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Facts
This case involves two appeals (one by Revenue, one by Assessee - United Bank of India) for Assessment Year 2013-14, challenging a CIT(A) order. The Assessing Officer had made additions under Section 36(1)(viii) and Section 14A, and subjected the assessee to tax computation under Section 115JB. The assessee was partially successful before the CIT(A), leading to appeals before the ITAT by both parties.
Held
The Tribunal dismissed the Revenue's appeal regarding Section 14A disallowance, holding that the assessee's suo moto disallowance was sufficient for shares held as stock-in-trade. It allowed the assessee's appeal for Section 36(1)(viii), deleting the disallowance related to operating expenses allocation, and also allowed the appeal against the applicability of Section 115JB, stating it does not apply to the assessee bank as it was not incorporated under the Companies Act, 1956. Charging interest under Section 234D was deemed consequential and not specifically adjudicated.
Key Issues
Whether disallowance under Section 14A is applicable for shares held as stock-in-trade; the correct basis for deduction calculation under Section 36(1)(viii); and the applicability of Section 115JB (MAT) to a banking company not incorporated under the Companies Act, 1956.
Sections Cited
250, 36(1)(viii), 14A, 115JB, 10(34), 234D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH”, KOLKATA
Appearances by: Assessee represented by : Soumitra Choudhury, Advocate Parnesh Sarkar, Advocate Department represented by : Sanat Kumar Raha, CIT-DR Date of concluding the hearing : 21.07.2025 Date of pronouncing the order : 23.07.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER
This is a batch of 2 appeals of the same assessee, pertaining to A.Y. has been filed by the assessee. Both of these appeals are disposed of through a single order.
1.1 Both of these appeals arise from order under Section 250 of the Income Tax Act, 1961 (hereafter “the Act”), passed by the Ld. Commissioner of Income Tax (Appeals)-23, Kolkata, vide order dated 22.12.2017. In this case, the Ld. Assessing Officer made substantive additions under Section 36(1)(viii) of the Act (Rs. 30,80,96,948/-) and under Section 14A of the Act (Rs. 18,02,83,794/-), after giving benefit of an amount disallowed by the assessee on its own account. Also, the Ld. AO subjected the matter to tax computation as per the provisions of section 115JB of the Act.
1.2 The assessee carried the additions in appeal, where he was partially successful. Now both the Revenue and the assessee are in appeal before the ITAT. The grounds may be extracted for reference:
“i) The Ld. CIT (A) has erred in law and on facts by deleting the addition of Rs. 18,02,83,794/-made u/s. 14A of the Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962. (ii) The Ld. CIT (A) has erred in law and on facts in shifting onus of investment arising out of non interest bearing surplus fund on the department whereas the beneficiary is assessee and onus lies on the assessee. (iii) The Ld. CIT (A) has erred in law and on facts in placing reliance on the concept of excess sufficient fund which is separate from its interest bearing fund. The assessee is a banking company who takes deposit from people and lends the money for loans and trades the money in shares and securities. The Ld. CIT (A) has erred in law by observing contradictorily the definition of excess sufficient funds and the nature of business of the assessee. (iv) That the appellant craves for leave to add, delete and/or modify any of the grounds of appeal before or at the time of hearing.” ITA No. 428/Kol/2018 “1. For that on the facts of the case, the order passed by the Ld. C.I.T(A)-23, Kolkata is completely arbitrary, unjustified and illegal.
2. For that on the facts of the case, the Ld. CIT(A) was wrong in dittoing the order & 215/Kol/2018 United Bank of India of the A.O. in changing the basis of allocation of operating expenses while calculating eligible deduction u/s 36(1)(viii). The A.O. has changed the allocation basis from asset to turnover basis thereby reducing the deduction u/s 36(1)(viii) by Rs.30,80,96,948/ in his order which is confirmed by the Ld. CIT(A), as such his finding is completely arbitrary, unjustified and illegal.
3. For that on the facts of the case, the Ld. CIT(A) was wrong in restricting the disallowance u/s. 14A amounting to Rs. 1.47 crores by invoking Rule 8D(2)(iii), but shares are held as stock-in-trade to the assessee bank, therefore, the disallowance of Rs.1.47 crores u/s. 14A is completely arbitrary, unjustified and illegal.
