TaxTMI 
TaxTMI 
2024 (9) TMI 789
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....in the scope of section 115JB of the Act from assessment year 2013-14 onwards?" 2. As a lead case we are taking up the appeal of Union Bank of India in ITA No.424/Mum/2020. For the A.Y.2015-16, Union Bank of India has computed tax payable on book profit u/s. 115JB at Rs. 604,86,39,540/- and tax payable under the normal provisions at Rs. 1153,29,54,493/-. The ld. AO asked the assessee to furnish the computation of book profit and also required the assessee as to why "provisions and contingency", debited to the profit and loss account, should not be added back for the computation of book profit u/s.115JB. 3. In response assessee submitted that even though in computation assessee has worked out MAT on book profit but the provision of Section 115JB itself is not applicable to the assessee bank. However, the ld. AO rejected the assessee's plea of non-applicability of 115JB on the ground that the amended provision of Section 115JB brought by the Finance Act, 2012 w.e.f. 01/04/2013 by insertion of clause (b) to sub-section (2) to section 115JB, brings within its ambit even the banking companies. Thus, the ld. AO concluded that now the amended provision provides that not only the com....
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.... 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. 9.4 It may further be pointed out that the assessee has itself computed its income u/s 115JB of the I. T. Act, for A. Y. 2012- 13, 2014-15 and 2015-16. In both the assessment years, assessee had duly filed Form No. 29B containing report from Chartered Accountant with computation of Book Profit u/s 115JB of the act. 9.4.1 In view of the above discussion it is held that, the provisions of Section 115JB are applicable to the assessee. Further, the Revenue has filed appeal before the Hon'ble Mumbai High Court, against the order of the Id. Tribunal in assessees' own case for A. Y. 2007-08, which has been admitted by the Hon'ble Court in ITXA (L) No. 1977 of 2013 which is still pending for disposal." 4. Ld. CIT (A) has also endorsed same view after holding as under:- "9.3 I have considered the AO's order, the submissions made by the appellant and the details filed. I find that there may be merit in the contention of the appellant that it does n....
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....A.Y. 2013-14, the Co-ordinate Bench has considered the amendment to Sub-Section (2) to Section 115JB and followed the earlier order of the Tribunal. Similar view was taken in A.Y.2014-15 also. 7. Contrary to the aforesaid judgments and decisions in the case of the assessee, there was another decision of the Co- ordinate Bench in the case of Bank of India in ITA No. 167 and 2048/Mum/2019 order dated 11/12/2020, (standing on the same footing as Union Bank Of India) while deciding the case for the A.Y.2015-16 has discussed this issue in detail and rejected the plea of the Bank about non-applicability of Section 115JB to the banking companies like assessee. In sum and substance, the Tribunal held that Section 11 of The Banking Companies (Acquisition And Transfer Of Undertaking) Act, 1970 provides that for the purpose of The Income Tax Act, every corresponding 'new bank' shall be 'deemed to be Indian company and the company in which public is substantially interested', therefore, is not open to take a view that it would not be treated as a 'company' for the purpose of provisions of section 115JB of The Act. In paragraph numbers 22-23 of the order, wherein the ....
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.... Provided that for the previous year relevant to the assessment year commencing on or after the 1st day of April, 2020, the provisions of this sub-section shall have effect as if for the words "eighteen and one-half per cent" occurring at both the places, the words "fifteen per cent" had been substituted. (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 III 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; (ii) the accounting standards adopted for preparing such accounts including statement of profit and l....
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.... BACKGROUND & FACTS 11. The brief facts and the applicable legal provision which are relevant for adjudicating the aforesaid question, which has been brought on record are that, the assessee bank came into existence on 19/07/1969 as "corresponding new bank‟ as per Section 3(1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (in short referred to as "Acquisition Act'). As per this Act, only the undertaking of the existing bank was transferred from Union Bank of India Ltd. to Union Bank of India, which was a creation by a separate Acquisition Act. The shareholders of Union Bank of India Ltd. were paid compensation in consideration for acquiring the undertaking. It has been further affirmed and stated before us that the Union Bank of India Ltd. continues to exist as a company as per the website of Registrar of Companies. Assessee, i.e., The Union Bank of India is neither a company incorporated under the Companies Act, 1956 nor under any other previous company law. Ergo, these are two different entities and distinct from each other, one incorporated under old Company Law and other created by an Act of Parliament, that is, Banking Companies (Acquis....
