Case nº A.A.R. No. 732 of 2006, (Assessment Year: 1997-1998) of Authority for Advance Rulings, November 29, 2007 (case In Re: Bank of India Vs)

President:P.V. Reddi, Chairman, A. Sinha and Rao Ranvijay Singh, Member
Defense:Income Tax Act, 1961 - Sections 115J, 115JA, 2, 2(43), 245Q(1), 5, 90
Resolution Date:November 29, 2007


A. Sinha, Member

1. This application has been filed in Form-34E under section 245Q(1) by the Bank of India which is a public sector undertaking. The case of the applicant is that it filed return in respect of the assessment year 1997-98 showing ' nil ' income. But in accordance with the provisions of section 115JA of the Income-tax Act, 1961 ('Act'), it computed a book profit of Rs. 1,41,15,55,631 and paid applicable taxes on that amount. The Joint Commissioner of Income-tax, Special Range-15, Mumbai ('Assessing Officer') vide assessment order dated 31-3-2000 disallowed a number of claims made by the applicant, namely provision for leave encashment, fee paid to Master Card, broken period interest, exchange loss, exclusion of profit of foreign branches, etc., and also added an amount of Rs. 4,57,57,000, being provision for taxes made by foreign branches of the applicant bank, for arriving at book profit under the provision of section 115JA. The Assessing Officer treated the amount set aside for paying taxes in foreign countries as provision for unascertained liabilities. The applicant filed an appeal against the assessment order before the Commissioner of Income-tax (Appeal) -XLVI, Mumbai who, vide his order dated 8-1-2001, confirmed the disallowance of fees paid to Master Card, exchange loss and the addition of Rs. 4,57,57,000. The appellate order held that under clause (a) of Explanation to sub-section (2) of section 115JA, any amount laid out as income-tax paid or payable has to be added to the book profit, and that this provision makes no distinction between tax payable by foreign branches and tax payable in India, nor does it exempt foreign tax liability. Aggrieved by the appellate order, the applicant preferred a second appeal before the Mumbai bench of the Income-tax Appellate Tribunal (ITAT). Being a public sector undertaking, the applicant also sought the approval of the Committee on Disputes ('COD') for pursuing the appeal before ITAT. The COD gave permission to the applicant to pursue the appeal in respect of the disallowance of fee for Master Card and exchange loss. As regards the addition of Rs. 4,57,57,000 towards provision made by the foreign branches for paying taxes in those countries, the COD directed the applicant to seek the ruling of this Authority. In the light of the above facts, the applicant has sought ruling on the following question?

Whether Rs. 4,57,57,000 being provision for taxation made by the foreign branches of the appellant bank be added back to book profits for arriving at book profit as per section 115JA i.e., under MAT provisions.

2. The applicant has stated that in computing the book profit under section 115JA, the sum of Rs. 4,57,57,000 being provision for taxes payable abroad by foreign branches, was not required to be added to the book profit. The provision for this amount had been made by the foreign branches as per the income-tax laws of the respective countries. This liability was ascertainable as per those laws. Therefore, this provision could not be regarded as provision for unascertained liability. The applicant has also stated that the amount in question could not be added under clause (a) of Explanation to sub-section (2) of section 115JA on the ground that provision made for payment of income-tax under the Act was the only amount contemplated under the said clause, and not the provision in respect of income-tax paid or payable in foreign countries. On the other hand, the Commissioner of Income-tax-2, Mumbai who is the jurisdictional Commissioner in this case, has, in his written comments, stated that the provisions for taxation made by the foreign branches under tax laws of those countries had been rightly added to arrive at the book profit, since section 115JA made no distinction between the income-tax payable in India and that payable abroad As no exemption was provided for tax payable in foreign countries, there was no basis on which deduction of Rs. 4,57,57,000 could be allowed while computing book profit. The jurisdictional Commissioner has also stated that the provision for foreign taxes was an unascertained liability for the purpose of section 115JA.

3. Since the case involves interpretation of section 115JA, its relevant provisions are extracted below?

77. Deemed income relating to certain companies.- (1)...

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