ITAT Rules MAT Not Applicable to Nationalised Banks; Grants Relief

The assessee, M/s UCO Bank, a nationalised bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, filed its return for AY 2013-14. During assessment, the Assessing Officer (AO) made multiple additions, including disallowance of provision for leave encashment under Section 43B(f), computation of book profits under Section 115JB (MAT), disallowance under Section 14A read with Rule 8D, and disallowances under Section 40(a)(ia) and 40(a)(i) for TDS-related issues. The CIT(A) partly upheld and partly deleted these additions. Both the assessee and the Revenue filed cross appeals before the Tribunal, challenging various aspects of the order.

Main Issue: The issues for consideration are whether Section 115JB applies to nationalised banks not incorporated under the Companies Act, whether leave encashment is allowable on an accrual basis or only on payment under Section 43B(f), and whether the disallowances under Sections 14A, 40(a)(ia), and 40(a)(i) are legally sustainable.

Tribunal’s Decision: The ITAT Kolkata partly allowed the assessee’s appeal and dismissed the Revenue’s appeal. On leave encashment, the Tribunal held that deduction is allowable strictly on a payment basis in view of Section 43B(f), following the Supreme Court ruling in Exide Industries. Accordingly, the AO was directed to allow deduction only to the extent actually paid during the year. On the applicability of MAT under Section 115JB, the Tribunal delivered a significant ruling in favour of the assessee. Relying on the Special Bench decision in Union Bank of India, it held that nationalised banks are not “companies” incorporated under the Companies Act but are statutory entities created under a separate Act.

Therefore, the deeming fiction under the Income Tax Act cannot extend to treat them as companies for the purpose of Section 115JB. Consequently, MAT provisions were held inapplicable. Regarding Section 14A disallowance, the Tribunal upheld the CIT(A)’s deletion, noting that where interest-free funds exceed investments, no disallowance of interest is warranted, in line with judicial precedents. On TDS-related issues, the Tribunal upheld the deletion of disallowance under Section 40(a)(ia) for short deduction of TDS, following the jurisdictional High Court rulings. It also upheld the deletion of disallowance under Section 40(a)(i) on payments made to VISA Worldwide Pte Ltd., holding that in the absence of a Permanent Establishment (PE) in India, such payments were not taxable under the India–Singapore DTAA, and hence no TDS obligation arose.

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