DY..C.I.T., BANGALORE V. M/S STATE BANK OF MYSORE, BANGALORE

ITA 681/BANG/2015

AI Insights

The case involves the Deputy Commissioner of Income Tax, LTU, Circle-1, Bangalore as the appellant and M/s. State Bank of Mysore as the respondent. The dispute centered on whether income under the head 'Capital Gains' should be excluded from the total income when computing deductions under section 36(1)(viia) of the Income Tax Act. The Assessing Officer (AO) initially excluded capital gains from the total income, leading to an excess deduction being claimed. The CIT(A) reversed this decision, a stance supported by the Income Tax Appellate Tribunal, which referenced CBDT Instruction No. 17/2008 to affirm that total income includes all heads of income before any deductions under Chapter VIA of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 469874 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2005-2006
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P.C. CHHOTARAY; SPL. COUNSEL; DR
• Assessee Lawyers: NINAD PATADE; AR
• Keywords: Business income; Bad and doubtful debts; Capital Gains; Rectification of order
• Section: 143(3); 154

Judgement Text

"| आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 681/Bang/2015 Assessment Year: 2005-06 Deputy Commissioner of Income Tax, LTU, Circle-1, Bangalore Vs M/s. State Bank of Mysore Head Office, Finance & Accounts Department KG Road Bangalore - 560009 [PAN: AAATG8833F] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Ninad Patade, A/R Revenue by : Shri P.C. Chhotaray, Spl. Counsel, D/R सुनवाई की तारीख/Date of Hearing : 23/01/2025 घोषणा की तारीख /Date of Pronouncement: 29/01/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the revenue is preferred against the order of the ld. CIT(A)-14, Bangalore, [hereinafter ‘the ld. CIT(A)’] dated 20/02/2015, pertaining to AY 2005-06 . 2. The solitary grievance of the revenue reads as under:- “2. The ld. CIT(A) has erred in holding that income under head Capital gains should not be excluded from total income for the purpose of computing deduction u/s 36(1)(viia).” 3. Briefly stated the facts of the case are that, the assessee is a well- known non-banking company and is engaged in banking operations since last several years with registered office at KG Road, Bengaluru. The return for the year under consideration was selected for scrutiny assessment and accordingly, vide order dated 31/05/2007, assessment order was framed u/s 143(3) of the Act. I.T.A. No. 681/Bang/2015 2 4. The AO suo moto assumed jurisdiction u/s 154 of the Act and rectified the assessment observing that deduction u/s 36(1)(viia) of the Act was given in excess by an amount of Rs. 3,56,01,972/- and accordingly, rectification order was passed on 18/11/2009. 5. The assessee challenged the order before the ld. CIT(A). It was strongly contended that the AO has nowhere mentioned the working for arriving at the alleged excess amount of deduction u/s 36(1)(viia) of the Act and strongly contended that the assessee has never claimed any excess deduction. On the instructions of the ld. CIT(A), the AO provided the basis for calculation of excess tax u/s 36(1)(viia) of the Act, which is as under:- 5.1. It was brought to the notice of the ld. CIT(A) that the AO has computed by taking the total income as total income before deduction u/s 36(1)(viia) of the Act and excluding income under the head capital gains. Attention was drawn to the provisions of Section 36(1)(viia) of the Act which provides for provision for bad and doubtful debts in the case of a schedule bank not being a bank incorporated by or under the law of a country outside India and amount not exceeding 7 ½ % of the total income computed by making any deduction under the clauses and I.T.A. No. 681/Bang/2015 3 Chapter VIA. Attention was also drawn to the Instruction No. 17/2008 issued by the CBDT dated 26/11/2008. 6. After considering the facts and the submissions made by the assessee and drawing support from the aforementioned instructions by the CBDT, the ld. CIT(A) observed as under:- “3.4. On consideration of the appellant's submission as above, I am in agreement with the appellant that the IT Act and the Board's Instruction nowhere require exclusion of Income under the head 'Capital Gain' from Total Income for the purposes of computing deduction under sec 36(1)(viia) of the Act. Section 2(45) defines Total Income as \"the Total amount of Income referred in section 5, computed in the manner laid down in this Act.\" Section 5 provides the scope of Total Income of a resident assessee like the appellant) to include all income, from whatever source derived, which is received / deemed to be received in India or accrues or arises/deemed to have accrued or arisen in India as well as the global income of the assessee. The AO's interpretation of Total Income for purposes of calculating the deduction u/s 36(1)(viia), hence, is not in harmony with the above provisions of the IT Act. The appellant's grounds are, therefore, allowed and the excess deduction withdrawn by the AO in the impugned order is directed to be restored.” 7. Before us, the ld. D/R strongly contended that the meaning of “total income” has to be read in the context of business income and therefore, for computation of any deduction u/s 36(1)(viia) of the Act, only business income should be considered. Per contra, the ld. Counsel for the assessee relied upon the order of the ld. CIT(A). 8. We have given a thoughtful consideration to the orders of the authorities below. The contention of the ld. D/R is not acceptable for the reason that the total income means the total income computed before any deduction under Chapter VIA of the Act which means all the income in all the heads of income have to be considered. This has further been clarified by the CBDT in the Instruction No. 17/2008, dated 26/11/2008. The relevant clause of the Instruction reads as under:- I.T.A. No. 681/Bang/2015 4 “(iii) Section 36(1)(viia)(a) of the Act provides that in respect of any provisions for bad and doubtful debts of the type referred to in that sub-clause made by a bank, an amount not exceeding 5 per cent up to 31st March, 2003 and thereafter 7.5 per cent of the total income (computed before making any deduction under this clause and Chapter VIA of the Act) and an amount not exceeding 10 per cent of the aggregate average advances made by 'rural branches' of such banks computed in the manner prescribed under the Income- tax Rules, 1962, shall be allowed as deduction. For this purpose ---- (a) Total income of the year should be worked out after adjusting brought forward losses, if any, but before making any deductions under Chapter VIA of the Act. (b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less. (c) For working out the aggregate average advances by rural branches, the Assessing Officer should verify whether the branches) in question actually qualify to be categorized as 'rural branches' as per the definition in Explanation (ia) below section 36(1)(viia). The aggregate average advances of such rural branches should thereafter be computed in accordance with rule 6ABA of I.T. Rules, 1962.” 9. It can be seen from the relevant provisions of the Act read with the aforementioned CBDT Instructions that, nowhere it was been provided that total income shall include only business income for the purpose of computing deduction u/s 36(1)(viia) of the Act. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). The sole effective ground raised by the revenue is dismissed. 10. In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 29th January, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 29/01/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs I.T.A. No. 681/Bang/2015 5 आदेश की \u0015ितिलिप अ\u001aेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001c / The Appellant 2. \u0015\u001dथ\u001c / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "