable to the present assessee. The provision of section 115JB of the Act covered all the companies to which the second proviso to sub section 1 of section 129 of the Companies Act, 2013, is applicable with liberty to prepare its Profit and Loss A/c in accordance with schedule 3 of the Companies Act, 2013, are in accordance with its Regulatory Act. The learned CIT(A) also failed to take cognisance of section 11 of Banking Companies Acquisition and Transfer of Undertakings Act, 1970, which provides that every corresponding new bank shall be deemed to be an Indian company for the purpose of Income Page 4 of 19 Tax Act, 1961. She further submitted that the Hon’ble Delhi High Court has not decided the SQL raised by the Revenue related to additions made under section 115JB of the Act and Hon’ble Delhi High Court had decided on technical issue basis. Therefore, she requested that the Order of the learned CIT(A) should be reversed.
On the other hand, the learned Counsel for the assessee relied on the Order of the learned CIT(A) and he also relied on the judgment of the Co- ordinate Bench of the Tribunal in Order dated 04.04.2025 and he also submitted that this issue has been decided by the special Bench of the Hon’ble Tribunal. Therefore, at this stage, there are no issues left to be decided because the judgment of the Special Bench of the Tribunal is binding on the other Benches of the Tribunal.
Considering the rival submissions, the AO has applied section 115JB of the Act in the case of the assessee and this issue has been decided by various Benches of the Tribunal and the Special Bench of the Tribunal and recently we have also decided the issue on similar set of facts in the case of Bank of Baroda (Erstwhile Vijaya Bank) Vs. Addl. CIT, LTU in Order dated 04.04.2025 in which it has been held as under:
“7. We have heard the rival submissions and perused the materials available on record. The solitary issue that is raised in this appeal is the applicability of the provisions of section 115JB of the Act to the assessee’s bank. We agree with the submissions of the ld. A.R. that similar issue came for consideration in the case of M/s. Canara Bank in & 938/Bang/2024 vide order dated 16.10.2024 wherein the Tribunal held as under: “8. We have heard both the parties and perused the materials available on record. We are of the opinion that similar issue came for consideration before this Page 5 of 19 Tribunal in assessee’s own case in & ITA No.186/PAN/2019 dated 8.8.2024, wherein the Tribunal held as under:
“9. After hearing both the parties, we are of the opinion that similar issue came for consideration in the case of Canara Bank in & 392/Bang/2023 for the assessment year 2019-20. The Tribunal vide order dated 22.12.2023 held as under:
“11. Ground No.4 raised by assessee is on applicability of provisions of section 115JB of the Act. The Ld.AR submitted that, the assessee does not fall within definition of banking company as defined under Companies Act, 1956 and therefore it is not covered by proviso to section 211(2) of the Companies Act. The Ld. AR thus submitted that provisions of s. 115JB are not applicable to assessee. In support of this submission, he placed reliance on decision of Hon’ble Delhi High Court in the case of CIT v Punjab National Bank Ltd. (successor of erstwhile Oriental Bank of Commerce) in ITA 594/2023 by order dated 20/10/2023, wherein the question of law considered by the court is proposed in question (e) has been dismissed. The said order of Hon’ble Delhi High Court in the case of CIT v Punjab National Bank Ltd. (successor of erstwhile Oriental Bank of Commerce) (supra) is placed at page 35-37 of the PB.
