The Lakshmi Vilas Bank Ltd Salem Road Kathaparai, Karur v. The Commissioner Of Income Tax Tamil Nadu-V Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 7.2.2006 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.Nos.94 and 95 of 2002 The Lakshmi Vilas Bank LtdSalem RoadKathaparai, Karur. .. Applicant Vs The Commissioner of Income TaxTamil Nadu-VChennai... Respondent PRAYER: Tax case references at the instance of the assessee againstthe order of the Income Tax Appellate Tribunal, Chennai "B' BenchChennai dated 30.4.1997 and 30.7.1997 in I.T.A.Nos.4109 and 1290(Mds)/1989 for the assessment years 1986-87 and 1985-86 R.A.Nos.443 & 690 (Mds) 1997 against IT Appeal No.22/88-89 order dated20.1.89 for the assessment year 1985-86 on the file of the Officeof the Commissioner of Income Tax (Appeal) Madurai Range, Maduraiand IT Appeal No.43/89-90 order dated 13.7.89 for the assessmentyear 1986-87 on the file of the Office of the Commissioner ofIncome Tax (Appeals) VIII, Madras -34 and 47-012-CQ-0362/85-86order dated 29.1.88 for the assessment year 1985-86 on the file ofthe Inspecting Asst. Commissioner of Income Tax (Assessment) RangeII, Madurai and 0362/DO8R/86-87 order dated 20.2.89 for theassessment year 1986-87 on the file of the Dy. Commissioner, Spl.Range, Trichy. For Applicant:Mrs.T.C.A.SangeethaFor Respondent :Mr.N.MuralikumaranSenior Standing Counselfor Income Tax (Delivered by P.P.S.JANARTHANA RAJA,J.) At the instance of the assessee, the Income Tax Tribunal hasstated a case and referred the following questions of law to thisCourt for its opinion: "1. Whether on the facts and in the circumstances of thecase the Tribunal was correct in holding the GovernmentSecurities held by the applicant as investments/capitalasset and not circulating capital/stock-in-trade? 2. Whether on the facts and in the circumstances of the casethe Tribunal was correct in holding that the decision of theSupreme Court in the case of Madhya Pradesh Co-op Bank Ltd.Vs. Addl. CIT and Mahdya Pradesh Rajya Sahkari Bank MaryaditVs. CIT (218 ITR 438) and the various decisions referred toin its order for the assessment years 1985-86 and 1986-87would be applicable to the applicant's case? 3. Whether on the facts and in the circumstances of the casethe Tribunal was justified in not following the orders ofthe Tribunal in the applicant's own case for the earlieryears under exactly identical circumstances? 4. Whether on the facts and in the circumstances of the casethe Tribunal was correct in holding that holding ofinvestment by banking companies is always capital in natureand capital assets? 5. Whether on the facts and in the circumstances of the casethe Tribunal was correct in holding that in respect of banksthe investments in Government Securities were always part ofthe Reserve Funds not be used as part of its workingcapital?" 2. The facts leading to the above questions of law are asunder: The assessment years involved are 1986-87 and 1985-86. Theassessee is a scheduled bank carrying on banking business. For thesaid assessment years, the assessee-bank was holding GovernmentSecurities as stock-in-trade. The market value of the securitieswas less than the cost. While computing the taxable income thefall in the market value was claimed as a deduction, which was notallowed by the Assessing Officer. Aggrieved by the said order ofthe Assessing Officer, the assessee filed an appeal before theCommissioner, who allowed the case of the assessee. Against thesaid order, the Revenue filed an appeal before the Tribunal and theTribunal held that the assessee was holding Government securities as investments and not as stock-in-trade and thus, allowed theDepartment's appeals. The assessment years involved are 1986-87 and 1985-86. Theassessee is a scheduled bank carrying on banking business. For thesaid assessment years, the assessee-bank was holding GovernmentSecurities as stock-in-trade. The market value of the securitieswas less than the cost. While computing the taxable income thefall in the market value was claimed as a deduction, which was notallowed by the Assessing Officer. Aggrieved by the said order ofthe Assessing Officer, the assessee filed an appeal before theCommissioner, who allowed the case of the assessee. Against thesaid order, the Revenue filed an appeal before the Tribunal and theTribunal held that the assessee was holding Government securities as investments and not as stock-in-trade and thus, allowed theDepartment's appeals. 