IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nINCOME TAX APPEAL NO.1196 OF 2013
\nWITH
\nINCOME TAX APPEAL NO.1175 OF 2013
\nThe Commissioner of Income TaxLTU
\n\u2026 Appellant
\nV\/s.
\nUnion Bank of India \u2026 Respondent
\nWITH
\nINCOME TAX APPEAL NO.59 OF 2017
\nCommissioner of Income Tax(IT)3
\n\u2026 Appellant
\nV\/s.
\nMashreq Bank psc \u2026 Respondent
\nWITH
\nINCOME TAX APPEAL NO.1567 OF 2016
\nWITH
\nINCOME TAX APPEAL NO.1309 OF 2016
\nWITH
\nINCOME TAX APPEAL NO.143 OF 2018
\nWITH
\nINCOME TAX APPEAL NO.1907 OF 2017
\nWITH
\nINCOME TAX APPEAL NO.1878 OF 2017
\nWITH
\nINCOME TAX APPEAL NO.182 OF 2015
\nPr. Commissioner of Income Tax2
\n\u2026 Appellant
\nV\/s.
\nBank of India \u2026 Respondent
\nWITH
\nINCOME TAX APPEAL NO.1108 OF 2015
\nPr. Commissioner of Income Tax3
\n\u2026 Appellant
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 2 901 itxa 119613
\nand orso
\nV\/s.
\nM\/s The New India Assurance Co.Ltd. \u2026 Respondent
\nWITH
\nINCOME TAX APPEAL NO.27 OF 2016
\nCommissioner of Income Tax(IT)2
\n\u2026 Appellant
\nV\/s.
\nCredit Agricole Corporate and Investment Bank\u2026 Respondent
\nMr.
\nSuresh Kumar for the Appellant in ITXA Nos.1196\/13,
\n1175\/13, 1108\/15, 1309\/16, 1567\/16, 182\/15, 1878\/17,
\n1907\/17 and 143\/18.
\nMr.Percy Pardiwalla, Senior Counsel with Ms.Nupur Awasthi with
\nMs.Usha K.Srivastava i\/by M\/s Consulta Juris for the Respondent
\nin ITXA Nos.1196\/13 and 1175\/13.
\nMr.Tejveer Singh for the Appellant in ITXA Nos.59\/17 and 27\/16.
\nMr.Percy Pardiwalla, Senior Counsel with Mr.Madhur Agrawal
\ni\/by Mr.Atul Jsani for the Respondent in ITXA Nos. 59\/17 and
\n27\/16.
\nMr.Atul Jasani for the Respondent in ITXA No.1108\/15.
\nMr.Subhash Shetty for the respondent in ITXA Nos. 1309\/16,
\n1567\/16, 1878\/17, 1907\/17 and 143\/18.
\nMr.Sanjiv Shah for the Respondent in ITXA 182\/15.
\nCORAM
\n: AKIL KURESHI AND
\nSARANG V. KOTWAL, JJ.
\nDATE : APRIL 16, 2019.
\nORAL JUDGMENT :1.
\nIn these appeals common questions of law arise. Some of
\nthe appeals have been admitted. Some have been tagged on
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 3 901 itxa 119613
\nand orso
\naccount of similarity of issues though they are at the admission
\nstage. For convenience, we may record facts from Income Tax
\nAppeal No.1196 of 2013. This appeal was admitted for
\nconsideration of following questions of law:\u201c(
\ni) Whether on the facts and in the
\ncircumstances of the case and in law, the ITAT
\nis correct is reversing the order of Assessing
\nOfficer confirmed by the CIT(A), exercising
\nthe jurisdiction u\/s.154 of the Income Tax Act,
\n1961, determining the Book Profits as per the
\namendment to Section 115JB?
\n(ii) Whether on the facts and in the
\ncircumstances of the case and in law the ITAT is
\ncorrect in holding that the provision of Section
\n115JB are not applicable to the assesseeBank?\u201d
\n2. For all the appeals we would adopt the above quoted
\nquestions as substantial questions of law.
