Respondent v. Prasad (Sc For Income Tax)The Court Made The Following: Order

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD WEDNESDAY,THE FOURTH DAY OF JANUARYTWO THOUSAND AND TWENTY IHREE PRESENTTHE HON'BLE THE CHIEF JUSTICE UJJAL BHUYANANDTHE HON'BLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL APPEAL NO: 286 OF 2006 lncome Tax Appellate Tribunal Under Section 260-A of thelncome Tax Act, 1961, against the order made in l.T.A. No.311 and312 lHydl 2001 dated 4-3-2005 for the Assessment Year 1996-97, onthe file of the lncome Tax Appellate Tribunal, Hyderabad, Bench "A"Hyderabad, preferred against the Order of the Commissioner oflncome Tax (Appeals), Vijayawada , dated 12.03.2001 , in ITA No. 132/ JCSR4 / HYD/clT(A)ruJY/2000-01 Old lTA No. 20lJCSR4/ClT(AllU99-2000 preferred against the Order of the Joint Commissioner lncomeTax ( Assts) Spl Range -4, Hyderabad in PAN/GIR No. S-31 , dated.26.02.1999. Between: State Bank of lndia , Head Office Gunfoundry, Hyderabad - 500 078( Amended vide C.O. dated 04-01-2023 in l.A.No.'1 of 2018 )( Amended vide C.O. dated 04-01-2023 in l.A.No.'1 of 2018 ) ...APPELLANT/ Appellant AND Joint Commissioner of lncome Tax [Assessments] Special Range-lV, Basheerbagh,Hyderabad - 500 001 RESPONDENT/ Respondent Counsel for the Appellant: SRI KARTHIK RAMANA PUTTAMREDDY Counsel for the Respondent: SRI J. V. PRASAD (SC FOR INCOME TAX)The Court made the following: ORDER TIlUtaN [tlE_lltt1rr_ ]ltHIIr t- J-!-; s !!Q [fj,.t= ]JJ 4r_ B_t{ L [yAN] AND T H E I-{()lJlll L E S R IJ t J SjII c E N. T tr IIAB4r4JI I.T.'f.A.N(,of 2006 JUDG_I{ENT,4. [r ][rh. ][t tu,t ][bh ][rt-,, ]-t In.,.- I [t ][Lttt,l.t,.] I-Ieard Mr. I(arthik l{amana l)utrxrDrcdd\, learnedcounsel For the appcllanr rurd N[r- -l.V.Prasacl, learnec] StandingCounsel. Incomc T'ax l)epartmenr r.cprcscnring therespondentcounsel For the appcllanr rurd N[r- -l.V.Prasacl, learnec] StandingCounsel. Incomc T'ax l)epartmenr r.cprcscnring therespondent 2 'I'[rrs appcal h:rs becn filccl bv rl'ic assc,.s.:c i.r., Sretc BankoI India (a:; amcntled zrzrlr st:par:trc orclcr' passcd todav inI..\.No,1 ol201B) under Section 2(;0,,\ 1,6 thr iucome [-I'ax ]Act,1961 (brie fly 'ti'rc Act' hcrcin:ritcr) 1r:,rLir1sr rhc orderdated 04.03 2005 passccl br, rhL lncomi ['lax ]Aplrellare'fribunal, Ilyderabad Ilcnch'A'. Hr,cler:airLcl (fribunel)tnLT.A.Nos.311 /I1yd/2001 for rhe asscssrncnr vcllr 1996-91 3. \I'c ma-y mcntion tllat thc appc:rl was oar"rt\a <:n 1().1)7.2006 without lramrng zrn\: \ul)st.r-r.ri qucstior-r of law. Howcver, thc substanrial [<lucsuons ][o[ ][law ][proposed ][in ][thc]memo oi appeal read [as ]undcr: 1. Whether on thc facts and in [thc]circumstances of this casc, the ['I'nbunal ][rs]jusufied in upholdrng the Incomc ['l'ax]vicrv tlat intelcsl on [sccuriucs]Deparlmertt's should necessarily bc computed on "accrualbasis" (as i[ rnterest acctuccl to [the ][bank ][on ][a]day-to-da.v basrs) artd not on ["due basis" ][(i.e ], [on]thc basis that intcrcst irtcomc [is ]claimablc [onlv]on specificd dates) [assessrncnt ][year ][1996-97 ][?] 2. Whcther on thc facts and in [thc]circumstances of this casc, the [Tnbunal ][is]iusufied [rn ][holding thar ][taxable ][income ][undct]thc Income ['fax ]Act should be computed [in]accordance rvith the l3arrkir-rg [Regulation ][r\ct]and Rescrwe llank of lndia guidclines [(and ][Irol:]in accordance rvrth the s)'stcm of accountingpermitted under thc Incomc Tax Act) [?] 3. lThether on thc facts and in [the]circumstances of this casc, the ['I'ribunal ][is]justifred in holding that r.rnder Section 145 of theAct (as it stood at the [relevant ][timc) ][incorne]from int.crcst on sccurities should [r-recessarily ][be] :a computed on accrual basis and not on duc basisfor ttus particular assessment ,t,ear 1,996-97 Ifor ttus particular assessment ,t,ear 1,996-97 I 2. Whcther on thc facts and in [thc]circumstances of this casc, the [Tnbunal ][is]iusufied [rn ][holding thar ][taxable ][income ][undct]thc Income ['fax ]Act should be computed [in]accordance rvith the l3arrkir-rg [Regulation ][r\ct]and Rescrwe llank of lndia guidclines [(and ][Irol:]in accordance rvrth the s)'stcm of accountingpermitted under thc Incomc Tax Act) [?] 