TaxTMI 
TaxTMI 
TaxTMI 
2015 (12) TMI 300
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....is tribunal in ITA No. 1768/Kol/2009 vide order dated 19.3.2013 in favour of the assessee. The revenue had challenged this issue before the Hon'ble Calcutta High Court and the Hon'ble Calcutta High Court vide order in ITAT No. 147 of 2013, G.A. No. 2590 of 2013 dated 13.1.2014 had restored the matter to this tribunal only on the issue of the applicability of Minimum Alternate Tax u/s 115JB of the Act to banking companies with the following directions :- " The Learned Tribunal in its judgment and order dated 19th March, 2013 allowed the appeal of the assessee saying that "we accordingly hold that the provisions of section 115JB are not applicable in the case of assessee." The Learned Tribunal, however, relied upon the judgment of a coordinate bench in the case of State Bank of Hyderabad vs DCIT wherein the view taken by the tribunal was that provisions of section 115JB were applicable and that the amendment was prospective in nature. The Tribunal could not have taken a different view after relying upon the judgment in the case of State Bank of Hyderabad vs DCIT. If the Tribunal wanted to take such a view, the reasons should have been expressed, which the Tribunal never did. By ....
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.... 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. i. Under Banking Regulation Act, the bad debts has to be routed only through the provision account unlike in Companies Act, 1956. Hence it will not appear in profit and loss account. Even provision is made for standard assets under Banking Regulation Act by following Prudential Norms prescribed by Reserve Bank of India. Hence there is material difference in the manner in which accounting entries are passed for the purpose of preparation of accounts under Banking Regulation Act and Companies Act, 1956 and corresponding income determination under the Income Tax Act thereon. j. Amendment in section 115JB came into effect only from 1.4.2013 vide Expln 3 inserted by Finance Act 2012. At the time of Finance Bill 2012 stage, amendment was proposed only in section 115JB(2) . Expln 3 was not proposed at that time. But when the Act was enacted, Expln 3 was inserted. Expln 3 states that assessee being a company to which section 211(2) of Companies....
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....ies also would automatically fall under the provisions of section 115JB of the Act. 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 of the Act has application both to foreign and domestic companies. 6.2. He also argued that even banks are to be assessed as a company under the Income Tax Act as per section 11 stated supra. He argued that section 10(38) of the Act, 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. 6.3. He further argued that Explanation 3 to ....
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....ccounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year." 7.2 Section 211(1), 211(2), 211(3), 211(3A), 211(3B) and 211(3C) of Companies Act 1956: 211. FORM AND CONTENTS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT (1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading "Notes" at the end of that Part: Provided that nothing contained in this sub-section shall apply to any insurance or a 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 balance sheet has been specified in or under the Act governing such class of comp....
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....ompanies Act, 1956 (1 of 1956)16a is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI17 to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company.] 7.3.1. The Explanation 3 to section 115JB of the Act has been inserted by the Finance Act 2012 to clarify that only assesses being companies and to whom provisions of the Companies Act , 1956 are applicable came within the ambit of section 115JB of the Act. In other words, unless an assessee comes within the ambit of section 211 of the Companies Act, 1956, it was not covered by the Explanation 3 to section 115JB and as a necessary corollary section 115JB was not applicable to it. In this regard, it is therefore necessary to ascertain whether the assessee bank can legally be considered as a 'company' for the purpose of applying the proviso to section 211(2) of the Companies Act, 1956. In view of the language used in section 211(3), what needs to be examined is whether it is possible to classify th....
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....ny' 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 of the Act 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. To illustrate this point, it may be stated that HDFC Bank Ltd, Kotak Mahindra Bank Ltd etc are 'banking companies' as defined in section 5(c ) & (d) of Banking Regulation Act, 1949. These banking companies are incorporated under the provisions of Companies Act, 1956. These assesses carry on business of banking. As such proviso to section 211(2) is applicable to these banking companies and therefore these banking companies prepare their accounts in conformity with Schedule II of Banking Regulation Act, 1949. By virtue of Explanation 3 to Section 115JB , such banking companies are retroactively made liable to pay tax on the deemed income computable wit....
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....so proposed to omit the reference of Part III of the Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act 1956. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years." 7.5. In view of the above, we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee's contention infact stands more fortified. 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. 7.6. 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 1....
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.... been paid by them to the exchequer. The new proposal provides for those companies to pay tax on 30% of the book profits, whose total income as computed under the Income-tax Act is less than 30% of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. "Book profits" is defined and certain adjustments are provided in the proposed section. The proposed amendment will take effect from 1-4-1997, and will accordingly, apply in relation to assessment year 1997-98 and subsequent years." 7.6.3. The Hon'ble Apex Court in the case of Surana Steels P ltd vs DCIT reported in (1999) 237 ITR 777 at page 783 considered the legislative intent for the introduction of section 115J. It was found that the section wsa introduced to take care of the phenomenon of prosperous zero-tax companies which had continued inspite of the enactment of section 80VVA. These were companies which were paying no income tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. 7.6.4. In fact in section 115JB, originally the companies entitled for exemptions u/s ....