\n3. RespondentUnion
\nBank of India had filed return of income
\nfor the assessment year 200506.
\nThe Assessing Officer passed
\norder of assessment under Section 143(3) of the Income Tax Act,
\n1961 (\u201cthe Act\u201d for short) on 23rd March, 2007 computing the
\nassessee\u2019s taxable income at Rs.412.41 crores (rounded off)
\nunder the normal provisions and Rs.431.15 crores as book profit
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 4 901 itxa 119613
\nand orso
\nunder Section 115JB of the Act. The Assessing Officer thereafter
\npassed an order dated 25th March, 2010 of rectification to give
\neffect to a retrospective amendment in Section 115JB of the Act.
\nHe computed the assessee\u2019s revised book profit at Rs.374.21
\ncrores.
\n4. The assessee carried the matter in appeal. In such appeal,
\nthe assessee opposed the assessment order on merits, including
\nthe order passed by the Assessing Officer exercising rectification
\npowers. CIT (Appeals) granted partial relief by his order dated
\n27th March, 2012.
\n5. Against such order of the Commissioner (Appeals), the
\nassessee preferred further appeal before Income Tax Appellate
\nTribunal (\u201cTribunal\u201d for short). In such appeal, the assessee
\ncontended that the Assessing Officer could not have exercised
\nrectification powers. The assessee raised an additional ground
\nthat being a banking company, the provisions of Section 115JB
\nof the Act would not be applicable. The Tribunal allowed such
\nappeal by the impugned judgment dated 22nd March, 2012. The
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 5 901 itxa 119613
\nand orso
\nTribunal was of the opinion that the Assessing Officer wrongly
\nexercised powers of rectification. The Tribunal further noted that
\nthe coordinate
\nbench in the assessee\u2019s own case for the
\nassessment year 200607
\nhad held that the provisions of Section
\n115JB of the Act, were not applicable to the assesseebank.
\nThe
\nTribunal held as under :\u201c
\n7. We have considered the issue. There is no
\ndoubt that the assessment orders under section
\n143(3) were passed in these years under which
\ntotal income was determined under normal
\nprovisions and book provisions of section 115JB
\nwere not invoked. The issues which are considered
\nin normal assessment are still pending before the
\nITAT for adjudication,whereas the Assessing Officer
\nunder the guise of section 154 disallowed certain
\namounts revising the book profits. However, even
\nafter making these adjustments, the tax under
\nnormal provisions was determined at Rs.328.07
\ncores, whereas the tax under section 115JB was
\ndetermined at Rs.72.02 crores for assessment years
\n200405
\nand tax under normal provisions was
\ndetermined at Rs.150.91 crores under normal
\nprovisions and tax under section 115JB at
\nRs.28.06 crores under section 115JB. Ultimately the
\ntaxes were determined under normal provisions
\nwithout exercising the provisions of section 115JB.
\nIn that view, the entire exercises of modifying the
\norders is redundant as even after such adjustment,
\nthe tax determined under the normal provisions is
\nmore than the tax that are being determined by
\nthis order under section 154.
\n8. Be that as it may, just because a retrospective
\namendment has been carried out on the statue, the
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 6 901 itxa 119613
\nand orso
\nassessment cannot be modified without examining
\nwhether the provisions so made are to be
\ndisallowed or not. This requires detailed
\nexamination and in fact as for the submissions
\nmade before the authorities, the assessee had
\nappeared before the Assessing Officer furnishing
\nvarious details and how the amounts cannot be
\ndisallowed. Since this requires claborate
\nexamination on a long run process, we are of the
\nopinion that the orders cannot be modified by
\ninvoking the provisions of section 154. Not only
\nthat the Coordinate Bench in assessee’s own case
\nin assessment year 200607
\nhas held that the
\nprovisions of section 115JB are not applicable to
\nthe assessee Bank. In view of this, we hold that the
\norder under section 154 passed by the Assessing
\nOfficer is not correct and therefore, the same was
\nset aside. Accordingly assessee’s grounds in the
\nabove 2 years are allowed.\u201d
\n6. Against this judgment, the revenue has filed this appeal.
