A. Sinha, (Member):— This application has been filed in Form No. 34E under section 245Q(1) by the Bank of India which is a public sector undertaking.

2. The case of the applicant is that it filed a 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 (“the 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 (“the Assessing Officer”) vide assessment order dated March 31, 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 (Appeals)-XLVI, Mumbai, who, vide his order dated January 8, 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 the 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 (“the ITAT”). Being a public sector undertaking, the applicant also sought the approval of the Committee on Disputes (“COD”) for pursuing the appeal before the Income-tax Appellate Tribunal. 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 a 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 profit for arriving at book profit as per section 115JA, i.e, under MAT provisions.”

3. 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 the Explanation to sub-section (2) of section, 115JA on the ground that the 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 provision for taxation made by the foreign branches under the 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 the book profit. The jurisdictional Commissioner has also stated that the provision for foreign taxes was an unascertained liability for the purpose of section 115JA. Since the case involves interpretation of section 115JA, its relevant provisions are extracted below:

115JA. Deemed income relating to certain companies.—(1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 but before the 1st day of April, 2001 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent, of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent, of such book profit.

(2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956):….

Explanation.—For the purposes of this section, ‘book profit’ means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by—

(a) the amount of income-tax paid or payable, and the provision therefor; or

(b) the amounts carried to any reserves by whatever name called; or

(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or

(d) the amount by way of provisions for losses of subsidiary companies; or

(e) the amount or amounts of dividends paid or proposed; or

(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies,

if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,—

(i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account:

Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997, but ending before the 1st day of April, 2001, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn), under this Explanation; or

(ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or….

(4) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.”

4. Section 115JA provides for tax credit over a period of five years in respect of MAT paid under section 115JA.

5. Sub-section (1) of section 115JA begins with a non obstante clause. The opening words of this sub-section are “Notwithstanding anything contained in any other provisions of this Act”. Sub-section (4), at the end of this section, says that save as otherwise provided in this section, all other provisions of this Act shall apply to every company mentioned in this section. A careful reading of section 115JA shows that so far as the determination of book profit and the liability to pay minimum tax based on book profit is concerned, this section is a self-contained code. Therefore, in determining book profits and deemed income, it prevails over the other provisions of this Act. The section provides for levy of tax on certain companies by deeming a certain percentage of their book profit as taxable income in relation to the assessment years 1997-98 to 2000-01. According to this provision, if the total income of a company is less than thirty per cent, of its book profit, then thirty per cent, of such book profit shall be deemed to be the taxable income of that company. Sub-section (2) of section 115JA requires a company to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The Explanation to this sub-section states that “book profit” means net profit as shown in the profit and loss account/as increased, inter alia, by the amount of income-tax paid or payable and the provision made for the same. The Central Board of Direct Taxes Circular No. 763, dated February 18, 1998 . [1998] 230 ITR (St.) 54 (“1998”) elaborating the scope of this section, states that the number of companies either paying no taxes or paying marginal taxes has of late increased. Therefore, section 115JA has been inserted so as to levy minimum tax (“minimum alternative tax” or “MAT”) on such companies. It is noticed that prior to the insertion of section 115JA, a similar provision for levying minimum tax on book profit, namely, section 115J, had been made from the assessment year 1988-89, but was discontinued from the assessment year 1991-92. Explaining the reasons behind the incorporation of the said provision, the Central Board of Direct Taxes Circular No. 495 dated September 22, 1987 . [1987] 168 ITR (St.) 87 stated that it was an accepted canon of taxation to levy taxes on the basis of the ability to pay. As a result of various tax concessions and incentives, certain companies making huge profits and also declaring substantial dividends had been managing their affairs in such a way as to avoid payment of income-tax. Accordingly, as a measure of equity, section 115J was introduced. We find that the purpose behind the enactment of sections 115J and 115JA remains essentially the same and these circulars state the same reasons, albeit in slightly different language, for the enactment of the provisions.

