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TMI Blog2024 (9) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be deemed to be an Indian company and a company in which the public are substantially interested . Therefore, the said deeming fiction is created only for the purposes of the Income-tax Act. Further, for the purposes of the said Act, it treats every corresponding new bank to be an Indian company and also a company in which the public are substantially interested. First of all, deeming an entity to be an Indian Company or a company in which public are substantially interested for the purposes of the Income-tax Act would not ipso facto make such entity as a 'company' for the purposes of the Companies Act, 2013, unless the conditions specified in Section 3 thereof are fulfilled. There is no provision to deem a nationalised bank to be a company for the purposes of Section 3 of the Companies Act, 1956. As explained in the foregoing paragraphs, Section 2(17) of the income Tax Act r.w.s. 2(26) which defines company‟ to mean a company formed and registered under the Companies Act, 1956, does not meet the requirement of being a company in the case of assessee bank, because the Indian company has to be formed and registered under the Companies Act. Notwithstanding that Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 11 of the Acquisition Act which deals a corresponding new bank treated as Indian company for the purpose of Income Tax, however, Clause (b) in Sub-Section 2 to Section 115JB does not permit treatment of such bank as a company for the purpose of the said clause, because it should be company to which second proviso to sub-section (1) to Section 129 of the Companies Act is applicable. The said proviso has no application to the corresponding new bank as it is not a banking company for the purpose of the said provision. The expression company used in section 115JB(2)(b) is to be inferred to be company under the Companies Act and not to an entity which is deemed by a fiction to be a company for the purpose of the Income Tax Act. Thus referring to Notification No. S. O. 710, dated February 16, 1970 read with provision of Section 194A(3), makes it clear that even Government of India considers the above entities separate and distinct from banking companies. Once under the Income Tax Act, Legislature itself has made a distinction for the aforesaid banks including the assessee are not covered as banking company, then, this further buttresses the point that these banks are separate and disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 01/04/2013 by insertion of clause (b) to sub-section (2) to section 115JB, brings within its ambit even the banking companies. Thus, the ld. AO concluded that now the amended provision provides that not only the companies governed by the Companies Act, but also other companies governed by other regulating act including Banking Regulation Act, 1949 are also covered by the provision of Section 115JB. He also referred to Explanation 3 of Section 115JB and held that, sub-clause (b) of Sub-Section 115JB read with Explanation 3 makes it clear that all such companies, to whom sub-section (2) of Section 211 of the Companies Act 1956 is applicable, then for the purpose of Section 115JB, has to prepare its profit loss account either in accordance with the Companies act or the act governing the company. The relevant observation of the AO reads as under:- 9.3 Indeed, 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 as company it has to consider to apply the provisions of section 115JB, work out book profit and compare it with total Income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered the AO's order, the submissions made by the appellant and the details filed. I find that there may be merit in the contention of the appellant that it does not fall in the category of a Banking Company as defined in Section 5 of Banking Companies Act, on the ground that it is a nationalized bank and cannot be wound up under the India Companies Act, but such contention ignores the another set of companies stated in the said proviso i.e or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company . Thus, the appellant bank, along with similar banks and financial institutions which are deemed to be a company for the purposes of Income tax Act as per the provisions of Banking Companies (Acquisition and Transfer of Undertakings) Act, would form a class of companies for which a form of profit and loss account has been specified by the Regulator/RBI and proviso to section 211(2) of Companies Act 1956 would be applicable. Therefore, these companies will be covered by section 115JB(2)(b), as amended from 1.4.2013 read with Explanation 3. 5. The decisions relied upon by the assessee in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would not be treated as a 'company' for the purpose of provisions of section 115JB of The Act. In paragraph numbers 22-23 of the order, wherein the reliance was made by the assessee on the decision of; i) UCO bank versus DCIT [64 taxmann.com 51]; and the decision of ii) Indian overseas Bank versus DCIT, the Tribunal held that though the decision in the case of Indian overseas Bank pertains to post amendment year i.e. 2014 15, but the Tribunal has mechanically relied upon the decision in the case of UCO bank without even taking note of the fact that the said decision pertains to the pre-amended period, i.e., assessment year 2013-14. Therefore, Tribunal in Bank of India concluded that these decisions of UCO Bank, Union Bank of India, IOB do not hold good for the assessment year post amendment from A.Y. 2013-14. The coordinate bench further, referred to the provisions of section 51 of The Banking Regulation Act wherein certain provisions were made applicable of that Act to the corresponding 'new