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TMI Blog2020 (12) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... reign branches, amounting to Rs. 1,408.32 crores, and, provision for bad doubtful debts amounting to Rs. 5,359.64 crores in required to be excluded from the computation of book profits computed under section 11JB of the Act. Let us take up these two issues first, and then we will proceed to take up the remaining issues raised in the appeal. 3. So far as the first issue is concerned, i.e. exclusion of profits of foreign branches from taxable income in India, this is certainly an issue of wider ramification touching the assessment of every Indian enterprise which has branch offices abroad inasmuch as whatever we decide in this case of a public sector undertaking will have equal application in other cases of Indian companies having branch offices abroad in the countries with which India has entered into the double taxation avoidance agreements. The related grounds of appeal are as follows: 3. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing exclusion of profits of branches of the Appellant Bank situated in countries with whom India has entered into a Double Taxation Avoidance Agreement (DTAA) namely United Kingdom, France, Belg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not satisfied and is in further appeal before us. 5. Learned counsel's contention, as articulated in the written note filed before us, is that the issue in appeal is covered, in favour of the assessee, by decisions of the coordinate benches in two immediately preceding assessment years, namely 2013-14 and 2014-15, wherein the matter has been remitted back to the file of the Assessing Officer in the light of certain directions. It is thus contended that when profits of a branch abroad has been subjected to tax abroad, under article 7 of the applicable double taxation avoidance agreement, the same income cannot again be taxed in India. On the first principle, the merits of this argument, merit if there is any, could only be its simplicity, or naivety- to be more apt, in its approach. It proceeds on the fallacy that there is only one method of relieving double taxation of an income, due to inherent conflict of the source taxation vs residence taxation rule, and that method is exemption method, and that is the method of relieving double taxation of income in the Indian tax treaties as well. Nothing can be farther from the truth. Not only that credit method is an equally, even if not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective tax treaties, constitute permanent establishments. The claim of the assessee, as noted by the DRP at page 10, is that "the foreign branches create permanent establishments (PEs) in the foreign countries, the income from the same is liable to tax in these foreign countries, i.e. source states, and, hence, the income from aforesaid foreign branches should be exempt in India as per Article 7 of the tax treaties". The assessee has further contended that "according to many judicial precedents cited below, it has been held that under a tax treaty, it has been provided that tax 'maybe' charged in a particular state in respect of specified income, it is implied that tax will not be charged by the other state in respect of such income". As noted in the DRP's order, further at page 11, the contentions of the assessee have been that "it has been held that once an income is held to be taxable in a particular jurisdiction under a tax treaty, unless there is a specific mention that it can be taxed in the other jurisdiction as well, the latter is denuded of the powers to tax such income" and that "accordingly, income earned by the foreign branches in UAE and Qatar wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under earlier section 90 shall hold good till 1st October 2009. As a corollary to this observation, according to the learned counsel, the notifications issued under earlier section 90 will not hold good after 1st October 2009. He submits that in this view of the matter, nothing really turns on the notification no 91/2008 under section 90(3). He submits that the impact of notification having been nullified by re-enactment of section 90, the law laid down by Hon'ble Supreme Court in the case of CIT v. PVAL Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC) will hold the field, and, therefore, income taxable in the source jurisdiction under the treaty provisions cannot be included in total income of the assessee. He hastens to add, and rather curiously so, that he would once again urge us not to decide the matter on merits and simply remit the matter to the file of the Assessing Officer. Learned Departmental Representative, on the other hand, vehemently relies upon the stand of the authorities below, and leaves the matter to us. 6. For the sake of completeness, we may also place on record that the fact that in assessee's own case for the assessment year 2012-13, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need not to enter into an exercise in semantics as to whether the expression "may be" will mean allocation of power to tax or is only one of the options and it only grants power to tax in that State and unless tax is imposed and paid no relief can be sought. Reading the Treaty in question as a whole when it is intended that even though it is possible for a resident in India to be taxed in terms of sections 4 and 5, if he is deemed to be a resident of a Contracting State where his personal and economic relations are closer, then his residence in India will become irrelevant. The Treaty will have to be interpreted as such and prevails over sections 4 and 5 of the Act. Therefore, we are of the view that the High Court is justified in reaching its conclusion, though for different reasons from those stated by the High Court. 