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

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ITA/844/2009HC KeralaKLHC01025605200913 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 held that both substantial questions of law raised by the Revenue are covered by existing judicial pronouncements and are to be answered in favour of the assessee. Regarding the first question concerning the deduction under Section 36(1)(viia), the Court referred to the Supreme Court's decision in Catholic Syrian Bank v. Commissioner of Income Tax, which allowed such claims in favour of the assessee. The Court noted that the Supreme Court's operative portion directed that all matters be remanded to the Assessing Officer for computation in accordance with law, in light of the judgment. For the second question concerning broken period interest, the Court relied on the Kerala High Court's judgments in Commissioner of Income Tax v. Nedungadi Bank Ltd. and Commissioner of Income Tax v. South Indian Bank. These judgments held that securities held by banks are stock-in-trade, and notional loss on revaluation is an allowable deduction. Consequently, the Court answered the questions of law in favour of the assessee and against the Revenue. The appeal filed by the Revenue was dismissed.

What were the facts?

The Revenue, Commissioner of Income Tax, Thrissur, is the appellant in this appeal against the order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, dated September 28, 2006. The appeal pertains to the assessment year 2000-01 and concerns the assessee, South Indian Bank Ltd., Thrissur. The Assessing Officer had disallowed the assessee's claim for deduction under Section 36(1)(viia) and also disallowed the claim for broken period interest on securities. The Commissioner of Income Tax (Appeals) allowed the appeal in part. The ITAT, in its impugned order, upheld the decision of the CIT(A), allowing both claims of the assessee. The Revenue has filed this appeal under Section 260A of the Income Tax Act.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was right in interfering with the disallowance of bad debts written off under Section 36(1)(vii) amounting to Rs. 8,47,40,283/-? 2. Whether the Tribunal was right in allowing the bad debts written off under Section 36(1)(vii) amounting to Rs. 8,47,40,283/-? 3. Whether the assessee is entitled to claim deduction of broken period interest amounting to Rs. 3,85,29,440/-, in light of the Supreme Court decision in United Commercial Bank (32 ITR 688) and subsequent decisions? 4. Whether the Tribunal was right in interfering with the disallowance of broken period interest? Contentions: Assessee: The assessee contended that the claims for deduction under Section 36(1)(viia) and broken period interest are allowable. The assessee relied on the Supreme Court decision in Catholic Syrian Bank v. Commissioner of Income Tax for the issue concerning Section 36(1)(viia) and on the Kerala High Court decisions in Commissioner of Income Tax v. Nedungadi Bank Ltd. and Commissioner of Income Tax v. South Indian Bank for the issue of broken period interest. Revenue: The Revenue argued against the allowance of both claims, as reflected in the disallowances made by the Assessing Officer and the grounds raised in the appeal.

Which sections of the Income-tax Act were involved?

Section 36(1)(viia),Section 36(1)(vii),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 TUESDAY, THE 13TH DAY OF JULY 2021 / 22ND ASHADHA, 1943 ITA NO. 844 OF 2009 AGAINST THE ORDER IN ITA 1207/COCH/2004 DATED 28.09.2006 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, THRISSUR BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S.SOUTH INDIAN BANK 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 ADMISSION ON 13.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No. 844 of 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 parties. 2. Revenue is the appellant. The South Indian Bank Ltd Trichur/Assesee is the respondent. The appeal is directed against the order of the Income Tax Appellate Tribunal, Cochin Bench in I.T.A 1207/Coch/2004 dated 28.09.2006. The appeal deals with the issues arising from the tax return filed by the assessee for the assessment year 2000-01. 2.1. The Assessing Officer through the assessment order in Annexure-A disallowed the claim of the assessee under Section 36(1)(viia). Similarly, the Assessing Officer disallowed the claim of payment of broken period interest on securities purchased by the assessee for being compliant with statutory norms. The

ITA No. 844 of 2009 -3- assessee filed appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. In the appeal filed by the revenue before Income Tax Appellate Tribunal, through Annexure-C order, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and the claims of the assessee under Section 36(1)(viia) and broken period interest were allowed. Hence the instant Income Tax Appeal, at the instance of the revenue under Section 260 A of the Income Tax Act (for short, the Act). The following substantial questions of law are raised by the revenue: 1. Whether, on the facts and in the circumstances of the case and on an interpretation of the relevant provisions, the Tribunal is right in law,- i) in interfering with the disallowance of bad debts written off under section 36(1)(vii) amounting to Rs.8,47,40,283/-? ii) in allowing the bad written off under section 36(1) (vii) amounting to Rs.8,47,40,283/-? 2. Whether, on the facts and in the circumstances of the case and also in the light of the decision of the Supreme Court in United Commercial Bank (32 ITR 688) followed in subsequent decisions of Supreme Court,-

ITA No. 844 of 2009 -4- i) the assessee is entitled to claim deduction of broken period interest (Rs.3,85,29,440/-)? ii) The Tribunal is right in law interfering with the disallowance of broken period interest? (Emphasis added) 3. The first question is regarding the eligible deduction under Section 36(1)(viia) of the Act. It is stated by the counsel appearing for the parties that question no.1 is covered by the judgment of the Supreme Court in Catholic Syrian Bank v. Commissioner of Income Tax1 and had answered the issue in favour of assessee and against the revenue. We are referring to the decision of the Apex Court with a limited view to comprehensively advert to the outcome on all the questions raised by the revenue in the instant appeal. The operative portion in Catholic Syrian Bank Ltd case reads thus: “Firstly, the Full Bench ignored the significant expression appearing in both the proviso to Section 36(1) (vii) clause (v) of Section 36(2) i.e ., 1[2012] 343 ITR 270 (SC)

ITA No. 844 of 2009 -5- 'assessee to which clause (viia) sub-section(1) applies'. In other words, if the case of the assessee does not fall under Section 36(1)(viia) proviso/limitation would not come into play. xxxx xxxx xxxx “Consequently, while answering the question in favour of the assessee, we allow the appeals of the assessee and dismiss the appeals preferred by the revenue. Further, we direct that all matters be remanded to the Assessment Officer for computation in accordance with law, in light of the law enunciated in this judgment.” 4. The substantial question no.2 is a claim made towards payment of broken period interest by the assessee. The question is covered also in favour of the assessee and against the revenue in the reported judgment in Commissioner of Income Tax v. Nedungadi Bank Ltd2 read with Commissioner of Income Tax v. South Indian Bank3 The operative portion of the judgment is excerpted hereunder: 2 (2003) 264 ITR 545 (Ker.) 3(2000) 241 ITR 374 (Ker.)

ITA No. 844 of 2009 -6- “For all these reasons, we are of the view that the Income-tax 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.” The questions of law framed, by following the judgments referred to above, are answered in favour of the assessee and against the revenue. Income Tax Appeal stands dismissed accordingly. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE JS

ITA No. 844 of 2009 -7- APPENDIX APPELLANT'S ANNEXURES ANNEXURE A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S. 143(3) OF THE IT ACT DATED 30/09/2002. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.71/RI/TCR/CIT- V/02-03 DATED 06/07/2004. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.1207/COCH/2004 DATED 28/09/2006 RESPONDENT'S ANNEXURES: NIL

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