The Ld.AR further relied on decision of Hon’ble Delhi Tribunal in the case of Oriental Bank of Commerce v. ACIT reported in [2022] TIOL 331 ITAT-DEL. The Ld.AR submitted that, the provisions of section 115JB, as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. He submitted that coordinate Bench of Delhi Tribunal considered this issue by observing as under:-
“51. This issue is no longer res-judicata following judgments of the tribunals and the High Courts wherein it is categorically held that MAT provision u/s 115JB will not apply to a Banking Company: - Canara Bank vs JCIT, LTU in & other dtd. 30.03.2016 = 2016-TIOL-1120-HC-P&H-IT - M/s. Canara Bank vs CIT(LTU) In dtd. 18.06.2012 - Krung Thai Bank PCI vs Joint Director of Income Tax (ITAT) (Mumbai) in ITA No.3390/Mum/09 dtd. 30.09.2010 reported in (2010) 45 DTR 218 - Union Bank of India vs ACIT, LTU (ITAT) (Mumbai) in ITA Nos.4702 to 4706/Mum/2010 dtd. 30.06.2011
ITA No.2058/Bang/2024 Page 6 of 19 - Indian Bank vs Addl. CIT (ITAT) (Chennai) in dtd. 03.08.2011 - Union Bank of India (ITAT Mumbai) in to4161 of 2011 dtd. 27.03.2012 - Oriental Insurance Co. Ltd. vs. DCIT I dtd 30.08.2017 = 2017-TIOL-1714-HC-DEL-IT - CIT vs Union Bank of India (2019) 308 CTR 797 (Bom) HC
52. In the above referred judgment of the Bombay High Court, at relevant page 8, para no.11 (paper book page no.13) the court has held as under: "This legal dichotomy emerging from the provisions of subsection (2) of Section 115JB particularly having regard to the first proviso contained therein in case of banking company, would convince us that machinery provision provided in sub- section (2) of section 115JB of the Act, would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme Court in case of Commissioner of Income-Tax, Bangalore vs B.C. Shrinivasa Setty, Vo. 128 ITR 294 = 2002-TIOL-587-SC-IT-LB, had observed that in the Income Tax Act, a charging section and the computing provisions together constitute an integrated code. In a case where the computation provision cannot apply, it would be evident that such a case was not intended to fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain cannot be done without ascertaining the cost of acquisition, it was held that no capital gain tax can be levied. "
Concluded at page 12 para 21 as under: "27. In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No. 2 in favour of the assessee and against the revenue. In view of this, question of correctness of the order of rectification passed by the Assessing Officer becomes unimportant. Question No. 1 is therefore not answered. All the appeals are dismissed."
54. For the AY 2013-14 and onwards, vide ground no. ground no. 3 of (AY 13-14), (AY 14- 15) and ground no. 6 of ITA no. 1199/Del/2018 (AY 15-16), the assessee has contended that provisions of section 115JB (MAT) will not apply as the assessee is a Nationalized Bank under the Banking Company (Acquisition and Transfer of Undertaking) Act, 1980.
Page 7 of 19 55. The provisions of section 115JB as amended by the Finance Act, 2012 w.e.f. 1.4.2013, inserting clause (a) and clause (b) in sub- section (2) to section 15JB are as under: "115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, [2012], is less than [eighteen and one-half per cent] of its book profit, [such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of incometax at the rate of [eighteen and one-half per cent]]. (2) [Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company:] Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii)the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, Page 8 of 19 shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. "
56. Thus, the understanding of the above amendment to section 115JB is where a company which are not required u/s 211 (129) of the Companies Act to prepare their P&L account in accordance with Schedule - VI of the Companies Act, 1956 profit & loss account prepared in accordance with the provisions of their Regulatory Acts shall be taken as a basis for computing the book profit u/s 115JB.
57. The assessee's contentions for non-applicability of 115JB provisions are: "(i) It is a case of Nationalized Bank, under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980.
(ii) Assessee is not a company incorporated under the Companies Act, 1956, nor recognized under section 3 of the Companies Act. (iii) The second proviso to sub-section (1) of section 129 (earlier provision 211) of the Companies Act, 2013 is not applicable to the assessee. (iv) Under section 11 of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980 provides that "for the purposes of the Income-tax Act, 1961, every corresponding new bank shall be deemed to be Indian company and a company in which public is substantially interested". (v) It is settled principle of law where deeming fiction is created by the legislature it has to be confined to the purpose for which it is created. CIT, Panji vs Dempo Company Limited reported in (2016) 74 TAXMAN.com 15 (SC) = 2016-TIOL-164-SC-IT. Therefore, the Income- tax Act must recognize such banking company for the purpose section 115JB in order to make the provisions applicable. (vi) When the charging section and the computing provision together would constitute an integrated code. In case charging section does not apply then the computation section fails. CIT vs B C Shrinivas Setty 128 ITR 294 = 2002-TIOL-587-SC-IT- LB."
However, the plea of the assessee with respect to nonapplicability of section 115JB to the Banking Companies was rejected by the ITAT Mumbai "B" Bench in for the A.Y. 2015-16 in the case of Bank of India vs ACIT Mumbai vide order dated 11th December, 2020.