8. We are, at this stage, not concerned about how the above legal position was at some variance with the first principles and what impact the aforesaid decision had on the workability of the double taxation relief mechanism. It would appear that the very scheme of tax credit, as envisaged in the international tax treaties, was perhaps rendered redundant. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf". In exercise of the powers so vested in the Central Government, vide notification no. 91 of 2008 dated 28th August 2008, it was notified as follows: In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. 11. The effect of Hon'ble Supreme Court's judgment in Kulandagan Chettiar's case (supra) thus was clearly overruled by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly". On a similar note, under section 24 of the General Clauses Act, "Where any Central Act or Regulation, is, after the commencement of this Act, repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided any appointment notification, order, scheme, rule, form or bye-law, made or issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the provisions so re-enacted......." The scheme of law is thus unambiguous. Its only when an notification issued under the old statutory provision, whether repealed or modified, is inconsistent with the corresponding new statutory provisions, that such an notification ceases to hold good in law. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Essar Oil (supra), to the effect "We are, therefore, of the considered view that the substitution of Section 90, which has come into effect from 1st April 2004, and notification issued therein shall continue to hold at least upto 1st October 2009", the import of words "at least" is being missed out. The issue for consideration by the coordinate bench was pre 1st October 2009 situation, and the coordinate bench was of the view that "at least" for this period, the validity of notification cannot be called into question. As held by Hon'ble jurisdictional High Court in the case of CIT v. Sudhir Jayantilal Mulji [1996] 84 Taxman 205/[1995] 214 ITR 154 (Bom.), a judicial precedent is only "an authority for what it actually decides and not what may come to follow from some observations which find place therein". The issue regarding validity of notification after 1st April 2009 was not before the coordinate bench, and these observations thus have no relevance on the proposition being canvassed before us. The law laid down by Hon'ble Supreme Court, as analysed above, is against the plea advanced by the learned counsel. In any case, the argument of the learned counsel, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the notice of the Dispute Resolution Panel. There is not even a whisper of a suggestion that the amendment in law in Section 90(3) and the post amendment notification was brought to the notice of the DRP. Learned counsel's arguments before the DRP simply proceeded on the basis that there was no change in statutory provisions after the Kulangadan Chettiar's judgment. That is simply unacceptable. While we restrain from making any observations on the conduct of the representatives of the assessee, we find it difficult to believe that a big-4 accounting firm, as the assessee's representative before the DRP, as indeed before us, is, would really be oblivious of the correct legal position and it was anything less than a calculated ignorance, before the DRP, on the basic legal position. Advising the correct legal position and then making whatever aggressive claim one makes is one thing, but not explaining the correct legal position and then hoping to succeed with the claim, by keeping the adjudicator in dark about the statutory developments, is quite another. The path chosen by the assessee could have fallen in the first category if submissions were made before the DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. That does not, however, matter much at this stage, as all the facets of this matter are covered above nevertheless. The basis on which the relief was granted in the earlier years has been examined and that basis being ex facie incorrect and even rendered by inadvertence is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28th August 2008 was not issued in the context of the business income, and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. We see no substance in this plea either. The notification deals with connotations of the expression "may be taxed", appearing in the tax treaties entered into by India, and there is absolutely no basis whatsoever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the tax credits for the taxes paid abroad, in treaty partner countries, will be admissible in terms of the provisions of the respective treaty. 