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....fied in the said Schedule. Accordingly, he submitted that as per the Acquisition Act, the "undertaking‟ of the existing bank which carried on the banking business had to be transferred and vested in the corresponding new bank. v. Further, he referred to Section 10 of the Acquisition Act which states that every corresponding new bank shall cause its books of account to be closed and balanced in accordance with the said provision. It also lays down the procedure for qualification of an auditor, his scope of work and manner of determination of his remuneration. vi. Section 10A thereof, provides for the procedure to be followed by every corresponding new bank for the purposes of holding its annual general meeting. Thus, the said Act deals with various other procedural aspects which will apply only to a corresponding new bank. Reference has been made to these provisions to show that the aspects relating to maintenance of books of account, their closure, audit and placing of the audited financial statements in the annual general meeting for discussion, approval and adoption are independently provided for in the Acquisition Act itself. 13. Mr. Pardiwala submi....
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....mpany, 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 III 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, (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" 16. He submitted t....
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....Schedule III of the Companies Act and also referring to the fact that the first proviso below section 115 JB (2) is not applicable to its case, that is why it has been held by the jurisdictional High Court in assessee's own case that the machinery provision would fail. In the absence of fulfillment of the said condition, principle laid down in the judgment of the Hon'ble Apex Court in the case of CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) is applicable, wherein it has been held that a charging provision and a computation provision together constitute an integrated code. If the computation provision cannot apply it would be evident that such a case was not intended to fall within the charging section. Thus, he submitted that, in so far as application of clause (a) of section 115JB (2) is concerned, the same would fail as held by the High Court. The said judgment, though rendered in the context of a period pre- amendment, it is submitted, would hold good in so far as clause (a) is concerned, as both the provisions stand on the same footing. Clause (b) b. With respect to application of clause (b) of section 115JB (2) of the Act, the following conditions....
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....on is created only for the purposes of the Income-tax Act. Further, for the purposes of the said Act, it deems every corresponding new bank to be an Indian company and also a company in which the public are substantially interested. At the relevant point of time, when the Acquisition Act was passed by the Parliament, a differential rate of tax was applicable on different categories of companies, with a concessional rate being applied in the case of an Indian company in which the public are substantially interested. 22. Thus, he submitted that the said deeming fiction by way of section 11 in the Acquisition Act was provided with a view to give such concessional tax treatment to the nationalised banks. Apart there from, it also requires consideration that the expression company has been defined in section 2(17) of the IT Act as under:- "company" means- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922) or which....
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....nding new bank can be treated as a company for the purposes of the Income-tax Act, the context of clause (b) in sub-section (2) to section 115JB does not permit treatment of such bank as a company for the said clause. This is because it should be a company to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 is applicable. He explained that the said proviso has no application to a corresponding new bank as it is not a banking company for the purposes of the said provision. Therefore, the context in which the said expression 'company is used in section 115JB (2)(b), it requires that the said provision will not apply to an entity which is deemed by a fiction to be a company for the purposes of the Income-tax Act. For application of the clause it should be a company as per the Companies Act. It is submitted that, the deeming fiction created for the purposes of the Income-tax Act, cannot be extended to the Companies Act. 26. Mr. Pardiwala also referred to the judgment of Hon'ble Apex Court in the case of Vanguard Fire case and General Insurance Co. Ltd., Madras v. Fraser and Ross and Ors. AIR 1960 SC 971, where, the Hon'ble Court held as under....