4. For that on the facts of the case, the Ld. CIT(A) was wrong in not upholding the A.O.'s order assessing total income of the appellant under the deeming Provisions of sec. 115JB of the 1.T. Act and also upholding the A.O.'s contention that Provisions of sec. 115JB were applicable to the appellant bank which is not incorporated under the Companies Act, 1956, as such his finding is completely arbitrary, unjustified and illegal.
5. For that on the facts of the case, the authorities below failed to appreciate that the appellant bank was never constituted under the provisions of the Companies Act, 1956 and in that view of the matter Provisions of sec. 211 of the Companies Act, 1956 were never applicable to the appellant and therefore, as per the extant Provisions of sec. 115JB of the Act as in force for A.Υ. 2013-14 Provisions of sec. 15JB were not applicable to the Bank, therefore, the appellate order passed by the Ld. CIT(A) is completely arbitrary, unjustified and illegal.
6. For that on the facts of the case, the authorities below failed to appreciate that the appellant was established under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 and therefore, the appellant was not a Company within the meaning of the Companies Act, 1956 and consequently therefore, Provisions of Sec. 115JB as were in force in A.Y. 2013-14 did not have any application to the appellant's case and in that view of the matter the appellant was not assessable to tax under the deeming Provisions on 'Book Profit', as such his finding is completely arbitrary, unjustified and illegal.
7. For that on the facts of the case, the Ld CIT(A) was wrong in upholding the application of sec. 115.JB to the appellant bank by wrongly interpreting the findings of the I.T.A.T., Kolkata in the appellant's own case and in that view of the matter the lower authorities be directed not to assess the total income of the appellant under the deeming Provisions of Sec. 115JB of the I.T. Act, as such his finding is completely arbitrary, unjustified and illegal.
8. For that on the facts of the case, the Ld CIT(A) was wrong in upholding the addition of depreciation on investment amounting to Rs.27,52,52,000/- to the Net Profit in arriving Book Profit assessable u/s. 115JB of the I.T. Act 9. For that on the facts of the case, the Ld. CIT(A) failed to appreciate that the appellant had made the aforesaid Provisions against depreciation on investment amounting to Rs.27,52,52,000/- in conformity with and in compliance with Prudential Accounting Guidelines prescribed by the RBI and the same being binding on the appellant bank the authorities below were not justified in adding back the aforesaid Provisions to the Net Profit in arriving at 'Book Profit' assessable u/s. 115JB of the I.T. Act.
& 215/Kol/2018 United Bank of India 10. For that the charging interest u/s 234D is mechanically wrong and illegal 11. For that the appellant reserves the right to adduce any further ground or grounds, evidence or evidences on hearing of appeal”
Regarding the Revenue’s appeal ( Ld. DR took us through the issues as per their grounds, which challenge the action of Ld. CIT(A) in deleting the addition of Rs. 18,02,83,794/- u/s 14A of the Act. The Ld. DR averred that it was not a case where the applicability of section 14A r.w. Rule 8D was in doubt, since the assessee had suo moto disallowed Rs. 1.87 Crores. It was averred that once there was exempt income then the section 14A of the Act was triggered and then the AO needed to compute the disallowance under the mechanism provided under Rule 8D of IT Rules. It was then submitted that the Ld. AO had adopted the correct method of computing the disallowance herein.
2.1 Per contra, the Ld. AR relied on a plethora of judgments and decision rendered by various High Courts and the Hon'ble Supreme Court, as also Coordinate Benches of the ITAT in other cases and in the assessee’s own case. The Ld. AR especially pointed out the decision rendered in assessee’s own case for A.Y. 2014-15 [ITA No. 1528/Kol/2019] on this issue.
