C()Rnputcd On Accrual Basis Ard Not On Clue Basistirr This Particulat Assessmcnt Ycar 1995 96 ? v. Cit, 1.999 - 237 Itr - 889 (Sc)Anrl Llnited Commercial Bank V. Cil', 1999 -24() [_ ]Rtr 3Ss (Sq ?

I I IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD WEDNESDAY, THE FOURTH DAY OF JANUARYTWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYANANDTHE HONOURABLE SRI JUSTICE N.TUKARAMJI lncome Tax Tribunal Apoeal No. 7 of 2006 Appeal under section 260-A of the lncome Tax Act, 1961 aggrieved by theorder dated 20.04.2005 made in lTA.No.601/HydeGbadt2OOl on the file of thelncome Tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad, preferred agarnstthe order dated 27 .04.2O01 made in l.T.A.No.982/SR-3/C|T (A)V(Cent.y1999-2000on the file of the Commissioner of lncome Tax (Appeals) V (Central), Hyderabad,order dated 20.04.2005 made in lTA.No.601/HydeGbadt2OOl on the file of thelncome Tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad, preferred agarnstthe order dated 27 .04.2O01 made in l.T.A.No.982/SR-3/C|T (A)V(Cent.y1999-2000on the file of the Commissioner of lncome Tax (Appeals) V (Central), Hyderabad,against the order dated 28.11.1997 made n PAN/GlR No.S-74 on the file of the ofthe Deputy Commissioner of lncome Tax [(Assts) ]Spl. Range-3, Hyderabad.the Deputy Commissioner of lncome Tax [(Assts) ]Spl. Range-3, Hyderabad. Between:State Bank of lndia, Gunfoundry, Hyderabad - 500 001.(Cause Title is amended as per Court Order dated 02.01.201a in ITTAMP.No.800ot 2017) ..,Appellant.AND The Deputy Commissioner of lncome Tax [Assessments], Special Range - lll,Basheerbagh, Hyderabad - 500 001 . ...Respondent. Counsel for the Appellant: Sri Karthik Ramana Puttamreddy, AdvocateCounsel for the Respondent: Sri J.V.Prasad [(SC ]for lncome Tax)The Court made the following: ORDER TTIt' TIOI\'BLE THE CTIIEF IUSTICE UIIAL DHIIYANAND TFIE HON'BLE SRI IUSTICE N.TUKAXAMIII.T.T.A.No.7 of 2006 JUDGMENI. [?et ][the ][Hon'b/e ][rhe ][Chitl]urne ][ttljat ][Bhayr)] [ [card Mr. I(arthik l{amana Puttamreddy, learncdcounsel frrr the appellant and Mr. learned StandingJ.V.Prasad, C<>unscl,I ncome [-l'ar ]l)cpartment representing thercspontlcnr 2. -l'his appeal has becn filcd by the assessec 2.e., State Bankof lndirr (as rnrended fu rb.c c()urt order dated 02.01.2018 inI'I"I'ANIP.NI,.800 of 2017) under Section 2604 of the IncomeTax Acr, 19{r1 (bdefly 'the Act' hereinafter) against the orderdated 20.04.2()05 passed by the Income Tax Appellatef'ribunel, Hyderabad Bench 'A', Hyderabad (Iribunal)1nI.T.A.No.60 1 /Hyd/2001 ftrr the assessment year 1995-96. 3. Wc nray mention that the appeal was admittedon 27.02.20A6 without frarrring any subsantial question of law. [\] / Horvevcr, the substantial questions o[ law proposecl in thcmemo o[ appeal rcad as undcr: 18.1. Whether on thc facts and in thecircumstances of this case, the ['I'ribunai ]isjustiEed in upholding the lncome TaxDepartment's view that interest on securitiesshould necessarily be computed on "accrualbasis" (as if interest accrued to the bank on aday-to-day basis) and not on "due basis" (i.e., onthe basis that interest incomc is claimable onlyon specified datcs) assessment year 1995-96 ?18.2. Whether on the facts and in tl-recfucumstances of this case, the Tribunal isjustified in holding that taxable income undcrthe Income Tax Act should be computed inaccordance with the Banking Regulation Actand Reserve Bank of India guidelines (and notin accordance with the system of accountingpermitted undet the Income Tax Act) ?18.3. Whethet on the facts and in theciicurnstances of this case, the Tribunal isjustiEed in holding that under Section 145 of theAct (as it stood at the relevant time) incomefrom interest on securities should necessarily be I c()rnputcd on accrual basis ard not on clue basistirr this particulat assessmcnt ycar 1995 96 ? I c()rnputcd on accrual basis ard not on clue basistirr this particulat assessmcnt ycar 1995 96 ? 18.4 \\'hetl'rcr ()r the facts and in thecircumstanccs oi this case, the T'ribunal isjustified in ignoring the letter dated 02.0i.1995addressctl bv thc Ccntral Board of Dircct Taxesto rhc Chief Commissioner of Income Tax,addressctl bv thc Ccntral Board of Dircct Taxesto rhc Chief Commissioner of Income Tax,Ilanqalotc. in rt'spcct of the assessment of(-tnarir Bank, whilc deciding the prescnt appealo[ Statc Bank of I lr,derabad ?