Sarang v. Kotwal, Jj

Priya Soparkar 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1196 OF 2013 WITHINCOME TAX APPEAL NO.1175 OF 2013 The Commissioner of Income Tax-LTU… Appellant V/s. Union Bank of India… Respondent WITH INCOME TAX APPEAL NO.59 OF 2017 Commissioner of Income Tax(IT)-3 V/s.Mashreq Bank psc … Appellant … Respondent WITH INCOME TAX APPEAL NO.1567 OF 2016WITH INCOME TAX APPEAL NO.1309 OF 2016 WITH INCOME TAX APPEAL NO.143 OF 2018 WITH INCOME TAX APPEAL NO.1907 OF 2017 WITH INCOME TAX APPEAL NO.1878 OF 2017 WITH INCOME TAX APPEAL NO.182 OF 2015 Pr. Commissioner of Income Tax-2 V/s. Bank of India … Appellant … Respondent WITH INCOME TAX APPEAL NO.1108 OF 2015 Pr. Commissioner of Income Tax-3 … Appellant Priya Soparkar V/s. M/s The New India Assurance Co.Ltd.… Respondent WITH INCOME TAX APPEAL NO.27 OF 2016 Commissioner of Income Tax(IT)-2… Appellant V/s. Credit Agricole Corporate and Investment Bank… Respondent --- Mr.Suresh Kumar for the Appellant in ITXA Nos.1196/13,1175/13, 1108/15, 1309/16, 1567/16, 182/15, 1878/17,1907/17 and 143/18. Mr.Percy Pardiwalla, Senior Counsel with Ms.Nupur Awasthi withMs.Usha K.Srivastava i/by M/s Consulta Juris for the Respondentin ITXA Nos.1196/13 and 1175/13. Mr.Tejveer Singh for the Appellant in ITXA Nos.59/17 and 27/16.Mr.Percy Pardiwalla, Senior Counsel with Mr.Madhur Agrawali/by Mr.Atul Jsani for the Respondent in ITXA Nos. 59/17 and27/16. Mr.Atul Jasani for the Respondent in ITXA No.1108/15. Mr.Subhash Shetty for the respondent in ITXA Nos. 1309/16,1567/16, 1878/17, 1907/17 and 143/18. Mr.Sanjiv Shah for the Respondent in ITXA 182/15. --- CORAM : AKIL KURESHI AND SARANG V. KOTWAL, JJ. DATE : APRIL 16, 2019. ORAL JUDGMENT :- 1.In these appeals common questions of law arise. Some of the appeals have been admitted. Some have been tagged on Priya Soparkar account of similarity of issues though they are at the admissionstage. For convenience, we may record facts from Income TaxAppeal No.1196 of 2013. This appeal was admitted forconsideration of following questions of law:- “(i)Whether on the facts and in thecircumstances of the case and in law, the ITATis correct is reversing the order of AssessingOfficer confirmed by the CIT(A), exercisingthe jurisdiction u/s.154 of the Income Tax Act,1961, determining the Book Profits as per theamendment to Section 115JB? (ii)Whether on the facts and in thecircumstances of the case and in law the ITAT iscorrect in holding that the provision of Section115JB are not applicable to the assessee-Bank?” 2.For all the appeals we would adopt the above quotedquestions as substantial questions of law. 3.Respondent-Union Bank of India had filed return of incomefor the assessment year 2005-06. The Assessing Officer passedorder of assessment under Section 143(3) of the Income Tax Act,1961 (“the Act” for short) on 23[rd] March, 2007 computing theassessee’s taxable income at Rs.412.41 crores (rounded off)under the normal provisions and Rs.431.15 crores as book profit Priya Soparkar 4901 itxa 1196-13 and ors-o under Section 115JB of the Act. The Assessing Officer thereafterpassed an order dated 25[th] March, 2010 of rectification to giveeffect to a retrospective amendment in Section 115JB of the Act.He computed the assessee’s revised book profit at Rs.374.21crores. 4.The assessee carried the matter in appeal. In such appeal,the assessee opposed the assessment order on merits, includingthe order passed by the Assessing Officer exercising rectificationpowers. CIT (Appeals) granted partial relief by his order dated27[th] March, 2012. Priya Soparkar 4901 itxa 1196-13 and ors-o under Section 115JB of the Act. The Assessing Officer thereafterpassed an order dated 25[th] March, 2010 of rectification to giveeffect to a retrospective amendment in Section 115JB of the Act.He computed the assessee’s revised book profit at Rs.374.21crores. 4.The assessee carried the matter in appeal. In such appeal,the assessee opposed the assessment order on merits, includingthe order passed by the Assessing Officer exercising rectificationpowers. CIT (Appeals) granted partial relief by his order dated27[th] March, 2012. 