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TMI Blog2024 (9) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... of Union Bank of India in ITA No.424/Mum/2020. For the A.Y.2015-16, Union Bank of India has computed tax payable on book profit u/s. 115JB at Rs. 604,86,39,540/- and tax payable under the normal provisions at Rs. 1153,29,54,493/-. The ld. AO asked the assessee to furnish the computation of book profit and also required the assessee as to why "provisions and contingency", debited to the profit and loss account, should not be added back for the computation of book profit u/s.115JB. 3. In response assessee submitted that even though in computation assessee has worked out MAT on book profit but the provision of Section 115JB itself is not applicable to the assessee bank. However, the ld. AO rejected the assessee's plea of non-applicability of 115JB on the ground that the amended provision of Section 115JB brought by the Finance Act, 2012 w.e.f. 01/04/2013 by insertion of clause (b) to sub-section (2) to section 115JB, brings within its ambit even the banking companies. Thus, the ld. AO concluded that now the amended provision provides that not only the companies governed by the Companies Act, but also other companies governed by other regulating act including Banking Regulation Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved unless every assessee-company does what follows thereafter. 9.4 It may further be pointed out that the assessee has itself computed its income u/s 115JB of the I. T. Act, for A. Y. 2012- 13, 2014-15 and 2015-16. In both the assessment years, assessee had duly filed Form No. 29B containing report from Chartered Accountant with computation of Book Profit u/s 115JB of the act. 9.4.1 In view of the above discussion it is held that, the provisions of Section 115JB are applicable to the assessee. Further, the Revenue has filed appeal before the Hon'ble Mumbai High Court, against the order of the Id. Tribunal in assessees' own case for A. Y. 2007-08, which has been admitted by the Hon'ble Court in ITXA (L) No. 1977 of 2013 which is still pending for disposal." 4. Ld. CIT (A) has also endorsed same view after holding as under:- "9.3 I have considered the AO's order, the submissions made by the appellant and the details filed. I find that there may be merit in the contention of the appellant that it does not fall in the category of a Banking Company as defined in Section 5 of Banking Companies Act, on the ground that it is a nationalized bank and cannot be wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w was taken in A.Y.2014-15 also. 7. Contrary to the aforesaid judgments and decisions in the case of the assessee, there was another decision of the Co- ordinate Bench in the case of Bank of India in ITA No. 167 and 2048/Mum/2019 order dated 11/12/2020, (standing on the same footing as Union Bank Of India) while deciding the case for the A.Y.2015-16 has discussed this issue in detail and rejected the plea of the Bank about non-applicability of Section 115JB to the banking companies like assessee. In sum and substance, the Tribunal held that Section 11 of The Banking Companies (Acquisition And Transfer Of Undertaking) Act, 1970 provides that for the purpose of The Income Tax Act, every corresponding 'new bank' shall be 'deemed to be Indian company and the company in which public is substantially interested', therefore, is not open to take a view that it would not be treated as a 'company' for the purpose of provisions of section 115JB of The Act. In paragraph numbers 22-23 of the order, wherein the reliance was made by the assessee on the decision of; i) UCO bank versus DCIT [64 taxmann.com 51]; and the decision of ii) Indian overseas Bank versus DCIT, the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the words "eighteen and one-half per cent" occurring at both the places, the words "fifteen per cent" had been substituted. (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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk‟ as per Section 3(1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (in short referred to as "Acquisition Act'). As per this Act, only the undertaking of the existing bank was transferred from Union Bank of India Ltd. to Union Bank of India, which was a creation by a separate Acquisition Act. The shareholders of Union Bank of India Ltd. were paid compensation in consideration for acquiring the undertaking. It has been further affirmed and stated before us that the Union Bank of India Ltd. continues to exist as a company as per the website of Registrar of Companies. Assessee, i.e., The Union Bank of India is neither a company incorporated under the Companies Act, 1956 nor under any other previous company law. Ergo, these are two different entities and distinct from each other, one incorporated under old Company Law and other created by an Act of Parliament, that is, Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Another fact which has been brought on record that the Corporate Identification Number (CIN) is of Union Bank of India Ltd. and not assessee (The Union Bank of India). To substantiate the aforesaid proposition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Act which states that every