Ita/18/2014 Of The Commissioner Of Income-Tax v. M/S. Ing. Vysya Bank Limited

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16 DAY OF JANUARY 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE RAVI V.HOSMANL L.T.A.No. 18/2014C/WI.T.A. Nos.229/2009, 21/2012 & 35/2014 I.T.A.No.18/ 201 BETWEEN: 1.|THE COMMISSIONER OF INCOME TAX. C.R. BUILDING, QUEENS ROAD BANGALORE. 2 |THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-11(3), RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE. ... APPELLANTS (By Sri. K.V. ARAVIND, ADV.,) AND: M/S. ING VYSYA BANK LIMITEDING VYSYA HOUSE No.22, M.G. ROAD|BANGALORE-560001. ... RESPONDENT (By Sri. A. SHANKAR, SENIOR COUNSEL FORSri. M. LAVA, ADV.) THIS I1.T.A. IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 14-08-2013 PASSED IN [TA|No.443/BANG/2012,FOR.THE|ASSESSMENTYEAR|2002-03PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDER|PASSED BY THE ITAT BANGALORE IN ITA NO.443/BANG/2012,|DATED 14-08-2013 AND CONFIRM THE ORDER OF THE APPELLATE|COMMISSIONER CONFIRMING THE ORDER PASSED BY THE|ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(3),|BANGALORE. I.T.A.No.229/2009 BE!]VWEE M/S. ATRIA POWER CORPORATION LIMITEDREP. BY ITS DIRECTOR|SRI. A.S. CHINNASWAMY RAJUNo.1, PALACE ROAD|BANGALORE-560001. ... APPELLAN[. (By Sri. A. SHANKAR, SENIOR COUNSEL FORSri. M. LAVA, ADV.) AND: THE DEPUTY COMMISSIONER OF INCOME TAXCENTRAL CIRCLE-2(1)C.R. BUILDING, QUEENS ROADBANGALORE-560001... RESPONDENT (By Sri. K.V. ARAVIND, ADV.) THIS 1.7.A. IS FILED UNDER SECTION 260-A OF I.T. ACT,196L ARISING OUT OF ORDER DATED 23-12-2008 PASSED IN ITA]No.913/BANG/2007,FOR.THE|ASSESSMENTYEAR|2005-06PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED THEREIN. ALLOW THE APPEAL AND SETI ASIDE THE|ORDER|PASSEDBY|THE|LIALBANGALOREIN|LTA!NO.913/BANG/2007, DATED 23-12-2008, IN THE INTEREST OF|JUSTICE AND EQUITY. I.T.A.No.21/2012 BETWEEN: M/S. ATRIA HYDEL POWER LIMITED|REP. BY ITS DIRECTOR|SRI. K. NAGARAJU|No.1, PALACE ROAD|BANGALORE-560001. — ADPELLANT. (By Sri. A. SHANKAR, SENIOR COUNSEL FORSri. M. LAVA, ADV.)AND:THE INCOME TAX OFFICER|WARD 11(1)|R.P. BHAVAN, OPP. RBINRUPATUNGA ROADBANGALORE-560001. .. RESPONDENT (By Sri. K.V. ARAVIND, ADV.) THIS I.7.A. IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 16-9-2011 PASSED IN [TA|No.1319/BANG/2010, FOR THE ASSESSMENT YEAR 2006-07|PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED THEREIN. SET ASIDE THE ORDER DATED 16-9-2011|PASSED BY THE TRIBUNAL IN ITA No.1319/BANG/2010, IN THE|INTEREST OF JUSTICE AND EQUITY.| 1.T.A.No.35/2014 BETWEEN: ATRIA POWER CORPORATION LIMITED REP. BY ITS MANAGING DIRECTOR|SRI. A.S. CHINNASWAMY RAJUNo.1, PALACE ROAD|BANGALORE-56000 1.(By Sri. A. SHANKAR, SENIOR COUNSEL FORSri. M. LAVA, ADV.,) | — ADPELLANT. AND: THE INCOME TAX OFFICER|WARD 11(1)|R.P. BHAVAN, OPP. RBINRUPATUNGA ROADBANGALORE-56000 1. .. RESPONDENT (By Sri. K.V. ARAVIND, ADV.,) THIS 1.7.A. IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 22-08-2013 PASSED IN [TA|No.148/BANG/2012,FOR.THE|ASSESSMENTYEAR|2009-10PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW|STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE|APPELLANT. $7O ALLOW THE APPEAL AND SET ASIDE THE!FINDINGS 7TO THE EXTEN! AGAINST THE APPELLANT IN THEORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL,|BANGALORE ‘C’ BENCH, BANGALORE IN ITA NO.148/BANG/2012|DATED 22/8/2013 RELATING TO THE ASSESSMENT YEAR 2009-10. THESE I.T.AsS. COMING ON FOR FINAL HEARING, THISDAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: COMMON JUDGMENT — ADPELLANT. AND: THE INCOME TAX OFFICER|WARD 11(1)|R.P. BHAVAN, OPP. RBINRUPATUNGA ROADBANGALORE-56000 1. .. RESPONDENT (By Sri. K.V. ARAVIND, ADV.,) THIS 1.7.A. IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 22-08-2013 PASSED IN [TA|No.148/BANG/2012,FOR.THE|ASSESSMENTYEAR|2009-10PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW|STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE|APPELLANT. $7O ALLOW THE APPEAL AND SET ASIDE THE!FINDINGS 7TO THE EXTEN! AGAINST THE APPELLANT IN THEORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL,|BANGALORE ‘C’ BENCH, BANGALORE IN ITA NO.148/BANG/2012|DATED 22/8/2013 RELATING TO THE