bank', i.e. like that of assessee. The Tribunal further in paragraph number 27 held that the annual accounts of the assessee is required to be prepared in accordance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds adopted for preparing such accounts including statement of profit and loss; (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 statement of profit and loss and laid before the company at its annual general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act, (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (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 statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year. Explanation 3. For the removal of doubts, it is hereby clarified that for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Acquisition and Transfer of Undertakings) Act, 1970. Another fact which has been brought on record that the Corporate Identification Number (CIN) is of Union Bank of India Ltd. and not assessee (The Union Bank of India). To substantiate the aforesaid proposition, reference was made to the judgment of the Hon ble Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India (1970) 1 SSC 248 to contend that only undertaking was acquired by the Banking Companies acquisition and transfer of undertaking ordinance which was promulgated on 19/06/1969, which culminated into Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 (herein after referred to as Acquisition Act .) Thus, it has been contended that, at the threshold the assessee bank is not a company and therefore, the provision of Section 115JB of the Act cannot be made applicable to the assessee. ARGUMENTS ON BEHLAF OF THE ASSESSEE BANK 12. Before us ld. Sr. Counsel, Mr. Percy Pardiwala referred to the various provisions of the Acquisition Act which are summarized hereunder:- i. Section 3(1) provides that on the commencement of the Acquisition Act, there shall be constituted such corresponding new banks as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as BR Act ) defines the expression banking company' and 'corresponding new bank' separately and clearly draws a distinction between the two. Also, not all the provisions of the BR Act are applicable to the corresponding new banks. Apart there from, specific reference was invited to section 51 of the BR Act making certain provisions of the BR Act being applicable to inter-alia a corresponding new bank. Therefore, only such provisions in the BR Act which specifically make reference to a corresponding new bank or the provisions in respect of which reference is made in section 51 will apply to a corresponding new bank. The other provisions in the BR Act have no application to a corresponding new bank like the assessee bank. This reference was made by him to highlight that in the legal framework applicable to a bank, a banking company and corresponding new bank are different and are subject to different regulatory provisions. 14. Mr. Pardiwala then referred to earlier provision containing sub-Section (2) of Section 115JB prior to the amendment w.e.f. 01/04/2013 which was applicable up to A.Y.2012-13 and provision w.e.f. A.Y.2013-14. Both the provisions for the sake of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule VI to the Companies Act, 1956 (the Companies Act). The Assessee Bank is required to prepare its profit and loss account in accordance section 51 read with section 29 of the BR Act. Therefore, the said provision had no application to its case. This position stands accepted by the jurisdictional High Court in the Assessee's own case [as reported in (2019) 105 taxmann.com 253]. After the amendment, the sub-section (2) applies to two different categories, that is, (i) one to which the second proviso to section 129(1) of the Companies Act, 2013 is applicable and who have to prepare their profit and loss account in accordance with the provisions of the Act governing them (see section 115JB(2)(b)); and (ii) being a company other than to whom clause (b) is applicable, i.e., those who have to prepare their profit and loss account in accordance with Schedule III of the Companies Act [see section 115 JB(2)(a)). Ld. AR submitted that, the pre- amended sub- section (2) is in pari materia with clause(a) of section 115JB(2) after its amendment. 17. He further submitted that in the case of the assessee bank neither Clause (a) nor Clause (b) of sub-section (2) of Section 115JB are applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see for the purpose of this section to prepare its profit and loss account in accordance with the provisions of the Act governing such company. 18. Mr. Pardiwala then referred to Section 129(1) of the Companies Act read with second proviso and submitted that given in the conditions provided therein in Clause (b) is not applicable. He further referred to Section 2(9) of the Companies Act, 2013 and submitted that banking company has been defined to mean a banking company as defined in Section 5(c) in the BR Act and under that Act banking company means any company which transacts the business of banking in India. Therefore, for an entity to qualify as a banking company it should first of all, be a company' and secondly the said company should transact the business of banking in India. 19. In case of the assessee bank there can be no doubt that it is neither formed and/or registered under the Companies Act, 1956, nor is it an existing company as per the above definition. Hence, in the absence of fulfillment of the requirement of either of the two limbs, the first condition referred to above in clause (b) of section 115JB(2) is not fulfilled, as in its case, the second proviso below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board to be a company Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971 or on or after that date) as may be specified in the declaration. 