Ita/256/2011 Of Commissioner Of Income Tax-Iii v. M/S Syndicate Bank

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24 DAY OF JANUARY 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’‘BLE MR. JUSTICE RAVI V.HOSMANL LTA. NO.256 OF ZO11|C/WLT.A. NO.258 OF ZO11 ILT.A.NO.256 OF JZJOL BETWEEN: 1.|COMMISSIONER OF INCOME TAX-III C.R. BUILDING, QUEENS ROAD_ BANGALORE. 2 |ASSISTANT COMMISSIONER OF INCOME TAX. CIRCLE-1, CANARA TOWERS MISSION HOSPITAL ROAD UDUPI-576101, MANGALORE. 3.|DEPUTY COMMISSIONER OF INCOME TAXCIRCLE-I, UDUPI-5/6101..CIRCLE-I, UDUPI-5/6101.. ... APPELLANTS| (By Sri. E.I. SANMATHI, ADV.) AND" M/S. SYNDICATE BANK|H.O. ACCOUNTS DEPT.MANIPAL. ~. RESPONDENT (By Sri. T. SURYANARAYANA RAO, ADV.)| THIS I.T.A. IS FILED U/S.260-A OF I.T. ACT, 1961|ARISING OUT OF ORDER DATED 16-3-2011L PASSED IN ITANO.118/BANG/2008AND|22//BANG/2008,FOR|THE.ASSESSMENT YEAR 2004-05, PRAYING TO FORMULATE THE)SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. SET|ASIDE THE APPELLATE ORDER DATED 16/3/2011 PASSED BY)THE ITAT, ‘A’ BENCH, BANGALORE IN ITA NO.118/BANG/2008|AND 227/BANG/2008, AS SOUGHT FOR IN THIS APPEAL, IN|THE INTERST OF JUSTICE AND EQUITY. 1LT.A. NO.258 OF ZO11 BEI|WEEN 1.|COMMISSIONER OF INCOME TAX-IIIC.R. BUILDING, QUEENS ROAD_BANGALORE.C.R. BUILDING, QUEENS ROAD_BANGALORE. 2 |ASSISTANT COMMISSIONER OF INCOME TAX. CIRCLE-1, CANARA TOWERS MISSION HOSPITAL ROAD UDUPI-576101, MANGALORE. 3.|DEPUTY COMMISSIONER OF INCOME TAXCIRCLE-I, UDUPI-5/6101..CIRCLE-I, UDUPI-5/6101.. ... APPELLANTS| (By Sri. E.I. SANMATHI, ADV.) AND" M/S. SYNDICATE BANK|H.O. ACCOUNTS DEPT.MANIPAL. ... RESPONDENT~ (By Sri. T. SURYANARAYANA RAO, ADV.)| THIS I.7.A. IS FILED U/S.260-A OF I.T. ACT, 1961)ARISING OUT OF ORDER DATED 16-3-2011L PASSED IN ITANO.117/BANG/2008AND|226/BANG/2008,FOR|THE.ASSESSMENT YEAR 2003-04, PRAYING TO FORMULATE THE|SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. SET|ASIDE THE APPELLATE ORDER DATED 16/3/2011 PASSED IN|ITA NO.117/BANG/2008 AND 226/BANG/2008, BY THE ITAT,|‘A’ BENCH, BANGALORE, AS SOUGHT FOR IN THE ABOVE)APPEAL, IN THE INTEREST OF JUSTICE AND EQUITY.| THESE I.T.As. COMING ON FOR HEARING, THIS DAY,|ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT ITA No.256/2011 has been preferred by therevenue under Section 260A of the Income Tax Act, 1961.(nereinafter referred to as the Act, for short), wnicn wasadmitted on 04.06.2012 by a bench of this court on thefollowing substantial questions of law: 1).“Whether on the facts and In the|circumstances of the case, the tribunal wasright in law in allowing deduction claimedtowards bad and doubtful debts withoutmaking provision and without consideringthat section 36(1)(vil) and 36(1)(vila) areseparate and independent, apart from thatassesses’s claim under section 36(1)(vil) ofthe I.T. Act Is limited to the amount which exceeds the credit balance of the provisionsmade under section 36(1)(viila) of the IT.Act ?”. 2)Whether on the facts and In the|circumstances of the case the tribuneal’s ordercan be considered as perverse in nature sincetribunal has allowed the assessee’s appeal byover-looking the provisions of I.T. Act?”. 3).“Whether on the facts and in the}circumstances of the case the tribunel erredin law in deleting the addition representingexcess claim of bad debts written off undersection 36(1)(vii) of tne I.T. Act, exceedingthe credit balance of the provision madeunder section 36(1)(viia) of the I.T. Act wnentne provisions of the said section do notpermit sucn an action?”. ITA No.258/2011 nas been filed by the revenue,|which was admitted on 04.06.2012 Dy a bench of thiscourt on the following substantial questions of law: 1).“Whether on the facts and in the}circumstances of the case, the tribunal was 2)Whether on the facts and In the|circumstances of the case the tribuneal’s ordercan be considered as perverse in nature sincetribunal has allowed the assessee’s appeal byover-looking the provisions of I.T. Act?”