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TMI Blog2015 (12) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... O u/s 254/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The assessee had raised the following additional grounds in narrative form. Hence, we frame the issue to be decided by us in this appeal out of the same as below:- Whether in the given facts and in the circumstances of the case, the provisions of Sec. 115JB of the Income Tax Act, 1961 could be made applicable to a bank when their profit and loss account is not prepared in accordance with Part II Schedule VI to Companies Act, 1956? 3. This issue was already decided by this tribunal in ITA No. 1768/Kol/2009 vide order dated 19.3.2013 in favour of the assessee. The revenue had challenged this issue before the Hon ble Calcutta High Court and the Hon ble Calcutta High Court vide order in ITAT No. 147 of 2013, G.A. No. 2590 of 2013 dated 13.1.2014 had restored the matter to this tribunal only on the issue of the applicability of Minimum Alternate Tax u/s 115JB of the Act to banking companies with the following directions :- The Learned Tribunal in its judgment and order dated 19th March, 2013 allowed the appeal of the assessee saying that we accordingly hold that the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply. g. The prudential norms of RBI are to be followed mandatorily by assessee as per Banking Regulation Act with regard to recognition of income , classification of assets and provisioning requirements to be made thereon which is not contemplated in the provisions of the Companies Act, 1956. h. Section 36(1)(viia) of the IT Act provides for deduction towards Provision made for doubtful debts allowed in respect of banks which is not available for companies registered under the Companies Act, 1956 . Hence it has to be understood that the banking company as defined in Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 is structurally different from a company defined under Companies Act , 1956. i. Under Banking Regulation Act, the bad debts has to be routed only through the provision account unlike in Companies Act, 1956. Hence it will not appear in profit and loss account. Even provision is made for standard assets under Banking Regulation Act by following Prudential Norms prescribed by Reserve Bank of India. Hence there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated through the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 states as under:- For the purposes of the Income Tax Act, 1961 , every corresponding new bank shall be deemed to be an Indian Company and a company in which the public are substantially interested. 6.1. He further argued that section 115JB(2) of the Act refers to Companies Act only for the limited purpose of computation of book profits. Hence it need not be a company under the Companies Act for the purpose of charging provision. Accordingly, Banking Companies also would automatically fall under the provisions of section 115JB of the Act. He placed reliance on the decision of Authority for Advance Ruling in the case of Niko Resources Ltd vs CIT reported in (1998) 234 ITR 828, wherein it was held that the provisions of section 115JA of the Act has application both to foreign and domestic companies. 6.2. He also argued that even banks are to be assessed as a company under the Income Tax Act as per section 11 stated supra. He argued that section 10(38) of the Act, through its proviso, brings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. 7.2 Section 211(1), 211(2), 211(3), 211(3A), 211(3B) and 211(3C) of Companies Act 1956: 211. FORM AND CONTENTS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT (1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A: Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this subsection.] 7.3 Explanation 3 to Section 115JB of the Income Tax Act, 1961 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 subsection (2) of section 211 of the Companies Act, 1956 (1 of 1956)16a is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI17 to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company.] 7.3.1. The Explanation 3 to section 115JB of the Act has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1913 (7 of 1913); (e) the Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and (f) any law corresponding to any of the Act or the Ordinance aforesaid and in force in the merged territories or in a Part B State, or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913) . 7.3.6. As demonstrated in earlier paragraphs, the assessee was established under the Banking Companies (Acquisition and Transfer of Undertakings ) Act, 1970. The assessee is neither a company registered under Companies Act, 1956 nor is it an existing company registered under the Acts specified in clause (ii) of section 3(1) of the Companies Act, 1956. In the circumstances, even though the assessee is assessed in the status of a company for tax purposes, it is not a company within the meaning assigned to that expression by section 3 of the Companies Act, 1956. We find that the newly inserted Explanation 3 to section 115JB of the Act amplifies the intention of the legislature and categorically clarifies that the assesses to which section 115JB is applicable are only those who are companies to which proviso to subsection (2) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. ii. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the 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 the Schedule VI of the Companies Act, 1956 from section 115JB 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. 7.5. In view of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Income-tax Act, is more than 30 per cent of the book profit, tax shall be charged on the same. 7.6.2. The Memorandum explaining the provisions in the Finance (No. 2) Bill, 1996 categorise the amendment under the caption Rationalisation and Simplification . The relevant portion is reproduce hereunder:- RATIONALISATION AND SIMPLICATIONS Minimum Alternative tax on companies In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. The new proposal provides for those companies to pay tax on 30% of the book profits, whose total income as computed under the Income-tax Act is less than 30% of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. Book profits is defined an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such a meaning shall be given to it as may carry out and effectuate to the fullest extent the intention of the legislature. Each law consists of two parts viz., of body, and soul . The letter of the law is the body of law and the sense and reason of the law is the soul of the law. Law to a large extent, lives in the language even if it expands with the spirit of the statute. 