MAT Under Section 115JB Inapplicable to Statutory Banks: ITAT Kolkata's Landmark Ruling in UCO Bank Case

Overview of the Dispute

The Income Tax Appellate Tribunal, Kolkata, recently adjudicated cross appeals arising from an order dated 12.12.2017 passed by the Commissioner of Income-tax (Appeals)-23, Kolkata, pertaining to Assessment Year 2013–14. The central assessee in this matter — UCO Bank — is a nationalised bank established under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and not incorporated under the Companies Act, 1956. The appeals raised several significant tax questions spanning applicability of Section 115JB, deductibility of leave encashment, disallowances under Section 14A read with Rule 8D, short TDS disallowance under Section 40(a)(ia), and non-deduction related disallowance under Section 40(a)(i) for payments to foreign entities.

The Tribunal's pronouncements on each of these issues carry considerable precedential weight, particularly its ruling on the non-applicability of Minimum Alternate Tax provisions to banks formed under special parliamentary legislation.

Issue 1: Deductibility of Leave Encashment — Payment Basis vs. Accrual Basis

Background

During the assessment proceedings for AY 2013–14, the Assessing Officer noted that the assessee had claimed provisions for leave encashment on an accrual basis. Referring to Section 43B(f) of the Income-tax Act, 1961, the AO held that such deductions are permissible only when actually paid and not on the basis of mere provisioning or accrual. The AO accordingly disallowed the claimed amount of ₹35,68,07,485/-.

The assessee had placed reliance on the Calcutta High Court's decision in Exide Industries Ltd. Vs. CIT reported in 292 ITR 470 (Cal). However, the AO noted that the Supreme Court had stayed the operation of the said decision. The CIT(A) upheld the disallowance, concurring with the AO's reasoning.

Tribunal's Ruling

The Tribunal examined the legal position and found the matter conclusively settled by the Supreme Court's decision in Union of India Vs. Excide Industries Ltd. reported in (2010) 116 taxmann.com 378 (SC), order dated 24.04.2020, wherein the Apex Court set aside the Calcutta High Court ruling and decided in favour of the Revenue. The legal position, therefore, stands firmly established — leave encashment deduction is admissible only on payment basis under Section 43B(f).

While the Tribunal affirmed the disallowance of the provisioned amount, it granted relief to the assessee by directing the AO to allow deduction for actual leave encashment payments made during the year under review.

Outcome: Ground No. 1 (challenging the disallowance) was dismissed. Ground No. 2 (without prejudice claim for payment-based deduction) was allowed.

Issue 2: Applicability of Section 115JB (Minimum Alternate Tax) to UCO Bank

Background and Core Question

This was the most critical issue in the entire appeal. The question before the Tribunal was whether the provisions of Section 115JB of the Income-tax Act, 1961, relating to Minimum Alternate Tax, could be applied to a bank that is not incorporated under the Companies Act but instead established through a special statute of Parliament — namely, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.