\nAppearing for the revenue learned counsel submitted that the view
\nexpressed by the Tribunal is not sustainable in law. The provisions
\nof Section 115JB are sufficiently clear and apply to all
\ncompanies. Admittedly, respondentbank
\nis a company. Provisions
\nof Section 115JB would be applicable to such companies also. He
\nsubmitted that the amendments made in Section 115JB of the Act
\nunder Finance Act, 2012 would have no effect on this legal
\nposition. These amendments have been made only to alien
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 7 901 itxa 119613
\nand orso
\nthe position of the special companies such as the banking
\ncompanies, electricity companies etc. with the provisions of the
\nIncome Tax Act. These amendments in no way suggest that
\nprior to such legislative changes, the provisions of Section 115JB
\nof the Act were not applicable to the banking companies and
\nsuch other special companies.
\n7. On the other hand, learned counsel Shri Pardiwalla led
\narguments on behalf of the assessee. He submitted that the
\nmechanism provided for computing book profit in terms of subsection
\n(2) of Section 115JB of the Act would be wholly
\nunworkable for a banking company. He submitted that this
\nanomaly was removed by the legislature only by amending
\nSection 115JB by Finance Act, 2012. Till then the banking
\ncompanies were not within the fold of Section 115JB of the Act.
\nHe submitted that when the machinery provision fails, the
\ncharging section shall have no applicability. Counsel relied on
\ncertain decisions, reference to which will be made at appropriate
\nstage.
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 8 901 itxa 119613
\nand orso
\n8. In order to resolve the controversy, we may take note of
\nthe statutory provisions and the legislative history. As is well
\nknown, Section 115JB of the Act, pertains to special provisions
\nfor payment of tax by certain companies and provides a formula
\nfor payment of minimum tax in case of companies, whose tax
\npayable on the total income works out to be below a certain
\nminimum threshhold percentage of its book profit. This
\nprovision is a successor to Section 115JA of the Act, which was
\nalso introduced for the same purpose. In fact, the first legislative
\nintroduction of the provisions pertaining to what is popularly
\nreferred to as MAT companies (Minimum Alternative Tax) was
\nSection 115J. The Circular No.762 dated 18th February, 1998
\nissued by the Central Board of Direct Tax (\u201cCBDT\u201d for short)
\nexplains the object for introduction of such MAT provisions. The
\ncircular clarifies that new Section 115JA has been inserted by
\nthe Finance Act, so as to levy a minimum tax on companies, who
\nare having book profits and paying dividends, but not paying any
\ntaxes. Relevant portion of Section 115JB as is stood at the
\nrelevant time reads as under:\u201c
\nSpecial provision for payment of tax by certain
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 9 901 itxa 119613
\nand orso
\ncompanies
\n115JB.(1)Notwithstanding anything contained in
\nany other provision of this Act, where in the case
\nof an assessee, being a company, the incometax,
\npayable on the total income as computed under
\nthis Act in respect of any previous year relevant to
\nthe assessment year commencing on or after the
\n1st day of April, (2007) is less than (ten percent) of
\nits book profit, (such) book profit shall be deemed
\nto be the total income of the assessee and the tax
\npayable by the assessee on such total income shall
\nbe the amount of incometax
\nat the rate of (ten
\npercent).