3. The learned counsel for the assessee contended that oncethe assessee had been holding the investments as trading stock, theassessee is entitled to the loss on account of revaluation, whetherwritten off in the books or not the same has to be allowed. Thelearned counsel relied on the decision of this Court in CIT Vs.KARUR VYSYA BANK LTD., [2005] 273 ITR 510. The learned Seniorstanding counsel for the Department submitted that the assessee-bank held the Government Securities only as investment andtherefore, they are not entitled to any relief. 4. We have given careful consideration to the submissions ofboth sides. It is brought to the notice of this Court that theassessee is also dealing with purchase and sale of GovernmentSecurities. The profit and loss on the sale of Governmentsecurities had been assessed as business income/loss under theIncome Tax Act. The assessee bank has always been treatingGovernment securities as stock in trade. It is further brought toour notice that whenever there is depreciation/appreciation in thevalue of the securities, at the end of each accounting year, thesame had been claimed as deduction/offered as income of therelevant year, while computing income taxable under the Income TaxAct. There is no change of method of accounting of the Securitiessince the assessment year 1976-77. It is also brought to our noticethat for the earlier assessment years, the Revenue had accepted theplea of the assessee that the Government Securities are stock-in-trade and against the earlier orders, the Revenue did not agitateby filing an appeal and therefore, the same reached finality.Hence, it is too late in the day to raise this issue when regard ishad particularly to the fact that the assessee's method of treatingthe Government Securities as stock-in-trade had all along beenaccepted by the Department. The said view is supported with thedecision of the Supreme Court in Union of India Vs. KaumudiniNarayan Dalal, 249 ITR 219; Collector of Central Excise, HyderabadVs. Divya Enterprises Ltd., (2003) 9 SCC 222; and Collector ofCentral Excise Vs. Tata Engineering and Locomotive Company Ltd.,2003 (11) SCC 193, wherein it has been consistently held that afterhaving refrained from challenging the adverse decision of theTribunal/High Court, the Revenue is not entitled to challenge thesame. 5. The Revenue relied on the decision of the Supreme Court inMadhya Pradesh Co-operative Bank Ltd. Vs. Additional Commissionerof Income-tax and Madhya Pradesh Rajya Sahkari Bank Maryadit Vs.Commissioner of Income-tax [1996] 218 ITR 438. In that case, theBank was holding Government securities as investments and notstock-in-trade. Based on this fact, the Supreme Court came to theconclusion that the fall in the market value of the Government 5. The Revenue relied on the decision of the Supreme Court inMadhya Pradesh Co-operative Bank Ltd. Vs. Additional Commissionerof Income-tax and Madhya Pradesh Rajya Sahkari Bank Maryadit Vs.Commissioner of Income-tax [1996] 218 ITR 438. In that case, theBank was holding Government securities as investments and notstock-in-trade. Based on this fact, the Supreme Court came to theconclusion that the fall in the market value of the Government Securities is not an allowable deduction and hence, the same wouldnot apply to the facts of this case. The said Supreme Courtjudgment was later on considered by the Supreme Court inCommissioner of Income-tax Vs. Karnataka State Co-operative ApexBank, [2001] 251 ITR 194, wherein it was held that the saiddecision of the Supreme Court reported in [1996] 218 ITR 438 doesnot set down the correct law and the relevant portion of the saidjudgment reads as under: ".. The question is whether we agree with the reasoning inMadhya Pradesh Co-operative Bank Ltd. [1996] 218 ITR 438(SC). There is no doubt, and it is not disputed, that theassessee-co-operative bank is required to place a part ofits funds with the State Bank or the Reserve Bank of Indiato enable it to carry on its banking business. This beingso, any income derived from funds so placed arises from thebusiness carried on by it and the assessee has not, byreason of section 80P(2)(a)(i), to pay income-tax thereon.The placement of such funds being imperative for thepurposes of carrying on the banking business, the incomederived therefrom would be income from the assessee’sbusiness. We are unable to take the view that found favourwith the Bench that decided the case of Madhya Pradesh Co-operative Bank Ltd. [1996] 218 ITR 438 (SC) that only incomederived from circulating or working capital would fallwithin section 80P(2)(a)(i). There is nothing in thephraseology of that provision which makes it applicable onlyto income derived from working or circulating capital. Inthe premises, we take the view that the decision of thiscourt in the case of Madhya Pradesh Co-operative Bank Ltd.[1996] 218 ITR 438 (SC) does not set down the correct lawand that the law is as we have put it above." 