The Assessing Officer has raised a MAT demand on my client bank for an assessment year before 2013-14. Can section 115JB apply at all to a company whose accounts are prepared under the Banking Regulation Act?
Not for a year before the Finance Act 2012 amendment. The Bombay High Court held that section 115JB as it stood before that amendment would not be applicable to a banking company, because sub-section (2) required the profit and loss account to be prepared under Parts II and III of Schedule VI to the Companies Act 1956 while its first proviso required the same accounting policies, accounting standards and depreciation method and rates as were used for the accounts laid before the annual general meeting — accounts which a bank necessarily prepares under the Banking Regulation Act 1949. A bank could satisfy one requirement or the other but not both, so the machinery provision failed, and on the principle in B.C. Srinivasa Setty a case in which the computation provision cannot apply was not intended to fall within the charging section. All the Revenue's appeals were dismissed.
Decided by the High Court (Akil Kureshi J and Sarang V. Kotwal J (oral judgment)) on 2019-04-16, reported as Income Tax Appeal No. 1196 of 2013 with Income Tax Appeal No. 1175 of 2013, Income Tax Appeal No. 59 of 2017, Income Tax Appeal No. 1567 of 2016, Income Tax Appeal No. 1309 of 2016, Income Tax Appeal No. 143 of 2018, Income Tax Appeal No. 1907 of 2017, Income Tax Appeal No. 1878 of 2017, Income Tax Appeal No. 182 of 2015, Income Tax Appeal No. 1108 of 2015 and Income Tax Appeal No. 27 of 2016 (High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction); no law-report citation is printed on the document read. It bears on section 115JB, section 115JB(1), section 115JB(2), section 115JA, section 115J, section 154, section 143(3), section 260A of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Appeals matters.
This is the authority to put in front of an Assessing Officer or a Commissioner (Appeals) who is pressing a MAT computation on a bank, an insurer or an electricity company for a pre-2013-14 year. Four features make it unusually useful. First, the batch decided together covers a public sector bank (Union Bank of India, Bank of India), a foreign bank (Mashreq Bank psc, Credit Agricole Corporate and Investment Bank) and a general insurer (The New India Assurance Co. Ltd.), so it is not confined to Indian scheduled banks. Second, the Court dealt squarely with the Revenue's argument that the Finance Act 2012 changes were merely aligning and did not imply that section 115JB was previously inapplicable, and rejected it: it held those amendments to be neither declaratory nor clarificatory but substantive changes applied prospectively. Third, the Court addressed Explanation 3 to section 115JB — which offers a company covered by the proviso an OPTION, for an assessment year commencing on or before 1 April 2012, to prepare its profit and loss account either under Schedule VI or under its governing Act — and held that a clarificatory or declaratory amendment cannot cure a defect without a retrospective amendment, which had not been made. That is the answer to the Revenue's usual reliance on Explanation 3. Fourth, it notes the support of a Kerala High Court division bench in the Kerala State Electricity Board case and records that counsel brought decisions of the Delhi High Court holding MAT inapplicable to insurance companies and to banking companies. The limit is equally important: this decides the position BEFORE the Finance Act 2012 only. From assessment year 2013-14 section 115JB(2)(b) expressly provides the route for such a company, and the argument is no longer available.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Union Bank of India filed its return for assessment year 2005-06. The Assessing Officer completed the assessment under section 143(3) on 23 March 2007, computing taxable income at about Rs.412.41 crores under the normal provisions and Rs.431.15 crores as book profit under section 115JB. He then passed an order dated 25 March 2010 under section 154 to give effect to a retrospective amendment of section 115JB, revising the book profit to Rs.374.21 crores. The Commissioner (Appeals) granted partial relief by an order dated 27 March 2012. Before the Tribunal the bank contended that the Assessing Officer could not have exercised rectification powers, and raised an additional ground that being a banking company section 115JB did not apply to it at all. The Tribunal allowed the appeal, holding that the rectification power had been wrongly exercised and noting that a coordinate bench had held in the bank's own case for assessment year 2006-07 that section 115JB did not apply to it. The Revenue appealed to the High Court, and the appeal was admitted on two questions — whether the Tribunal was right in reversing the section 154 order determining book profits as per the amendment to section 115JB, and whether it was right in holding that section 115JB was not applicable to the assessee bank. Those two questions were adopted for the whole batch, which included appeals against Bank of India, a foreign bank Mashreq Bank psc, Credit Agricole Corporate and Investment Bank and the general insurer The New India Assurance Co. Ltd. Senior counsel Mr Percy Pardiwalla appeared for several of the assessees; Mr Suresh Kumar and Mr Tejveer Singh for the Revenue.