ASSESSMENT YEAR 2009-10. THESE I.T.AsS. COMING ON FOR FINAL HEARING, THISDAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: COMMON JUDGMENT In this batcn of appeals a common substantial|question of law viz., whether the provisions of Section114JB of the Income Tax Act, 1961 (hereinafter referred.to as ‘the Act’, for short) apply to the assessees as theyare|Banking|Companies,arise for.consideration.Therefore, these appeals were neard analogously andare being decided by this common judgment. These appeals pertain to assessment year 2002-2003, 2005-2006, 2006-2007 and 2009-2010. In addition, in ITANo.18/2014, an additional substantial question of lawarises, viz., whether the tribunal committed an error oflaw in allowing the claim of the assessee on the issue ofamortization of investment “held to maturity” withoutappreciating the fact that though the same was done asper Reserve Bank of India guidelines, yet the same wasnot an allowable expenditure under Section 37(1) of theAct. For the facility of reference, facts from ITANo.18/2014 are being referred to. 2. Facts giving rise to the filing of these appeals|briefly stated are that the assessee is engaged in the.business of banking. In the computation of businessincome furnished along with the return of income forassessment year 2002-2003, the assessee claimeddeduction of a sum of Rs.11,18,42,001/- on account ofwrite off of non convertible debentures. The assessee Inthe communication dated 01.02.20015 furnished for the| Assessing Officer submitted that the total write off onaccount of non convertible debentures was a sum ofRs.17,16,17,001/-,OUTofwhichaSUM|ofRS.5,97,75,000/- Nad been written off during theprevious year and charged to profit and loss account. Itwas claimed that the aforesaid amount has becomeirrecoverable and therefore, a deduction was claimed onaccount of bad debts under Section 36(1)(vii) of the Act. —The Assessing Officer neld that since the aforesaidamounts were subject matter of another assessmentyear, the claim cannot be entertained in the subsequentassessment year. 3.Being aggrieved, the assessee preferred anappeal. The Commissioner of Income Tax (Appeals) videorder dated 02.01.2012 upheld the order of theAssessing Officer. Tne assessee thereupon approachedthe Income Tax Tribunal. The Tribunal vide impugnedorder dated 14.08.2013 allowed the appeal preferred bythe assessee and held that the provisions of Section 115JB of the Act do not apply to the assessee, as it was.a Banking company. It was also held that the assesseewas entitled to deduction of the amount in question onaccount of it being a Dad debt under Section 36(1)(vii)of the Act. In the aforesaid factual background, thisappeal has been filed. 4Learned counsel for the assessee has invitedthe attention of this court to Section 115JB of the Act,which was amended with effect from 01.04.7013. It Is/§submitted that Section 115JB(2) of the Act as it existedprior to its amendment with effect from 01.04.2013mandates the companies to prepare its profit and lossaccount for the relevant previous year in accordancewith provisions of Part-II and Part-III of Schedule-VI tothe Companies Act, 1956. However, the aforesaidprovision applies to every company and no exclusion hasbeen made in respect of companies viz., Bankingcompanies, or insurance companies. It is also urged that.tne aforesaid fact is fortified Dy amendment to Section 4Learned counsel for the assessee has invitedthe attention of this court to Section 115JB of the Act,which was amended with effect from 01.04.7013. It Is/§submitted that Section 115JB(2) of the Act as it existedprior to its amendment with effect from 01.04.2013mandates the companies to prepare its profit and lossaccount for the relevant previous year in accordancewith provisions of Part-II and Part-III of Schedule-VI tothe Companies Act, 1956. However, the aforesaidprovision applies to every company and no exclusion hasbeen made in respect of companies viz., Bankingcompanies, or insurance companies. It is also urged that.tne aforesaid fact is fortified Dy amendment to Section 115JB|oftheAct.witheffectfrom.01.04.7013. |Therefore, the provisions of Section 115JB of the Act asit