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Income Tax Appellate Tribunal, “C” BENCH KOLKATA
Before: SHRI S. S. GODARA, JM & DR. A.L. SAINI, AM
आदेश / O R D E R
Per Dr. A. L. Saini, AM: The captioned appeal filed by the Revenue pertaining to Assessment Year 2011-12 is directed against the order passed by Commissioner of Income Tax(Appeals)-11, Kolkata in Appeal No.7/CIT(A)-11/Kol/15-16 dated 09/02/2018 which in turn arise out of an assessment order passed by Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), dated 27.02.2014
The grounds of appeal raised by the Revenue are as follows: “1. The Ld. CIT(A)-11, Kolkata has erred in law and on facts by deleting of addition of Rs.56,49,715/- made by Assessing Officer u/s 40(a) (ia) of Income Tax Act 1961 on account of short deduction of tax at source which was not reported at the time of filing return. 2. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by stating that disallowance u/s 40(a) (ia) permissible if tax was not at all deducted at the time of payment and deduction of tax but fails to deposit before filing return. Hence, provision of section 40(a)(ia) not applicable when tax at source was short deducted. No opportunity for explanation provided to AO at the time of appeal proceeding.
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The Ld. CIT (A)-11, Kolkata has erred in law and on facts by deleting addition of Rs.31,35,91,170/- made by Assessing Officer u/s 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962. 4. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by deleting of addition of Rs.31,35,91,170/- made by Assessing Officer u/s 14A read with Rule 8D of Income Tax Rules, 1962 while the assessee has earned Rs.7,41,28,290/- as Dividend Income and claimed total exempted income of Rs.55,68,90,790/-. The expenditure incurred on exempted income from "Investment on Securities" and "Tax Free Bonds are debited in the taxable business income which is liable to be debited in the taxable business income which is liable to be disallowed as per section 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962. 5. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by stating that the securities are kept as stock in trade, hence expenditure incurred on earning of exempted income cannot be disallowed, while trading in all "Investment on securities" and "Tax Free Bonds" is not the business of the assessee bank. Investment of assessee in " Investment on Securities" and "Tax Free Bonds" were not totally on trading stock as majority of investments are mandatorily to be held "till maturity" while there are Government Securities, other approved securities, subsidiaries, joint ventures etc.( Sr No.3 of Schedule 18 of Annual Report for F.Y. 2009-10) and expenditure on exempted income earned is liable to be disallowed u/s 14A read with Rule 8D. 6. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by holding that the provisions of section 115JB (MAT) are not applicable for the year in the case of assessee on the adjusted book profits as it is not a Company u/s 211 of Companies Act, 1956. 7. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by holding that the provision of section 115JB (MAT) are not applicable for the year in the case of assessee on the adjusted book profits as it is not a Company u/s 211 of Companies Act,1956 while in the case of assessee the Hon'ble Supreme Court [(1999) 240 ITR 355(SC(1999) 156 CTR 380(SC)] has held that balance sheet in accordance with statutory provision would not disentitle assessee in submitting income tax return on real taxable income in accordance with method of accounting adopted by assessee consistently and regularly. 8. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by holding that the rental income earned from House property in Singapore is not taxable in India as per Article 6 of DTAA applicable between the Government of the Republic of India and the Government of the Republic of Singapore. 9. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by holding that the rental income earned from House property in Singapore is not taxable in India under DTAA while as per Article 25 of DTAA, it is taxable in India.
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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.
Ground Nos.1 & 2 relates to addition of Rs.56,49,715/- made by Assessing Officer u/s 40(a) (ia) of Income Tax Act 1961 on account of short deduction of tax at source.
When this appeal was called out for hearing, learned counsel for the assessee invited our attention to the order dated 11.12.2019, passed by the Division Bench of this Tribunal in assessee’s own case in ITA No.584/Kol/2018 for the Assessment Year 2010-11 whereby the issue relating to disallowance u/s 40(a)(ia) of the Act has been discussed and adjudicated in favour of assessee. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench.
Learned Departmental Representative relied upon the orders of the authorities below.
We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee’s own case vide order dated 11.12.2019. In this order, the Tribunal has inter alia observed as follows:
“3. The assessee in the present case is a Banking Company, which filed its return of income for the year under consideration on 28.09.2010 declaring total income at ‘NIL’. In the computation of total income filed along with the said return, disallowance of Rs.1,17,97,270/- was suo motu made by the assessee under section 40(a)(ia). During the course of assessment proceedings, it was, however, submitted on behalf of the assessee before the Assessing Officer that it was a case of short deduction of tax from the relevant payment and not a case of non-deduction of tax as envisaged in section 40(a)(ia). It was contended that the disallowance thus was made in the computation of total income under section 40(a)(ia) inadvertently and the same should be allowed as deduction. Since this claim was not made by the assessee in the return of income, the Assessing Officer relied on
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the decision of the Hon’ble Supreme Court in the case of Goetze India Limited reported in 284 ITR 323 and did not entertain the claim of the assessee. On appeal, the ld. CIT(Appeals) not only entertained the claim of the assessee but also deleted the disallowance under section 40(a)(ia) by following the decision of the Hon’ble Calcutta High Court in the case of DCIT –vs.- S.K. Tekriwal (361 ITR 432), wherein it was held that if there is any short-fall due to any difference of opinion as to the taxability of any item or the nature of payment falling under various TDS provisions, the assessee could be declared to be an assessee in default under section 201, but no disallowance could be made by invoking the provisions of section 40(a)(ia). 4. We have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. D.R. has relied on the decision of the Hon’ble Kerala High Court in the case of CIT –vs.- PVS Memorial Hospital Limited (380 ITR 284) in support of the Revenue’s case on this issue, it is observed that the decision of the Hon’ble Calcutta High Court in the case of S.K. Tekriwal (supra) relied upon by the ld. CIT(Appeals) in his impugned order to give relief to the assessee on this issue squarely covers this issue in favour of the assessee. We, therefore, respectfully follow the said decision of the Hon’ble Jurisdictional High Court and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made under section 40(a)(ia). Ground No. 1 of the Revenue’s appeal is accordingly dismissed.”
As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee’s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the Coordinate Bench in assessee’s own case we delete the disallowance u/s 40(a)(ia) of the Act. Therefore, grounds raised by the Revenue are dismissed.
Ground Nos.3 to 5 relates to disallowance of Rs.31,35,91,170/- made by the Assessing Officer u/s 14A r.w.r 8D of the Rules.