\n(2) Every assessee, being a company, shall, for
\nthe purposes of this section, prepare its profit and
\nloss account for the relevant previous year in
\naccordance with the provisions of Parts II and III
\nof Schedule VI to the Companies Act, 1956 (1 of
\n1956)
\nProvided that while preparing the annual accounts
\nincluding profit and loss account,(
\ni) the accounting polices,
\n(ii) the accounting standards adopted for preparing
\nsuch accounts including profit and loss account;
\n(iii) the method and rates adopted for calculating
\nthe depreciation,
\nshall be the same as have been adopted for the
\npurpose of preparing such accounts including
\nprofit and loss account and laid before the
\ncompany at its annual general meeting in
\naccordance with the provisions of section 210 of
\nthe Companies Act, 1956(1 of 1956):
\nProvided further that where the company has
\nadopted or adopts the financial year under the
\nCompanies Act, 1956(1 of 1956), which is
\ndifferent from the previous year under this Act,(
\ni) the account policies;
\n(ii) the accounting standards adopted for preparing
\nsuch accounts including profit and loss account;
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 10 901 itxa 119613
\nand orso
\n(iii) the method and rates adopted for calculating
\nthe depreciation,
\nshall correspond to the accounting policies,
\naccounting standards and the method and rates
\nfor calculating the depreciation which have been
\nadopted for preparing such accounts including
\nprofit and loss account for financial year or part
\nof such financial year falling within the relevant
\nprevious year.\u201d
\n9. In terms of subsection
\n(1) of Section 115JB of the Act thus
\nnotwithstanding anything contained in any of the provisions of
\nthe Act in case of an assessee being a company where the
\nincome tax payable on the total income as computed under the
\nAct, is less than prescribed percentage of its book profit, such
\nbook profit shall be deemed to be the total income of the
\nassessee. In so far as the language used under subsection
\n(1) of
\nSection 115JB is concerned, the same pauses no challenge. Subsection
\n(1) of Section 115JB takes within its swip all companies
\nwith no further bifurcation or distinction between companies.
\nHowever, the question that calls for our consideration is
\nwhether the machinery provision provided under subsection
\n(2)
\nof Section 115 JB of the Act is workable when it comes to the
\nbanking companies and such other special companies governed
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 11 901 itxa 119613
\nand orso
\nby the respective Acts. In the context, the question would also be
\nof the legislative intent to cover such companies within the swip
\nof Section 115JB of the Act. These questions arise because of the
\nlanguage used in subsection
\n(2) of Section 115JB. These
\nprovisions we may peruse more minutely. As per subsection
\n(2)
\nof Section 115JB, every assessee being a company would for the
\npurposes of the said section prepare its profit and loss account for
\nthe relevant previous year in accordance with the provisions of
\nParts II and III of Schedule VI of the Companies Act, 1956. It is
\nundisputed that the respondenta
\nbanking company is not
\nrequired to prepare its accounts in accordance with the provisions
\nof Parts II and III of Schedule VI of the Companies Act, 1956. The
\naccounts of the banking company are prepared as per the
\nprovisions contained in Banking Regulation Act, 1949. The counsel
\nfor the revenue may still argue that irrespective of such
\nrequirements, for the purposes of the said Act and special
\nrequirements of Section 115JB of the Act, a banking company is
\nobliged to prepare its profit and loss account as per the provisions
\nof the Companies Act, as mandated by subsection
\n(2) of Section
\n115JB of the Act. His contention would be that such legislative
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 12 901 itxa 119613
\nand orso
\nmandate is not impermissible.
\n10. At the first blush, this argument seems attractive.