5.Against such order of the Commissioner (Appeals), theassessee preferred further appeal before Income Tax AppellateTribunal (“Tribunal” for short). In such appeal, the assesseecontended that the Assessing Officer could not have exercisedrectification powers. The assessee raised an additional groundthat being a banking company, the provisions of Section 115JBof the Act would not be applicable. The Tribunal allowed suchappeal by the impugned judgment dated 22[nd] March, 2012. The Priya Soparkar Tribunal was of the opinion that the Assessing Officer wronglyexercised powers of rectification. The Tribunal further noted thatthe co-ordinate bench in the assessee’s own case for theassessment year 2006-07 had held that the provisions of Section115JB of the Act, were not applicable to the assessee-bank. The Tribunal held as under :- “7.We have considered the issue. There is nodoubt that the assessment orders under section143(3) were passed in these years under whichtotal income was determined under normalprovisions and book provisions of section 115JBwere not invoked. The issues which are consideredin normal assessment are still pending before theITAT for adjudication,whereas the Assessing Officerunder the guise of section 154 disallowed certainamounts revising the book profits. However, evenafter making these adjustments, the tax undernormal provisions was determined at Rs.328.07cores, whereas the tax under section 115JB wasdetermined at Rs.72.02 crores for assessment years2004-05 and tax under normal provisions wasdetermined at Rs.150.91 crores under normalprovisions and tax under section 115JB atRs.28.06 crores under section 115JB. Ultimately thetaxes were determined under normal provisionswithout exercising the provisions of section 115JB.In that view, the entire exercises of modifying theorders is redundant as even after such adjustment,the tax determined under the normal provisions ismore than the tax that are being determined bythis order under section 154. 8.Be that as it may, just because a retrospectiveamendment has been carried out on the statue, the Priya Soparkar assessment cannot be modified without examiningwhether the provisions so made are to bedisallowed or not. This requires detailedexamination and in fact as for the submissionsmade before the authorities, the assessee hadappeared before the Assessing Officer furnishingvarious details and how the amounts cannot bedisallowed. Since this requires claborateexamination on a long run process, we are of theopinion that the orders cannot be modified byinvoking the provisions of section 154. Not onlythat the Coordinate Bench in assessee's own casein assessment year 2006-07 has held that theprovisions of section 115JB are not applicable tothe assessee Bank. In view of this, we hold that theorder under section 154 passed by the AssessingOfficer is not correct and therefore, the same wasset aside. Accordingly assessee's grounds in theabove 2 years are allowed.” 6.Against this judgment, the revenue has filed this appeal.Appearing for the revenue learned counsel submitted that the viewexpressed by the Tribunal is not sustainable in law. The provisionsof Section 115JB are sufficiently clear and apply to allcompanies. Admittedly, respondent-bank is a company. Provisionsof Section 115JB would be applicable to such companies also. Hesubmitted that the amendments made in Section 115JB of the Actunder Finance Act, 2012 would have no effect on this legalposition. These amendments have been made only to alien Priya Soparkar 7901 itxa 1196-13 and ors-o the position of the special companies such as the bankingcompanies, electricity companies etc. with the provisions of theIncome Tax Act. These amendments in no way suggest thatprior to such legislative changes, the provisions of Section 115JBof the Act were not applicable to the banking companies andsuch other special companies. 7.On the other hand, learned counsel Shri Pardiwalla ledarguments on behalf of the assessee. He submitted that themechanism provided for computing book profit in terms of sub-section (2) of Section 115JB of the Act would be whollyunworkable for a banking company. He submitted that thisanomaly was removed by the legislature only by amendingSection 115JB by Finance Act, 2012. Till then the bankingcompanies were not within the fold of Section 115JB of the Act.He submitted that when the machinery provision fails, thecharging section shall have no applicability. Counsel relied oncertain decisions, reference to which will be made at appropriatestage. 