THE COMMISSIONER OF INCOME TAX V. M/S.VIJAYA BANK

ITA/950/2006

AI Insights

The case involves the Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax as appellants against M/s Vijaya Bank as the respondent. The core issue was whether the interest collected by the bank on hire purchase of movable properties was liable for tax under the Interest Tax Act, 1974. The bank argued that the interest was not taxable as it had already been assessed under a separate provision of the Act. The Tribunal and the lower appellate authority sided with the bank, leading to this appeal by the Revenue. The High Court of Karnataka, referencing a similar case (Commissioner of Income Tax and Another Vs. M/s. Canfin Homes Limited), upheld the Tribunal's decision, emphasizing that the interest collected was not chargeable under the Act as it had been appropriately taxed under the specific provisions applicable to financial institutions.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 729256 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 18-07-2012
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax and Another Vs. M/s. Canfin Homes Limited
• Laws Referred To: Income Tax Act, 1961, Interest Tax Act, 1974
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K S RAMABHADRAN
• Assessee Lawyers: G KAMALADHAR
• Keywords: Assessment Year; Financial institutions; Interest Tax; Tax liability; Lease Amount
• Section: 5; 2(5); 260-A; 26C

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 18TH DAY OF JULY 2012 PRESENT THE HON'BLE MR. JUSTICE K SREEDHAR RAO AND THE HON’BLE MR. JUSTICE B MANOHAR INCOME TAX APPEAL NO.950 OF 2006 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 12(3) C.R.BUILDING QUEENS ROAD, BANGALORE. …APPELLANTS [BY SRI.G. KAMALADHAR, ADVOCATE] AND: M/S VIJAYA BANK HEAD OFFICE, NO 41/2, M.G.ROAD, BANGALORE ... RESPONDENT [BY SRI.K.S.RAMABHADRAN, ADVOCATE] THIS ITA IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 23-12-2005 PASSED IN INT.TZ 2/BANG/2004 FOR THE ASSESSMENT YEAR 2000-01, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: 2 i. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ii. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN INT. TA 2/BANG/2004 DATED 23-12-2005 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER & CONFIRM THE ORDER PASSED BY THE DY.COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR FINAL HEARING BEFORE THE COURT THIS DAY, K. SREEDHAR RAO, J DELIVERED THE FOLLOWING: - J U D G M E N T The assessee is a Nationalised Bank, licenced one of its customer certain movable properties on hire purchase basis during Assessment Year 2000- 01. In the return submitted that the interest he collected on the rentals is not liable for tax by virtue of Provisions 26C of the Interest Tax Act, 1974. The Assessing Authority found that the said amount in question is taxable. Accordingly, assessed the tax. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee on the ground that the 3 interest collected cannot be charged under Section 26C of the Interest Act, 1974 because in relation to said interest a separate assessment would already be made under the Interest Act and tax would be collected. The Tribunal dismissed the appeal of the Revenue, confirmed the orders of the Commissioner of Income Tax (Appeals). Hence, this appeal. 2. This Court framed the following substantial question of law. Whether the Appellate Tribunal is right in holding that the assessee is not liable for charging interest tax in terms of Sec.2(5) read with Sec.5 of the Interest Tax Act, 1974 and whether the same is conformity with the definition of chargeable interest under Sec.2(5) read with Sec.5 of the Interest Tax Act, 1974.? 3. The Division Bench of this Court has re- framed the substantial question of law which was framed in the appeal. The fact whether interest 4 collected by financial institutions on rentals is not liable for tax under the Interest Act 1974. This Court in the case of Commissioner of Income Tax and Another Vs. M/s. Canfin Homes Limited reported in ILR 2008 KAR 3135 has held that the interest collected from the Debtors on the lease amount is not chargeable under Section 26C of the Interest Tax Act, 1974. The ratio laid down in the said decision squarely applies to the facts of the case. The Division Bench by illustration has given an example in Para 9 which reads as follows: Per contra, Shri. G.Sarangan, Senior Advocate appearing for the respondents, contends that the decision of the Tribunal does not warrant interference and that appeals be dismissed. It is contended that a plain reading of Section 26C would indicate that was enacted only for a limited purpose of enabling institutions, such as the assessee, of passing on the burden of tax under the Act, to its 5 borrowers. The Counsel would submit that if for instance a sum of Rs.100 lent was charged with a rate of interest of 10% - the interest earned would come to Rs.10/-. In terms of Section 26C the interest tax payable thereon is at 3% or 30 paise. Applying this to the amounts collected by the assessee, the accounts maintained by it, which have been scrutinized by the Revenue, would clearly disclose that out of Rs.10.30 p collected as interest on every Rs.100, the sum of 30 paise has been passed on to the Revenue as Interest – tax. The additional interest so collected is in accordance with the enabling provision namely Section 26C and the assessee having acted in terms of the same – the Revenue seeking to treat the total sum of Rs.10.30p as chargeable interest is clearly illegal and the Tribunal has therefore, rightly allowed the appeal of the assessee. 4. The said illustration makes it explicit with what is chargeable to tax is only ` 10/- in the 6 hand of the assessee and not ` 10.30 paise. In the instant case the Revenue argues to the effect that even the interest component is liable to be taxed is incorrect. Therefore, question of law is answered against the revenue. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE GH "