TaxTMI 
TaxTMI 
TaxTMI 
2020 (6) TMI 471
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....was not at all deducted at the time of payment and deduction of tax but fails to deposit before filing return. Hence, provision of section 40(a)(ia) not applicable when tax at source was short deducted. No opportunity for explanation provided to AO at the time of appeal proceeding. 3. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by deleting addition of Rs. 31,35,91,170/- made by Assessing Officer u/s 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962. 4. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by deleting of addition of Rs. 31,35,91,170/- made by Assessing Officer u/s 14A read with Rule 8D of Income Tax Rules, 1962 while the assessee has earned Rs. 7,41,28,290/- as Dividend Income and claimed total exempted income of Rs. 55,68,90,790/-. The expenditure incurred on exempted income from "Investment on Securities" and "Tax Free Bonds are debited in the taxable business income which is liable to be debited in the taxable business income which is liable to be disallowed as per section 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962. 5. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by stating th....
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....ng, learned counsel for the assessee invited our attention to the order dated 11.12.2019, passed by the Division Bench of this Tribunal in assessee's own case in ITA No.584/Kol/2018 for the Assessment Year 2010-11 whereby the issue relating to disallowance u/s 40(a)(ia) of the Act has been discussed and adjudicated in favour of assessee. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. 5. Learned Departmental Representative relied upon the orders of the authorities below. 6. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee's own case vide order dated 11.12.2019. In this order, the Tribunal has inter alia observed as follows: "3. The assessee in the present case is a Banking Company, which filed its return of income for the year under consideration on 28.09.2010 declaring total income at'NIL'. In the computation of total income filed along with the said return, disallowance of Rs. 1,17,97,270/- was suo motu made by the assessee under section 40 (a)(ia). During the course of a....
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....a). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the Coordinate Bench in assessee's own case we delete the disallowance u/s 40(a)(ia) of the Act. Therefore, grounds raised by the Revenue are dismissed. 8. Ground Nos.3 to 5 relates to disallowance of Rs. 31,35,91,170/- made by the Assessing Officer u/s 14A r.w.r 8D of the Rules. 9. When this appeal was called out for hearing, learned counsel for the assessee invited our attention to the order dated 11.12.2019, passed by the Division Bench of this Tribunal in assessee's own case in ITA No.584/Kol/2018 for the Assessment Year 2010-11 whereby the issue relating to disallowance of section 14A r.w.r 8D of the Rules has been discussed and adjudicated in favour of assessee. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. 10. Learned Departmental Representative relied upon the orders of the authorities below. 11. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in asse....
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....le 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 of investments yielding tax free income, no part of the interest paid was liable for disallowance. The view of the Hon'ble Bombay High Court was followed with approval by the jurisdictional Calcutta High Court in the case of CIT Vs Rasoi Ltd (ITA No. 109 of 2016). 12. We also find merit in the assessee's alternate contention that no disallowance out of interest paid was warranted because after netting off interest paid against interest received, the assessee had made net interest gain of Rs. 3902.1 O crores. The Hon'ble Gujarat High Court in its recent judgment in the case of Pr. CIT Vs. Nirma Credit & Capital Pvt. Ltd (supra) has held that the expression used in Rule 8 D(2)(ii) is " interest expenditure" and not " interest paid" and accordingly the expenditure in this context must mean interest ....
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.... 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 Supreme Court. We therefore f ind that qua the assessees engaged in the banking business, the Hon'ble Supreme Court upheld the judgment of the Hon'ble Punjab & Haryana High Court in the case of Pr. CIT Vs State Bank of Patiala (supra) as per which no disallowance u/ s 14 A is permissible in terms of Rule 8 D in case of assessees engaged in banking business. Respectfully following the judgment of the Supreme Court in case of State Bank of Patiala (supra), we direct the Ld. AO to delete the disallowance of Rs. 2,90,37,490/- made under Rule 8 D(2)(iii). Ground No. 2 of the Revenue's appeal is therefore dismissed and the grounds of assessee's CO are allowed". 8. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2012 - 13, we respectfully follow the decision of the Tribunal for A.Y. 2012 -13 and uphold the i....
