THE COMMISSIONER OF INCOME TAX, II, TIRUCHIRAPALLI versus CITY UNION BANK LTD.

[2008] 14 S.C.R. 385

THE COMMISSIONER OF INCOME TAX, II, TIRUCHIRAPALLI v. CITY UNION BANK LTD. (Civil Appeal No. 2690 of 2006)

OCTOBER 13, 2008

[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM SHARMA, JJ]

Interest Tax Act, 1974:

s. 2(7) - Interest earned by Bank on Government Secu rities - HELD: The Tribunal would examine the factual posi tion and accordingly decide in view of the decision of Supreme Court- Income Tax Act, 1961.

In the instant appeal, the question before the Court was as to whether interest earned by assessee Bank on Government Securities was liable to be assessed u/s 2(7) of the Interest Act, 1974.

Disposing of the appeal, the Court

A

B

c

D

E

HELD: Let the Tribunal examine the factual posi tion as to whether the interest involved in the instant case is on government securities. If that be so, the ratio of the decision in the case of Corporation Bank* will ap ply to the facts of the case and if the interest earned is F not solely on government securities, the same will not apply. [para 4] [387-H; 388-A]

*Commissioner of Income Tax vs. Corporation Bank

2008(166) Taxman 388 - referred to.

CASE LAW REFERENCE

2008(166) Taxman 388

referred to parA ~

385

G

H

386

SUPREME COURT REPORTS

[2008] 14 S.C.R.

A

·;

B

CIVILAPPELLATE JURISDICTION : Civil Appeal No. 2690

of 2006

From the final Judgment and Order dated 20.10.2005 of the High Court of Judicature at Madaras in T.C. (A) No. 797 & 798 of 2005

·Mohan Prasaran,ASG., V. Shekhar, H. Raghavendra Rao, Gaurav Dhingra, D.L. Chidananda and B.V. Balaram Das for the Appellants.

+-

Jayashree Wad, Ashish Wad, Neeraj Kumar, Chirag S. C DaV, Rajesh Kumar, Sathish Aggarwal, V. Prabhakar, Ramjee 'Prasad, M.K;D. Namboodiry, R.S. Suri, Chinmoy Khaladker, 'S.K.Nandy and Revathy Raghvan (for M/s. J.S. Wad & Co.) for the Respondents.

·

0

· :·: '''-Th~ Judgment of the Court was delivered by :< .·"' OR.ARIJIT PASAYAT, J. 1. Cha.llenge in this appeal is to

the judgment of final order passed by the Madras High Court in a group of appeals filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short the 'Act') read with Section E .24 of the lnterestTaxAct, 1974 (in short the 'lnterestAct'). Ques tion involved was whet~er interest earned by the assessee bank on government securities was liable to be assessed under Sec tion 2(7) of the Interest Act? The Income Tax Appellate Tribunal (in short the 'Tribunal') held that it was not chargeable. The High F Cqtirt t>Y the impugned judgment upheld the view of the Tribu nal. The revenue filed ·:'.he present appeal against the judgment of the High Court. It was submitted by learned counsel for the appellant that the Tribunal and the High Court were notjustifi~d in holding that loans and advances do not include interest on G securities, bonds, debentures and therefore not liable to tax under the provisions of the Interest Act. It is submitted that inter est on securities falls within the meaning of "Interest charge able to tax" as defined under Section 2(7) of the Interest Act.

~'-.

2. Learned counsel for the respondent, assessee-Bank H on the other hand supported the judgment of the Tribunal as

THE COMMISS. OF INCOME TAX, 11, TIRUCHIRAPALLI 387 v. CITY UNION BANK LTD. [DR. ARIJIT PASAYAT, J.]

_,___J

upheld by the High Court.

3. A similar question came up for consideration before this Court in Commissioner of Income Tax v. Corporation Bank (2008 (166) Taxman 388). This court held as follows:

"Leave granted in special leave petitions.

A

'B

The short point which arises in this batch of civil appeals is whether interest earned by the assessees-banks on dated Government sec1Jrities was liable to be assessed under section 2(7) read with Section 4 of the Interest Tax Act, 197 4. In our view, there is a basic difference between c loans and advances on the one hand and investments/ securities on the other. This difference is indicated in the provisions of the Income tax Act, the Companies Act as well as the Bank Regulation Act. These aspects have been discussed in detail in two decisions of the Bombay High D Court, namely Discount and Finance House of India Ltd. v. S.K. Bhardwaj, CIT reported in MANU/MH/0628/2002, as also in another decision of the Bombay High Court reported in MANU/MH/0629/2002 in the case of CIT v. United Western Bank Ltd. It is not in dispute that the E revenue has accepted the aforesaid two judgments of the Bombay High Court. We are in agreement with the view expressed by the Bombay High Court.

For the aforestated reasons there is no merit in the civil appeals filed by the department. The same are dismissed F No order as to costs."

4. Learned counsel for the appellant submitted that this Court's decision related to the interest on government securi- ties only. Learned counsel for the assessee submitted that in the instant case the interest earned was on government securi- ties. The stand is denied by learned counsel for the appellant. Let the Tribunal examine the factual position as to whether the interest involved in the present case is on government securi- ties. If that be so, the ratio of the decision in Corporation Bank's

G

H

x

I\

_,..,

388

SUPREME COURT REPORTS

·-

[2008] 14 S.C.R.

A case (supra) will apply to the facts of the present case and if the interest earned is not solely on government securities, the ratio of the decision will not apply.

5. The appeal is disposed of accordingly.

B R.P.

Appeal disposed of.

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