10. Ground no. 3 raised in the appeal filed by the assessee, is thus dismissed and ground no. 3 A therein is allowed for statistical purposes in the terms indicated above. 11. The second important issue in this appeal is with respect to levy of Minimum Alternate Tax under section 115 JB, i.e. whether or not the assessee bank is liable to subjected to Minimum Alternate Tax under section 115 JB, and, if so, whether the income of the foreign branches, amounting to Rs. 1,145.14 crores, and, provision for bad doubtful debts amounting to Rs. 5,359.64 crores in required to be excluded from the computation of book profits computed under section 11JB of the Act. The related grounds of appeal are as follows: 5. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in invoke the provisions of Sec 115JB of the Act while determining the tax liability. The learned ACIT be directed not to the provisions of Sec 115JB of the Act in the case of the Appellant Bank and determine the total income and income tax ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act, 1956, nor recognized under section 3 of the Companies Act, which is sine qua non for applicability of Explanation 3 to Section 115JB, inasmuch as the assessee bank came into existence under the Banking Companies (Acquisition and Transfer of Undertaking Act, 1970. He submits that since section 115JB starts with a non obstante clause, i.e. "notwithstanding anything contained in any other provisions of this Act", it should be treated as a complete code in itself, no other provisions of law in the context of the Income Tax Act, 1961 should be held to be applicable here, and the expression 'company' should be construed as to a company incorporated under the Companies Act, 1956. He virtually argues for its being seen as a standalone provision and be seen as a complete code in itself. A lot of emphasis is repeatedly placed on Section 115 JB being a the "non obstante" provision, which does not allow anything in the Income Tax Act 1961 being imported into the said provision, and different terminologies being employed in section 36 and elsewhere, for the nationalized banks. Learned counsel submits that it is a drafting error in section 115JB, even if the intention was to includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes of the Income Tax Act, 1961, every corresponding new bank shall be deemed to be Indian company and a company in which public is substantially interested", a new bank established under the said Act, as is the assessee before us, is required to be treated as an Indian company in which public is substantially interested, for all the purposes of the Act. No exclusions can be inferred. Once the assessee bank is required to be treated an Indian company for the purposes of the Income Tax Act, 1961, it cannot be open to us to hold that it will not be treated as a company for the purposes of Section 115JB of the Income Tax Act, 1961. 15. A lot of emphasis is then placed on the fact that the provisions of Section 115 JB start with a non obstante clause, and, therefore, this section is to be treated as a complete code by itself- without importing any inputs from the Income Tax Act, 1961, or, for that purpose, any other legislation not specifically referred to therein. Section 115JB (1), as we have noted above, provides that "notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the non-obstante clause is to be understood as operating to set aside as no longer valid anything contained in any other provision which is inconsistent with the Section containing the non-obstante clause. (Aswini Kumar Ghosh v. Arabinda Bose [1953] SCR 1; A.V. Fernandez v. State of Kerala [1957] SCR 837). [Emphasis, by underling, supplied by us now] 17. Clearly, therefore, what is to be seen is to "what the provision containing non obstante clause provides", and, to that extent, the provision containing non-obstante clause sets aside, as no longer valid, any other provision which is inconsistent with such a provision. As Chaturvedi & Pithisaria's Income Tax Law [2020 edition; page 626] puts it, citing authorities for this proposition, a non-obstante clause "is equivalent to saying that in spite of the provisions of the Act, or any other Act mentioned in the non-obstante clause, or any contract or document embraced in the non-obstante clause, it will have its full operation, and that the provisions embraced in non-obstante clause would not be an impediment for operation of the enactment". 18. In the case of A G Vardarajulu Vs State of Tamilnadu [(1998) 146 CTR 117 (SC)], ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company: Provided .......................... Explanation 3.