Court rules Section 115JB doesn’t apply to banks - Canara Bank wins appeal

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Case Name

Commissioner of Income Tax (LTU) vs M/s. Canara Bank (High Court of Karnataka)

Income Tax Appeal No. 361 of 2018

Date: 8th November 2021

Key Takeaways

• Banking companies are exempt from Section 115JB: This is a significant ruling that confirms banks don’t have to pay the minimum alternate tax under this provision
• Consistency in judicial decisions: The court followed its own earlier ruling in a similar case, showing judicial consistency
• Limited scope of appeal: Out of three issues raised by the tax department, only one was actually contested - the others were either already decided or withdrawn

Issue

The central legal question was: Does Section 115JB of the Income Tax Act, 1961 apply to banking companies?

Specifically, the court had to decide “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside that the provisions of Section 115JB are not applicable to banking companies as no account are drawn up as per the requirement of Schedule VI of the Companies Act, 1956”.

Facts

• This case relates to Assessment Year 2012-13
• The Income Tax Appellate Tribunal had earlier ruled in favor of Canara Bank on November 17, 2017
• The tax department wasn’t happy with this decision and filed an appeal under Section 260A of the Income Tax Act, 1961
• Originally, the revenue raised three substantial questions of law, but during the hearing, they only pursued one main issue about Section 115JB

Arguments

Tax Department’s Position:

• They argued that the tribunal was wrong in saying Section 115JB doesn’t apply to banks
• They felt banks should be subject to this minimum tax provision
• They initially raised concerns about depreciation on assets and treatment of investments, but later dropped or didn’t press these issues

Canara Bank’s Position:

• The bank maintained that Section 115JB shouldn’t apply to banking companies
• They relied on the tribunal’s decision and previous court rulings supporting their position

Key Legal Precedents

The court relied on a crucial precedent:

The Commissioner of Income Tax & another v/s M/s.ING Vysaya Bank Limited - decided by the same High Court on January 16, 2020, in ITA No.18/2014 and connected matters. This case “categorically held that the provisions of Section 115JB(2) of the Income Tax Act, 1961 do not apply to the Banking Companies”.

The court also referenced its own earlier decision in the assessee’s case in ITA No.332/2016 (decided on November 2, 2020) regarding depreciation issues.

Judgement

• The High Court dismissed the tax department’s appeal
• They confirmed that Section 115JB doesn’t apply to banking companies
• The court stated: “We have no reason to differ from the same” when referring to the ING Vysaya Bank case
• They answered the substantial question of law “in favour of the assessee and against the revenue”

The reasoning was straightforward - the court followed its own coordinate bench’s decision in a similar case involving another bank, maintaining judicial consistency.

FAQs

Q1: What is Section 115JB and why was this case important?

A: Section 115JB is a provision that requires certain companies to pay a minimum alternate tax. This case clarified that banks are exempt from this requirement, which is significant for the banking industry.

Q2: Why did the tax department lose this case?

A: The court had already decided this exact issue in another bank’s case (ING Vysaya Bank) and chose to maintain consistency. The legal principle was already established.

Q3: What happened to the other issues the tax department raised?

A: Out of three issues, one was already decided in the bank’s favor in an earlier case, and the tax department chose not to press the third issue during the hearing.

Q4: Does this decision affect other banks?

A: Yes, this reinforces the legal position that Section 115JB generally doesn’t apply to banking companies, following the precedent set in the ING Vysya Bank case.

Q5: Can the tax department appeal this further?

A: While theoretically possible, given that this follows an established precedent from the same court, it would be challenging to overturn this decision.

This appeal is filed by the revenue/appellants under Section 260A of the Income Tax Act, 1961 [‘Act’ for short] assailing the order of the Income Tax Appellate Tribunal “C” Bench, Bangalore [‘Tribunal’ for short] dated

17.11.2017 passed in ITA No.843/Bang/2017 relating to the Assessment Year 2012-13.

2. The appeal was admitted by this Court to consider the following substantial question of law.

“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside that the provisions of Section 115JB are not applicable to banking companies as no account are drawn up as per the requirement of Schedule VI of the Companies Act, 1956 by following its earlier orders which has not reached finality?”

3. The other substantial questions of law i.e. 1 and 3 raised by the revenue are as under:

“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside in disallowing depreciation on assets by following earlier orders which has not reached finality even when the assessee is not entitled for depreciation on assets leased to others under the provisions of the Act?

3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting side relying upon Circular No.18 of 2015 dated 2.11.2015, the fact that investments are shown as Stock in Trade in books of account, loss/depreciation on account of fall in value of securities held by assessee bank should be allowed as deduction and therefore the income arising therefrom should also be treated as business income ignoring Sec 45(2) which requires investments are to be treated as Stock in Trade?”

4. As regards substantial question of law No.1

raised by the revenue, the issue is no more res integra in

view of the ruling of this Court in the assessee’s own case

in ITA No.332/2016 (DD 02.11.2020) wherein the order of

disallowing depreciation of asset had been answered in

favour of the assessee.

5. As regards substantial question of law No.3

raised by the revenue, learned counsel for the revenue

submits that the same is not pressed. Said submission is

placed on record.

6. Regarding the substantial question of law

which has been admitted by this Court as aforesaid, the

Co-ordinate Bench of this Court in ITA No.18/2014 and

connected matters, (DD 16.01.2020) in the case of The

Commissioner of Income Tax & another v/s M/s.ING

Vysaya Bank Limited has categorically held that the

provisions of Section 115JB(2) of the Income Tax Act,

1961 do not apply to the Banking Companies. We have no

reason to differ from the same. Accordingly, we answer

the said substantial question of law in favour of the

assessee and against the revenue in terms of the order

dated 16.01.2020 in ITA No.18/2014 and connected

matters.

In the result, appeal stands dismissed.

Sd/-

JUDGE

Sd/-

JUDGE