Shri M. Balaganesh, AM-This appeal of the assessee arises out of the order of the Learned CIT(A), VI, Kolkata in Appeal No. 206/CIT(A)-VI/07-08/Cir.-6 dated 21-08-2009 for the Asst Year 2002-03 passed against the order of assessment framed by the Learned AO u/s 254/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
2. The assessee had raised the following additional grounds in narrative form. Hence, we frame the issue to be decided by us in this appeal out of the same as below:-
“Whether in the given facts and in the circumstances of the case, the provisions of Sec. 115JB of the Income Tax Act, 1961 could be made applicable to a bank when their profit and loss account is not prepared in accordance with Part II & Schedule VI to Companies Act, 1956?
3. This issue was already decided by this tribunal in ITA No. 1768/Kol/2009 vide order dated 19.3.2013 in favour of the assessee. The revenue had challenged this issue before the Hon’ble Calcutta High Court and the Hon’ble Calcutta High Court vide order in ITAT No. 147 of 2013, G.A. No. 2590 of 2013 dated 13.1.2014 had restored the matter to this tribunal only on the issue of the applicability of Minimum Alternate Tax u/s 115JB of the Act to banking companies with the following directions :-
“ The Learned Tribunal in its judgment and order dated 19th March, 2013 allowed the appeal of the assessee saying that “we accordingly hold that the provisions of section 115JB are not applicable in the case of assessee.”
The Learned Tribunal, however, relied upon the judgment of a coordinate bench in the case of State Bank of Hyderabad vs DCIT wherein the view taken by the tribunal was that provisions of section 115JB were applicable and that the amendment was prospective in nature. The Tribunal could not have taken a different view after relying upon the judgment in the case of State Bank of Hyderabad vs DCIT. If the Tribunal wanted to take such a view, the reasons should have been expressed, which the Tribunal never did. By this process the Tribunal got rid of the matter without really deciding the points urged. By such disposal of the appeal neither of the parties were benefitted.
The impugned order is accordingly set aside and the matter is remanded for hearing.”
4. Hence this proceedings had emanated before us. The only issue to be adjudicated in this appeal is as to whether the provisions of section 115JB of the Act are applicable to the assessee being a banking company for the Asst Year 2002-03.
5. The Learned AR argued that the assessee is a nationalized bank and came into existence through the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The arguments of the Learned AR are summarized hereunder:-
a. Assessee is not a company under the Companies Act, 1956. Only for income tax assessment purposes, all banking, electricity and insurance companies are given the status of a company.
b. Section 115JB of Income Tax Act overrides all other provisions of Income Tax Act as it starts with a non obstante clause. Hence it is an independent code by itself. In this section, the term ‘company’ referred to should be construed as company as defined under Companies Act, 1956 only. The Section 115JB of the Act clearly states that the accounts are to be prepared in accordance with Part II of Schedule VI of Companies Act, 1956.
c. Computation provision states that ‘Net profit as per Profit and Loss Account prepared as per Part II of Sch VI of Companies Act, 1956.’
d. Sec 211 of Companies Act, 1956 is not applicable to assessee herein, whereas it is very much applicable to companies defined under Companies Act, 1956.
e. Assessee prepares its accounts as per section 29 and III schedule prescribed under Banking Regulation Act.
f. When the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply.
g. The prudential norms of RBI are to be followed mandatorily by assessee as per Banking Regulation Act with regard to recognition of income , classification of assets and provisioning requirements to be made thereon which is not contemplated in the provisions of the Companies Act, 1956.
h. Section 36(1)(viia) of the IT Act provides for deduction towards Provision made for doubtful debts allowed in respect of banks which is not available for companies registered under the Companies Act, 1956 . Hence it has to be understood that the banking company as defined in Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 is structurally different from a company defined under Companies Act , 1956.
i. Under Banking Regulation Act, the bad debts has to be routed only through the provision account unlike in Companies Act, 1956. Hence it will not appear in profit and loss account. Even provision is made for standard assets under Banking Regulation Act by following Prudential Norms prescribed by Reserve Bank of India. Hence there is material difference in the manner in which accounting entries are passed for the purpose of preparation of accounts under Banking Regulation Act and Companies Act, 1956 and corresponding income determination under the Income Tax Act thereon.