59. There is no jurisdictional High Court decision or for that matter any other High Court decision against the assessee. In view of the fact that two use are possible, the view that favour the assessee may kindly Page 9 of 19 be considered, more so in the case of a Nationalized Bank as held by the Hon'ble Supreme Court in the case of CIT vs Vegetable Products Ltd. 88 ITR 192 = 2002TIOL-574-SC-IT-LB.”
The Ld. DR though could not controvert the above observation by Hon’ble Delhi Tribunal in the above own case, placed reliance on the decision of Ld.CIT(A).
We have perused submissions advanced by both sides in light of record placed before us. We note that decision of Hon’ble Delhi Tribunal in Oriental Bank(supra) has been upheld by Hon’ble Delhi High Court wherein Hon’ble High Court has categorically observed that the revenue in case of Punjab National Bank did not raise this issue which are identical to facts of the present assessee before us. In view of the same, Ground No.4 raised by the assessee deserves to be allowed.”
9.1 In view of the above order of the Tribunal cited (supra), taking a consistent view, we allow this ground taken by the assessee.”
8.1 Further, similar issue came for considerationrecently before the ITAT, ‘Special Bench’ Mumbai in the case of Union Bank of India Vs. DCIT in for the Asst. year 2015-16 and Central Bank of India Vs. ACIT in for the Asst year 2013-14, in which the Special Bench of ITAT vide Order dated 06/09/2024 held as under:
DECISION
We have heard both the parties and also perused the relevant material referred to before us and the various provisions of the relevant Acts cited which are relevant for adjudication of the issue before us.
The question which has been referred to the Special Bench is whether the requirement of sub-section (2) of 115JB is fulfilled in the present case of the assessees. Sub-section (1) of Section 115JB mandates charge of income tax based on book profits subject to fulfillment of certain conditions and also provides the rate on which such tax shall be charged. The Section starts with non-obstante clause and therefore, it is a departure from normal charge of tax on the total income of the company. Sub-section (2) is the computation provision dealing with the manner in which such book profits are to be computed. Upto A.Y.2012-13, subsection (2) of Section 115JB applied only to such Page 10 of 19 companies which were required to prepare its profit and loss account in accordance with part II & III of Schedule VI to the Companies Act & 3740/Mum/2018 The Union Bank of India & Central Bank of India 34 1956. The assessee bank is required to prepare its profit and loss account in accordance with Section 52 r.w.s. 29 of the Banking Regulation Act and not as per the Companies Act. Earlier in the case of the assessee it has been settled by the Hon’ble Jurisdictional High Court that provision of Section 115JB has no application to its case. Now after the amendment w.e.f. A.Y.2013- 14, Sub-section (2) has been amended to bring into the ambit of Section 115JB, those companies to which second proviso to subsection (1) of Section 129 of the Companies Act is applicable, who are required to prepare its statement of profit and loss account in accordance with provisions of the Act governing such company. For the sake of ready reference the amended subsection (2) of Section 115JB is again reproduced hereunder:- (2) Every assessee,— (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b) being a company, to which the second proviso to subsection (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss,— (i) the accounting policies; ITA No.424/Mum/2020 & 3740/Mum/2018 The Union Bank of India & Central Bank of India 35 (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including statement of profit and loss and laid before the company at its annual general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act,— (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year. Page 11 of 19 41. In so far as Clause (a), the same applies to a case of a company other than referred to in Clause (b). According to clause (a), for the purpose of Section 115JB the company has to prepare its profit and loss account for the relevant previous year in accordance with the Companies Act, 2013 and the First proviso to sub-section (2) requires that while preparing the accounts including the profit and loss account, the accounting policies, the accounting standards and the method and rates adopted for the purpose of preparing such accounts & 3740/Mum/2018 The Union Bank of India & Central Bank of India 36 including the profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of Section 129 of the Companies Act, 2013. Since assessee bank has to prepare its accounts in accordance with the provisions contained in Section 51 r.w.s. 29 of the BR Act, therefore, Schedule III of the Companies Act is not applicable. Thus, Clause (a) of Section 115JB (2), the computation provision, will not apply and this matter has attained finality in the case of the assessee by the Hon’ble Jurisdictional High Court in the case of the assessee (cited supra).
Now for Clause (b), following conditions need to be satisfied for applying section 115JB in the case of a company:- i. it applies to a company to which the second proviso to subsection (1) of section 129 of the Companies Act, 2013 is applicable; ii. once this condition is fulfilled, it requires such assessee for the purpose of this section to prepare its profit and loss account in accordance with the provisions of the Act governing such company.
