THE COMMISSIONER OF INCOME TAX. vs. M/S. THE SOUTH INDIAN BANK LTD.

PDF · subscribers
ITA/1091/2009HC KeralaKLHC01025852200914 July 2021Bench: HONOURABLE MR.JUSTICE S.V.BHATTI,HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court answered substantial questions 1 and 2 in favour of the assessee and against the Revenue. It relied on its decision in Federal Bank Ltd. v. DCIT, which in turn followed the Supreme Court's ruling in CIT v. Essar Teleholdings Pvt. Ltd. This ruling stated that the machinery provisions for Section 14A only came into effect from Assessment Year 2008-09, thus precluding its application to the subject year. For substantial question 3, the Court answered in favour of the assessee, referencing its own judgment in Commissioner of Income Tax v. Nedungadi Bank Ltd. This precedent held that securities held by an assessee-bank are stock-in-trade, and notional losses on their revaluation are allowable deductions. The Tribunal's finding that the securities were stock-in-trade was thus upheld. The appeal was dismissed.

What were the facts?

The Revenue, represented by the Commissioner of Income Tax, Thrissur, filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The appeal concerns the Assessment Year 2003-04. The Assessing Officer had made additions to the assessee's income, including appreciation in the value of securities, disallowing claims for pension payments, bad debts in urban branches, and asset amortization. The Commissioner (Appeals) allowed the assessee's appeal in part. The ITAT, in its order dated September 27, 2007, allowed the assessee's claims, leading to the present appeal by the Revenue under Section 260A of the Income Tax Act.

What were the issues?

The Tribunal had to decide three substantial questions of law: 1. Whether, in light of Section 14A of the Income Tax Act (retrospectively effective from April 1, 1962), the assessee is entitled to claim expenditure in respect of income not forming part of total income. 2. Whether the Tribunal was correct in interfering with the Assessing Officer's disallowance of proportionate interest on tax-free bonds. 3. Whether the Tribunal was correct in holding that investments made by the assessee-company in bonds are in the nature of stock-in-trade, and whether all bank investments in bonds and shares are necessarily stock-in-trade. The Revenue argued that Section 14A should apply to disallow expenditure related to exempt income. For question 3, the Revenue contended that not all bank investments in securities can be treated as stock-in-trade. The judgment does not explicitly record the assessee's arguments on these points, but their position is implied by the questions framed and the Tribunal's decision.

Which sections of the Income-tax Act were involved?

Section 14A,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS WEDNESDAY, THE 14TH DAY OF JULY 2021 / 23RD ASHADHA, 1943 ITA NO. 1091 OF 2009 AGAINST THE ORDER IN ITA 359/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX. THRISSUR. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S. THE SOUTH INDIAN BANK LTD. MISSON QUARTERS, THRISSUR. BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A. No. 1091/2009 -2- J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Senior Advocate Mr. Joseph Markos for the parties. 2. Commissioner of Income Tax, Trichur/Revenue is the appellant. M/s. South Indian Bank Ltd, Thrissur/assessee is the respondent. The appeal is directed against the order of Income Tax Appellate Tribunal (for short ‘Tribunal), Cochin Bench in ITA No.359/Coch/2006 dated 27.09.2007. The appeal deals with the issues arising in the tax return filed by the assessee for the Assessment Year 2003-04. 3. The Assessing Officer through the assessment order in Annexure-A, added appreciation in the value of securities; disallowed the claim of pension payment, bad debts in urban

I.T.A. No. 1091/2009 -3- branches, and asset amortization. The assessee filed appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. In the appeal filed by the assessee before Income Tax Appellate Tribunal, through Annexure-C order, the claims of the assessee referred to above were allowed by the Tribunal. Hence, the instant Income Tax Appeal, at the instance of the Revenue under Section 260A of the Income Tax Act (for short 'the Act'). 4. The Revenue has framed the following substantial questions of law for decision in the subject appeal. “1. Whether on the facts and in the circumstances of the case and also in the light of section 14A of the Income tax Act introduced by the Finance Act. 2001 with retrospective effect from 01/04/1962, the assessee is entitled to claim the expenditure in respect of income which does not form part of total income? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in interfering with the order of the

I.T.A. No. 1091/2009 -4- Assessing Officer disallowing proportionate interest on tax free bonds? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the investment made by the assessee-company in Bonds are in the nature of Stock-in-trade by quoting one para from Kerala High Court decision in the case of Nedungadi Bank (264 ITR 545) which is not there, as quoted. Further, every investment by Bank in Bonds, Shares, etc. cannot be treated as Stock-in-trade.” 5. Substantial question nos.1 and 2 deal with disallowance of claim of expenditure in respect of income which does not form part of the total income. The Assessing Officer disallowed the claim by referring to Section 14A of the Act for the Assessment Year 2003-04. The question is considered by this Court in the decision reported in Federal Bank Ltd. V. DCIT1. The operative portion of the reported judgment reads as follows: 1 (2019) 417 ITR 694

I.T.A. No. 1091/2009 -5- “The fifth question is covered against the Revenue and in favour of the assessee in CIT v. Essar Teleholdings Pvt. Ltd. [2018] 401 ITR 445 (SC). It has been held by the Hon'ble Supreme Court that the machinery provision for giving effect to section 14A of the Income-tax Act came into effect only from the assessment year 2008-09. Hence, there can be no application of section 14A to the subject year. The question is answered against the Revenue and in favour of the assessee.” In the light of the reported judgment substantial question nos.1 and 2 are answered in favour of assessee and against the Revenue. 5.2 Substantial question no.3 deals with investments made by the assessee in shares, bonds, etc. the question is decided by the judgment of this Court in Commissioner of Income Tax v. Nedungadi Bank Ltd2. The operative portion of the reported judgment is excepted: “For all these reasons, we are of the view that the Income-tax 2 (2003) 264 ITR 545 (Ker.)

I.T.A. No. 1091/2009 -6- Appellate Tribunal has rightly held that the securities held by the assessee-bank in all these cases are the stock-in-trade of the business of the assessee-banks and the notional loss suffered on account of the revaluation of the said securities at the close of the year is an allowable deduction in the computation of the profits of the appellant. This disposes of the first two questions mentioned in para. 10 above” Keeping in view what has been laid down in the reported judgments referred to above, the questions of law are answered against Revenue and in favour of assessee. IT Appeal stands dismissed accordingly. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE jjj

I.T.A. No. 1091/2009 -7- APPENDIX OF ITA 1091/2009 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3) DATED 15.12.2005. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA 69/R I/TCR/CIT-V/05.06 DATED 17.3.2006 ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA 359 (COCH)/2006 DATED 27.9.2007

More judgments on Section 14A

All 15,875 judgments and leading authorities on Section 14A →

Recent GST High Court judgments

Search GST case law →