All the appeals were dismissed. Section 115JB as it stood prior to its amendment by the Finance Act 2012 was held not applicable to a banking company; question No. 2 was answered in favour of the assessee and against the Revenue, and question No. 1 — the correctness of the rectification order — was in consequence not answered (paragraph 21).
Sub-section (1) of section 115JB takes in all companies without bifurcation and poses no difficulty; the question is whether the machinery in sub-section (2) is workable for a banking company (paragraph 9). Sub-section (2) as it then stood required every company to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to the Companies Act 1956, but a banking company prepares its accounts under the Banking Regulation Act 1949 (paragraph 9). The first proviso to sub-section (2) then required the accounting policies, accounting standards and the method and rates of depreciation to be the same as those adopted for the accounts laid before the annual general meeting under section 210 of the Companies Act 1956; a bank does lay accounts before its annual general meeting, but those accounts are necessarily prepared under the Banking Regulation Act. A banking company can prepare additional accounts under Parts II and III of Schedule VI or fulfil the requirement of the proviso, but cannot fulfil both (paragraph 10). That legal dichotomy renders the machinery provision wholly unworkable, and on Commissioner of Income-Tax, Bangalore v. B.C. Srinivasa Setty a case in which the computation provision cannot apply is one that was not intended to fall within the charging section (paragraph 11). The proviso to section 211(1) of the Companies Act 1956 itself excluded a banking company, a company engaged in generation or supply of electricity and any other class of company for which a form of balance sheet was specified in its governing Act, and as a consequence excluded them from the purview of section 115JB (paragraph 12). The conclusion is supported by a division bench of the Kerala High Court in the Kerala State Electricity Board case, which applied B.C. Srinivasa Setty (paragraph 13). The Finance Act 2012 then bifurcated sub-section (2) into clauses (a) and (b), clause (b) covering companies to which the second proviso to section 129(1) of the Companies Act 2013 applies and requiring them to prepare their statement of profit and loss under their governing Act; the Memorandum explaining the Finance Bill 2012 said in terms that the object was to align the Income-tax Act with the Companies Act and that the amendments would take effect from 1 April 2013 and apply from assessment year 2013-14 (paragraphs 14 to 17). Those amendments are neither declaratory nor clarificatory but substantive and are admittedly applied prospectively (paragraph 18). Explanation 3, which gives a company covered by the proviso to section 211(2) an option for an assessment year commencing on or before 1 April 2012 to prepare its profit and loss account either under Parts II and III of Schedule VI or under its governing Act, is a curious provision: the original sub-section (2) offered no such option, and where the plain language of sub-section (2) permitted no ambiguity a clarificatory or declaratory amendment cannot cure a defect without a retrospective amendment, which was admittedly not made (paragraphs 19 and 20).
In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company.
