Referred Sections:
Section 143(3) of the Income Tax Act,
Section 115JB of the Act.
Section 154
Section 210 of the Companies Act, 1956(1 of 1956)
Section 129) of the
Section 113

Referred Cases / Judgments
Bangalore Vs. B.C. Shrinivasa Setty1 had observed that in the Income Tax Act,

account of similarity of issues though they are at the admission
stage. For convenience, we may record facts from Income Tax
Appeal No.1196 of 2013. This appeal was admitted for
consideration of following questions of law:“(
i) Whether on the facts and in the
circumstances of the case and in law, the ITAT
is correct is reversing the order of Assessing
Officer confirmed by the CIT(A), exercising
the jurisdiction u/s.154 of the Income Tax Act,
1961, determining the Book Profits as per the
amendment to Section 115JB?
(ii) Whether on the facts and in the
circumstances of the case and in law the ITAT is
correct in holding that the provision of Section
115JB are not applicable to the assesseeBank?”
2. For all the appeals we would adopt the above quoted
questions as substantial questions of law.
3. RespondentUnion
Bank of India had filed return of income
for the assessment year 200506.
The Assessing Officer passed
order of assessment under Section 143(3) of the Income Tax Act,
1961 (“the Act” for short) on 23rd March, 2007 computing the
assessee’s taxable income at Rs.412.41 crores (rounded off)
under the normal provisions and Rs.431.15 crores as book profit
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and orso
under Section 115JB of the Act. The Assessing Officer thereafter
passed an order dated 25th March, 2010 of rectification to give
effect to a retrospective amendment in Section 115JB of the Act.
He computed the assessee’s revised book profit at Rs.374.21
crores.
4. The assessee carried the matter in appeal. In such appeal,
the assessee opposed the assessment order on merits, including
the order passed by the Assessing Officer exercising rectification
powers. CIT (Appeals) granted partial relief by his order dated
27th March, 2012.
5. Against such order of the Commissioner (Appeals), the
assessee preferred further appeal before Income Tax Appellate
Tribunal (“Tribunal” for short). In such appeal, the assessee
contended that the Assessing Officer could not have exercised
rectification powers. The assessee raised an additional ground
that being a banking company, the provisions of Section 115JB
of the Act would not be applicable. The Tribunal allowed such
appeal by the impugned judgment dated 22nd March, 2012. The
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and orso
Tribunal was of the opinion that the Assessing Officer wrongly
exercised powers of rectification. The Tribunal further noted that
the coordinate
bench in the assessee’s own case for the
assessment year 200607
had held that the provisions of Section
115JB of the Act, were not applicable to the assesseebank.
The
Tribunal held as under :“
7. We have considered the issue. There is no
doubt that the assessment orders under section
143(3) were passed in these years under which
total income was determined under normal
provisions and book provisions of section 115JB
were not invoked. The issues which are considered
in normal assessment are still pending before the
ITAT for adjudication,whereas the Assessing Officer
under the guise of section 154 disallowed certain
amounts revising the book profits. However, even
after making these adjustments, the tax under
normal provisions was determined at Rs.328.07
cores, whereas the tax under section 115JB was
determined at Rs.72.02 crores for assessment years
200405
and tax under normal provisions was
determined at Rs.150.91 crores under normal
provisions and tax under section 115JB at
Rs.28.06 crores under section 115JB. Ultimately the
taxes were determined under normal provisions
without exercising the provisions of section 115JB.
In that view, the entire exercises of modifying the
orders is redundant as even after such adjustment,
the tax determined under the normal provisions is
more than the tax that are being determined by
this order under section 154.
8. Be that as it may, just because a retrospective
amendment has been carried out on the statue, the
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and orso
assessment cannot be modified without examining
whether the provisions so made are to be
disallowed or not. This requires detailed
examination and in fact as for the submissions
made before the authorities, the assessee had
appeared before the Assessing Officer furnishing
various details and how the amounts cannot be
disallowed. Since this requires claborate
examination on a long run process, we are of the
opinion that the orders cannot be modified by
invoking the provisions of section 154. Not only
that the Coordinate Bench in assessee’s own case
in assessment year 200607
has held that the
provisions of section 115JB are not applicable to
the assessee Bank. In view of this, we hold that the
order under section 154 passed by the Assessing
Officer is not correct and therefore, the same was
set aside. Accordingly assessee’s grounds in the
above 2 years are allowed.”
