DCIT, JAIPUR vs. RAJASTHAN FINANCIAL CORPORATION, JAIPUR

per section 115JB of the Act. Considering the amendment made in the law and definition of company the assessee is liable to MAT provisions.

S. No. Description of the case Page No.

Submission dated 12/10/2022

S. No. Description of the case Page No. 1 M/s A-One Granites vs. State of U.P. & Ors on 16 February, 1-9 2001 (Supreme Court of India) 2 State Bank of U. P. and Anr. Vs. M/s Synthetics and Chemicals 10-32 Ltd. and Anr. 18.07.1991 (SC) 3 CIT vs. Thana Electricity Supply Ltd. (1994) 206 ITR 727 33-43 (Bombay) 4 S. P. Gupta vs. President of India and Ors. On 30 December, 44-107 1981 (SC) 5 Commissioner of Income-tax vs. Sun Engineering Works (P.) 108-140 Ltd. (1992) 64 Taxman 442 (SC) 6 Mumbai Kamgar Sabha, Bombay vs. M/s Abdulbhai Faizullabhai 141-162 & Ors on 10 March, 1976 (SC) 7 Amar Nath Om Prakash And Ors. Vs. State of Punjab and Ors. 163-180 On 19 November, 1984 (SC) 8 Mohan das Issardas And Ors. Vs. A. N. Sattanathan and Ors. 181-194 On 9 August, 1954 (Bombay High Court)

The ld. DR drawn our attention to the provision of section 115JB, 2(17)

& 2(18) of the Act. The ld. DR respectfully differentiated the judgment of the Honourable jurisdictional high court and submitted that the it was not argued before the court about the provision of section 2(17) & 2 (26)(ia) of the Act but was drawn attention to section 2(18) of the Act.

For the sake of brevity both the provision are reiterated here in below:

Provision of section 2(17)

(17) "company" means— (i) any Indian company, or 15 Rajasthan Financial Corporation (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922) or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company : Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971 or on or after that date) as may be specified in the declaration ;

Provision of section 2(18)

(18) "company in which the public are substantially interested"—a company is said to be a company in which the public are substantially interested— (a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank ; or (aa) if it is a company which is registered under section 25 of the Companies Act, 1956 (1 of 1956)9 ; or (ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested : Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ; or (ac) if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A10 of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society ; or (ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies ;

16 Rajasthan Financial Corporation (b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956)10a, and the conditions specified either in item (A) or in item (B) are fulfilled, namely :— (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ; (B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by— (a) the Government, or (b) a corporation established by a Central, State or Provincial Act, or (c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. Explanation.—In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words "not less than fifty per cent", the words "not less than forty per cent" had been substituted;

Provision of section 2(26)

(26) "Indian company" means a company formed and registered under the Companies Act, 195616 (1 of 1956), and includes— (i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause) ; (ia) a corporation established by or under a Central, State or Provincial Act ; (ib) any institution, association or body which is declared by the Board to be a company under clause (17) ; (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State ; (iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa†, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory :