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When this appeal was called out for hearing, learned counsel for the assessee invited our attention to the order dated 11.12.2019, passed by the Division Bench of this Tribunal in assessee’s own case in ITA No.584/Kol/2018 for the Assessment Year 2010-11 whereby the issue relating to disallowance of section 14A r.w.r 8D of the Rules has been discussed and adjudicated in favour of assessee. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench.
Learned Departmental Representative relied upon the orders of the authorities below.
We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee’s own case vide order dated 11.12.2019. In this order, the Tribunal has inter alia observed as follows:
“5. Grounds No. 3 to 5 involve a common issue relating to the deletion by the ld. CIT(Appeals) of the disallowance of Rs.36,60,39,331/- made by the Assessing Officer under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. 6. During the year under consideration, the assessee had earned income of Rs.54,88,59,161/-, which was exempt from tax. In the computation of total income, expenditure in relation to the said exempt income was not disallowed by the assessee as required by section 14A of the Act. In the assessment completed under section 143(3) vide an order dated 23.03.2013, the Assessing Officer worked out such expenses by applying Rule 8D at Rs.36,60,39,331/- and disallowance to that extent was made by him under section 14A of the Act. On appeal, the ld. CIT(Appeals) deleted the said disallowance made by the Assessing Officer by relying on the decision of this Tribunal in the case of DCIT –vs.- Gulshan Investment Co. Limited [11 taxman.com 113]. 7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that a similar issue was involved in assessee’s own case for A.Y. 2012-13 and the Tribunal vide its order dated 21.08.2018 passed in ITA No. 1615/KOL/2016 decided the same in favour of the assessee
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upholding the decision of the ld. CIT(Appeals) deleting the similar disallowance made by the Assessing Officer under section 14A read with Rule 8D. At the time of hearing before us, the ld. D.R. has relied on the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Limited –vs.- CIT [402 ITR 640] to contend that the relevant shares having been held by the assessee as stock- in-trade, disallowance under section 14A is liable to be made as rightly held by the Assessing Officer. It is, however, observed that this aspect has already been considered by the Tribunal while deciding a similar issue in favour of the assessee for A.Y. 2012-13, as is evident from paras 11 to 13 of the order of the Tribunal dated 21.08.2018, which are extracted below:- “11. Having considered the submissions of the parties, we find that the issue involved in the Revenue's appeal is squarely covered in assessee's favour by the judgment of the Hon'ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd (383 ITR 529). In that case also the issue before the Hon'ble Bombay High Court was whether any part of the interest paid by the Bank could be disallowed U/S 14A read with Rule 80(2)(ii). On appeal this Tribunal and thereafter the Hon'ble Bombay High Court held that since the Bank's own funds were substantially more than the cost of investments yielding tax free income, no part of the interest paid was liable for disallowance. The view of the Hon'ble Bombay High Court was followed with approval by the jurisdictional Calcutta High Court in the case of CIT Vs Rasoi Ltd (ITA No. 109 of 2016).
We also find merit in the assessee's alternate contention that no disallowance out of interest paid was warranted because after netting off interest paid against interest received, the assessee had made net interest gain of Rs.3902.1O crores. The Hon'ble Gujarat High Court in its recent judgment in the case of Pr. CIT Vs. Nirma Credit & Capital Pvt. Ltd (supra) has held that the expression used in Rule 8D(2)(ii) is "interest expenditure" and not "interest paid" and accordingly the expenditure in this context must mean interest paid minus taxable interest earned. Applying the ratio laid down in this judgment to the facts of the present case, we find no infirmity in the order of the Ld. CIT(Appeals) deleting the interest disallowance made under Rule 8D(2)(ii).
In so far as disallowance of Rs.2,90,37,490/- under Rule 8D(2)(iii) is concerned, we find that before the lower authorities the assessee had raised the plea that no disallowance u/s 14A was warranted since the assessee was
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a dealer in shares although in its Balance Sheet, shares were disclosed under the head "Investments". We find that the Hon'ble Supreme Court in its recent judgment dated 12.02.2018 in the case of Maxopp Investment Ltd Vs CIT (supra) did not uphold this line of argument and held that even in the case of a dealer in shares, earning dividend income from its stock-in-trade, may expose his to the rigors of Section 14A of the Act. We however find merit in the Ld. AR's submissions that in the said judgment, the Hon'ble Supreme Court also extensively dealt with the Revenue's appeal in the case of State Bank of Patiala arising from the decision of the Hori'ble Punjab & Haryana High Court reported in 391 ITR 218. In the said judgment the Hon'ble Punjab & Haryana High Court had taken note of the fact that the banking companies in the course of carrying on their banking business were required to hold shares & securities and the expenses were incurred in connection with such banking business and the income therefrom was assessable under the head "Profits & Gains of Business". The Hon'ble High Court had taken note of the Board's Circular No. 18 dated 02.11.2015 wherein the Board had directed the AOs to assess the income derived from securities held in the course of carrying on banking business under the head "Profits & Gains of Business" and not under the head "Other Sources". The High Court had also taken note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Nawanshahar Central Co- operative Bank Ltd (289 ITR 6). Applying the ratio in the said decision the Hon'ble Punjab & Haryana High Court held that the investments held by the assessee Bank was part of its banking business and income arising from trading in securities was attributable to banking business of the assessee. The Hon'ble Punjab & Haryana High Court therefore held that in assessing the income of the assessees engaged in banking business, no disallowance u/s 14A was warranted because in such cases the expenditure was incurred in relation to its banking business and not in relation to earning any tax free income. The Revenue's appeal against the judgment of Hon'ble Punjab & Haryana High Court was dismissed by the Hon'ble Supreme Court. We therefore find that qua the assessees engaged in the banking business, the Hon'ble Supreme Court upheld the judgment of the Hon'ble Punjab & Haryana High Court in the case of Pr. CIT Vs State Bank of Patiala (supra) as per which no disallowance u/s 14A is permissible in terms of Rule 8D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra), we direct the Ld. AO
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to delete the disallowance of Rs.2,90,37,490/- made under Rule 8D(2)(iii). Ground No. 2 of the Revenue's appeal is therefore dismissed and the grounds of assessee's CO are allowed”. 8. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2012- 13, we respectfully follow the decision of the Tribunal for A.Y. 2012-13 and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer under section 14A read with Rule 8D. Grounds No. 3 to 5 of the Revenue’s appeal are accordingly dismissed.”
As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee’s own case(supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the Coordinate Bench in assessee’s own case we delete the disallowance of Rs.31,35,91,170/- made by the Assessing Officer u/s 14A r.w.r 8D of the Rules. Therefore, grounds raised by the Revenue are dismissed.
