Court In Case.catholic Syrian Bank v. Commissioner Of Income Tax[1

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMASWEDNESDAY, THE 14 DAY OF JULY 2021 / 23RD ASHADHA, 1943 ITA NO. 1407 OF 2009 AGAINST THE ORDER IN ITA 380/1993 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: COMMISSIONER OF INCOME TAX,TRICHUR. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: CATHOLIC SYRIAN BANK LTD, TRICHUR.BY ADVS.SMT.R.S.GEETHASRI.K.P.ABDUL AZEESSRI.V.B.UNNIRAJSR. ADV JOSEPH MARKOS THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.07.2021,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No. 1407/2009 J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Senior Advocate Mr. Joseph Markos for the parties. 2.Commissioner of Income Tax, Trichur/Revenue is the appellant. Catholic Syrian Bank Ltd, Trichur/assessee is therespondent. The appeal is directed against the order of IncomeTax Appellate Tribunal (for short ‘Tribunal'), Cochin Bench inITA No.380/Coch/1993 dated 14.02.2003. The appeal deals withthe issues arising in the tax return filed by the assessee for theAssessment Year 1990-91. 3.The Assessing Officer through the assessment orderin Annexure-A, disallowed the claim of the assessee underSection 36(1)(viia), bad debts in urban branches etc. The I.T.A. No. 1407/2009 assessee filed appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. The Revenue filedappeal before the Tribunal and the Tribunal through order inAnnexure-C partly allowed the appeal for statistical purpose, inother words confirmed the order in CIT (Appeals) substantially.Hence, the instant Tax Appeal at the instance of the Revenueunder Section 260A of the Income Tax Act (for short 'the Act').The following substantial questions of law are raised by theRevenue: “1.Whether, on the facts and in the circumstances of thecase, and also in the light of the relevant provisions especiallyproviso to Section 36(1)(vii) cannot be the claim of the assesseefor bad debts u/s 36(1)(vii), and the claim in the credit balancein the provision for bad and doubtful debts u/s. 36(1)(viia) bedisallowed? 2.Whether, on the facts and in the circumstances of thecase, the claim of bad debts and bad and doubtful debts is anallowable deduction?case, the claim of bad debts and bad and doubtful debts is anallowable deduction? 3.Whether, on the facts and in the circumstances of thecase is not the expenditure on account of payment of penalcase is not the expenditure on account of payment of penal I.T.A. No. 1407/2009 interest to RBI in the nature of penalty for violation of theprovisions of Banking Regulation Act and hence animpermissible deduction? 4.Whether, on the facts and in the circumstances of thecase is not the order of the Assessing Officer while computingthe profit under Section 115J restricting the deduction ofprovision for bad and doubtful debt to the actual ascertainedliability in accordance with law and is the Tribunal justified ininterfereing with the same?” 4.Question nos. 1 and 2 are decided by the Supreme Court in case.Catholic Syrian Bank v. Commissioner of Income Tax[1] The operative portion of the reported judgment is excerptedhereunder: “Catholic Syrian Bank “Firstly, the Full Bench ignored the significant expressionappearing in both the proviso to Section 36(1) (vii) clause(v) of Section 36(2) i.e ., 'assessee to which clause (viia) sub-section(1) applies'. Inother words, if the case of the assessee does not fall under I.T.A. No. 1407/2009 Section 36(1)(viia) proviso/limitation would not comeinto play.” xxx xxxx xxxxx 4.Question nos. 1 and 2 are decided by the Supreme Court in case.Catholic Syrian Bank v. Commissioner of Income Tax[1] The operative portion of the reported judgment is excerptedhereunder: “Catholic Syrian Bank “Firstly, the Full Bench ignored the significant expressionappearing in both the proviso to Section 36(1) (vii) clause(v) of Section 36(2) i.e ., 'assessee to which clause (viia) sub-section(1) applies'. Inother words, if the case of the assessee does not fall under I.T.A. No. 1407/2009 Section 36(1)(viia) proviso/limitation would not comeinto play.” xxx xxxx xxxxx “Consequently, while answering the question in favour ofthe assessee, we allow the appeals of the assessee anddismiss the appeals preferred by the revenue. Further, wedirect that all matters be remanded to the AssessmentOfficer for computation in accordance with law, in light ofthe law enunciated in this judgment.” Therefore, question nos.1 and 2 are answered in favour ofassessee and against the Revenue. 