CANARA BANK V. DEPUTY COMMISSIONER OF INCOME TAX

ITA/258/2020

AI Insights

The case involves Canara Bank, which after amalgamation with Syndicate Bank, appealed against the order of the Income Tax Appellate Tribunal concerning disallowances under Section 14A of the Income Tax Act, 1961. The main legal issues revolved around the applicability of Section 14A in relation to the disallowance of expenses incurred to earn exempt income and the computation of such disallowances. The High Court's decision referenced a prior judgment that had addressed similar issues, leading to a resolution in favor of the assessee on specific questions.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 754642 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 08-02-2021
• Assessment Year: misc
• Other Referred Cases: CIT vs. Essar Teleholdings Ltd., Walfort Share and Stock Brokers (P) Ltd, Maxop Investments Ltd
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: T N C SRIDHAV
• Assessee Lawyers: SURYANARAYANA
• Keywords: Disallowance; Exempt income; Income Tax; Rule 8D; Section 14A
• Section: 14A; 115JA; 260-A

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8TH DAY OF FEBRUARY, 2021 PRESENT THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON’BLE MR. JUSTICE V. SRISHANANDA I.T.A. NO.258 OF 2020 BETWEEN: CANARA BANK (FOR AMALGAMATED ENTITY SYNDICATE BANK) HEAD J.C.ROAD BENGALURU - 560 002. REPRESENTED HEREIN BY ITS CHIEF GENERAL MANAGER MR.V.RAMACHANDRA. .... APPELLANT (BY SRI. SURYANARAYANA.T. ADV.) AND: 1. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, UDUPI (FORMERLY ADDITIONAL COMMISSIONER OF INCOME TAX, UDUPI RANGE). 2. COMMISSIONER OF INCOME TAX, ATTAVARA MANGALURU - 575 001. ... RESPONDENTS (BY SRI. T.N.C SRIDHAV, FOR SRI.JEEVAN. J.NEERALGI, ADV .,) 2 - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 23.01.2020 PASSED IN ITA NOS.99 AND 100/PAN/2017 PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (2) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE TRIBUNAL PRONOUNCED ON23.01.2020 IN ITA NOS.99 AND 100/PAN/2017 TO THE EXTENT QUESTION HEREIN; (3) PASS SUCH OTHER OR SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO PASS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN THE INTERESTS OF JUSTICE AND EQUITY. THIS I.T.A. HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 22.01.2021, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, V. SRISHANANDA. J., DELIVERED THE FOLLOWING: J U D G M E N T This appeal is filed u/s.260-A of the Income Tax Act, 1961, by the assessee - Canara Bank [After amalgamation with the Syndicate Bank] with the following substantial questions of law: (1) Whether on the facts and circumstances of the case and on the grounds raised, the Tribunal's conclusion that the Assessing Officer's observations amounted to recording of dissatisfaction as regards the disallowance voluntarily made by the Appellant as contemplated under Section 14A of the Act, is perverse? 3 (2) Whether on the facts and circumstances of the case and on the grounds raised, the Tribunal ought to have held that no disallowance was warranted under Section 14A of the Act? (3) Whether on the facts and circumstances of the case and on the grounds raised, the Tribunal was right in remitting the issue of computation of disallowance under section 14A to the Assessing Officer for arriving at the expenditure disallowable, even though there was no expenditure incurred by the Appellant in earning the exempt income and Section 14A is inapplicable? (4) Whether on the facts and circumstances of the case and on the grounds raised, the Tribunal ought to have held that own funds and non-interest bearing funds having far exceeded the value of investments giving rise to exempt income, Rule 8D(2)(ii) had no application? 2. Learned Senior Counsel representing the assessee has furnished the order passed by the co-ordinate Bench of this court and submits that the issues involved in this appeal is covered by the judgment in the said case. 4 3. Learned counsel for the Revenue however submitted that though there are four substantial questions of law in this appeal, but the judgment dated 31.1.2020 in ITA No.481/2014 is covering only two substantial questions of law. Hence, though the matter is listed for admission, the same is taken up for final disposal by consent of the parties. 4. Even though four substantial questions of law are raised in the appeal Memorandum cited supra, among them, substantial question of law Nos.2 & 4 are covered by the judgment and are answered by the co-ordinate bench of this court vide judgment dated 31.01.2020 in ITA No.481/2014. Paras 8 to 10 of the said judgment dated 31.01.2020 passed in the aforesaid case, reads as under: \"8. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of Section 14A of the Act: Section 14A (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. 5 (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assesee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-Section (2) shall also apply in relation to a case where an assesee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this Section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the 1st day of April 2001. 9. From perusal of Section 14A of the Act, it is evident that for the purposes of computing the total income under this chapter, no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation of the income which 6 does not form part of his total income under the Act. The expenditure, the return of investment and cost of requisition are distinct concepts. Therefore the word ‘incurred’ in Section 14A of the Act have to be read in the context of the scheme of the Act and if so read, it is clear that it disallows certain expenditures incurred to earn exempt income from being deducted from other incomes which is includable in the total income for the purposes of chargeability to the tax. It is equally well settled that expenditure is a pay out. In order to attract applicability of section 14A of the Act, there has to be a pay out and return of investment or a pay back is not such a debit item. [See: WALFORT SHARE AND STOCK BROKERS (P) LTD SUPRA as well as MAXOP INVESTMENTS LTD SUPRA]. In the instant case, the assessee has admittedly not incurred any expenditure. This case pertains to income on dividend, which by no stretch of imagination can be treated to be an expenditure to attract the provisions of Section 14A of the Act. In view of aforesaid enunciation of law by the Supreme Court, the first substantial question of law framed by this court is answered in favour of the assessee and against the revenue. 10. Learned counsel for parties, have fairly admitted that in case this court frames a substantial question of law that whether provisions of Section 115JA apply to the Banking Companies 7 are not the remaining substantial questions of law would be reduced otiose. This court has already framed a substantial question of law in this regard today. This court by an order passed on 16.01.2020 passed in ITA No.18/2014 has already held that the provisions of Section 115JA do not apply to the banking companies. Therefore, the substantial questions of law Nos.3, 4 and 5 and substantial question of law framed in ITA 99/2010 are rendered academic and need not be answered. So far as substantial question of law No.2 in ITA No.97/2010 is concerned, the same is squarely covered by the decision of the Supreme Court in ‘CIT VS. ESSAR TELEHOLDINGS LTD.’,(2018) 401 ITR 445, wherein it has been held that provisions of Section 114A readwith rule 8D of the Income Tax Rules are prospective in nature and can not be applied to any assessment year prior to Assessment Year 2008-09. Accordingly, the aforesaid substantial question of law is answered against the revenue and in favour of the assessee.\" 5. In this regard, a memo is also filed by the learned counsel for the appellant, which reads as under: \"MEMO ON BEHALF OF THE APPELLANT The appellant respectfully submits that in view of the substantial questions of law 2 and 4 having been covered in favour of the assessee in the earlier orders in assessee's own case, it is submitted that substantial 8 questions of law 1 and 3 become academic and need not be answered by this Hon'ble Court. Therefore, it is most humbly prayed that this Hon'ble Court may be pleased to take the memo on record and pass appropriate orders in the interests of justice and equity.\" 6. As per the Memo, question Nos.1 & 3 would only be treated as academic and hence, not answered. In view of the same, in terms of the order dated 31.01.2020, the substantial questions of law Nos.2 & 4 are answered in favour of the assessee and in terms of the aforesaid judgment. Ordered accordingly. Sd/- JUDGE Sd/- JUDGE PL* "