Ground Nos.6 & 7 relates to book profit adjustment u/s 115JB of the Act. The Ld. CIT (A)-11, erred in law and on facts by holding that the provision of section 115JB (MAT) are not applicable for the year in the case of assessee on the adjusted book profits as it is not a Company u/s 211 of Companies Act,1956 while in the case of assessee the Hon'ble Supreme Court [(1999) 240 ITR 355(SC) (1999) 156 CTR 380(SC)] has held that balance sheet in accordance with statutory provision would not disentitle assessee in submitting income tax return on real taxable income in accordance with method of accounting adopted by assessee consistently and regularly
When this appeal was called out for hearing, learned counsel for the assessee invited our attention to the order dated 11.12.2019, passed by the Division Bench of this Tribunal in assessee’s own case in ITA No.584/Kol/2018
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for the Assessment Year 2010-11 whereby the issue relating book profit adjustment u/s 115JB of the Act of the Act has been discussed and adjudicated in favour of assessee. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench.
Learned Departmental Representative relied upon the orders of the authorities below.
We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee’s own case vide order dated 11.12.2019. In this order, the Tribunal has inter alia observed as follows:
“10. In the assessment completed under section 143(3) vide an order dated 23.03.2013, the book profit of the assessee-company under section 115JB was computed by the Assessing Officer at Rs.9,58,79,63,443/- and tax payable thereon at the rate of 15% was worked out at Rs.1,43,81,94,516/-. In the appeal filed before the ld. CIT(Appeals), the assessee-company challenged this action of the Assessing Officer on the ground that it being a Banking Company governed by the Banking Regulation Act, the provisions of section 115JB could not be applied to it as the same were applicable to the entities, which are governed by the Companies Act. Since this stand taken by the assesese-company was duly supported, inter alia, by the decision of the Tribunal in assessee’s own case for A.Y. 2002-03 rendered vide an order dated 27.11.2015 passed in ITA No. 1768/KOL/2009, the ld. CIT(Appeals) accepted the same and held that the provisions of section 115JB are not applicable in the case of the assessee. 11. At the time of hearing before the Tribunal, the ld. D.R. made the following submissions in writing in support of the revenue’s case on this issue:- “2. The decision of the Tribunal requires reconsideration. The reasons are that the Tribunal has presumed that if a company does not maintain accounts as per Schedule VI either because of exemption provided in that Act or if some other statute provides a different system of maintenance of accounts, then provisions of section 115JB will not be applicable to such company. There is no such exemption provided under the Income- tax Act. Secondly, the Tribunal has ignored the
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provisions of sub-section (2) of section 115JB which provides the mechanism for maintenance of accounts by a company. It may be noted that this sub-section uses the word 'shall' which makes it mandatory for the assessee- company, to prepare the accounts in accordance with Schedule VI.
Sub-section (1) of section 115JB provides that the provisions of this section are applicable in case of every company. It does not carve out any exception. The moment it is proved that the assessee is a company it has to consider to apply the provisions of section 115JB, work out book profit and compare it with total income as computed under normal provisions of the Act. Sub-section (1) also uses the word 'shall'. The meaning of this word cannot be 'may' providing any discretion to either Assessing Officer or the assessee. It is clearly a charging section as it begins with a non obstante clause. "Notwithstanding anything contained in any other provision of this Act". In other words, if the condition laid down under this sub-section that total income computed under normal provisions of the Act is less than a particular percentage of book profit is satisfied, then consequence as laid down under subsequent part of that sub-section would follow, that is, its book profit shall be total income of the assessee. From this, it follows that the meaning of the word 'shall' cannot be 'may' otherwise entire provision will become otiose. Sub-section (2) begins with 'every assessee, being a company, shall, for the purposes of this section'. It mandates that 'every company'. No exception is provided to some or any class of companies on whatsoever basis irrespective of the fact that such company is regulated under other statute say, Banking Regulation Act or under Electricity Act. It further says 'shall'. It is clearly mandatory for every assessee-company to do what follows in that sub-section. A different meaning to this word cannot be assigned while also interpreting sub-section (2). The use of the expression 'for the purposes of this section' in sub-section (2) can only mean that the purpose of this section cannot be achieved unless every assessee-company does what follows thereafter. That is for achieving the purpose of section 115JB, the Legislature mandates, by using word 'shall', that every company shall "prepare its profit and loss account for the relevant previous year in accordance with the Schedule VI to the Companies Act, 1956". From this, it follows that even if an assessee-company has not maintained accounts in accordance with Schedule VI, still
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then it has to prepare profit and loss account in accordance with the Companies Act, 1956 for the purposes of this section. An exception has been carved out by the proviso to sub-section (2) according to which "(i) the accounting policies (ii) the accounting standards adopted for preparing such accounts including profit and loss account and (iii) the method and rates adopted for calculating the depreciation" would be the same for preparing the annual accounts including profit and loss account as has 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.' It clearly shows that a company will have two sets of profit and loss accounts one that is prepared for being laid at its annual general meeting and other for the purposes of section 115JB being the accounts prepared as per Schedule VI of Companies Act. Common factors between the two would be "(i) the accounting policies (ii) the accounting standards adopted for preparing such accounts including profit and loss account and (iii) the method and rates adopted for calculating the depreciation." It is possible that accounts for being laid before AGM and prepared as per Schedule VI of the Companies Act are the same. But it does not necessarily follow that where accounts different from Schedule VI of the Companies Act are prepared to comply with the provisions of the regulating Act, then such companies are exempted from preparing accounts as per Schedule VI of the Companies Act. Keeping account by two methods is not uncommon. Accounts are required to be kept for meeting obligation under other statute whereas different methods for keeping accounts are adopted for computing income under the Income-tax Act. Mandate under other statute to keep accounts in a particular manner cannot make the provisions to prepare accounts in different manner under Income-tax Act otiose. On the other hand, the Income-tax Act is special statute; its provisions will have precedence over provisions of other statute if they are in conflict with each other in the field of computation of income and tax therefrom. Preparation of accounts under the Banking Regulation Act serves the purpose under that Act which could have been followed under the Income-tax Act if there would not have been specific provisions to that effect. Further, the provisions of section 115JB are special provisions as mentioned in the headline of the section. Other provisions of the Act cannot override these provisions. The question
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of the provisions of Banking Regulation Act overriding the provisions of section 115JB should not arise.
Further, as per THE BANKING COMPANIES(ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970, Sec 4 the bank is a "body corporate" and therefore, governed by Companies Act,1956. For easy reference, Sec 4 is quoted as below- "(4) Every corresponding new bank shall be a body corporate with perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property, and to contract, and may sue and be sued in its name".
