The Commissioner Of Income Tax-Iitiruchirapalli v. City Union Bank Limited(Central Office)

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE G.M.AKBAR ALI The Commissioner of Income Tax-IITiruchirapalli ..Appellant Vs. City Union Bank Limited(Central Office)149, T.S.R.Big StreetKumbakonam – 612 001...Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal Chennai 'C' Bench,dated 28.6.2004 made in ITA No.1737/Mds/1997 for the assessment year1994-1995. against the order of the Commissioner of Income Tax(Appeals V),Madras dated 01.05.97 made in IT/WT/GT/Appeal No.786/96-97/TRY forthe Assesment Year 1994-95 against the order of the DeputyCommissioner of Income Tax, Special Range, Triuchirapalli, dated31.12.1996 made in PAN/GIR No.CN.0349 for the Assessment Year 1994-95. This appeal is filed by the Revenue challenging the order of theIncome Tax Appellate Tribunal 'C' Bench, Chennai, dated 28.6.2004,made in ITA No.1737/Mds/1997 for the assessment year 1994-1995,raising the following substantial questions of law: https://hcservices.ecourts.gov.in/hcservices/ “1. Whether on the facts and in the circumstances of thecase, the Tribunal was right in holding that in thecase of the assessee bank, interest on securities has tobe assessed only on the basis of the interest due on thehalf-yearly due dates and the interest accrued as at theend of the assessment year is not be taken? 2. Whether on the facts and in the circumstances of thecase, the Tribunal was right in holding that the claimof bad debts in relation to non-rural branches of theassessee bank is allowable without first setting offagainst the provision already allowed under Section 36(1)(viia), when no distinction is made between advancesrelating to non-rural and rural advances has been madein Section 36(1)(vii)?” 2. We have heard the learned counsel on either side and perusedthe order of the Tribunal and the authorities below. 3. We find that in respect of the very same assessee, for theearlier assessment years, a Division Bench of this Court inCommissioner of Income Tax v. City Union Bank Ltd., [2007] 291 ITR144 (Mad.) has answered both the substantial questions of law raisedin this appeal in favour of the assessee and against the Revenue.The relevant portion of the said order reads as under: “4.1. With regard to the first substantial question oflaw raised in T.C.(A) No.22 of 2004 and the firstsubstantial question of law raised in T.C.(A) No.466 of2004, the Division Bench of this Court by judgment dated23.1.2007 made in T.C.(A) Nos.15 and 24 of 2003(Commissioner of Income Tax, Madurai v. TamilnaduMercantile Bank Ltd., Tuticorin), after referring to thedecisions in Commissioner of Income-tax v. Canara Bank[1992] 195 ITR 66, CIT v. Shoorji Vallabhdas and Co.[1962] 46 ITR 144, H.M.Kashiparekh and Co. Ltd. v. CIT[1960] 39 ITR 706, Poona Electric Supply Co. Ltd. v.CIT [1965] 57 ITR 521, Morvi Industries Ltd. v. CIT,[1971] 82 ITR 835, State Bank of Travancore v. CIT[1986] 158 ITR 102 (SC), Godhra Electricity Co. Ltd., v.Commissioner of Income-tax, [1997] 225 ITR 746 held thatthe assessee is taxable for interest on securities onlyon specified dates when it becomes due for payment, inview of third proviso to Section 145(1) of the Act,which was in force during the relevant assessment years. 4.2. In view of the ratio laid down in the decisionsreferred supra, the first substantial question of lawraised in T.C.(A) No.22 of 2004 and the firstsubstantial question of law raised in T.C.(A) No.466 of 2004 is answered in favour of the assessee and againstthe revenue. 4.2. In view of the ratio laid down in the decisionsreferred supra, the first substantial question of lawraised in T.C.(A) No.22 of 2004 and the firstsubstantial question of law raised in T.C.(A) No.466 of 2004 is answered in favour of the assessee and againstthe revenue. 5.1. With regard to the second question of law in T.C.(A) No.22 of 2004, the only question of law in T.C.(A)No.196 of 2004 and the second question of law in T.C.(A)No.466 of 2004, the learned counsel for the assesseesubmitted that a similar issue has been answered infavour of the assessee in South Indian Bank Ltd. v.Commissioner of Income-tax, [2003] 262 ITR 0579. 