8901 itxa 1196-13 and ors-o 8.In order to resolve the controversy, we may take note ofthe statutory provisions and the legislative history. As is wellknown, Section 115JB of the Act, pertains to special provisionsfor payment of tax by certain companies and provides a formulafor payment of minimum tax in case of companies, whose taxpayable on the total income works out to be below a certainminimum threshhold percentage of its book profit. Thisprovision is a successor to Section 115JA of the Act, which wasalso introduced for the same purpose. In fact, the first legislativeintroduction of the provisions pertaining to what is popularlyreferred to as MAT companies (Minimum Alternative Tax) wasSection 115J. The Circular No.762 dated 18[th] February, 1998issued by the Central Board of Direct Tax (“CBDT” for short)explains the object for introduction of such MAT provisions. Thecircular clarifies that new Section 115JA has been inserted bythe Finance Act, so as to levy a minimum tax on companies, whoare having book profits and paying dividends, but not paying anytaxes. Relevant portion of Section 115JB as is stood at therelevant time reads as under:- “Special provision for payment of tax by certain companies 115JB.(1)Notwithstanding anything contained inany other provision of this Act, where in the caseof an assessee, being a company, the income-tax,payable on the total income as computed underthis Act in respect of any previous year relevant tothe assessment year commencing on or after the1[st] day of April, (2007) is less than (ten percent) ofits book profit, (such) book profit shall be deemedto be the total income of the assessee and the taxpayable by the assessee on such total income shallbe the amount of income-tax at the rate of (tenpercent). (2) Every assessee, being a company, shall, forthe purposes of this section, prepare its profit andloss account for the relevant previous year inaccordance with the provisions of Parts II and IIIof Schedule VI to the Companies Act, 1956 (1 of1956) Provided that while preparing the annual accountsincluding profit and loss account,- (i) the accounting polices, (ii) the accounting standards adopted for preparingsuch accounts including profit and loss account; (iii) the method and rates adopted for calculating (2) Every assessee, being a company, shall, forthe purposes of this section, prepare its profit andloss account for the relevant previous year inaccordance with the provisions of Parts II and IIIof Schedule VI to the Companies Act, 1956 (1 of1956) Provided that while preparing the annual accountsincluding profit and loss account,- (i) the accounting polices, (ii) the accounting standards adopted for preparingsuch 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 thepurpose of preparing such accounts includingprofit and loss account and laid before thecompany at its annual general meeting inaccordance with the provisions of section 210 ofthe Companies Act, 1956(1 of 1956): Provided further that where the company hasadopted or adopts the financial year under theCompanies Act, 1956(1 of 1956), which isdifferent 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; (iii) the method and rates adopted for calculatingthe depreciation, shall correspond to the accounting policies,accounting standards and the method and ratesfor calculating the depreciation which have beenadopted for preparing such accounts includingprofit and loss account for financial year or partof such financial year falling within the relevantprevious year.” 9.In terms of sub-section (1) of Section 115JB of the Act thusnotwithstanding anything contained in any of the provisions ofthe Act in case of an assessee being a company where theincome tax payable on the total income as computed under theAct, is less than prescribed percentage of its book profit, suchbook profit shall be deemed to be the total income of theassessee. In so far as the language used under sub-section (1) ofSection 115JB is concerned, the same pauses no challenge. Sub-section (1) of Section 115JB takes within its swip all companieswith no further bifurcation or distinction between companies.However, the question that calls for our consideration iswhether the machinery provision provided under sub-section (2)of Section 115 JB of the Act is workable when it comes to thebanking companies and such other special companies governed Priya Soparkar11901 itxa 1196-13 and ors-oby the respective Acts. In the context, the question would also beof the legislative intent to cover such companies within the swipof Section 115JB of the Act. These questions arise because of thelanguage used in sub-section (2) of Section 115JB. Theseprovisions we may peruse more minutely. As per sub-section (2)of Section 115JB, every assessee being a company would for thepurposes of the said section prepare its profit and loss account forthe relevant previous year in accordance with the provisions ofParts II and III of Schedule VI of the Companies Act, 1956. It isundisputed that the respondent-a banking company is notrequired to prepare its accounts in accordance with the provisionsof Parts II and III of Schedule VI of the Companies Act, 1956. Theaccounts of the banking company are prepared as per theprovisions contained in Banking Regulation Act, 1949. The counselfor the revenue may still argue that irrespective of suchrequirements, for the purposes of the said Act and specialrequirements of Section 115JB of the Act, a banking company isobliged to prepare its profit and loss account as per the provisionsof the Companies Act, as mandated by sub-section (2) of Section115JB of the Act. His contention would be that such legislative Priya Soparkar mandate is not impermissible. Priya Soparkar mandate is not impermissible. 