2024 (9) TMI 789 - AT - Income Tax

Nationalized banks under Banking Companies Acquisition Act 1970 exempt from MAT under Section 115JB from AY 2013-14

Union Bank of India, Central Bank of India Versus. DCIT, LTU (2), Mumbai, Assistant Commissioner of Income Tax 2 (1) (2) Mumbai

ITAT Mumbai held that banks constituted as corresponding new banks under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 are ... MAT Application u/s 115JB to banks constituted as 'corresponding new banks' under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 - Whether 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 will bring the assessee-banks constituted as 'corresponding new bank' in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 within the scope of section 115JB from assessment year 2013-14 onwards? - main crux of the department is that since assessee bank has come into existence by the “Acquisition Act‟ and Section 11 thereof states that for the purpose of Income Tax Act, every corresponding new bank shall be deemed to be an “Indian company‟ and the company in which the public are “substantially interested' HELD THAT:- Section 11 of the Acquisition Act states that 'For the purposes of Income-tax Act, 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian company and a company in which the public are substantially interested'. Therefore, the said deeming fiction is created only for the purposes of the Income-tax Act. Further, for the purposes of the said Act, it treats every corresponding new bank to be an Indian company and also a company in which the public are substantially interested. 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. 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 by Section 11 of the Acquisition Act, does not imply that the assessee bank would also become a company for the purpose of the Companies Act for which Clause (b) of Sub-Section 2 of Section 115JB is applicable. In the earlier part of the order, we have already noted that by the Acquisition Act, the banking business of the existing bank was transferred from Union Bank of India Ltd to The Union Bank of India. The earlier entity, i.e., Union Bank of India Ltd. was a company under the earlier Companies Act, however, that company as a whole was not taken over or acquired but only banking business was acquired by the Acquisition Act. That is the reason why Union Bank of India Ltd. still existed at the point of acquisition and continues till now and the shareholders of Union Bank of India Ltd. were paid compensation as a consideration for acquiring the banking business. It was by the Acquisition Act that these banks were nationalized and the banking business was acquired from the erstwhile banking companies. These new acquiring banks including Union Bank of India is neither registered under the Companies Act, 2013 nor under any other previous company law. Already the Hon’ble Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India [1970 (2) TMI 130 - SUPREME COURT] had held that only undertaking was acquired for the banking companies acquisition and transfer of invoking ordinance which was promulgated on 19/06/1969, which culminated into the Act of Banking Companies (Acquisition and Transfer of Undertaking) Act,1970. Thus, assessee cannot be treated as a company under the Companies Act, because it was never registered under the Companies Act. Ergo, the deeming fiction by way of Section 11 of the Acquisition Act has to be read purely in the context for the purpose of Income Tax Act where the corresponding new bank have been deemed to be an Indian Company and a company in which public are substantially interested. This deeming section cannot be extended to a company registered under the Companies Act to which alone Section 115JB is applicable. Thus, we hold that Section 11 of the Acquisition Act which deals a corresponding new bank treated as Indian company for the purpose of Income Tax, however, Clause (b) in Sub-Section 2 to Section 115JB does not permit treatment of such bank as a company for the purpose of the said clause, because 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. Thus referring to Notification No. S. O. 710, dated February 16, 1970 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. 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 applicable to such banks. Issues Involved:1. Applicability of Section 115JB of the Income-tax Act to banks constituted as 'corresponding new banks' under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.2. Interpretation of the term 'company' under Section 115JB.3. Impact of the deeming provision in Section 11 of the Acquisition Act on the applicability of Section 115JB.4. Relevance of the amendments to Section 115JB by the Finance Act, 2012.Detailed Analysis:Issue 1: Applicability of Section 115JB to Corresponding New BanksThe primary question was whether the amendment to Section 115JB by the Finance Act, 2012, which took effect from April 1, 2013, would include banks constituted as 'corresponding new banks' under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, within its scope.The Tribunal examined the historical context and the specific provisions of the Acquisition Act, which created corresponding new banks like Union Bank of India. It was noted that these banks were not formed or registered under the Companies Act but were created by a separate Act of Parliament. The Tribunal concluded that these banks do not fall within the purview of Section 115JB as they are not companies under the Companies Act.Issue 2: Interpretation of the Term 'Company' under Section 115JBThe Tribunal analyzed the definition of 'company' as per Section 2(17) of the Income-tax Act, which includes any Indian company. Section 2(26) defines an Indian company as one formed and registered under the Companies Act. The Tribunal emphasized that the Union Bank of India, being a corresponding new bank, was not formed and registered under the Companies Act, and hence, does not qualify as a company for the purposes of Section 115JB.Issue 3: Impact of the Deeming Provision in Section 11 of the Acquisition ActSection 11 of the Acquisition Act states that for the purposes of the Income-tax Act, every corresponding new bank shall be deemed to be an Indian company and a company in which the public are substantially interested. The Tribunal clarified that this deeming provision is only for the purposes of the Income-tax Act and does not extend to making the corresponding new banks companies under the Companies Act. Therefore, the deeming provision does not make these banks subject to Section 115JB.Issue 4: Relevance of the Amendments to Section 115JB by the Finance Act, 2012The Tribunal noted that the amendment to Section 115JB by the Finance Act, 2012, introduced sub-section (2)(b), which applies to companies to which the second proviso to sub-section (1) of Section 129 of the Companies Act, 2013, is applicable. The Tribunal concluded that this proviso does not apply to corresponding new banks as they are not companies under the Companies Act. The Tribunal further emphasized that the machinery provision for computing book profits under Section 115JB fails in the case of corresponding new banks, as they do not meet the necessary conditions.Decision:The Tribunal decided in favor of the assessee banks, concluding that clause (b) to sub-section (2) of Section 115JB of the Income-tax Act, inserted by the Finance Act, 2012, is not applicable to banks constituted as 'corresponding new banks' under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Consequently, the provisions of Section 115JB, including the tax on book profits (MAT), do not apply to such banks.