7.6.6. Admittedly, the assessee bank is declaring dividends to shareholders and also paying huge income tax under IT Act. Applying the background on which the aforesaid amendment is brought in statute and the underlying intention of MAT provisions, it can safely be concluded that it was never the intention of the legislature to impose MAT on banking companies. 7.7. We find that the decision relied upon by the Learned AR in the case of Niko Resources Ltd vs CIT reported in (1998) 234 ITR 828 (AAR) is not applicable to the facts of the assessee s case as the AAR only dealt with the applicability of section 115JA of the Act on foreign companies. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 956. Though the Kerala State Electricity Board, a statutory corporation constituted by virtue of section 5 of the Electricity (Supply) Act, 1948 answers the description of an Indian company and therefore a company within the meaning of section 2(17) of the Income-tax Act, 1961 it is not a company for the purpose of the Companies Act, 1956. It is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. On the other hand, under section 69 of the Electricity (Supply) Act, 1948, the Board is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. Such accounts of the Board are required to be audited by the Comptroller and Auditor-General of India or such other person duly authorized by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report are required to be laid annually before the State Legislature and also to be published in the prescribed manner. At the earliest point of time when section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of preparing the Profit Loss Account laid before the company at its AGM under section 210 of the Companies Act. This section cannot be applied in relation to the assessee. In fact, the very concept of a meaning is alien to MSEB. A meeting can be between two or more persons. In case of MSEB there is no other person. Similarly, second proviso to sub-section (2) provides that where a company has adopted or adopts a financial year under the Companies Act, 1956, which is different from the previous year under the Act, the methods and the rates of depreciation shall correspond to the method and rates, which have been adopted for calculating the depreciation, for which financial year or part of such financial year falling within or relevant previous year. 16. Only those companies, which are engaged in the generation or supply of electricity, will come within the ambit of section 616 of the Companies Act. For that it is necessary that assessee must be a company. If assessee is not a company, then provision of section 616( c) cannot be applied. For example, Tata Electric Company is a company registered under the Companies Act. It is company within the meaning of section 3 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is company . The heading of this section is Deemed income relating to certain companies. The provision begins with a non obstante clause. It applies to every assessee being a company. The panoply o the section is erected over the structure of Companies Act, 1956. The Minimum Alternate Tax (MAT) on companies was introduced by the Finance (No.2) Act, 1996 with effect from 1-4-1997. This was necessitated due to the rise in the number of zero tax companies. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. To curb this mischief MAT was introduced by inserting section 115JA. This is a deeming provision. It is a trite law that deeming provision should be narrowly watched, jealously regarded and never to be pressed beyond its true limits. It is applicable to a company. The assessee is not a company. It is not required to distribute any dividend. As such it does not come within the mischief of this section Hence we find lot of force in the arguments of the Learned AR that the text has to be understood in the context in which provision has been enacted w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec 115JB will not apply to companies to which proviso to sec 211(2) of the companies Act, 1956 applies. The Assessee being a company to which proviso to sec 211(2) of the Companies Act 1956 applies, will not be liable to be taxed under sec 115JB. 14. The Mumbai Tribunal in the case of Krung Thai Bank v. Jt. CIT [2012] 49 SOT 70/[2011] 16 taxmann.com 239, to which one of us is a party has held that provision of Sec.115JB cannot be applied to the banking company. 15. In view of the above, as the amendment to sec 115JB by the Finance Act 2012 will be applicable only from the AY 2013-2014, we uphold the claim of the assessee that provision of Sec.115JB will not be applicable to the Assessee Bank and set aside the assessment made u/s 115JB on the Assessee company. G. ICICI Lombard General Insurance Co Ltd vs ACIT reported in 2012 TIOL- 690-ITAT-Mum in ITA No. 2398/Mum/2009 dated 10.10.2012 for Asst Year 2003- 04, wherein it was held that : The proviso to section 211(2) of the Companies Act creates an exemption of applicability of subsection (2) inter alia in respect of insurance companies or banking companies or any other companies engaged in generation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon ble Supreme Court and the decision of the Tribunal for AY 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the present case. Following the decisions of the coordinate Benches of this Tribunal, we hold that when the insurance companies, banking companies and electricity generation and distributions companies are treated in the same class as per the provisions of sec. 211 of the Companies Act in preparing their final accounts, then these companies cannot be treated differently for the purpose of sec. 115JB and accordingly, the provisions of sec. 115JB are not applicable in the case of the assessee. Accordingly, this issue is decided in favour of the assessee and against the revenue . Though, section 115JB has been amended to bring all the Companies in its ambit vide Finance Act 2012, w.e.f 1.4.2013, howeve ..... 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