Since 115JB is applicable to the company to which second proviso to Section 129(1) applies, therefore, it would be relevant to quote Section 129 of the Companies Act which reads as under:- "129. Financial statement-(1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be & 3740/Mum/2018 The Union Bank of India & Central Bank of India 37 provided for different class or classes of companies in Schedule III: Provided that the items contained in such financial statements shall be in accordance with the accounting standards. Provided further that nothing contained in this subsection shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of Page 12 of 19 affairs of the company, merely by reason of the fact that they do not disclose (a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938 (4 of 1938), or the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), (b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949 (10 of 1949), (c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003 (36 of 2003), (d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law."
The second proviso applies to any insurance company, banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company. In so far as the present & 3740/Mum/2018 The Union Bank of India & Central Bank of India 38 case is concerned, one has to consider whether the assessee could be regarded as a 'banking company' for the purposes of section 129 of the Companies Act, 2013).
Now whether the assessee bank can be termed as a company within the meaning of the Companies Act, 2013, first of all, Section 115JB(2) is applicable to every assessee „being a company‟. The company has been defined in Section 2(17) of the Income Tax Act which we have already reproduced in para 22 above. Thus, the company means any Indian company. Indian company has been defined in Section 2(26) (incorporated in Para 23 of the order) which defines „Indian company‟ means company formed and registered under the Companies Act. Thus, the company for the purpose of the Income Tax Act is a company which is formed and registered under the Companies Act. Section 2(9) of the Companies Act, 2013, a banking company has been defined to mean a banking company as defined in section 5(c) of the BR Act). Section 5(c) of the BR Act defines a „banking company‟ as under: "(c) "banking company" means any company which transacts the business of banking in India" Therefore, for an entity to qualify as a banking company it should first of all, be a company' and secondly the said company should transact the business of banking in India.
The expression "company" has been defined in section 5(d) of the BR Act as under:
& 3740/Mum/2018 The Union Bank of India & Central Bank of India 39 "(d) "company" means any Page 13 of 19 company as defined in section 3 of the Companies Act, 1956 (1 of 1956); and includes a foreign company within the meaning of section 591 of that Act;"
Therefore, in so far as is relevant, the entity has to be a company as defined in section 3 of the Companies Act, 1956 (Now 2013) to be regarded as a banking company. Section 3(1)(i) of the Companies Act, defines a 'company' as under: "(i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii)"
Therefore, it is sine-qua-non that for an entity to qualify as a company it must either be a company formed and registered under the Companies Act or it should be an existing company as defined in sub- clause (ii) thereof. Since the Assessee is not formed and registered under the Companies Act, 1956, albeit came into existence by a separate Act of Parliament, that is, „Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970‟, therefore, it does not fall in the first part of the said section.
Further, the expression "existing company has been defined in Section 3(1)(ii) to mean as under: "(ii) "existing company" means a company formed and registered under any of the previous companies laws specified below :- (a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866), and repealed by that Act; & 3740/Mum/2018 The Union Bank of India & Central Bank of India 40 (b) the Indian Companies Act, 1866 (10 of 1866); (c) the Indian Companies Act, 1882 (6 of 1882); (d) the Indian Companies Act, 1913 (7 of 1913); (e) the Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and (f) any law corresponding to any of the Acts or the Ordinance aforesaid and in force - (1) in the merged territories or in a Part B States (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or (2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), insofar as banking, insurance and financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu & Kashmir) Act, 1968 (25 of 1968), insofar as other corporations are concerned; and (3) the Portuguese Commercial Code, insofar as it relates to sociedades anonimas";"
Page 14 of 19 50. The assessee bank was neither formed nor registered under the Companies Act, 1956; nor it is in existing company as per the above definition. Once it is not a company under the Companies Act, then the first condition referred to in clause (b) of Section 115JB(2) is not fulfilled, and consequently second proviso below Section 129(1) of the Companies Act is also not applicable.