corresponding new bank shall cause its books of account to be closed and balanced in accordance with the said provision. It also lays down the procedure for qualification of an auditor, his scope of work and manner of determination of his remuneration. vi. Section 10A thereof, provides for the procedure to be followed by every corresponding new bank for the purposes of holding its annual general meeting. Thus, the said Act deals with various other procedural aspects which will apply only to a corresponding new bank. Reference has been made to these provisions to show that the aspects relating to maintenance of books of account, their closure, audit and placing of the audited financial statements in the annual general meeting for discussion, approval and adoption are independently provided for in the Acquisition Act itself. 13. Mr. Pardiwala submitted that the Banking Regulation Act, 1949 (hereinafter referred to as 'BR Act') defines the expression banking company' and 'corresponding new bank' separately and clearly draws a distinction between the two. Also, not all the provisions of the BR Act are applicable to the corresponding new ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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" 16. He submitted that before its amendment, sub-section (2) applied only to such companies which were required to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to the Companies Act, 1956 (the Companies Act). The Assessee Bank is required to prepare its profit and loss account in accordance section 51 read with section 29 of the BR Act. Therefore, the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) is applicable, wherein it has been held that a charging provision and a computation provision together constitute an integrated code. If the computation provision cannot apply it would be evident that such a case was not intended to fall within the charging section. Thus, he submitted that, in so far as application of clause (a) of section 115JB (2) is concerned, the same would fail as held by the High Court. The said judgment, though rendered in the context of a period pre- amendment, it is submitted, would hold good in so far as clause (a) is concerned, as both the provisions stand on the same footing. Clause (b) b. With respect to application of clause (b) of section 115JB (2) of the Act, the following conditions need to be satisfied: i. It applies to a company to which the second proviso to sub- section (1) of section 129 of the Companies Act, 2013 is applicable; ii. Once this condition is fulfilled, it requires such assessee for the purpose of this section to prepare its profit and loss account in accordance with the provisions of the Act governing such company. 18. Mr. Pardiwala then referred to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied in the case of an Indian company in which the public are substantially interested. 22. Thus, he submitted that the said deeming fiction by way of section 11 in the Acquisition Act was provided with a view to give such concessional tax treatment to the nationalised banks. Apart there from, it also requires consideration that the expression company has been defined in section 2(17) of the IT Act as under:- "company" means- (i) any Indian company, or (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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the context in which the said expression 'company is used in section 115JB (2)(b), it requires that the said provision will not apply to an entity which is deemed by a fiction to be a company for the purposes of the Income-tax Act. For application of the clause it should be a company as per the Companies Act. It is submitted that, the deeming fiction created for the purposes of the Income-tax Act, cannot be extended to the Companies Act. 26. Mr. Pardiwala also referred to the judgment of Hon'ble Apex Court in the case of Vanguard Fire case and General Insurance Co. Ltd., Madras v. Fraser and Ross and Ors. AIR 1960 SC 971, where, the Hon'ble Court held as under:- "7. The main basis of this contention is the definition of the word "insurer" in the s. 2(9) of the Act. It is pointed out that that definition begins with the words "insurer means" and is therefore exhaustive. It may be accepted that generally the word "insurer" has been defined for the purposes of the Act to mean a person or body corporate, etc., which is actually carrying on the business of insurance, Le, the business of effecting contracts of insurance of whatever kind they might be. But s. 2 begins wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for capital gains tax. Our attention was drawn to the following observations: "The section operates if there is a transfer of a capital asset giving rise to a profit or gain. The expression "capital asset" is defined in section 2 (14) to mean "property of any kind held by an assessee". It is of the widest amplitude, and apparently covers all kinds of property except the property expressly excluded by clauses (i) to (iv)of the sub-section which, it will be seen, does not include good will. But the definitions in section 2 are subject to an overall restrictive clause. That is expressed in the opening words of the section: unless the context otherwise requires". We must, therefore, enquire whether contextually section 45, in which the expression "capital asset" is used, excludes goodwill...." 