Commissioner of
Income Tax, Kolhapur Vs. ICICI Bank Ltd. [2008] INSC 1709 (13 October 2008)
Judgment
(Civil Appeal Nos.
7441-7443 of 2004) OCTOBER 13, 2008 [DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
SHARMA, JJ.] The Judgment of the Court was delivered by DR. ARIJIT PASAYAT, J.
1.
Challenge
in these appeals is to the judgment of final order passed by the Bombay 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 24 of the Interest
Tax Act, 1974 (in short the `Interest Act'). Question involved was whether
interest earned by the assessee bank on government securities was liable to be
assessed under Section 2(7) of the Interest Act. The Income Tax Appellate
Tribunal (in short the `Tribunal') held that it was not chargeable. The High
Court by the impugned judgment upheld the view of the Tribunal. The revenue
filed the present appeals against the judgment of the High Court. It was
submitted by learned counsel for the appellant that the Tribunal and the High
Court were not justified in holding that loans and advances do not include interest
on securities, bonds, debentures and therefore not liable to tax under the
provisions of the Interest Act.
It is submitted that
interest on securities falls within the meaning of "Interest chargeable to
tax" as defined under Section 2(7) of the Interest Act.
2.
Learned
counsel for the respondent, assessee-Bank on the other hand supported the
judgment of the Tribunal as 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.
The short point
which arises in this batch of civil appeals is whether interest earned by the
assessees-banks on dated Government securities was liable to be assessed under
section 2(7) read with Section 4 of the Interest Tax Act, 1974. In our view,
there is a basic difference between 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 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 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 No order as to costs."
4.
Learned
counsel for the appellant submitted that this Court's decision related to the
interest on government securities. Learned counsel for the assessee submitted
that in the instant case the interest earned was on government securities only.
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 securities. If that be so, the ratio of the decision in
Corporation Bank's 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
appeals are disposed of accordingly.
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