j. Amendment in section 115JB came into effect only from 1.4.2013 vide Expln 3 inserted by Finance Act 2012. At the time of Finance Bill 2012 stage, amendment was proposed only in section 115JB(2) . Expln 3 was not proposed at that time. But when the Act was enacted, Expln 3 was inserted. Expln 3 states that assessee being a company to which section 211(2) of Companies Act applies. Admittedly, the accounts of bank are not prepared as per section 211(2) of Companies Act, 1956.
k. Amendment is brought only from 1.4.2013 and hence is not retrospective. More amendments were brought in Finance Act 2012 with retrospective effect. But this amendment was specifically made effective only from 1.4.2013 having prospective effect. Hence the legislature in its wisdom had intention only to prospectively tax the banking companies under MAT.
l. Company under Companies Act is defined. It does not include company assessed as company for tax purposes. Banking company also is defined under Companies Act.
m. The expression ‘ for the removal of doubts , it is hereby clarified’ used in Explanation 3 to section 115JB should not be construed as clarificatory in nature and thereby giving retrospective effect. Reliance in this regard was placed on the decision of the Hon’ble Apex Court in the case of Vatika Township case reported in 367 ITR 466 (SC).
n. The levy of MAT on banking companies is a substantive levy on the assessee and hence can only be prospective.
o. Reliance was placed on the following decisions in support of all the contentions of the assessee on the impugned issue :-
* State Bank of Hyderabad vs DCIT reported in (2013) 33 taxmann.com 312 (Hyderabad – Tribunal) vide order dated 7.9.2012
*Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mumbai Tribunal) vide order dated 6.8.2001
*Kerala State Electricity Board vs DCIT reported in (2010) 329 ITR 91 (Ker)
* Indian Bank vs Addl CIT in ITA No. 469 / Mds / 2010 dated 3.8.2011 for Asst Year 2000-01
6. In response to this, the Learned DR argued that the assessee is a nationalized bank and it was incorporated through the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 states as under:-
“For the purposes of the Income Tax Act, 1961 , every corresponding new bank shall be deemed to be an Indian Company and a company in which the public are substantially interested. ”
6.1. He further argued that section 115JB(2) of the Act refers to Companies Act only for the limited purpose of computation of book profits. Hence it need not be a company under the Companies Act for the purpose of charging provision. Accordingly, Banking Companies also would automatically fall under the provisions of section 115JB of the Act. He placed reliance on the decision of Authority for Advance Ruling in the case of Niko Resources Ltd vs CIT reported in (1998) 234 ITR 828, wherein it was held that the provisions of section 115JA of the Act has application both to foreign and domestic companies.
6.2. He also argued that even banks are to be assessed as a company under the Income Tax Act as per section 11 stated supra. He argued that section 10(38) of the Act, through its proviso, brings into play, section 115JB. He argued that Section 115JB is the overriding provision. It overrides all other provisions in the Act. It is the overriding charging provision. It provides for payment of income tax by an assessee, which is a company. That company normally, is a company of whatsoever hue, or in the alternative, a company as defined in the Income Tax Act. There is no warrant for borrowing the definition of a company from section 3 of the Companies Act, 1956. Merely because section 115JB(2) of the Act refers to Companies Act, it does not mean that the definition from therein has to be borrowed.
6.3. He further argued that Explanation 3 to section 115JB states that it is applicable for Asst Year commencing on or before 1st April 2012 and hence has to be construed as retrospective in operation.
7. We have heard the rival submissions and perused the various case laws relied upon by the counsels for both the sides. At the outset, we find it appropriate to reproduce the following provisions of Income Tax Act, 1961 , Companies Act, 1956 , Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Banking Regulation Act, 1949 on which the impugned issue dwells upon :-
7.1 Section 115JB(2) of the Income Tax Act, 1961.
Special provision for payment of tax by certain companies
(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 that while preparing the annual accounts 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 falling within the relevant previous year.”
7.2 Section 211(1), 211(2), 211(3), 211(3A), 211(3B) and 211(3C) of Companies Act 1956:
211. FORM AND CONTENTS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
(1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading “Notes” at the end of that Part:
Provided that nothing contained in this sub-section shall apply to any insurance or a 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 balance sheet has been specified in or under the Act governing such class of company.
(2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto:
Provided that nothing contained in this sub-section shall apply to any insurance or 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 profit and loss account has been specified in or under the Act governing such class of company.
(3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest.
Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.
[(3A) Every profit and loss account and balance sheet of the company shall comply with the accounting standards.
