Income Tax v. Nedungadi Bank Ltd[2] Read With

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 13 DAY OF JULY 2021 / 22ND ASHADHA, 1943 ITA NO. 304 OF 2009 AGAINST THE ORDER IN ITA 179/COCH/2000 DATED 31.10.2003 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX, TRICHUR BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: M/S.DHANALAKSHMI BANK LTD.,TRICHUR BY ADVS.SRI.MOHAN PULIKKALSRI.P.BALAKRISHNAN SRI.NARAYANAN P POTTY THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 13.07.2021, THECOURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA NO. 304 OF 2009 -2- J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learnedAdvocate Mr.Mohan Pulikkal for parties. 2.Revenue is the appellant. Dhanlakshmi Bank Ltd,Trichur/Assesee is the respondent. The appeal is directedagainst the order of the Income Tax Appellate Tribunal, CochinBench in I.T.A 179/Coch/2000 dated 31.10.2003. The appeal dealswith the issues arising from the tax return filed by the assessee,for the assessment year 1995-96. 2.1. The Assessing Officer through the assessment order inAnnexure-A disallowed the claim of the assessee under Section36(1)(viia). Similarly, the Assessing Officer disallowed the claimof payment of broken period interest on securities purchased by ITA NO. 304 OF 2009 -3- the assessee for being compliant with the statutory norms. Theassessee aggrieved by the disallowances, filed appeal before theCommissioner of Income Tax (Appeals) and the appeal wasallowed in part. In the appeal filed by the assessee before IncomeTax Appellate Tribunal, through Annexure-C order, the claims ofthe assessee under Section 36(1)(viia) and broken period interestwere allowed by the Tribunal. Hence the instant Income TaxAppeal, at the instance of the revenue under Section 260 A of theIncome Tax Act (for short, the Act). The following substantialquestions of law are raised by the revenue: 1. Whether, on the facts and in the circumstances of the caseand on an interpretation of the relevant provisions, theTribunal is right in law,-and on an interpretation of the relevant provisions, theTribunal is right in law,- i) in interfering with the disallowance of bad debts written offunder section 36(1) (vii) amounting to Rs.22,78,703/-?under section 36(1) (vii) amounting to Rs.22,78,703/-? ii) in allowing the bad written off under Section 36(1) (vii)amounting to Rs.22,78,703/-amounting to Rs.22,78,703/- 2. Whether, on the facts and in the circumstances of the caseand also in the light of the decision of the Supreme Court inUnited Commercial Bank (32 ITR 688) followed in subsequentdecisions of Supreme Court,-and also in the light of the decision of the Supreme Court inUnited Commercial Bank (32 ITR 688) followed in subsequentdecisions of Supreme Court,- i) the assessee is entitled to claim deduction of broken periodinterest (Rs.1,15,86,754/-)? interest (Rs.1,15,86,754/-)? ITA NO. 304 OF 2009 -ii) The Tribunal is right in law interfering with the disallowance of broken period interest. (Emphasis added) 3. The first question is regarding the eligible deductionunder Section 36(1)(viia) of the Act. It is stated by the counselappearing for the parties that question no.1 is covered by thejudgment of Supreme Court in Catholic Syrian Bank v.Commissioner of Income Tax[1] and had answered the issue infavour of assessee and against the revenue. We are referring tothe decision of the Apex Court with a limited view tocomprehensively advert to the outcome on all the questionsraised by the revenue in the instant appeal. The operative portion in Catholic Syrian Bank Ltd case reads thus: ITA NO. 304 OF 2009 -ii) The Tribunal is right in law interfering with the disallowance of broken period interest. (Emphasis added) 3. The first question is regarding the eligible deductionunder Section 36(1)(viia) of the Act. It is stated by the counselappearing for the parties that question no.1 is covered by thejudgment of Supreme Court in Catholic Syrian Bank v.Commissioner of Income Tax[1] and had answered the issue infavour of assessee and against the revenue. We are referring tothe decision of the Apex Court with a limited view tocomprehensively advert to the outcome on all the questionsraised by the revenue in the instant appeal. The operative portion in Catholic Syrian Bank Ltd case reads thus: “Firstly, the Full Bench ignored the significant expressionappearing in both the proviso to Section 36(1) (vii) clause (v) ofSection 36(2) i.e ., 'assessee to which clause (viia) sub-section(1) applies'. In otherwords, if the case of the assessee does not fall under Section36(1)(viia) proviso/limitation would not come into play. ITA NO. 304 OF 2009 xxxx xxxx xxxx “Consequently, while answering the question in favour of theassessee, we allow the appeals of the assessee and dismiss theappeals preferred by the revenue. Further, we direct that allmatters be remanded to the Assessment Officer forcomputation in accordance with law, in light of the lawenunciated in this judgment.” 4.Substantial question no.2, is a claim towards payment of broken period interest by the assessee. Thequestion is covered also in favour of the assessee and againstthe revenue in the reported judgment in Commissioner of Income Tax v. Nedungadi Bank Ltd[2] read with Commissioner of Income Tax v. South Indian Bank[3] Theoperative portion of the judgment is excerpted hereunder: “For all these reasons, we are of the view that the Income-taxAppellate Tribunal has rightly held that the securities held bythe assessee-bank in all these cases are the stock-in-trade ofthe business of the assessee-banks and the notional losssuffered on account of the revaluation of the said securities atthe close of the year is an allowable deduction in the 2 (2003) 264 ITR 545 (Ker.) 3 (2000) 241 ITR 374 (Ker.) ITA NO. 304 OF 2009 computation of the profits of the appellant. This disposes of thefirst two questions mentioned in para. 10 (page 552) above.” The questions of law framed, by following the judgmentsreferred to above, are answered in favour of the assessee andagainst the revenue. Income Tax Appeal stands dismissed accordingly. JS Sd/-S.V.BHATTIJUDGESd/-BECHU KURIAN THOMASJUDGE ITA NO. 304 OF 2009 -7- APPELLANT'S ANNEXURES APPENDIX ANNEXURE ATRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 22.12.1997. ANNEXURE BTRUE COPY OF THE ORDER OF THE CIT(A) DATED 07.02.2000. ANNEXURE CCERTIFIED COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 31.10.2003. RESPONDENT'S ANNEXURES: NIL