THE COMMISSIONER OF INCOME TAX,TVM. vs. KERALA STATE INDUSTRIAL DEV.CORPN.LTD.

ITA/128/2008HC KeralaKLHC01027033200811 November 2008Author: HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU,HONOURABLE MR.JUSTICE A.K.BASHEER5 pages
AI SummaryDismissed

What were the facts?

The Revenue is aggrieved by an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, dated May 12, 2003, in ITA No. 2/Coch/2000. The assessee, Kerala State Industrial Development Corporation Ltd., a public sector enterprise, claimed exemption on interest received from bank deposits for assessment year 1997-98. The Assessing Officer included Rs. 1,15,77,863/- as chargeable interest. The Commissioner of Income Tax (Appeals) deleted this addition, holding that interest on bank deposits was outside the purview of Section 5 of the Interest Tax Act. The ITAT confirmed this decision, relying on its previous rulings for the same assessee in earlier assessment years.

What did the High Court hold?

The High Court held that the questions of law framed by the Revenue were no longer res integra, having been decided by this Court in its own earlier decisions in ITA No. 259 of 2002 and ITA No. 4 of 2003, decided on June 16, 2008. In those decisions, the Court had observed that interest tax is payable on 'loans and advances' made by a credit institution. The assessee, engaged in industrial financing, made deposits of surplus amounts for short-term periods in banks to earn interest, which does not amount to an advance for a loan. Therefore, the Tribunal was right in holding that the assessee is not liable to pay interest tax under the Interest Tax Act. The Court dismissed the appeal filed by the Revenue, answering the questions of law against the Revenue and in favour of the assessee. The operative direction was to dismiss the appeal.

What were the issues?

1. Whether interest on deposits with banks (other than the Reserve Bank) is exempt under Section 2(7) of the Interest Tax Act, 1974? (Question of law) 2. Whether the Tribunal was right in confirming the exclusion of interest on deposits received from banks from chargeable interest, holding it to be outside the provisions of Section 2(7) and Section 5 of the Interest Tax Act? (Question of mixed law and fact) 3. Whether the Tribunal was justified in interfering with the order of the Assessing Officer? (Question of law) Assessee's Contention: The assessee argued that interest on bank deposits is not 'loans and advances' and therefore not chargeable under the Interest Tax Act. The first appellate authority and the Tribunal agreed with this view. Revenue's Contention: The Revenue contended that the interest on bank deposits should be included as chargeable interest. The Assessing Officer's order was in line with this contention. The Revenue appealed against the ITAT's decision.

Which sections of the Income-tax Act were involved?

Section 2(7),Section 5,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU

& THE HONOURABLE MR. JUSTICE A.K.BASHEER TUE AY, THE 11TH NOVEMBER 2008 / 20TH KARTHIKA 1930

I.T.A.No. 128 of 2008

----------------------------------- ORDER DATED 12.5.2003 IN ITA.2/COCH/2000 OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, COCHIN

.................... APPELLANT/APPELLANT: ----------------------------------- THE COMMISSIONER OF INCOME -TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOVERNMENT OF INDIA (TAXES) & SRI.JOSE JOSEPH, STANDING COUNSEL FOR INCOME TAX RESPONDENT/RESPONDENT: ------------------------------------------- KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., THIRUVANANTHAPURAM.

The order continues below.

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