THE COMMISSIONER OF INCOME TAX, KOLHAPUR v.

INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD. (Civil Appeal Nos.7437-7438 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.