6. The learned counsel for the assessee relies on the recentjudgment of the Supreme Court in United Commercial Bank Vs.Commissioner of Income-tax, [1999] 240 ITR 355, wherein the ApexCourt, after reiterating that the principles applicable invaluation of stock are: "(1) that for valuing the closing stock, it is open to theassessee to value it at the cost or market value, whicheveris lower; (2) In the balance-sheet, if the securities and shares arevalued at cost, from that no firm conclusion can be drawn. Ataxpayer is free to employ for the purpose of his trade, hisown method of keeping accounts, and for that purpose, tovalue stock-in-trade either at cost or market price; (3) A method of accounting adopted by the taxpayerconsistently and regularly cannot be discarded by theDepartmental authorities on the view that he should haveadopted a different method of keeping accounts or ofvaluation; (4) The concept of real income is certainly applicable injudging whether there has been income or not, but, in everycase, it must be applied with care and within recognisedlimits; (5) Whether the income has really accrued or arisen to theassessee must be judged in the light of the reality of thesituation; (6) Under section 145 of the Act, in a case where accountsare correct and complete but the method employed is suchthat in the opinion of the Income-tax Officer, the incomecannot be properly deduced therefrom, the computation shallbe made in such manner and on such basis as the Income-taxOfficer may determine, held that, (4) The concept of real income is certainly applicable injudging whether there has been income or not, but, in everycase, it must be applied with care and within recognisedlimits; (5) Whether the income has really accrued or arisen to theassessee must be judged in the light of the reality of thesituation; (6) Under section 145 of the Act, in a case where accountsare correct and complete but the method employed is suchthat in the opinion of the Income-tax Officer, the incomecannot be properly deduced therefrom, the computation shallbe made in such manner and on such basis as the Income-taxOfficer may determine, held that, "... the appellant followed the mercantile system ofaccounting both for book keeping purpose as well as for taxpurposes. The appellant consistently and for over 30 yearsprior to the assessment year in dispute (1982-83) had beenvaluing its stock-in-trade (investments) "at cost" in thebalance-sheet whereas for the same period of time theappellant had been valuing the very same investment "at costor market value whichever is lower" for income-tax purposes.That practice was accepted by the Department and there wasno justifiable reason for not accepting the same. From theform of the prescribed balance-sheet under the BankingRegulation Act it was evident that scheduled nationalisedbanks were directed to put the value of shares andsecurities at cost and if the market value was lower, it wasto be shown separately in brackets. Preparation of thebalance-sheet in accordance with the statutory provisionwould not disentitle the assessee in submitting income-taxreturn on the real taxable income in accordance with amethod of accounting adopted by the assessee consistentlyand regularly. That could not be discarded by theDepartmental authorities on the ground that the assessee wasmaintaining the balance-sheet in the statutory form on thebasis of the cost of the investments. In such cases, therewas no question of following two different methods forvaluing its stock-in-trade (investments) because the bankwas required to prepare the balance-sheet in the prescribedform and it had no option to change it. For the purpose ofincome-tax what is to be taxed is the real income which isto be deduced on the basis of the accounting systemregularly maintained by the assessee and that was done bythe assessee in the present case." 7. This Court, in the case of Commissioner of Income-tax Vs.Karur Vysya Bank Ltd. [2005] 273 ITR 510, to which one of us is aparty (P.D.DINAKARAN,J.), held that the Government Securities heldby the assessee-Bank have to be treated as stock-in-trade and not investment by following the Supreme Court judgment in [1999] 240ITR 255. In view of the above reasoning of the Supreme Court, weare of the view that the Government Securities held by the assesseeare stock-in-trade. 8. Further, we have seen from the order of the Tribunal thatfor the earlier year, the Tribunal decided the case in favour ofthe assessee. When the Tribunal decided the case in favour of theassessee on identical facts, it is not proper for the Tribunal totake a different view for the subsequent years. In the case ofCommissioner of Income-tax Vs. Ramamurthi (L.G.), [1977] 110 ITR453, it is held as follows: investment by following the Supreme Court judgment in [1999] 240ITR 255. In view of the above reasoning of the Supreme Court, weare of the view that the Government Securities held by the assesseeare stock-in-trade. 