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.... In the assessment completed under section 143 (3) vide an order dated 23. 03. 2013, the book profit of the assessee- company under section 115 JB was computed by the Assessing Officer at Rs. 9,58,79,63,443/- and tax payable thereon at the rate of 15 % was worked out at Rs. 1, 43,81,94,516/-. In the appeal filed before the ld. CIT(Appeals), the assessee- company challenged this action of the Assessing Officer on the ground that it being a Banking Company governed by the Banking Regulation Act, the provisions of section 115 JB could not be applied to it as the same were applicable to the entities, which are governed by the Companies Act. Since this stand taken by the assesese-company was duly supported, inter alia, by the decision of the Tribunal in assessee's own case for A.Y. 2002- 03 rendered vide an order dated 27.11.2015 passed in ITA No. 1768/KOL/2009, the ld. CIT(Appeals) accepted the same and held that the provisions of section 115 JB are not applicable in the case of the assessee. 11. At the time of hearing before the Tribunal, the ld. D. R. made the following submissions in writing in support of the revenue's case on this issue:- "2. The decision of the Tribunal requir....
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....le also interpreting sub-section (2). The use of the expression'for the purposes of this section'in sub- section (2) can only mean that the purpose of this section cannot be achieved unless every assessee- company does what follows thereafter. That is for achieving the purpose of section 115 JB, the Legislature mandates, by using word'shall', that every company shall " prepare its profit and loss account for the relevant previous year in accordance with the Schedule VI to the Companies Act, 1956". From this, it follows that even if an assessee- company has not maintained accounts in accordance with Schedule VI, still then it has to prepare profit and loss account in accordance with the Companies Act, 1956 for the purposes of this section. An exception has been carved out by the proviso to sub-section (2) according to which "(i) the accounting policies (ii) the accounting standards adopted for preparing such accounts including profit and loss account and (iii) the method and rates adopted for calculating the depreciation" 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 ....
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....ry corresponding new bank shall be a body corporate with perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property, and to contract, and may sue and be sued in its name". Moreover, for application of sec 115JB, it is not mandatory requirement that the body corporate need be registered under Companies Act. What is required is whether provisions of the Act are applicable to the entity or not which is definitely applicable in the case as body corporate is defined in Sec 2 (7) of the companies Act,1956. Therefore, Ld Tribunal's reliance on definition of company and consequently treating the bank as not registered under Companies Act, 1956 are of the mark. In the instant case, the bank is a body corporate and Companies Act are applicable. The Hon'ble Bombay High Court decided the case of Union Bank of India against Revenue on the ground that the provisio to subsection 2 of Sec 115 JB read with 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 bo....
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.... sides. At the outset, we find it appropriate to reproduce the following provisions of Income Tax Act, 1961, Companies Act, 1956, Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Banking Regulation Act, 1949 on which the impugned issue dwells upon :- 7.1 Section 115 JB(2) of the Income Tax Act, 1961. Special provision for payment of tax by certain companies (2) [ Every assessee,- (a) being a company, other than acompany referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (l of 1956); or (b) being a company, to which the proviso to sub- section (2) of section 211 of the Companies Act, 1956 (l of 1956 is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant 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 includi....
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....ereto: Provided 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 profit and loss account has been specified in or under the Act governing such class of company. (3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest. Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification. [(3 A) Every profit and loss account and balance sheet of the company shall comply with the accounting standards. (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 devi....
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....t, 1956 as follows:- " banking company" has the same meaning as in the Banking Companies Act, 1949 (10 of 1949)". 7.3.3.. The term " banking company" has been defined in section 5 (c) of Banking Regulation Act, 1949, as any company which transacts the business of banking in India. 7.3.4.. 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. 7.3.5.. The term'company'has been defined in section 3 of Companies Act, 1956 as follows:- In this Act, unless the context otherwise requires, the expressions'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....
