2025 (6) TMI 620 - AT - Income Tax

Bank wins appeal as Section 115JB MAT provisions ruled inapplicable to banking institutions

M/s. Bank of Baroda (Erstwhile Vijaya Bank) Versus Addl. CIT LTU, Bangalore

ITAT Bangalore held that Section 115JB provisions cannot be applied to the appellant bank, making Minimum Alternate Tax (MAT) on book profits inapplicable ... MAT applicability of Section 115JB to the Appellant Bank - adding various items to arrive at the book-profit which are beyond the scope of the section - HELD THAT:- We agree with the submissions of the ld. A.R. that similar issue came for consideration in the case of M/s. Canara Bank [2024 (10) TMI 1667 - ITAT BANGALORE] held that provisions of section 115JB of the Act cannot be applied to assessee bank and consequently the tax on book profits (MAT) are not applicable to assessee’s bank. Appeal filed by the assessee is allowed. The core legal questions considered in this appeal revolve around the applicability of the provisions of section 115JB of the Income Tax Act, 1961 (hereinafter 'the Act') to the assessee bank, a nationalized bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (hereinafter 'Acquisition Act'). Specifically, the issues are:1. Whether the provisions of section 115JB, which impose Minimum Alternate Tax (MAT) on book profits of companies, apply to the assessee bank.2. Whether the learned CIT(A) erred in upholding the Assessing Officer's order regarding the computation of book profits under section 115JB, including additions beyond the scope of the section.3. Whether the principles of natural justice were violated by the CIT(A) in not granting a hearing through video conferencing as requested by the assessee.Issue-wise Detailed AnalysisApplicability of Section 115JB of the Income Tax Act to the Assessee BankRelevant Legal Framework and Precedents: Section 115JB of the Act mandates that where the income-tax payable on total income is less than 18.5% of the book profit, the book profit shall be deemed to be the total income, and tax shall be charged accordingly. Subsection (2) of section 115JB specifies the manner of computation of book profit, requiring companies to prepare profit and loss accounts in accordance with the Companies Act, 1956 (now Companies Act, 2013). Clause (b) of subsection (2) was inserted by the Finance Act, 2012, with effect from 1.4.2013, to cover companies to which the proviso to section 129(1) of the Companies Act, 2013 applies, i.e., companies governed by other Acts such as banking companies.The definition of 'company' under the Income Tax Act (section 2(17)) and 'Indian company' (section 2(26)) is a company formed and registered under the Companies Act. The Banking Regulation Act, 1949 defines 'banking company' as a company as defined under section 3 of the Companies Act, 1956 which transacts banking business.However, the assessee bank was constituted under the Acquisition Act and is not registered under the Companies Act. Section 11 of the Acquisition Act deems the corresponding new bank to be an Indian company and a company in which the public is substantially interested for the purposes of the Income Tax Act, but does not deem it a company under the Companies Act.Several judicial precedents were considered, including:Hon'ble Delhi High Court's decision in CIT v. Punjab National Bank Ltd., which upheld that the MAT provisions under section 115JB do not apply to nationalized banks constituted under the Acquisition Act.ITAT Delhi's decision in Oriental Bank of Commerce v. ACIT, which held that prior to the 2012 amendment, section 115JB was not applicable to banking companies.ITAT Mumbai Special Bench decisions in Union Bank of India v. DCIT and Central Bank of India v. ACIT, which analyzed the post-2012 amendment and held that section 115JB(2)(b) does not apply to banks constituted under the Acquisition Act as they are not companies under the Companies Act.Supreme Court decisions on the principle of statutory interpretation and the scope of deeming provisions, such as CIT v. Dempo Company Ltd. and CIT v. B.C. Shrinivasa Setty.Court's Interpretation and Reasoning: The Tribunal analyzed the statutory definitions and the interplay between the Income Tax Act, Companies Act, and the Acquisition Act. It was held that for section 115JB(2)(b) to apply, the entity must be a company under the Companies Act, 2013, to which the proviso to section 129(1) applies. The assessee bank, being constituted under a special statute (Acquisition Act) and not registered under the Companies Act, does not qualify as a 'company' under the Companies Act.The deeming fiction under section 11 of the Acquisition Act applies only for the purposes of the Income Tax Act and does not convert the bank into a company under the Companies Act. This distinction is crucial because section 115JB(2)(b) explicitly refers to companies governed by the Companies Act or other Acts governing such companies, which does not extend to the assessee bank.The Tribunal also noted that the Income Tax Act itself distinguishes between banking companies and corresponding new banks in provisions like section 194A(3)(iii)(f), supported by government notifications exempting such banks from certain TDS provisions applicable to banking companies. This further evidences legislative intent to treat nationalized banks separately from companies under the Companies Act.The Tribunal relied on the Special Bench Mumbai decisions which concluded that post-amendment provisions of section 115JB do not apply to banks constituted under the Acquisition Act, and therefore MAT on book profits is not applicable to such banks.Key Evidence and Findings: The Tribunal relied on statutory provisions, legislative history, government notifications, and judicial precedents. The assessee's status as a corresponding new bank under the Acquisition Act, not registered under the Companies Act, was a critical fact. The Tribunal found no jurisdictional High Court decision contrary to this view.Application of Law to Facts: The Tribunal applied the legal framework to the facts that the assessee is a nationalized bank constituted under the Acquisition Act and not registered under the Companies Act. Consequently, section 115JB, which applies to companies as defined under the Companies Act, does not apply to the assessee bank.Treatment of Competing Arguments: The Revenue argued for applicability of section 115JB based on the deeming fiction under section 11 of the Acquisition Act. The Tribunal rejected this, emphasizing the limited scope of deeming provisions and the necessity of satisfying the Companies Act criteria for applicability of section 115JB(2)(b). The Revenue's reliance on CIT(A)'s order was not supported by any binding higher court ruling. The Tribunal gave precedence to consistent judicial pronouncements favoring the assessee's position.Conclusion: The Tribunal held that the provisions of section 115JB of the Income Tax Act are not applicable to the assessee bank, a nationalized bank constituted under the Acquisition Act, and accordingly, MAT on book profits cannot be imposed.Alleged Violation of Principles of Natural JusticeThe assessee contended that the CIT(A) violated principles of natural justice by not granting a hearing through video conferencing despite a specific request. However, the Tribunal did not dwell extensively on this ground, as the primary issue of applicability of section 115JB was dispositive. The order of the CIT(A) was upheld on the merits of the substantive issue, and the procedural grievance became inconsequential.Adjustments to Book Profits Under Section 115JBSince the Tribunal held that section 115JB is not applicable to the assessee bank, the issue of additions and adjustments to compute book profits under this section became infructuous. The Tribunal accordingly declined to entertain the challenge to the adjustments made by the Assessing Officer and upheld by the CIT(A).Significant Holdings'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.''Section 11 of the Acquisition Act which deals with 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 a 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 provisions of section 115JB of the Act cannot be applied to the assessee bank and consequently the tax on book profits (MAT) are not applicable to the assessee bank.''The deeming fiction created by Section 11 of the Acquisition Act has to be confined to the purpose for which it is created and cannot be extended to treat the assessee bank as a company under the Companies Act to attract provisions of section 115JB.'In conclusion, the Tribunal allowed the appeal of the assessee bank on the ground that section 115JB of the Income Tax Act is not applicable to the bank constituted under the Acquisition Act, thereby rendering the MAT provisions and related adjustments to book profits inapplicable. The procedural ground regarding hearing was not separately adjudicated given the substantive ruling in favor of the assessee.