10.At the first blush, this argument seems attractive.However, when we read sub-section (2) further, certaincomplications arise in this line of argument. The first proviso tosub-section (2) of Section 115JB provides that while preparingannual accounts including profit and loss account the accountingpolicies and accounting standards adopted for preparing theaccount and the method and rules adopted in calculating thedepreciation shall be the same as have been adopted for thepurpose of preparing such accounts and laid before the companyat its Annual General Meeting in accordance with provisions ofSection 210 of the Companies Act, 1956. There is no dispute thatthe respondent-bank in terms of Section 210 of the CompaniesAct, 1956 is also required to lay its accounts before the AnnualGeneral Meeting. However, such accounts would necessarily beprepared in accordance with the provisions of BankingRegulation Act, 1949 and never be those which even had it beenpossible to be prepared, in accordance with Parts II and III ofSchedule VI of the Companies Act, 1956. The applicability of this Priya Soparkar 13901 itxa 1196-13 and ors-o proviso therefore, in case of a banking company wouldimmediately create complications. On one hand, in terms ofSection 210 of the Companies Act, 1956, the bank would be underan obligation to lay before Annual General Meeting its annualaccounts including the profit and loss account. These accountswould be prepared in terms provisions contained in BankingRegulation Act, 1949. Sub-section (2) requires preparation ofthe accounts in terms of the Companies Act. Proviso to sub-section(2) would require maintaining the same parameters in relation tothe accounting policies, accounting standards and method andrate of depreciation as adopted for the purpose of preparing theaccounts, which would ultimately be laid before the AnnualGeneral Meeting. A Banking company in terms of sub-section (2)of Section 115JB can prepare additional accounts as perprovisions of Parts II and III of Schedule VI of the Companies Actor fulfill the requirements of the proviso to sub-section (2) butcannot fulfill both the conditions. 11.This legal dichotomy emerging from the provisions ofsub-section (2) of Section 115JB particularly having regard to Priya Soparkar14901 itxa 1196-13 and ors-othe first proviso contained therein in case of a banking company,would convince us that machinery provision provided in sub-section (2) of section 115JB of the Act, would be rendered whollyunworkable in such a situation. In a well known judgment theSupreme court in case of Commissioner of Income-Tax,Bangalore Vs. B.C. Shrinivasa Setty[1] had observed that in theIncome Tax Act, a charing section and the computing provisionstogether constitute an integrated code. In a case where thecomputation provision can not apply, it would be evident thatsuch a case was not intended to fall within the charging section.It was a case of charging a partnership firm for transfer of acapital asset in the nature of goodwill. The Supreme Court was ofthe opinion that it would not be possible to envisage a cost ofacquisition of goodwill. Since computation of capital gain cannotbe done without ascertaining the cost of acquisition, it was heldthat no capital gain tax can be levied. 