(3B) Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss 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 (1) of section 210A:
Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this subsection.]”
7.3 Explanation 3 to Section 115JB of the Income Tax Act, 1961
“For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to subsection (2) of section 211 of the Companies Act, 1956 (1 of 1956)16a is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI17 to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company.]
7.3.1. The Explanation 3 to section 115JB of the Act has been inserted by the Finance Act 2012 to clarify that only assesses being companies and to whom provisions of the Companies Act , 1956 are applicable came within the ambit of section 115JB of the Act. In other words, unless an assessee comes within the ambit of section 211 of the Companies Act, 1956, it was not covered by the Explanation 3 to section 115JB and as a necessary corollary section 115JB was not applicable to it. In this regard, it is therefore necessary to ascertain whether the assessee bank can legally be considered as a ‘company’ for the purpose of applying the proviso to section 211(2) of the Companies Act, 1956. In view of the language used in section 211(3), what needs to be examined is whether it is possible to classify the assessee as a ‘banking company’ and thereby come to a conclusion whether in terms of Explanation 3 , section 115JB is applicable to the assessee who carried on banking business.
7.3.2. The term ‘banking company’ has been defined in section 2(5) of the Companies Act, 1956 as follows:-
“banking company” has the same meaning as in the Banking Companies Act, 1949 (10 of 1949)”.
7.3.3. 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.
7.3.4. 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.
7.3.5. The term ‘company’ has been defined in section 3 of Companies Act, 1956 as follows:-
In this Act, unless the context otherwise requires, the expressions ‘company’ , ‘existing company’, ‘private company’ and ‘public company’ , shall, subject to the provisions of sub section (2) , have the meanings specified below:-
(i) ‘company’ means a company formed and registered under this Act or an existing company as defined 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 (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 a Part B State, or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913)”.
7.3.6. As demonstrated in earlier paragraphs, the assessee was established under the Banking Companies (Acquisition and Transfer of Undertakings ) Act, 1970. The assessee is neither a ‘company’ registered under Companies Act, 1956 nor is it an existing company registered under the Acts specified in clause (ii) of section 3(1) of the Companies Act, 1956. In the circumstances, even though the assessee is assessed in the status of a ‘company’ for tax purposes, it is not a ‘company’ within the meaning assigned to that expression by section 3 of the Companies Act, 1956. We find that the newly inserted Explanation 3 to section 115JB of the Act amplifies the intention of the legislature and categorically clarifies that the assesses to which section 115JB is applicable are only those who are ‘companies’ to which proviso to subsection (2) of section 211 of the Companies Act, 1956 is applicable and not to assesses which are assessed in the status of ‘company’ for tax purposes. To illustrate this point, it may be stated that HDFC Bank Ltd, Kotak Mahindra Bank Ltd etc are ‘banking companies’ as defined in section 5(c ) & (d) of Banking Regulation Act, 1949. These banking companies are incorporated under the provisions of Companies Act, 1956. These assesses carry on business of banking. As such proviso to section 211(2) is applicable to these banking companies and therefore these banking companies prepare their accounts in conformity with Schedule II of Banking Regulation Act, 1949. By virtue of Explanation 3 to Section 115JB , such banking companies are retroactively made liable to pay tax on the deemed income computable with respect to net profit as disclosed by profit and loss account prepared by such banking companies in conformity with the provisions of Banking Regulation Act, 1949. This legal position has been very ably illustrated by the Mumbai Bench of the Tribunal in the case of Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mum Trib) which is relied upon hereinbelow.
7.4. The Notes to Clauses to Finance Act, 2012 on the subject of Minimum Alternate Tax (MAT) is reproduced below:-
i. Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and one half per cent of its book profit in case of tax on its total income computed under the provisions of the Act is less than 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 115JB, 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 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 the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB.
ii. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability.
It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account.
iii. It is also proposed to omit the reference of Part III of the Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act 1956.
These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.”
7.5. In view of the above, we hold that in view of the legislative change brought about by the introduction of Explanation 3 in section 115JB of the Act by the Finance Act, 2012 , the assessee’s contention infact stands more fortified. The Explanation 3 to section 115JB makes it evidently clear that section 115JB is applicable only to entities registered and recognized to be companies under the Companies Act, 1956. Since the assessee is not a company within the meaning of Companies Act, 1956 , section 211(2) and proviso thereon is not applicable and therefore consequently we hold that the provisions of section 115JB of the Act are also not applicable.