. 3).“Whether on the facts and in the}circumstances of the case the tribunel erredin law in deleting the addition representingexcess claim of bad debts written off undersection 36(1)(vii) of tne I.T. Act, exceedingthe credit balance of the provision madeunder section 36(1)(viia) of the I.T. Act wnentne provisions of the said section do notpermit sucn an action?”. ITA No.258/2011 nas been filed by the revenue,|which was admitted on 04.06.2012 Dy a bench of thiscourt on the following substantial questions of law: 1).“Whether on the facts and in the}circumstances of the case, the tribunal was right in law in allowing deduction claimedtowards bad and doubtful debts withoutmaking provision and witnout consideringtnat section 36(1)(vil) and 36(1)(vila) areseparate and independent, apart from thatassesses’s claim under section 36(1)(vil) ofthe I[.T. Act Is limited to the amount whichexceeds tne credit balance of the provisionsmade under section 36(1)(viila) of the IT.Act ?”. 2)“Whether on the facts and in the}circumstances of the case the tribunel’s ordercan be considered as perverse in nature sincetribunal has allowed the assessee’s appeal byover-looking the provisions of I.T. Act?” 3).“Whether on the facts and in the}circumstances of the case the tribunel wasright in law in allowing the interest on zerocoupon bonds even when interest on zerocoupon bonds is not an exempt income undertne provisions of I.T. Act and assessee nadshown the interest [ncome in the books ofaccount”. 2 |For the facility of reference, facts from ITA No.258/2011 are being referred to — Tne assessee is a Public Limited Company engaged.in banking business. The assessee filed return of incomeon 24.11.2003 along with audit report under Section44AB of the Act, declaring income of Rs.293,25,5/7,628/-for Assessment year 2003-04. The Return was processedunder Section 143(1) on 05.04.2004 and an order ofrefund of Rs.82,69,52,235/- was determined and anorderofrefundofRs.82.50/-CroresWasSissued. |Subsequently, an order under Section 154 of the Act was)passed on 10.08.2004 for refund of an amount ofRs.82.50/- Crores. Thereafter, an order under Section154 of the Act was passed on 17.02.2003, Dy whicnMinimum Alternative Tax credit of Rs.68,0/7,83,946/- waswithdrawn. While going through computation of income,|it was found that net loss of Rs.8,17,44,119/- underlong term capital loss after set off of snort term capitalgain of Rs.51,06,737/-. According to Assessing Officer the set off of snort term capital gain against long term|capital loss was not permissible under Section /0(3) of.the Act. An order was passed withdrawing an amount ofRs.51,06,737/- from long term capital loss and same has.been taxed as short term capital gains. Notices under.Section 143(2) / 142(1) of the Act were issued to theAssessee an order under Section 143(3) of the Act was)passedOn)28.07.7005|disallowingan|aMOUunNofRs.192,53,21,426/- on reversal of interest pertaining to.earlier years as deduction out of current years income|and added back to interest on zero coupon bonds to thetune|of|RS.1,03,53,095/-along.witn otner.adaitions/disallowanceIncomputationof.regular|income/book profit. It was held that as per section36(1)(viia) of the Act, the assessee is required to makeprovisions in the books of account, which the assessee.nas not done. 3The Commissioner of Income Tax (Appeals) by.an order dated 14.11.2007 partly allowed the appeals. 3The Commissioner of Income Tax (Appeals) by.an order dated 14.11.2007 partly allowed the appeals. and hneld that since, no interest accrued on zero coupon bonds, therefore, making addition in respect of DOOKprofit under Section 115JB of the Act, is not called for.Tne Commissioner of Income Tax (Appeals) also grantedrelief to the appellant in respect of doubtful debts. Being.aggrieved, the assessee as well as revenue filed theappeals against order of Commissioner of Income Tax.