TaxTMI 
TaxTMI 
2020 (6) TMI 471
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....tating that disallowance u/s 40(a) (ia) permissible if tax 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. ....
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.... of Income Tax Act 1961 on account of short deduction of tax at source. 4. 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 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....
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.... change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). 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 aut....
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....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 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. Lt....
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....rising 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 assessees 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 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 involv....
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....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: "10. 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 th....
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....r other statute say, Banking Regulation Act or under Electricity Act. It further says'shall'. It is clearly mandatory for every assessee- company to do what follows in that sub- section. A different meaning to this word cannot be assigned while 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 p....
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....sions of section 115 JB should not arise. Further, as per THE BANKING COMPANIES(ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970, Sec 4 the bank is a " body corporate" and therefore, governed by Companies Act,1956. For easy reference, Sec 4 is quoted as below- "(4) Every 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 again....
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.... 03 and the Coordinate Bench of this Tribunal decided the same in favour of the assessee vide paragraph no. 7 (including para no. 7. 1 to 7.7) of its order dated 27.11.2015 passed in ITA No. 1768/KOL/2009 as under:- "7. We have heard the rival submissions and perused the various case laws relied upon by the counsels for both the 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....
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....any 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 company. (2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto: 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 notificati....
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.... 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 the assessee as a'banking company'and thereby come to a conclusion whether in terms of Explanation 3, section 115 JB is applicable to the assessee who carried on banking business. 7.3.2.. The term'banking company'has been defined in section 2 (5) of the Companies Act, 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 A....
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....1956. These assessees 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 115 JB, such banking companies are retroactively made liable to pay tax on the deemed income computable with respect to net profit as disclosed bv profit and loss account prepared by such banking companies in conformity with the provisions of Banking Regulation Act, 1949. This legal position has been very ably illustrated by the Mumbai Bench of the Tribunal in the case of Maharashtra 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 ....
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....ered 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 115 JB of the Act are also not applicable. 7.6. The basic intention of MAT u/ s 115 JB is only to tax the book profits irrespective of nil or lesser taxable income due to various exemptions I deductions like sections 10A/ 10B/ 80 IA/ 80 IB etc. The intention of MAT is that the companies were declaring huge profits as per their companies act and declaring dividends to its shareholders but paying nil tax or lesser tax under the IT act due to various exemptions/ deductions like 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 115J....
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....Steels P Ltd vs DCIT reported in (1999) 237 ITR 777 at page 783 considered the legislative intent for the introduction of section 1151. It was found that the section was introduced to take care of the phenomenon of prosperous zero-tax companies which had continued inspite of the enactment of section 80 VV A. 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 1151B, originally the companies entitled for exemptions U/ S 10 A/ 10 B and deductions u/s 80IA/80IB were eligible for deduction from book profits u/ s 1151 B. But later to be in line with the underlying intention behind introduction of MAT provisions to tax the companies declaring huge dividends to shareholders 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 aga....
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....nk". 14. A similar issue as involved in the year under consideration thus was decided by the Tribunal in favour of the assessee for A.Y. 2002 -03 after taking into consideration not only the provisions of section 115 JB but also the relevant provisions of the Companies Act, 1956. The Tribunal also considered the Circulars issued by the Board from time to time in this regard and took note of the decision of the Hon'ble Supreme Court in the case of Surana Steels Pvt. Limited (supra), wherein the legislative intent of section 115 J was considered. As rightly contended by the ld. Counsel for the assessee, a similar issue thus has been decided by the Tribunal in favour of the assessee for A.Y. 2002-03 by passing a well discussed and well reasoned order and we do not f ind any justifiable reason to reconsider the said decision as sought by the ld. D. R. It is also noted that the 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.- JC....
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....ection l15 J. The Circular No.762 dated 18th February, 1998 issued by the Central Board of Direct Tax (" CBDT" for short) explains the objects for introduction of such MAT provisions. The circular clarifies that new Section 115JA has been inserted by the Finance Act, so as to levy a minimum tax on companies, who are having book profits and paying dividends, but not paying any taxes. Relevant portion of Section 115 JB as is stood at the relevant time reads as under:- " Special provision for payment of tax by certain companies: 115 JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1 st day of April, (2007) is less than (ten percent) of its book profit, (such) book profit shall be deemed to be the total income 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....
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....n the context, the question would also be of the legislative intent to cover such companies within the swip of Section I 15JB of the Act. These questions arise because of the language used in sub-section (2) of Section 1151 B. These provisions we may peruse more minutely. As per sub-section (2) of Section 115 JB, every assessee being a company would for the purposes of the said 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 of the Companies Act, 1956. It is undisputed that the respondent- a banking company is not required to prepare its accounts in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956. The accounts of the banking company are prepared as per the provisions contained in Banking Regulation Act. 1949. The counsel for the revenue may still argue that irrespective of such requirements, for the purposes of the said Act and special requirements of Section 115 JB of the Act, a banking company is obliged 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 ....