6. Against this judgment, the revenue has filed this appeal.
Appearing for the revenue learned counsel submitted that the view
expressed by the Tribunal is not sustainable in law. The provisions
of Section 115JB are sufficiently clear and apply to all
companies. Admittedly, respondentbank
is a company. Provisions
of Section 115JB would be applicable to such companies also. He
submitted that the amendments made in Section 115JB of the Act
under Finance Act, 2012 would have no effect on this legal
position. These amendments have been made only to alien
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and orso
the position of the special companies such as the banking
companies, electricity companies etc. with the provisions of the
Income Tax Act. These amendments in no way suggest that
prior to such legislative changes, the provisions of Section 115JB
of the Act were not applicable to the banking companies and
such other special companies.
7. On the other hand, learned counsel Shri Pardiwalla led
arguments on behalf of the assessee. He submitted that the
mechanism provided for computing book profit in terms of subsection
(2) of Section 115JB of the Act would be wholly
unworkable for a banking company. He submitted that this
anomaly was removed by the legislature only by amending
Section 115JB by Finance Act, 2012. Till then the banking
companies were not within the fold of Section 115JB of the Act.
He submitted that when the machinery provision fails, the
charging section shall have no applicability. Counsel relied on
certain decisions, reference to which will be made at appropriate
stage.

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and orso
8. In order to resolve the controversy, we may take note of
the statutory provisions and the legislative history. As is well
known, Section 115JB of the Act, pertains to special provisions
for payment of tax by certain companies and provides a formula
for payment of minimum tax in case of companies, whose tax
payable on the total income works out to be below a certain
minimum threshhold percentage of its book profit. This
provision is a successor to Section 115JA of the Act, which was
also introduced for the same purpose. In fact, the first legislative
introduction of the provisions pertaining to what is popularly
referred to as MAT companies (Minimum Alternative Tax) was
Section 115J. The Circular No.762 dated 18th February, 1998
issued by the Central Board of Direct Tax (“CBDT” for short)
explains the object for introduction of such MAT provisions. The
circular clarifies that new Section 115JA has been inserted by
the Finance Act, so as to levy a minimum tax on companies, who
are having book profits and paying dividends, but not paying any
taxes. Relevant portion of Section 115JB as is stood at the
relevant time reads as under:“
Special provision for payment of tax by certain
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and orso
companies
115JB.(1)Notwithstanding anything contained in
any other provision of this Act, where in the case
of an assessee, being a company, the incometax,
payable on the total income as computed under
this Act in respect of any previous year relevant to
the assessment year commencing on or after the
1st day of April, (2007) is less than (ten percent) of
its book profit, (such) book profit shall be deemed
to be the total income of the assessee and the tax
payable by the assessee on such total income shall
be the amount of incometax
at the rate of (ten
percent).
(2) Every assessee, being a company, shall, for
the purposes of this section, prepare its profit and
loss account for the relevant previous year in
accordance with the provisions of Parts II and III
of Schedule VI to the Companies Act, 1956 (1 of
1956)
Provided that while preparing the annual accounts
including profit and loss account,(
i) the accounting polices,
(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 account policies;
(ii) the accounting standards adopted for preparing
such accounts including profit and loss account;
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and orso
(iii) the method and rates adopted for calculating
the depreciation,
shall correspond to the accounting policies,
accounting standards and the method and rates
for calculating the depreciation which have been
adopted for preparing such accounts including
profit and loss account for financial year or part
of such financial year falling within the relevant
previous year.”
9. In terms of subsection
(1) of Section 115JB of the Act thus
notwithstanding anything contained in any of the provisions of
the Act in case of an assessee being a company where the
income tax payable on the total income as computed under the
Act, is less than prescribed percentage of its book profit, such
book profit shall be deemed to be the total income of the
assessee. In so far as the language used under subsection
(1) of
Section 115JB is concerned, the same pauses no challenge. Subsection
(1) of Section 115JB takes within its swip all companies
with no further bifurcation or distinction between companies.