3. lThether on thc facts and in [the]circumstances of this casc, the ['I'ribunal ][is]justifred in holding that r.rnder Section 145 of theAct (as it stood at the [relevant ][timc) ][incorne]from int.crcst on sccurities should [r-recessarily ][be] :a computed on accrual basis and not on duc basisfor ttus particular assessment ,t,ear 1,996-97 Ifor ttus particular assessment ,t,ear 1,996-97 I 4. \Thether on thc facts and in thccircumsanccs of tlls casc, tllc Tribunal rsjustified in ignoring thc letter dated 02.01.1995addtesscd by the Ccntral Board of Dircct l'axe sto the Chief Comrnissioner of Income ['I'ax,]Bangalote, in respcct of the assessment c-rfCanara Bank, whrle clecicling the ptesent appealof State Bank of I{yderabad ? 5. Whether on the facts and in thecircumstances of this case, the flibunal rsjusufied h rclying on tl-re car[er dccision of tl-reSupreme Coutt of State Bank of Ttavancorev. CIT, 1996 158 I-l'R - 102 (SC), r.vhen theSupreme Court itself drsagreed *rth thisjudgment in its later decrsions in the cases ofUCO Bank v. CIT, 1.999 [, ]237 I'I'R - 889 (Sqand United Commercial Bank v. CI'[, 1999 -240 - ITR 3ss (SC) ? 6. Whether on thc facts and in thecircumstances of thrs case, thc Tribunal rvesjustiFred in upholding the enhanccrnelrt oF thetaxable income of this year, by changrng thebasis of computation of incorne, rvithout giving \ consequenti2l rclicf for all tl-re earter asscssmcnryears ?years ? 4. Basic issue as is discernablc fuom thc substanrial questious of law [ormulated abovc is whcther income [r.omlnterest on securities should be cctrnputcd on accrual basrs oron due basis.lnterest on securities should be cctrnputcd on accrual basrs oron due basis. 5. Issue rarsed in this appeal has been gone into bv thcBombay High Court in Director of Income Tax(International Taxation)M/s. Credit Suisse FirstBoston (Cyprus) Limitedl. Bon'rba1, IIigh Court has helcl asfollows: 'The appellant's subn.rission is entirelvunfounded and is bascd on the crroflcouspremise that the amount rcccivcd upon the salcof a security in excess of the face value thereofincludes thc interest for tl're proportronatcperiod upto the date of thc sa1e. [-I'he ]erroneouspresumption is that intcrest accrucs /e die in dieneven when the agreemcnt bctwecn thc parties t lzor:; :sr tt:n :z stipulates interesr to be yrayable or y on aspccrfied date. If the appellant's argumcnt is wellfounded, it makes no difference as to rhc brokenfounded, it makes no difference as to rhc brokenperiod for whicl'r rnterest rs deemed to haveaccrued. If, on thc othcr hand and as we havcheld, it is not well founded, the intercst cannotbe said to have accn_red f<-tr arry part of theheld, it is not well founded, the intercst cannotbe said to have accn_red f<-tr arry part of thebroken period. In othcr words, interest can bcsaid to have accrued only on thc date on u,hrchit u,as due as per rhe tcrms and conditions of thcsecuflty.it u,as due as per rhe tcrms and conditions of thcsecuflty. an fi]strument of 2tr.r agreelnent t lzor:; :sr tt:n :z stipulates interesr to be yrayable or y on aspccrfied date. If the appellant's argumcnt is wellfounded, it makes no difference as to rhc brokenfounded, it makes no difference as to rhc brokenperiod for whicl'r rnterest rs deemed to haveaccrued. If, on thc othcr hand and as we havcheld, it is not well founded, the intercst cannotbe said to have accn_red f<-tr arry part of theheld, it is not well founded, the intercst cannotbe said to have accn_red f<-tr arry part of thebroken period. In othcr words, interest can bcsaid to have accrued only on thc date on u,hrchit u,as due as per rhe tcrms and conditions of thcsecuflty.it u,as due as per rhe tcrms and conditions of thcsecuflty. an fi]strument of 2tr.r agreelnent Whenan fi]strument of 2tr.r agreelnentstipulates inrcrcst to be payable at a specifieddatc, interest does not accrue to thc holderthercof on any date prior thereto. Intercst wouldaccrue or arise only on thc date specificd in theinstrument. That a credrtor has a r.csted right toreceive interest on a stated date in futr.rre c.loesreceive interest on a stated date in futr.rre c.loesnot constitute an accr-ual of the intetcst to himon any prior tlare. Wherc en instrxmenr provitJesfor the paymenr of interest only on a patticularon any prior tlare. Wherc en instrxmenr