TMI Blog2019 (5) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... t, profit and loss account prepared in accordance with the provisions of their regulatory Act shall be taken as basis for computing book profit u/s 115JB. 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 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect is reversing the order of Assessing Officer confirmed by the CIT(A), exercising the jurisdiction u/s.154 of the Income Tax Act, 1961, determining the Book Profits as per the amendment to Section 115JB? (ii) Whether on the facts and in the circumstances of the case and in law the ITAT is correct in holding that the provision of Section 115JB are not applicable to the assessee Bank? 2. For all the appeals we would adopt the above quoted questions as substantial questions of law. 3. Respondent -Union Bank of India had filed return of income for the assessment year 2005 06. The Assessing Officer passed order of assessment under Section 143(3) of the Income Tax Act, 1961 ( the Act for short) on 23rd March, 2007 computing the assessee s taxable income at ₹ 412.41 crores (rounded off) under the normal provisions and ₹ 431.15 crores as book profit under Section 115JB of the Act. The Assessing Officer thereafter passed an order dated 25th March, 2010 of rectification to give effect to a retrospective amendment in Section 115JB of the Act. He computed the assessee s revised book profit at ₹ 374.21 crores. 4. The assessee carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statue, the assessment cannot be modified without examining whether the provisions so made are to be disallowed or not. This requires detailed examination and in fact as for the submissions made before the authorities, the assessee had appeared before the Assessing Officer furnishing various details and how the amounts cannot be disallowed. Since this requires claborate examination on a long run process, we are of the opinion that the orders cannot be modified by invoking the provisions of section 154. Not only that the Coordinate Bench in assessee's own case in assessment year 2006 07 has held that the provisions of section 115JB are not applicable to the assessee Bank. In view of this, we hold that the order under section 154 passed by the Assessing Officer is not correct and therefore, the same was set aside. Accordingly assessee's grounds in the above 2 years are allowed. 6. Against this judgment, the revenue has filed this appeal. Appearing for the revenue learned counsel submitted that the view expressed by the Tribunal is not sustainable in law. The provisions of Section 115JB are sufficiently clear and apply to all companies. Admittedly, respondent -ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 1st 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 account for the relevant previous year in accordance with the provisions of Parts II 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account for the relevant previous year in accordance with the provisions of Parts II 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. 10. 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute 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. 12. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf 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 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:) 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 gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 16. It can be seen that sub- section (2) of Section 115JB 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 (1) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 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 VI to the Companies Act, 1956 or in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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