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2015 (12) TMI 300 - ITAT KOLKATA

2015 (12) TMI 300 - ITAT KOLKATA - TMI - MAT applicability - Whether the provisions of Sec. 115JB of the Income Tax Act, 1961 could be made applicable to a bank when their profit and loss account is not prepared in accordance with Part II & Schedule VI to Companies Act, 1956? - Held that:- The provisions of section 115JB of the act are not applicable in the case of the assessee and the amendment brought in section 115JB of the Act read with Explanation 3 thereon by the Finance Act 2012 is applic .....

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A)-VI/07-08/Cir.-6 dated 21-08-2009 for the Asst Year 2002-03 passed against the order of assessment framed by the Learned AO u/s 254/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The assessee had raised the following additional grounds in narrative form. Hence, we frame the issue to be decided by us in this appeal out of the same as below:- Whether in the given facts and in the circumstances of the case, the provisions of Sec. 115JB of the Income Tax Act, 1961 cou .....

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tribunal only on the issue of the applicability of Minimum Alternate Tax u/s 115JB of the Act to banking companies with the following directions :- The Learned Tribunal in its judgment and order dated 19th March, 2013 allowed the appeal of the assessee saying that we accordingly hold that the provisions of section 115JB are not applicable in the case of assessee. The Learned Tribunal, however, relied upon the judgment of a coordinate bench in the case of State Bank of Hyderabad vs DCIT wherein .....

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al neither of the parties were benefitted. The impugned order is accordingly set aside and the matter is remanded for hearing. 4. Hence this proceedings had emanated before us. The only issue to be adjudicated in this appeal is as to whether the provisions of section 115JB of the Act are applicable to the assessee being a banking company for the Asst Year 2002-03. 5. The Learned AR argued that the assessee is a nationalized bank and came into existence through the Banking Companies (Acquisition .....

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hould be construed as company as defined under Companies Act, 1956 only. The Section 115JB of the Act clearly states that the accounts are to be prepared in accordance with Part II of Schedule VI of Companies Act, 1956. c. Computation provision states that Net profit as per Profit and Loss Account prepared as per Part II of Sch VI of Companies Act, 1956. d. Sec 211 of Companies Act, 1956 is not applicable to assessee herein, whereas it is very much applicable to companies defined under Companies .....

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s not contemplated in the provisions of the Companies Act, 1956. h. Section 36(1)(viia) of the IT Act provides for deduction towards Provision made for doubtful debts allowed in respect of banks which is not available for companies registered under the Companies Act, 1956 . Hence it has to be understood that the banking company as defined in Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 is structurally different from a company defined under Companies Act , 1956. i. Under .....

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d corresponding income determination under the Income Tax Act thereon. j. Amendment in section 115JB came into effect only from 1.4.2013 vide Expln 3 inserted by Finance Act 2012. At the time of Finance Bill 2012 stage, amendment was proposed only in section 115JB(2) . Expln 3 was not proposed at that time. But when the Act was enacted, Expln 3 was inserted. Expln 3 states that assessee being a company to which section 211(2) of Companies Act applies. Admittedly, the accounts of bank are not pre .....

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for tax purposes. Banking company also is defined under Companies Act. m. The expression for the removal of doubts , it is hereby clarified used in Explanation 3 to section 115JB should not be construed as clarificatory in nature and thereby giving retrospective effect. Reliance in this regard was placed on the decision of the Hon ble Apex Court in the case of Vatika Township case reported in 367 ITR 466 (SC). n. The levy of MAT on banking companies is a substantive levy on the assessee and henc .....

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No. 469 / Mds / 2010 dated 3.8.2011 for Asst Year 2000-01 6. In response to this, the Learned DR argued that the assessee is a nationalized bank and it was incorporated through the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 states as under:- For the purposes of the Income Tax Act, 1961 , every corresponding new bank shall be deemed to be an Indian Company and a company in which .....

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ted in (1998) 234 ITR 828, wherein it was held that the provisions of section 115JA of the Act has application both to foreign and domestic companies. 6.2. He also argued that even banks are to be assessed as a company under the Income Tax Act as per section 11 stated supra. He argued that section 10(38) of the Act, through its proviso, brings into play, section 115JB. He argued that Section 115JB is the overriding provision. It overrides all other provisions in the Act. It is the overriding cha .....

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section 115JB states that it is applicable for Asst Year commencing on or before 1st April 2012 and hence has to be construed as retrospective in operation. 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 .....

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o to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956 is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company:] Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method .....

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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 .....

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entral 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 speci .....

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y 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 .....

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ation. (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 (1) of section 210A: Provided that the standards of accounting specified by the Institute of Charte .....

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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 VI17 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 a .....

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w 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 , 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 ban .....

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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 Comp .....

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f 1913) . 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 m .....

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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 assesses 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 .....

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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 115JB 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 prof .....

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sions 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 .....

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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 Ex .....

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tion 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 / 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/ .....

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n 115JA was elaborated in the Department Circular No. 762 dated 18.2.1998. 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 .....

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x Act, 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 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 f .....

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roposed 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 115J. It was found that the section wsa introduced to take care of the phenomenon of prosperous zero-tax companies which had continued inspite of the enactme .....

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eclaring huge dividends to shareholders by reporting higher profits as per companies act but paying lesser tax under IT 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 mischief in the taxing provision. In this regard, it .....

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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 lett .....

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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 include .....

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ken, and it meets our approval. The provisions of section 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Para II and III of Schedule VI to the Companies Act. The starting point of computation of MAT under section 115JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to .....

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esses which are companies. The book profit of the company is deemed to be the total income of assessee in the circumstances specified in the section. The expression book profit for the purpose of the section is explained to mean the net profit as increased or decreased by the various amounts whon in the various sub-clause of the section. The net profit itself must be the net profit as shown in the profit and loss account of the company. Sub-section (2) mandates that the profit and loss account o .....