Moreover, for application of sec 115JB, it is not mandatory requirement that the body corporate need be registered under Companies Act. What is required is whether provisions of the Act are applicable to the entity or not which is definitely applicable in the case as body corporate is defined in Sec 2(7) of the companies Act,1956. Therefore, Ld Tribunal's reliance on definition of company and consequently treating the bank as not registered under Companies Act, 1956 are of the mark. In the instant case, the bank is a body corporate and Companies Act are applicable.
The Hon'ble Bombay High Court decided the case of Union Bank of India against Revenue on the ground that the provisio to subsection 2 of Sec 115JB read with Sch VI leads to an unworkable machinery section and therefore, charging section also can not be invoked. I humbly submit with greatest respect to The Court that this judgement is per-incuriam for the simple reason that both the accounts, prepared under different methods can be same also. Further, The Ld. High Court treated the explanation 3 as meaningless and otiose. In my humble submission, if we are alive to such a possibility that two accounts may also be same or different as the case may be, explanation will not get redundant.
Conclusion 3. The decision of the Tribunal, in the above case, therefore, requires reconsideration as it has ignored vital provision in sub-section (2) of section 115JB and interpretated the provision in such a manner that it has practically carved out an exception from the applicability of these special provisions when no such exception really exists. It has made the application of section 115JB
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ineffective in those cases where accounts are required to be kept under other statutes also ignoring the mandatory nature of provisions of sub-section (2) which overrides not only other provisions of Income-tax Act but also other statutes”.
The ld. Counsel for the assessee, on the other hand, strongly relied on the order of the Tribunal dated 27.11.2015 (supra) passed in assessee’s own case for A.Y. 2002-03 in support of the assessee’s case on this issue and submitted that all the relevant aspects have been duly considered by the Tribunal and the issue is decided by passing a well discussed and well reasoned order. He also submitted that a similar issue has been decided by the Tribunal in various cases and the same have been referred to and discussed in the order of the Tribunal passed in assessee’s own case for A.Y. 2002-03. He further submitted that this issue is also squarely covered in favour of the assessee by the decision of the Hon’ble Bombay High Court in the case of Union Bank of India (263 Taxman 686).
We have considered the rival submissions and also perused the relevant material available on record. It is observed that a similar issue relating to the applicability of section 115JB of the Act in the case of the assessee being a Banking Company was also involved in assessee’s own case for A.Y. 2002-03 and the Coordinate Bench of this Tribunal decided the same in favour of the assessee vide paragraph no. 7 (including para no. 7.1 to 7.7) of its order dated 27.11.2015 passed in ITA No. 1768/KOL/2009 as under:-
“7. We have heard the rival submissions and perused the various case laws relied upon by the counsels for both the sides. At the outset, we find it appropriate to reproduce the following provisions of Income Tax Act, 1961 , Companies Act, 1956, Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Banking Regulation Act, 1949 on which the impugned issue dwells upon :-
7.1 Section 115JB(2) of the Income Tax Act, 1961.
Special provision for payment of tax by certain companies (2) [Every assessee,-
(a) being a company, other than acompany referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in
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accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (l of 1956); or
(b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (l 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, 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. "
7.2 Section 211(1), 211(2), 211(3), 211(3A), 211(3B) and 211(3C) of Companies Act 1956:
FORM AND CONTENTS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
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(1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading "Notes" at the end of that Part: Provided that nothing contained in this sub-section shall apply to any insurance or a 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 balance sheet has been specified in or under the Act governing such class of company.
(2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto:
Provided that nothing contained in this sub-section 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 profit and loss account has been specified in or under the Act governing such class of company.
(3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest.
Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.
[(3A) Every profit and loss account and balance sheet of the company shall comply with the accounting standards. (3B) Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balance sheet, the following, namely;-
(a) The deviation from the accounting standards;
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(b) The reasons for such deviation; and (c) The financial effect, if any, arising due to such deviation. (3C) For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub- section (l) of section 210A: Provided that the standards of accounting specified by the 1nstitute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this sub- section.] "
7.3 Explanation 3 to Section 115JB of the Income Tax Act, 1961 "For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (l of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule vi7 to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company.]
7.3.1. The Explanation 3 to section 115JB of the Act has been inserted by the Finance Act 2012 to clarify that only assesses being companies and to whom provisions of the Companies Act, 1956 are applicable came within the ambit of section 115JB of the Act. In other words, unless an assessee comes within the ambit of section 211 of the Companies Act, 1956, it was not covered by the Explanation 3 to section 115JB and as a necessary corollary section 115JB was not applicable to it. In this regard, it is therefore necessary to ascertain whether the assessee bank can legally be considered as a 'company' for the purpose of applying the proviso to section 211(2) of the Companies Act, 1956. In view of the language used in section 211(3), what needs to be examined is whether it is possible to classify the assessee as a 'banking company' and thereby come to a conclusion whether in terms of Explanation 3,
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section 115JB is applicable to the assessee who carried on banking business.
7.3.2. The term 'banking company' has been defined in section 2(5) of the Companies Act, 1956 as follows:- "banking company" has the same meaning as in the Banking Companies Act, 1949 (10 of 1949)".
7.3.3. The term "banking company" has been defined in section 5(c) of Banking Regulation Act, 1949, as any company which transacts the business of banking in India. 7.3.4. The term 'company' has been defined in section 5(d) of Banking Regulation Act, 1949 to mean any company as defined in section 3 of Companies Act, 1956 and includes a foreign company within the meaning of section 591 of that Act.
7.3.5. The term 'company' has been defined in section 3 of Companies Act, 1956 as follows:-
In this Act, unless the context otherwise requires, the expressions 'company', 'existing company', 'private company' and 'public company' , shall, subject to the provisions of sub section (2) , have the meanings specified below:-
(i) 'company' means a company formed and registered under this Act or an existing company as defined in clause (ii); (ii) 'existing company' menas 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; (b) the Indian Companies Act, 1866 (l0 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 Act or the Ordinance aforesaid and in force in the merged territories or in a Part B State, or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913)".
