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TMI Blog2020 (6) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of foreign taxes paid by the appellant - rental income earned from House property in Singapore which is not taxable in India as per Article 6 of DTAA applicable between the Government of the Republic of India and the Government of the Republic of Singapore - HELD THAT:- During the year the appellant had paid foreign taxes on the profits derived by the Hongkong Branch. Since there was no Double Taxation Avoidance Agreement between India and Hongkong, in terms of section 91, the appellant is entitled to claim credit of foreign taxes paid subject to the limits prescribed therein. The extent of relief u/s.91 is computed as a percentage of such doubly taxed income'. The percentage to be applied is the lower of the Indian rate of tax and the rate of tax of the said country'. When credit for tax payments is to be given there, is no distinction in the tax liability which is credited through normal computation of income or through section 115 JB. Therefore, credit for tax paid in foreign country should be allowed even when the tax liability is raised u/s 115JB. Therefore, the AO is directed to allow this credit u/s 91 - CIT(A) allowed the claim of the assessee correctly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence expenditure incurred on earning of exempted income cannot be disallowed, while trading in all Investment on securities and Tax Free Bonds is not the business of the assessee bank. Investment of assessee in Investment on Securities and Tax Free Bonds were not totally on trading stock as majority of investments are mandatorily to be held till maturity while there are Government Securities, other approved securities, subsidiaries, joint ventures etc.(Sr No.3 of Schedule 18 of Annual Report for F.Y. 2009-10) and expenditure on exempted income earned is liable to be disallowed u/s 14A read with Rule 8D. 6. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by holding that the provisions of section 115JB (MAT) are not applicable for the year in the case of assessee on the adjusted book profits as it is not a Company u/s 211 of Companies Act, 1956. 7. The Ld. CIT (A)-11, Kolkata has erred in law and on facts by holding that the provision of section 115JB (MAT) are not applicable for the year in the case of assessee on the adjusted book profits as it is not a Company u/s 211 of Companies Act,1956 while in the case of assessee the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings, it was, however, submitted on behalf of the assessee before the Assessing Officer that it was a case of short deduction of tax from the relevant payment and not a case of non-deduction of tax as envisaged in section 40 (a)(ia). It was contended that the disallowance thus was made in the computation of total income under section 40 (a)(ia) inadvertently and the same should be allowed as deduction. Since this claim was not made by the assessee in the return of income, the Assessing Officer relied on the decision of the Hon ble Supreme Court in the case of Goetze India Limited reported in 284 ITR 323 and did not entertain the claim of the assessee. On appeal, the ld. CIT(Appeals) not only entertained the claim of the assessee but also deleted the disallowance under section 40 (a)(ia) by following the decision of the Hon ble Calcutta High Court in the case of DCIT vs.- S.K. Tekriwal (361 ITR 432), wherein it was held that i f there is any short-fall due to any difference of opinion as to the taxability of any item or the nature of payment falling under various TDS provisions, the assessee could be declared to be an assessee in default under section 201, but no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s own case vide order dated 11.12.2019. In this order, the Tribunal has inter alia observed as follows: 5. Grounds No. 3 to 5 involve a common issue relating to the deletion by the ld. CIT(Appeals) of the disallowance of ₹ 36,60,39,331/- made by the Assessing Officer under section 14A of the Income Tax Act, 1961 read with Rule 8 D of the Income Tax Rules, 1962. 6. During the year under consideration, the assessee had earned income of ₹ 54,88,59,161/-, which was exempt from tax. In the computation of total income, expenditure in relation to the said exempt income was not disallowed by the assessee as required by section 14A of the Act. In the assessment completed under section 143 (3) vide an order dated 23.03.2013, the Assessing Officer worked out such expenses by applying Rule 8D at ₹ 36,60,39,331/- and disallowance to that extent was made by him under section 14A of the Act. On appeal, the ld. CIT(Appeals) deleted the said disallowance made by the Assessing Officer by relying on the decision of this Tribunal in the case of DCIT vs.- Gulshan Investment Co. Limited [11 taxman. com 113]. 7. We have considered the rival submissions and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this context must mean interest paid minus taxable interest earned. Applying the ratio laid down in this judgment to the facts of the present case, we find no infirmity in the order of the Ld. CIT(Appeals) deleting the interest disallowance made under Rule 8 D(2)(ii). 13. In so far as disallowance of ₹ 2, 90, 37,490/- under Rule 8D(2)(iii) is concerned, we find that before the lower authorities the assessee had raised the plea that no disallowance u/s 14 A was warranted since the assessee was a dealer in shares although in i ts Balance Sheet, shares were disclosed under the head Investments . We f ind that the Hon ble Supreme Court in i ts recent judgment dated 12.02.2018 in the case of Maxopp Investment Ltd Vs CIT (supra) did not uphold this line of argument and held that even in the case of a dealer in shares, earning dividend income from its stock-in- trade, may expose his to the rigors of Section 14A of the Act. We however find merit in the Ld. AR s submissions that in the said judgment, the Hon ble Supreme Court also extensively dealt with the Revenue s appeal in the case of State Bank of Patiala arising from the decision of the Hori ble Punjab Haryana High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Tribunal for A.Y. 2012 -13 and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer under section 14A read with Rule 8 D. Grounds No. 3 to 5 of the Revenue s appeal are accordingly dismissed. 12. As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee s own case(supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the Coordinate Bench in assessee s own case we delete the disallowance of ₹ 31,35,91,170/- made by the Assessing Officer u/s 14A r.w.r 8D of the Rules. Therefore, grounds raised by the Revenue are dismissed. 