12.For the completeness of the discussion, we may note thatsection 211 of the Companies Act, 1956 pertains to form of 12.For the completeness of the discussion, we may note thatsection 211 of the Companies Act, 1956 pertains to form of Priya Soparkar15901 itxa 1196-13 and ors-ocontents of balance-sheet and profit and loss account, sub-section(1) of Section 211 provided that every balance sheet of a companyshall give true and fair view on the state of affairs of the companyat the end of the financial year and would be subject to theprovisions of the said section and be in the form set out in theForms 1 and 2 of schedule VI. This sub-section contained aproviso providing that nothing contained in said sub-sectionwould apply to a banking company or any company engaged ingeneration or supply of electricity or to any other class ofcompany for which a form of balance sheet shall be specified inor under the Act governing such company. Thus, Companies Act,1956 excluded the insurance or banking companies, companiesengaged in generation or supply of electricity or companies forwhich balance-sheet was specified in the governing Act, fromthe purview of sub-section (1) of Section 211 of the CompaniesAct, 1956 and as a consequence from the purview of Section115JB of the Act. 13. What we have held above is duly supported by the divisionbench judgment of Kerala High Court. It was a case in which the Priya Soparkar16901 itxa 1196-13 and ors-oassessee before the court was Kerala State Electricity Board, astatutory corporation constituted under Section 5 of the Electricity(Supply) Act, 1948. The revenue sought to cover the saidElectricity Board under the provisions of Section 115JB whichthe assessee opposed. The issue reached the Kerala High Court.The Court referred to and relied upon the decision of theSupreme Court in case of B.C. Shrinivasa Setty (supra). It wasnoticed that the Board was required to keep and maintain itsaccount in the manner specified by the Central Government andnot in the manner specified in the Companies Act. In that view ofthe matter it was held that section 115JB would not apply to theElectricity Board. Learned counsel for the assessee has alsobrought to our notice decisions of Delhi High Court holding thatsuch MAT provisions would not apply to the insurance companiesand to the banking companies. 14. There are certain significant legislative changes made byFinance Act, 2012, which must be noted before concluding thisissue. In the present form, post amendment by Finance Act,2012, relevant portion of Section 115JB of the Act reads as under:- “Special provision for payment of tax bycertain companies. 115JB. (1) Notwithstanding anything containedin any other provision of this payable on the totalincome as computed under this Act in respect ofany previous year relevant to the assessmentyear commencing on or after the 1[st] day of April,(2012), is less than (eighteen and one-halfpercent) of its book profit, (such book profit shallbe deemed to be the total income of the assesseeand the tax payable by the assessee on such totalincome shall be the amount of income-tax at therate of (eighteen and one-half percent). (2) Every assessee,- (a) being a company, other than a companyreferred to in clause (b), shall, for the purposesof this section, prepare its (statement of profitand loss) for the relevant previous year inaccordance with the provisions of (Schedule III)to the (Companies Act, 2013 (18 of 2013); or(b) being a company, to which the (secondproviso to sub-section (1) of section 129) of the(Companies Act, 2013 (18 of 2013) isapplicable, shall, for the purposes of this section,prepare its (statement of profit and loss) for therelevant previous year in accordance with theprovisions of the Act governing such company:)Provided that while preparing the annualaccounts including (statement of profit and loss),- (i) the accounting policies; (2) Every assessee,- (a) being a company, other than a companyreferred to in clause (b), shall, for the purposesof this section, prepare its (statement of profitand loss) for the relevant previous year inaccordance with the provisions of (Schedule III)to the (Companies Act, 2013 (18 of 2013); or(b) being a company, to which the (secondproviso to sub-section (1) of section 129) of the(Companies Act, 2013 (18 of 2013) isapplicable, shall, for the purposes of this section,prepare its (statement of profit and loss) for therelevant previous year in accordance with theprovisions of the Act governing such company:)Provided that while preparing the annualaccounts including (statement of profit and loss),- (i) the accounting policies; (ii) the accounting standards adopted forpreparing such accounts including (statement ofprofit and loss); (iii) the method and rates adopted forcalculating the depreciation, shall be the same as have been adopted for thepurpose of preparing such accounts including (statement of profit and loss) and laid before thecompany at its annual general meeting inaccordance with the provisions of (section 129)of the (Companies Act, 2013(18 of 2013)):” 15.The memorandum explaining the provisions made in theFinance Bill, 2012, in relation to minimum alternative tax statedas under :- “Minimum Alternate Tax (MAT) I.Under the