THE SOUTH INDIAN BANK LTD V. THE ADDL. COMMISSIONER OF INCOME TAX

ITA/183/2015

AI Insights

The case involves the South Indian Bank Ltd, the appellant, contesting various disallowances made by the Income Tax Department concerning their tax returns for the Assessment Year 2007-08. The primary issues revolved around the application of Section 14A of the Income Tax Act, 1961, the disallowance of provisions for bad and doubtful debts under Section 36(1)(viia), and the treatment of surplus proceeds from the sale of pledged jewelry under Section 26A of the Banking Regulation Act, 1949. The Income Tax Appellate Tribunal had earlier upheld these disallowances, which the bank appealed against in the High Court of Kerala.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 770460 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 22-09-2021
• Assessment Year: misc
• Other Referred Cases: Federal Bank Ltd. v. DCIT, Commissioner of Income Tax v. Lord Krishna Bank Ltd, Vijaya Bank v. Commissioner of Income-tax, Union of India v. M/s. Exide Industries Ltd
• Laws Referred To: Income Tax Act, 1961, Banking Regulation Act, 1949
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: JOSEPH MARKOSE; V MARKOS; SHARAD KODANTHARA; ISAAC THOMAS; ALEXANDER MARKOS; ABRAHAM MARKOS
• Keywords: Bad and doubtful debts; Disallowance; Income tax appeal; Interest Levy; Leave encashment; Surplus Sale Proceeds
• Section: 14A; 43B; 36(1)(vii); 36(1)(viia); 26A