13. Ground Nos.6 7 relates to book profit adjustment u/s 115JB of the Act. The Ld. CIT (A)-11, erred in law and on facts by holding that the provision of section 115JB (MAT) are not applicable for the year in the case of assessee on the adjusted book profits as it is not a Company u/s 211 of Companies Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the revenue s case on this issue:- 2. The decision of the Tribunal requires reconsideration. The reasons are that the Tribunal has presumed that if a company does not maintain accounts as per Schedule VI either because of exemption provided in that Act or if some other statute provides a different system of maintenance of accounts, then provisions of section 115 JB will not be applicable to such company. There is no such exemption provided under the Income- tax Act. Secondly, the Tribunal has ignored the provisions of sub-section (2) of section 115 JB which provides the mechanism for maintenance of accounts by a company. It may be noted that this sub-section uses the word shall which makes it mandatory for the assessee- company, to prepare the accounts in accordance with Schedule VI. Sub-section (1) of section 115JB provides that the provisions of this section are applicable in case of every company. It does not carve out any exception. The moment it is proved that the assessee is a company i t has to consider to apply the provisions of section 115JB, work out book profit and compare i t with total income as computed under normal provisions of the Act. Sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and loss account as has been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act. It clearly shows that a company will have two sets of profit and loss accounts one that is prepared for being laid at its annual general meeting and other for the purposes of section 115 JB being the accounts prepared as per Schedule VI of Companies Act. Common factors between the two would be (i) the accounting policies (ii) the accounting standards adopted for preparing such accounts including profit and loss account and (iii) the method and rates adopted for calculating the depreciation. It is possible that accounts for being laid before AGM and prepared as per Schedule VI of the Companies Act are the same. But it does not necessarily follow that where accounts different from Schedule VI of the Companies Act are prepared to comply with the provisions of the regulating Act, then such companies are exempted from preparing accounts as per Schedule VI of the Companies Act. Keeping account by two methods is not uncommon. Accounts are requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... humbly submit with greatest respect to The Court that this judgement is per-incuriam for the simple reason that both the accounts, prepared under different methods can be same also. Further, The Ld. High Court treated the explanation 3 as meaningless and otiose. In my humble submission, if we are alive to such a possibility that two accounts may also be same or different as the case may be, explanation will not get redundant. Conclusion 3. The decision of the Tribunal, in the above case, therefore, requires reconsideration as it has ignored vital provision in sub-section (2) of section 115 JB and interpretated the provision in such a manner that it has practically carved out an exception from the applicability of these special provisions when no such exception really exists. It has made the application of section 115 JB ineffective in those cases where accounts are required to be kept under other statutes also ignoring the mandatory nature of provisions of sub-section (2) which overrides not only other provisions of Income-tax Act but also other statutes . 12. The ld. Counsel for the assessee, on the other hand, strongly relied on the order of the Tribunal dated 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts including profit and loss account,- (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 be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company 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 fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and balance sheet, the following, namely;- (a) The deviation from the accounting standards; (b) The reasons for such deviation; and (c) The financial effect, if any, arising due to such deviation. (3C) For the purposes of this section, the expression accounting standards means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted 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 (l) of section 210 A: Provided that the standards of accounting specified by the 1nstitute 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 sub- section.] 7.3 Explanation 3 to Section 115 JB 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 sub-section (2) of section 211 of the Companies Act, 1956 (l of 1956) is applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in clause (ii); (ii) existing company menas a. company formed and registered under any of the previous companies laws specified below:- (a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866) and repealed by that Act; (b) the Indian Companies Act, 1866 (l 0 of 1866); (c) the Indian Companies Act, 1882 (6 of 1882); (d) the Indian Companies Act, 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banking or electricity company are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income- tax Act with the Companies Act, 1956, it is proposed to amend section 115 JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with 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 115 JB. (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 115 JB 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 los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance (No.2) Act, 1996, has inserted a new section 115 JA of the Income-tax Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in 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 Art, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reason of the remedy. 7.6.5.. A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. The task of a judge is to go by the intent of the statute and fill the gaps. The two rules of most general application in construing a statute are that - first that i t shall, if possible, be so interpreted UT RES MAGIS VALEAT QUAM PEREAT (that the thing may rather have effect than be destroyed) and secondly, that 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 companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 115 JB of the Act were not applicable in the case of the assessee for A.Y. 2002 -03 as the amendment brought in section 115 JB of the Act read with Explanation 3 thereto by the Finance Act, 2012 was applicable only with effect from assessment year 2013- 14. 15. It is also observed that even the Hon ble Bombay High Court in the case of CIT vs.