THE COMMISSIONER OF INCOME TAX,TVM. V. KERALA STATE INDUSTRIAL DEV.CORPN.LTD.

ITA/128/2008

AI Insights

The case revolves around an appeal by the Revenue against the Kerala State Industrial Development Corporation Ltd. concerning the taxability of interest on bank deposits under the Interest Tax Act. The primary legal question was whether the interest earned on deposits made by the assessee in banks (other than the Reserve Bank) qualifies as 'chargeable interest' under the relevant sections of the Interest Tax Act. The Tribunal had earlier ruled in favor of the assessee, stating that such deposits do not fall under the definition of 'loans and advances' as per Section 5 of the Interest Tax Act, a decision which was upheld by the High Court.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 736089 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 11-11-2008
• Assessment Year: misc
• Other Referred Cases: I.T.A.No.259 of 2002, I.T.A.No.4 of 2003, I.T.A.Nos.11 of 1997, I.T.A.Nos.2 of 1998, I.T.A.Nos.9 of 1998, I.T.A.Nos.8 and 11 of 1996
• Laws Referred To: Income Tax Act, Interest Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: P K R M MENON; JOSE JOSEPH
• Keywords: Assessment Year 1997-98; Chargeable interest; Interest on deposits; Exempt under Interest Tax Act
• Section: 260A; 5; 2(7)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER TUESDAY, THE 11TH NOVEMBER 2008 / 20TH KARTHIKA 1930 I.T.A.No. 128 of 2008 ----------------------------------- ORDER DATED 12.5.2003 IN ITA.2/COCH/2000 OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, COCHIN .................... APPELLANT/APPELLANT: ----------------------------------- THE COMMISSIONER OF INCOME -TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOVERNMENT OF INDIA (TAXES) & SRI.JOSE JOSEPH, STANDING COUNSEL FOR INCOME TAX RESPONDENT/RESPONDENT: ------------------------------------------- KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., THIRUVANANTHAPURAM. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 11/11/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: H.L.DATTU, C.J. & A.K.BASHEER, J. ------------------------------------------- I.T.A.No.128 of 2008 ------------------------------------------ Dated, this the 11th day of November, 2008 JUDGMENT H.L.Dattu, C.J. The Revenue is before this Court being aggrieved by the orders passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.2 of 2000 dated 12th May, 2003. (2) The Revenue has framed the following questions of law for our consideration and decision. They are as under: “1. Whether, on the facts and in the circumstances of the case interest on deposits with banks (other than Reserve Bank) is exempt under section 2(7) of the Interest Tax Act? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the direction of the Commissioner of Income Tax (Appeals) to exclude the interest on deposits received from banks from the chargeable interest holding that the interest on deposits with the banks are outside the provisions of Section 2(7) and Section 5 of the Interest Tax Act? 3. Whether, on the facts and in the circumstances of the case the Tribunal is justified in law in interfering with the order of the Assessing Officer?” I.T.A.No.128 of 2008 2 (3) The assessee is a public sector enterprise engaged in financing industrial projects. In the returns filed for the assessment year 1997-98, the assessee had claimed exemption on interest received on bank deposits. (4) The assessing officer while completing the assessment has included the interest received on bank deposits amounting to Rs.1,15,77,863/- as chargeable interest. Aggrieved by this finding of the assessing authority, the assessee had carried the matter before the first appellate authority [Commissioner of Income Tax (Appeals). The first appellate authority has taken the view that the deposits cannot be termed as loans and advances and, therefore, interest on deposits is to be treated as outside the purview of Section 5 of the Interest Tax Act and accordingly had deleted the additions made by the assessing authority. (5) The Revenue, being aggrieved by the orders passed by the first appellate authority had carried the matter before the Tribunal. The Tribunal, following its earlier decisions in the case of the very same assessee for the earlier assessment years in I.T.A.Nos.11 of 1997, 2 of 1998 and 9 of 1998 dated 21.3.2002 and also I.T.A.Nos. 8 and 11 of 1996 dated 8.10.1994, has confirmed the orders passed by the first appellate authority. I.T.A.No.128 of 2008 3 (6) It is the correctness or otherwise of the said order passed by the Tribunal that is the subject matter of this appeal filed by the Revenue under Section 260A of the Income Tax Act. (7) The questions of law framed by the Revenue are no more res integra in view of the orders passed by this Court in I.T.A.No.259 of 2002 and I.T.A.No.4 of 2003 decided on 16th June, 2008. In the aforesaid decision this Court has observed as under: “Interest tax is payable on 'loans and advances' made by a credit institution. Admittedly, the assessee is not engaged in advancing loan to the banks. In other words, the assessee which is engaged in industrial financing made deposits of surplus amount for short term periods in the Bank to earn interest which does not amount to advance for loan. Consequently, the Tribunal rightly held that the assessee is not liable to pay interest tax under the Interest Tax Act. Even though citation is not available, this Court had already decided the matter in favour of the assessee for earlier assessment year 1993-94. Consequently, we dismiss the appeals filed by the Revenue.” (8) In view of the declaration of law made by this Court in I.T.A.No.128 of 2008 4 the assessee's own case, in our opinion, the appeal filed by the Revenue requires to be rejected and accordingly it is rejected. The questions of law framed by the Revenue are answered against the Revenue and in favour of the assessee. Ordered accordingly. (H.L.DATTU) CHIEF JUSTICE (A.K.BASHEER) JUDGE vns "