THE SOUTH INDIAN BANK LTD vs. THE ADDL. COMMISSIONER OF INCOME TAX

J U D G M E N T

S.V. Bhatti, J. Heard learned Advocates Mr Joseph Markos and Mr Jose Joseph for the parties.

returns filed by the assessee for the Assessment Year 2007-08. The substantial question under consideration arises under Section 14A of the Act. This Court, in Federal Bank Ltd. v. DCIT1 and ITA No.1091/2009 held the applicable Assessment Year from which Section 14A is applicable; by applying the view taken therein, we hold that Section 14A is not applicable for the subject Assessment Year. The question is answered in favour of the assessee, against the Revenue, by following the dictum laid down in Federal Bank Ltd. and the reasonsing given by this Court in ITA No.1091/2009. 4. Substantial question nos.(b) and (g): (b) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the disallowance in respect of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the Income Tax Act, 1961? (g) Whether on the facts and circumstances of the case, the amount of Provision of Doubtful Debts for certain rural branches disallowed under Section 36(1)(viia) is allowable under Section 36(1)(vii) as the same has been reduced from 1 (2019) 417 ITR 694 -4-

the Loans and Advances / Debtors on the asset aside of the Balance Sheet as held by the Hon'ble Supreme Court in Vijaya Bank's case in 323 ITR 166. 4.1 Substantial question no.(b) deals with the claim relating to bad debts and is covered by the judgment of this Court in Commissioner of Income Tax v. Lord Krishna Bank Ltd2. This Court has taken a view that the Assessing Officer finds out the extent of rural branches, allows deduction to that extent, and while doing so the applicability of the principle laid down in Vijaya Bank v. Commissioner of Income-tax3 is appreciated. With the above perspective, we are of the view that the matter needs to be remitted to the Assessing Officer for disposal afresh on the claim of rural branches. Accordingly, in ITA No.1284/2009 and ITA 1327/2009, we have remitted the matter to the Assessing Officer for re-consideration afresh on the claim as the present. On the same lines with those observations, the matter is remitted to the Assessing Officer for decision and disposal afresh. The net effect of the above

2(2011) 339 ITR 606 (Ker) 3(2010) 323 ITR 166 (SC)

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discussion is that, substantial question no.(b) is covered against the assessee and in favour of the Revenue by the judgment in Lord Krishna Bank Ltd and substantial question no.(g) is answered in favour of the assessee and against the Revenue, however issues covered by the question no.(g) are remitted to Assessing Officer for decision afresh.

4(2020) 425 ITR 1 (SC)

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(d) Whether on the facts and in the circumstances of the case, the Tribunal was correct in confirming the addition made in respect of the surplus realized by the appellant bank on the sale of pledged jewellery items, in disregard of the provisions of Sec.26A of the Banking Regulation Act, 1949 and the Circular issued by the Reserve Bank of India in exercise of the powers conferred on it by sub-sec.(1) and (5) of the said section? (e) Whether on the facts and in the circumstances of the case, the Tribunal was correct in confirming the addition made in respect of excess cash received by the appellant's branches, treating such excess as part of the appellant's income, in disregard of the provisions of Sec.26A of the Banking Regulation Act, 1949 and the Circular issued by the Reserve Bank of India in exercise of the powers conferred on it by sub-sec.(1) and (5) of the said section?

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The case of the assessee is that the assessee to the extent of surplus sale consideration realised from the auction could continue to be a mere custodian of surplus amount realised from the sale of pledged articles and assessee cannot treat the receipt in its books of account as income of the assessee. The case of the assessee is also that the assessee is under statutory obligation to comply with the mandate of Section 26A of the Banking Regulation Act, 1949 and the Circulars issued by the Reserve Bank of India from time to time. The Reserve Bank of India issued Circulars dated 21.03.2014 and 27.05.2014 advising transfer of surplus amount received from the sale of articles etc, by the assessee/Bank. The assessee, in compliance with the binding directive issued by the Reserve Bank of India, transferred the surplus sale amount realised on sale of pledged articles to the Depositor Education and Awareness Fund (DEAF). The amount, as has been contended by the assessee, was and does not form part of the income of the assessee from any standpoint. The amount is not with the assessee. Therefore, disallowance of claim of asessee under the head of -8-

surplus sale proceeds is to be held in favour of the assessee.

this behalf in the Assessment Years covered there-under. The Assessing Officer, duly taking into consideration all the relevant materials, shall pass fresh assessment order. Question nos. (d) and (e) are answered as indicated above.

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Income Tax Appeal allowed in part as indicated above. S.V.BHATTI JUDGE VIJU ABRAHAM JUDGE

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ITA 183/2015 The last sentence in paragraph 7.1 of the judgment dated 22.09.2021 in ITA 183/2015 is clarified as follows vide order dated 03.02.2023 in I.A. No.1/2023 in ITA 183/2015. “Question no.(f) is, for statistical purposes, answered in favour of the assessee, against the Revenue, and the obligation to pay any amount under this head arises, is dependent on the outcome of question nos.(d) and (e) and also on any independent consideration that may arise in accordance with law.”

Joint Registrar -11-