However, the question that calls for our consideration is
whether the machinery provision provided under subsection
(2)
of Section 115 JB of the Act is workable when it comes to the
banking companies and such other special companies governed
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and orso
by the respective Acts. In the context, the question would also be
of the legislative intent to cover such companies within the swip
of Section 115JB of the Act. These questions arise because of the
language used in subsection
(2) of Section 115JB. These
provisions we may peruse more minutely. As per subsection
(2)
of Section 115JB, every assessee being a company would for the
purposes of the said section prepare its profit and loss account for
the relevant previous year in accordance with the provisions of
Parts II and III of Schedule VI of the Companies Act, 1956. It is
undisputed that the respondenta
banking company is not
required to prepare its accounts in accordance with the provisions
of Parts II and III of Schedule VI of the Companies Act, 1956. The
accounts of the banking company are prepared as per the
provisions contained in Banking Regulation Act, 1949. The counsel
for the revenue may still argue that irrespective of such
requirements, for the purposes of the said Act and special
requirements of Section 115JB of the Act, a banking company is
obliged to prepare its profit and loss account as per the provisions
of the Companies Act, as mandated by subsection
(2) of Section
115JB of the Act. His contention would be that such legislative
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and orso
mandate is not impermissible.
10. At the first blush, this argument seems attractive.
However, when we read subsection
(2) further, certain
complications arise in this line of argument. The first proviso to
subsection
(2) of Section 115JB provides that while preparing
annual accounts including profit and loss account the accounting
policies and accounting standards adopted for preparing the
account and the method and rules adopted in calculating the
depreciation shall be the same as have been adopted for the
purpose of preparing such accounts and laid before the company
at its Annual General Meeting in accordance with provisions of
Section 210 of the Companies Act, 1956. There is no dispute that
the respondentbank
in terms of Section 210 of the Companies
Act, 1956 is also required to lay its accounts before the Annual
General Meeting. However, such accounts would necessarily be
prepared in accordance with the provisions of Banking
Regulation Act, 1949 and never be those which even had it been
possible to be prepared, in accordance with Parts II and III of
Schedule VI of the Companies Act, 1956. The applicability of this
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and orso
proviso therefore, in case of a banking company would
immediately create complications. On one hand, in terms of
Section 210 of the Companies Act, 1956, the bank would be under
an obligation to lay before Annual General Meeting its annual
accounts including the profit and loss account. These accounts
would be prepared in terms provisions contained in Banking
Regulation Act, 1949. Subsection
(2) requires preparation of
the accounts in terms of the Companies Act. Proviso to subsection
(2) would require maintaining the same parameters in relation to
the accounting policies, accounting standards and method and
rate of depreciation as adopted for the purpose of preparing the
accounts, which would ultimately be laid before the Annual
General Meeting. A Banking company in terms of subsection
(2)
of Section 115JB can prepare additional accounts as per
provisions of Parts II and III of Schedule VI of the Companies Act
or fulfill the requirements of the proviso to subsection
(2) but
cannot fulfill both the conditions.
11. This legal dichotomy emerging from the provisions of
subsection
(2) of Section 115JB particularly having regard to
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and orso
the first proviso contained therein in case of a banking company,
would convince us that machinery provision provided in subsection
(2) of section 115JB of the Act, would be rendered wholly
unworkable in such a situation. In a well known judgment the
Supreme court in case of Commissioner of IncomeTax,
Bangalore Vs. B.C. Shrinivasa Setty1 had observed that in the
Income Tax Act, a charing section and the computing provisions
together constitute an integrated code. In a case where the
computation provision can not apply, it would be evident that
such a case was not intended to fall within the charging section.
It was a case of charging a partnership firm for transfer of a
capital asset in the nature of goodwill. The Supreme Court was of
the opinion that it would not be possible to envisage a cost of
acquisition of goodwill. Since computation of capital gain cannot
be done without ascertaining the cost of acquisition, it was held
that no capital gain tax can be levied.
12. For the completeness of the discussion, we may note that
section 211 of the Companies Act, 1956 pertains to form of
1 Vol.128 ITR 294
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and orso
contents of balancesheet
and profit and loss account, subsection
(1) of Section 211 provided that every balance sheet of a company
shall give true and fair view on the state of affairs of the company
at the end of the financial year and would be subject to the
provisions of the said section and be in the form set out in the
Forms 1 and 2 of schedule VI. This subsection
contained a
proviso providing that nothing contained in said subsection
would apply to a banking company or any company engaged in
generation or supply of electricity or to any other class of
company for which a form of balance sheet shall be specified in
or under the Act governing such company. Thus, Companies Act,
1956 excluded the insurance or banking companies, companies
engaged in generation or supply of electricity or companies for
which balancesheet
was specified in the governing Act, from
the purview of subsection
(1) of Section 211 of the Companies
Act, 1956 and as a consequence from the purview of Section
115JB of the Act.
