2010 (9) TMI 18 - AT - Income Tax

Re-opening of an assessment non application of provisions of MAT (minimum alternate tax) by the assessee assessee contended that provisions of MAT are not applicable to it and therefore assessment cannot be reopened Banking company Held that - The provisions of Section 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act . The starting point of computation of minimum alternate tax under section 115 JB is the result shown by such a profit and loss account . In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Section 211 (2) of the Companies Act . The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act . The provisions of Section 115 JB cannot thus be applied to the case of a banking company.

Summary

Issues:
Challenge to the validity of reassessment proceedings under section 147 based on Minimum Alternate Tax (MAT) applicability to a foreign bank operating in India.

Analysis:
The appellant, a foreign bank operating in India, challenged the correctness of the Commissioner (Appeals)'s order regarding the assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the assessment year 2004-05. The main issue raised in the appeal was the validity of the reassessment proceedings under section 147. The Assessing Officer had reopened the assessment based on the assumption that the provisions of Minimum Alternate Tax (MAT) under section 115 JB would apply to the appellant. The only addition made in the reassessment proceedings was related to MAT.

To adjudicate on the grievance, it was crucial to consider the applicability of MAT to the appellant, a foreign bank operating in India. The appellant contended that the provisions of MAT did not apply to them as they were a banking company exempted from preparing profit and loss accounts in accordance with the requirements of Schedule VI to the Companies Act. The appellant argued that since they were required to prepare their accounts in accordance with the provisions of the Banking Regulation Act, the provisions of Section 115 JB did not apply to them. The appellant urged to quash the reassessment proceedings on this ground.

The Departmental Representative, on the other hand, argued that there was no specific exclusion clause for banking companies in the provisions of MAT. However, the Tribunal agreed with the appellant's contention. The Tribunal held that the provisions of Section 115 JB could only apply when the assessee was required to prepare profit and loss accounts in accordance with Schedule VI to the Companies Act. Since banking companies were exempted from following Schedule VI requirements, the provisions of Section 115 JB could not be applied to them. The Tribunal relied on a similar precedent involving electricity companies to support its decision.

In conclusion, the Tribunal allowed the appeal, quashing the reassessment proceedings as the provisions of Section 115 JB did not apply to the appellant, a foreign bank operating in India. The Tribunal emphasized that the initiation of reassessment proceedings was erroneous, and there was no need to address other grievances raised by the appellant. The decision on the MAT addition would also be governed by this ruling, rendering other arguments on the validity of reopening unnecessary.