28. Thus, in sum and substance the contention of the ld. Sr Counsel is that assessee is not a company as defined in the Income Tax Act, therefore, Section 115JB (2)(b) does not apply. To buttress his point he also made reference to the decision of the Tribunal in the case of Dy. CIT v. Damodar Valley Corporation being Order dated 21.08.2018 in ITA No. 438/KOL/2017, the said case wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of book profit as per section 115JB of the Act, would fail. 30. Further, he also invited our attention to the judgment of the Hon'ble Apex Court in the case of CIT v. Elphinstone Spinning and Weaving Mills Co. Ltd. (1961) 40 ITR 142, where, the Court has held that where the word of taxing statute fails, then so must the tax. The Courts cannot help the draftsman by a favourable construction where the legislature failed to fit in the law in the scheme of the Act. In that case, the court was concerned with whether the assessee was liable to pay additional income-tax when it incurred losses but declared dividend which was treated as 'excess dividend' and additional tax was levied for the purposes of the Income-tax Act. 31. Our attention was also drawn to the judgment of the Hon'ble Apex Court in the case of Greater Bombay Co-operative Bank Limited v. United Yarn Tex Private Limited (2007) AIR 1994. In that case, the Court was concerned with whether the provisions of recovery of debts due to Banks and Financial Institutions Act, 1993 will apply to a bank(s) formed and established under the Maharashtra Co- operative Societies Act. The said Act would apply to a banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eto to inter-alia include a banking company clause (c) to the said Explanation defines the expression 'banking company' as meaning a company to which the BR Act applies and includes any bank or banking institution referred to in section 51 of the said Act. As explained hereinabove, section 51 of the BR Act makes certain specific provisions in the BR Act being applicable to a corresponding new bank. If the Revenue's submission is accepted that a banking company will include a corresponding new bank, then, this latter part of clause (c) was not required. ii. Section 72A of the Act, provides for carry forward of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation and demerger Clause(b) of sub-section (1) thereof, applies to an amalgamation of a banking company refer to section 5(c) of the BR Act with a specified bank. The expression 'specified bank' is defined in clause (c) of sub-section (7) thereof, as inter-alia meaning a corresponding new bank constituted under section 3 of the Acquisition Act. Therefore, amalgamation of a banking company with inter-alia a corresponding new bank would entitle the amalgamated entity for claiming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a corresponding new bank shall be a company and section 3(5) of the said Act provides that every corresponding new bank shall carry on and transact the business of banking as defined in section 5(b) of the BR Act. Thus, the conjoint reading of Section 11 of the Acquisition Act of section 5(c) of the BR Act, and the definition of a company defined in section 3 of the Companies Act goes to prove that these banks are nothing but a banking company and once a banking company will fall within the ambit and not only the Companies Act but also for the purpose of Section 115JB. Once the amendment has been brought and Sub-section (2) has been made applicable to those companies to which second proviso to sub-section (1) of Section 129 of the Companies Act is applicable and therefore, for the purpose of this Section they have to prepare a statement of profit and loss account in accordance with the proviso of Act governed by this company and these companies are governed not only by the Companies Act but under the provision of Section 11 of the Acquisition Act. 37. Mr. Mohanty further submitted that sub-section (1) of Section 115JB starts with non-obstante clause and therefore, it overrides the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only for the purposes of the Income-tax Act. In clause (b) of section 115JB(2), after its amendment, one has to be consider whether the second proviso below section 129(1) of the Companies Act, 2013 is applicable to the assessee's case. As detailed hereinabove, the said condition is not fulfilled. The deeming fiction in section 11 referred to above, for the purpose of the Income-tax Act cannot be extended to section 129 of the Companies Act. Non- application of the proviso below section 129 of the Companies Act would necessarily mean that though the Appellant may be regarded as a company for the purposes of the Act, the essential condition in section 115JB(2) (b) is not fulfilled. It is submitted, with respect, that this aspect of the matter has been completely overlooked by the Tribunal in the case of Bank of India. c. In paragraph 23 of the said Order, the Tribunal has referred to section 5 of the Banking Regulation Act, as starting with the rider unless the context requires otherwise..... It is respectfully submitted that based thereon, a corresponding new bank which is a distinct and a separate entity duly recognised by the said BR Act itself cannot be regarded as a ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III: Provided that the items contained in such financial statements shall be in accordance with the accounting standards. 