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....98) 234 ITR 828 (AAR) is not applicable to the facts of the assessee's case as the AAR only dealt with the applicability of section 115JA of the Act on foreign companies. The term 'company' has been defined in section 5(d) of Banking Regulation Act, 1949 to mean any company as defined in section 3 of Companies Act, 1956 and includes a foreign company within the meaning of section 591 of that Act. Hence there is logic in including the foreign companies under the ambit of MAT provisions. However, the same is not applicable for assessee which is a bank. 7.8. We find that the impugned issue of applicability of section 115JB of the Act is squarely covered by the following decisions :- A. Kurung Thai Bank vs JCIT reported in (2012) 49 SOT 12 (Mumbai Tribunal), wherein it was held :- 1. "The plea of the assessee is indeed well taken, and it meets our approval. 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 accoun....
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....-General of India or such other person duly authorized by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report are required to be laid annually before the State Legislature and also to be published in the prescribed manner. At the earliest point of time when section 115J was introduced, the section expressly excluded from its operation bodies like the Electricity Board. Though such express exclusion is absent in section 115JA, the Central Board of Direct Taxes issued Circular No.762 dated February 18, 1998 excluding bodies like the Electricity Board from the operation of section. Circular No.762 not only is binding on the Department, but also explains the purpose in introducing section 115JA which was to tax zero-tax companies. The CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing,, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of section 115JA for the reason that such a policy would promote the infrastructural development of the country. Section 115JB, which is substantially simila....
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....16 of the Companies Act. For that it is necessary that assessee must be a company. If assessee is not a company, then provision of section 616( c) cannot be applied. For example, Tata Electric Company is a company registered under the Companies Act. It is company within the meaning of section 3 of the Companies Act. It is engaged in the business of generation or supply of electricity. As such it will come within the sweep of this provision. MSEB cannot be construed to be a company within the meaning of section 3 of the Companies Act, therefore, though it is engaged in the generation/distribution of electricity, it cannot be deemed as a company within the meaning of section 616( c). 17. Explanation to section 115JA defines the term "Book Profit" to mean the net profit as shown in the Profit & Loss Account for the relevant previous year prepared under sub-section (2)[ i.e. in accordance with Parts II & III of Schedule VI] as increased by........ We have noted that assessee did not prepare its accounts under Parts II & III of Schedule VI. Assessee was under no legal obligation to do so. As such the definition of "Book Profit" cannot be applied in the case of the assessee. 18. Ac....
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....The assessee is not a company. It is not required to distribute any dividend. As such it does not come within the mischief of this section......" Hence we find lot of force in the arguments of the Learned AR that the text has to be understood in the context in which provision has been enacted which is also endorsed by the Mumbai Tribunal in 82 ITD 422. D. Union Bank of India vs ACIT in ITA Nos. 4702 to 4706 / Mum / 2010 for Asst Years 2002-03 to 2006-07 , wherein they placed reliance on the decision of Kurung Thai Bank PCL (supra) and Maharastra State Electricity Board vs JCIT (supra) and held that the provisions of section 115JB are not applicable to banking company. E. Indian Bank vs Addl CIT in ITA No. 469 / Mds / 2010 dated 3.8.2011 for Asst Year 2000-01 held that the bank is not required to prepare its profit and loss account in accordance with provisions of Part II and III of Schedule VI to the Companies Act, 1956 and therefore, the provisions of MAT in section 115JB is not applicable to assessee. F. State Bank of Hyderabad vs DCIT reported in (2013) 33 taxmann.com 312 (Hyderabad - Tribunal) vide order dated 7.9.2012 wherein it was held that: 12. The next issue i....
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....sst Year 2003- 04, wherein it was held that : The proviso to section 211(2) of the Companies Act creates an exemption of applicability of subsection (2) inter alia in respect of insurance companies or banking companies or any other companies engaged in generation and supply of electricity for which a form of profit and loss account has been specified in or under the Act governing such class of company. Even if an insurance company does not disclose any matter in the balance sheet and profit and loss account because the same is not required to be disclosed by the Insurance Act shall not be treated as non-disclosure of a true and fair view of the state of affairs of the company as the said condition has been relaxed by subsection (5) of section 211 of the Companies Act. In order to align the provisions of the IT Act with the Companies Act , an amendment has been brought in to the statute by the Finance Act 2012 whereby section 115JB has been amended w.e.f. 1.4.2013 and therefore, prior to 1.4.2013, the amended provisions of section 115JB cannot be applied in case of Insurance, Banking, Electricity generation and distribution companies and other class of companies , which are not r....