existed prior to its amendment with effect from01.04.2013 apply to the assessee. It is also submittedthat the assessee is not entitled to deduction of the!amount as claimed by him and the tribunal grossly erredin holding so. While inviting the attention of this court toSection 115JB(2) of the Act, it is pointed out that theaforesaid provision contains a legal fiction insofar as itpertains to the requirement contained in Section 210 ofthe Act. In support of aforesaid submissions, reliancehas been placed on decisions of the Supreme Court in‘APOLLO TYRES LTD. VS. COMMISSIONER OFINCOME TAX’, (2002) 122 TAXMAN 562 (SC),SOUTHERNTECHNOLOGIESLTDVS,JOINTCOMMISSIONER OF INCOME TAX’, (2010) 320 ITR577 AND ‘ COMMISSIONER OF INCOME-TAX IIT VS.CALCUTTA KNITWEARS’, (2014) 43 TAXMANN.COM446 (SC). 5.|On the other hand learned Senior counsel forthe|aSS@C@SSCSubmitted|that|theISSUE|whether|provisions of Section 115JB of the Act apply to banking>company is no longer|res integraand is covered by adivision bench decision of.‘BOMBAY HIGH COURT IN|COMMISSIONER OF INCOME TAX-LTU VS. UNIONBANK OF INDIA’, ITA NO.1196/2013 DATED16.04.2019_ It is further submitted that the second.substantial question of law is also covered by a divisionbenchdecisionofthis.courtIntheCA SCof1COMMISSIONER OF INCOME TAX AND ANOTHER|VS. KARNATAKA VIKAS GRAMIN BANK“, (2016)130 DTR (KAR) 26.It is also urged that Section115JB(2) of the Act does not create any legal fiction and.the second issue involved in ITA No.18/2014 no longerSUIrVIVESfor.considerationInVIEWofinstructionNo.1/7/2008 dated 26.11.2008 issued by Central Boardof Direct Taxes. It is also urged that the decision|rendered in tne case ot SOUTHERN TECHNOLOGIES LTDhas been considered by a division bench of this|court In!“KARNATAKA BANK LTD. VS, ASSISTANTCOMMISSIONER OF INCOME-TAX’, (2013) 356 ITR549 (KARN)and it has been held that the ReserveBank of India directions of 1998 are only disclosurenorms and have nothing to do with the computation ofthe total taxable income under the Income Tax Act,1961.| 6.|We have considered the submissions madeby the learned counsel for the parties and have perusedthe record. Before adverting to the substantialquestions of law, we may take note of well settled rulesof statutory interpretation with regard to taxingstatutes.“Tn.construingfiscalStatutesand|In|determining the liability of a subject to tax one must.have regard to the strict letter of the law. If the revenueSatisfies the court that the case falls strictly within theprovisions of the law, the subject can be taxed. If, onthe other hand, the case is not covered within the four 6.|We have considered the submissions madeby the learned counsel for the parties and have perusedthe record. Before adverting to the substantialquestions of law, we may take note of well settled rulesof statutory interpretation with regard to taxingstatutes.“Tn.construingfiscalStatutesand|In|determining the liability of a subject to tax one must.have regard to the strict letter of the law. If the revenueSatisfies the court that the case falls strictly within theprovisions of the law, the subject can be taxed. If, onthe other hand, the case is not covered within the four corners of the provisions of the taxing statute, no taxcan be imposed by inference or by analogy or by tryingto probe into the intentions of the Legislature and byconsidering that was the substance of the matter. Ininterpreting a taxing statute, equitable considerationsare entirely out of place. Nor can taxing statutes beinterpreted on any presumptions or assumptions. Thecourt must look squarely at the words of the statute andinterpret them. It must interpret a taxing statute in thelight of what is clearly expressed; it cannot implyanything which is not expressed; it cannot importprovisions in the statute so as to supply any assumeddeficiency. [See‘CIT, BOMBAY VS. PROVIDENTINVESTMENT|CO.,%, ATR1957|SC664,‘CIT,|GUJARAT VS. VADILAL LALLUBHAI’, AIR 1973 SC1016, ‘HANSRAJ & SONS VS. STATE OF JAMMU &KASHMIR’, AIR 2002 SC 2692, ‘VIKRANT TYRESLTD,VS,JHEFIRSTINCOME-TAX|OFFICER,MYSORE’, JT 2001 (2) SC 45 PP. 459, 460: (2001) 3 SCC 76: AIR 2001 SC 800] [SEE: ‘PRINCIPLES OFSTATUTORYINTERPREATIONBY|JUSTICEG.P.SINGH 