We have heard the rival contentions and also gone through the records before us, including the case laws and orders of ITAT in assessee’s own case. It would be pertinent to extract the operative portion of the order for A.Y. 2014-15 (supra) as under:
“4. We have heard the arguments of both the sides and also perused the relevant material available on record. The learned counsel for the assessee has submitted that a similar issue relating to the disallowance u/s 14A of the Act read with Rule 8D was involved in assessee's own case for A.Y. 2010-11 and the coordinate bench of this Tribunal vide its order dated 19.02.2020 passed in deleted the said disallowance by following the decision of Delhi Bench of ITAT in the case of Nice Bombay Transport Pvt. Ltd. rendered vide its order dated 19.11.2018 in ITA No. 1331/Del/2012. He has also placed on record a copy of the said order and perusal of the same shows that a similar disallowance made u/s 14A read with Rule 8D in assessee's & 215/Kol/2018 United Bank of India own case for A.Y. 2010-11 was deleted by the Tribunal vide paragraph no. 16 of its order which is extracted below: "16. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of ITAT, New Delhi vide order dated 19.11.2018. In this order, the Tribunal has inter alia observed as follows:
"6. We have carefully considered the submissions and perused the records. There is no denial of the assertions by the assessee that the assessee is engaged in the business of trading in share and all the shares are held by the assessee company as part of its stock-in-trade and not as an investment as is evidenced by the balance sheet of the company. However, Ld. AO recorded that a profit making company pays dividend to its shareholders who have invested some money to its shares, whether the Shareholder is a trader of share or not. Ld. AO further noted that the assessee company has purchased units from the mutual funds under the Dividend Reinvestment Plan and earned day to day dividend in the shape of units and value of the purchase account had increased by such units and the motive of the assessee company is clear to earn the dividend income. Ld. AO further observed that for a trader of shares, two types of gains are available, simultaneously. Firstly, earning profit from the settling of shares at higher prices from its cost price and secondly is the dividend income and without making investments, the assessee could not have earned dividend income.
Thus, as per Ld. AO the investments and dividend are integral part of financial transactions, and they are inseparable. One cannot claim that investment in shares is made only for earning trading benefits or for having dividend income only, because both the gains are existing simultaneously. Ld. AO further noted that in the same way, the expenditure incurred by way of interest on the money taken on loan for investment/purchase of shares cannot be segregated as the expenditure incurred exclusively for investment/purchase of shares. Actually, the expenditure has been incurred for having both the benefits. Thus, it is amply clear that the expenditure incurred by way of payment of interest has direct link with the dividend income and hence, disallowance as per section 14A of the 1.T. Act.
Assessee placed reliance on the decision reported in the case of Vora Financial Services (P) Ltd. vs. ACIT, Mumbai by the ITAT, Mumbai Bench (2018) 96 com88 (Mum-Trib) wherein, it was held that where a major portion of dividend income had been received as shares held as stock-in-trade, it cannot be appropriate to apply the provisions of Rule SD. It is further argued by the Ld. Authorized Representative that whatever the expenses that are debited to the profit and loss account are the business expenses relating to trading of the shares and not additional expense whatsoever made.
Further reliance is placed on the decision of the Hon'ble Kerala High Court in the case of CIT vs. Smt. Leena Ramachandran (2010) 235 CTR 512 (Ker.) for the principle that the assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on borrowed funds utilized for the acquisition of shares, when the shares held as stock-in-trade which arise if the assessee is engaged in the trading of shares.
In fact, this question had fallen for consideration in the case of Maxopp & 215/Kol/2018 United Bank of India investment Ltd versus CIT (2018) 91 taxman.com 154 (SC), wherein the Hon'ble Apex Court considered two cases wherein the question of apportionment of expenditure had arisen and predominant intent of investment in shares was pleaded, though an different facts, on the ground that the objective of investing in shares was not to the dividend income, but to either retain controlling interest over the company in which the investment was made or to earn the profit from trading in shares. The question was whether the disallowance under section 14 A of the Act could be invoked in the cases where exempt income was earned from shares held as "trading assets" or "stock in trade". The first case relates to Maxopp investment Ltd and the second case relates to the case of State Bank of Patiala. In the case of Maxopp investment Ltd the assessee company is in the business of finance, investment and was dealing in shares and securities; that they held the shares and securities, partly as investments on the "capital account" and partly as "trading assets" for the purpose of acquiring and retaining control over its group companies, primarily Max India Ltd.: and that the profits resulting on the sale of shares held as trading assets were duly offered to tax as business income of the assessee. In the case of State Bank of Patiala the assessee the exempt income in the form of dividend was earned by the bank from securities held by an stock in trade.