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM WEDNESDAY, THE 22ND DAY OF SEPTEMBER 2021 / 31ST BHADRA, 1943 ITA NO. 183 OF 2015 AGAINST THE ORDER IN ITA 181/2014 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE SOUTH INDIAN BANK LTD S.I.B. HOUSWE, T.B.ROAD, P.B.NO.28, THRISSUR-680 001. BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SHRI.SHARAD JOSEPH KODANTHARA SRI.ISAAC THOMAS SHRI.ALEXANDER JOSEPH MARKOS SRI.ABRAHAM JOSEPH MARKOS RESPONDENT/S: THE ADDL. COMMISSIONER OF INCOME TAX RANGE 1(1), THRISSUR. OTHER PRESENT: SC JOSE JOSEPH THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 22.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA No.183/2015 -2- J U D G M E N T S.V. Bhatti, J. Heard learned Advocates Mr Joseph Markos and Mr Jose Joseph for the parties. 2. M/s. South Indian Bank Ltd, Thrissur/assessee is the appellant. The Additional Commissioner of Income Tax, Trichur/Revenue is the respondent. The appeal is directed against the order of Income Tax Appellate Tribunal (for short 'Tribunal'), Cochin Bench in ITA No.181/Coch/2014 dated 24.12.2014. The appeal deals with the issues arising in the tax return filed by the assessee for the Assessment Year 2007-08. 3. Substantial question no.(a): (a) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is correct in law in confirming the disallowance under section 14A of the Income Tax Act, 1961? 3.1 The subject appeal, as noted above, relates to the ITA No.183/2015 -3- returns filed by the assessee for the Assessment Year 2007-08. The substantial question under consideration arises under Section 14A of the Act. This Court, in Federal Bank Ltd. v. DCIT1 and ITA No.1091/2009 held the applicable Assessment Year from which Section 14A is applicable; by applying the view taken therein, we hold that Section 14A is not applicable for the subject Assessment Year. The question is answered in favour of the assessee, against the Revenue, by following the dictum laid down in Federal Bank Ltd. and the reasonsing given by this Court in ITA No.1091/2009. 4. Substantial question nos.(b) and (g): (b) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the disallowance in respect of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the Income Tax Act, 1961? (g) Whether on the facts and circumstances of the case, the amount of Provision of Doubtful Debts for certain rural branches disallowed under Section 36(1)(viia) is allowable under Section 36(1)(vii) as the same has been reduced from 1 (2019) 417 ITR 694 ITA No.183/2015 -4- the Loans and Advances / Debtors on the asset aside of the Balance Sheet as held by the Hon'ble Supreme Court in Vijaya Bank's case in 323 ITR 166. 4.1 Substantial question no.(b) deals with the claim relating to bad debts and is covered by the judgment of this Court in Commissioner of Income Tax v. Lord Krishna Bank Ltd2. This Court has taken a view that the Assessing Officer finds out the extent of rural branches, allows deduction to that extent, and while doing so the applicability of the principle laid down in Vijaya Bank v. Commissioner of Income-tax3 is appreciated. With the above perspective, we are of the view that the matter needs to be remitted to the Assessing Officer for disposal afresh on the claim of rural branches. Accordingly, in ITA No.1284/2009 and ITA 1327/2009, we have remitted the matter to the Assessing Officer for re-consideration afresh on the claim as the present. On the same lines with those observations, the matter is remitted to the Assessing Officer for decision and disposal afresh. The net effect of the above 2(2011) 339 ITR 606 (Ker) 3(2010) 323 ITR 166 (SC) ITA No.183/2015 -5- discussion is that, substantial question no.(b) is covered against the assessee and in favour of the Revenue by the judgment in Lord Krishna Bank Ltd and substantial question no.(g) is answered in favour of the assessee and against the Revenue, however issues covered by the question no.(g) are remitted to Assessing Officer for decision afresh. 5. Substantial Question no.(c): (c) Whether on the facts and in the circumstances of the case, the Tribunal was correct in confirming the disallowance in respect of the provision for leave encashment under Sec.43B of the Income Tax Act? 5.1 Question of law raised by the assessee is no more res integra. The question is answered against the assessee and in favour of the Revenue by following the judgment in ITA No.186/2011 and the reported judgment in Union of India v. M/s. Exide Industries Ltd4. 6. Substantial Question nos. (d) and (e): 4(2020) 425 ITR 1 (SC) ITA No.183/2015 -6- (d) Whether on the facts and in the circumstances of the case, the Tribunal was correct in confirming the addition made in respect of the surplus realized by the appellant bank on the sale of pledged jewellery items, in disregard of the provisions of Sec.26A of the Banking Regulation Act, 1949 and the Circular issued by the Reserve Bank of India in exercise of the powers conferred on it by sub-sec.(1) and (5) of the said section? (e) Whether on the facts and in the circumstances of the case, the Tribunal was correct in confirming the addition made in respect of excess cash received by the appellant's branches, treating such excess as part of the appellant's income, in disregard of the provisions of Sec.26A of the Banking Regulation Act, 1949 and the Circular issued by the Reserve Bank of India in exercise of the powers conferred on it by sub-sec.(1) and (5) of the said section? 6.1 During the subject Assessment Year the assessee has come in possession of surplus amount realized by the assessee on the sale of pledged jewellery. In other words, the assessee has realised, by the sale of pledged articles, a sum more than what was due on each pledgor's loan account. The pledgor(s) since has not claimed the amount, the amount continued to be with the assessee as a custodian of the pledgor. ITA No.183/2015 -7- The case of the assessee is that the assessee to the extent of surplus sale consideration realised from the auction could continue to be a mere custodian of surplus amount realised from the sale of pledged articles and assessee cannot treat the receipt in its books of account as income of the assessee. The case of the assessee is also that the assessee is under statutory obligation to comply with the mandate of Section 26A of the Banking Regulation Act, 1949 and the Circulars issued by the Reserve Bank of India from time to time. The Reserve Bank of India issued Circulars dated 21.03.2014 and 27.05.2014 advising transfer of surplus amount received from the sale of articles etc, by the assessee/Bank. The assessee, in compliance with the binding directive issued by the Reserve Bank of India, transferred the surplus sale amount realised on sale of pledged articles to the Depositor Education and Awareness Fund (DEAF). The amount, as has been contended by the assessee, was and does not form part of the income of the assessee from any standpoint. The amount is not with the assessee. Therefore, disallowance of claim of asessee under the head of ITA No.183/2015 -8- surplus sale proceeds is to be held in favour of the assessee. 6.2 After perusing the findings recorded by the Tribunal and the primary and the appellant authorities under the Act, the Circulars issued by the Reserve Bank of India, and the mandate of Section 26A of the Banking Regulation Act, we are of the view that the issue needs to be reconsidered by the Assessing Officer. Because the contention of assessee in the nature of holding of surplus amount is dealt with and clarified by the RBI. Hence, the questions are answered in favour of the assessee and against the Revenue. The findings recorded by the Tribunal and the conclusions of the authorities are set aside. Matter remitted to the Assessing Officer for disposal afresh in accordance with law and the Circulars are kept in perspective while deciding the nature of receipt, whether constitutes a deposit with assessee/Bank as custodian or attracts the meaning of revenue receipt. The Assessing Officer affords opportunity to the assessee for filing additional reply/materials/details on the operation of Circulars dated 21.03.2014 and 27.05.2014 and steps taken by the assessee in ITA No.183/2015 -9- this behalf in the Assessment Years covered there-under. The Assessing Officer, duly taking into consideration all the relevant materials, shall pass fresh assessment order. Question nos. (d) and (e) are answered as indicated above. 7. Substantial Question no.(f): (f) Whether on the facts and in the circumstances of the case, the levy of interest under Sec.234B of the Act is sustainable? 7.1 Substantial question no.(f) is ancillary and incidental to the view that could be taken on question nos.(d) and (e). The question covered by (d) and (e) since are answered in favour of the assessee and against the Revenue; matter remitted to the Assessing Officer for disposal afresh. Question no.(f) is, for statistical purpose, answered in favour of the assessee, against the Revenue, and the obligation to pay any amount under this head arises, is dependent on the outcome of question nos.(d) and (e). ITA No.183/2015 -10- Income Tax Appeal allowed in part as indicated above. Sd/- S.V.BHATTI JUDGE Sd/- VIJU ABRAHAM JUDGE jjj ITA 183/2015 The last sentence in paragraph 7.1 of the judgment dated 22.09.2021 in ITA 183/2015 is clarified as follows vide order dated 03.02.2023 in I.A. No.1/2023 in ITA 183/2015. “Question no.(f) is, for statistical purposes, answered in favour of the assessee, against the Revenue, and the obligation to pay any amount under this head arises, is dependent on the outcome of question nos.(d) and (e) and also on any independent consideration that may arise in accordance with law.” Sd/- Joint Registrar ITA No.183/2015 -11- APPENDIX OF ITA 183/2015 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ORDER OF ASSESSMENT DATED 29.09.2008 ANNEXURE B TRUE COPY OF THE ORDER DATED 04.12.2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-V, KOCHI ANNEXURE C TRUE COPY OF THE ORDER DATED 24.12.2014 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH ANNEXURE D TRUE COPY OF THE CIRCULAR ISSUED BY THE RESERVE BANK OF INDIA UNDER THE DEPOSITOR EDUCATION AND AWARENESS FUND SCHEME, 2014 "