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....le Apex Court in the case of CIT v. B. C. Srinvasa Setty (1981) 128 ITR 294, where the Court was concerned with whether self generated goodwill can be described as a capital asset for the purposes of the Act. Though, goodwill will be regarded as a property and, hence, as an asset in normal parlance, the Court has referred to the expression 'unless the context otherwise 'requires' to come to the conclusion that such goodwill cannot be described as a capital asset for the purposes of section 45 which is the charging provision for capital gains tax. Our attention was drawn to the following observations: "The section operates if there is a transfer of a capital asset giving rise to a profit or gain. The expression "capital asset" is defined in section 2 (14) to mean "property of any kind held by an assessee". It is of the widest amplitude, and apparently covers all kinds of property except the property expressly excluded by clauses (i) to (iv)of the sub-section which, it will be seen, does not include good will. But the definitions in section 2 are subject to an overall restrictive clause. That is expressed in the opening words of the section: unless the context ot....
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....einabove, the annual general meeting is held and the balance sheet and the profit and loss account of the corresponding new bank is discussed, approved and adopted by the shareholders as per section 10A of the Acquisition Act. Section 129 of the Companies Act, 2013 has no application to its case. This is because the assessee being nationalised bank is not a company for the purposes of the Companies Act. In view thereof, it is submitted that since the requirement in the said proviso cannot be fulfilled in the present case, the taxability of book profit as per section 115JB of the Act, would fail. 30. Further, he also invited our attention to the judgment of the Hon'ble Apex Court in the case of CIT v. Elphinstone Spinning and Weaving Mills Co. Ltd. (1961) 40 ITR 142, where, the Court has held that where the word of taxing statute fails, then so must the tax. The Courts cannot help the draftsman by a favourable construction where the legislature failed to fit in the law in the scheme of the Act. In that case, the court was concerned with whether the assessee was liable to pay additional income-tax when it incurred losses but declared dividend which was treated as 'excess d....
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....anking company for the purposes of the BR Act or the Companies Act. 33. Lastly, he also made various references from the Income Tax Act itself wherein corresponding new bank and the banking company have been treated as separate and independent from each other. For instance, he made reference to the following provisions:- i. As per section 36(1)(viii) deduction is allowed in respect of any special reserve created and maintained by a specified entity. The expression 'specified entity' has been defined in clause (a) of the Explanation thereto to inter-alia include a banking company clause (c) to the said Explanation defines the expression 'banking company' as meaning a company to which the BR Act applies and includes any bank or banking institution referred to in section 51 of the said Act. As explained hereinabove, section 51 of the BR Act makes certain specific provisions in the BR Act being applicable to a corresponding new bank. If the Revenue's submission is accepted that a banking company will include a corresponding new bank, then, this latter part of clause (c) was not required. ii. Section 72A of the Act, provides for carry forward of ....
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....rd, he has also invited our attention to section 10 of the said Act which deals with maintenance and closure of accounts as well as section 10A which deals with holding of annual general meeting. Based thereon, it was urged that the corresponding new bank has the features of a company. 36. He further referred to Section 5(c) of BR Act which requires that for an entity to be regarded as a banking company it should be company which transacts the business of banking in India. Again, after referring to section 11 of the Acquisition Act, he submitted that it provides that a corresponding new bank shall be a company and section 3(5) of the said Act provides that every corresponding new bank shall carry on and transact the business of banking as defined in section 5(b) of the BR Act. Thus, the conjoint reading of Section 11 of the Acquisition Act of section 5(c) of the BR Act, and the definition of a company defined in section 3 of the Companies Act goes to prove that these banks are nothing but a banking company and once a banking company will fall within the ambit and not only the Companies Act but also for the purpose of Section 115JB. Once the amendment has been brought and Sub-sec....
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....2) of section 115JB is applicable to its case. b. The entire order is based on section 11 of the Acquisition Act which for the purposes of the Income-tax Act deems every corresponding new bank to be an Indian company and a company in which public is substantially interested. The said deeming provision was required because in the 1970's, the rate of tax under the Act was to be determined based on the status of a company as a domestic company and a company in which public is substantially interested. A bare perusal of the said section 11 also shows that the said deeming fiction is only for the purposes of the Income-tax Act. In clause (b) of section 115JB(2), after its amendment, one has to be consider whether the second proviso below section 129(1) of the Companies Act, 2013 is applicable to the assessee's case. As detailed hereinabove, the said condition is not fulfilled. The deeming fiction in section 11 referred to above, for the purpose of the Income-tax Act cannot be extended to section 129 of the Companies Act. Non- application of the proviso below section 129 of the Companies Act would necessarily mean that though the Appellant may be regarded as a company fo....