provitJesfor the paymenr of interest only on a patticulardatc, an action filed priot to such date would bedismtssed as premarure and not disclosrng acausc of actron. Subject to a contract to theconffary, a debtor is not bound to pal intcrcston a date earlier- to thc one sdpulated in the agreemeflt/instfluncnt- In thc prcscnt case, it isadmittcd drat intcrcst was not pa1,able ofl an\rdate other than that mcntroncd in the securiry.The assignee or purchase.r t>f such a sccutitydoes not stand ofl a diffcrent fooung. Hc has, bvvirtue of the assignment or purchase, the rightvested in him to rcceive the interest but only onthe terms of the secur-ity and subject to all theincidents thercof as wcre appJrcable to theoriginal owner. 6. Thus, it has been held that intcrest can be said to haveaccrued only on the date on whicl'r rt was due as per the tcrmsand conditions of the securirl,. [\)7her-r ]an instrumcnt or anagreement scipulates interest to be payable at spccificd date,interest docs not accrue to tl-rc holder thereof on anv dateprior thereto. Intcrest would accrue or arise oniy on thc datcspecihcd in the instrument. ['I'his ]dccision of the Bon'rbayHigh Court was followed by the same Fligh Court1nComrnissioner of Income Tax v. State Bank of India2.Onc of the substantial questrons of larv [rvhich ][was considcted] ' [2016 ] [onlinc ][Bombay ][9749] b1, the Bombay High Court [rvas ][rvhcthcr ][Tribunal ][rvas ][nght ][in]law in accepung the plca oi thc [assessce ][that ][the ][interest]income ol Rs.38.24 crores on [the ][securitres ][had ][to ][bc ][taxed ][on]due basis only instcad of accrual [basis as ][per ][the ][mcrcantile]systcm of accounting flollowcd by [the ][assessee. Tnsofar this]que suon is concerned, [Rombalt ] [Iigh ][Court rcletred ][to ][its]previous decision in Crcdit [Suisse ][First ][Boston ][(Cyprus)]Limited (1 supra) and held that [issuc stands ][concluded ][against]the revenue and in favour of the [assessee] l. l,earned counsel for tl-re appellant [submits ][that ][against]the aforesaid decision of the [Rombay ][High ][Court ][in ][State]Bank of lndia (2 supra), [revenue ][preferred ][SLP(C).No.24250]of 201.1 , which was subsequendy [registered as ][C-ivil ][Appcal]No.4357 of 2018. The said appeal [was ][heatd and decided ][by]the Supremc Court along [wrth other ][civil ][appeais ][which ][have] since been rcported in Deputy Commissioner of IncomcTax v. TJayachandran3Tax v. TJayachandran3 l. l,earned counsel for tl-re appellant [submits ][that ][against]the aforesaid decision of the [Rombay ][High ][Court ][in ][State]Bank of lndia (2 supra), [revenue ][preferred ][SLP(C).No.24250]of 201.1 , which was subsequendy [registered as ][C-ivil ][Appcal]No.4357 of 2018. The said appeal [was ][heatd and decided ][by]the Supremc Court along [wrth other ][civil ][appeais ][which ][have] since been rcported in Deputy Commissioner of IncomcTax v. TJayachandran3Tax v. TJayachandran3 B. Learned counsel lor thc appcllant faidy submits thatthough in the bod1, o[ thc judgmenr rhefe is no discussic,n onthe issue as to the finding of the Bombay High Courr that thelnterest lncomc on securit_ies has to be taxcd on duc basis,nonethcless, by the aforesaid dccrsion, the appeals prclerredby thc revenue were dismissed 9Re that as it may, we concur wlth the vrew cxpressed bythe Bombay High Court in M/s. Credit Suisse First Boston(Cyprus) Ltd (1 supra) followed bv the decrsion in StateBank of India (2 supra) 10. Consequendy, the substantial questions o[ law areanswered tn favour of the assessee and against the revenue. 11. Appeal is accordingly allowed. No cosrs I lzorsy e scc rso As a scquel, misccllaneous petitions, pending if any, stand closed Sd/- M. VIJAYA BHASKERJOINT REGISTRARCb //TRUE COPY// SECTION OFFICER To 1.The lncome Tax Appellate Tribunal, Hyderabad, Bench ["A" ]Hyderabad. 2. The Commissioner of lncome Tax [(Appeals), ]Vijayawadb. 3. The Joint Commissioner lncome Tax [( ]Assts) Spl Range -4, [Hyderabad]4. One CC to SRl. N.R. SIVA SWAMY, Advocale 4. One CC to SRl. N.R. SIVA SWAMY, Advocale 5. One CC to SRl. J V PRASAD [(SC ]FOR [INCOME TAX) Advocate ] 6- Two CD Copies ) Pnq. HIGH COURT DATED: 0410112023 ORDERITTA.No.286 of 2006 Allowing the ITTA s^.c^\\ts\e'e' 1HE r(.e(o)+:)?SEP2M[2 ./>-