7.6. The basic intention of MAT u/s 115JB is only to tax the book profits irrespective of nil or lesser taxable income due to various exemptions / deductions like sections 10A/ 10B/ 80IA / 80IB etc. The intention of MAT is that the companies were declaring huge profits as per their companies act and declaring dividends to its shareholders but paying nil tax or lesser tax under the IT act due to various exemptions / deductions like sections 10A/ 10B/ 80IA / 80IB. To justify the imposition, real income theory was stressed and it was held that the companies cannot be allowed to have two faces, one for shareholder and another for taxman. Section 115JA was enacted by restructuring the provisions of section 115J with certain minor changes and thereafter section 115JB was enacted by bringing minor changes in section 115JA. The provisions of section 115J, 115JA and 115JB are by and large similar to each other.
7.6.1. The scope and effect of section 115JA was elaborated in the Department Circular No. 762 dated 18.2.1998. The relevant portion is reproduced hereunder:-
“Alternate minimum tax on companies-
46.1 In recent times, the number of zero-tax companies and companies marginal tax has grown. Studies have shown that in spite of the fact that companies have entered substantial book profits 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 115JA 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 Act, is more than 30 per cent of the book profit, tax shall be charged on the same. “
7.6.2. The Memorandum explaining the provisions in the Finance (No. 2) Bill, 1996 categorise the amendment under the caption “Rationalisation and Simplification”. The relevant portion is reproduce hereunder:-
‘RATIONALISATION AND SIMPLICATIONS
Minimum Alternative tax on companies
In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer.
The new proposal provides for those companies to pay tax on 30% of the book profits, whose total income as computed under the Income-tax Act is less than 30% of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. “Book profits” is defined and certain adjustments are provided in the proposed section.
The proposed amendment will take effect from 1-4-1997, and will accordingly, apply in relation to assessment year 1997-98 and subsequent years.”
7.6.3. The Hon’ble Apex Court in the case of Surana Steels P ltd vs DCIT reported in (1999) 237 ITR 777 at page 783 considered the legislative intent for the introduction of section 115J. It was found that the section wsa introduced to take care of the phenomenon of prosperous zero-tax companies which had continued inspite of the enactment of section 80VVA. These were companies which were paying no income tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies.
7.6.4. In fact in section 115JB, originally the companies entitled for exemptions u/s 10A / 10B and deductions u/s 80IA / 80IB were eligible for deduction from book profits u/s 115JB. But later to be in line with the underlying intention behind introduction of MAT provisions to tax the companies declaring huge dividends to shareholders by reporting higher profits as per companies act but paying lesser tax under IT act, the amendment was brought out in the statute book wherein the companies eligible to claim exemptions and deductions u/s 10A/ 10B/ 80IA / 80IB also would come under the ambit of MAT. From this, it could be safely concluded that the legislature in its wisdom had time and again applied the Heyden’s Rule to prevent possible mischief in the taxing provision. In this regard, it is relevant to reproduce the following :-
“To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of the whole Act, to consider –
(i) what was the law before the Act was passed;
(ii) what was the mischief or defect for which the law had not provided;
(iii) what remedy the Parliament has appointed; and
(iv) the 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 it 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 companies.
7.7. We find that the decision relied upon by the Learned AR in the case of Niko Resources Ltd vs CIT reported in (1998) 234 ITR 828 (AAR) is not applicable to the facts of the assessee’s case as the AAR only dealt with the applicability of section 115JA of the Act on foreign companies. The term ‘company’ has been defined in section 5(d) of Banking Regulation Act, 1949 to mean any company as defined in section 3 of Companies Act, 1956 and includes a foreign company within the meaning of section 591 of that Act. Hence there is logic in including the foreign companies under the ambit of MAT provisions. However, the same is not applicable for assessee which is a bank.
7.8. We find that the impugned issue of applicability of section 115JB of the Act is squarely covered by the following decisions :-
A. Kurung Thai Bank vs JCIT reported in (2012) 49 SOT 12 (Mumbai Tribunal), wherein it was held :-
1. “The plea of the assessee is indeed well taken, and it meets our approval. The provisions of section 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Para II and III of Schedule VI to the Companies Act. The starting point of computation of MAT under section 115JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to section 211(2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of section 115JB cannot thus be applied to the case of a banking company.”