13. What we have held above is duly supported by the division
bench judgment of Kerala High Court. It was a case in which the
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and orso
assessee before the court was Kerala State Electricity Board, a
statutory corporation constituted under Section 5 of the Electricity
(Supply) Act, 1948. The revenue sought to cover the said
Electricity Board under the provisions of Section 115JB which
the assessee opposed. The issue reached the Kerala High Court.
The Court referred to and relied upon the decision of the
Supreme Court in case of B.C. Shrinivasa Setty (supra). It was
noticed that the Board was required to keep and maintain its
account in the manner specified by the Central Government and
not in the manner specified in the Companies Act. In that view of
the matter it was held that section 115JB would not apply to the
Electricity Board. Learned counsel for the assessee has also
brought to our notice decisions of Delhi High Court holding that
such MAT provisions would not apply to the insurance companies
and to the banking companies.
14. There are certain significant legislative changes made by
Finance Act, 2012, which must be noted before concluding this
issue. In the present form, post amendment by Finance Act,
2012, relevant portion of Section 115JB of the Act reads as
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and orso
under:“
Special provision for payment of tax by
certain companies.
115JB. (1) Notwithstanding anything contained
in any other provision of this payable on the total
income as computed under this Act in respect of
any previous year relevant to the assessment
year commencing on or after the 1st day of April,
(2012), is less than (eighteen and onehalf
percent) of its book profit, (such book profit shall
be deemed to be the total income of the assessee
and the tax payable by the assessee on such total
income shall be the amount of incometax
at the
rate of (eighteen and onehalf
percent).
(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 (statement of profit
and loss) for the relevant previous year in
accordance with the provisions of (Schedule III)
to the (Companies Act, 2013 (18 of 2013); or
(b) being a company, to which the (second
proviso to subsection
(1) of section 129) of the
(Companies Act, 2013 (18 of 2013) is
applicable, shall, for the purposes of this section,
prepare its (statement of profit and loss) for the
relevant previous year in accordance with the
provisions of the Act governing such company:)
Provided that while preparing the annual
accounts including (statement of profit and loss),(
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 be the same as have been adopted for the
purpose of preparing such accounts including
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(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)):”
15. The memorandum explaining the provisions made in the
Finance Bill, 2012, in relation to minimum alternative tax stated
as under :“
Minimum Alternate Tax (MAT)
I. Under the existing provisions of section
115JB of the Act, a company is liable to pay
MAT of eighteen and on half percent of its book
profit in case tax on its total income computed
under the provisions of the Act is less than the
MAT liability. Book profit for this purpose is
computed by making certain adjustments to the
profit disclosed in the profit and loss account
prepared by the company in accordance with the
Schedule VI of the Companies Act, 1956.
As per section 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 Incometax
Act

with the Companies Act, 1956, it is proposed to
amend section 115JB to provide that the
companies which are not required under section
211 of the Companies Act to prepare their profit
and loss account in accordance with Schedule VI
of the Companies Act, 1956, profit and loss
account prepared in accordance with the
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and orso
provisions of their regulatory Acts shall be taken
as a basis for computing the book profit under
section 115JB.
II. It is noted that in certain cases, the amount
standing in the revaluation reserve is taken
directly to general reserve on disposal of a
revalued asset. Thus, the gains attributable to
revaluation of the asset is not subject to MAT
liability.
It is, therefore, proposed to amend section
115JB to provide that the book profit for the
purpose of section 115JB shall be increased by
the amount standing in the revaluation reserve
relating to the revalued asset which has been
retired or disposed, if the same is not credited to
the profit and loss account.
III. It is also proposed to omit the reference of
Part III of Schedule VI of the 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 201314
and
subsequent assessment years.”