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7.3.6. As demonstrated in earlier paragraphs, the assessee was established under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The assessee is neither a 'company' registered under Companies Act, 1956 nor is it an existing company registered under the Acts specified in clause (ii) of section 3(1) of the Companies Act, 1956. In the circumstances, even though 'the assessee is assessed in the status of a 'company' for tax purposes, it is not a 'company' within the meaning assigned to that expression by section 3 of the Companies Act, 1956. We find that the newly inserted Explanation 3 to section 115JB of the Act amplifies the intention of the legislature and categorically clarifies that the assesses to which section 115JB is applicable are only those who are 'companies' to which proviso to subsection (2) of section 211 of the Companies Act, 1956 is applicable and not to assesses which are assessed in the status of 'company' for tax purposes. To illustrate this point, it may be stated that HDFC Bank Ltd, Kotak Mahindra Bank Ltd etc are 'banking companies' as defined in section 5(c) & (d) of Banking Regulation Act, 1949. These banking companies are incorporated under the provisions of Companies Act, 1956. These assessees carry on business of banking. As such proviso to section 211(2) is applicable to these banking companies and therefore these banking companies prepare their accounts in conformity with Schedule II of Banking Regulation Act, 1949. By virtue of Explanation 3 to Section 115JB , such banking companies are retroactively made liable to pay tax on the deemed income computable with respect to net profit as disclosed bv profit and loss account prepared by such banking companies in conformity with the provisions of Banking Regulation Act, 1949. This legal position has been very ably illustrated by the Mumbai Bench of the Tribunal in the case of Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mum Trib) which is relied upon hereinbelow.
7.4. The Notes to Clauses to Finance Act, 2012 on the subject of Minimum Alternate Tax (MAT) is reproduced below:- (i). Under the existing provisions of section 115lB of the Act, a company is liable to pay MAT of eighteen and one half per cent of its book profit in case of tax on its total income computed under the provisions of the Act is less than MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in
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accordance with the Schedule VI of the Companies Act, 1956. As per section 115lB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies e.g. insurance, banking or electricity company are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income- tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. (ii). It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. (iii) It is also proposed to omit the reference of Part III of the Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act 1956. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years. " 7.5. In view of the above, we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee's contention in fact stands more fortified. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a
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company within the meaning of Companies Act, 1956, section 211(2) and proviso thereon is not applicable and therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable.
7.6. The basic intention of MAT u/s 115JB is only to tax the book profits irrespective of nil or lesser taxable income due to various exemptions I deductions like sections 10A/10B/80IA/80IB etc. The intention of MAT is that the companies were declaring huge profits as per their companies act and declaring dividends to its shareholders but paying nil tax or lesser tax under the IT act due to various exemptions/deductions like sections 10A/10B/80IA/80IB. To justify the imposition, real income theory was stressed and it was held that the companies cannot be allowed to have two faces, one for shareholder and another for taxman. Section 115JA was enacted by restructuring the provisions of section 115J with certain minor changes and thereafter section 115JB was enacted by bringing minor changes in section 115JA. The provisions of section 115J, 115JA and 115JB are by and large similar to each other.
7.6.1. The scope and effect of section 115JA was elaborated in the Department Circular No. 762 dated lS.2.1998. The relevant portion is reproduced hereunder:- "Alternate minimum tax on companies- 46.1 In recent times, the number of zero-tax companies and companies marginal tax has grown. Studies have shown that in spite of the fact that companies have entered substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer.
46.2 The Finance (No.2) Act, 1996, has inserted a new section 115JA of the Income-tax Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Income-tax Art, is more than 30 per cent of the book profit, tax shall be charged on the same.
7.6.2. The Memorandum explaining the provisions in the Finance (No. 2) Bill, 1996 categorise the amendment under
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the caption "Rationalisation and Simplification". The relevant portion is reproduce hereunder:-
'RATIONALISATION AND SIMPLICATIONS Minimum Alternative tax on companies In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer.
The new proposal provides for those companies to pay tax on 30% of the book profits, whose total income as computed under the Income-tax Act is less than 30% of the book profits as per the books of account prepared in accordance with Parts Il and III of Schedule VI of the Companies Act, 1956. "Book profits" is defined and certain adjustments are provided in the proposed section.
The proposed amendment will take effect from 1-4-1997, and will accordingly, apply in relation to assessment year 1997-98 and subsequent years. "
7.6.3. The Hon'ble Apex Court in the case of Surana Steels P Ltd vs DCIT reported in (1999) 237 ITR 777 at page 783 considered the legislative intent for the introduction of section 1151. It was found that the section was introduced to take care of the phenomenon of prosperous zero-tax companies which had continued inspite of the enactment of section 80VV A. These were companies which were paying no income tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies.
7.6.4. In fact in section 1151B, originally the companies entitled for exemptions U/S 10A/ 10B and deductions u/s 80IA/80IB were eligible for deduction from book profits u/s 1151B. But later to be in line with the underlying intention behind introduction of MAT provisions to tax the companies declaring huge dividends to shareholders by reporting higher profits as per companies act but paying lesser tax under I.T. Act, the amendment was brought out in the statute book wherein the companies eligible to claim exemptions and deductions u/s 10A/10B/80IA/80IB also would come under the ambit of MAT. From this, it could be safely concluded that the legislature in its wisdom had time and again applied the Heyden's Rule to prevent possible
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mischief in the taxing provision. In this regard, it is relevant to reproduce the following:-
"To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of the whole Act, to consider - (i) what was the law before the Act was passed; (ii) what was the mischief or defectfor which the law had not provided; (iii) what remedy the Parliament has appointed; and (iv) the reason of the remedy. " 7.6.5. A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. The task of a judge is to go by the intent of the statute and fill the gaps. The two rules of most general application in construing a statute are that - first that it shall, if possible, be so interpreted UT RES MAGIS VALEAT QUAM PEREAT (that the thing may rather have effect than be destroyed) and secondly, that such a meaning shall be given to it as may carry out and effectuate to the fullest extent the intention of the legislature. Each law consists of two parts viz., of body, and soul. The letter of the law is the body of law and the sense and reason of the law is the soul of the law. Law to a large extent, lives in the language even if it expands with the spirit of the statute.
7.6.6. Admittedly, the assessee bank is declaring dividends to shareholders and also paying huge income tax under IT Act. Applying the background on which the aforesaid amendment is brought in statute and the underlying intention of MAT provisions, it can safely be concluded that it was never the intention of the legislature to impose MAT on banking companies.
7.7. We find that the decision relied upon by the Learned AR in the case of Niko Resources Ltd vs CIT reported in (1998) 234 ITR 828 (AAR) is not applicable to the facts of the assessee's case as the AAR only dealt with the applicability of section 115JA of the Act on foreign companies. The term 'company' has been defined in section 5(d) of Banking Regulation Act, 1949 to mean any company as defined in section 3 of Companies Act, 1956 and includes a foreign company within the meaning of section 591 of that Act. Hence there is logic in including the foreign companies under the ambit of MAT provisions. However, the same is not applicable for assessee which is a bank”.