B. Kerala State Electricity Board vs DCIT reported in (2010) 329 ITR 91 (Ker), wherein their Lordships of Kerala High Court held that :-
“ Section 115JB of the Income-tax Act, 1961 creates a legal fiction regarding the total income of assesses which are companies. The book profit of the company is deemed to be the total income of assessee in the circumstances specified in the section. The expression “book profit”for the purpose of the section is explained to mean the net profit as increased or decreased by the various amounts whon in the various sub-clause of the section. The “ net profit” itself must be the net profit as shown in the profit and loss account of the company. Sub-section (2) mandates that the profit and loss account of the company. Sub-section (2) mandates that the profit and loss account of the 115JB stipulates that the accounting policies, accounting standards, etc. shall be uniform both for the purpose of incometax as well as for the information statutorily required to be placed before the annual general meeting conducted, in accordance with section 210 of the Companies Act, 1956.
Though the Kerala State Electricity Board, a statutory corporation constituted by virtue of section 5 of the Electricity (Supply) Act, 1948 answers the description of an Indian company and therefore a company within the meaning of section 2(17) of the Income-tax Act, 1961 it is not a company for the purpose of the Companies Act, 1956. It is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. On the other hand, under section 69 of the Electricity (Supply) Act, 1948, the Board is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. Such accounts of the Board are required to be audited by the Comptroller and Auditor-General of India or such other person duly authorized by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report are required to be laid annually before the State Legislature and also to be published in the prescribed manner.
At the earliest point of time when section 115J was introduced, the section expressly excluded from its operation bodies like the Electricity Board. Though such express exclusion is absent in section 115JA, the Central Board of Direct Taxes issued Circular No.762 dated February 18, 1998 excluding bodies like the Electricity Board from the operation of section. Circular No.762 not only is binding on the Department, but also explains the purpose in introducing section 115JA which was to tax zero-tax companies. The CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing,, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of section 115JA for the reason that such a policy would promote the infrastructural development of the country. Section 115JB, which is substantially similar to section 115JA cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of section 115JA.
Where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply.
The Electricity Board or bodies similar to it, which are totally owned by the Government, either State or Central, have no shareholders. Profit, if at all, made would be for the benefit of entire body politic of the State. Therefore, the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, the fiction fixed under section 115JB cannot be pressed into service against the Electricity Board while making the assessment of the tax payable under the Income-tax Act.”
C. Maharashtra State Electricity Board vs JCIT reported in (2002) 82 ITD 422 (Mumbai Tribunal), wherein it was held that :
“15. We find that sub-section (2) of section 115JA requires the company to prepare its Profit & Loss Account in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956. The assessee was required to prepare its account in conformity with the provision of section 69 of the Electricity (Supply) Act. Besides proviso to section 115JA(2) provides that while preparing the annual accounts, depreciation has to be provided on the same rates, and as per the same method as was adopted for calculating depreciation for the purpose of preparing the Profit & Loss Account laid before the company at its AGM under section 210 of the Companies Act. This section cannot be applied in relation to the assessee. In fact, the very concept of a “meaning “is alien to MSEB. A meeting can be between two or more persons. In case of MSEB there is no other person. Similarly, second proviso to sub-section (2) provides that where a company has adopted or adopts a financial year under the Companies Act, 1956, which is different from the previous year under the Act, the methods and the rates of depreciation shall correspond to the method and rates, which have been adopted for calculating the depreciation, for which financial year or part of such financial year falling within or relevant previous year.
16. Only those companies, which are engaged in the generation or supply of electricity, will come within the ambit of section 616 of the Companies Act. For that it is necessary that assessee must be a company. If assessee is not a company, then provision of section 616( c) cannot be applied. For example, Tata Electric Company is a company registered under the Companies Act. It is company within the meaning of section 3 of the Companies Act. It is engaged in the business of generation or supply of electricity. As such it will come within the sweep of this provision. MSEB cannot be construed to be a company within the meaning of section 3 of the Companies Act, therefore, though it is engaged in the generation/distribution of electricity, it cannot be deemed as a company within the meaning of section 616( c).
17. Explanation to section 115JA defines the term “Book Profit” to mean the net profit as shown in the Profit & Loss Account for the relevant previous year prepared under sub-section (2)[ i.e. in accordance with Parts II & III of Schedule VI] as increased by…….. We have noted that assessee did not prepare its accounts under Parts II & III of Schedule VI. Assessee was under no legal obligation to do so. As such the definition of “Book Profit” cannot be applied in the case of the assessee.
