Case Law Details
Brief of the Case
ITAT Kolkata held In the case of UCO Bank vs. DCIT that Sec.115JB will be applicable only where the assessee is required to show profit & loss account in accordance with schedule VI of Companies Act. As the banks are required to prepare Balance Sheet and Profit & Loss Account in accordance with the Banking Regulation Act, provision of 115JB cannot be applied to the banks. Prior to AY 2013-14, provisions of sec 115JB were not applicable to companies to which proviso to sec 211(2) of the companies Act, 1956 applies. The Assessee being a banking company to which proviso to sec 211(2) applies, will not be liable to be taxed under sec 115JB.
Facts of the Case
The only issue to be adjudicated in this appeal is as to whether the provisions of section 115JB are applicable to the assessee being a banking company for the Asst Year 2002-03.
Contention of the Assessee
The ld. counsel for the assessee submitted that Assessee is not a company under the Companies Act, 1956. Only for income tax assessment purposes, all banking, electricity and insurance companies are given the status of a company. Section 115JB of Income Tax Act overrides all other provisions of Income Tax Act as it starts with a non obstante clause. Hence it is an independent code by itself. In this section, the term ‘company’ referred to should be construed as company as defined under Companies Act, 1956 only. The Section 115JB clearly states that the accounts are to be prepared in accordance with Part II of Schedule VI of Companies Act, 1956.
Also Computation provision states that ‘Net profit as per Profit and Loss Account prepared as per Part II of Sch VI of Companies Act, 1956. Sec 211 of Companies Act, 1956 is not applicable to assessee herein, whereas it is very much applicable to companies defined under Companies Act, 1956. Assessee prepares its accounts as per section 29 and III schedule prescribed under Banking Regulation Act. When 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.
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.
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). The levy of MAT on banking companies is a substantive levy on the assessee and hence can only be prospective.
He placed reliance on the following decisions – State Bank of Hyderabad vs DCIT reported in (2013) 33 taxmann.com 312 (Hyderabad – Tribunal) vide order dated 7.9.2012, Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mumbai Tribunal) vide order dated 6.8.2001, Kerala State Electricity Board vs DCIT reported in (2010) 329 ITR 91 (Ker), Indian Bank vs Addl CIT in ITA No. 469 / Mds / 2010 dated 3.8.2011.
Contention of the Revenue
The ld counsel of the revenue 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 the public are substantially interested. ”
He further argued that section 115JB (2) refers to Companies Act only for the limited purpose of computation of book profits. Hence it need not be a company under the Companies Act for the purpose of charging provision. Accordingly, Banking Companies also would automatically fall under the provisions of section 115JB. He placed reliance on the decision of Authority for Advance Ruling in the case of Niko Resources Ltd vs CIT reported in (1998) 234 ITR 828, wherein it was held that the provisions of section 115JA has application both to foreign and domestic companies.
He also argued that even banks are to be assessed as a company under the Income Tax Act as per section 11. He argued that section 10(38), 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 charging provision. It provides for payment of income tax by an assessee, which is a company. That company normally, is a company of whatsoever hue, or in the alternative, a company as defined in the Income Tax Act. There is no warrant for borrowing the definition of a company from section 3 of the Companies Act, 1956. Merely because section 115JB (2) of the Act refers to Companies Act, it does not mean that the definition from therein has to be borrowed.
He further argued that Explanation 3 to 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.
Held by CIT (A)
The CIT (A) upheld the order of AO by dismissing the appeal of assessee that the reasons as put forth by the assessee did not constitute reasonable cause within the meaning of section 273B.
Held by ITAT
It is clear that 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 find that the newly inserted Explanation 3 to section 115JB amplifies the intention of the legislature and categorically clarifies that the assesses to which section 115JB is applicable are only those who are ‘companies’ to which proviso to subsection (2) of section 211 of the Companies Act, 1956 is applicable and not to assesses which are assessed in the status of ‘company’ for tax purposes. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of Companies Act, 1956, section 211(2) and proviso thereon is not applicable and therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable.
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/ 80IA / 80IB. To justify the imposition, real income theory was stressed and it was held that the companies cannot be allowed to have two faces, one for shareholder and another for taxman.
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.
In the case of Kurung Thai Bank vs JCIT reported in (2012) 49 SOT 12 (Mumbai Tribunal), it was held that 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 section 211(2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of section 115JB cannot thus be applied to the case of a banking company.
In the case of Kerala State Electricity Board vs DCIT reported in (2010) 329 ITR 91 (Ker), it was held that 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. In the case of Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mumbai Tribunal),it was held that 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 rule of interpretation. Also in the case of Union Bank of India vs ACIT in ITA Nos. 4702 to 4706 / Mum / 2010, Indian Bank vs Addl CIT in ITA No. 469 / Mds / 2010 dated 3.8.2011, it was decided that the provisions of section 115JB are not applicable to banking company.
In the case of State Bank of Hyderabad vs DCIT reported in (2013) 33 taxmann.com 312 (Hyderabad – Tribunal) vide order dated 7.9.2012, it was decided that In the case of Maharashtra State Electricity Board v. CIT [2002] 82 ITD 422(Mum.) it was held that provisions of book profit cannot be applied to Electricity Companies. Banking 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 Sheet in accordance with the provisions of the Act governing such companies. This would mean that prior to AY 2013-14, provisions of sec 115JB will not apply to companies to which proviso to sec 211(2) of the companies Act, 1956 applies. The Assessee being a company to which proviso to sec 211(2) of the Companies Act 1956 applies, will not be liable to be taxed under sec 115JB.
Based on above judicial pronouncements, it was held that the provisions of section 115JB are not applicable in the case of the assessee; and the amendment brought in section 115JB read with Explanation 3 thereon by the Finance Act 2012 is applicable only with effect from Asst Year 2013-14 onwards in line with the Notes to Clauses of Finance Act 2012.
Accordingly appeal of the assessee allowed.