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Handle my notice → Ask a CA on WhatsAppNot for a year before the Finance Act 2012 amendment. The Bombay High Court held that section 115JB as it stood before that amendment would not be applicable to a banking company, because sub-section (2) required the profit and loss account to be prepared under Parts II and III of Schedule VI to the Companies Act 1956 while its first proviso required the same accounting policies, accounting standards and depreciation method and rates as were used for the accounts laid before the annual general meeting — accounts which a bank necessarily prepares under the Banking Regulation Act 1949. A bank could satisfy one requirement or the other but not both, so the machinery provision failed, and on the principle in B.C. Srinivasa Setty a case in which the computation provision cannot apply was not intended to fall within the charging section. All the Revenue's appeals were dismissed. This was decided by the High Court (Akil Kureshi J and Sarang V. Kotwal J (oral judgment)) and bears on section 115JB, section 115JB(1), section 115JB(2), section 115JA, section 115J, section 154, section 143(3), section 260A of the Income Tax Act 1961. It is reported as Income Tax Appeal No. 1196 of 2013 with Income Tax Appeal No. 1175 of 2013, Income Tax Appeal No. 59 of 2017, Income Tax Appeal No. 1567 of 2016, Income Tax Appeal No. 1309 of 2016, Income Tax Appeal No. 143 of 2018, Income Tax Appeal No. 1907 of 2017, Income Tax Appeal No. 1878 of 2017, Income Tax Appeal No. 182 of 2015, Income Tax Appeal No. 1108 of 2015 and Income Tax Appeal No. 27 of 2016 (High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction); no law-report citation is printed on the document read. This is the authority to put in front of an Assessing Officer or a Commissioner (Appeals) who is pressing a MAT computation on a bank, an insurer or an electricity company for a pre-2013-14 year. Four features make it unusually useful. First, the batch decided together covers a public sector bank (Union Bank of India, Bank of India), a foreign bank (Mashreq Bank psc, Credit Agricole Corporate and Investment Bank) and a general insurer (The New India Assurance Co. Ltd.), so it is not confined to Indian scheduled banks. Second, the Court dealt squarely with the Revenue's argument that the Finance Act 2012 changes were merely aligning and did not imply that section 115JB was previously inapplicable, and rejected it: it held those amendments to be neither declaratory nor clarificatory but substantive changes applied prospectively. Third, the Court addressed Explanation 3 to section 115JB — which offers a company covered by the proviso an OPTION, for an assessment year commencing on or before 1 April 2012, to prepare its profit and loss account either under Schedule VI or under its governing Act — and held that a clarificatory or declaratory amendment cannot cure a defect without a retrospective amendment, which had not been made. That is the answer to the Revenue's usual reliance on Explanation 3. Fourth, it notes the support of a Kerala High Court division bench in the Kerala State Electricity Board case and records that counsel brought decisions of the Delhi High Court holding MAT inapplicable to insurance companies and to banking companies. The limit is equally important: this decides the position BEFORE the Finance Act 2012 only. From assessment year 2013-14 section 115JB(2)(b) expressly provides the route for such a company, and the argument is no longer available. If it applies to you, the first step is this: Fix the assessment year first. If it is 2012-13 or earlier, this judgment is directly in point; if it is 2013-14 or later, it is not, and the computation must be made under section 115JB(2)(b) on the accounts prepared under the governing Act.
Union Bank of India filed its return for assessment year 2005-06. The Assessing Officer completed the assessment under section 143(3) on 23 March 2007, computing taxable income at about Rs.412.41 crores under the normal provisions and Rs.431.15 crores as book profit under section 115JB. He then passed an order dated 25 March 2010 under section 154 to give effect to a retrospective amendment of section 115JB, revising the book profit to Rs.374.21 crores. The Commissioner (Appeals) granted partial relief by an order dated 27 March 2012. Before the Tribunal the bank contended that the Assessing Officer could not have exercised rectification powers, and raised an additional ground that being a banking company section 115JB did not apply to it at all. The Tribunal allowed the appeal, holding that the rectification power had been wrongly exercised and noting that a coordinate bench had held in the bank's own case for assessment year 2006-07 that section 115JB did not apply to it. The Revenue appealed to the High Court, and the appeal was admitted on two questions — whether the Tribunal was right in reversing the section 154 order determining book profits as per the amendment to section 115JB, and whether it was right in holding that section 115JB was not applicable to the assessee bank. Those two questions were adopted for the whole batch, which included appeals against Bank of India, a foreign bank Mashreq Bank psc, Credit Agricole Corporate and Investment Bank and the general insurer The New India Assurance Co. Ltd. Senior counsel Mr Percy Pardiwalla appeared for several of the assessees; Mr Suresh Kumar and Mr Tejveer Singh for the Revenue. The matter was decided on 2019-04-16 by the High Court (Akil Kureshi J and Sarang V. Kotwal J (oral judgment)). On those facts the High Court held as follows. All the appeals were dismissed. Section 115JB as it stood prior to its amendment by the Finance Act 2012 was held not applicable to a banking company; question No. 2 was answered in favour of the assessee and against the Revenue, and question No. 1 — the correctness of the rectification order — was in consequence not answered (paragraph 21).
