TaxTMI 
TaxTMI 
2019 (12) TMI 1031
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....oceedings, it was, however, submitted on behalf of the assessee before the Assessing Officer that it was a case of short deduction of tax from the relevant payment and not a case of non-deduction of tax as envisaged in section 40(a)(ia). It was contended that the disallowance thus was made in the computation of total income under section 40(a)(ia) inadvertently and the same should be allowed as deduction. Since this claim was not made by the assessee in the return of income, the Assessing Officer relied on the decision of the Hon'ble Supreme Court in the case of Goetze India Limited reported in 284 ITR 323 and did not entertain the claim of the assessee. On appeal, the ld. CIT(Appeals) not only entertained the claim of the assessee but also deleted the disallowance under section 40(a)(ia) by following the decision of the Hon'ble Calcutta High Court in the case of DCIT -vs.- S.K. Tekriwal (361 ITR 432), wherein it was held that if there is any short-fall due to any difference of opinion as to the taxability of any item or the nature of payment falling under various TDS provisions, the assessee could be declared to be an assessee in default under section 201, but no disallowance coul....
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....before us, the ld. D.R. has relied on the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Limited -vs.- CIT [402 ITR 640] to contend that the relevant shares having been held by the assessee as stock-in-trade, disallowance under section 14A is liable to be made as rightly held by the Assessing Officer. It is, however, observed that this aspect has already been considered by the Tribunal while deciding a similar issue in favour of the assessee for A.Y. 2012-13, as is evident from paras 11 to 13 of the order of the Tribunal dated 21.08.2018, which are extracted below:- "11. Having considered the submissions of the parties, we find that the issue involved in the Revenue's appeal is squarely covered in assessee's favour by the judgment of the Hon'ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd (383 ITR 529). In that case also the issue before the Hon'ble Bombay High Court was whether any part of the interest paid by the Bank could be disallowed U/S 14A read with Rule 80(2)(ii). On appeal this Tribunal and thereafter the Hon'ble Bombay High Court held that since the Bank's own funds were substantially more than the cost ....
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....iness". The Hon'ble High Court had taken note of the Board's Circular No. 18 dated 02.11.2015 wherein the Board had directed the AOs to assess the income derived from securities held in the course of carrying on banking business under the head "Profits & Gains of Business" and not under the head "Other Sources". The High Court had also taken note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Nawanshahar Central Co-operative Bank Ltd (289 ITR 6). Applying the ratio in the said decision the Hon'ble Punjab & Haryana High Court held that the investments held by the assessee Bank was part of its banking business and income arising from trading in securities was attributable to banking business of the assessee. The Hon'ble Punjab & Haryana High Court therefore held that in assessing the income of the asses sees engaged in banking business, no disallowance u/s 14A was warranted because in such cases the expenditure was incurred in relation to its banking business and not in relation to earning any tax free income. The Revenue's appeal against the judgment of Hon'ble Punjab & Haryana High Court was dismissed by the Hon'ble Supr....
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....upport of the revenue's case on this issue:- "2. The decision of the Tribunal requires reconsideration. The reasons are that the Tribunal has presumed that if a company does not maintain accounts as per Schedule VI either because of exemption provided in that Act or if some other statute provides a different system of maintenance of accounts, then provisions of section 115JB will not be applicable to such company. There is no such exemption provided under the Income-tax Act. Secondly, the Tribunal has ignored the provisions of sub-section (2) of section 115JB which provides the mechanism for maintenance of accounts by a company. It may be noted that this sub-section uses the word 'shall' which makes it mandatory for the assessee-company, to prepare the accounts in accordance with Schedule VI. Sub-section (1) of section 115JB provides that the provisions of this section are applicable in case of every company. It does not carve out any exception. The moment it is proved that the assessee is a company it has to consider to apply the provisions of section 115JB, work out book profit and compare it with total income as computed under normal provisions of the A....
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....epreciation" would be the same for preparing the annual accounts including profit and loss account as has been adopted 'for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act.' It clearly shows that a company will have two sets of profit and loss accounts one that is prepared for being laid at its annual general meeting and other for the purposes of section 115JB being the accounts prepared as per Schedule VI of Companies Act. Common factors between the two would be "(i) the accounting policies (ii) the accounting standards adopted for preparing such accounts including profit and loss account and (Hi) the method and rates adopted for calculating the depreciation." It is possible that accounts for being laid before AGM and prepared as per Schedule VI of the Companies Act are the same. But it does not necessarily follow that where accounts different from Schedule VI of the Companies Act are prepared to comply with the provisions of the regulating Act, then such companies are exempted from preparing accounts as per Schedule VI of....