-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 (1 of 1956) 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 VI to the Companies Act, 1956 or in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless the conditions so set out in those definitions are satisfied, section 115 JB cannot come into play. It is contended that the term "banking company" has been defined in section 5(c) of Banking Regulation Act, 1949, as any company which transacts the business of banking in India, and 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 a foreign company within the meaning of section 591 of that Act. It is further contended that the term 'company' has been defined in section 3 of Companies Act, 1956 as " a company formed and registered under this Act (i.e. the Companies Act , 1956" and includes (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 (10 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t" before setting out the definitions, or Section 2 of the Companies Act, 1956 which begins with the words "In this Act, unless context otherwise requires" and then sets out the definition, it is absolutely clear that these definitions will have to make way for the requirements of the context in which the definitions are required to be interpreted. Elaborating upon this aspect, a coordinate bench of this Tribunal, in the case of Maharashtra State Electricity Board vs. JCIT [(2002) 82 ITD 422 (Mum)], has observed that, "The definition as given in section 2 of the Act begins with the qualifying words, 'unless the context otherwise requires'. Text and context are the basis of interpretation. If the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. Word in a section is skin of the living thought. It may vary in colour and content according to the context". The coordinate bench then concluded, noting that the assessee does not distribute dividends, that the assessee is not a company. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds, its taxable profits are substantially lower than book profits, and, therefore, in our humble understanding, there is no good reason not to treat it as a company- at least no good reasons are shown to us. All that has been said is that there is a drafting error in the legislation, by not specifically including the nationalized banks- as for the purpose of some other deduction provisions, but then what this argument overlooks is that definition provision is not the same thing as charging provision or even computation provision, and that the statutory definitions- on account of specific provision to that effect in the definition itself, have to yield to the contextual meanings. While on this aspect of the matter, we may also add that Hon'ble Authority of Advance Ruling, in assessee's own case- reported as Bank of India In Re. [(2007) 295 ITR 529 (AAR)], had observed, although in a different context but equally relevant in the present context, as follows: "When a statute defines a particular term or expression, it is that definition which has to be taken for construing the meaning of that term or expression, wherever it occurs in the statute. Normally, it would not be permissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt chord These obiters in the coordinate bench decision, which do not bind us anyway- as is the settled legal position, proceed on the assumption that the provisions of the Banking Regulation Act, 1949 do not cover the nationalized banks, and that the assessee cannot be considered to be a company for the purposes of Section 115JB.. As for the latter proposition, we have already discussed the matter at length to make our point, As for the former proposition, in our considered view, what really matters is whether the provisions of the Banking Regulation Act govern the format of annual accounts of the assessee, and, to that extent, the requirements of Schedule VI make way for these specific requirements of other enactments. That is the context in which the Explanation 3 to Section 115 JB comes into play. Let us, in this light, see provisions of the Banking Regulation Act. Section 51 of the Banking Regulation Act, 1949, specifically provides that "Without prejudice to ...........any other enactment, the provisions of sections 10, 13 to 15, 17, 19 to 21A, 23 to 28, 29 excluding sub-section (3,) sub-section (1B), (1C) and (2) of sections 30, 31, 34, 35, 35A, 35AA, 35AB and excluding clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us, are required to be prepared in accordance with the requirements of the Banking Regulation Act, 1949, and, for that reason, it has an option to prepare its profit and loss account in accordance with act governing the assessee company. In any case, in the light of the above legal position- particularly provisions of Section 51 read with Section 5(da) of the Banking Regulation Act, 1949. it is not even in dispute that the provisions of the Banking Regulation Act, 1949 to the assessee company, as indeed every nationalized bank. Yet, if anyone has any doubts about even this elementary legal position, even a casual look at published annual accounts of any nationalized bank, which can be freely accessed on the respective bank's websites, or even basic experience in the accountancy profession, would set such doubts as rest. 28. It is also contended that the assessee bank is paying huge income tax and is declaring dividends too, and the intention of the legislature was to pay companies paying zero or minimal taxes and yet paying dividends, in view of background in which section 115 JB was brought and underlying intention of MAT provisions, it