\nHowever, when we read subsection
\n(2) further, certain
\ncomplications arise in this line of argument. The first proviso to
\nsubsection
\n(2) of Section 115JB provides that while preparing
\nannual accounts including profit and loss account the accounting
\npolicies and accounting standards adopted for preparing the
\naccount and the method and rules adopted in calculating the
\ndepreciation shall be the same as have been adopted for the
\npurpose of preparing such accounts and laid before the company
\nat its Annual General Meeting in accordance with provisions of
\nSection 210 of the Companies Act, 1956. There is no dispute that
\nthe respondentbank
\nin terms of Section 210 of the Companies
\nAct, 1956 is also required to lay its accounts before the Annual
\nGeneral Meeting. However, such accounts would necessarily be
\nprepared in accordance with the provisions of Banking
\nRegulation Act, 1949 and never be those which even had it been
\npossible to be prepared, in accordance with Parts II and III of
\nSchedule VI of the Companies Act, 1956. The applicability of this
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 13 901 itxa 119613
\nand orso
\nproviso therefore, in case of a banking company would
\nimmediately create complications. On one hand, in terms of
\nSection 210 of the Companies Act, 1956, the bank would be under
\nan obligation to lay before Annual General Meeting its annual
\naccounts including the profit and loss account. These accounts
\nwould be prepared in terms provisions contained in Banking
\nRegulation Act, 1949. Subsection
\n(2) requires preparation of
\nthe accounts in terms of the Companies Act. Proviso to subsection
\n(2) would require maintaining the same parameters in relation to
\nthe accounting policies, accounting standards and method and
\nrate of depreciation as adopted for the purpose of preparing the
\naccounts, which would ultimately be laid before the Annual
\nGeneral Meeting. A Banking company in terms of subsection
\n(2)
\nof Section 115JB can prepare additional accounts as per
\nprovisions of Parts II and III of Schedule VI of the Companies Act
\nor fulfill the requirements of the proviso to subsection
\n(2) but
\ncannot fulfill both the conditions.
\n11. This legal dichotomy emerging from the provisions of
\nsubsection
\n(2) of Section 115JB particularly having regard to
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 14 901 itxa 119613
\nand orso
\nthe first proviso contained therein in case of a banking company,
\nwould convince us that machinery provision provided in subsection
\n(2) of section 115JB of the Act, would be rendered wholly
\nunworkable in such a situation. In a well known judgment the
\nSupreme court in case of Commissioner of IncomeTax,
\nBangalore Vs. B.C. Shrinivasa Setty1 had observed that in the
\nIncome Tax Act, a charing section and the computing provisions
\ntogether constitute an integrated code. In a case where the
\ncomputation provision can not apply, it would be evident that
\nsuch a case was not intended to fall within the charging section.
\nIt was a case of charging a partnership firm for transfer of a
\ncapital asset in the nature of goodwill. The Supreme Court was of
\nthe opinion that it would not be possible to envisage a cost of
\nacquisition of goodwill. Since computation of capital gain cannot
\nbe done without ascertaining the cost of acquisition, it was held
\nthat no capital gain tax can be levied.
\n12. For the completeness of the discussion, we may note that
\nsection 211 of the Companies Act, 1956 pertains to form of
\n1 Vol.128 ITR 294
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 15 901 itxa 119613
\nand orso
\ncontents of balancesheet
\nand profit and loss account, subsection
\n(1) of Section 211 provided that every balance sheet of a company
\nshall give true and fair view on the state of affairs of the company
\nat the end of the financial year and would be subject to the
\nprovisions of the said section and be in the form set out in the
\nForms 1 and 2 of schedule VI. This subsection
\ncontained a
\nproviso providing that nothing contained in said subsection
\nwould apply to a banking company or any company engaged in
\ngeneration or supply of electricity or to any other class of
\ncompany for which a form of balance sheet shall be specified in
\nor under the Act governing such company. Thus, Companies Act,
\n1956 excluded the insurance or banking companies, companies
\nengaged in generation or supply of electricity or companies for
\nwhich balancesheet
\nwas specified in the governing Act, from
\nthe purview of subsection
\n(1) of Section 211 of the Companies
\nAct, 1956 and as a consequence from the purview of Section
\n115JB of the Act.
\n13. What we have held above is duly supported by the division
\nbench judgment of Kerala High Court. It was a case in which the
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 16 901 itxa 119613
\nand orso
\nassessee before the court was Kerala State Electricity Board, a
\nstatutory corporation constituted under Section 5 of the Electricity
\n(Supply) Act, 1948. The revenue sought to cover the said
\nElectricity Board under the provisions of Section 115JB which
\nthe assessee opposed. The issue reached the Kerala High Court.
\nThe Court referred to and relied upon the decision of the
\nSupreme Court in case of B.C. Shrinivasa Setty (supra). It was
\nnoticed that the Board was required to keep and maintain its
\naccount in the manner specified by the Central Government and
\nnot in the manner specified in the Companies Act. In that view of
\nthe matter it was held that section 115JB would not apply to the
\nElectricity Board. Learned counsel for the assessee has also
\nbrought to our notice decisions of Delhi High Court holding that
\nsuch MAT provisions would not apply to the insurance companies
\nand to the banking companies.