16. It can be seen that subsection
(2) of Section 115JB of the
Act has now been bifurcated in two parts covered in the clauses
(a) and (b). Clause (a) would cover all companies other than
those referred to in clause (b). Such companies would prepare
the statement of profit and loss in accordance to the provisions
of schedule III of the Companies Act, 2013 (which has now
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replaced the old Companies Act, 1956). Clause (b) refers to a
company to which second proviso to subsection
(1) of Section
129 of the Companies Act, 2013 is applicable. Such companies,
for the purpose of Section 115JB, would prepare the statement
of profit and loss in accordance with the provisions of the Act
governing the company. Section 129 of the Companies Act, 2013
pertains to financial statement. Under subsection
(1) of Section
129 it is provided that the financial statement shall give a true
and fair view of the state of affairs of the company, comply with
the accounting standard notified under Section 113 and shall be
in the form as may be provided for different classes of
companies. Second proviso to subsection
(1) of Section 129 reads
as under:“
Provided further that nothing contained in this
subsection
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 financial
statement has been specified in or under the Act
governing such class of company:
17. This proviso thus refers any insurance or banking companies
or companies engaged in the generation or supply of electricity
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and orso
or to any other class of company in which form of financial
statement has been specified in or under the Act governing such
class of company. Combined reading of this proviso to subsection
(1) of Section 129 of the Act, 2013 and clause (b) of subsection
(2) of Section 115JB of the Act would show that in case of
insurance or banking companies or companies engaged in
generation or supply of electricity or class of companies for
whom financial statement has been specified under the Act
governing such company, the requirement of preparing the
statement of accounts in terms of provisions of the Companies
Act, is not made. Clause (b) of subsection
(2) provides that in
case of such companies for the purpose of Section 115JB the
preparation of statement of profit and loss account would be in
accordance with the provisions of the Act governing such
companies. This legislative change thus aliens class of companies
who under the governing Acts were required to prepare profit
and loss accounts not in accordance with the Companies Act, but
in accordance with the provisions contained in such governing Act.
The earlier dichotomy of such companies also, if we accept the
revenue’s contention, having the obligation of preparing accounts
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and orso
as per the provisions of the Companies Act has been removed.
18. These amendments in section 115JB are neither declaratory
nor classificatory but make substantive and significant legislative
changes which are admittedly applied prospectively. The
memorandum explaining the provision of the Finance Bill, 2012
while explaining the amendments under Section 115JB of the Act
notes that in case of certain companies such as insurance, banking
and electricity companies, 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.
19. Before closing, we may also take note of explanation (3)
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and orso
below subsection
(2) of section 115 JB of the Act which reads as
under :“
Explanation 3For
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) is applicable,
has, for an assessment year commencing on or
before the 1st day of April, 2012, an option to
prepare its profit and loss account for the relevant
previous year either in accordance with the
provisions of Part II and Part III of Schedule VI to
the Companies Act, 1956 or in accordance with the
provisions of the Act governing such company.”
20. This explanation starts with the expression
“For the removal of doubts”. It declares that for the
purpose of the said section in case of an assesseecompany
to
which second proviso to section 129 (1) of the Companies Act,
2013 is applicable, would have an option for the assessment year
commencing on or before 1st April, 2012 to prepare its
statement of profit and loss either in accordance with the
provisions of schedule III to the Companies Act, 2013 or in
accordance with the provisions of the Act governing such
company. To our mind, this is some what curious provision. In
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and orso
the original form, subsection
(2) of section 115JB of the Act did
not offer any such option to a banking company, insurance
company or electricity company to prepare its profit and loss
account at its choice either in terms of its governing Act or as per
terms of Section 115JB of the Act. Secondly, by virtue of this
explanation if an anomaly which we have noticed is sought to be
removed, we do not think that the legislature has achieved such
purpose. In plain terms, this is not a case of retrospective
legislative amendment. It is stated to be clarificatory amendment
for removal of doubts. When the plain language of subsection
(2)
of Section 115JB did not permit any ambiguity, we do not think
the legislature by introducing a clarificatory or declaratory
amendment cure a defect without resorting to retrospective
amendment, which in the present case has admittedly not been
done.
21. In the result, we hold that subsection
115JB as it stood
prior to its amendment by virtue of Finance Act, 2012, would
not be applicable to a banking company. We answer the question
No.2 in favour of the assessee and against the revenue. In view of
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and orso
this, question of correctness of the order of rectification passed by
the Assessing Officer becomes unimportant. Question No.1 is
therefore not answered. All the appeals are dismissed.