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....ein in case of a banking company, would convince us that machinery provision provided in sub- section (2) of section l 15 JB of the Act, would be rendered wholly unworkable in such a situation. In a well known judgment the Supreme court in case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 had observed that in the Income Tax Act, a charing section and the computing provisions together constitute an integrated code. In a case where the computation provision can not apply, it would be evident that such a case was not intended to fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain cannot be done without ascertaining the cost of acquisition, i t was held that no capital gain tax can be levied. 12. For the completeness of the discussion, we may note that section 211 of the Companies Act, 1956 pertains to form of contents of balance- sheet and profit and loss account, sub- section (1) of Section 211 provided that every balance sheet o....
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....d under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, (2012), is less than (eighteen and one-half percent) of its book profit, (such book profit shall be deemed to be the total income 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 (eighteen and one- half percent). (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its (statement of profit and loss) for the relevant previous year in accordance with the provisions of (Schedule Ill) to the (Companies Act, 2013 (18 of 2013); or (b) being a company, to which the (second proviso to sub- section (1) of section 129) of the (Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its (statement of profit and loss) for the relevant previous year in accordance with the provisions of the Act governing such company:) Provided that while preparing the annual accounts including (statement of profit and loss),- (i) the accounting policies; ....
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.... amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. III. It is also proposed to omit the reference of Part III of Schedule VI of the Companies Act, 1956 from section 115 JB 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." 16. It can be seen that sub-section (2) of Section ll 5JB of the Act has now been bifurcated in two parts covered in the clauses (a) and (b). Clause (a) would cover all companies other than those referred to in clause (b). Such companies would prepare the statement of profit and loss in accordance to the provisions of schedule III of the Companies Act, 2013 (which has now replaced the old Companies Act, 1956). Clause (b) refers to a company to which second proviso to sub-section (1) of Section 129 of the Companies Act, 2013 is applicable. Such companies, for the purpose of Section 115 JB, would prepare the statement of pr....
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.... and significant legislative changes which are admittedly applied prospectively. The memorandum explaining the provision of the Finance Bill, 2012 while explaining the amendments under Section 115 JB of the Act notes that in case of certain companies such as insurance, banking and electricity companies, they are allowed to prepare the profit and loss account in accordance with the sections specified in their regulatory Acts. To align the Income Tax Act with the Companies Act, 1956 it was decided to amend Section 115 JB to provide that the companies which are not required under Section 211 of the Companies Act, to prepare profit and loss account in accordance with Schedule VI of the Companies Act, profit and loss account prepared in accordance with the provisions of their regulatory Act shall be taken as basis for computing book profit under Section 115 JB of the Act. 19. Before closing, we may also take note of explanation (3) below sub-section (2) of section 115 JB of the Act which reads as under :- " Explanation 3- For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-se....
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....the ld. D. R, which is in favour of the Revenue on this issue, we respectfully follow the judicial pronouncements referred to and discussed above, which are in favour of the assessee and uphold the impugned order of the ld. CIT(Appeals) holding that the provision of section 115 JB was not applicable in the case of the assessee being a Banking company for the year under consideration, i. e. A.Y. 2010 -11. Ground No. 3 of the Revenue's appeal is accordingly dismissed." 17. As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee's own case (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). 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 note that provision of section 115JB is not applicable in the case of the assessee being a Banking company for the year under consideration. Therefore, grounds raised by the Revenue are dismissed. 18. Ground Nos.8 & 9 relates to rental income earned from House....
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.... in the form of TDS, or advance tax or self-assessment tax or TCS, etc. When credit for tax payments is to be given there, is no distinction in the tax liability which is credited through normal computation of income or through section 115 JB. Therefore, credit for tax paid in foreign country should be allowed even when the tax liability is raised u/s 115JB. Therefore, the AO is directed to allow this credit u/s 91." 14.4 A point needs to be mentioned here. Since, it has already been held that the provisions of section 115JB are not applicable in the case of the appellant, the debate over whether the credits for taxes paid in a foreign country can be allowed u/s 155JB or not, has lost relevance in the instant case. Therefore, respectfully following the reasons given by my predecessor and his judgment on this issue the appellant is allowed the credit u/s 91 of the IT Act, 1961 for tax paid in Foreign Country. The appeal on this ground is allowed." 21. The ld Counsel also brought to the notice of the Bench that this issue is covered by Article 6 of the India-Singapore Treaty which is reproduced as under: India- Singapore - ARTICLE 6- INCOME FROM IMMOVABLE PROPERTY o....