Sub-section (1) of section 115JB takes in all companies without bifurcation and poses no difficulty; the question is whether the machinery in sub-section (2) is workable for a banking company (paragraph 9). Sub-section (2) as it then stood required every company to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to the Companies Act 1956, but a banking company prepares its accounts under the Banking Regulation Act 1949 (paragraph 9). The first proviso to sub-section (2) then required the accounting policies, accounting standards and the method and rates of depreciation to be the same as those adopted for the accounts laid before the annual general meeting under section 210 of the Companies Act 1956; a bank does lay accounts before its annual general meeting, but those accounts are necessarily prepared under the Banking Regulation Act. A banking company can prepare additional accounts under Parts II and III of Schedule VI or fulfil the requirement of the proviso, but cannot fulfil both (paragraph 10). That legal dichotomy renders the machinery provision wholly unworkable, and on Commissioner of Income-Tax, Bangalore v. B.C. Srinivasa Setty a case in which the computation provision cannot apply is one that was not intended to fall within the charging section (paragraph 11). The proviso to section 211(1) of the Companies Act 1956 itself excluded a banking company, a company engaged in generation or supply of electricity and any other class of company for which a form of balance sheet was specified in its governing Act, and as a consequence excluded them from the purview of section 115JB (paragraph 12). The conclusion is supported by a division bench of the Kerala High Court in the Kerala State Electricity Board case, which applied B.C. Srinivasa Setty (paragraph 13). The Finance Act 2012 then bifurcated sub-section (2) into clauses (a) and (b), clause (b) covering companies to which the second proviso to section 129(1) of the Companies Act 2013 applies and requiring them to prepare their statement of profit and loss under their governing Act; the Memorandum explaining the Finance Bill 2012 said in terms that the object was to align the Income-tax Act with the Companies Act and that the amendments would take effect from 1 April 2013 and apply from assessment year 2013-14 (paragraphs 14 to 17). Those amendments are neither declaratory nor clarificatory but substantive and are admittedly applied prospectively (paragraph 18). Explanation 3, which gives a company covered by the proviso to section 211(2) an option for an assessment year commencing on or before 1 April 2012 to prepare its profit and loss account either under Parts II and III of Schedule VI or under its governing Act, is a curious provision: the original sub-section (2) offered no such option, and where the plain language of sub-section (2) permitted no ambiguity a clarificatory or declaratory amendment cannot cure a defect without a retrospective amendment, which was admittedly not made (paragraphs 19 and 20). In the words reproduced by the source cited on this page: "In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company." The decision followed or applied Commissioner of Income-Tax, Bangalore v. B.C. Shrinivasa Setty — applied, for the proposition that a charging section and the computation provisions together constitute an integrated code and that where the computation provision cannot apply the case was not intended to fall within the charging section; A division bench decision of the Kerala High Court concerning the Kerala State Electricity Board — relied on as supporting the conclusion (the citation is not printed in the judgment read).
It was decided by the High Court on 2019-04-16 and is reported as Income Tax Appeal No. 1196 of 2013 with Income Tax Appeal No. 1175 of 2013, Income Tax Appeal No. 59 of 2017, Income Tax Appeal No. 1567 of 2016, Income Tax Appeal No. 1309 of 2016, Income Tax Appeal No. 143 of 2018, Income Tax Appeal No. 1907 of 2017, Income Tax Appeal No. 1878 of 2017, Income Tax Appeal No. 182 of 2015, Income Tax Appeal No. 1108 of 2015 and Income Tax Appeal No. 27 of 2016 (High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction); no law-report citation is printed on the document read. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 115JB, section 115JB(1), section 115JB(2), section 115JA, section 115J, section 154, section 143(3), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. All the appeals were dismissed. Section 115JB as it stood prior to its amendment by the Finance Act 2012 was held not applicable to a banking company; question No. 2 was answered in favour of the assessee and against the Revenue, and question No. 1 — the correctness of the rectification order — was in consequence not answered (paragraph 21). It arises in Assessment & Scrutiny, How Tax Law Is Read and Appeals matters, on section 115JB, section 115JB(1), section 115JB(2), section 115JA, section 115J, section 154, section 143(3), section 260A of the Income Tax Act 1961, and was decided by Akil Kureshi J and Sarang V. Kotwal J (oral judgment). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Plead the machinery-failure point, not a general exemption point: sub-section (1) covers all companies, and the Court accepted that; the case is won on sub-section (2) and its first proviso being incapable of simultaneous compliance. Anticipate Explanation 3. Have the Court's answer ready — the Explanation offers an option that the original sub-section (2) never gave, and a declaratory amendment cannot cure the defect without a retrospective amendment that was not made. Show, from the bank's own accounts, that they are prepared under the Banking Regulation Act 1949 and were laid before the annual general meeting in that form; that is the factual foundation of the dichotomy the Court identified. For an insurer or an electricity company, run the same argument from the corresponding proviso to section 211(1) of the Companies Act 1956, which the Court set out at its paragraph 12.
