THE COMMISSIONER OF INCOME TAX V. CORPORATION BANK

ITA/268/2009

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax and the Assistant Commissioner of Income Tax against Corporation Bank concerning the classification of government securities for the assessment year 2004-05. The primary legal contention was whether the Tribunal was correct in allowing the deduction for government securities amounting to Rs.5,21,96,937, which were classified as 'available for sale' and not as stock-in-trade, despite the RBI guidelines and CBDT Circulars suggesting otherwise. The High Court of Karnataka examined the consistency of the accounting method used by the assessee and its compliance with the RBI regulations, ultimately upholding the Tribunal's decision.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 740354 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 02-12-2014
• Assessment Year: misc
• Other Referred Cases: Karnataka Bank Ltd. \\vs\\ Assistant Commissioner of Income Tax [2013] 356 ITR 549 (Kar)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: G SARANGAN
• Assessee Lawyers: K V ARAVIND
• Keywords: Allowable deduction; CBDT Circular; Government Securities; Income tax appeal; RBI guidelines
• Section: 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 2nd DAY OF DECEMBER, 2014 PRESENT THE HON' BLE MR. JUSTICE N.KUMAR AND THE HON' BLE MR. JUSTICE B. MANOHAR INCOME TAX APPEAL No. 268/2009 BETWEEN: 1. The Commissioner of Income Tax, C.R. Building, Attavara Mangalore. 2. The Asst. Commissioner of Income Tax, Circle-2(1), C.R. Building, Attavara Mangalore. ... APPELLANTS (BY SRI K V ARAVIND, ADVOCATE) AND: Corporation Bank, Head Office, P.N. No.88, Mangaladevi Temple Road, Mangalore-575 001. ... RESPONDENT (BY SRI G. SARANGAN, SR. ADVOCATE FOR SRI BALRAM R. RAO, ADVOCATE) … This ITA is filed under Section 260-A of the Income Tax Act, 1961 arising out of Order dated 3.12.2008 passed in ITA No. 112/Bang/2008, for the assessment year 2004-05 praying to formulate the 2 substantial questions of law stated therein and to allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.112/Bang/2008, dated 3.12.2008 and confirm the order passed by the Assistant Commissioner of Income Tax, Central Circle-2(1), Mangalore, in the interest of justice and equity. This Income Tax Appeal coming on for Hearing this day, N. Kumar J., delivered the following: JUDGMENT This appeal is preferred by the revenue challenging the order passed by the Tribunal granting relief to the assessee. 2. The substantial question of law that arises for consideration in this appeal is as hereunder: “) Whether the Tribunal was correct in holding that the Government securities of Rs.5,21,96,937/- is an allowable deduction by following the view of the Apex Court (not applicable) when it was kept under the classification ‘available for sale’, was not in the nature of stock-in-trade by ignoring the subsequent RBI guidelines? ii) Whether the Tribunal was correct in allowing the claim of the assessee without taking into consideration the instructions of the RBI dated 2.9.2003 3 and the CBDT Circular 665 dated 05.10.1993 which did not contemplate such an allowance?” 3. This Court had an occasion to consider similar questions in the case of Karnataka Bank Ltd. –vs- Assistant Commissioner of Income Tax reported in [2013] 356 ITR 549 (Kar) where after considering the RBI directions, guidelines and various judgments of the Apex Court, it was held as under: “13. From the aforesaid judgments of the Apex Court, now it is clear that a method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping the accounts or on valuation. Financial institutions like Bank, are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which, accounts have to be maintained is prescribed under the aforesaid legislation. Therefore, the account had to be in conformity with the said requirements. 4 The RBI Act or Companies Act do not deal with the permissible deductions or exclusion under the IT Act. For the purpose of IT Act, if the assessee has consistently treating the value of investment for more than two decades as investment as stock-in-trade and claimed depreciation, it is not open to the authorities to disallow the said depreciation on the ground that in the balance-sheet it is shown as investment in terms of the RBI Regulations. The RBI Regulations, the Companies Act and IT Act operate altogether in different fields. The question whether the assessee is entitled to particular deduction or not will depend upon the provision of law relating thereto and not the way, in which the entries are made in the books of accounts. It is not decisive or conclusive in the matter. For the purpose of IT Act whichever method is adopted by the assessee, a true picture of the profits and gains i.e. real income is to be disclosed. For determining the real income, the entries in the balance sheet is required to be maintained in the statutory form may not be decisive or 5 conclusive. It is open to the Income Tax Officer as well as the assessee to point out true and proper income while submitting the income tax returns. Even if the assessee under some misrepresentation or mistake fails to make an entry in the books of accounts, although under law, a deduction must be allowed by the Income Tax Officer, the assessee will not lose any right on claiming or will be debarred from being allowed the deduction. Therefore, the approach of the authorities in this regard is contrary to the well settled legal position as declared by the Apex Court. 14. In the instant case, the assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown has stock-in-trade and depreciation is claimed and allowed. Therefore, notwithstanding that in the balance sheet, it is shown as investment, for the purpose of Income- tax Act, it is shown as stock-in-trade. Therefore, the value of the stocks being 6 closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the Bank has to take into consideration the market value of the shares. If the market value is less than the cost price, in law, they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the balance sheet.” 4. Following the aforesaid judgment, the substantial questions of law are answered in favour of the assessee and against the revenue. Hence, we pass the following: ORDER Appeal is dismissed. Sri Balram R. Rao, advocate is permitted to file his Vakalath within two weeks from today. Sd/- Judge Sd/- Judge Nsu/- "