The main crux of the department is that since assessee bank has come into existence by the „Acquisition Act‟ and Section 11 thereof states that for the purpose of Income Tax Act, & 3740/Mum/2018 The Union Bank of India & Central Bank of India 41 every corresponding new bank shall be deemed to be an „Indian company‟ and the company in which the public are „substantially interested' and since in Section 2(17) of the Income Tax Act, the „company‟ has been defined as any Indian company therefore, the provisions of the Income Tax Act would apply because Section 2(26) of the Act defines „Indian company‟ means the company formed and registered under the Companies Act and therefore, it is deemed to be a company under the Companies Act.
Section 11 of the Acquisition Act states that "For the purposes of Income-tax Act, 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian company and a company in which the public are substantially interested". Therefore, the said deeming fiction is created only for the purposes of the Income-tax Act. Further, for the purposes of the said Act, it treats every corresponding new bank to be an Indian company and also a company in which the public are substantially interested.
53. First of all, deeming an entity to be an Indian Company or a company in which public are substantially interested for the purposes of the Income-tax Act would not ipso facto make such entity as a 'company' for the purposes of the Companies Act, 2013, unless the conditions specified in Section 3 thereof are fulfilled. There is no provision to deem a nationalised bank to be & 3740/Mum/2018 The Union Bank of India & Central Bank of India 42 a company for the purposes of Section 3 of the Companies Act, 1956.
As explained in the foregoing paragraphs, Section 2(17) of the income Tax Act r.w.s. 2(26) which defines „company‟ to mean a company formed and registered under the Companies Act, 1956, does not meet the requirement of being a company in the case of assessee Page 15 of 19 bank, because the Indian company has to be formed and registered under the Companies Act. Notwithstanding that Section 11 of the Acquisition Act deems assessee bank to be a company for the purpose of Income Tax Act, but that does not lead to an inference that merely regarded as a company for the purpose of the Income Tax Act it is also Company registered under the Companies Act. The fiction created by Section 11 of the Acquisition Act, does not imply that the assessee bank would also become a company for the purpose of the Companies Act for which Clause (b) of Sub-Section 2 of Section 115JB is applicable.
In the earlier part of the order, we have already noted that by the Acquisition Act, the banking business of the existing bank was transferred from Union Bank of India Ltd to The Union Bank of India. The earlier entity, i.e., Union Bank of India Ltd. was a company under the earlier Companies Act, however, that company as a whole was not taken over or acquired but only banking business was acquired by the Acquisition Act. That is the reason why Union Bank of India Ltd. still existed at the point of acquisition and continues till now and the shareholders of & 3740/Mum/2018 The Union Bank of India & Central Bank of India 43 Union Bank of India Ltd. were paid compensation as a consideration for acquiring the banking business. It was by the Acquisition Act that these banks were nationalized and the banking business was acquired from the erstwhile banking companies. These new acquiring banks including Union Bank of India is neither registered under the Companies Act, 2013 nor under any other previous company law. Already the Hon’ble Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India (supra) as noted above, the Hon’ble Supreme Court had held that only undertaking was acquired for the banking companies acquisition and transfer of invoking ordinance which was promulgated on 19/06/1969, which culminated into the Act of Banking Companies (Acquisition and Transfer of Undertaking) Act,1970. Thus, assessee cannot be treated as a company under the Companies Act, because it was never registered under the Companies Act. Ergo, the deeming fiction by way of Section 11 of the Acquisition Act has to be read purely in the context for the purpose of Income Tax Act where the corresponding new bank have been deemed to be an Indian Company and a company in which public are substantially interested. This deeming section cannot be extended to a company registered under the Companies Act to which alone Section 115JB is applicable.
Thus, we hold that Section 11 of the Acquisition Act which deals a corresponding new bank treated as Indian company for the purpose of Income Tax, however, Clause (b) in Sub-Section 2 to Section 115JB does Page 16 of 19 not permit treatment of such bank as a company for the purpose of the said clause, because it should be & 3740/Mum/2018 The Union Bank of India & Central Bank of India 44 company to which second proviso to sub-section (1) to Section 129 of the Companies Act is applicable. The said proviso has no application to the corresponding new bank as it is not a banking company for the purpose of the said provision. The expression “company” used in section 115JB(2)(b) is to be inferred to be company under the Companies Act and not to an entity which is deemed by a fiction to be a company for the purpose of the Income Tax Act.