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A similar issue as involved in the year under consideration thus was decided by the Tribunal in favour of the assessee for A.Y. 2002-03 after taking into consideration not only the provisions of section 115JB but also the relevant provisions of the Companies Act, 1956. The Tribunal also considered the Circulars issued by the Board from time to time in this regard and took note of the decision of the Hon’ble Supreme Court in the case of Surana Steels Pvt. Limited (supra), wherein the legislative intent of section 115J was considered. As rightly contended by the ld. Counsel for the assessee, a similar issue thus has been decided by the Tribunal in favour of the assessee for A.Y. 2002-03 by passing a well discussed and well reasoned order and we do not find any justifiable reason to reconsider the said decision as sought by the ld. D.R. It is also noted that the Tribunal in order to arrive at the said decision relied upon the following judicial pronouncements:- (i) Kurung Thai Bank –vs.- JCIT [49 SOT 12 (Mumbai)]; (ii) Kerala State Electricity Board –vs.- DCIT [329 ITR 91(Kerala)];
(iii) Maharashtra State Electricity Board –vs.- JCIT [82 ITD 422 (Mum. Tribunal);
(iv) Union Bank of India –vs.- ACIT [ITA Nos. 4702 to 4706/Mum/2010];
(v) Indian Bank –vs.- Addl. CIT [ITA No. 469/Mds/2010];
(vi) State Bank of Hyderabad –vs.- DCIT [33 taxman.com 312 (Hyd.-Tribunal)];
(vii) Bank of India –vs.- Addl. CIT [ITA No. 1498/Mum./2011]
The amendment made in section 115JB by the Finance Act, 2012 by inserting Explanation 3 was also taken into consideration by the Tribunal in its order for A.Y. 2002-03 and it was held that the provisions of section 115JB of the Act were not applicable in the case of the assessee for A.Y. 2002-03 as the amendment brought in section 115JB of the Act read with Explanation 3 thereto by the Finance Act, 2012 was applicable only with effect from assessment year 2013-14.
It is also observed that even the Hon’ble Bombay High Court in the case of CIT –vs.- Union Bank of India [263 taxman 685] had an occasion to consider a similar issue and the same was decided by Their Lordships in favour of the assessee by holding that the provisions of section 115JB as made prior to its amendment by virtue of the Finance Act, 2012 would not be applicable to a
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Banking Company governed by the provisions of Banking Regulation Act, 1949. While arriving at the said conclusion, Hon’ble Bombay High Court took note of the relevant statutory provisions and the legislative history as also the amendment made in section 115JB by the Finance Act, 2012 w.e.f. 1st April, 2012. The relevant discussion made by the Hon’ble Bombay High Court and the observations recorded by them in this context as contained in paragraph no. 8 to 20 are extracted below:- “8. In order to resolve the controversy, we may take note of the statutory provisions and the legislative history. As is well known, Section 115JB of the Act, pertains to special provisions for payment of tax by certain companies and provides a formula for payment of minimum tax in case of companies, whose tax payable on the total income works out to be below a certain minimum threshold percentage of its book profit. This provision is a successor to Section l15JA of the Act, which was also introduced for the same purpose. In fact, the first legislative introduction of the provisions pertaining to what is popularly referred to as MAT companies (Minimum Alternative Tax) was Section l15J. The Circular No.762 dated 18th February, 1998 issued by the Central Board of Direct Tax ("CBDT" for short) explains the objects for introduction of such MAT provisions. The circular clarifies that new Section 115JA has been inserted by the Finance Act, so as to levy a minimum tax on companies, who are having book profits and paying dividends, but not paying any taxes. Relevant portion of Section 115JB as is stood at the relevant time reads as under:- "Special provision for payment of tax by certain companies: 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 1 st day of April, (2007) is less than (ten percent) 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 income-tax at the rate of (ten percent). (2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss
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account for the relevant previous year in accordance with the provisions of Parts 11 and III of Schedule VI to the Companies Act, 1956 (1 of 1956).
Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting polices, (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 account 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 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 financial year or part of such financial year falling within the relevant previous year."
In terms of sub-section (1) of Section 115JB of the Act thus notwithstanding anything contained in any of the provisions of the Act in case of an assessee being a company where the income tax payable on the total income as computed under the Act, is less than prescribed percentage of its book profit, such book profit shall be deemed to be the total income of the assessee. In so far as the language used under sub-section (I) of Section 115JB is concerned, the same pauses no challenge. Sub-section (1) of Section 115JB takes within its swip all companies with no further bifurcation or distinction between companies. However, the question that calls for our consideration is whether the machinery provision provided under sub-section (2) of Section 115 JB of the Act is workable when it comes to the banking companies and such other
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special companies governed by the respective Acts. In the context, the question would also be of the legislative intent to cover such companies within the swip of Section I 15JB of the Act. These questions arise because of the language used in sub-section (2) of Section 1151B. These provisions we may peruse more minutely. As per sub-section (2) of Section 115JB, every assessee being a company would for the purposes of the said section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts 11 and III of Schedule VI of the Companies Act, 1956. It is undisputed that the respondent-a banking company is not required to prepare its accounts in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956. The accounts of the banking company are prepared as per the provisions contained in Banking Regulation Act. 1949. The counsel for the revenue may still argue that irrespective of such requirements, for the purposes of the said Act and special requirements of Section 115JB of the Act, a banking company is obliged to prepare its profit and loss account as per the provisions of the Companies Act, as mandated by sub-section (2) of Section 115JB of the Act. His contention would be that such legislative mandate is not impermissible.
At the first blush, this argument seems attractive. However, when we read sub-section (2) further, certain complications arise in this line of argument. The first proviso to sub-section (2) of Section 115JB provides that while preparing annual accounts including profit and loss account the accounting policies and accounting standards adopted for preparing the account and the method and rules adopted in calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts and laid before the company at its Annual General Meeting in accordance with provisions of Section 210 of the Companies Act, 1956. There is no dispute that the respondent-bank in terms of Section 210 of the Companies Act, 1956 is also required to lay its accounts before the Annual General Meeting. However, such accounts would necessarily be prepared in accordance with the provisions of Banking Regulation Act, 1949 and never be those which even had it been possible to be prepared, in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. The applicability of this proviso therefore, in case of a banking company would immediately create complications. On one hand, in terms of Section 210 of the Companies Act, 1956, the bank would be under an obligation to lay before Annual General Meeting its annual accounts including the profit and
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loss account. These accounts would be prepared in terms provisions contained in Banking Regulation Act, 1949. Sub- section (2) requires preparation of the accounts in terms of the Companies Act. Proviso to sub-section (2) would require maintaining the same parameters in relation to the accounting policies, accounting standards and method and rate of depreciation as adopted for the purpose of preparing the accounts, which would ultimately be laid before the Annual General Meeting. A Banking company in terms of sub-section (2) of Section 115JB can prepare additional accounts as per provisions of Parts II and III of Schedule VI of the Companies Act or fulfil the requirements of the proviso to sub-section (2) but cannot fulfil both the conditions.