6. Shri Jehangir Mistry, learned counsel for the applicant in the course of argument drew our attention to the above Central Board of Direct Taxes Circular No. 495 dated September 22, 1987 . [1987] 168 ITR (St.) 87. He submitted that in the said circular, the rationale behind this section was the ability of the company to pay taxes. So far as the present applicant was concerned, the provision made for foreign tax reflected the exact tax amount which was payable in those countries. Since the entire amount in question would be paid to the concerned foreign governments, the ability of the applicant to pay tax in India would be reduced to that extent. Therefore, the applicant would be eligible to get tax credit for the amount equivalent to foreign tax while calculating the MAT to be paid by him. Shri S.D Kapila, learned counsel appearing for the Revenue, on the other hand, argued that section 115JA was a complete code in itself. It talked of income-tax on book profit and not on total income. The ability to pay tax must be examined only with respect to pre-tax income. The ability to pay taxes whether on Indian income or foreign income stands on the same footing. A company having no foreign branch would have to pay income-tax on its total book profits, whereas a company having foreign branches would not include in its book profit taxes payable in those countries. This would result in inequity. There could not be any distinction between companies having foreign branches and those having no foreign branches. Therefore, there was no reason as to why income-tax paid or payable abroad should not be taken into account while computing the book profits of the company. We have already observed from the Central Board of Direct Taxes circular dated September 22, 1987, that the stated reason for levying tax on book profit was that, even some profit-making companies were paying little or no taxes at all, taking advantage of various deductions and exemptions, even though they had the capacity to pay taxes. The “ability to pay” has been used in the said circular in this sense. The observation of the Supreme Court in Apollo Tyres Ltd. v. Commissioner Of Income Tax, Kochi ., [2002] 255 ITR 273 also confirms this view. The court in that case had the occasion to refer to the object of introducing section 115J. It noted the following portion of the Budget Speech of the Finance Minister . See [1987] 168 ITR (St.) 87 (at page 279):

“It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called ‘zero-tax’ highly profitable companies deserves attention…. I now propose to introduce a provision whereby every company will have to pay a ‘minimum corporate tax on the profits declared by it in its own accounts.”

7. The court observed:

“The above speech shows that the income-tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that section 115J was introduced in the Income-tax Act with a deeming provision which makes the company liable to pay tax on at least 30 per cent, of its book profits as shown in its own accounts.”

8. Coming back to the circular, it nowhere differentiates between income earned in India and that earned abroad. It also does not indicate that the ability to pay tax would be the post tax ability. Above all, the said circular is only an elucidation by the executive authorities of the reasons behind the enacting section 115J. The Central Board of Direct Taxes circulars dated September 22, 1987 . [1987] 168 ITR (St.) 87 and February 18, 1998 . [1998] 230 ITR (St.) 54 cannot serve as an aid to interpret the statutory provisions made in this regard. We have to test the argument of the applicant vis-a-vis the actual provisions contained in section 115JA itself. This section speaks of “book profit” as increased by income-tax paid or payable. For the purpose of calculating the “book profit”, the assessee has to prepare the profit and loss account as per Parts II and III of Schedule VI to the Companies Act, 1956. These provisions require the assessee to disclose every material feature while preparing the profit and loss account, so that it clearly reflects the result of the working of the company as a whole. The profit and loss account has to set out various items relating to the income and expenditure of the company arranged in the most convenient way. Amounts of income-tax payable in India and abroad are to be separately shown, as also the amount of relief from the Indian income-tax. Amounts set aside to provisions made for meeting specific liabilities, contingencies, commitments and also amounts withdrawn therefrom are also to be shown. The net profit is arrived at as per the profit and loss account by taking into account the profit made by the foreign branches as well. Thus, the profit earned by the foreign branches is an integral part of the net profit. Thirty per cent, of the net profit so arrived at shall be deemed to be the total income of the assessee for the relevant previous year. The main part of the Explanation defines book profit and immediately thereafter ordains under clause (a) that income-tax paid or payable for which provision has been made in the profit and loss account, shall be added to the net profit. We are of the view that in the context in which clause (a) of the Explanation occurs, the expression “income-tax” in clause (a) should be referable to the profits reflected in the profit and loss account.