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....htra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mum Trib) which is relied upon hereinbelow. 7.4. The Notes to Clauses to Finance Act, 2012 on the subject of Minimum Alternate Tax (MAT) is reproduced below:- (i). Under the existing provisions of section 115lB of the Act, a company is liable to pay MAT of eighteen and one half per cent of its book profit in case of tax on its total income computed under the provisions of the Act is less than 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 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 115 JB to provide th....
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....ke sections 10A/ 10B/ 80 IA/ 80 IB. To justify the imposition, real income theory was stressed and it was held that the companies cannot be allowed to have two faces, one for shareholder and another for taxman. Section 115 JA was enacted by restructuring the provisions of section 115 J with certain minor changes and thereafter section 115JB was enacted by bringing minor changes in section 115 JA. The provisions of section 115 J, 115 JA and 115JB are by and large similar to each other. 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 115 JA 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 envisage....
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....hareholders by reporting higher profits as per companies act but paying lesser tax under I.T. Act, the amendment was brought out in the statute book wherein the companies eligible to claim exemptions and deductions u/s 10 A/10B/80IA/80 IB also would come under the ambit of MAT. From this, it could be safely concluded that the legislature in i ts wisdom had time and again applied the Heyden's Rule to prevent possible 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 i t shall, if possible, be so interpreted UT RES MA....
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....he Tribunal in order to arrive at the said decision relied upon the following judicial pronouncements:- (i) Kurung Thai Bank - vs.- JCIT [49 SOT 12 (Mumbai)]; (ii) Kerala State Electricity Board - vs.- DCIT [ 329 ITR 91 (Kerala)]; (iii) Maharashtra State Electricity Board -vs.- JCIT [ 82 ITD 422 (Mum. Tribunal); (iv) Union Bank 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 115 JB 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 115 JB of the Act were not applicable in the case of the assessee for A.Y. 2002 -03 as the amendment brought in section 115 JB 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 ta....
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.... of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of (ten percent). (2)) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions 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 ado....
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.... to prepare its profit and loss account as per the provisions of the Companies Act, as mandated by sub-section (2) of Section 115 JB of the Act. His contention would be that such legislative mandate is not impermissible. 10. At the first blush, 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....
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.... balance- sheet and profit and loss account, sub- section (1) of Section 211 provided that every balance sheet of a company shall give true and fair view on the state of affairs of the company at the end of the financial year and would be subject 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....
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....t of profit and loss),- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including (statement of profit and loss); (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 (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 of 2013)" 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 115 JB of the Act, a company is liable to pay MAT of eighteen and on half percent of its book profit in case tax on i ts 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 115 JB, every company is required to....
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....with the provisions of the Act governing the company. Section 129 of the Companies Act, 2013 pertains to financial statement. Under sub-section (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....
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.... is applicable, has, for an assessment Ear commencing on or before the 1 st 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 115 JB 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 ....
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.... between the Government of the Republic of India and the Government of the Republic of Singapore. 19. Facts of the case which can be stated quite shortly are as follows: While computing the tax payable, the AO in his impugned order did not allow relief under Section 91 of the I.T. Act in respect of the taxes paid in Hongkong. In the course of assessment, the appellant had filed complete details of the challans evidencing tax payments made by its Hongkong Branch. The AO, however ignored the claim for relief u/s 91 in respect of foreign taxes paid by the appellant. 20. On appeal, ld CIT(A) allowed the claim of the assessee. The ld CIT(A) noticed that during the year the appellant had paid foreign taxes on the profits derived by the Hongkong Branch. Since there was no Double Taxation Avoidance Agreement between India and Hongkong, in terms of section 91, the appellant is entitled to claim credit of foreign taxes paid subject to the limits prescribed therein. The extent of relief u/s.91 is computed as a percentage of such'doubly taxed income'. The percentage to be applied is the lower of the'Indian rate of tax'and the'rate of tax of the said country'. The rate so determined i....