57. Before us, ld. Counsel has given various references under the Income Tax Act itself where the corresponding new bank and a banking company have been treated separate and independent from each other for which our reference was also drawn to Section 36(1)(viii) & 72A. Apart from that, it is noticed that, Section 194A(1) of the Act which provides that if any specified person is responsible for paying to a resident any income by way of interest is obliged to deduct tax at source, however, Section 194A(3) provides that Section 194A(1) shall not apply if the payment has been made to certain entities. Clause (iii) of subsection (3) of section 194A, deals with such entities. The said clause reads as under:- iii) to such income credited or paid to- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co- operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or & 3740/Mum/2018 The Union Bank of India & Central Bank of India 45 (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: [Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;]
The aforesaid clause (f) provides that if Central Government notifies any such entity then TDS is not to be deducted. It is very relevant to note that at the time of Acquisition Act was enacted, Central Government had issued a Notification No. SO 710 dated 16/02/1970 [1970] [Reported in 75 ITR (Stat) 106] which reads as under:- 58. Income-tax Act, 1961: Notification under sec. 194A(3)(iii)(f) Notification No. S. O. 710, dated February 16, 1970. (1) In pursuance of Page 17 of 19 sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify with effect from the 19th July, 1969, the following banks for the purposes of the said sub-clause:- 1. Indian Overseas Bank, 151, Mount Road, Madras 2. Indian Bank, Indian Chamber Building, Madras-1.
& 3740/Mum/2018 The Union Bank of India & Central Bank of India 46 3. Allahabad Bank, 14, India Exchange Place, Calcutta-
1. 1. 1. 4. Dena Bank, Devkaran Nanjee Building, 17, Horniman Circle, Fort, Bombay-1. 5. Canara Bank, 112, Jayachamarajendra Road, Bangalore-1. 6. Union Bank of India, 66/80, Apollo Street, Fort, Bombay-1. 7. United Commercial Bank, 10, Brabourne Road, Calcutta-1. 8. Bank of Baroda, 3, Walchand Hirachand Marg, Bombay-1. 9. Punjab National Bank, Parliament Street, New Delhi-1. 10. Bank of India, 70/80 Mahatma Gandhi Road, Bombay-1. 11. Central Bank of India, Mahatma Gandhi Road, Bombay-1.
12. United Bank of India, 4, Narendra Chandra Datta Srani (Clive Ghat Street), Calcutta-1.
13. Bank of Maharashtra, 1177 Peth, Poona-2.
14. Syndicate Bank, Manipal, Mysore State, Mysore
Thus, the aforesaid notification read with provision of Section 194A(3), makes it clear that even Government of India considers the above entities separate and distinct from banking companies. Once under the Income Tax Act, Legislature itself has made a distinction for the aforesaid banks including the assessee are not covered as banking company, then, this further buttresses the point that these banks are separate and distinct from other banking companies.
Accordingly, the question referred to Special Bench is decided in favour of the assessee banks that clause (b) to sub section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 w.e.f. 1-4- 2013, that is, from assessment year & 3740/Mum/2018 The Union Bank of India & Central Bank of India 47 2013-14 onwards, are not applicable to the banks constituted as 'corresponding new bank' in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and therefore, the provision of Section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not applicable to such banks.”
Page 18 of 19 8.2 In view of the above orders of the Tribunal cited (supra), taking a consistent view, we allow this ground taken by the assessee.
Ground No.5 is the consequential ground with regard to adjustments to book profits and computation of income u/s 115JB of the Act.
9.1 Since the ground No.4 of the assessee’s appeal deciding on the issue of applicability of provisions of section 115JB of the Act is already allowed in favour of the assessee bank by following the earlier order of this Tribunal cited (supra) as well as respectfully following the decision of the ITAT, ‘Special Bench’ Mumbai, the ground no.5 of the assessee’s appeal becomes infructuous.”
7.1 In view of the above order of the Tribunal cited (supra), taking a consistent view, we held that provisions of section 115JB of the Act cannot be applied to assessee bank and consequently the tax on book profits (MAT) are not applicable to assessee’s bank. 7.2 We also make it clear thatsince the issue of applicability of the provisions of section 115JB of the Act is already allowed in favour of the assessee bank, the ground no. 4 of the assessee’s appeal being consequential becomes infructuous.”
Respectfully following the decision of the Co-ordinate Bench, we are dismissing the appeal of the Revenue.
In the result, appeal filed by the Revenue is dismissed.
Pronounced in the court on the date mentioned on the caption page.