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TMI Blog2019 (12) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... lf 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 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 asses sees 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. 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 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' pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Hi) 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 obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 3 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 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". 12. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndards 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 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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)". 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Incometax 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." 9. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 14. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 18. These amendments in section 115JB are neither declaratory nor classificatory but make subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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". 16. 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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