\n14. There are certain significant legislative changes made by
\nFinance Act, 2012, which must be noted before concluding this
\nissue. In the present form, post amendment by Finance Act,
\n2012, relevant portion of Section 115JB of the Act reads as
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 17 901 itxa 119613
\nand orso
\nunder:\u201c
\nSpecial provision for payment of tax by
\ncertain companies.
\n115JB. (1) Notwithstanding anything contained
\nin any other provision of this payable on the total
\nincome as computed under this Act in respect of
\nany previous year relevant to the assessment
\nyear commencing on or after the 1st day of April,
\n(2012), is less than (eighteen and onehalf
\npercent) of its book profit, (such book profit shall
\nbe deemed to be the total income of the assessee
\nand the tax payable by the assessee on such total
\nincome shall be the amount of incometax
\nat the
\nrate of (eighteen and onehalf
\npercent).
\n(2) Every assessee,(
\na) being a company, other than a company
\nreferred to in clause (b), shall, for the purposes
\nof this section, prepare its (statement of profit
\nand loss) for the relevant previous year in
\naccordance with the provisions of (Schedule III)
\nto the (Companies Act, 2013 (18 of 2013); or
\n(b) being a company, to which the (second
\nproviso to subsection
\n(1) of section 129) of the
\n(Companies Act, 2013 (18 of 2013) is
\napplicable, shall, for the purposes of this section,
\nprepare its (statement of profit and loss) for the
\nrelevant previous year in accordance with the
\nprovisions of the Act governing such company:)
\nProvided that while preparing the annual
\naccounts including (statement of profit and loss),(
\ni) the accounting policies;
\n(ii) the accounting standards adopted for
\npreparing such accounts including (statement of
\nprofit and loss);
\n(iii) the method and rates adopted for
\ncalculating the depreciation,
\nshall be the same as have been adopted for the
\npurpose of preparing such accounts including
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 18 901 itxa 119613
\nand orso
\n(statement of profit and loss) and laid before the
\ncompany at its annual general meeting in
\naccordance with the provisions of (section 129)
\nof the (Companies Act, 2013(18 of 2013)):\u201d
\n15. The memorandum explaining the provisions made in the
\nFinance Bill, 2012, in relation to minimum alternative tax stated
\nas under :\u201c
\nMinimum Alternate Tax (MAT)
\nI. Under the existing provisions of section
\n115JB of the Act, a company is liable to pay
\nMAT of eighteen and on half percent of its book
\nprofit in case tax on its total income computed
\nunder the provisions of the Act is less than the
\nMAT liability. Book profit for this purpose is
\ncomputed by making certain adjustments to the
\nprofit disclosed in the profit and loss account
\nprepared by the company in accordance with the
\nSchedule VI of the Companies Act, 1956.
\nAs per section 115JB, every company is
\nrequired to prepare its accounts as per Schedule
\nVI of the Companies Act, 1956. However, as per
\nthe provisions of the Companies Act, 1956,
\ncertain companies, e.g. insurance, banking or
\nelectricity company, are allowed to prepare their
\nprofit and loss account in accordance with the
\nprovisions specified in their regulatory Acts. In
\norder to align the provisions of Incometax
\nAct
\nwith the Companies Act, 1956, it is proposed to
\namend section 115JB to provide that the
\ncompanies which are not required under section
\n211 of the Companies Act to prepare their profit
\nand loss account in accordance with Schedule VI
\nof the Companies Act, 1956, profit and loss
\naccount prepared in accordance with the
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 19 901 itxa 119613
\nand orso
\nprovisions of their regulatory Acts shall be taken
\nas a basis for computing the book profit under
\nsection 115JB.