(Appeals). The Income Tax Appellate Tribunal vide orderdated 16.03.2011, allowed the appeal of the assessee|and dismissed the appeal preferred by revenue. In this)background, the revenue Nas filed these appeals.4Learned counsel! for the Revenue has Invitedour attention to budget speecn of Finance Minister andNas pointed out the provision to promote the ruralbanking was incorporated to grant deduction in respect ofprovision made for bad and doubtful debts. Whilereferring to Memorandum explaining the provisions in.Finance Bill, 1979 and the Circular dated 30.06.1982 it is”contended that deduction under Section 36(1)(vila) of the Act is made in respect of provisions made by them.for bad and doubtful debts relating to advances made by|their rural branches. It is further contended that in order.to claim deduction under Section 36(1)(vii)(a) of the Act,a provision for bad and doubtful debt snould be made in|the accounts of the assessee. In this connection,reliance Nas been placed on Division Bench decision of.tnis °COURT IN COMMISSIONER OF INCOME TAX VS,M/S. VIJAY BANK’, IN ITA NO.1066/2008 DATED21,10,2014 5.|On the other nand, learned counsel for the.assessee nas placed reliance on decision of Supreme)Court.In|"CATHOLICSYRIANBANKLIDVs,COMMISSIONEROFINCOMETAX’,(2012)18)TAXMANN.COM 282 (SC)and nas submitted that'sSection 36(1)(vila) was introduced by Finance Act, 1979|to promote rural banks and to. assist ScneduledCommercial Banks in making adequate provision fromtheir current profits to provide for risk in relation to their| rural advances and the deductions were to be limited asspecified in Section. It is further argued that Section|36(1) (vil) and Section 36(1)(vila) operate in differentfields. It is also argued that a provision in taxing Statute|granting Incentive|for|promoting|growtnand|development snould be construed literally. In thisconnection, reliance is placed on |BAJAJ TEMPOLIMTED VS. COMMISSIONER OF INCOME TAX’, (1992) 62 TAXMAN 480 (SC).It is contended that for.determining real income entries in Statutory form may)not be conclusive. For aforesaid proposition reference is—made|TO 0UNITEDCOMMERICALBANK|VS.COMMISSIONER OF INCOME TAX’, (1999) 106.TAXMAW601While|referringCO 0DEPUTYCOMMISSIONER OF INCOME TAX (ASST.) SPECIAL|RANGE VS. KARNATAKA BANK LTD’, (2008) 175.TAXMAN 325it is urged that deduction under Section36(1)(vil)IS.allowableindependently|OT provision.contained in Section 36(1)(vila) of the Act. 6.|We nave considered the SUDMISSIONS made onboth sides and have perused the record. Beforeproceeding further, is it apposite to take note of Section.37(1)(viia) of the Act which reads as under:- 37. Insofar|dST[St]substantialguestion of law is concerned, it revolves.aroundtheinterpretationofSection56(1)(vila), wnichn reads as follows: (vila) in respect of any provision forbad ana aoubtful debts made by - (a) a scheduled bank [not being|[***/ a Dank incorporated by or under the.laws of a country outside India or a non-scheduleaq bank [or a co-operative bankother than a primary agricultural creait.societyOTadprimaryco-operativeagricultural and rural development bDank],an amount [not exceeding seven and one-halfPercent]ofthe|totalIncome(computed before making any deductionunder this clause and Cnapter VIA) and anamount not exceeding [ten/ per cent of theaggregate average advances made by the.rural branches of such bank computed in. 37. Insofar|dST[St]substantialguestion of law is concerned, it revolves.aroundtheinterpretationofSection56(1)(vila), wnichn reads as follows: (vila) in respect of any provision forbad ana aoubtful debts made by - (a) a scheduled bank [not being|[***/ a Dank incorporated by or under the.laws of a country outside India or a non-scheduleaq bank [or a co-operative bankother than a primary agricultural creait.societyOTadprimaryco-operativeagricultural and rural development bDank],an amount [not exceeding seven and one-halfPercent]ofthe|totalIncome(computed before making any deductionunder this clause