Banks not liable to book-profit tax: Tribunal

A bank may be a company but since it is mandated to prepare its accounts in accordance with the Banking Regulation Act, 1949 and not in accordance with Schedule VI of the Companies Act, 1956, it is not required to pay minimum tax on its book profits.

This was the verdict of the Bangalore Income-tax Appellate Tribunal in Canara Bank v. CIT for the assessment year 2005-6.

Section 115JB of the Income-tax Act extracts a minimum tax at the prescribed rate on the book profits where a company’s tax on total income computed under the income-tax law is lesser vis-à-vis such book-profit tax. Canara Bank had filed a ‘nil’ return but admittedly had a book profit of Rs 2,900.65 crore which too it declared in its return. The Commissioner had sought to add to its book-profits certain amounts using his revisionary powers under section 263.

Canara Bank taking a cue from two favourable judgments emanating from Kerala High Court and Bombay High Court that section 115JB did not apply to banking companies, mounted a challenge not only to the revisions sought to be made by the Commissioner but more importantly to the core issue, though belatedly — whether a banking company came under the pincer of section 115JB. The Bangalore Tribunal had no hesitation in ruling in favour of the bank in view of the language of section 115JB that targeted companies preparing their accounts according to Schedule VI of the Companies Act, 1956 which by implication bailed out banking companies, among others, that prepared their accounts under other enactments.

(The author is a New-Delhi based chartered accountant)

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