THE COMMISSIONER OF INCOME TAX vs. M/S.STATE BANK OF TRAVANCORE

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ITA/227/2012HC KeralaKLHC01024149201207 December 2017Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court upheld the order of the Tribunal, thereby rejecting the appeal filed by the Commissioner of Income Tax. The Court followed the dictum laid down in its earlier decision in Commissioner of Income Tax v. Catholic Syrian Bank Ltd. & Ors. The Court acknowledged that while disallowance of expenditure incurred in earning tax-exempt income through investments in bonds and securities was permissible even before Rule 8D, and a probable ratio for such disallowance could be worked out, the situation was different for administrative expenditure. The Court held that with respect to proportionate administrative cost attributable to the earning of tax-free income, no disallowance was called for until Rule 8D came into force, as there was no precise formula for such disallowance prior to its introduction. Therefore, the disallowance of administrative expenditure made by the lower authorities was set aside.

What were the facts?

This appeal concerns the assessment year 2004-05. The appellant is the Commissioner of Income Tax, Thiruvananthapuram, and the respondent is M/s. State Bank of Travancore. The appeal challenges an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, dated March 29, 2012. The ITAT's order had overturned a disallowance of administrative expenditure made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals). The Assessing Officer's order was dated December 21, 2006, and the CIT(A)'s order was dated February 4, 2009. The core dispute revolves around the disallowance of administrative expenditure claimed as a deduction by the assessee bank.

What were the issues?

1. Whether the Tribunal was correct in interfering with the disallowance of administrative expenditure claimed as deduction under Section 14A of the Income Tax Act, 1961, for the assessment year 2004-05, prior to the introduction of Rule 8D. Assessee's Contention: The judgment does not record specific contentions made by the assessee. However, the Tribunal's order, which was upheld, implies that the assessee argued against the disallowance of administrative expenditure. Revenue's Contention: The revenue, represented by the Commissioner of Income Tax, contended that disallowance of administrative expenditure attributable to earning tax-exempt income was permissible even before the introduction of Rule 8D. The revenue likely argued that a proportionate disallowance should be made based on the expenditure incurred in earning tax-exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 7TH DAY OF DECEMBER 2017/16TH AGRAHAYANA, 1939 ITA.No. 227 of 2012 () ----------------------- AGAINST THE ORDER/JUDGMENT IN ITA 406/COCH/2009 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-03-2012 FOR ASSESSMENT YEAR 2004-05 APPELLANT(S):/APPELLANT ------------ THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM.

BY ADVS.SRI.P.K.RAVINDRANATHA MENON, SR. COUNSEL, GOI TAXES SRI.JOSE JOSEPH, SC, FOR INCOME TAX DEPARTMENT RESPONDENT(S):/RESPONDENT -------------- M/S.STATE BANK OF TRAVANCORE POOJAPPURA, THIRUVANANTHAPURAM 695 012.

R1 BY ADV. SRI.P.BALAKRISHNAN (E) R1 BY ADV. SRI.MOHAN PULIKKAL THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-12- 2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 227/12 APPENDIX APPELLANT'S ANNEXURES ANNEXURE-A : COPY OF ORDER UNDER SECTION 143(3) OF THE ASSESSING OFFICER DATED 21.12.2006. ANNEXURE-B : COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 4.2.2009. ANNEXURE-C :COPY OF ORDER OF THE APPELLATE TRIBUNAL DATED 29.3.2012. //TRUE COPY// PS TO JUDGE. jg-11/12

K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- I.T.Appeal No.227 of 2012 ------------------------------------------- Dated this the 7th day of December, 2017 J U D G M E N T Vinod Chandran, J. The question of law raised in the aforesaid appeal for the assessment year 2004-05 is with respect to the disallowance of administrative expenditure claimed as deduction under Section 14A of the Income tax Act, 1961. The deduction and disallowance under Section 14A was considered by a Division Bench of this Court in the decision in Commissioner of Income Tax v. Catholic Syrian Bank Ltd. & Ors., reported in (2011) 237 CTR (Ker) 164. The Division Bench found that there could be disallowance made of expenditure incurred, in earning tax exempted income, by way of investments in bonds and securities, and hence, there was no rationale in contending that even before the introduction of Rule 8D, no disallowance could be made. The Division Bench also suggested a probable ratio by which such disallowance could be worked out, even if separate accounts were not maintained. However, with respect to the administrative expenditure, since there was no precise formula for proportionate disallowance till Rule 8D came into force, no disallowance was called for, for proportionate administrative cost attributable to the earning of tax free

ITA 227/12 -2- income until Rule 8D came into force. The issue raised in the appeal is only with respect to the administrative expenditure incurred by the assessee Bank. In such circumstances, following the aforesaid dictum laid down by the Division Bench of this Court, we reject the appeal upholding the order of the Tribunal, which interfered with the disallowance made of the administrative expenditure.

K.VINOD CHANDRAN Judge

ASHOK MENON Judge jg

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