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Tax Tribunal: Banks are not liable to pay minimum alternate tax (MAT)
October, 15th 2010

A leading tax tribunal has said that banks are not liable to pay minimum alternate tax (MAT) since they are governed by the Banking Regulation Act and prepare their accounts differently. The Income Tax Appellate Tribunal (ITAT),Mumbai, which passed an order in the case of Krung Thai Bank, said that MAT provisions come into play only when the accounts are prepared under the Companies Act under the Income-Tax Act.

Gajendra Golchha, a chartered accountant, who appeared for the foreign bank told ET, Going by this order, MAT will not be applicable to insurance, banking and electrical companies. According to the ITAT order on September 30, the provisions of MAT is applicable only when profit and loss accounts are prepared under the provisions of the Companies Act, under schedule VI.

However, the Schedule VI of Companies Act are not applicable to banks as they are exempt under proviso to Section 211 (2) of the Companies Act. The final accounts of banks are to be prepared under the provisions of Banking Regulations Act. Therefore Section 115J B of Income-Tax Act governing provisions of MAT is not applicable to banks.

In this case the bank was a foreign entity operating through a branch in India. It had shown a profit of over `78 lakh but after adjustments the bank has shown a profit of over `94 lakh. After setting off carry forward loses, the bank returned nil income. It is the declaration of nil profit that compelled the I-T department to apply the provisions of MAT. The department had argued before ITAT that there is no specific exclusion for banking companies from the requirement to prepare profit and loss accounts as under Chapter VI of the Companies Act.

ITAT however, held that the departments stand is against the intent of the legislature. ITAT alsocited an earlier judgement on similar grounds given out by a co-ordinate bench in the case of Maharashtra State Electricity Board. ITAT held that the provisions of MAT do not apply in this case and the assessing officer made an error in concluding that income had escaped the tax net.

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