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....th Sch VI leads to an unworkable machinery section and therefore, charging section also can not be invoked. I humbly submit with greatest respect to The Court that this judgement is per-incuriam for the simple reason that both the accounts, prepared under different methods can be same also. Further, The Ld. High Court treated the explanation 3 as meaningless and otiose. In my humble submission, if we are alive to such a possibility that two accounts may also be same or different as the case may be, explanation 3 will not get redundant. Conclusion 3. The decision of the Tribunal, in the above case, therefore, requires reconsideration as it has ignored vital provision in sub-section (2) of section 115JB and interpretated the provision in such a manner that it has practically carved out an exception from the applicability of these special provisions when no such exception really exists. It has made the application of section 115JB ineffective in those cases where accounts are required to be kept under other statutes also ignoring the mandatory nature of provisions of sub-section (2) which overrides not only other provisions of Income-tax Act but also other statutes".....
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....vant previous year in accordance with the provisions of the Act governing such company:] Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) The method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating t....
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....dards. (3B) Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balance sheet, the following, namely;- (a) The deviation from the accounting standards; (b) The reasons for such deviation; and (c) The financial effect, if any, arising due to such deviation. (3C) For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (l) of section 210A: Provided that the standards of accounting specified by the 1nstitute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this sub- section.] " 7.3 Explanation 3 to Section 115JB of the Income Tax Act, 1961 "For the removal of d....
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....9;company', 'existing company', 'private company' and 'public company' , shall, subject to the provisions of sub section (2) , have the meanings specified below:- (i) 'company' means a company formed and registered under this Act or an existing company as defined in clause (ii); (ii) 'existing company' menas a. company formed and registered under any of the previous companies laws specified below:- (a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866) and repealed by that Act; (b) the Indian Companies Act, 1866 (l0 of 1866); (c) the Indian Companies Act, 1882 (6 of 1882); (d) the Indian Companies Act, 1913 (7 of 1913); (e) the Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and (f) any law corresponding to any of the Act or the Ordinance aforesaid and in force in the merged territories or in a Part B State, or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913)". 7.3.6. As demonstrated in earlier paragraphs, the assessee was established under the Banking Compan....
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....puted by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115lB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies e.g. insurance, banking or electricity company are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. (ii). It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued ass....
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.... 7.6.1. The scope and effect of section 115JA was elaborated in the Department Circular No. 762 dated lS.2.1998. The relevant portion is reproduced hereunder:- "Alternate minimum tax on companies- 46.1 In recent times, the number of zero-tax companies and companies marginal tax has grown. Studies have shown that in spite of the fact that companies have entered substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance (No.2) Act, 1996, has inserted a new section 115JA of the Income-tax Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Incometax Art, is more than 30 per cent of the book profit, tax shall be charged on the same. 7.6.2. The Memorandum explaining the....
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....e mischief in the taxing provision. In this regard, it is relevant to reproduce the following:- "To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of the whole Act, to consider - (i) what was the law before the Act was passed; (ii) what was the mischief or defectfor which the law had not provided; (iii) what remedy the Parliament has appointed; and (iv) the reason of the remedy. " 7.6.5. A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. The task of a judge is to go by the intent of the statute and fill the gaps. The two rules of most general application in construing a statute are that - first that it shall, if possible, be so interpreted UT RES MAGIS VALEAT QUAM PEREAT (that the thing may rather have effect than be destroyed) and secondly, that such a meaning shall be given to it as may carry out and effectuate to the fullest extent the intention of the legislature. Each law consists of two parts viz., of body, and soul. The letter of the law is the body of law and the sense and reason of the law is the soul of the law....