- Union Bank of India [ 263 taxman 685 ] had an occasion to consider a similar issue and the same was decided by Their Lordships in favour of the assessee by holding that the provisions of section 115 JB as made prior to its amendment by virtue of the Finance Act, 2012 would not be applicable to a Banking Company governed by the provisions of Banking Regulation Act, 1949. While arriving at the said conclusion, Hon ble Bombay High Court took note of the relevant statutory provisions and the legislative history as also the amendment made in section 115JB by the Finance Act, 2012 w.e.f. 1st April, 2012. The relevant discussion made by the Hon ble Bombay High Court and the observations recorded by them in this context as contained in paragraph no. 8 to 20 are extracted below:- 8. In order to resolve the controversy, we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account and laid before the company 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 account 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 financial year or part of such financial year falling within the relevant previous year. 9. In terms of sub-section (1) of Section 115 JB of the Act thus notwithstanding anything contained in any of the provisions of the Act in case of an assessee being a company where the income tax payable on the total income as computed under the Act, is less than prescribed percentage of its book profit, such book prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the company at its Annual General Meeting in accordance with provisions of Section 210 of the Companies Act, 1956. There is no dispute that the respondent-bank in terms of Section 210 of the Companies Act, 1956 is also required to lay its accounts before the Annual General Meeting. However, such accounts would necessarily be prepared in accordance with the provisions of Banking Regulation Act, 1949 and never be those which even had it been possible to be prepared, in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. The applicability of this proviso therefore, in case of a banking company would immediately create complications. On one hand, in terms of Section 210 of the Companies Act, 1956, the bank would be under an obligation to lay before Annual General Meeting its annual accounts including the profit and loss account. These accounts would be prepared in terms provisions contained in Banking Regulation Act, 1949. Sub- section (2) requires preparation of the accounts in terms of the Companies Act. Proviso to sub- section (2) would require maintaining the same parameters in relation to the accounting policies, accounting standards and method and ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in generation or supply of electricity or companies for which balance- sheet was specified in the governing Act, from the purview of sub- section (1) of Section 211 of the Companies Act, 1956 and as a consequence from the purview of Section 115JB of the Act. 13. What we have held above is duly supported by the division bench judgment of Kerala High Court. It was a case in which the assessee before the court was Kerala State Electricity Board, a statutory corporation constituted under Section 5 of the Electricity (Supply) Act, 1948. The revenue sought to cover the said Electricity Board under the provisions of Section 115 JB which the assessee opposed. The issue reached the Kerala High Court. The Court referred to and relied upon the decision of the Supreme Court in case of B.C. Shrinivasa Setty (supra). It was noticed that the Board was required to keep and maintain its account in the manner specified by the Central Government and not in the manner specified in the Companies Act. In that view of the matter it was held that section 115 JB would not apply to the Electricity Board. Learned counsel for the assessee has also brought to our notice decisions of Delhi High Court ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 115 JB of the Act, a company is liable to pay MAT of eighteen and on half percent of its book profit in case tax on i ts total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115 JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115 JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of company for which a form of financial statement has been specified in or under the Act governing such class of company: 17. This proviso thus refers any insurance or banking companies or companies engaged in the generation or supply of electricity or to any other class of company in which form of financial statement has been specified in or under the Act governing such class of company. Combined reading of this proviso to sub-section (1) of Section 129 of the Act, 2013 and clause (b) of sub-section (2) of Section 115JB of the Act would show that in case of insurance or banking companies or companies engaged in generation or supply of electricity or class of companies for whom f inancial statement has been specified under the Act governing such company, the requirement of preparing the statement of accounts in terms of provisions of the Companies Act, is not made. Clause (b) of sub-section (2) provides that in case of such companies for the purpose of Section 115 JB the preparation of statement of profit and loss account would be in accordance with the provisions of the Act governing such companies. This legislative change thus aliens class of companies who under the gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 115 JB of the Act 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 of the Act. 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 115 JB 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 . 16. It is thus clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t during the year the appellant had paid foreign taxes on the profits derived by the Hongkong Branch. Since there was no Double Taxation Avoidance Agreement between India and Hongkong, in terms of section 91, the appellant is entitled to claim credit of foreign taxes paid subject to the limits prescribed therein. The extent of relief u/s.91 is computed as a percentage of such doubly taxed income'. The percentage to be applied is the lower of the Indian rate of tax and the rate of tax of the said country'. The rate so determined is applied to the doubly taxed income arrived under the normal provisions or u/s.115JB. The appellant has paid HK$ 12,03,724/- towards the provisional profit tax for the captioned Financial Year. The ld CIT(A) allowed the claim of the assessee observing the following: 14.3 The assessment order reveals that the AO has not assigned any reason as to why he was not in agreement with the claims of the appellant and what was the reason or rationale behind not allowing it a relief u/s 91 of the Act. As a result, this issue is decided on the basis of the material available on record. I find that this issue was also involved in the appellant's case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property. 3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting or use in any other form of immovable property. 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services. We do not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 22. Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co- ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB Limited in ITA No. 6264/Mum/2018 and ITA No. 6103/Mum/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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