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

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF JULY, 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR ITA NO. 406 OF 2018 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX,

C.R.BUILDING,

ATTAVARA,

MANGALURU-575001. 2. THE ASST. COMMISSIONER OF INCOME-TAX

CIRCLE - 2 (1),

C.R.BUILDING,

ATTAVARA,

MANGALURU-575001. ... APPELLANTS (BY SRI K.V.ARAVIND, ADVOCATE) AND: M/S KARNATAKA BANK LTD., NEAR MAHAVEER CIRCLE, PUMPWELL, MANGALURU-575002. ... RESPONDENT (BY SRI BALRAM R RAO, ADVOCATE)

2 THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 19.01.2018 PASSED IN ITA NO.1397/BANG/2012, FOR THE ASSESSMENT YEAR 2010-2011, VIDE ANNEXURE-C, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 1397/BANG/2012, DATED 19.01.2018, VIDE ANNEXURE-C, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), BENGALURU. III. TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR ADMISSION, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT Mr. K.V. Aravind, learned counsel for the revenue. Mr. Balram R. Rao, learned counsel for the assessee. This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee against the order dated 19.01.2018 passed by the Income Tax Appellate Tribunal. The subject matter of the appeal pertains to the Assessment year 2008-2009. The appeal was admitted by a bench of this

3 Court on the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance made under the head investment portfolio by following earlier decisions which has not reached finality even when the assessing authority rightly made disallowance by holding that irrespective of RBI guidelines were applicable to the assessee for the purposes of the I.T.Act or not, as per the principles of accountancy and the various decisions of Apex Court, income should be recognized in a way which reflects a true and fair picture of the affairs of the assessee and accordingly, when bank itself is treating the securities as "held to maturity", for any reason whatsoever, the same should be the case for purposes of Income Tax as this representation alone reflects the true picture of the accounts of the assessee? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance made under Section 14A read with Rule 8D(2) (ii) and (iii) of the Act on expenditure incurred on earning exempt income even when the assessing

4 authority rightly made disallowances as conditions for making such disallowances were satisfied and assessee failed to show flow of its own funds to those investments from which income is exempt? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law holding that the assessee-Bank cannot be considered as a Company by following decisions which has not reached finality and even when as per Section 2(17) of the Act, the Company is defined as an Institution, association or body which is or otherwise assessable or assessed as a Company and as such Section 115JB is applicable to assessee Bank for MAT purposes? 4. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance in setting aside disallowance made under Section 40(a) (ia) of the Act on ATM charges of other Banks even though Section 194H and Explanation to said section is applicable to assessee-Bank and as such assessee ought to have deducted TDS on such payments?

5 3rd substantial questions of law involved in this appeal have already been answered in favour of the assessee by this Court vide judgment dated 16.01.2020 in the case of COMMISSIONER OF INCOME-TAX, BANGALORE Vs. ING VYSYA BANK LTD reported in [2020] 114 TAXMANN.COM 506 (KARNATAKA) 3. It is further also submitted that the 2nd substantial question of law involved in this appeal also has already been answered in favour of the assessee by this Court vide judgment dated 15.02.2021 in ITA No.133/2015 the case of THE COMMISSIONER OF INCOME-TAX AND ANOTHER. Vs. M/S QUEST GLOBAL ENGINEERING SERVICES PVT. LTD. It is further submitted that the 4th substantial question of law is also answered by a bench of this Court vide Judgment dated 23.11.2020, passed in ITA No.427/2015 in favour of the assessee and against the revenue.