existing provisions of section115JB of the Act, a company is liable to payMAT of eighteen and on half percent of its bookprofit in case tax on its total income computedunder the provisions of the Act is less than theMAT liability. Book profit for this purpose iscomputed by making certain adjustments to theprofit disclosed in the profit and loss accountprepared by the company in accordance with theSchedule VI of the Companies Act, 1956. As per section 115JB, every company isrequired to prepare its accounts as per ScheduleVI of the Companies Act, 1956. However, as perthe provisions of the Companies Act, 1956,certain companies, e.g. insurance, banking orelectricity company, are allowed to prepare theirprofit and loss account in accordance with theprovisions specified in their regulatory Acts. Inorder to align the provisions of Income-tax Actwith the Companies Act, 1956, it is proposed toamend section 115JB to provide that thecompanies which are not required under section211 of the Companies Act to prepare their profitand loss account in accordance with Schedule VIof the Companies Act, 1956, profit and lossaccount prepared in accordance with the provisions of their regulatory Acts shall be takenas a basis for computing the book profit undersection 115JB. II. It is noted that in certain cases, the amountstanding in the revaluation reserve is takendirectly to general reserve on disposal of arevalued asset. Thus, the gains attributable torevaluation of the asset is not subject to MATliability. It is, therefore, proposed to amend section115JB to provide that the book profit for thepurpose of section 115JB shall be increased bythe amount standing in the revaluation reserverelating to the revalued asset which has beenretired or disposed, if the same is not credited tothe profit and loss account. III. It is also proposed to omit the reference ofPart III of Schedule VI of the Companies Act,1956 from section 115JB in view of omission ofPart III in the revised Schedule VI under theCompanies Act, 1956. These amendments will take effect from 1[st]April, 2013 and will, accordingly, apply inrelation to the assessment year 2013-14 andsubsequent assessment years.” 16.It can be seen that sub-section (2) of Section 115JB of theAct has now been bifurcated in two parts covered in the clauses III. It is also proposed to omit the reference ofPart III of Schedule VI of the Companies Act,1956 from section 115JB in view of omission ofPart III in the revised Schedule VI under theCompanies Act, 1956. These amendments will take effect from 1[st]April, 2013 and will, accordingly, apply inrelation to the assessment year 2013-14 andsubsequent assessment years.” 16.It can be seen that sub-section (2) of Section 115JB of theAct has now been bifurcated in two parts covered in the clauses (a) and (b). Clause (a) would cover all companies other thanthose referred to in clause (b). Such companies would preparethe statement of profit and loss in accordance to the provisionsof schedule III of the Companies Act, 2013 (which has now Priya Soparkar20901 itxa 1196-13 and ors-oreplaced the old Companies Act, 1956). Clause (b) refers to acompany to whichsecond proviso to sub-section (1) of Section129 of the Companies Act, 2013 is applicable. Such companies,for the purpose of Section 115JB, would prepare the statementof profit and loss in accordance with the provisions of the Actgoverning the company. Section 129 of the Companies Act, 2013pertains to financial statement. Under sub-section (1) of Section129 it is provided that the financial statement shall give a trueand fair view of the state of affairs of the company, comply withthe accounting standard notified under Section 113 and shall bein the form as may be provided for different classes ofcompanies. Second proviso to sub-section (1) of Section 129 readsas under:- “Provided further that nothing contained in thissub-section shall apply to any insurance or bankingcompany or any company engaged in thegeneration or supply of electricity, or to any otherclass of company for which a form of financialstatement has been specified in or under the Actgoverning such class of company: 17.This proviso thus refers any insurance or banking companiesor companies engaged in the generation or supply of electricity Priya Soparkar21901 itxa 1196-13 and ors-oor to any other class of company in which form of financialstatement has been specified in or under the Act governing suchclass of company. Combined reading of this proviso to sub-section(1) of Section 129 of the Act, 2013 and clause (b) of sub-section (2) of Section 115JB of