8. Further, we have seen from the order of the Tribunal thatfor the earlier year, the Tribunal decided the case in favour ofthe assessee. When the Tribunal decided the case in favour of theassessee on identical facts, it is not proper for the Tribunal totake a different view for the subsequent years. In the case ofCommissioner of Income-tax Vs. Ramamurthi (L.G.), [1977] 110 ITR453, it is held as follows: "No Tribunal of fact has any right or jurisdiction to cometo a conclusion entirely contrary to the one reached byanother Bench of the same Tribunal on the same facts. It maybe that the members who constituted the Tribunal and decidedon the earlier occasion were different from the members whodecided the case on the present occasion. But what isrelevant is not the personality of the officers presidingover the Tribunal or participating in the hearing but theTribunal as an institution. If it is to be conceded thatsimply because of the change in the personnel of theofficers who manned the Tribunal, it is open to the newofficers to come to a conclusion totally contradictory tothe conclusion which had been reached by the earlierofficers manning the same Tribunal on the same set of facts,it will not only shake the confidence of the public injudicial procedure as such, but it will also totally destroysuch confidence. The result of this will be conclusionsbased on arbitrariness and whims and fancies of theindividuals presiding over the courts or the tribunals andnot reached objectively on the basis of the facts placedbefore the authorities. If a Bench of a Tribunal on the identical facts is allowedto come to a conclusion directly opposed to the conclusionreached by another Bench of the Tribunal on an earlieroccasion, that will be destructive of the institutionalintegrity itself. That is the reason why in a High Court, ifa single judge takes a view different from the one taken byanother judge on a question of law, he does not finallypronounce his view and the matter is referred to a DivisionBench. Similarly if a Division Bench differs from the viewtaken by another Division Bench it does not expressdisagreement and pronounce its different views, but has thematter posted before a Fuller Bench for considering thequestion. If that is the position even with regard to aquestion of law, the position will be a fortiori with regardto a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, itshould place the matter before the President of the Tribunalso that he could have the case referred to a Full Bench ofthe Tribunal consisting of three or more members for whichthere is provision in the Income-tax Act itself." 9. In the light of the aforesaid decision of this Court, it isclear that the Tribunal completely erred in coming to theconclusion it did, at variance with and opposed to the conclusionof the Tribunal on the earlier occasion. In view of the foregoing conclusion, we answer the questionsof law (1) and (3) in favour of the assessee. As we have answeredquestion of law (1), it becomes unnecessary to answer the questionsof law (2), (4) and (5). Sd/-Asst. Registrar. /true copy/ sasi Sub Asst. Registrar. To: 1. The Assistant Registrar, Income-tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Chennai 600 090. 2. The Commissioner of Income-tax Tamil Nadu V, Madras.34 3. The Commissioner of Income-tax (Appeals), VIII Madras. 344. The Commissioner of Income-tax (Appeals), Madurai Range, Madurai. 5. The Deputy Commr. Of Income-tax, Spl. Range, Trichy. 6. The Inspecting Assistant Commissionerof Income Tax (Assessment) Range II, Madurai.of Income Tax (Assessment) Range II, Madurai. In view of the foregoing conclusion, we answer the questionsof law (1) and (3) in favour of the assessee. As we have answeredquestion of law (1), it becomes unnecessary to answer the questionsof law (2), (4) and (5). Sd/-Asst. Registrar. /true copy/ sasi Sub Asst. Registrar. To: 1. The Assistant Registrar, Income-tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Chennai 600 090. 2. The Commissioner of Income-tax Tamil Nadu V, Madras.34 3. The Commissioner of Income-tax (Appeals), VIII Madras. 344. The Commissioner of Income-tax (Appeals), Madurai Range, Madurai. 5. The Deputy Commr. Of Income-tax, Spl. Range, Trichy. 6. The Inspecting Assistant Commissionerof Income Tax (Assessment) Range II, Madurai.of Income Tax (Assessment) Range II, Madurai. 2 ccs to Mr.N.Muralikumaran, Senior Standing Counsel, Sr. 5186 &51875187 1 cc to Mr.T.C.A. Ramanujam, Advocate, Sr. 5420 T.C.Nos.94 and 95 of 2002 JE (CO)kk 28/4kk 28/4