4.1 Question no.3 is covered against Revenue by the reported judgment in Commissioner of Income Tax v. Catholic Syrian Bank[2] which reads: “We have already noted the principles laid down by the Supreme Court and by this court in the matter of ascertainingthe nature of the payment of interest. The Supreme Court hastaken the view that if the payment made is compensatory in nature certainly it will not be penal in character. In these casesin the light of the discussions which we have already made ithas to be treated that the payment of penal interest providedfor the first default has to be treated as compensatory. There isalso an element of compensation in so far as the Reserve Bankof India is concerned, for, section 42(1) of the Act requires thedeposit of the amount provided therein in the Reserve Bank ofIndia itself in which case the Reserve Bank of India canturnover the said deposit and get interest on the said amountso long as the deposit continues. To the extent of notmaintaining the said requirement the Reserve Bank did not getthe opportunity to turnover the amount and to get interest. Inthat view of the matter, there is an element of compensationalso involved. Now that we have considered the provisions ofsection 37 of the Income-tax Act as also the relevant provisionsof the Reserve Bank of India Act as well as the BankingRegulation Act and have decided the main issue with regard tothe nature of the levy with reference to the principles laiddown by the Supreme Court and this court now the mattermust go back to the assessing authority for consideration of theclaim made by the assessees in all these appeals in the light ofthe interpretation placed by us in this judgment. We accordingly set aside the orders of the two appellateauthorities relating to this question and direct the assessing I.T.A. No. 1407/2009 authority to modify the assessment in the light of thedirections issued in this judgment.”4.2Substantial question no.4 is covered against the Renenue and in favour of the assessee by the judgment reported in Commissioner of Income-Tax v. HCL Comnet Systems and ServicesLtd[3]. The operative portion of the judgment is excerptedhereunder: We accordingly set aside the orders of the two appellateauthorities relating to this question and direct the assessing I.T.A. No. 1407/2009 authority to modify the assessment in the light of thedirections issued in this judgment.”4.2Substantial question no.4 is covered against the Renenue and in favour of the assessee by the judgment reported in Commissioner of Income-Tax v. HCL Comnet Systems and ServicesLtd[3]. The operative portion of the judgment is excerptedhereunder: “As stated above, the said Explanation has provided six items,i.e., item Nos. (a) to (f) which if debited to the profit and lossaccount can be added back to the net profit for computing thebook profit. In this case, we are concerned with item No. (c)which refers to the provision for bad and doubtful debts. Theprovision for bad and doubtful debts can be added back to thenet profit only if item (c) stands attracted. Item (c) deals withamount(s) set aside as provision made for meeting liabilities,other than ascertained liabilities. The assessee's case would,therefore, fall within the ambit of item (c) only if the amount isset aside as provision; the provision is made for meeting aliability; and the provision should be for other than anascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfiedto attract item (c) of the Explanation to section 115JA. In ourview, item (c) is not attracted. There are two types of "debt".The debt payable by the assessee is different from a debtreceivable by the assessee. A debt is payable by the assesseewhere the assessee has to pay the amount to others whereasthe debt receivable by the assessee is an amount which theassessee has to receive from others. In the present case, the"debt" under consideration is a "debt receivable" by theassessee. The provision for bad and doubtful debt, therefore, ismade to cover up the probable diminution in the value of theasset, i.e., debt which is an amount receivable by the assessee.Therefore, such a pro-vision cannot be said to be a provisionfor a liability, because even if a debt is not recoverable noliability could be fastened upon the assessee. In the presentcase, the debt is the amount receivable by the assessee and notany liability payable by the assessee and, therefore, anyprovision made towards irrecoverability of the debt cannot besaid to be a provision for liability. Therefore, in our view, item(c) of the Explanation is not attracted to the facts of the presentcase. In the circumstances, the Assessing Officer was notjustified in adding back the provision for doubtful debts of Rs.92, 15, 18 under clause (c) of the Explanation to section 115JA ofthe 1961 Act.” I.T.A. No. 1407/2009 Having regard to above discussion, the questions areanswered in favour of assessee, against Revenue. ITA standsdismissed. Sd/- S.V.BHATTIJUDGE jjj Sd/- BECHU KURIAN THOMASJUDGE PETITIONER ANNEXURE ANNEXURE A ANNEXURE B ANNEXURE C ANNEXURE D APPENDIX OF ITA 1407/2009 TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 30.11.1992 TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 26.2.1993 TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 14.2.2003 TRUE COPY OF THE ORDER OF THE APPELLATE TRIBUNAL, SPECIAL BENCH, COCHIN DATED 09.08.2002