and Cnapter VIA) and anamount not exceeding [ten/ per cent of theaggregate average advances made by the.rural branches of such bank computed in. the prescribed manner: Provided that 2.scheduled bank or a non-scheduled bankreferred to in this sub-clause Shall, at its:option, be allowed in any of the relevant.assessment years, deduction in respect ofany provision made by it for any assetsclassified by the Reserved Bank of India as_doubtful assets or loss assets in accordancewith the guidelines issued by it in tnis'benalf, for an amount not exceeding fiveper cent of the amount of sucn assetsshown in the Dooks of account of the bankon the last day of the previous year: Provided further that for the relevantassessment years commencing on or afterthe 7[St]day of April, 27003 and ending beforethe ][St]day of April, 2005, the provisions ofthe first proviso snall nave effect as if forthe words “five per cent”, the words "ten.per cent” had been substituted: Provided also that a scneduled benk|Or a non-schedu/ed bank referred to [in thissub-clause snall, at its option, be allowed a.further deduction in excess of the I[/imitspecified in the foregoing provisions, for anamount not exceeding the income derived from redemption of securities in accordancewith a scheme framed by the CentralGovernment: Provided also that no deduction sheal|be allowed under the third proviso unless.sucn income has been disclosed in the.return of income under the heed Profitsand gains of business or profession”. Explanation. - For tne purposes of|thissub-clause,“relevantassessmenyyears”Mmeadnthefiveconsecutive assessment years commencing on or afterthe 7[St]day of April, 2000 and ending beforethe 1[St]day of April, 2005; (D) abank,beingadbankincorporated by or under the laws of acountry outside India, an amount not.exceeding five per cent of tne total income.(computed before making any deduction|under this clause and Cnapter VIA); (c) a public financial institution or a|State financial corporation or a StateindustrialInvestmentcorporation,af)amount not exceeding five per cent of the.total income (computed before making any deduction under this clause and ChapterVI-A): Providedthat|adDUDIICfinancialinstitution or a State financial corporationor a State inaustrial investment corporationreferred to in this sub-clause Shall, at its:option, be allowed in any of tne two.consecutive assessment years commencing|on or after the 1[Ss]day of April, 2003 andending before tne 1[St]day of April, 2005,deduction in respect of any provision madeby it for any assets classified by theReserve Bank of [India as doubtful assets orlOSSassets|InaccordanceWIththeguidelines issued by it in this benalf, of an.amount not exceeding ten per cent of theamount of such assets shown in the Dooks.ofaccountsOf suchnInstitutionOTcorporation, as the case may be, on thelast day of the previous years”. | J |Explanatory notes on provisions contained in|Circular No.346 dated 30.01.1982 deals with object of)deductions made in respect of payments to associations| and doubtful debts under Section 36 (1)(viia) of the Act. The relevant extract reads as under:- J |Explanatory notes on provisions contained in|Circular No.346 dated 30.01.1982 deals with object of)deductions made in respect of payments to associations| and doubtful debts under Section 36 (1)(viia) of the Act. The relevant extract reads as under:- 17,3Asnon-scheduledcommercialbanks are also engaged in providing ruralcredit and promoting rural banking, theFinance Act has amended clause (viia) ofsuD-Section 36 of the IT Act to extend theprovision relating to deduction in respect ofprovisions made by scneauied commercialbanks for bad and doubtful debts relating toadvances by rural branches to non-scheduledcommercial banks as well. For this purpose,the expression “non-scheduled Bank” meansa banking company as defined incl. (c) of S.5of the Banking Regulation Act, 1949 butwhich Is not a scheduled bank. 8.