(-tnarir Bank, whilc deciding the prescnt appealo[ Statc Bank of I lr,derabad ? i8.:. Whcther or-r the facts and in thecircrrnrstanccs oI this case, the Tribunal isjustrfied in rclyinu on thc earlier decision of theStrprernc Court ,rf State Bank of Travancorev. CI'f, 1996 158 - ITR - 102 (SC), when thatdccrsion does not deal with the subject ofinterest on securities, and rvhen the SupremeCorrrt itsclf disagreed even with thc abovejudgment in its later decisions in the cases ofUCO Bank v. CIT, 1.999 - 237 ITR - 889 (SC)anrl Llnited Commercial Bank v. CIl', 1999 -24() [_ ]rTR 3ss (Sq ? 18.(r. [\X/hether ]on the facts and in thecirt urnstances oI tlis case, the ['fribunal ]isjusrified in relying on its own earlier judgment inthc case of DCIT, Special Range -IV, Hyderabad v. Nagarjuna Investment TrustLtd., Hyderabad in ITA No.954/Hydl1991for A.Y.1987-88 rcported in 67 - ITD - 17 (SB-Hyderabad) in which case the Tribunal wasconccrncd with assessment of income from hirepurchase financing and riot income fromsecurities ? 18.7 . NThether on the facts and in thecircumstances of this case, the Tribunal wasjustifled in upholding the enhancement of thetaxable income of this particular year, bvchanging the basis of computation of incorncwithout giving consequential relief for ail theearl.ier assessment yean ? - 4. Basic issue as is discernable from thc substaotialquestions o[ lau, formulated above is whether income frttminterest on securities should bc computed on accrual basis oron due basis. 5. Issuc raised in this appeal has been gone into by the/ Bombay High Court in Director of Income [Tax]M/s. Credit Suisse First(International Taxation) Boston (Cvprus) Limitcdr. Bombay Ftrgh Crurt has held asfollows: "The appellant's submission is entirelyunfounded and is based on the erroneouspremise that the rmount received upon the saleof a securiry in excess of the face value thereofincltdes the interest for the proportionateperiod upto the date of the sale. The erroneotspresumption is that interest accrues de die in dtemeven when the agreement between the partiesstipulates interest to be papble only on aspecified date. If the appellant's argument is wellfounded, it makes no difference as to the brolenperiod for which interest is deemed to haveaccrued. If, on the other hand and as we havehelil, rt is not well founded, the interest cannotbe said to have accrued for any part of thebrolre n period. In other wonCs, interest can beunfounded and is based on the erroneouspremise that the rmount received upon the saleof a securiry in excess of the face value thereofincltdes the interest for the proportionateperiod upto the date of the sale. The erroneotspresumption is that interest accrues de die in dtemeven when the agreement between the partiesstipulates interest to be papble only on aspecified date. If the appellant's argument is wellfounded, it makes no difference as to the brolenperiod for which interest is deemed to haveaccrued. If, on the other hand and as we havehelil, rt is not well founded, the interest cannotbe said to have accrued for any part of thebrolre n period. In other wonCs, interest can besaid to have accrued only on the date on vrhichit sas due as per the terms and conditions of thesecuriry.it sas due as per the terms and conditions of thesecuriry. \X/hen an instrument oi - ,g...-..,stipulates interest to be payable at a specifieddate, interest does not accnre to the holdert lzor; :lsr rrn :z.rstipulates interest to be payable at a specifieddate, interest does not accnre to the holdert lzor; :lsr rrn :z.r / thereof on any date prior thereto. Interest wouldaccrue or arise only on the date specified in theinstrument. That a creditor has a vested right toreceive interest on a stated date in future doesnot corstitute an accnral of the interest to himon any prior date. [tff{here ]an irstrument providesfor the payment of interest only on a pa-rticulardate, an action filed prior to such date would bedismissed as prefivrture and not disclosing acause of action. Subject to a contract to