Partly allowed

The Commissioner of Income Tax,Trichur v. M/S.the South Indian Bank Ltd.,Trichru

Kerala HC5 Jul 2018ITA/799/2009

Case brief

AI extract

What is this about?

The Kerala High Court allowed the Income Tax appeal partly. It followed Dhanalakshmy Bank precedent as financial year was post-2001, setting aside part of the Tribunal order. However, on depreciation claims for permanent securities mandated by RBI liquidity ratios, it distinguished Nedungadi Bank and allowed the claim against revenue.

What did the court decide?

Tribunal order set aside in part regarding Section 14A; depreciation claim allowed; assessment officer to redo computation as directed in Dhanalakshmy Bank.

The Commissioner of Income Tax,Trichur Vs M/S.the South Indian… — Income Tax | Kerala HC (2018)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN &

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THE HONOURABLE MR. JUSTICE ASHOK MENON

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THURSDAY, THE 5TH DAY OF JULY 2018 / 14TH ASHADHA, 1940

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ITA.No. 799 of 2009

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ITA 1031/2004 of I.T.A.TRIBUNAL, COCHIN BENCH

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APPELLANT/APPELLANT :

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THE COMMISSIONER OF INCOME TAX, THRISSUR.

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BY ADV.SRI.JOSE JOSEPH, SC, FOR INCOME TAX

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RESPONDENT(S)/RESPONDENT:

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M/S THE SOUTH INDIAN BANK LTD., THRISSUR.

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BY ADV. SRI.P.BALAKRISHNAN (E)

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THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 05-07-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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ITA.No. 799 of 2009

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APPENDIX

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PETITIONER(S)' ANNEXURES

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ANX.A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3) OF THE I.T. ACT DATED 30.9.2002

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ANX.B TRUE COPY OF TH EORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.71/R1/TCR/CIT-V/02-03 DATED 6.7.2004

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ANX.C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN I.T.A. NO.1031/COCH/2004 DATED 28.9.2006

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RESPONDENT(S)' ANNEXURE

NIL

TRUE COPY

P.S. TO JUDGE

9.7.2018

K. VINOD CHANDRAN & ASHOK MENON, JJ.

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---------------------------------I.T. Appeal No.799 of 2009

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Dated this the 5^th day of July, 2018

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JUDGMENT

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K. Vinod Chandran, J.

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The following questions of law are framed on

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the two issues as available from the Memorandum:

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“1. Whether on the facts and in the circumstances of the case and also in the light of Section 14A of the Income Tax Act introduced by the Finance Act, 2001 with retrospective effect from 01.04.1962, the assessee is entitled to claim the expenditure in respect of income which does not form part of total income?

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2. Whether on the facts in the circumstances of the case, the Tribunal is right in law in interfering with the order of the Assessing Officer disallowing proportionate interest on tax free bonds?

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3. Whether, on the facts in the circumstances of the case, the assessee is entitled to claim depreciation of Rs.4,27,79,000/- being depreciation on

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I.T. Appeal No.799 of 2009

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the permanent category of investments? 4. Whether, on the facts in the circumstances of the case, the method of valuation followed by the assessee bank with reference to permanent and current investments is in accordance with law and directives of the Reserve Bank of India with which the assessee Bank is bound?”

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The first two questions of law are framed on

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the issue raised under Section 14A of the Income Tax Act, 1961 [for brevity the Act of 1961], which is covered in favour of the Revenue and against the asessee by Commissioner of Income Tax v. Dhanalakshmy Bank Ltd. [(2012) 344 ITR 259 (Ker)] . In such circumstances, the said questions are answered in favour of the Revenue and against the assessee, following the binding precedent. The Tribunal's order to that extent is set aside. The Assessing Officer shall redo the computation as has been directed in Dhanalakshmy Bank Ltd. [supra].

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The other two questions of law are on the

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I.T. Appeal No.799 of 2009

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claim of depreciation raised by the assessee. The assessee has been maintaining current and permanent securities. The current securities could be disposed of at any point of time and the permanent ones being en-cashable only on the expiry of the maturity period. The said categorisation of current and permanent investments is on the specific directions issued by the Reserve Bank of India [for brevity, the RBI]. The issue, according to the learned Counsel for the respondent, is covered by the judgment of this Court in Commissioner of Income Tax v. Nedungadi Bank Ltd. [2003 264 ITR 545] .

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The learned Counsel for the Revenue would submit that the decision in Nedungadi Bank Ltd. [supra] applied only to securities taken to satisfy the statutory liquidity ratio [SLR] as prescribed by the RBI and mandated by the Banking Regulations

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I.T. Appeal No.799 of 2009

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Act, 1949. There is no examination of the issue as to whether the permanent securities, which have been treated as stock in trade and on which depreciation has been claimed, are those taken for the purpose of maintaining SLR. The learned Standing Counsel hence seeks for a remand on that issue to the Tribunal.

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Nedungadi Bank Ltd. [supra] considered the

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issue of whether the permanent securities invested by the Banks for the purpose of maintaining SLR could be treated as stock in trade and found in the affirmative and in favour of the assessee. With respect to the current securities even in the present case, the Assessing Officer himself has allowed the claim. We see from the assessment order that the securities taken by the Banks as permanent and current are under the directions of the RBI. The specific finding of the Assessing Officer is

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I.T. Appeal No.799 of 2009

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also that the assessee has been holding permanent investments and current investments as per the directions of the RBI.

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In such circumstances, we do not see any reason for a remand. We answer the last two questions of law in favour of the assessee and against the Revenue. No interference to the order of the Tribunal is required on that aspect.

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We allow the appeal in part, leaving the parties to suffer their respective costs.

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Sd/-

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K. VINOD CHANDRAN, JUDGE.

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Sd/-

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ASHOK MENON,

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JUDGE.