The Hon'ble Supreme Court was considering the question that has arisen under varied circumstances where the shares/stocks were purchased of a company for the purpose of gaining control over the said company or as "stock in trade", though incidentally income is also generated in the form of dividends as well.
It was argued before the Hon'ble Apex Court that though incidentally income was also generated in the form of dividends, the dominant intention for purchasing the shares was not to earn the dividend income but to acquire and retain the controlling the business in the company in which shares were invested, or for the purpose of trading in the shares as business activity.
After considering the entire case law on this aspect in the light of the peculiar facts involved in both the matters, the Hon'ble Apex Court vide paragraph No. 39 and 40 held as follows:- 39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession What happens is that, in the process, when the shares are held as 'stock-in-trade, certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 144 of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40) We note from the facts in the State Bank of Patiala cases that the AO. while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 144 of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried & 215/Kol/2018 United Bank of India out by the AO. CIT(A) disallowed the entire deduction of that view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove.
It is, therefore, clear from the above observations of the Hon'ble Apex Court that depending upon the facts of each case, the expenditure incurred in acquiring the shares will have to be apportioned. Hon'ble Apex Court held that the tribunal and the Hon'ble High Court of Punjab and Haryana arrived at a correct conclusion by setting aside the disallowance under section 14 A of the Act in respect of the dividend earned on the shares held as stock in trade, because such shares were held during the business activity of the assessee and it is only by a quirk of fate that when the investee company declared dividend, those shares were held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits.
Hon'ble Apex Court made a clear distinction of this case from the case of Maxopp investment Ltd were the assessee knew that whenever dividend would be declared by the investee company such dividend would necessarily be earned by the assessee and assessee alone, and it would be in the common knowledge of the assessee that such shares would generate dividend income as well as and when such dividend income is generated that would be earned by the assessee Hon'ble Apex Court in unequivocal terms held that in contrast, where the shares are held as stock in trade, this may not be necessarily a situation and the main purpose was to liquidate those shares whenever the share price goes up in order to earn profits. In the words of the Hon'ble Apex Court, the situation here is, therefore. different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company.
Hon'ble Apex Court, therefore, while rejecting the theory of dominant purpose in making investment in shares whether it was to acquire and retain controlling interest in the other company or to make profits out of the trading activity in such shares clearly made a clear distinction between the dividend earned in respect of the shares which were acquired by the assessee in their exercise to acquire and retain the controlling interest in the investee company, & 215/Kol/2018 United Bank of India and the shares that were purchased for the purpose of liquidating those shares whenever the share price goes up, in order to earn. It is, therefore, clear that though not the dominant purpose of acquiring the shares is a relevant for the purpose of invoking the provisions under section 14 A of the Act, the shares held as stock in trade stand on a different pedestal in relation to the shares that were acquired with an intention to acquire and retain the controlling interest in the investee company.
In the circumstances and respectfully following the aforesaid binding precedent, we are of the considered opinion that Application of Rule SD to the facts of the case is not correct, hence, the addition on this account is hereby directed to be deleted." We note that the issue is squarely covered in favour of assessee by the judgment of Co-ordinate Bench of ITAT New Delhi in the case of Nice Bombay Transport Pvt. Ltd. (supra) therefore, respectfully following the judgment of Co-ordinate Bench, we delete the addition of Rs. 1.58 crores."
5. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2010-11, we respectfully follow the decision of the coordinate bench of this Tribunal rendered for A.Y. 2010-11 and uphold the impugned order of the Ld. CIT(A) deleting the disallowance made by the AO u/s 14A of the Act read with Rule 8D.” 3.1 We accordingly direct that the addition made by the Ld. Assessing Officer be deleted. However, we are aware that the assessee has disallowed and added back Rs.1.87 Crores on his own account. Accordingly, following the Maxopp Investment Ltd. case reported in 402 ITR 640 (SC), whereby the issue of investments held as stock-in-trade has been discussed in para 39, we direct that the disallowance made by the assessee on his own account will be sufficient to satisfy the provisions of section 14A of the Act. For reference, an illuminating portion from the Maxopp case (supra) needs to be extracted:
“In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession' are not of concern. What happens is that, in the process, when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of section 10(34), this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of section 14A which is based on the theory of apportionment of expenditure between taxable and non-taxable income. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned [para 39].”