is clear that the legislature never int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said legislation. In this light, and bearing in mind the fact that the provisions of preparing profit and loss account in accordance with the provisions of the Banking Regulation Act 1949 applies to the assessee before us, which is treated as a company for the purposes of the Income Tax Act, the provisions of Section 115JB clearly apply to the assessee as well. 29. While dealing with this issue, we may add that our own Hon'ble jurisdictional High Court, in assessee's own case- though reported as CIT Vs Union Bank of India, and others [(2019) 105 taxmann.253 (Bom)], has, inter alia, observed as follows: 14. There are certain significant legislative changes made by Finance Act, 2012, which must be noted before concluding this issue. In the present form, post amendment by Finance Act, 2012, relevant portion of Section 115JB of the Act reads as under- "Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, (2012), is less than (eighteen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 115JB 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 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 Schedule VI of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 115JB 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 governing Acts were required to prepare profit and loss accounts not in accordance with the Companies Act, but in accordance with the provisions contained in such governing Act. The earlier dichotomy of such companies also, if we accept the revenue's contention, having the obligation of preparing accounts as per the provisions of the Companies Act has been removed. 18. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untries, the same cannot be taken into account for the taxation of income, including the minimum alternate tax, in India. Without prejudice to this line of argument, it is further submitted that the credit for taxes paid by the said branches in their respective countries be allowed as a deduction in accordance with Sec. 90 of the Act while determining tax liability in India. 34. This plea is only to be noted and rejected. We have already discussed, at length, as to how taxation of profits of foreign branches, outside India and under the tax treaties entered into by India, does not imply that the said income cannot be taxed in India. Irrespective of whether or not the same income is taxed abroad, the entire global income, including such income, is to be taxed in India in the hands of a resident, though the credit for taxes paid abroad, as admissible under the treaty or, in the alternative, under the domestic law, will be available to the assessee nevertheless. We are unable to see any rationale in exclusion of profits in respect of branches abroad, which have already been taxed abroad under the applicable tax treaties, from computation of books profits for the purpose of levy of mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset side of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the Explanation to section 115JB. The judgement in case of Deepak Nitrite Ltd (supra) fell in the former category whereas from the brief discussion available in the judgement it appears that case of Indian Petrochemicals Corpn Ltd. (supra), feel in the later category." 14.9 From the perusal of the findings given by the Hon'ble Gujarat High Court, it is evident that insertion of clause (i) to the Explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB. The Hon'ble Court further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench in the case of Tainwala Chemicals & Plastics India Ltd., did not consider the applicability of the Companies Act to the book profit computed under sec. 115JB Act. In view of the foregoing, in our view, the Ld CIT was justified in upholding the addition of "Provision for bad and doubtful debts" to the book profit. Accordingly, we uphold his order on this issue." Recently, the Hon'ble ITAT Hyderabad "B" Bench in the case of M/s Southern Power Distribution Company of Andhra Pradesh Ltd V/s DCIT Cir 2(1), Tirupati in ITA No. 1460/Hyd/2013 has held as under: "Having regard to the rival contentions and the materiel on record, we find that the assessee has made a provision of Rs. 22.81 crores for bad and doubtful debts during the relevant previous year. The AO added it back to the book profit holding that it is not an ascertained liability. The CIT(A) has confirmed the addition by observing that subsequent to the amendment to Explanation 1 (i) to section 115JB, any provision leading to diminution in the value of any asset, has to be added to the book profit. The fact is that the assessee has debited the provision for bad and doubtful debts to the P&L A/c and therefore, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company of Andhra Pradesh Ltd (supra), the ground raised by the Appellant is, dismissed. 