Full Judgment Text
THE COMMISSIONER OF INCOME TAX, KOLHAPUR
v.
INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD.
(Civil Appeal Nos.7437-7438 of 2004)
OCTOBER 13, 2008
[Dr. Arijit Pasayat and Dr. Mukundakam Sharma, JJ.]
The Judgment of the Court was delivered by
DR. ARIJIT PASAYAT, J. 1. Challenge in these appeals is to the
judgment of final order passed by the Bombay High Court in a group
of appeals filed by the revenue under Section 260A of the Income
Tax Act, 1961 (in short the ‘Act’) read with Section 24 of the Interest
Tax Act, 1974 (in short the ‘Interest Act’). Question involved was
whether interest earned by the assessee bank on government
securities was liable to be assessed under Section 2(7) of the
Interest Act. The Income Tax Appellate Tribunal (in short the
‘Tribunal’) held that it was not chargeable. The High Court by the
impugned judgment upheld the view of the Tribunal. The revenue
filed the present appeals against the judgment of the High Court. It
was submitted by learned counsel for the appellant that the Tribunal
and the High Court were not justified in holding that loans and
advances do not include interest on securities, bonds, debentures
and therefore not liable to tax under the provisions of the Interest Act.
It is submitted that interest on securities falls within the meaning of
“Interest chargeable to tax” as defined under Section 2(7) of the
Interest Act.
2. Learned counsel for the respondent, assessee-Bank on the
other hand supported the judgment of the Tribunal as upheld by the
High Court.
3. A similar question came up for consideration before this Court
in Commissioner of Income Tax v. Corporation Bank (2008 (166)
Taxman 388). This court held as follows:
“Leave granted in special leave petitions.
The short point which arises in this batch of civil appeals is
whether interest earned by the assessees-banks on dated
Government securities was liable to be assessed under section
2(7) read with Section 4 of the Interest Tax Act, 1974. In our
view, there is a basic difference between loans and advances on
the one hand and investments/securities on the other. This
difference is indicated in the provisions of the Income tax Act,
the Companies Act as well as the Bank Regulation Act. These
aspects have been discussed in detail in two decisions of the
Bombay High Court, namely Discount and Finance House of
India Ltd. v. S.K. Bhardwaj, CIT reported in
MANU/MH/0628/2002, as also in another decision of the
Bombay High Court reported in MANU/MH/0629/2002 in the
case of CIT v. United Western Bank Ltd. It is not in dispute that
the revenue has accepted the aforesaid two judgments of the
Bombay High Court. We are in agreement with the view
expressed by the Bombay High Court.
For the aforestated reasons there is no merit in the civil appeals
filed by the department. The same are dismissed No order as to
costs.”
4. Learned counsel for the appellant submitted that this Court’s
decision related to the interest on government securities. Learned
counsel for the assessee submitted that in the instant case the
interest earned was on government securities only. The stand is
denied by learned counsel for the appellant. Let the Tribunal examine
the factual position as to whether the interest involved in the present
case is on government securities. If that be so, the ratio of the
decision in Corporation Bank’s case (supra) will apply to the facts of
the present case and if the interest earned is not solely on
government securities, the ratio of the decision will not apply.
5. The appeals are disposed of accordingly.