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 Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose (a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938 (4 of 1938), or the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), (b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949 (10 of 1949), (c) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 3(1)(i) of the Companies Act, defines a 'company' as under: "(i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii)" 48. Therefore, it is sine-qua-non that for an entity to qualify as a company it must either be a company formed and registered under the Companies Act or it should be an existing company as defined in sub-clause (ii) thereof. Since the Assessee is not formed and registered under the Companies Act, 1956, albeit came into existence by a separate Act of Parliament, that is, "Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970‟, therefore, it does not fall in the first part of the said section. 49. Further, the expression "existing company has been defined in Section 3(1)(ii) to mean as under: "(ii) "existing company" means 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 (10 of 1866); (c) the Indian Companies Act, 1882 (6 of 1882); (d) the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and also a company in which the public are substantially interested. 53. First of all, deeming an entity to be an Indian Company or a company in which public are substantially interested for the purposes of the Income-tax Act would not ipso facto make such entity as a 'company' for the purposes of the Companies Act, 2013, unless the conditions specified in Section 3 thereof are fulfilled. There is no provision to deem a nationalised bank to be a company for the purposes of Section 3 of the Companies Act, 1956. 54. As explained in the foregoing paragraphs, Section 2(17) of the income Tax Act r.w.s. 2(26) which defines "company‟ to mean a company formed and registered under the Companies Act, 1956, does not meet the requirement of being a company in the case of assessee bank, because the Indian company has to be formed and registered under the Companies Act. Notwithstanding that Section 11 of the Acquisition Act deems assessee bank to be a company for the purpose of Income Tax Act, but that does not lead to an inference that merely regarded as a company for the purpose of the Income Tax Act it is also Company registered under the Companies Act. The fiction created ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause it should be company to which second proviso to sub-section (1) to Section 129 of the Companies Act is applicable. The said proviso has no application to the corresponding new bank as it is not a banking company for the purpose of the said provision. The expression "company" used in section 115JB(2)(b) is to be inferred to be company under the Companies Act and not to an entity which is deemed by a fiction to be a company for the purpose of the Income Tax Act. 57. Before us, ld. Counsel has given various references under the Income Tax Act itself where the corresponding new bank and a banking company have been treated separate and independent from each other for which our reference was also drawn to Section 36(1)(viii) & 72A. Apart from that, it is noticed that, Section 194A(1) of the Act which provides that if any specified person is responsible for paying to a resident any income by way of interest is obliged to deduct tax at source, however, Section 194A(3) provides that Section 194A(1) shall not apply if the payment has been made to certain entities. Clause (iii) of sub-section (3) of section 194A, deals with such entities. The said clause reads as under:- iii) to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India, 4, Narendra Chandra Datta Srani (Clive Ghat Street), Calcutta-1. 13. Bank of Maharashtra, 1177 Peth, Poona-2. 14. Syndicate Bank, Manipal, Mysore State, Mysore 59. Thus, the aforesaid notification read with provision of Section 194A(3), makes it clear that even Government of India considers the above entities separate and distinct from banking companies. Once under the Income Tax Act, Legislature itself has made a distinction for the aforesaid banks including the assessee are not covered as banking company, then, this further buttresses the point that these banks are separate and distinct from other banking companies. 60. Accordingly, the question referred to Special Bench is decided in favour of the assessee banks that clause (b) to sub section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 w.e.f. 1-4-2013, that is, from assessment year 2013-14 onwards, are not applicable to the banks constituted as 'corresponding new bank' in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and therefore, the provision of Section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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