What the courts have decided on section 115JB(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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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
High CourtHelps taxpayerNo later treatment found
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.
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PVR Pictures Ltd v DCIT — "unabsorbed depreciation" in clause (iii) means the unabsorbed part, not the whole depreciation charge
ITATHelps taxpayer
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?
No. Clause (iii) of Explanation 1 to s.115JB(2) uses the words "unabsorbed depreciation", not "depreciation", and the difference is deliberate: where an earlier year threw up a standalone book profit before depreciation, that year's depreciation stands adjusted against the profit so available and only the balance is unabsorbed. Taking the gross depreciation charge instead of the unabsorbed component is contrary to the language of the clause.
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DCIT v National Insurance Co. Ltd (ITAT Kolkata) — under s.44 and Rule 5 an amortised premium and an investment written off are neither expenditure nor allowance nor provision, and the unexpired-risk reserve stays out of book profit
ITATHelps taxpayerNo later treatment found
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?
The Kolkata Tribunal dismissed all three of the Revenue's appeals. It upheld the Commissioner (Appeals) in deleting the disallowance of amortisation of premium paid on purchase of investments and of investments written off, on the footing that under section 44 read with Rule 5 of the First Schedule the Assessing Officer may add back only an expenditure, an allowance or a listed provision that is inadmissible under sections 30 to 43B, and an amount amortised or written off is none of those. It also upheld the Commissioner (Appeals) in holding that the reserve created for unexpired risk need not be added back in computing book profit under section 115JB, that reserve having been created not by a debit to the profit and loss account but out of the premium received, as the Insurance Act 1938 requires and as Rule 5(c) of the First Schedule and Rule 6E of the Income-tax Rules recognise.
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Statutory position — s.115JB(2): the two routes to book profit, and why a bank's or insurer's MAT computation is not made on the Schedule III footing
CBDT Circulars & InstructionsCuts both ways
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?
You start from the accounts it actually prepares under its own governing Act. Section 115JB(2) is in two clauses. Clause (a) applies to a company OTHER THAN one referred to in clause (b) and requires it to prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013. Clause (b) applies to a company to which the SECOND PROVISO to sub-section (1) of section 129 of the Companies Act, 2013 is applicable — that proviso disapplies the ordinary financial-statement form to any insurance or banking company, any company engaged in the generation or supply of electricity, and any other class of company for which a form of financial statement has been specified in or under the Act governing it — and requires such a company to prepare its statement of profit and loss in accordance with the provisions of the Act governing it. A MAT computation for a bank built on the Schedule III footing is therefore built on the wrong base.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