37. In the course of arguments before us, learned counsel for the assessee has simply placed his reliance on the judgment of Hon'ble Gujarat High Court in the case of CIT Vs Vodafone Essar Gujarat Limited [(2017) 85 taxmann.com 32 (Guj)] but has not even dealt with the specific issues, as discussed above, by the learned CIT(A). Be that as it may, one thing that is clear is that the Assessing Officer has not, at any stage, even verified whether the assessee has reduced the corresponding amount, of the provision of Rs. 5359,64,38,015, from the loans and advances on the asset side of the balance sheet, because, if that be so, in terms of Vodafone Essar (supra) judgment of Hon'ble Gujarat High Court- particularly as there is nothing contrary thereto by Hon'ble jurisdictional High Court, that amount will have to be reduced from the book profits. It cannot indeed by open to us to disregard the law laid down by Hon'ble non jurisdictional High Court, on the ground that coordinate benches of the Tribunal have taken a particular view- as has been done by the CIT(A), and that it is not the view of Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as 'ACIT') has erred in disallowing Rs. 158,75,16,480 u/s. 14A r.w.r 8D of the income tax Act, 1961 (herein after referred to as "the Act") towards expenditure incurred in relation to income claimed exempt u/s. 10(34) and 10(15) of the Act and the Hon'ble Commissioner of Income tax (Appeals) - 4 (herein after referred to as "CIT(A)") has erred in confirming the said disallowance u/s. 14A r.w.r 8D. The learned ACIT be directed not to disallow any expenditure in relation to the income claimed exempt u/s. 10(34) and 10(15) of the Act and delete the addition of Rs. 158,75,16,480 made to the total income and reduce the total income accordingly. 1A. Without prejudice to Ground no. 1 above, on the facts and in circumstances of the case and in law, assuming without accepting that your Honours is of the opinion that disallowance u/s. 14A is warranted in the case of the Appellant Bank, then the learned ACIT be directed to restrict the disallowance u/s. 14A in respect of expenses incurred by the Treasury Division of the Bank to the extent of the amount already disallowed by the Appellant Bank in its Return of Income, i.e., Rs. 21,32,383 and reduce the total income acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances of the case and in law, assuming without accepting that your Honours is of the opinion that amortization of lease premium paid in respect of various lease hold properties aggregating to Rs. 4,08,67,975 is in the nature of capital expenditure, then the learned ACIT be directed to allow depreciation u/s. 32 of the Act on the same and reduce the total income accordingly. 46. Learned counsel for the assessee fairly submits that, as on now, the issue is covered, against the assessee, by decisions of the coordinate benches, and he does not, therefore, press the issue any further. Obviously, however, he retains his right to carry the matter further in appeal, if so advised. Learned Departmental Representative does not oppose the submissions of the learned counsel. 47. In view of the above, and subject to the rider that this matter not being pressed before us should not be construed as prejudicial to the interests of the assessee for carrying the matter in further appeal before Hon'ble Courts above, these grounds of appeal are dismissed as not pressed. 48. Ground nos. 2 and 2A are dismissed. 49. Ground nos. 3, including its sub grounds, have already been disposed of ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng during the year. 56. Learned representatives fairly agree that this issue is covered by several decisions of the coordinate benches in assessee's own case, and that is a fact noted by the learned CIT(A) in the impugned order itself as well. There is no good reason, nor has any reason been pointed to us, to take a different view of the matter. Respectfully following the esteemed views of the coordinate bench, and particularly as no contrary view by a higher judicial forum, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 57. Ground no. 1 is thus dismissed. 58. In the ground no. 2, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the provision for Wage revision of Rs. 540,06,00,000/- without appreciating the fact that the provision was made for a contingent liability." 59. Learned representatives fairly agree that this issue is covered by several decisions of the coordinate benches in assessee's own case, and that is a fact noted by the learned CIT(A) in the impugned order itself as well. There is no good reason, nor ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow cause why perpetual bonds should not be treated as equity in nature and consequently the interest paid on such bonds should be allowed under 36(1)(iii) of the IT Act. The assessee was asked to provide the details of the interest cost debited to the P&L A/c on account of such perpetual bonds. 12.1 The assessee vide letter dated 24.03.2018 inter-alia submitted as under:- "The Bank has issued perpetual debt instruments over the years. The outstanding balance of perpetual debt as on 31st March 2016 was at Rs. 2212.34 crores. These instruments is classified as borrowing in Bank's Balance Sheet. The Interest paid on the above instruments is provided in the Books as Interest Expenses The above accounting treatment of the interest and presentation in Balance sheet is in tune with the RBI guidelines and Accounting Standard 16 issued by ICAI on Borrowing Cost. As such, the same is allowable expenses." 