In a major relief to the Union Bank of India, the Mumbai bench of Income Tax Appellate Tribunal (ITAT) has held that the income tax on book profits is not applicable on ‘corresponding new bank’.
The bench of Amit Shukla (Judicial Member) and B.R. Baskaran (Accountant Member) has observed that clause (b) to sub section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 w.e.f. 1/4/2013, that is, from assessment year 2013-14 onwards, are not applicable to the banks constituted as ‘corresponding new bank’ in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and therefore, the provision of Section 115JB cannot be applied and the tax on book profits (MAT) are not applicable to corresponding new bank.
Background
The appellant/assessee bank came into existence on 19/07/1969 as “corresponding new bank” as per Section 3(1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. As per Act, only the undertaking of the existing bank was transferred from Union Bank of India Ltd. to Union Bank of India, which was a creation by a separate Acquisition Act.
The shareholders of Union Bank of India Ltd. were paid compensation in consideration for acquiring the undertaking. It has been further affirmed and stated before us that the Union Bank of India Ltd. continues to exist as a company as per the website of Registrar of Companies.
Assessee is neither a company incorporated under the Companies Act, 1956 nor under any other previous company law. Ergo, these are two different entities and distinct from each other, one incorporated under old Company Law and other created by an Act of Parliament, that is, Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Another fact which has been brought on record that the Corporate Identification Number (CIN) is of Union Bank of India Ltd. and not assessee.
The appellant/assessee, Union Bank Of India has computed tax payable on book profit under section 115JB and tax payable under the normal provisions. The AO asked the assessee to furnish the computation of book profit and also required the assessee as to why “provisions and contingency”, debited to the profit and loss account, should not be added back for the computation of book profit under section 115JB.
In response assessee submitted that even though in computation assessee has worked out MAT on book profit but the provision of Section 115JB itself is not applicable to the assessee bank.
However, the AO rejected the assessee’s plea of non-applicability of 115JB on the ground that the amended provision of Section 115JB brought by the Finance Act, 2012 w.e.f. 01/04/2013 by insertion of section 115JB(2)(b), brings within its ambit even the banking companies.
Thus, the AO concluded that now the amended provision provides that not only the companies governed by the Companies Act, but also other companies governed by other regulating acts including Banking Regulation Act, 1949 are also covered by the provision of Section 115JB.
The AO referred to Explanation 3 of Section 115JB and held that, sub-clause (b) of Sub-Section 115JB read with Explanation 3 makes it clear that all companies, to whom sub-section (2) of Section 211 of the Companies Act 1956 is applicable, then for the purpose of Section 115JB, has to prepare its profit & loss account either in accordance with the Companies act or the act governing the company.
The assessee filed the appeal before the CIT(A), who has also endorsed the same view and dismissed the appeal.
Arguments – Income Tax On Book Profits Not Applicable Or Not Applicable On ‘Corresponding New Bank’
The assessee relied on the decision of Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India to contend that only undertaking was acquired by the Banking Companies acquisition and transfer of undertaking ordinance which was promulgated on 19/06/1969, which culminated into Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970. Thus, it has been contended that, at the threshold the assessee bank is not a company and therefore, the provision of Section 115JB cannot be made applicable to the assessee.
The assessee argued that the Banking Regulation Act, 1949 defines the expression ‘banking company’ and ‘corresponding new bank’ separately and clearly draws a distinction between the two. Also, not all the provisions of the BR Act are applicable to the corresponding new banks. Apart from, specific reference was invited to section 51 of the BR Act making certain provisions of the BR Act being applicable to inter-alia a corresponding new bank. Therefore, only such provisions in the BR Act which specifically make reference to a corresponding new bank or the provisions in respect of which reference is made in section 51 will apply to a corresponding new bank. The other provisions in the BR Act have no application to a corresponding new bank like the assessee bank. This reference was made by him to highlight that in the legal framework applicable to a bank, a banking company and corresponding new bank are different and are subject to different regulatory provisions.
The department contended that Section 2(17) defines a company as any Indian company and Section 11 of Acquisition Act clearly states that for the purpose of Income Tax Act, 1961 every corresponding new bank shall be deemed to be Indian company and a company in which the public are substantially interested. The Indian company has been defined under Section 2(26) which means a company formed and registered under the Companies Act, 1956. Thus, the provision of Section 115JB(2) is clearly applicable because as per the Income Tax Act, it is deemed to be an Indian company under the Companies Act and consequently Section 115JB(2) applies to the company which are under the Companies Act.
The department argued that Section 3(2B) to (2D) of the Acquisition Act dealing with paid up share capital and transferability of shares, section 3(2E) dealing with voting rights of a shareholder of such corresponding new bank, section 3(2F) dealing with maintenance of a shareholders register by such bank to urge that a corresponding new bank has share capital and, hence, the characteristics of a company are satisfied in its case In this regard, he has also invited our attention to section 10 of the said Act which deals with maintenance and closure of accounts as well as section 10A which deals with holding of annual general meeting. The corresponding new bank has the features of a company.
Conclusion
The tribunal held that even the Government of India considers the above entities separate and distinct from banking companies. Once under the Income Tax Act, Legislature itself has made a distinction for the aforesaid banks including the assessee are not covered as banking company, then, this further buttresses the point that these banks are separate and distinct from other banking companies.
Case Title: Union Bank of India Versus DCIT
Case No.: ITA No.424/Mum/2020
Date: 06/09/2024
Counsel For Assessee: Shri Percy Pardiwala, Shri C. Naresh, Shri Nitesh Joshi, Shri R Chaniyari & Shri S. Ananthan
Counsel For Revenue: Shri N.V. Mohanty, Special Councel & Shri Ankush Kapoor, CIT DR