\nII. It is noted that in certain cases, the amount
\nstanding in the revaluation reserve is taken
\ndirectly to general reserve on disposal of a
\nrevalued asset. Thus, the gains attributable to
\nrevaluation of the asset is not subject to MAT
\nliability.
\nIt is, therefore, proposed to amend section
\n115JB to provide that the book profit for the
\npurpose of section 115JB shall be increased by
\nthe amount standing in the revaluation reserve
\nrelating to the revalued asset which has been
\nretired or disposed, if the same is not credited to
\nthe profit and loss account.
\nIII. It is also proposed to omit the reference of
\nPart III of Schedule VI of the Companies Act,
\n1956 from section 115JB in view of omission of
\nPart III in the revised Schedule VI under the
\nCompanies Act, 1956.
\nThese amendments will take effect from 1st
\nApril, 2013 and will, accordingly, apply in
\nrelation to the assessment year 201314
\nand
\nsubsequent assessment years.\u201d
\n16. It can be seen that subsection
\n(2) of Section 115JB of the
\nAct has now been bifurcated in two parts covered in the clauses
\n(a) and (b). Clause (a) would cover all companies other than
\nthose referred to in clause (b). Such companies would prepare
\nthe statement of profit and loss in accordance to the provisions
\nof schedule III of the Companies Act, 2013 (which has now
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 20 901 itxa 119613
\nand orso
\nreplaced the old Companies Act, 1956). Clause (b) refers to a
\ncompany to which second proviso to subsection
\n(1) of Section
\n129 of the Companies Act, 2013 is applicable. Such companies,
\nfor the purpose of Section 115JB, would prepare the statement
\nof profit and loss in accordance with the provisions of the Act
\ngoverning the company. Section 129 of the Companies Act, 2013
\npertains to financial statement. Under subsection
\n(1) of Section
\n129 it is provided that the financial statement shall give a true
\nand fair view of the state of affairs of the company, comply with
\nthe accounting standard notified under Section 113 and shall be
\nin the form as may be provided for different classes of
\ncompanies. Second proviso to subsection
\n(1) of Section 129 reads
\nas under:\u201c
\nProvided further that nothing contained in this
\nsubsection
\nshall apply to any insurance or banking
\ncompany or any company engaged in the
\ngeneration or supply of electricity, or to any other
\nclass of company for which a form of financial
\nstatement has been specified in or under the Act
\ngoverning such class of company:
\n17. This proviso thus refers any insurance or banking companies
\nor companies engaged in the generation or supply of electricity
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 21 901 itxa 119613
\nand orso
\nor to any other class of company in which form of financial
\nstatement has been specified in or under the Act governing such
\nclass of company. Combined reading of this proviso to subsection
\n(1) of Section 129 of the Act, 2013 and clause (b) of subsection
\n(2) of Section 115JB of the Act would show that in case of
\ninsurance or banking companies or companies engaged in
\ngeneration or supply of electricity or class of companies for
\nwhom financial statement has been specified under the Act
\ngoverning such company, the requirement of preparing the
\nstatement of accounts in terms of provisions of the Companies
\nAct, is not made. Clause (b) of subsection
\n(2) provides that in
\ncase of such companies for the purpose of Section 115JB the
\npreparation of statement of profit and loss account would be in
\naccordance with the provisions of the Act governing such
\ncompanies. This legislative change thus aliens class of companies
\nwho under the governing Acts were required to prepare profit
\nand loss accounts not in accordance with the Companies Act, but
\nin accordance with the provisions contained in such governing Act.
\nThe earlier dichotomy of such companies also, if we accept the
\nrevenue’s contention, having the obligation of preparing accounts
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 22 901 itxa 119613
\nand orso
\nas per the provisions of the Companies Act has been removed.