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....nk of India -vs.- ACIT [ITA Nos. 4702 to 4706/Mum/2010]; (v) Indian Bank -vs.- Addl. CIT [ITA No. 469/Mds/2010]; (vi) State Bank of Hyderabad -vs.- DCIT [33 taxman.com 312 (Hyd.-Tribunal)]; (vii) Bank of India -vs.- Addl. CIT [ITA No. 1498/Mum./2011] The amendment made in section 115JB by the Finance Act, 2012 by inserting Explanation 3 was also taken into consideration by the Tribunal in its order for A.Y. 2002-03 and it was held that the provisions of section 115JB of the Act were not applicable in the case of the assessee for A.Y. 2002-03 as the amendment brought in section 115JB of the Act read with Explanation 3 thereto by the Finance Act, 2012 was applicable only with effect from assessment year 2013-14. 15. It is also observed that even the Hon'ble Bombay High Court in the case of CIT -vs.- Union Bank of India [263 taxman 685] had an occasion to consider a similar issue and the same was decided by Their Lordships in favour of the assessee by holding that the provisions of section 115JB as made prior to its amendment by virtue of the Finance Act, 2012 would not be applicable to a Banking Company governed by the provisions of Banking Regulation....
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....ovisions of Parts 11 and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting polices, (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956(1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the account policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the....
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...., this argument seems attractive. However, when we read sub-section (2) further, certain complications arise in this line of argument. The first proviso to sub-section (2) of Section 115JB provides that while preparing annual accounts including profit and loss account the accounting policies and accounting standards adopted for preparing the account and the method and rules adopted in calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts and laid before the company at its Annual General Meeting in accordance with provisions of Section 210 of the Companies Act, 1956. There is no dispute that the respondent-bank in terms of Section 210 of the Companies Act, 1956 is also required to lay its accounts before the Annual General Meeting. However, such accounts would necessarily be prepared in accordance with the provisions of Banking Regulation Act, 1949 and never be those which even had it been possible to be prepared, in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. The applicability of this proviso therefore, in case of a banking company would immediately create complications. On one hand, in terms o....
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....ect to the provisions of the said section and be in the form set out in the Forms 1 and 2 of schedule VI. This sub-section contained a proviso providing that nothing contained in said sub-section would apply to a banking company or any company engaged in generation or supply of electricity or to any other class of company for which a form of balance sheet shall be specified in or under the Act governing such company. Thus, Companies Act, 1956 excluded the insurance or banking companies, companies engaged in generation or supply of electricity or companies for which balance-sheet was specified in the governing Act, from the purview of sub-section (1) of Section 211 of the Companies Act, 1956 and as a consequence from the purview of Section 115JB of the Act. 13. What we have held above is duly supported by the division bench judgment of Kerala High Court. It was a case in which the assessee before the court was Kerala State Electricity Board, a statutory corporation constituted under Section 5 of the Electricity (Supply) Act, 1948. The revenue sought to cover the said Electricity Board under the provisions of Section 115JB which the assessee opposed. The issue reach....
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....the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including (statement of profit and loss) and laid before the company at its annual general meeting in accordance with the provisions of (section 129) of the (Companies Act, 2013(18 of2013)" 15. The memorandum explaining the provisions made in the Finance Bill, 2012, in relation to minimum alternative tax stated as under :- "Minimum Alternate Tax (MAT) I. Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and on half percent of its book profit in case tax on its total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companie....
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....ncial statement. Under subsection (I) of Section 129 it is provided that the financial statement shall give a true and fair view of the state of affairs of the company, comply with the accounting standard notified under Section 113 and shall be in the form as may be provided for different classes of companies. Second proviso to sub-section (I) of Section 129 reads as under:- "Provided further that nothing contained in this sub-section shall apply to any insurance or 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 financial statement has been specified in or under the Act governing such class of company: 17. This proviso thus refers any insurance or banking companies or companies engaged in the generation or supply of electricity or to any other class of company in which form of financial statement has been specified in or under the Act governing such class of company. Combined reading of this proviso to sub-section (1) of Section 129 of the Act, 2013 and clause (b) of sub-section (2) of Section 115JB of the Act would show that in case of insurance or banking companies ....
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.... 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 VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company." 20. This explanation starts with the expression "For the removal of doubts". It declares that for the purpose of the said section in case of an assessee-company to which second proviso to section 129(1) of the Companies Act, 2013 is applicable, would have an option for the assessment year commencing on or before 1st April, 2012 to prepare its statement of profit and loss either in accordance with the provisions of schedule III to the Companies Act, 2013 or in accordance with the provisions of the Act governing such company. To our mind, this is some what curious provision. In the original form, sub- section (2) of section 115JB of the Act did not offer any such option to a banking company, insurance company or electricity company to prepare its profit and loss account at its choice either in terms of its governing Act or as per terms of Section 115JB of the Act. Secondly, by virtue of....