The Mumbai Special Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that Section 115JB of the Income Tax Act, 1961 did not apply to Union Bank of India due to Non-Company Status under the Companies Act despite the deeming provision in the Acquisition Act for Income Tax Purposes.
Union Bank of India ( assessee ) calculated tax for the assessment year 2015-16 based on both book profits under Section 115JB at Rs.604,86,39,540 and normal provisions at Rs.1153,29,54,493 of the Income Tax Act. The AO requested the assessee to provide a detailed computation of book profits under Section 115JB of the Income Tax Act and questioned why the “provisions and contingency” amounts that had been debited to the profit and loss account should not be added back when calculating the book profit for Minimum Alternate Tax ( MAT ) under Section 115JB.
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In response, the assessee argued that Section 115JB does not apply to them, as they are governed by the Banking Companies ( Acquisition and Transfer of Undertakings ) Act, rather than the Companies Act. Although the assessee had calculated the Minimum Alternate Tax ( MAT ) on book profit for computation, they maintained that the provisions of Section 115JB should not apply to their case.
The AO was not satisfied with the response. Eventually, the AO rejected the assessee’s plea of non-applicability of 1155JB stating that the amendment to section 115JB now includes banking companies as part of its ambit and that the bank’s financial accounts must comply with section 115JB.
Aggrieved by the decision, the assessee appealed before the CIT(A) against the AO’s order. However, the Commissioner of Income Tax (Appeals) relied on various rulings and held that Union Bank of India falls within the purview of section 115JB due to its classification as a “company” for tax purposes under the Income Tax Act. Consequently, the assessee’s appeal was dismissed.
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The assessee appealed against the CIT(A)’s order before the Mumbai Bench of ITAT where the assessee’s counsel relied on the various rulings that held Section 115JB ( related to the Minimum Alternate Tax ) should not apply to them. The counsel highlighted the assessee’s own case where it was held Section 115JB did not apply to the bank, based on a previous judgment from the Bombay High Court in 2019, which dealt with the period before the 2012 amendment.
After considering various rulings that conflict with each other, the tribunal decided to refer the matter to a Special Bench for a definitive ruling on the applicability of Section 115JB to nationalized banks.
The Special Bench of New Delhi comprising Justice ( Retd ) C.V. Bhadang ( President ), B.R. Baskaran ( Accountant Member ), and Amit Shukla ( Judicial Member ) observed both sides arguments. The assessee’s counsel argued that Section 11 of the Acquisition Act deems a corresponding new bank to be an “Indian company” for Income Tax Act purposes and this deeming provision cannot be extended to treat the bank as a company for Section 115JB under the Companies Act.
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On the contrary, the revenue’s counsel, Mr. Mohanty argued that under Section 11 of the Acquisition Act, every corresponding new bank is deemed to be an Indian company and a company in which the public is substantially interested in the Income-tax Act. Therefore, the assessee bank should be treated as an Indian company under the Act, and the provisions of Section 115JB(2) ( on the Minimum Alternate Tax ) apply to it.
After careful consideration, the special bench held that the deeming provision in Section 11 of the Acquisition Act applies only to the Income Tax Act and does not extend to the Companies Act. Therefore, the Union Bank of India cannot be treated as a “company” under the Companies Act, which is a requirement for the application of Clause (b) of Section 115JB(2). The special bench highlighted that various sections of the IT Act treat nationalized banks differently such as Section 194A(3) dealing with TDS on interest makes a distinction between nationalized banks and banking companies.
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Therefore, the Special Bench concluded that Section 115JB(2)(b) does not apply to the Union Bank of India, as the bank is not a company under the Companies Act, despite the deeming provision in the Acquisition Act for Income Tax purposes.
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