Regarding the assessee’s appeal (ITA No. 428/Kol/2018), the Ld. AR vehemently argued that the issue of deduction under Section 36(1)(viii) of the Act was covered in the assessee’s favour due to decision rendered by Coordinate Benches in assessee’s own case. Our attention was drawn to the decision for A.Y. 2012-13 [ITA No. 75/Kol/2018) through which this issue has been settled in the assessee’s favour.
4.1 The Ld. DR supported the Ld. AO's findings and stated that the assessee had claimed Rs. 87,00,00,000/- as deduction under Section 36(1)(viii) of the Act, by apportioning expenses in the ratio of deposits, borrowings and advances, when the same should have been done on the basis of entire turnover. The Ld. DR averred that the allowable deduction was only Rs. 56,19,03,052/- and thereby the Ld. AO had added the differential figure of deduction claimed and allowable at Rs. 30,80,96,948/- (impugned amount).
4.2 We have considered the records before us and heard the Ld. AR/DR. It is seen that this issue is covered in favour of the assessee by the decision in A.Y. 2012-13 (supra) in assessee’s own case. The relevant portion from that decision deserves to be extracted as under:
“11. The assessee's next substantive ground seeks to reverse both the lower authorities' action disallowing its interest claim u/s 36(1)(viii) of the Act amounting to Rs.14,55,65,230/- after changing allocation of operative expenses from asset to turnover basis. We notice qua the instant issue as well that this tribunal's coordinate bench's decision in Allahabad Bank vs. DCIT 19.06.2019 as stated 17. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the apportionment of operating expenses made by the assessee in the ratio of eligible business to total business by taking into consideration the advances and deposits while determining the profit of the eligible business of long-term finance eligible for deduction under section 36(1 )(viii) was not accepted by the authorities below mainly on the ground that the said basis adopted by the assessee had also taken into consideration the non performing assets from which no income was recognized. According to them, when no income was recognized from the n on performing assets, there was no justification to apportion operating expenses by taking into consideration the non- & 215/Kol/2018 United Bank of India performing assets which did not yield any income. As rightly contended on behalf of the assessee in this regard before the Id. CIT (Appeals) as well as before us, the operating expenses were required to be incurred by the assessee in relation to its total banking business and the non-performing assets definitely formed part of such business. The assessee e-Bank was required to manage both performing as well as non performing assets and the operating expenses incurred by it thus were attributable to non-performing assets also. It appears that this vital aspect was not appreciated by the authorities be low in proper perspective and as rightly contended by the ld. Counsel for the assessee, the basis adopted by them for apportioning the operating expenses without proper appreciation of the vital position resulted in a distorted picture. Keeping in view all these facts and circumstances of the case, we are of the view that the basis adopted by the assessee for the apportionment of operating expenses was more fair and reasonable and since the same followed consistently by t he assessee in the earlier years was accepted by the revenue till assessment year 2010-11, we hold that the disallowance made by the Assessing Officer and confirmed by the Id. Cl T(Appeals) on this issue by deviating from the stand consistently taken in the earlier year is not sustainable. We, therefore, delete the said disallowance and allow the appeal of the assessee."
12. We adopt the above-extracted detailed reasoning mutatis mutandis to conclude that both the lower authorities have erred in changing assessee's allocation from asset to turnover basis thereby including even the non-performing assets as well. The impugned section 36(1) (viii) disallowance is directed to be deleted therefore." 4.3 Accordingly, this ground is allowed in favour of the assessee.
Regarding the issue of disallowance of Rs. 1.47 Crores under Section 14A of the Act r.w. Rule 8D is concerned, the Ld. AR took us through the decision of ITAT in assessee’s own case for A.Y. 2011-12, 2012-13, 2014- 15, etc. It was averred that following these decisions there could not have been any disallowance whatsoever, even that the assessee was not required to suo moto disallow any amount in this regard.
5.1 The Ld. DR vehemently contested this argument and stated that there was no legal possibility of there not being any disallowance under Section 14A of the Act in this case.
