[2008] 14 S.C.R. 377

THE COMMISSIONER OF INCOME TAX, KOLHAPUR

II.

ICICI BANK LTD. (Civil Appeal Nos. 7441-7443 of 2004)

OCTOBER 13, 2008

[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM

SHARMA, JJ.]

Interest Tax Act, 1974 - s.2(7) - Interest on government securities - Taxability of - Held: In view of Supreme Court's c decision in Corporation Bank's case*, interest earned on government securities was held not taxable - In the instant case, dispute between revenue and assessee as to whether, interest earned was on government securities -Factual position as to nature of interest involved required to be examined by 0 Tribunal.

~ The question which arose for consideration in these appeals is whether Tribunal and High Court were justified in holding that the interest earned by assessee on the government securities was not liable to be assessed E under s.2(7) of the Interest Tax Act, 1974.

Disposing of the appeals, the Court

HELD: A similar question came up for consideration before Supreme Court in *Commissioner of Income Tax v.

- 4 Corporation Bank. The Revenue submitted that this deci- \ sion related to the interest on government securities. The assessee submitted that in the instant case the interest earned was on government securities only. The stand is denied by the revenue. The Tribunal is required to exam- G ine 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 would apply to the facts of the present case and if the interest earned is not

377 H

A solely on government securities, the ratio of the decision-+--~

will not apply. [Para 3 and 4] [379-C; 380-A, B & C] '

*Commissioner of Income Tax v. Corporation Bank

(2008) 166 Taxman 388 - referred to.

CASE LAW REFERENCE

(2008) 166 Taxman 388 referred to Para 3, 4

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. -+- 7441-7443 of 2004

From the final Judgment and Order dated 4.12.2002 of the High Court of Judicature at Bombay in Income Tax Appeal Nos. 1269, 1345 and 1346 of 2000

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

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

Dav, Rajesh Kumar, Sathish Aggarwal, V. Prabhakar, Ramjee Prasad, M.K.D. Namboodiry, R.S. Suri, Chinmoy Khaladker, E S.K. Nandy and Revathy Raghavan (for Mis. J.S. Wad & Co.) for the Respondents.

The Judgment of the Court was delivered by

DR. ARIJIT PASAYAT, J. 1. Challenge in these appeals F 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 as- G sessee 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 H against the judgment of the High Court. It was submitted by

THE COMMISS. OF INCOME TAX, KOLHAPUR v. 379

ICICI BANK LTD. [DR. ARIJIT PASAYAT, J.]

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

--~~ 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 B 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. . c

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 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 E loans and advances on the one hand and investments/ securities on the other. This difference is indicated in the provisions of the 1.ncome 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 F Court, namely Discount and Finance House of India Ltd. _...4

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 G Bombay High Court. We are in agreement with the view

v 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 H

A 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 8 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 securi- ties. 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 C interest earned is not solely on government securities, the ratio of the decision will not apply.

5. The appeals are disposed of accordingly.

D.G.

Appeals disposed of.

-* I

,')-