2019 (5) TMI 355 - HC - Income Tax

Applicability of Section 115JB on banking Company - scope of rectification u/s 154 - Scope of amendment in 115JB by Finance Act, 2012 - HELD THAT - These amendments in section 115JB are neither declaratory nor classificatory but make substantive 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 115JB 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 115JB to provide that the companies which are not required u/s 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 u/s 115JB. 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 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. Secondly, by virtue of this explanation if an anomaly which we have noticed is sought to be removed, we do not think that the legislature has achieved such purpose. In plain terms, this is not a case of retrospective legislative amendment. It is stated to be clarificatory amendment for removal of doubts. When the plain language of sub- section (2) of Section 115JB did not permit any ambiguity, we do not think the legislature by introducing a clarificatory or declaratory amendment cure a defect without resorting to retrospective amendment, which in the present case has admittedly not been done. In the result, we hold that sub- section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No.2 in favour of the assessee and against the revenue. In view of this, question of correctness of the order of rectification passed by the Assessing Officer becomes unimportant. Question No.1 is therefore not answered. All the appeals are dismissed.

Summary

Issues Involved:
1. Applicability of Section 115JB of the Income Tax Act, 1961 to banking companies.
2. Validity of the rectification order passed by the Assessing Officer under Section 154 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 115JB of the Income Tax Act, 1961 to Banking Companies:
The core issue was whether the provisions of Section 115JB, which pertains to the Minimum Alternate Tax (MAT) on companies, were applicable to banking companies. The Tribunal had previously ruled that Section 115JB did not apply to the assessee-bank, a decision contested by the revenue.

Arguments by Revenue:
The revenue argued that the provisions of Section 115JB are clear and apply to all companies, including banking companies. The amendments made by the Finance Act, 2012, were only to align the position of special companies such as banking companies with the Income Tax Act, and did not imply that Section 115JB was inapplicable to banking companies prior to these amendments.

Arguments by Assessee:
The assessee contended that the mechanism for computing book profit under Section 115JB(2) was unworkable for banking companies, as their accounts are prepared under the Banking Regulation Act, 1949, not the Companies Act, 1956. The assessee argued that the legislative intent was not to include banking companies within the scope of Section 115JB until the Finance Act, 2012 amendments.

Court’s Analysis:
The court examined the legislative history and statutory provisions, noting that Section 115JB(2) required companies to prepare their profit and loss accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. However, banking companies prepare their accounts under the Banking Regulation Act, 1949. The court found that this created a legal dichotomy, making the machinery provision under Section 115JB(2) unworkable for banking companies. The court cited the Supreme Court’s judgment in Commissioner of Income-Tax, Bangalore Vs. B.C. Shrinivasa Setty, which held that if the computation provision fails, the charging section should not apply.

Conclusion:
The court held that Section 115JB, as it stood prior to its amendment by the Finance Act, 2012, was not applicable to banking companies. The court supported its conclusion by referencing similar judgments from the Kerala High Court and Delhi High Court, which held that MAT provisions did not apply to electricity boards and insurance companies, respectively.

2. Validity of the Rectification Order Passed by the Assessing Officer under Section 154 of the Income Tax Act, 1961:
The second issue was whether the Assessing Officer correctly exercised rectification powers to revise the book profits of the assessee-bank under Section 154, following a retrospective amendment to Section 115JB.

Tribunal’s Findings:
The Tribunal found that the Assessing Officer had wrongly exercised rectification powers under Section 154. The Tribunal noted that the tax determined under normal provisions was higher than the tax under Section 115JB, making the rectification redundant. Additionally, the Tribunal held that the retrospective amendment required detailed examination, which could not be done under the summary rectification procedure of Section 154.

Court’s Analysis:
Given the court’s conclusion on the first issue—that Section 115JB did not apply to banking companies—the question of the validity of the rectification order became moot. The court did not find it necessary to address the correctness of the rectification order.

Conclusion:
The court dismissed the appeals, holding that Section 115JB, prior to its amendment by the Finance Act, 2012, did not apply to banking companies, and thus, the rectification order was not relevant.

Final Judgment:
The court answered the second question in favor of the assessee, holding that Section 115JB was not applicable to banking companies prior to the Finance Act, 2012 amendments. Consequently, the question of the rectification order’s correctness was not addressed. All appeals were dismissed.