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2020 (1) TMI 1116 - HC - Income TaxMAT applicability to the assessee Banking Companies u/s 115JB - HELD THAT - The machinery provisions provided in Sub- Section (2) of Section 115JB of the Act would be rendered wholly unworkable in case of a Banking company. It is also pertinent to mention here that the Companies Act, 1956 has excluded insurance, banking companies or the companies engaged in the generation or supply of electricity from the purview of Section 211(1) of the Companies Act, 1956 and resultantly from the purview of Section 115JB of the Act. To align the provisions of the Income Tax Act, 1961 with the Companies Act, 1956, it was decided to amend Section 115JB of the Act to provide that companies which are not required under Section 211 of the Companies Act, 1956 to prepare profit and loss account in accordance with Schedule VI of the Companies Act, 1956. 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 115JB of the Act. We agree with the view taken inUNION BANK OF INDIA, MASHREQ BANK PSC, BANK OF INDIA, M/S THE NEW INDIA ASSURANCE CO. LTD., CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 2019 (5) TMI 355 - BOMBAY HIGH COURT on the common substantial question of law involved in these appeals. For the foregoing reasons, it is held that the provisions of Section 115JB(2) of the Act do not apply to the Banking companies. Amortization of investment held to maturity - allowable expenditure under Section 37(1) or not? - HELD THAT - substantial question of law is squarely covered by instruction No.17/2008 dated 26.11.2008 issued by the Central Board of Direct Taxes/RBI and is covered by Clause (vii) provided therein. The decision in the case of SOUTHERN TECHNOLOGIES 2010 (1) TMI 5 - SUPREME COURT was considered by a division bench of this court in KARNATAKA BANK LTD. 2013 (7) TMI 656 - KARNATAKA HIGH COURT and it has been held that where the assessee maintains the accounts in terms of Reserve Bank of India Regulations, the assessee is entitled to deductions and it cannot be denied by the authorities under the pretext that it was showing as investment in the balance sheet. Accordingly, the common questions of law are answered in favour of the assessee
Issues Involved:
1. Applicability of Section 115JB of the Income Tax Act, 1961 to Banking Companies. 2. Allowability of amortization of investment "held to maturity" under Section 37(1) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Applicability of Section 115JB of the Income Tax Act, 1961 to Banking Companies: In this batch of appeals, the primary substantial question of law was whether the provisions of Section 115JB of the Income Tax Act, 1961 apply to Banking Companies. The appeals pertained to assessment years 2002-2003, 2005-2006, 2006-2007, and 2009-2010. The Tribunal had previously ruled that Section 115JB does not apply to Banking Companies, a decision challenged in these appeals. The court analyzed Section 115JB, which mandates companies to prepare their profit and loss account as per Parts II and III of Schedule VI to the Companies Act, 1956. The court noted that Banking Companies prepare their accounts according to the Banking Regulation Act, 1949, and are not required to convene an annual general meeting or place their profit and loss account in such a meeting. This requirement is impossible for Banking Companies, which do not have shareholders and thus cannot hold a general meeting as contemplated under Section 166 of the Companies Act, 1956. The court further observed that the machinery provisions under Sub-Section (2) of Section 115JB would be unworkable for Banking Companies. The Companies Act, 1956, excludes insurance, banking companies, and companies engaged in electricity generation or supply from Section 211(1) and consequently from Section 115JB of the Act. The court also referenced the amendment to Section 115JB effective from 01.04.2013, which aligned the Income Tax Act with the Companies Act, allowing such companies to prepare profit and loss accounts per their Regulatory Acts. The court agreed with the view of the Bombay High Court in "Commissioner of Income Tax-LTU vs. Union Bank of India" and concluded that the provisions of Section 115JB(2) do not apply to Banking Companies. 2. Allowability of Amortization of Investment "Held to Maturity" under Section 37(1) of the Income Tax Act, 1961: In ITA No.18/2014, an additional substantial question of law was whether the Tribunal erred in allowing the claim of the assessee on the issue of amortization of investment "held to maturity." The Tribunal had allowed the deduction based on Reserve Bank of India guidelines, which was contested by the revenue. The court noted that this issue was covered by instruction No.17/2008 dated 26.11.2008 issued by the Central Board of Direct Taxes, specifically Clause (vii). The decision in "Southern Technologies Ltd vs. Joint Commissioner of Income Tax" was considered by a division bench of this court in "Karnataka Bank Ltd. vs. Assistant Commissioner of Income Tax," which held that accounts maintained per Reserve Bank of India Regulations entitle the assessee to deductions. The authorities cannot deny these deductions under the pretext that they were shown as investments in the balance sheet. Accordingly, the court ruled in favor of the assessee, affirming that the Tribunal did not err in allowing the claim for amortization of investment "held to maturity." Final Judgment: The court concluded that the provisions of Section 115JB(2) of the Income Tax Act do not apply to Banking Companies and upheld the Tribunal's decision allowing the deduction for amortization of investment "held to maturity." The appeals were disposed of in favor of the assessee.
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