18. According to section 2(17) read with section 2(26) of the Act, MSEB could be deemed to be a company for the purpose of Income-tax Act. The term company as defined in the said section is, NOMEN GENERALISSIMUM (term of the most general meaning) and its meaning in the CONTEXT of section 115JA is to be gathered from the connection in which it is used and from the subject-matter to which it is applied. 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 section is skin of the living though. It may vary in colour and content according to the context. It is a settled rule of interpretation canonized in the dictum: EX PRAECEDENTIBUS ET CONSEQENTIBUS OPTIMA FIT INTERPRETATIO” ( the best interpretation is made from the context). Whether the same meaning, as has been given in the interpretation clause, should be given to the word wherever it occurs, will depend upon the context. Therefore, it becomes necessary not only to look at the words but also to look at the context, the collocation and the objects of such words relating to such matter.
19. It is true that the word used in section 115JA of the Act is ‘company’. The heading of this section is “Deemed income relating to certain companies. The provision begins with a non obstante clause. It applies to every assessee being a company. The panoply o the section is erected over the structure of Companies Act, 1956. The Minimum Alternate Tax (MAT) on companies was introduced by the Finance (No.2) Act, 1996 with effect from 1-4-1997. This was necessitated due to the rise in the number of zero tax companies. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. To curb this mischief MAT was introduced by inserting section 115JA. This is a deeming provision. It is a trite law that deeming provision should be narrowly watched, jealously regarded and never to be pressed beyond its true limits. It is applicable to a company. The assessee is not a company. It is not required to distribute any dividend. As such it does not come within the mischief of this section……”
Hence we find lot of force in the arguments of the Learned AR that the text has to be understood in the context in which provision has been enacted which is also endorsed by the Mumbai Tribunal in 82 ITD 422.
D. Union Bank of India vs ACIT in ITA Nos. 4702 to 4706 / Mum / 2010 for Asst Years 2002-03 to 2006-07 , wherein they placed reliance on the decision of Kurung Thai Bank PCL (supra) and Maharastra State Electricity Board vs JCIT (supra) and held that the provisions of section 115JB are not applicable to banking company.
E. Indian Bank vs Addl CIT in ITA No. 469 / Mds / 2010 dated 3.8.2011 for Asst Year 2000-01 held that the bank is not required to prepare its profit and loss account in accordance with provisions of Part II and III of Schedule VI to the Companies Act, 1956 and therefore, the provisions of MAT in section 115JB is not applicable to assessee.
F. State Bank of Hyderabad vs DCIT reported in (2013) 33 taxmann.com 312 (Hyderabad – Tribunal) vide order dated 7.9.2012 wherein it was held that:
12. The next issue is regarding the applicability of provision of Sec.115JB to the assessee bank. The contention of the assessee is that the assessee being a bank, the provisions of Companies Act will not apply to the assessee and hence the assessee will not be liable to tax u/s.115JB.
13. The provisions of Sec.115JB will be applicable to all companies. However, it is contended that Sec.115JB will be applicable only where the assessee is required to show profit & loss account in accordance with schedule VI of Companies Act. As the banks are required to prepare Balance Sheet and Profit & Loss Account in accordance with the Banking Regulation Act, provision of 115JB cannot be applied to the banks. In the case of Maharashtra State Electricity Board v. CIT [2002] 82 ITD 422(Mum.) it was held that provisions of book profit cannot be applied to Electricity Companies. Banking Companies and companies engaged in generation and supply of electricity do not have to prepare their accounts in accordance with parts II and III of Sch. VI of the Companies Act by the virtue of proviso to sec 211(2) of the Companies Act. We find that by the Finance Act 2012, with effect from 1.4.2013, even companies to which Proviso to sec 211(2) applies (the banking Companies and companies engaged in generating and distribution of electricity), should prepare their P&L and balance Sheet in accordance with the provisions of the Act governing such companies. This would mean that prior to AY 2013-14, provisions of sec 115JB will not apply to companies to which proviso to sec 211(2) of the companies Act, 1956 applies. The Assessee being a company to which proviso to sec 211(2) of the Companies Act 1956 applies, will not be liable to be taxed under sec 115JB.
