REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.               OF 2008 (Arising out of SLP (C) Nos. 1478-1480 of 2004)

The Commissioner of Income Tax-Kolhapur  

….Appellant

Versus

The Ratnakar Bank Ltd.  ….Respondent

J U D G M E N T  

Dr. ARIJIT PASAYAT, J.

1. Leave granted.  

2. 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.  

3. Learned counsel for the respondent assessee-Bank on the other

hand supported the judgment of the Tribunal as upheld by the High

Court.

4. 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.”

5. Learned counsel for the appellant submitted that this Court’s

decision related to the interest on government securities. Learned 2

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.  

6. The appeals are disposed of accordingly.  

………………………….……….…….J. (Dr. ARIJIT PASAYAT)

…………..….…………..……………J. (Dr. MUKUNDAKAM SHARMA)

New Delhi, October 13, 2008

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