This legal dichotomy emerging from the provisions of sub- section (2) of Section 115JB particularly having regard to the first proviso contained therein in case of a banking company, would convince us that machinery provision provided in sub- section (2) of section l15JB of the Act, would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme court in case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 had observed that in the Income Tax Act, a charing section and the computing provisions together constitute an integrated code. In a case where the computation provision can not 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.
For the completeness of the discussion, we may note that section 211 of the Companies Act, 1956 pertains to form of contents of balance-sheet and profit and loss account, sub- section (1) of Section 211 provided that every balance sheet of a company shall give true and fair view on the state of affairs of the company at the end of the financial year and would be subject to the provisions of the said section and be in the form set out in the Forms 1 and 2 of schedule VI. This sub-section contained a proviso providing that nothing contained in said sub-section would apply to a banking company or any company engaged in generation or supply of electricity or to any other class of company for which a form of balance sheet shall be specified in or under the Act governing such company. Thus, Companies Act, 1956 excluded the insurance
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or banking companies, companies engaged in generation or supply of electricity or companies for which balance-sheet was specified in the governing Act, from the purview of sub- section (1) of Section 211 of the Companies Act, 1956 and as a consequence from the purview of Section 115JB of the Act.
What we have held above is duly supported by the division bench judgment of Kerala High Court. It was a case in which the assessee before the court was Kerala State Electricity Board, a statutory corporation constituted under Section 5 of the Electricity (Supply) Act, 1948. The revenue sought to cover the said Electricity Board under the provisions of Section 115JB which the assessee opposed. The issue reached the Kerala High Court. The Court referred to and relied upon the decision of the Supreme Court in case of B.C. Shrinivasa Setty (supra). It was noticed that the Board was required to keep and maintain its account in the manner specified by the Central Government and not in the manner specified in the Companies Act. In that view of the matter it was held that section 115JB would not apply to the Electricity Board. Learned counsel for the assessee has also brought to our notice decisions of Delhi High Court holding that such MAT provisions would not apply to the insurance companies and to the banking companies.
There are certain significant legislative changes made by Finance Act, 2012, which must be noted before concluding this issue. In the present form, post amendment by Finance Act, 2012, relevant portion of Section 115JB of the Act reads as under-
"Special provision for payment of tax by certain companies.
115JB. (1) Notwithstanding anything contained in any other provision of this 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 percent) 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 income-tax at the rate of (eighteen and one-half percent). (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
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accordance with the provisions of (Schedule Ill) to the (Companies Act, 2013 (18 of2013); or
(b) being a company, to which the (second proviso to sub- section (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; (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 of2013)"
The memorandum explaining the provisions made in the Finance Bill, 2012, in relation to minimum alternative tax stated as under :-
"Minimum Alternate Tax (MAT)
I. Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and on half percent of its book profit in case tax on its total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956.
As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required
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under section 211 of the Companies Act to prepare their profit and loss account in accordance with Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB.
II. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account.
III. It is also proposed to omit the reference of Part III of Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act, 1956.
These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years."
It can be seen that sub-section (2) of Section ll5JB of the Act has now been bifurcated in two parts covered in the clauses (a) and (b). Clause (a) would cover all companies other than those referred to in clause (b). Such companies would prepare the statement of profit and loss in accordance to the provisions of schedule III of the Companies Act, 2013 (which has now replaced the old Companies Act, 1956). Clause (b) refers to a company to which second proviso to sub-section (1) of Section 129 of the Companies Act, 2013 is applicable. Such companies, for the purpose of Section 115JB, would prepare the statement of profit and loss in accordance with the provisions of the Act governing the company. Section 129 of the Companies Act, 2013 pertains to financial statement. Under sub-section (I) of Section 129 it is provided that the financial statement shall give a true and fair view of the state of affairs of the company, comply with the accounting standard notified under Section 113 and shall be in the form as may be provided for different classes of companies. Second proviso to sub-section (I) of Section 129 reads as under:-
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"Provided further that nothing contained in this sub-section 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:
This proviso thus refers any insurance or banking companies or companies engaged in the generation or supply of electricity or to any other class of company in which form of financial statement has been specified in or under the Act governing such class of company. Combined reading of this proviso to sub-section (1) of Section 129 of the Act, 2013 and clause (b) of sub-section (2) of Section 115JB of the Act would show that in case of insurance or banking companies or companies engaged in generation or supply of electricity or class of companies for whom financial statement has been specified under the Act governing such company, the requirement of preparing the statement of accounts in terms of provisions of the Companies Act, is not made. Clause (b) of sub-section (2) provides that in case of such companies for the purpose of Section 115JB the preparation of statement of profit and loss account would be in accordance with the provisions of the Act governing such companies. This legislative change thus aliens class of companies who under the governing Acts were required to prepare profit and loss accounts not in accordance with the Companies Act, but in accordance with the provisions contained in such governing Act. The earlier dichotomy of such companies also, if we accept the revenue's contention, having the obligation of preparing accounts as per the provisions of the Companies Act has been removed.