Searched for later treatment; none was found. That is not the same as a source affirming it. A citator search returns 37 later decisions citing this judgment. No decision was found in which a Bench applied or followed it as a ground of its own. The one decision named as an application, PCIT v Indian Bank (Calcutta High Court, 10 February 2023), does not do so: the sentence 'We agree with the view taken by Bombay High Court' is not the Calcutta Bench's own - it lies inside the passage the Calcutta Bench reproduces from the Karnataka High Court's judgment in CIT v ING Vysya Bank. In its own concluding paragraphs the Calcutta Bench dismisses the Revenue's appeal following ING Vysya Bank, Pr. CIT v Karnataka Power Corpn. Ltd., CIT LTU v Canara Bank, the Kerala High Court in Pr. CIT v State Bank of India and its own Damodar Valley Corporation; CIT LTU v Union Bank of India is not among the authorities it names. The Bombay reasoning therefore reaches the Calcutta result only at one remove, through the Karnataka judgment. Nothing overruling or doubting the judgment was found. One point a reader should know: the Delhi High Court in PCIT v Tata Power Delhi Distribution Ltd (13 January 2025) held that 'reliance placed on the Bombay High Court's decision in Commissioner of Income-tax-LTU v. Union Bank of India ... is also misplaced' - a refusal to extend the reasoning to a non-banking company, not a doubt on the holding itself. Tribunal orders were listed by an earlier pass as applying it (DCB Bank Ltd, Standard Chartered Bank, the Canara Bank/Syndicate Bank orders) but were not opened and are not relied on here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Three things in the report. First, the judgment is an ORAL JUDGMENT and its text carries several obvious typographical slips which I have reproduced rather than corrected where they fall inside quoted material — "swip" for sweep, "pauses no challenge", "aliens" for aligns, and in the disposal "sub-section 115JB" where "section 115JB" is meant. Second, paragraph 5 records the Tribunal's impugned judgment as dated 22 March 2012 while paragraph 4 records the CIT(Appeals) order as dated 27 March 2012; the sequence as narrated is odd and I have not been able to resolve it. Third, at paragraph 13 the Court says only that "Learned counsel for the assessee has also brought to our notice decisions of Delhi High Court holding that such MAT provisions would not apply to the insurance companies and to the banking companies" without naming them, so those decisions cannot be cited from this judgment. The Kerala High Court decision referred to at paragraph 13 concerning the Kerala State Electricity Board is likewise not named or cited in the text I read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All the appeals were dismissed. Section 115JB as it stood prior to its amendment by the Finance Act 2012 was held not applicable to a banking company; question No. 2 was answered in favour of the assessee and against the Revenue, and question No. 1 — the correctness of the rectification order — was in consequence not answered (paragraph 21).
TaxSphere, “CIT-LTU v Union Bank of India (Bombay High Court) — section 115JB did not apply to a banking company before the Finance Act 2012, because the machinery in sub-section (2) was unworkable for it”, https://taxnotice.vittsphere.com/caselaw/case/cit-ltu-v-union-bank-of-india-115jb-was-not-applicable-to-a-banking-company-before-the-finance-act-2012/ (validity last checked 2026-09-09)
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Can the Rule 8D figure be added back to book profit under clause (f) of the Explanation to s.115JB?
The CIT(A) has recomputed my clause (iii) reduction by taking the entire depreciation charge of an earlier year as unabsorbed depreciation, which wipes out my brought-forward loss and leaves me with nothing. Is that the right way to do the working?
The Assessing Officer has disallowed my general insurance client's amortisation of premium on investments and its investments written off, and has added the reserve for unexpired risks to book profit under s.115JB. What is the limit on his power?
I am computing MAT for a banking company. Do I recast its accounts into the Schedule III format of the Companies Act, or do I start from the accounts it actually prepares under the Banking Regulation Act?
