The Income Tax Appellate Tribunal (ITAT), Mumbai Bench has held that Minimum Alternate Tax (MAT) provisions under section 115JB are applicable only to domestic companies and not to foreign companies.
The assessee, Credit Suisse AG (CSAG) is a company incorporated in Switzerland and is a tax resident of Switzerland. The Singapore branch office of the assessee (CSSB) is registered with the Securities and Exchange Board of India (SEBI) as a Foreign Institutional Investor (FII) and conducts portfolio investments in Indian securities in its capacity as a SEBI registered FII. The assessee has a bank branch office in Mumbai (CSMB) constitutes a fixed place Permanent Establishment (PE) of CSAG in India as provided in Article 5 of the DTAA and it has offered its income under Article 7 of the treaty.
During the course of assessment proceedings, the Assessing Officer made an addition of five items while calculating book profits as per the provisions of Section 115JB of the Act as the assessee is a foreign company. On appeal, the CIT(A) deleted the addition. Aggrieved revenue filed an appeal before the ITAT. The counsel appearing on behalf of the appellant revenue submitted that Section 115JB of the Act applies to foreign companies including (FPIs and FIIs) having a permanent establishment in India, given that Article 7 of the applicable treaty requires for income attributable to PE should be taxed as per domestic law which includes Section 115JB of the Act.
The counsel for the appellant submitted that the provisions of Section 115JB (2) of the Act postulate laying of annual accounts in Annual General Meeting before the shareholders of the company. A foreign company will never lay its accounts before the Annual General Meeting in accordance with the Companies Act, 1956. It is significant to note that the profit and loss account is to be prepared in terms of Part-II and Part-III of Schedule-VI of the Companies Act, 1956 for the determination of book profits under section 115JB of the Act. In respect of a foreign company, the profit and loss account need not be prepared in terms of Part-II and Part-III of Schedule VI of the Companies Act. Hence, provisions of Section 115JB of the Act are made applicable only to domestic companies and not to foreign companies.
The Coram of Mr. M. Balaganesh, Accountant Member, and Mr. Kuldip Singh, Judicial Member while dismissing the appeal of the revenue has held that “when the accounts of CSMB do not incorporate the aforesaid five items of income earned by CSSB, the department cannot impose MAT provisions by using the fiction which is contrary to the Banking Regulation Act, 1949. The provisions of the Income Tax Act cannot require CSMB to re-write the accounts in a manner different than what is stipulated in the Banking Regulation Act, 1949. Hence, even on merits, the question of applying the MAT to CSSB’s income does not arise”.
Mr. Percy Pardiwala and Mr. Milind Chavan appeared on behalf of the assessee and revenue respectively.
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