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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 24TH DAY OF JULY 2012
PRESENT
THE HON'BLE MR.JUSTICE K.SREEDHAR RAO
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
ITA NO.1322/2006
BETWEEN:
THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C.R.BUILDING, QUEENS ROAD, BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME TAX, SPECIAL RANGE – 6, C.R.BUILDING, QUEENS ROAD, BANGALORE.
…APPELLANTS
(BY SRI.G.KAMALADHAR, ADV)
AND:
M/S.CANARA BANK, HEAD OFFICE,
NO.112, J.C.ROAD, BANGALORE.
…. RESPONDENT
(BY SRI.K.S.RAMABADRAN, ADV)
ITA FILED U/S.260A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 23-05-2006 PASSED IN MP.NO.37/BANG/2006 FOR THE ASSESSMENT YEAR 1994-95, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN MP.NO.37/BANG/2006 DATED 23-05-2006 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, SPECIAL RANGE – 6, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.
THIS APPEAL COMING ON FOR HEARING THIS DAY, SREEDHAR RAO J., DELIVERED THE FOLLOWING:
J U D G M E N T
The assessee is a Nationalised Bank. As per the guidelines of the RBI, the assessee-Bank has to reserve certain ratio for investment and not permitted to lend to the public. The Bankers are permitted to invest the monies reserving ratio to be invested in stocks, shares, Government Securities, Government debentures and
bonds. The Banks earn interest and dividend on the said investment. The assessee in question for the year 1994-95 had shown income from the dividend as income from other sources. The assessee sought for setting off the loss against the dividend income. The Assessing Officer found that the income from the dividend is to be declared as required under Section 56 of the Income Tax Act as income from other sources. Therefore, the said income shall not be taken into consideration for setting off of the loss.
The CIT (Appeals) and the Tribunal up held the contention of the assessee that the stocks from which the dividend received constitutes a part of stock-in- trade and also constitutes business income. Thus allowed the appeal and held that the loss to be set off against the said income. The revenue being aggrieved by the said order has preferred this appeal before this court.
While admitting the appeal, this court has formulated the following substantial question of law:
“Whether the Tribunal was right in holding that the shares held by the assessee as trading assets and dividend on these shares would form part of the income of the assessee and therefore the business loss carried forward from earlier years can be set off towards the current year income?”
The provisions of Section 56(2) of the Income Tax Act declare that the income from dividend is to be shown as income from other sources. However, the assessee is bound by the Banking Regulation Act. The provisions of Section 29 read with Schedule-VIII of the Banking Regulation Act reads thus:
SCHEDULE VIII Investments
___________ ____________ As on 31-3… As on 31-3…. (current year) (previous year) _____________ ______________ I. Investments in India in (i) Government Securities (ii) Other approved securities (iii) Shares (iv) Debentures and Bonds (v) Subsidiaries and /or joint ventures (vi) Others (to be specified)
__________
___________
Total: __________
___________
II. Investments outside India in (i) Government securities (Including local Authorities)
(ii) Subsidiaries and /or joint ventures abroad, (iii) Other investments (to be specified) ___________ ___________ Total:
___________ ___________
Grand Total (I and II)
The Schedule-VIII is the format of the Balance Sheet as required under Section 29 of the Banking Regulation Act. The Hon'ble Supreme Court in UCO BANK v/s CIT
reported in (1999) 240 ITR 355 has held that the stocks and securities held by the Banks and the income derived therein constitute business income. The decision of the Hon'ble Supreme Court in BROOKE BOND AND CO. LTD. v/s CIT reported in (1986) 162 ITR 373 held that the dividend from the shares shall constitute income from other sources unless the said income is from the trading asset. In the instant case, the Banks cannot keep the SLR amounts unutilised and they are bound to invest in Government Securities, bonds and shares. Therefore, the said income should necessarily constitute income from business. However, because of the technical anamolies found in Section 56(2) of the Income Tax Act, the assessee has shown the income as income from other sources although it was business income.
In that view of the matter, the question of law is answered against the Revenue. Accordingly, the appeal is dismissed.
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JUDGE
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