THE COMMISSIONER OF INCOME TAX, TRICHUR vs. M/S.DHANALAKSHMI BANK LTD.,TRICHUR

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. 304 OF 2009 AGAINST THE ORDER IN ITA 179/COCH/2000 DATED 31.10.2003 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX, TRICHUR BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: M/S.DHANALAKSHMI BANK LTD.,TRICHUR BY ADVS. SRI.MOHAN PULIKKAL SRI.P.BALAKRISHNAN SRI.NARAYANAN P POTTY THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 13.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA NO. 304 OF 2009 -2- J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Advocate Mr.Mohan Pulikkal for parties. 2. Revenue is the appellant. Dhanlakshmi 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 179/Coch/2000 dated 31.10.2003. The appeal deals with the issues arising from the tax return filed by the assessee, for the assessment year 1995-96. 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

ITA NO. 304 OF 2009 -3- the assessee for being compliant with the statutory norms. The assessee aggrieved by the disallowances, 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 under Section 36(1)(viia) and broken period interest were allowed by the Tribunal. 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.22,78,703/-? ii) in allowing the bad written off under Section 36(1) (vii) amounting to Rs.22,78,703/- 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,- i) the assessee is entitled to claim deduction of broken period interest (Rs.1,15,86,754/-)?

ITA NO. 304 OF 2009 -4- ii) The Tribunal is right in law interfering with the dis- allowance 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 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 ., '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. 1[2012] 343 ITR 270 (SC)

ITA NO. 304 OF 2009 -5- 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. Substantial question no.2, is a claim 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: “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 2 (2003) 264 ITR 545 (Ker.) 3 (2000) 241 ITR 374 (Ker.)

ITA NO. 304 OF 2009 -6- computation of the profits of the appellant. This disposes of the first two questions mentioned in para. 10 (page 552) 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. 304 OF 2009 -7- APPENDIX APPELLANT'S ANNEXURES ANNEXURE A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 22.12.1997. ANNEXURE B TRUE COPY OF THE ORDER OF THE CIT(A) DATED 07.02.2000. ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 31.10.2003. RESPONDENT'S ANNEXURES: NIL