|Tnus,a conjointreadingofprovision contained in Section 36(1)(vila) and explanatory notedated 30.06.1982 it is evident that deduction provided in|Section 36(1)(vila) snall be allowed in respect of the)matters dealt therein in computing the income. Thecondition precedent for claiming deduction under Section36(1)(viia) of the Act is that a provision for bad and doubttul debt should be made in the accounts of theassessee. [The aforesaid Section mentions the maximumamount for which such a provision should be made. If aprovision is made in excess of the limits prescribed under.the Section, the assessee would not be entitled todeduction of the excess amount. Once a provision is)made and the amount of deduction ts witnin the limitprescribed under the Act, the assessee would be entitledto deduction of the amount for which provision is made in|the pooks of accounts. 9.|Tne language employed in Section36(1)(viia)|of the Act is clear and unambiguous. It is well establisnedRule of interpretation stated Dy LORD CAIRNS that “if the.person sougnt to be taxed comes within the letter of the.law he must be taxed, nowever great the hardship mayappear to the judicial mind to be. On the other hand, ifthe Crown seeking to recover the tax, cannot Dring thesubject within the letter of the law, the subject is free,however apparently within the spirit of law the case might otherwise appear to be. It is equally well settled.legal proposition that “in a taxing act once has to lookmerely as what is said. There is no room for anyintendment. There is no equity about a tax. There is nopresumption as to tax. Nothing is to be read in, nothing)is to be implied. One can only look fairly at the languageused.”KSEE“COMMISSTONEROFINCOME|TAX,MADRAS VS. KASTURI AND SONS LTD.’, AIR 1999SC 1275and“MAHIM PATRAM (P) LTD. VS. UNIONOF INDIA (2007) 3 SCC 668] [See: PRINCIPLES OF)STATUTORYINTERPRETATION,JUSTICEG.P.SINGH, 14 EDITION, PAGE 879],Therefore, thequestion of going into intention or object behind theprovision viz., Section 36(1) (vila) of the Act does not.arise. 10. Tne submission that even in the absence of.any provision, the assessee is entitled to deductioncannot be accepted. The assessee is entitled to deduction to the extent provision made in the accounts|subject to limit mentioned in Section 36(viia) of the Act. 11. So far as decision inCATHOLIC SYRIANBANKis concerned, from perusal of para 16, it is evidentthat aforesaid decision is an authority for the propositionthat section 36(1)(vil) and 36(1)(viia) are independent|provisions and from perusal of para 23 and 24 of the.decision, it is axiomatic that Supreme Court has taken|note of statement of objections and reasons for theFinance Act, 1986 and has held that amendments wereintended to encourage rural advances and making ofprovision for bad debts in relation to such rural Dranches.Tne Supreme Court in aforesaid decision negatived the)contention that grant benefits under 36(1)(vii) and36(1)(viia) of the Act, amounts to double deduction andin para 41 has concluded that bad bedts, written off in:65;1other than those for which provisions is madeunder Section 36(1)(viia) of the Act will be covered undermain part or Section 36(1)(vii) of the Act. Thus, the aforesaid decision is also an authority for the proposition|that Section 36(1)(viia) of the Act, permits deduction in|respect of provision made by the bank in respect of bad.and doubtful debts. Tnerefore, aforesaid decision is of no.assistance In tne fact situation of tne cases to theaSS@eSSA2E 12. In view of preceding analysis substantialquestions of law in ITA No.256/2011 are answered infavour of revenue and substantial questions of law Nos.1& 2 in ITA No.258/2010 are answered in favour ofrevenue and hence, substantial question of law No.3 in.ITA No.258/2010 is answered in terms of judgmentdated17.01.2020|passed|DY this.CourtInTIALNo.97/2010. Accordingly, the appeals are disposed of. Sd/-.JUDGE| Sd/-JUDGE.