17 Rajasthan Financial Corporation Provided that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India ;

“Rajasthan Financial Corporation is a Corporation registered under State financial Corporation Act, 1951. The Corporation filed its Income tax return u/s 139(1) of the Income tax act, 1961 for the AY 2019-20 and computed the tax liability as per the normal tax rate without considering the provisions of sec 115 JB of the act, as the section 115JB of the act is not applicable to the Corporation. The CPC processed the return u/s 143(1) of the act and made adjustment by applying the provisions of sec 115JB and determined the tax liability accordingly. The CPC has not given any intimation before making such adjustment to the assessee as provided under the first proviso to sec 143(1) of the act, which is contrary to the provision of sec 143(1) of the act and such adjustment is void abintio. The CPC computed the tax liability on the book profit without determining the book profit as per explanation (1) of sec 115JB of the act. The CPC also made such adjustment contrary to clause (a) of the provision of sec 143(1) of the act and this adjustment is not covered under the said clause. We further submit that MAT provisions U/S 115JB are not applicable to the assessee even after the amendment in sec 115JB(2) of the act w.e.f 1.04.2013. We are reproducing the amended sec 115 JB(2) of the act as under: (2) Every assessee, (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its "[statement of profit and loss] for the relevant previous year in accordance with the provisions of [Schedule III] to the "[Companies Act, 2013 (18 of 2013)); or (b) being a company, to which the "[second proviso to sub-section (1) of section 129] of the43[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:] We are reproducing the second proviso to sub section (1) of section 129 of the Companies act,2013 as under 18 Rajasthan Financial Corporation 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: We submit that since the corporation does not prepare its statement of profit and loss as per schedule III of the Companies act,2013, therefore clause (a)of sec 115J8(2) is not applicable to the Corporation. Clause (b) of Sec 115JB(2) is also not applicable to the Corporation as the second proviso to sub section (1) of sec 129 of the Companies act, 2013 is applicable only to the Companies as defined under the Companies act,2013. Any reference to the word Company in second proviso to sub section (1) of section 129 means the Company as defined in the Companies act,2013 as that is a Companies Act,2013 section and where Company means only the Company as defined under the Companies act, 2013 and not in any other act. ( Company has been defined in sec 2(20) of the Companies act, 2013) We submit that second proviso to sub section (1) of section 129 of the Companies act, 2013 is applicable to the Companies which fall in the definition of company as defined under the Companies act but are also governed by other acts and prepare their "[statement of profit and loss] for the relevant previous year in accordance with the provisions of the Act governing such company:] such as Electricity Companies though they are registered under the Companies act but are governed by the Electricity act, 2003 and prepare their Statement of profit & loss as per the provisions under the Electricity act, 2003 Banking Companies though registered under the Companies act,2013 but are governed by the Banking Regulation Act, 1949 and prepare its statement of profit & loss as per the provisions of the Banking regulation act, 1949, Insurance Companies though registered under the Companies act,2013 but are governed by Insurance Regularity act, and prepare their statement of profit & loss as per the provision of the governing act.etc Rajasthan Financial Corporation is not a Company as per sec 2(20)of the Companies act, 2013 as it is not registered under the Companies act,2013 but is governed by a special act of the Parliament. Hence the provision of clause (b) of sec 115JB(2) of the Income tax act does not apply to it even it prepares its statement of Profit and loss as per SFC act, 1951. We are reproducing the sec 2(20) of the Companies act, 2013 as under; "Company" Means a company incorporated under this Act or under any previous company law; The Department has filed the additional grounds of appeal. Our submission against such additional grounds are as under,

19 Rajasthan Financial Corporation (i) Additional Ground No 1 - "Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the assessee cannot be termed as a company and provisions of section 115JB are not applicable on the assessee, though as per section 2(17) r.w.s. 2(26) ((ia) of the Act, the assessee is a "Company" and the MAT provisions are applicable to all companies. Our submission We submit that section 115JB is applicable to the assesses covered u/s 115JB(2) of the act. As the Rajasthan Financial Corporationis not covered under any of clause (a) and (b) of sec115JB(2) of the act as explained above, therefore MAT provisions u/s 115 JB are not applicable to the Corporation. (ii) Additional Ground No 2-Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the assessee is not liable to MAT even after amendment in the Act and section 115JB(2) has been amended by Finance Act, 2012 w.e.f. 01.04.2013 though, after amendment of section 115JB(2), by Finance Act, 2012 w.e.f. 01.04.2013not only the companies registered under the Companies Act are subject to the MAT provisions, but companies in whose case second proviso to section 129(1) of the Companies Act, 2013 are applicable (if such companies prepare profit and loss account as per the provisions of the Act governing such companies) are also subject to the provisions of MAT. Our submission We submit that even after the amendment of sec 115JB(2), by Finance Act,2012 w.e.f 01.04.2013 the MAT provisions are not applicable to the Rajasthan Financial Corporation. As per amendment, clause (b) has been inserted by the Finance act,2012and clause (b) of Sec 115JB(2) is also not applicable to the Corporation as the second proviso to sub section (1) of Sc. 129 of the applicable only to the companies as defined under the companies act. Any reference to the word Company in second proviso to sub section (1) of section 129 means the Company as defined in the Companies act, 2013 as it is Company law section and where Company means only the Company as defined under the Company law and not in any other act. ( Company has been defined in sec 2(20) of the Companies act, 2013) We submit that second proviso to sub section (1) of section 129 of the Companies act, 2013 is applicable to the Companies as defined under the Companies act, 2013 but are governed by other acts and prepare its "[statement of profit and loss] for the relevant previous year in accordance with the provisions of the Act governing such company:] such as Electricity Companies though they are registered under the Companies act but are governed by the Electricity act, 2003 and prepare its Statement of profit & loss as per the provisions under the Electricity act,2003,Banking Companies though registered under the Companies act,2013 but are governed by the Banking Regulation Act, 1949 and prepares its statement of profit & loss as per the 20 Rajasthan Financial Corporation provisions of the Banking regulation act, 1949, Insurance Companies though registered under the Companies act,2013 but are governed by Insurance Regularity act, and prepares its statement of profit & loss as per the provision of the governing act. Etc We also draw your attention to explanation 3 of sec 115JB of the Income tax act. 1961, which clarifies the applicability of MAT provisions. 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 [second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013)] is applicable, has, for an assessment year commencing on or before the 1" day of April 2012, an option to prepare its (statement of profit and loss) for the relevant previous year either in accordance with the provisions of [Schedule III to the Companies Act, 2013 (18 of 2013)] or in accordance with the provisions of the Act governing such company.]" We submit that Rajasthan Financial Corporation had no option on or before 1" day of April 2012, to prepare its statement of Profit & Loss as per schedule III to the Companies act,2013 as the Corporation is not a Company as defined in the Companies act.2013. The explanation 3 of sec 115JB of the Income tax act, 1961 made it very clear that second proviso to sub section (1) of sec 129 of the Companies act,2013 is not applicable to the Rajasthan Financial Corporation. Keeping in view of the above submission, we request the honorable bench to kindly dismiss the appeal filed by the Department.”