13 EDITIION PAGE 830]. J |In the light of aforesaid well settled legalprinciples we may advert to the substantial question oflaw viz., with regard to applicability of Section 115JB(2)of the Act to the Banking Companies. Before proceeding.further, it is apposite to take note of the relevantstatutory provisions. Section 115JB of the Act pertainsto special provisions for payment of tax by certaincompanies and provides a formula for payment ofminimum tax in case of companies whose tax payableon the total income works out to be below a certainminimum threshold percentage of its book profit. Fromperusal of the Circular dated 18.02.1998 issued by theCentral Board of Direct Taxes, it is evident that theobject for introduction of minimum alternative tax is tolevy a minimum tax on companies which are havingbook profits and paying dividends but are not paying any taxes. The relevant extract of Section 115JB of theAct reads as under: 2. Every assessee, being a company, shall,for the purposes of this section, prepare its profitand loss account for the relevant previous yearin accordance with the provisions of Parts II andIII of Schedule VI to the Companies Act, 1956. Provided that while preparing theannual accounts including profit and lossaccount — (I)the accounting policies; (iI)theaccountingStandardsadoptedforpreparing|SUCDNaccounts including profit andloss account;adoptedforpreparing|SUCDNaccounts including profit andloss account; (iI)the method and rates adoptedfor calculating the depreciation,Shnali be the same as have beenadopted for the purpose ofpreparing|SuUChaccountsincluding profit and loss accountand laid before the company atits annual general meeting inaccordance with the provisions of Section 210 of the CompaniesAct, 1956. Provided that while preparing theannual accounts including profit and lossaccount — (I)the accounting policies; (iI)theaccountingStandardsadoptedforpreparing|SUCDNaccounts including profit andloss account;adoptedforpreparing|SUCDNaccounts including profit andloss account; (iI)the method and rates adoptedfor calculating the depreciation,Shnali be the same as have beenadopted for the purpose ofpreparing|SuUChaccountsincluding profit and loss accountand laid before the company atits annual general meeting inaccordance with the provisions of Section 210 of the CompaniesAct, 1956. 8.|From close scrutiny of Section 115JB(2) ofthe Act, it is axiomatic that every assessee being a.company for the purposes of said Section prepares itsprofit and loss account for relevant previous year inaccordance with provisions of Part II and Part III ofScnedule VI of the Companies Act, 1956. The Assesseebeing a banking company is not required to prepare itsaccount in accordance with provisions of Part II and PartIII of Schedule VI of the Companies Act, 1956. Theassessee being a banking company, its accounts areprepared as per the Banking Regulation Act, 1949 and itis not obliged either to convene an annual generalmeeting or place its profit and loss account in suchgeneral meeting. A General meeting contemplatedunder Section 166 of the Companies Act, 1956 Is notpossible in the case of the assessee as there are noShareholders|oftheaSSeSS2AE€ItIS|alsoworth| mentioning that under Section 166 of the CompaniesAct, 1956 every company is required to hold a generalmeeting in each year and Section 201 mandates thatevery year the Board Of Directors of the company ingeneral meeting shall lay before the company a BalanceSheet as at the end of the relevant period and also profitand loss account for the period. Part II and Part III ofSchedule VI to the Companies Act specify the methodand manner of maintaining profit and loss account. It isalso pertinent to note that the assessee under Section210 of the Companies Act, 1956 is also required to layits account before the annual general meeting. Howeversuch accounts have to be prepared in accordance withthe Banking Regulation Act, 1949 which is not possiblefor the reasons assigned supra. — 9 |The submission that proviso to Sub section(2) of Section 115JB creates a legal fiction cannot beaccepted as under the aforesaid proviso, the companyhas to prepare the profit and loss account and to place it before the annual general meeting in accordance withprovisions with Section 210 of the Companies Act, 1956.A banking company under Section 115JB(2) of the Actcan prepare additional accounts as per Part II and PartIII of Schedule VI of the Companies Act or fulfill therequirements of the proviso of sub-Section(2) but itcannot fulfill both the conditions. 