[2008] 14 S.C.R. 381

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THE COMMISSIONER OF INCOME TAX, KOLHAPUR A

II.

INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD.

(Civil Appeal Nos.7437-7438 of 2004)

OCTOBER 13, 2008

[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM

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SHARMA, JJ.]

Interest Tax Act, 197 4 - s. 2(7) - Interest earned by assessee-Bank on Government Securities - Held: Is not liable c to be assessed u/s 2(7) - In the instant case, the question as to whether the interest earned was on Government Securities, is since disputed, direction to Tribunal to decide the question

- Interest not be made assessable to tax only if found to have been earned solely on Government Securities. 0 The question for consideration in the instant appeals "< was whether the interest earned by the assessee-Bank on Government Securities was liable to be assessed u/s 2(7) of Interest Tax Act, 197 4. Appellate Tribunal as well as High Court held that it was not chargeable.

In appeal to this Court, the question as to whether the interest involved in the instant case was on Government Securities was disputed by the parties.

.....

Disposing of the appeals, the Court F ·-+\ HELD: In *Corporation Bank's case it was held that interest earned on Government Securities is not liable to be assessed under Section 2(7) of Interest Tax Act, 1974.

There is dispute between the parties as to whether the interest earned was on the Government Securities alone. G If that be so, the ratio of the decision in Corporation Bank's

~ case will apply to the facts of the present case and if the interest earned is not solely on Government Securities,

381 H

A the ratio of the decision will not apply. [Para 4] [383 A-C] r *Commissioner of Income Tax vs. Corporation Bank 2008

(166) Taxman 388 - relied on.

CASE LAW REFERENCE B 2008 (166) Taxman 388 Relied on.

Para 3

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.

t- 7437-7438 of 2008

c From the final Judgment and Order dated 4.12.2002 of the High Court of Judicature at Bombay in Income Tax Appeal Nos. 39 & 71 of 2001

Mohan Prasaran, ASG., V. Shekhar, H. Raghavendra Rao, Gaurav Dhingra, D.L. Chidananda and B.V. Balaram Das for

D the Appellant.

~ Jayashree Wad, Ashish Wad, Neeraj Kumar, Chirag S.

Q(iV, Rajesh Kumar, Sathish Aggarwal, V. Prabhakar, Ramjee x Pxasad, M.K.D. Namboodiry, R.S. Suri, Chinmoy Khaladker, §.K . .Naridy and Revathy Raghavan (for Mis. J.S. Wad & Co.) E for the Respondents.

!he 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 F Court in a group of appeals filed by the revenue under Sec~;,)n

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 as-

G sessed 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

H learned counsel for the appellant that the Tribunal and the High

I THE COMMISS. OF INCOME TAX, KOLHAPUR v. INDUS. 383 DEVEL. BANK OF INDIA LTD. [DR. ARIJIT PASf.YAT, J.]

-~ Court were not justified in holding that loans and advances do A not include interest on securities, bonds, debentures and therefore not liable to tax under the provisions of the Interest Act. ltis, 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 c Court in Commissioner of Income Tax v. Corporation Bank -1 (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 D 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/ E 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.

F ~

v. S.K. Bhardwaj, CIT reported in MANU/MH/0628/2002, , t\

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 G

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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." H

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. e 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 c of the decision will not apply.

5. The appeals are disposed of accordingly.

K.K.T.

Appeals disposed of.

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