5.2 We have considered the arguments advanced by the Ld. AR/DR and have also perused the records before us. At this juncture, for the sake of clarity, we need to extract the relevant findings from the impugned order:
“As regards the disallowance u/s.8D(2)(iii) is concerned the appellant has suo-moto offered the same sum of Rs. 1.87 crores being ½ % of average value of dividend yielding investments. In the submissions the appellant has stated that as per Rule & 215/Kol/2018 United Bank of India 8D, only 0.5% of the total average investment deployed for earning exempted income is to be disallowed which comes to Rs.1.47 crores. There is some discrepancy in the calculation. In the assessment order it has been mentioned that the assessee has offered Rs. 1.87 Crores. However, in the submission it is mentioned Rs. 1.47 Crores The AO to verify the same. Accordingly, the Assessing Officer to compute the disallowance @½% of shares held as investment from which dividend income has arisen. The appellant has stated that no disallowance u/s. 14A should be made as the shares are held as stock in trade. Principally the contention of the A/R is accepted. Shares held as stock trade to be excluded. In any case the suo-moto disallowance offered by the appellant would remain. In the result the appeal of the assessee on this issue is treated as partly allowed. “ 5.3 We have already arrived at a conclusion regarding the applicability of section 14A of the Act to the assessee’s case in para 3.1 (supra). Accordingly, we reiterate that the amount suo moto disallowed by the assessee (Rs. 1.87 Crores) needs to be treated as adequate for the purposes of section 14A r.w. Rule 8D. Accordingly, this issue is decided against the assessee and the suo moto disallowance is directed to stand as such fo the purposes of section 14A of the Act.
The Ld. AR took us through grounds of appeals 4 to 9, which challenge the action of both the Ld. AO and the Ld. CIT(A) in applying the provision of section 115JB of the Act even when the assessee was not incorporated under the Companies Act, 1956. The Ld. AR pointed out that his case was covered in the assessee’s favour by the decision in the case of Union Bank of India reported in 166 taxmann.com 207 [Mumai-Trib (SB)].
6.1 The Ld. DR relied on the orders of authorities below.
6.2 We have considered the records before us and have heard the rival submissions. It is seen that the assessee’s case is squarely covered in his favour by the Union Bank of India decision (supra) as per the following extract:
“The question which has been referred to the Special Bench is whether the requirement of sub-section (2) of section 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 fulfilment 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 & 215/Kol/2018 United Bank of India which such book profits are to be computed. Upto assessment year 2012-13, sub- section (2) of section 115JB applied only to such companies which were required to prepare its profit and loss account in accordance with part II & III of Schedule VI to the Companies Act 1956. The assessee-bank is required to prepare its profit and loss account in accordance with section 52 read with section 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 Jurisdictional High Court that provision of section 115JB has no application to its case. Now after the amendment with effect from assessment year 2013-14, sub-section (2) has been amended to bring into the ambit of section 115JB, those companies to which second proviso to sub-section (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. [Para 40] In so far as clause (a) of amended subsection (2) of Section 115JB, 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 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 read with section 29 of the Banking Regulation 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 Jurisdictional High court in the case of the assessee [para 41] 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 sub-section (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. [Para 42] Since section 115JB is applicable to the company to which second proviso to section 129(1) of the Companies Act applies. [Para 43] 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 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). [Para 44] 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. Thus, the company means any Indian company. Indian company has been defined in section 2(26) 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 & 215/Kol/2018 United Bank of India mean a banking company as defined in section 5(c) of the Banking Regulation Act. Section 5(c) of the Banking Regulation 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. [Para 45]. The expression "company" has been defined in section 5(d) of the Banking Regulation Act as under: "(d) "company" means any 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;" [para 46] 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. [Para 48] The assessee bank was neither formed or 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 [para 50]. 6.3 Accordingly, grounds of appeal No. 4 to 7 are allowed.
7. Regarding grounds 8 and 9, the Ld. AR has not specifically pressed the same and has relied on the written submissions wherein it has been sated that GOAs 8 and 9 may not require consideration since the provisions of section 115JB of the Act are not applicable to the assessee.
8. Regarding the charging of interest under Section 234D of the Act, it deserves to be held that such interest would be consequential and hence it is not specifically adjudicated at this stage.
Order pronounced on 23.07.2025