5.2. The Division Bench of Kerala High Court in SouthIndian Bank Ltd. Case referred supra, held that: 'The proviso to clause (vii) of section 36(1) andclause (v) of section 36(2) of the Income-taxAct, 1961, were inserted simultaneously witheffect from April 1, 1985, by the Finance Act,1985. The scope of the proviso to clause (vii) ofsection 36(1) has to be ascertained from acumulative reading of the provisions of clauses(vii), (viia) of section 36(1) and clause (v) ofsection 36(2). The intention of the Legislaturein enacting the proviso to clause (vii) ofsection 36(1) and clause (v) of section 36(2)simultaneously is only to see that a doublebenefit in respect of the same bad debt is notgiven to a scheduled bank. A scheduled bank mayhave both urban and rural branches and advancesgiven from both branches. Having regard to thehazards involved in realising the advances madeby rural branches particularly to agriculturists,certainly the assessee-bank might prefer to makeprovision for bad debt in respect of advancesmade in the rural branches. As a result of theamendment the scheduled bank will be entitled tothe deduction of the entire bad debt relating toadvances made by the urban branches written offin the books and also the difference between theamount written off in the books relating toadvances made by the rural branches during theprevious year relevant to the assessment year andthe credit balance in the provisions for bad anddoubtful debts account relating to advances madeby the rural branches made under clause (viia).If the bad debt written off relates to debtsother than for which provision is made underclause (viia) such debt will fall squarely underthe main part of clause (vii) which is entitledto deduction and in respect of that part of the debt with reference to which a provision is madeunder clause (viia), the proviso will operate tolimit the deduction to the extent of thedifference between that part of debt written offin the previous year and the credit balance inthe provision for bad and doubtful debts accountmade under clause (viia).' 5.3. In the instant case, while allowing the claim forbad debts written off in respect of advances made byrural branches, the Commissioner of Income Tax (Appeals)as well as the Tribunal, was of the firm opinion thatthe assessee has not claimed any debts written off inrespect of rural branch in the earlier year. If that beso, we find no error in the order of the Tribunal inholding that the claim of bad debts in relation to non-rural branches of the assessee bank is allowable.Accordingly, this issue is answered in favour of theassessee and against the Revenue.” 4. The learned Senior Standing Counsel appearing for the Revenueis not disputing the applicability of the aforesaid decision. We findno reason to differ with the view taken by the Division Bench of thisCourt in Commissioner of Income Tax v. City Union Bank Ltd., [2007]291 ITR 144 (Mad.) For the foregoing reasons, this appeal is dismissed andsubstantial questions of law are answered against the Revenue and infavour of the assessee. No costs. Sd/- Assistant Registrar //True Copy// sasiTo: 4. The learned Senior Standing Counsel appearing for the Revenueis not disputing the applicability of the aforesaid decision. We findno reason to differ with the view taken by the Division Bench of thisCourt in Commissioner of Income Tax v. City Union Bank Ltd., [2007]291 ITR 144 (Mad.) For the foregoing reasons, this appeal is dismissed andsubstantial questions of law are answered against the Revenue and infavour of the assessee. No costs. Sd/- Assistant Registrar //True Copy// sasiTo: 1.The Assistant Registrar,Income Tax Appellate TribunalChennai Bench "C", Chennai.Income Tax Appellate TribunalChennai Bench "C", Chennai. 2.The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3.The Commissioner of Income Tax (Appeals)-VIChennai.Chennai. 4. The Deputy Commissioner of Income Tax Special Range Tiruchirapalli. Special Range Tiruchirapalli. 1 cc to Mr.J.Narayanaswamy ,Advocate, SR.No.36335 1 cc to Mr.V.S.Jayakumar ,Advocate, SR.No.36501 T.C.(A).No.1100 of 2004 nm(co)pmk.25.8.2014