9. Learned counsel appearing for the applicant places strong reliance on clause (43) of section 2 of the Act and contends that “tax” means income-tax chargeable under the provisions of the Act. Section 2(43) reads as follows:

“In this Act, unless the context otherwise requires,—…

(43) ‘tax’ in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA.”

10. Section 2 which is a definition or interpretation section, starts with the expression “unless the context otherwise requires”. Modern statutes invariably contain an interpretation or definition section which defines the main terms and expressions repeatedly used in the statute. When a statute defines a particular term or expression, it is that definition which has to be taken for construing the meaning of that term or expression, wherever it occurs in the statute. Normally, it would not be permissible to construe it in any other manner. In other words, once an expression is defined in the Act, that expression wherever it occurs in the Act, rules or notifications, made thereunder, should be understood in the same sense, unless there is anything repugnant in the subject or context. At the same time, it is also a settled position of law that even where an Act contains a definition section, it does not necessarily apply in all the contexts in which a defined word may be used. If a defined expression is used in a context in which the definition would not fit, the context must be allowed to prevail over the definition clause, and the word must be given its contextual meaning. It is for this reason that the definition or interpretation section generally contains an expression similar to the one used at the beginning of section 2 of the Act. The Supreme Court in the case of CIT v. Indira Balkrishna, [1960] 39 ITR 546, 551 held:

“The meaning to be assigned to the words must take colour from the context in which they occur.”

11. The apex court again in the case of Dy. Chief Controller of I. & E. v. K.T Kosalram, [1999] 110 ELT 366, 373 has held as follows:

“What particular meaning should be attached to words and phrases in a given instrument is usually to be gathered from the context, the nature of the subject matter, the purpose of the intention of the author and the effect of giving to them one or the other permissible meaning on the object to be achieved.”

12. The expression “income-tax” is used in section 115JA in a general sense, and not with reference to the income-tax chargeable under the provisions of the Act, 1961 alone. No distinction between Indian and foreign income-tax can be drawn by reference to section 2(43) which defines “tax”. The contextual setting of clause (a) of the Explanation to sub-section (2) of section 115JA has to be kept in view. If so, there is no justification to restrict the scope of the expression “income-tax” to Indian income-tax only.

13. As the applicant is a resident of India, income earned by its branches abroad would also be chargeable to tax under clause (c) of sub-section (1) of section 5 of the Act. We do not find any dispute about this. In fact, the applicant, in computing its total income, had included income earned by its foreign branches, but had claimed exclusion of this amount from the total income as double taxation relief in terms of article 7 of the relevant agreements on avoidance of double taxation, read with section 90 of the Act. The said article 7 provided that taxation of the income of permanent establishment had to be made by the country where the permanent establishment was located. The Supreme Court in the case of Union of India v. Azadi Bachao Andolan, [2003] 263 ITR 706, 726 held:

“The challenge being only to the exercise of the power emanating from the section, we are of the view that section 90 enables the Central Government to enter into a DTAC with the foreign Government. When the requisite notification has been issued thereunder, the provisions of sub-section (2) of section 90 spring into operation and an assessee who is covered by the provisions of the DTAC is entitled to seek benefits thereunder, even if the provisions of the DTAC are inconsistent with the provisions of the Income-tax Act, 1961.”

14. We observe that, applying the above principles, the appellate authority directed exclusion of income from the foreign branches of the applicant, though otherwise chargeable under the Act, from the computation of total income. However, in the instant case, the order of the appellate authority may not result in immediate benefit to the applicant in so far as MAT is concerned. It may have a bearing in other respects in future years such as the quantum of carry forward loss.

15. In conclusion, we would like to clarify one aspect. The impact, if any, of the treaty provisions on computation of book profits and on arriving at MAT is not an issue before us. Therefore, this Authority is not expressing any view on this point.

16. In the light of the above, we rule that the provision of Rs. 4,57,57,000 made by the foreign branches of the applicant for payment of income-tax in those countries, is required to be added to book profit in terms of section 115JA of the Act. Pronounced in the open court of the Authority on this 29th day of November, 2007.