TMI Blog2019 (12) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) deleting the disallowance made by the Assessing Officer under section 14A read with Rule 8D Applicability of MAT section 115JB to the assessee being a Banking Company - HELD THAT:- 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 [ 1999 (4) TMI 5 - SUPREME COURT] 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. Also see UNION BANK OF INDIA VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX [ 2012 (6) TMI 500 - ITAT MUMBAI] Since there is not a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 VsRasoi Ltd (ITA No. 109 of 2016). 12. 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 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 to delete the disallowance of ₹ 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance sheet, the following, namely;- (a) The deviation from the accounting standards; (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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) . 7.3.6. As demonstrated in earlier paragraphs, the assessee was establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanges 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rive 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. 15. It is also observed that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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): P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts 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 subsection (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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 or banking companies, companies engaged in generation or supply of electricity or companies for which balance-sheet was specified in the governin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule 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) 15. The memorandum explaining the provisions made in the Finance Bill, 2012, in relation to minimum alternative tax stated as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16. 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 subsection (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:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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