\n18. These amendments in section 115JB are neither declaratory
\nnor classificatory but make substantive and significant legislative
\nchanges which are admittedly applied prospectively. The
\nmemorandum explaining the provision of the Finance Bill, 2012
\nwhile explaining the amendments under Section 115JB of the Act
\nnotes that in case of certain companies such as insurance, banking
\nand electricity companies, they are allowed to prepare the profit
\nand loss account in accordance with the sections specified in
\ntheir regulatory Acts. To align the Income Tax Act with the
\nCompanies Act, 1956 it was decided to amend Section 115JB to
\nprovide that the companies which are not required under Section
\n211 of the Companies Act, to prepare profit and loss account in
\naccordance with Schedule VI of the Companies Act, profit and
\nloss account prepared in accordance with the provisions of their
\nregulatory Act shall be taken as basis for computing book profit
\nunder Section 115 JB of the Act.
\n19. Before closing, we may also take note of explanation (3)
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 23 901 itxa 119613
\nand orso
\nbelow subsection
\n(2) of section 115 JB of the Act which reads as
\nunder :\u201c
\nExplanation 3For
\nthe removal of doubts, it is
\nhereby clarified that for the purposes of this
\nsection, the assessee, being a company to which
\nthe proviso to subsection
\n(2) of section 211 of the
\nCompanies Act, 1956(1 of 1956) is applicable,
\nhas, for an assessment year commencing on or
\nbefore the 1st day of April, 2012, an option to
\nprepare its profit and loss account for the relevant
\nprevious year either in accordance with the
\nprovisions of Part II and Part III of Schedule VI to
\nthe Companies Act, 1956 or in accordance with the
\nprovisions of the Act governing such company.\u201d
\n20. This explanation starts with the expression
\n\u201cFor the removal of doubts\u201d. It declares that for the
\npurpose of the said section in case of an assesseecompany
\nto
\nwhich second proviso to section 129 (1) of the Companies Act,
\n2013 is applicable, would have an option for the assessment year
\ncommencing on or before 1st April, 2012 to prepare its
\nstatement of profit and loss either in accordance with the
\nprovisions of schedule III to the Companies Act, 2013 or in
\naccordance with the provisions of the Act governing such
\ncompany. To our mind, this is some what curious provision. In
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 24 901 itxa 119613
\nand orso
\nthe original form, subsection
\n(2) of section 115JB of the Act did
\nnot offer any such option to a banking company, insurance
\ncompany or electricity company to prepare its profit and loss
\naccount at its choice either in terms of its governing Act or as per
\nterms of Section 115JB of the Act. Secondly, by virtue of this
\nexplanation if an anomaly which we have noticed is sought to be
\nremoved, we do not think that the legislature has achieved such
\npurpose. In plain terms, this is not a case of retrospective
\nlegislative amendment. It is stated to be clarificatory amendment
\nfor removal of doubts. When the plain language of subsection
\n(2)
\nof Section 115JB did not permit any ambiguity, we do not think
\nthe legislature by introducing a clarificatory or declaratory
\namendment cure a defect without resorting to retrospective
\namendment, which in the present case has admittedly not been
\ndone.
\n21. In the result, we hold that subsection
\n115JB as it stood
\nprior to its amendment by virtue of Finance Act, 2012, would
\nnot be applicable to a banking company. We answer the question
\nNo.2 in favour of the assessee and against the revenue. In view of
\n::: Uploaded on – 30\/04\/2019 ::: Downloaded on – 30\/04\/2019 14:23:42 :::
\nPriya Soparkar 25 901 itxa 119613
\nand orso
\nthis, question of correctness of the order of rectification passed by
\nthe Assessing Officer becomes unimportant. Question No.1 is
\ntherefore not answered. All the appeals are dismissed.
\n(SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)<\/p>\n","protected":false},"excerpt":{"rendered":"
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, they are allowed to prepare the profit and loss account in accordance with the sections specified in their regulatory Acts. To align the Income Tax Act with the Companies Act, 1956 it was decided to amend Section 115JB to provide that the companies which are not required under Section 211 of the Companies Act, to prepare profit and loss account in accordance with Schedule VI of the Companies Act, profit and loss account prepared in accordance with the provisions of their regulatory Act shall be taken as basis for computing book profit under Section 115 JB of the Act.<\/p>\n