14. The Mumbai Tribunal in the case of Krung Thai Bank v. Jt. CIT [2012] 49 SOT 70/[2011] 16 taxmann.com 239, to which one of us is a party has held that provision of Sec.115JB cannot be applied to the banking company.
15. In view of the above, as the amendment to sec 115JB by the Finance Act 2012 will be applicable only from the AY 2013-2014, we uphold the claim of the assessee that provision of Sec.115JB will not be applicable to the Assessee Bank and set aside the assessment made u/s 115JB on the Assessee company.
G. ICICI Lombard General Insurance Co Ltd vs ACIT reported in 2012 –TIOL- 690-ITAT-Mum in ITA No. 2398/Mum/2009 dated 10.10.2012 for Asst Year 2003- 04, wherein it was held that :
The proviso to section 211(2) of the Companies Act creates an exemption of applicability of subsection (2) inter alia in respect of insurance companies or banking companies or any other companies engaged in generation and supply of electricity for which a form of profit and loss account has been specified in or under the Act governing such class of company. Even if an insurance company does not disclose any matter in the balance sheet and profit and loss account because the same is not required to be disclosed by the Insurance Act shall not be treated as non-disclosure of a true and fair view of the state of affairs of the company as the said condition has been relaxed by subsection (5) of section 211 of the Companies Act. In order to align the provisions of the IT Act with the Companies Act , an amendment has been brought in to the statute by the Finance Act 2012 whereby section 115JB has been amended w.e.f. 1.4.2013 and therefore, prior to 1.4.2013, the amended provisions of section 115JB cannot be applied in case of Insurance, Banking, Electricity generation and distribution companies and other class of companies , which are not required to prepare their accounts and particularly Balance Sheet and profit and loss account as per Part II and III of Schedule VI of the Companies Act . Thus, when the Insurance Companies, Banking companies and electricity generation and distribution companies are treated in the same class as per the provisions of section 211 of the Companies Act in preparing the final accounts, then those companies cannot be treated differently for the purpose of section 115JB and accordingly, the provisions of section 115JB are not applicable in the case of the assessee.
H. Bank of India vs Addl CIT reported in 2014 (5) TMI 929 :n ITA No. 1498/Mum/2011 dated 9.4.2014– ITAT Mumbai, wherein it was held that
6. Ground No. 5 is regarding applicability of provisions of section 115JB in case of Bank.
6.3 Having considered the rival submissions as well as relevant material on record, we note that this issue has been considered by this Tribunal in the series of decisions including the decision relied upon by the Ld. AR of the assessee. In the case of ICICI Lombard General Insurance (supra) the coordinate bench of this Tribunal has considered and decided an identical issue in para 6 as under:-
As discussed above, the assessee is following the accounting policies under the Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts in accordance with part II & III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II & II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon’ble Supreme Court and the decision of the Tribunal for AY 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the present case.”
Following the decisions of the coordinate Benches of this Tribunal, we hold that when the insurance companies, banking companies and electricity generation and distributions companies are treated in the same class as per the provisions of sec. 211 of the Companies Act in preparing their final accounts, then these companies cannot be treated differently for the purpose of sec. 115JB and accordingly, the provisions of sec. 115JB are not applicable in the case of the assessee.”
Accordingly, this issue is decided in favour of the assessee and against the revenue”.
Though, section 115JB has been amended to bring all the Companies in its ambit vide Finance Act 2012, w.e.f 1.4.2013, however, the said amendment is not applicable in the assessment year under consideration.
Following the decision of co-ordinate bench of this Tribunal we decide this issue in favour of the assessee.
7.9. In view of the aforesaid provisions of the Act, our findings given thereon with respect to the facts and various judicial precedents relied upon hereinabove and further in view of the fact that no contrary decisions being brought to our knowledge on the same issue, we accordingly hold that
- the provisions of section 115JB of the act are not applicable in the case of the assessee ; and
- the amendment brought in section 115JB of the Act read with Explanation 3 thereon by the Finance Act 2012 is applicable only with effect from Asst Year 2013-14 onwards in line with the Notes to Clauses of Finance Act 2012
Accordingly, the ground raised by the assessee in this regard is allowed.
7.10. The directions of the Honourable High Court of Calcutta is complied with in the manner stated hereinabove and the appeal is disposed off accordingly.
8. In the result, the appeal of the asssesse in ITA No. 1768/Kol/2009 on the issue of applicability of section 115JB of the Act which has been remanded by the Hon’ble High Court of Calcutta is allowed.