the Act would show that in case ofinsurance or banking companies or companies engaged ingeneration or supply of electricity or class of companies forwhom financial statement has been specified under the Actgoverning such company, the requirement of preparing thestatement of accounts in terms of provisions of the CompaniesAct, is not made. Clause (b) of sub-section (2) provides that incase of such companies for the purpose of Section 115JB thepreparation of statement of profit and loss account would be inaccordance with the provisions of the Act governing suchcompanies. This legislative change thus aliens class of companieswho under the governing Acts were required to prepare profitand loss accounts not in accordance with the Companies Act, butin accordance with the provisions contained in such governing Act.The earlier dichotomy of such companies also, if we accept therevenue's contention, having the obligation of preparing accounts as per the provisions of the Companies Act has been removed. as per the provisions of the Companies Act has been removed. 18.These amendments in section 115JB are neither declaratorynor classificatory but make substantive and significant legislativechanges which are admittedly applied prospectively. Thememorandum explaining the provision of the Finance Bill, 2012while explaining the amendments under Section 115JB of the Actnotes that in case of certain companies such as insurance, bankingand electricity companies, they are allowed to prepare the profitand loss account in accordance with the sections specified intheir regulatory Acts. To align the Income Tax Act with theCompanies Act, 1956 it was decided to amend Section 115JB toprovide that the companies which are not required under Section211 of the Companies Act, to prepare profit and loss account inaccordance with Schedule VI of the Companies Act, profit andloss account prepared in accordance with the provisions of theirregulatory Act shall be taken as basis for computing book profitunder Section 115 JB of the Act. 19.Before closing, we may also take note of explanation (3) below sub-section (2) of section 115 JB of the Act which reads as under :- “Explanation 3-For the removal of doubts, it ishereby clarified that for the purposes of thissection, the assessee, being a company to whichthe proviso to sub-section (2) of section 211 of theCompanies Act, 1956(1 of 1956) is applicable,has, for an assessment year commencing on orbefore the 1[st] day of April, 2012, an option toprepare its profit and loss account for the relevantprevious year either in accordance with theprovisions of Part II and Part III of Schedule VI tothe Companies Act, 1956 or in accordance with theprovisions of the Act governing such company.” 20.This explanation starts with the expression “For the removal of doubts”. It declares that for thepurpose of the said section in case of an assessee-company towhich second proviso to section 129 (1) of the Companies Act,2013 is applicable, would have an option for the assessment yearcommencing on or before 1[st] April, 2012 to prepare itsstatement of profit and loss either in accordance with theprovisions of schedule III to the Companies Act, 2013 or inaccordance with the provisions of the Act governing suchcompany. To our mind, this is some what curious provision. In Priya Soparkar24901 itxa 1196-13 and ors-othe original form, sub-section (2) of section 115JB of the Act didnot offer any such option to a banking company, insurancecompany or electricity company to prepare its profit and lossaccount at its choice either in terms of its governing Act or as perterms of Section 115JB of the Act. Secondly, by virtue of thisexplanation if an anomaly which we have noticed is sought to beremoved, we do not think that the legislature has achieved suchpurpose. In plain terms, this is not a case of retrospectivelegislative amendment. It is stated to be clarificatory amendmentfor removal of doubts. When the plain language of sub-section (2)of Section 115JB did not permit any ambiguity, we do not thinkthe legislature by introducing a clarificatory or declaratoryamendment cure a defect without resorting to retrospectiveamendment, which in the present case has admittedly not beendone. 21.In the result, we hold that sub-section 115JB as it stoodprior to its amendment by virtue of Finance Act, 2012, wouldnot be applicable to a banking company. We answer the questionNo.2 in favour of the assessee and against the revenue. In view of 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. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.) ….