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....Section 115JB, those companies to which second proviso to sub- section (1) of Section 129 of the Companies Act is applicable, who are required to prepare its statement of profit and loss account in accordance with provisions of the Act governing such company. For the sake of ready reference the amended sub- section (2) of Section 115JB is again reproduced hereunder:- (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 III 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; (ii) the accounting standards adopted ....
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....case of a company:- i. it applies to a company to which the second proviso to sub- section (1) of section 129 of the Companies Act, 2013 is applicable; ii. once this condition is fulfilled, it requires such assessee for the purpose of this section to prepare its profit and loss account in accordance with the provisions of the Act governing such company. 43. Since 115JB is applicable to the company to which second proviso to Section 129(1) applies, therefore, it would be relevant to quote Section 129 of the Companies Act which reads as under:- "129. Financial statement-(1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III: Provided that the items contained in such financial statements shall be in accordance with the accounting standards. 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 elect....
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....nking company‟ as under: "(c) "banking company" means any company which transacts the business of banking in India" Therefore, for an entity to qualify as a banking company it should first of all, be a company' and secondly the said company should transact the business of banking in India. 46. The expression "company" has been defined in section 5(d) of the BR Act as under: "(d) "company" means any company as defined in section 3 of the Companies Act, 1956 (1 of 1956); and includes a foreign company within the meaning of section 591 of that Act;" 47. Therefore, in so far as is relevant, the entity has to be a company as defined in section 3 of the Companies Act, 1956 (Now 2013) to be regarded as a banking company. Section 3(1)(i) of the Companies Act, defines a 'company' as under: "(i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii)" 48. Therefore, it is sine-qua-non that for an entity to qualify as a company it must either be a company formed and registered under the Companies Act or it should be an existing company as defined in sub-clause (ii) thereof. Since t....
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....c are "substantially interested' and since in Section 2(17) of the Income Tax Act, the "company‟ has been defined as any Indian company therefore, the provisions of the Income Tax Act would apply because Section 2(26) of the Act defines "Indian company‟ means the company formed and registered under the Companies Act and therefore, it is deemed to be a company under the Companies Act. 52. Section 11 of the Acquisition Act states that "For the purposes of Income-tax Act, 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian company and a company in which the public are substantially interested". Therefore, the said deeming fiction is created only for the purposes of the Income-tax Act. Further, for the purposes of the said Act, it treats every corresponding new bank to be an Indian company and also a company in which the public are substantially interested. 53. First of all, deeming an entity to be an Indian Company or a company in which public are substantially interested for the purposes of the Income-tax Act would not ipso facto make such entity as a 'company' for the purposes of the Companies Act, 2013, unless the conditions....
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....king) Act,1970. Thus, assessee cannot be treated as a company under the Companies Act, because it was never registered under the Companies Act. Ergo, the deeming fiction by way of Section 11 of the Acquisition Act has to be read purely in the context for the purpose of Income Tax Act where the corresponding new bank have been deemed to be an Indian Company and a company in which public are substantially interested. This deeming section cannot be extended to a company registered under the Companies Act to which alone Section 115JB is applicable. 56. Thus, we hold that Section 11 of the Acquisition Act which deals a corresponding new bank treated as Indian company for the purpose of Income Tax, however, Clause (b) in Sub-Section 2 to Section 115JB does not permit treatment of such bank as a company for the purpose of the said clause, because it should be company to which second proviso to sub-section (1) to Section 129 of the Companies Act is applicable. The said proviso has no application to the corresponding new bank as it is not a banking company for the purpose of the said provision. The expression "company" used in section 115JB(2)(b) is to be inferred to be company under the....