10. From. perusal of general arrangement ofprovisions of the Income Tax Act, 1961 where undereach head of income, the charging provision’ isaccompanied by a set of provisions for computing theincome subject to that charge. The character ofcomputation provisions in each case bears a relationshipto the nature of the charge. Thus, the charging sectionand computation provisions together constitute anintegrated code. When there is a case to_ whichcomputation provision cannot apply at all, it is evidentthat such a case was not intended to fall within chargingsection. [SEEaNCOMMISSIONER OF INCOME TAX, BANGALORE VS. B.C.SHRINIVASA SETTY’, 1981 VOL. 128 ITR 294].The machinery provisions provided in Sub-Section (2) of Section 115JB of the Act would be renderedwholly unworkable in case of a Banking company. It is alsopertinent to mention here that the Companies Act, 1956Nas excluded insurance, banking companies or thecompanies engaged in the generation or supply ofelectricity from the purview of Section 211(1) of theCompanies Act, 1956 and resultantly from the purview ofSection 115JB of the Act. | BANGALORE VS. B.C.SHRINIVASA SETTY’, 1981 VOL. 128 ITR 294].The machinery provisions provided in Sub-Section (2) of Section 115JB of the Act would be renderedwholly unworkable in case of a Banking company. It is alsopertinent to mention here that the Companies Act, 1956Nas excluded insurance, banking companies or thecompanies engaged in the generation or supply ofelectricity from the purview of Section 211(1) of theCompanies Act, 1956 and resultantly from the purview ofSection 115JB of the Act. | 11.Admittedly, the provisions of Section 115JB ofthe Act have been amended with effect from 01.04.2013,.the memorandum explaining the provisions of Finance Bill,2012 while explaining the amendments to Section 115JBof the Act, notes that in cases of certain companies suchas insurance, banking and electricity companies, they areallowed to prepare the profit and loss account inaccordance with the Sections specified in their RegulatoryActs. Tnus, to align the provisions of the Income Tax Act,1961 with the Companies Act, 1956, it was decided to. amend Section 115JB of the Act to provide that companieswhich are not required under Section 211 of theCompanies Act, 1956 to prepare profit and loss account inaccordance with Schedule VI of the Companies Act, 1956.Profit and loss account prepared in accordance with theprovisions of their Regulatory Act shall be taken as Dasisfor computing book profit under Section 115JB of the Act.We agree with the view taken by Bombay High Court inTHE COMMISSIONER OF INCOME TAX-LTU|referred to2>:(7on the common substantial question of law involvedin these appeals.For the foregoing reasons, it is held.that the provisions of Section 115JB(2) of the Act do notapply to the Banking companies. | 1).Now we may advert to the second substantial|question of law involved in ITA No.18/2014. The aforesaidsubstantial question of law is squarely covered byinstruction No.17/2008 dated 26.11.2008 issued by theCentral Board of Direct Taxes/RBIand is covered byClause (vil) provided therein. The decision in the case ofSOUTHERN TECHNOLOGIESwas. considered by a Givision bench of this court In.KARNATAKA BANK LITD.Supra and it has been held that where the assesseemaintains the accounts in terms of Reserve Bank of India. Regulations, the assessee is entitled to deductions and itcannot be denied by the authorities under the pretext thatit was showing as investment in the balance sheet.Accordingly, the common questions of law are answered in favour of the assessee and against the revenue. In the light of aforesaid instruction, the substantial| question of law framed is answered accordingly. In view of preceding analysis, the appeals are| disposed of. SS Sd/-JUDGE Sd/-|JUDGE