thecontmry a debtor is not bound to pay intereston a date earlier to the one stipulated in theagreement/instmment. In the present case, it isadmhed that interest was not papble on anydate other than that mentioned in the securiry.The assignee or purchaser of such a securitydoes not sund on a different footing. FIe has, byvitue of the assignment or purchase, the righrvested in him to receive the interest but only onthe terms of the securiry and subject to all theincidents thereof as were applicable o t.heoriginal owner. - 6. Thw, it has been held that interest can be said to have,, [accrued ][only on ][the ][date ][on which ][it ][was ][due ][as ][per the ][terrns] and conditions of the secr"rriry. Vhen an instrument or anagreement stipulates interest to be papble at specified date,interest does n,rt accrue to the holder thereof on any dateprior thereto. Interest would accrue or arte only on the datespecified in the instrument. This decision of the BombayFlgh C-ourt was followed by the same Ftrgh C.ourt1nCommissioner of Income Tax v. State Bank of India2.One of the subs,tantial questions of law which vras consideredby the Bomba.y Ftrgh Coun was whether Tribunal was right inlaw in accepting the plea of the assessee that the interestincome of Rs.38.24 crores on the securities had to be taxed ondue basis only :nstead of accrual basis as per the mercantiles)6tem of accotrnting followed by the assessee. Insofar thisquestion is c,xcemed, Bombay Ftrgh Court referred to itsprevious decisic,n in Credit Suisse First Boston (Cyprus)Limited (1 supra) and held that issue stands concluded againstthe revenue and in favour of the assessee. 2 2016 SCC Online Bombar, 9749 I I I 7. Learned counsel for the appellant submits that againstthe aforesaid decision of the Bombay Flgh C-oun h StateBank of India (2 supra), revenue prefened SLP(Q.No.2a250of 2017, which was subsequently registered as Gvil AppealNo.435Z of 2018. The said appeal was heard and decided bythe Supreme C-oun along with other civil appeals which havesince been reponed in Deputy Commissioner of IncomeTax v. T.Jayrrchirndr:tn [t.] 8. Leamed counsel for the appellant fairly submits thatthough in the body of the [judgment ]there is no discussion onthe issue as to the finding of the Bombay F[gh Coun that theinterest income on securities has to be taxed on due basis,nonetheless, by the aforesaid decision, the appeals preferredbythe revenue were dismissed. 9. Be that as it may, we concur with the view expressed bythe BombayF[gh C-ourt in M/s. Credit Suisse First Boston 3 izott; e scc rssizott; e scc rss \ (Cyprus) Ltd (1 supra) lollowed by the decision in StateBank of India (2 supra).Bank of India (2 supra). 10. C-onsequently, the substantial questions of law areanswered in favour of the assessee and against the revenue. 1,1. Appeal is accordingly,rllowed. No cosrs. As a sequel, miscellaneous peririons, pending lf any.,stand closed. Sd/. K. SRINIVASA RAOJOINT REISTRARC //TRUE COPY// SECTION OFFICER To, 1. The lncome Tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad. 2. The Commissioner of lncome Tax (Appeals) V (Central), Hyderabad. 3. The Deputy Conrmissioner of Income Tax (Assts) Spl. Range-3, Hyderabad.4. One CC to Sr-i Karthik Ramana Puttamreddy, Advocate 5. One CC to Sri J.V.Prasad (SC for Income Tax) 3 izott; e scc rssizott; e scc rss \ (Cyprus) Ltd (1 supra) lollowed by the decision in StateBank of India (2 supra).Bank of India (2 supra). 10. C-onsequently, the substantial questions of law areanswered in favour of the assessee and against the revenue. 1,1. Appeal is accordingly,rllowed. No cosrs. As a sequel, miscellaneous peririons, pending lf any.,stand closed. Sd/. K. SRINIVASA RAOJOINT REISTRARC //TRUE COPY// SECTION OFFICER To, 1. The lncome Tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad. 2. The Commissioner of lncome Tax (Appeals) V (Central), Hyderabad. 3. The Deputy Conrmissioner of Income Tax (Assts) Spl. Range-3, Hyderabad.4. One CC to Sr-i Karthik Ramana Puttamreddy, Advocate 5. One CC to Sri J.V.Prasad (SC for Income Tax) 6. Two CD Copies JCI(DL \}," HIGH COURTDATED:0410112023 ORDERITTA.No.7 of 2006 Allowing the l.T.T.A. \vithout costs [iE [o,r'{l(\(]2!n)['1