In this ITA, the appellant bank challenged the disallowance of interest on overdue deposits as deduction. The Court relied on prior decisions to hold that such liabilities are ascertained and allowed under the Act.
The question of law was answered in favour of the assessee and the appeal was allowed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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ORIENTAL BANK OF COMMERCE ..... Appellant Through: Mr. Rajat Navet, Advocate.
versus
ADDITIONAL COMMISSIONER OF INCOME TAX
..... Respondent Through: Ms. Vibhooti Malhotra and Mr. Rahul Chaudhary, Advocates.
CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A. K. CHAWLA
O R D E R % 05.02.2018
CM APPL. 4346/2018 (for exemption)
Allowed subject to just exceptions.
ITA 128/2018
The question of law sought to be urged in this case is:-
“(1) Whether the interest on overdue deposits could have been allowed as deduction in the circumstances of the case?”
Issue notice. Ms. Vibhuti Malhotra, Advocate accepts notice on behalf of the respondent. With the consent of the counsel for the parties, the appeal was heard finally.
ITA 128/2018 Page 1 of 5
The Revenue had disallowed these amounts contending that the overdue interests were not ascertained liabilities .
It is brought to the notice of the Court that the issue sought to be urged by the assessee is covered by the recent decision of this Court in the case of Oriental Bank of Commerce vs. Additional Commissioner of Income Tax, ITA 57/2018 (dated 17.01.2018). The Court had, on that occasion in its judgment stated, as follows:-
“4. The assessee - a scheduled bank had in its return claimed an ascertained liability of Rs.17 crores towards the interest on overdue deposits. The AO was of the opinion that the liability was not in present time and had not crystallized or arisen and therefore, had to be disallowed. The CIT(A) allowed the appeal filed in the light of the previous year’s observations which are extracted below :
"5.5.4 There is no dispute that interest is liable to be paid by the appellant to the depositors on these time deposits. Therefore, it is clear that above liabilities are definite liabilities. The appellant submitted that it has accounted for interest on overdue deposits at the rate of savings bank deposits and the balance overdue interest is accounted for at the time of renewal as per the RBI Circular.
Therefore, it is clear that the above liabilities at the rate of savings bank deposits are ascertained liabilities crystallized during the relevant previous year as on the closure of account on 31/03/2009. Actual interest on time deposits are much higher than savings account deposits. Therefore, the liability debited in the accounts at the rate of savings account deposits cannot be lower than the liability at the time of renewal.
Page 2 of 5
ITA 128/2018
5.5.5 The assessee is a nationalized bank and governed by Banking Regulations Act, 1974. The assessee is bound to act as per RBI Circular. The RBI Circular No. DBOD No. Leg. BC.34/ 09.07.005/2008-09 dated 22.08.2008 in Para 2 (xi) says:-
"(xi) Interest on savings bank accounts should be credited on regular basis whether the account is operative or not. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest."
Further, the above RBI circular is neither inconsistent nor contrary to the provisions of the Income Tax Act. There is no dispute that the appellant debited the liability on account of overdue deposits at the rate of savings bank deposits as per RBI Circular in a bonafide manner. It is also fact that there is no change in the method of accounting but only change in accounting policy as guided by the RBI.
5.5.6 Hon'ble Supreme Court of India in Bharat Earth Movers Ltd. Vs CIT [245 ITR 428] held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in present though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. The above principle was
Page 3 of 5
ITA 128/2018
also followed by Hon'ble Supreme Court in Metal Box Co. of India Ltd. Vs Their workmen [73 ITR 53] and Calcutta Co. Ltd. Vs CIT [37 ITR 1]. In view of the above factual and legal position as the liability determined as per RBI Circular are definite and ascertained liability, therefore, allowable under the provisions of the Act. As such this ground is decided in favour of the appellant."
7. Ms. Vibhooti Malhotra, learned counsel for Revenue urges that order impugned is merely one of remission and in no case, acts prejudicially against the appellant. It is argued that besides circumstances that the assessee is aware of the likely liability and is able to crystallize, it per se would not mean that it is an ascertained one having regard to the fact that further payments would have to be made and the likelihood of the depositors renewing fixed deposits.
Page 4 of 5
ITA 128/2018
8. This Court is of the opinion that the questions urged in this case, need to be answered in favour of the assessee in the light of the decision in Aggarwal and Modi’s case (supra).............................”
In the light of the above discussion, the question of law deserves to be, and is accordingly, answered in favour of the assessee. Consequently, the appeal succeeds and is allowed.
S. RAVINDRA BHAT, J
A. K. CHAWLA, J
FEBRUARY 05, 2018 nn
Page 5 of 5
ITA 128/2018
2 issues framed by the court
Whether the interest on overdue deposits could have been allowed as a deduction since the liability was not ascertained?
Whether interest liabilities on overdue deposits constitute ascertained liabilities under the Income Tax Act?
Colour shows how this judgement treated each authority
Oriental Bank of Commerce vs. Additional Commissioner of Income TaxRelied on¶18
Oriental Bank of Commerce vs. Additional Commissioner of Income Tax, ITA 57/2018
Bharat Earth Movers Ltd. Vs CITApplied¶27
Bharat Earth Movers Ltd. Vs CIT [245 ITR 428]
Metal Box Co. of India Ltd. Vs Their workmenExplained¶27
Metal Box Co. of India Ltd. Vs Their workmen [73 ITR 53]
Calcutta Co. Ltd. Vs CITExplained¶27
Calcutta Co. Ltd. Vs CIT [37 ITR 1]
Aggarwal and Modi Enterprise (Cinema Project) Co. (P) Ltd. Vs. CITFollowed¶8
Aggarwal and Modi Enterprise (Cinema Project) Co. (P) Ltd. Vs. CIT, (2016) 381 ITR 469 (Del.)
3 provisions across 2 enactments
Oriental Bank of Commerce
Additional Commissioner of Income Tax
S. Ravindra Bhat
A. K. Chawla
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