These amendments in section 115JB are neither declaratory nor classificatory but make substantive and significant legislative changes which are admittedly applied prospectively. The memorandum explaining the provision of the Finance Bill, 2012 while explaining the amendments under Section 115JB of the Act notes that in case of certain companies such as insurance, banking and electricity companies, they are allowed to prepare the profit and loss account in accordance with the sections specified in their regulatory Acts. To align the Income Tax Act with the Companies Act, 1956 it was decided to amend Section 115JB to provide that the companies which are not required under Section 211 of the Companies Act, to prepare profit and loss account in accordance with Schedule VI of the Companies Act,
ITA No.585/Kol/2018 M/s UCO Bank
profit and loss account prepared in accordance with the provisions of their regulatory Act shall be taken as basis for computing book profit under Section 115 JB of the Act. 19. Before closing, we may also take note of explanation (3) below sub-section (2) of section 115 JB of the Act which reads as under :- "Explanation 3-For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, has, for an assessment Ear commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company." 20. This explanation starts with the expression "For the removal of doubts". It declares that for the purpose of the said section in case of an assessee-company to which second proviso to section 129(1) of the Companies Act, 2013 is applicable, would have an option for the assessment year commencing on or before 1st April, 2012 to prepare its statement of profit and loss either in accordance with the provisions of schedule III to the Companies Act, 2013 or in accordance with the provisions of the Act governing such company. To our mind, this is some what curious provision. In the original form, sub- section (2) of section 115JB of the Act did not offer any such option to a banking company, insurance company or electricity company to prepare its profit and loss account at its choice either in terms of its governing Act or as per terms of Section 115JB of the Act. Secondly, by virtue of this explanation if an anomaly which we have noticed is sought to be removed, we do not think that the legislature has achieved such purpose. In plain terms, this is not a case of retrospective legislative amendment. It is stated to be clarificatory amendment for removal of doubts. When the plain language of sub-Section 2 of section 115JB did not permit any ambiguity, we do not think the legislature by introducing a clarificatory or declaratory amendment cure a defect without resorting to retrospective amendment, which in the present case has admittedly not been done”.
ITA No.585/Kol/2018 M/s UCO Bank
It is thus clear that this issue involved in the present case is squarely covered not only by the decision of the Coordinate Bench of this Tribunal in assessee’s own case for A.Y. 2002-03 but also by various other decisions of the Tribunal rendered and also by the decision of the Hon’ble Bombay High Court in the case of Union Bank of India (supra). Since there is not a single decision of the Jurisdictional High Court or even of any other Hon’ble High Court cited by the ld. D.R, which is in favour of the Revenue on this issue, we respectfully follow the judicial pronouncements referred to and discussed above, which are in favour of the assessee and uphold the impugned order of the ld. CIT(Appeals) holding that the provision of section 115JB was not applicable in the case of the assessee being a Banking company for the year under consideration, i.e. A.Y. 2010-11. Ground No. 3 of the Revenue’s appeal is accordingly dismissed.” 17. As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee’s own case (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the Coordinate Bench in assessee’s own case we note that provision of section 115JB is not applicable in the case of the assessee being a Banking company for the year under consideration. Therefore, grounds raised by the Revenue are dismissed.
Ground Nos.8 & 9 relates to rental income earned from House property in Singapore which is not taxable in India as per Article 6 of DTAA applicable between the Government of the Republic of India and the Government of the Republic of Singapore.
Facts of the case which can be stated quite shortly are as follows: While computing the tax payable, the AO in his impugned order did not allow relief under Section 91 of the I.T. Act in respect of the taxes paid in Hongkong. In the
ITA No.585/Kol/2018 M/s UCO Bank
course of assessment, the appellant had filed complete details of the challans evidencing tax payments made by its Hongkong Branch. The AO, however ignored the claim for relief u/s 91 in respect of foreign taxes paid by the appellant.
On appeal, ld CIT(A) allowed the claim of the assessee. The ld CIT(A) noticed that during the year the appellant had paid foreign taxes on the profits derived by the Hongkong Branch. Since there was no Double Taxation Avoidance Agreement between India and Hongkong, in terms of section 91, the appellant is entitled to claim credit of foreign taxes paid subject to the limits prescribed therein. The extent of relief u/s.91 is computed as a percentage of such 'doubly taxed income'. The percentage to be applied is the lower of the 'Indian rate of tax' and the 'rate of tax of the said country'. The rate so determined is applied to the 'doubly taxed income' arrived under the normal provisions or u/s.115JB. The appellant has paid HK$ 12,03,724/- towards the provisional profit tax for the captioned Financial Year. The ld CIT(A) allowed the claim of the assessee observing the following:
“14.3 The assessment order reveals that the AO has not assigned any reason as to why he was not in agreement with the claims of the appellant and what was the reason or rationale behind not allowing it a relief u/s 91 of the Act. As a result, this issue is decided on the basis of the material available on record. I find that this issue was also involved in the appellant's case for AY 2007-08 and 2008-09. My predecessors have allowed the claim of the appellant. For the AY 2007-08 my predecessor has averred as under: "I have considered the above submission of the assessee. I feel that relief u/s 91 is allowed with a view that the tax paid by the assessee in foreign country is treated as tax paid in India under the IT Act. So basically u/s 91 tax paid in foreign country is treated at par with tax paid in India in the form of TDS, or advance tax or self-assessment tax or TCS, etc. When credit for tax payments is to be given there, is no distinction in the tax liability which is credited through normal computation of income or through section 115 JB. Therefore, credit for tax paid in foreign country should be allowed even when the tax liability is raised u/s 115JB. Therefore, the AO is directed to allow this credit u/s 91."
ITA No.585/Kol/2018 M/s UCO Bank
14.4 A point needs to be mentioned here. Since, it has already been held that the provisions of section 115JB are not applicable in the case of the appellant, the debate over whether the credits for taxes paid in a foreign country can be allowed u/s 155JB or not, has lost relevance in the instant case. Therefore, respectfully following the reasons given by my predecessor and his judgment on this issue the appellant is allowed the credit u/s 91 of the IT Act, 1961 for tax paid in Foreign Country. The appeal on this ground is allowed.”
The ld Counsel also brought to the notice of the Bench that this issue is covered by Article 6 of the India-Singapore Treaty which is reproduced as under:
India- Singapore – ARTICLE 6- INCOME FROM IMMOVABLE PROPERTY of Comprehensive Agreements SINGAPORE ARTICLE 6 INCOME FROM IMMOVABLE PROPERTY
Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State. 2. The term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property. 3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting or use in any other form of immovable property. 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.”
We do not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
ITA No.585/Kol/2018 M/s UCO Bank
Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co- ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB Limited in ITA No. 6264/Mum/2018 and ITA No. 6103/Mum/2018 for A.Y. 2013-14 order dated 14.05.2020.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on this 17/06/2020.
Sd/- Sd/- (S. S. Godara) (A. L. Saini) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; Dated:17/06/2020 RS, Sr.PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant- ACIT, LTU-2, Kolkata 2. ��यथ� / The Respondent.- M/s UCO Bank 3. आयकर आयु त(अपील) / The CIT(A), (Sent through email) 4. आयकर आयु त / CIT 5. !वभागीय �$त$न%ध, आयकर अपील�य अ%धकरण, कोलकाता / DR, ITAT, Kolkata (Sent through email) 6. गाड( फाईल / Guard file.
//True Copy// By Order
Assistant Registrar, I.T.A.T, Kolkata Benches, Kolkata.