CORPORATION BANK vs. THE ASSISTANT COMMISSIONER

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WP/30820/2015HC KarnatakaKAHC01027196201511 January 2016Bench: ANAND BYRAREDDY8 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the petitions, quashing the reassessment notices. The court relied on a circular issued by the Ministry of Finance, which clarified that income from non-SLR investments by banks is part of their business income, citing a Supreme Court decision.

What were the facts?

The Income Tax Department initiated reassessment proceedings against Corporation Bank, alleging that income from non-SLR investments should be taxed as 'income from other sources' instead of business income. The bank argued that all relevant details were provided during the original assessment and the reopening was based on a mere change of opinion.

What were the issues?

Whether reassessment proceedings initiated on a change of opinion without new material are valid, and whether income from non-SLR investments by banks is business income or income from other sources.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 57(i),Section 56(1)(id)

AI-generated summary — verify with the full judgment below

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 11TH DAY OF JANUARY, 2016

BEFORE

THE HON’BLE MR. JUSTICE ANAND BYRAREDDY

WRIT PETITION NO.30820 OF 2015 (T-IT) A/W WRIT PETITION NO.27355 OF 2015 (T-IT)

In Writ Petition No.30820/2015

Between:

Corporation Bank, Head Office, P.B.No.88, Mangaladevi Temple Road, Pandeshwar, Mangalore – 575 001. Represented herein by its Assistant General Manager, Mr. Hara Mohan Sahoo, Age 37 years. …Petitioner

(By Shri.K.P.Kumar, Sr. Counsel for Shri. Sandeep Huilgul & Shri. T.Suryanarayana, Advs.)

And:

1.

The Assistant Commissioner of

Income – tax, Circle 2(1), Mangalore,

C.R. Building, N.G.Road,

Attavara, Mangalore – 575 001.

2.

The Principal Commissioner of

Income – tax, C.R. Building,

N.G.Road, Attavara,

Mangalore – 575 001. …Respondents

(By Shri.K.V.Aravind, Adv.) ---

This Writ Petition is filed under Article 226 of the Constitution of India praying to declare that the impugned proceedings initiated by the R-1 under Section 147 Read with Section 148 of the Act are opposed to the said provisions and therefore without jurisdiction.

In Writ Petition No.27355/2015

Between:

Corporation Bank, Head Office, P.B.No.88, Mangalaadevi Temple Road, Pandeshwar, Mangalore – 575 001. Represented herein by its Assistant General Manager, Mr. Hara Mohan Sahoo, Age 37 years. …Petitioner

(By Shri.K.P.Kumar, Sr. Counsel for Shri. Sandeep Huilgul & Shri. T.Suryanarayana, Advs.)

And:

1.

The Assistant Commissioner of Income - tax

Circle 2(1),

C.R. Building, N.G.Road,

Attavara,

Mangalore – 575 001.

2.

The Commissioner of Income - tax

C.R. Building, N.G.Road,

Attavara,

Mangalore – 575 001. …Respondents

(By Shri.K.V.Aravind, Adv.) ---

This Writ Petition is filed under Article 226 of the Constitution of India praying to declare that the impugned proceedings initiated by the R-1 under Section 147 Read with Section 148 of the Act are barred by limitation and opposed to the said provisions and therefore without jurisdiction.

These Petitions coming on for Preliminary Hearing in ‘B’ Group this day, the Court made the following:-

O R D E R

Heard the learned Senior Advocate Shri K P Kumar appearing for the petitioner and the learned Standing Counsel for the revenue Shri K V Aravind.

2.

These petitions are disposed of by this common order. The petitioners’ regular assessments were concluded by assessment orders dated 08.02.2012 and 21.03.2011 for

the years 2010-11 and 2009-10 respectively. Subsequently, the first respondent is said to have issued notices under Section 148 proposing to reassess the petitioners for the assessment years concerned on the ground that certain income was found to be escaped income. The reasons assigned were not indicated as the basis for reopening of the assessment. It was learnt that the income occurring from investments made by the petitioners banks other than what were not made by the Statutory Liquidity Ratio (‘SLR’ for brevity) was held not related to the business of banking, and that, the said income ought to have been taxed under the head ‘income from other sources’ as against business income. Therefore, the first respondent sought to disallow an interest expense of a large sum of money. The above reassessment proceedings having been initiated on a mere change of opinion, according to the learned Senior Advocate, was not permissible under Section 147 of the Act. All the details

regarding investment portfolio of the petitioner for the year in question, including the annual report of the petitioner for the year ended 31.03.2010, necessary for one to have to come to any conclusion as regards non – SLR securities had been furnished to the first respondent at the time of the original assessment. This had been examined in detail and having applied his mind to the said question, had formed an opinion that no disallowance was necessary on that account. There was no new material that has come to the knowledge of the first respondent after the original assessment. Therefore the changed opinion having been under review of assessment was wholly impermissible. It is in this background that the petitions are filed.

3.

However, even during pendency of these petitions the Ministry of finance, Government of India, Directorate of Income Tax had issued a circular bearing No.18/2015 which reads as follows:

“ It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, “expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is income from other sources.”

2.

Clause (id) of sub-section (1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-tax under the head “Income from Other Sources”, if, the income is not chargeable to income-tax under the head “Profits and Gains of Business and Profession”.

3.

The matter has been examined in light of the judicial decisions on this issue. In the case of CIT vs. Nawanshahar Central Cooperative Bank Ltd., (2007) 160TAXMAN 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling

under the head “Profits and Gains of Business and Profession”.

3.2 Even though the abovementioned decision was in the context of co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies.

4.

In the light of the Supreme Court’s decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned.”

4.

In view of the above, the learned Senior Advocate would submit that the petitions would have to be

summarily allowed and the notices issued by the respondent No.1 would have to be quashed.

5.

The learned Standing counsel would have no comment on this aspect of the matter as the circular is plain in its language. Accordingly, the petitions are allowed in terms of the above said circular and the impugned notices are quashed.

Sd/- JUDGE

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