23. Further, section 2(26) of the IT Act defines an Indian company to mean: Indian company means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes- (1) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (u) of this clause); (ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared by the Board to be a company under clause (17); (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State; iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goat, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of insurance, Le, the business of effecting contracts of insurance of whatever kind they might be. But s. 2 begins with the words in this Act, unless there is anything repugnant in the subject or context and then come the various definition clauses of which (9) is one. It is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all definitions in statues generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context. Therefore in finding out the meaning to the word insurer in various sections of the Act, the meaning to be ordinarily given to it is that given in the definition clause. But this is not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modar Valley Corporation being Order dated 21.08.2018 in ITA No. 438/KOL/2017, the said case was concerned with assessment year 2013- 14 which is after the amendment of sub-section (2) of section 115JB. The said assessee was formed and established under the Damodar Valley Corporation Act, 1948. Section 47 thereof provided the necessary guidelines for preparation of financial statements. Further, section 43 of the said Act specifically treated the said corporation as a company for the purposes of paying taxes on Income under the Income-tax Act. However, referring to the proviso below section 211(2) of the Companies Act, 1956 (corresponding to the second proviso below section 129 (1) of the Companies Act. 2013), the Tribunal has concluded that the said corporation was not a company for the purposes of the Companies Act and, hence, clause (b) of section 2 of section 115JB shall not apply to the same. A similar view has also been taken by the Jaipur Bench of the Tribunal in Dy. CIT v. Rajasthan Financial Corporation (2023) 199 ITD 570 which was concerned with assessment year 2019-20. 29. Mr. Pardiwala submitted that even if it is assumed that the view is taken that the assessee's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed under the Maharashtra Co- operative Societies Act. The said Act would apply to a banking company as per the Banking Regulation Act. In this regard, the following observations would be relevant 44. The RDB Act was passed in 1993 when Parliament had before it the provisions of the BR Act as amended by Act No. 23 of 1965 by addition of some more clauses in Section 56 of the Act. The Parliament was fully aware that the provisions of the BR Act apply to co-operative societies as they apply to banking companies. The Parliament was also aware that the definition of 'banking company' in Section 5(c) had not been altered by Act No. 23 of 1965 and it was kept intact, and in fact additional definitions were added by Section 56(c). Co- operative bank was separately defined by the newly inserted Clause (cci) and primary co-operative bank was similarly separately defined by Clause (ccv). The Parliament was simply assigning a meaning to words; it was not incorporating or even referring to the substantive provisions of the BR Act. The meaning of 'banking company' must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. It would have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding new bank would entitle the amalgamated entity for claiming the benefit of carry forward and set-off of such loss/unabsorbed depreciation of the amalgamating entity. This would expressly not cover a situation where a corresponding new bank amalgamates with another corresponding new bank. To cover such scenario, section 72AA was inserted. If a corresponding new bank is to be treated as a banking company, then, the said section 72AA was not necessary. 34. Thus, according to him some of the provisions of the Act itself recognised the distinction between banking company and the corresponding new bank and making specific provisions for the same. ARGUMENTS ON BEHALF OF DEPARTMENT 35. Before us ld. Special Counsel Mr. Mohanty appearing on behalf of the Revenue first of all submitted that, Section 2(17) defines company as any Indian company and Section 11 of Acquisition Act clearly states that for the purpose of Income Tax Act, 1961 every corresponding new bank shall be deemed to be Indian company and a company in which public are substantially interested. The Indian company has been defined under Section 2(26) which means a company formed and registered under the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 115JB starts with non-obstante clause and therefore, it overrides the other provisions of the Act and once a company which is carrying out the banking business, they are liable for MAT provision u/s.115JB. He also placed strong reliance on the decision of the Tribunal in the case of Bank of India in ITA No. 1767 and 2048/Mum/2019 dated 11/12/2020 to urge that said provision has to be applied notwithstanding anything contained in any other provision of the Act. In his counter submissions of Mr. Pardiwala that the computation machinery does not fail as clause (b) of Sub-Section (2) of Section 115JB enables the determination of book profit based on profit and loss account prepared in accordance with the legislation as applicable to the assessee, he placed reliance on the judgment of the Hon ble Supreme Court in the case of K. P. Varghese v. ITO (1981) 131 ITR 597 for the proposition that where a plain literal interpretation of a statutory provisions produces a manifestly absurd and unjust result which could never