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ly) Act, 1948 answers the description of an Indian company and therefore a company within the meaning of section 2(17) of the Income-tax Act, 1961 it is not a company for the purpose of the Companies Act, 1956. It is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. On the other hand, under section 69 of the Electricity (Supply) Act, 1948, the Board is obliged to keep proper accounts, including the profit and loss account, an .....

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ribed manner. At the earliest point of time when section 115J was introduced, the section expressly excluded from its operation bodies like the Electricity Board. Though such express exclusion is absent in section 115JA, the Central Board of Direct Taxes issued Circular No.762 dated February 18, 1998 excluding bodies like the Electricity Board from the operation of section. Circular No.762 not only is binding on the Department, but also explains the purpose in introducing section 115JA which was .....

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not be interpreted in a manner different from the understanding of the CBDT of section 115JA. Where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply. The Electricity Board or bodies similar to it, which are totally owned by the Government, either State or Central, have no shareholders. Profit, if at all, made would be for the benefit of entire body politic of the State. Therefore, the enquiry as to t .....

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ce with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956. The assessee was required to prepare its account in conformity with the provision of section 69 of the Electricity (Supply) Act. Besides proviso to section 115JA(2) provides that while preparing the annual accounts, depreciation has to be provided on the same rates, and as per the same method as was adopted for calculating depreciation for the purpose of preparing the Profit & Loss Account laid before the .....

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eciation shall correspond to the method and rates, which have been adopted for calculating the depreciation, for which financial year or part of such financial year falling within or relevant previous year. 16. Only those companies, which are engaged in the generation or supply of electricity, will come within the ambit of section 616 of the Companies Act. For that it is necessary that assessee must be a company. If assessee is not a company, then provision of section 616( c) cannot be applied. .....

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ning of section 616( c). 17. Explanation to section 115JA defines the term Book Profit to mean the net profit as shown in the Profit & Loss Account for the relevant previous year prepared under sub-section (2)[ i.e. in accordance with Parts II & III of Schedule VI] as increased by…….. We have noted that assessee did not prepare its accounts under Parts II & III of Schedule VI. Assessee was under no legal obligation to do so. As such the definition of Book Profit cannot .....

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with the qualifying words, UNLESS THE CONTEXT OTHERWISE REQUIRES . Text and context are the basis of interpretation. If the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. Word in section is skin of the living though. It may vary in colour and content according to the context. It is a settled rul .....

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word used in section 115JA of the Act is company . The heading of this section is Deemed income relating to certain companies. The provision begins with a non obstante clause. It applies to every assessee being a company. The panoply o the section is erected over the structure of Companies Act, 1956. The Minimum Alternate Tax (MAT) on companies was introduced by the Finance (No.2) Act, 1996 with effect from 1-4-1997. This was necessitated due to the rise in the number of zero tax companies. Stud .....

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te any dividend. As such it does not come within the mischief of this section…… Hence we find lot of force in the arguments of the Learned AR that the text has to be understood in the context in which provision has been enacted which is also endorsed by the Mumbai Tribunal in 82 ITD 422. D. Union Bank of India vs ACIT in ITA Nos. 4702 to 4706 / Mum / 2010 for Asst Years 2002-03 to 2006-07 , wherein they placed reliance on the decision of Kurung Thai Bank PCL (supra) and Maharastra .....

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T reported in (2013) 33 taxmann.com 312 (Hyderabad - Tribunal) vide order dated 7.9.2012 wherein it was held that: 12. The next issue is regarding the applicability of provision of Sec.115JB to the assessee bank. The contention of the assessee is that the assessee being a bank, the provisions of Companies Act will not apply to the assessee and hence the assessee will not be liable to tax u/s.115JB. 13. The provisions of Sec.115JB will be applicable to all companies. However, it is contended that .....

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king Companies and companies engaged in generation and supply of electricity do not have to prepare their accounts in accordance with parts II and III of Sch. VI of the Companies Act by the virtue of proviso to sec 211(2) of the Companies Act. We find that by the Finance Act 2012, with effect from 1.4.2013, even companies to which Proviso to sec 211(2) applies (the banking Companies and companies engaged in generating and distribution of electricity), should prepare their P&L and balance She .....

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of us is a party has held that provision of Sec.115JB cannot be applied to the banking company. 15. In view of the above, as the amendment to sec 115JB by the Finance Act 2012 will be applicable only from the AY 2013-2014, we uphold the claim of the assessee that provision of Sec.115JB will not be applicable to the Assessee Bank and set aside the assessment made u/s 115JB on the Assessee company. G. ICICI Lombard General Insurance Co Ltd vs ACIT reported in 2012 -TIOL- 690-ITAT-Mum in ITA No. 2 .....

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n the balance sheet and profit and loss account because the same is not required to be disclosed by the Insurance Act shall not be treated as non-disclosure of a true and fair view of the state of affairs of the company as the said condition has been relaxed by subsection (5) of section 211 of the Companies Act. In order to align the provisions of the IT Act with the Companies Act , an amendment has been brought in to the statute by the Finance Act 2012 whereby section 115JB has been amended w.e .....

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eated in the same class as per the provisions of section 211 of the Companies Act in preparing the final accounts, then those companies cannot be treated differently for the purpose of section 115JB and accordingly, the provisions of section 115JB are not applicable in the case of the assessee. H. Bank of India vs Addl CIT reported in 2014 (5) TMI 929 :n ITA No. 1498/Mum/2011 dated 9.4.2014- ITAT Mumbai, wherein it was held that 6. Ground No. 5 is regarding applicability of provisions of section .....

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e Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts in accordance with part II & III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II & II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above .....

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