21 Rajasthan Financial Corporation authorities and also gone through the judicial decision cited before us to drive home to the contentions so raised. The bench noted that the issue before us about the applicability of provision of section 115JB to the assessee “Rajasthan Financial Corporation” which is a Corporation registered under State financial Corporation Act, 1951. For these we have gone through the definition of company as given in Section 2(17) which defines company and it includes Indian Company. We have also gone through the provision of section 2(26) which defines Indian company and thereby Section 2(26)(ia) includes a corporation established by or under a Central, State or Provisional Act as argued by the ld. DR. We have also considered the plea of the ld. DR that section 115 JB section it self is a code for charging tax for a company and considering the definition of company as given in section 2(17) and 2(26) assessee is subjected to this special tax on companies. As argued by ld. DR since the provision of section 115JB in itself is a code and therefore, the provision of section 115JB(2) also deals with the coverage of the assessee. The relevant extract is reiterated herein below :

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 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent: Provided that for the previous year relevant to the assessment year commencing on or after the 1st day of April, 2020, the provisions of this sub-section shall have effect as if for the words "eighteen and one-half per cent" occurring at both the places, the words "fifteen per cent" had been substituted.

22 Rajasthan Financial Corporation (2) Every assessee,— (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b) being a company, to which the second proviso to 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:

As it is evident that section 115JB being a special provision and it a code itself defines the coverage of the assessee covered in sub-section 2 of section 115JB. This section neither deal with the company or Indian company it deals with the assessee being company and provision of the sub-section (2) very well defines it coverage. Thus, we consider the arguments of the ld. DR but considering the provision of section 11JB(2) and the decision of the jurisdictional high court in the case of the assessee we do not find any force whether the Honourable Jurisdictional High Court has considered the provision of section 2(17), 2(18) or 2(26) dealt with or not. Here the charging section deals and considered only those companies which are registered under the Companies Act and not deemed company as per provision of section 2(17) or 2 (26). Therefore, we are of the considered view that even though revenue has revised its ground to substantiate its case in accordance with the definition of the company we do not agree with the contention of the ld. DR that the since that definition includes the corporation but provision of section 115JB deals only charge of tax of a company and it refers the section 129 of the Companies Act only. The charge of tax being a separate code and the section clearly cover the type of company under the tax net the same cannot be widened based

23 Rajasthan Financial Corporation on the definition given in the Act for the other purposes. To substantiate this view, we have also gone through the memorandum explaining the definitions of company as amended in 1971. The purpose of including the corporation under this definition as it is evident from the following extract is to give the benefit of a company and not to tax them as company. The relevant memorandum explaining the purpose of the provision of section 2(17) & 2(26) is extracted here in below:

Thus, based on these observations we are of the considered view that the grounds raised by revenue has no merits and the same are stands dismissed.

In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 12/01/2023