be intended by the Legislature then, the Court can modify the language or even do some violence to it so as to achieve the obvious intention. Thus his strong reliance was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognised by the said BR Act itself cannot be regarded as a banking company for the purposes of the said Act or the Companies Act. In any event, there is nothing in the context of second proviso below section 129(1) of the Companies Act which can even remotely suggest that the Appellant is a company or a banking company for the purpose of the said section. DECISION 39. We have heard both the parties and also perused the relevant material referred to before us and the various provisions of the relevant Acts cited which are relevant for adjudication of the issue before us. 40. The question which has been referred to the Special Bench is whether the requirement of sub-section (2) of 115JB is fulfilled in the present case of the assessees. Sub-section (1) of Section 115JB mandates charge of income tax based on book profits subject to fulfillment of certain conditions and also provides the rate on which such tax shall be charged. The Section starts with non-obstante clause and therefore, it is a departure from normal charge of tax on the total income of the company. Sub-section (2) is the computation provision dealing with the manner in which such book profits are to be computed. Upto A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (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 statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year. 41. In so far as Clause (a), the same applies to a case of a company other than referred to in Clause (b). According to clause (a), for the purpose of Section 115JB the company has to prepare its profit and loss account for the relevant previous year in accordance with the Companies Act, 2013 and the First proviso to sub-section (2) requires that while preparing the accounts including the profit and loss account, the accounting policies, the accounting standards and the method and rates adopted for the purpose of preparing such accounts including the profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of Section 129 of the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003 (36 of 2003), (d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law. 44. The second proviso applies to any insurance company, banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company. In so far as the present case is concerned, one has to consider whether the assessee could be regarded as a 'banking company' for the purposes of section 129 of the Companies Act, 2013). 45. Now whether the assessee bank can be termed as a company within the meaning of the Companies Act, 2013, first of all, Section 115JB(2) is applicable to every assessee being a company‟. The company has been defined in Section 2(17) of the Income Tax Act which we have already reproduced in para 22 above. Thus, the company means any Indian company. Indian company has been defined in Section 2(26) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred Companies Ordinance, 1942 (54 of 1942); and (f) any law corresponding to any of the Acts or the Ordinance aforesaid and in force - (1) in the merged territories or in a Part B States (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or (2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), insofar as banking, insurance and financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu Kashmir) Act, 1968 (25 of 1968), insofar as other corporations are concemed; and (3) the Portuguese Commercial Code, insofar as it relates to sociedades anonimas ; 50. The assessee bank was neither formed or registered under the Companies Act, 1956; nor it is in existing company as per the above definition. Once it is not a company under the Companies Act, then the first condition referred to in clause (b) of Section 115JB(2) is not fulfilled, and consequently second proviso below Section 129(1) of the Companies Act is also not applicable. 51. The main crux of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company for the purpose of the Companies Act for which Clause (b) of Sub-Section 2 of Section 115JB is applicable. 55. In the earlier part of the order, we have already noted that by the Acquisition Act, the banking business of the existing bank was transferred from Union Bank of India Ltd to The Union Bank of India. The earlier entity, i.e., Union Bank of India Ltd. was a company under the earlier Companies Act, however, that company as a whole was not taken over or acquired but only banking business was acquired by the Acquisition Act. That is the reason why Union Bank of India Ltd. still existed at the point of acquisition and continues till now and the shareholders of Union Bank of India Ltd. were paid compensation as a consideration for acquiring the banking business. It was by the Acquisition Act that these banks were nationalized and the banking business was acquired from the erstwhile banking companies. These new acquiring banks including Union Bank of India is neither registered under the Companies Act, 2013 nor under any other previous company law. Already the Hon ble Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India (supra) as noted above, the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: [Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;] 58. The aforesaid clause (f) provides that if Central Government notifies any such entity then TDS is not to be deducted. It is very relevant to note that at the time of Acquisition Act was enacted, Central Government had issued a Notification No. SO 710 dated 16/02/1970 [1970] [Reported in 75 ITR (Stat) 106] which reads as under:- Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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