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of <h1>MAT under s.115JB inapplicable to banking companies governed by Banking Regulation Act for years before 01.04.2012</h1> <h3>ACIT 2 (2) (1) Versus State Bank of India</h3> ACIT 2 (2) (1) Versus State Bank of India - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the provisions of section 115JB (minimum alternate tax on book profits) of the Income-Tax Act are applicable to a banking company whose final accounts are prepared under the Banking Regulation Act rather than Part II/III of Schedule VI to the Companies Act. 2. Whether a banking company is excluded from computation under section 115JB by virtue of the proviso to section 211(2) of the Companies Act (exemption from applicability of Schedule VI) and related judicial authorities. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 115JB to banking companies Legal framework: Section 115JB mandates computation of income-tax on book profits where the starting point is the result shown by the profit and loss account prepared in accordance with Part II and Part III of Schedule VI to the Companies Act. Banking companies prepare final accounts under the Banking Regulation Act; the Companies Act provisions for Schedule VI may be inapplicable to such banks by virtue of statutory exemption. Precedent Treatment: Coordinate bench decisions of the Tribunal (including decisions concerning Krung Thai Bank PCL and a related bench in the assessee's earlier appeals) have held that section 115JB can be invoked only where accounts are prepared under Schedule VI and that where banking companies prepare accounts under the Banking Regulation Act, section 115JB is not applicable. No contrary judicial precedent favorable to the Revenue was demonstrated in the present proceedings. Interpretation and reasoning: The Tribunal reasoned that the legislative intent behind section 115JB ties the MAT/book profit computation to the profit/loss as disclosed in accounts prepared under Schedule VI; absent application of Schedule VI, the statutory starting point for computing book profits under section 115JB does not exist. Since banking companies are governed by the Banking Regulation Act and the proviso to section 211(2) of the Companies Act exempts them from Schedule VI requirements, the statutory scheme for computing book profits under section 115JB cannot be mechanically applied to such entities. The Tribunal followed coordinate precedents that applied this construction. Ratio vs. Obiter: The holding that section 115JB is not applicable to banking companies whose accounts are governed by the Banking Regulation Act is treated as ratio decidendi for the issue decided; reliance on coordinate bench authority is binding for the Tribunal in the present case. Observations contrasting the treatment of non-banking companies (where Schedule VI applies) are obiter insofar as they explain the statutory linkage between Schedule VI and section 115JB. Conclusions: Section 115JB cannot be applied to a banking company whose final accounts are prepared under the Banking Regulation Act and are not within the scope of Schedule VI; therefore, computation of income under section 115JB and related additions made for that purpose are not maintainable. Issue 2 - Effect of proviso to section 211(2) (exemption from Schedule VI) and reliance on coordinate Bench decisions Legal framework: The proviso to section 211(2) of the Companies Act exempts certain banking companies from complying with the formats prescribed under Schedule VI; section 115JB's reference to accounts prepared under Schedule VI thus may not capture such exempted entities. Precedent Treatment: Tribunal decisions applied the proviso to section 211(2) to hold that banking companies are not required to prepare accounts under Schedule VI; on that basis the tribunals held section 115JB inapplicable to banks. The present Tribunal expressly followed those coordinate-bench rulings. Interpretation and reasoning: The Tribunal concluded that the proviso to section 211(2) removes the statutory predicate (accounts prepared as per Schedule VI) necessary for section 115JB to attach; therefore, where the accounting regime is governed by the Banking Regulation Act, the statutory mechanism for computing MAT on book profits does not arise. The Tribunal emphasized the absence of contrary judicial authority relied upon by the Revenue. Ratio vs. Obiter: The application of section 211(2) proviso as a basis to exclude banking companies from section 115JB operation is treated as part of the ratio. Any broader statements regarding applicability to other regulated entities are obiter. Conclusions: The proviso to section 211(2) precludes application of Schedule VI requirements to banking companies; consequently, reliance on Schedule VI as the starting point for section 115JB is unavailable and section 115JB cannot be invoked against such banking companies for the year under consideration. Cross-references and Interrelated Reasoning The conclusions on both issues are interdependent: the inability to invoke section 115JB flows from (a) the statutory linkage of section 115JB to accounts prepared under Schedule VI and (b) the proviso to section 211(2) which exempts banking companies from Schedule VI and places final account preparation under the Banking Regulation Act. The Tribunal's decision follows coordinate-bench authority and resolves the revenue's challenge against application of MAT/book profit provisions to the banking company accordingly.
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