12.2 Assessee submission has been considered. Admittedly, the assessee has stated that the said payment happens out of distributable profits of previous year or current year and the nature of payments is different from the interest that is borrowed for the purpose of business whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the issue of perpetual bond qualifies as 'borrowing' for the purposes of the said section. 12.5 In this regard, reference may be made to the decision of the Hon'ble Punjab & Haryana High Court in the case of Pepsu Road transport Corpn v CIT, reported in 130 ITR 18 (P&H), that an element of refund or repayment is a must in the concept of borrowing. If there is no obligation to refund the capital provided, interest on such capital is not deductible under section 36(1)(iii). Therefore, in case of perpetual bonds, where the lender does not have authority to claim refund of the amount given, the said amount cannot be held as 'borrowing and hence the interest on such bonds was not admissible as deduction u/s 36(1)(iii) hence the said amount of Rs. 197,62,83,800/- does not qualify for claim under section 36(1)(iii) and accordingly disallowed. Therefore Rs. 197,62,83,800/- claimed as deduction is added back to the total income. 66. In appeal, however, the learned CIT(A) reversed the action of the Assessing Officer and allowed the said deduction. While doing so, learned CIT(A) observed as follows: 13.2 Before the A.O, the bank has claimed that it has discretion to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility has to be paid by the Appellant on such bonds annually without any failure. The Appellant further contended that on share capital, dividend is paid out of the reserves which is purely discretionary whether to pay dividend in a particular year or not. On the other hand, according to the Appellant, on these bonds fixed interest has to be paid whether there is any profit or not. It was also argued that on share capital, dividend is paid out of reserve and surplus which is exempted from tax for the recipient, because tax has been already paid by the company on such reserves and surplus, whereas interest on such bonds is taxable in the hands of the recipient. In view of these facts, it is clear that liability of bank in respect to Perpetual Bonds is totally different from capital of the bank, therefore, the Perpetual Bonds cannot be compared to the equity / share capital of the banks, hence appeal of the assessee on this ground is, allowed. 67. The Assessing Officer is aggrieved and is in appeal before us. 68. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 69. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the Act itself between the "capital provided" under section 23 and the "capital borrowed" under section 26. It is further clear from the provisions of section 39(2), which reads: "In the event of a Corporation being placed in liquidation, the assets of the Corporation, after meeting the liabilities, if any, shall be divided among the Central and the State Governments and such other parties, if any, as may have subscribed to the capital in proportion to the contribution made by each of them to the total capital of the Corporation." There is no obligation to refund the capital provided by the Governments. In this view of the matter, the "capital provided" under section 23 of the Act by the two Governments, cannot be said to be "capital borrowed" as contemplated under section 36(1)(iii) of the Income-tax Act. 70. We have noted the stand of the assessee that the perpetual bonds issued by the assessee are in nature of borrowings only as interest on these bonds are paid at pre fixed rate, the interest so paid is classified only under schedule -15 - Interest expended in the financial statements. Further, interest paid on these bonds are also subjected to TDS, and that even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench decision in the case of ACIT Vs Vireet Investments Pvt Ltd [(2017) 82 taxmann.com 415 (Del)] is in favour of the assessee. When decisions of on jurisdictional High Court are in conflict, we are bound to follow, till the time Hon'ble jurisdictional High Court takes a call on the issue one way or the other, the decision in favour of the assessee. The reason for our following this path is as follows. It will be wholly inappropriate to choose views of one of the High Courts based on our perceptions about reasonableness of the respective viewpoints as such an exercise will de facto amount to sitting in judgment over the views of the High Courts something diametrically opposed to the very basic principles of hierarchical judicial system. We have to, with our highest respect of both the Hon'ble High Courts, adopt an objective criterion for deciding as to which of the Hon'ble High Court should be followed by us. We find guidance from the judgment of Hon'ble Supreme Court in the matter of CIT v. Vegetable Products Ltd. [(1972) 88 ITR 192 (SC)] Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provision are possible, that construction whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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