Supreme Court of India
THE COMMISSIONER OF INCOME TAX, KOLHAPURversusINDUSTRIAL DEVELOPMENT BANK OF INDIA LTD.
- Citation
- 2008 INSC 1142
- Decided
- 13 October 2008
- Disposal
- Disposed off
- Bench
- ARIJIT PASAYAT
Holding
Interest earned on government securities is not assessable under Section 2(7) of the Interest Tax Act, 1974, provided it is earned solely on such securities.
Summary
The Commissioner of Income Tax appealed against the Bombay High Court's order upholding the Tribunal's view that interest earned by the Industrial Development Bank of India Ltd. on government securities was not assessable under Section 2(7) of the Interest Tax Act, 1974. The Supreme Court examined whether the interest in question was earned solely on government securities, a factual issue contested by the parties. Relying on the earlier decision in Commissioner of Income Tax v. Corporation Bank, the Court held that if the interest is exclusively from government securities, it is exempt from tax; otherwise the exemption does not apply. The Court therefore directed the Tribunal to determine the factual nature of the interest earned. The appeals were disposed of, effectively dismissing the revenue's challenge pending the Tribunal's factual finding.
Issues considered
- Whether interest earned by a bank on government securities is chargeable to tax under Section 2(7) of the Interest Tax Act, 1974.
- Whether the interest in the present case was earned solely on government securities.
Legislation cited
- Income Tax Act, 1961s. 260A
- Interest Tax Act, 1974s. 2(7), s. 4
Subjects
Interest Tax ActSection 2(7)government securitiestaxability of interestincome taxbankingSupreme Court
Judgment
[2008] 14 S.C.R. 381
-=-+ THE COMMISSIONER OF INCOME TAX, KOLHAPUR A
II.
INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD.
(Civil Appeal Nos.7437-7438 of 2004)
OCTOBER 13, 2008
B
[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
·+: SHARMA, JJ.]
Interest Tax Act, 1974 - s. 2(7) - Interest earned by as-
sessee-Bank on Government Securities - Held: Is not liable c
to be assessed u/s 2(7) - In the instant case, the question as
to whether the interest earned was on Government Securities,
is since disputed, direction to Tribunal to decide the question
- Interest not be made assessable to tax only if found to have
been earned solely on Government Securities.
0
The question for consideration in the instant appeals
"< was whether the interest earned by the assessee-Bank
on Government Securities was liable to be assessed u/s
2(7) of Interest Tax Act, 1974. Appellate Tribunal as well as
High Court held that it was not chargeable. E
In appeal to this Court, the question as to whether
the interest involved in the instant case was on Govern-
ment Securities was disputed by the parties.
..... Disposing of the appeals, the Court F
·-+\
·HELD: In *Corporation Bank's case it was held that in-
terest earned on Government Securities is not liable to
be assessed under Section 2(7) of Interest Tax Act, 1974.
There is dispute between the parties as to whether the
interest earned was on the Government Securities alone. G
If that be so, the ratio of the decision in Corporation Bank's
~ case will apply to the facts of the present case and if the
interest earned is not solely on Government Securities,
381 H
382 SUPREME COURT REPORTS [2008] 14 S.C.R.
A the ratio of the decision will not apply. [Para 4] [383 A-C]
r
*Commissioner of Income Tax vs. Corporation Bank 2008
(166) Taxman 388 - relied on.
CASE LAW REFERENCE
B 2008 (166) Taxman 388 Relied on. Para 3
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
~t-
7437-7438 of 2008
From the final Judgment and Order dated 4.12.2002 of
c the High Court of Judicature at Bombay in Income Tax Appeal
Nos. ·39 & 71 of 2001
Mohan Prasaran,ASG., V. Shekhar, H. Raghavendra Rao,
Gaurav Dhingra, D.L. Chidananda and B.V. Balaram Das for
the Appellant.
D ~
Jayashree Wad, Ashish Wad, Neeraj Kumar, Chirag S.
Q(iV, ·Rajesh Kumar, Sathish Aggarwal, V. Prabhakar, Ramjee x
Pxasad, M.K.D. Namboodiry, R.S. Suri, Chinmoy Khaladker,
§.K . .Naridy and Revathy Raghavan (for Mis. J.S. Wad & Co.)
E for the Respondents.
!he Judgment of the Court was delivered by ..
DR. ARIJIT PASAYAT, J. 1. Challenge in these appeals
is to the judgment of final order passed by the Bombay High
F Court in a group of appeals filed by the revenue under Sec~;,)n
260A of the Income Tax Act, 1961 (in short the 'Act') read with ~' ,,
Section 24 of the Interest Tax Act, 1974 (in short the 'Interest
Act'). Question involved was whether interest earned by the as-
sessee bank on government securities was liable to be as-
G sessed under Section 2(7) of the Interest Act. The Income Tax
. ,.
Appellate Tribunal (in short the 'Tribunal') held that it was not
chargeable. The High Court by the impugned judgment upheld
'~
the view of the Tribunal. The revenue filed the present appeals·
against the judgment of the High Court. It was submitted by
learned counsel for the appellant that the Tribunal and the High
H
/:"
I
THE COMMISS. OF INCOME TAX, KOLHAPUR v. INDUS. 383
DEVEL. BANK OF INDIA LTD. [DR. ARIJIT PASf.YAT, J.]
-~ Court were not justified in holding that loans and advances do A
not include interest on securities, bonds, debentures and there-
fore not liable to tax under the provisions of the Interest Act. ltis,
submitted that interest on securities falls within the meaning of:
"Interest chargeable to tax" as defined under Section 2(7)of the
Interest Act. B
2. Learned counsel for the respondent, assessee-Bank
on the other hand supported the judgment of the Tribunal as
- upheld by the High Court.
3. A similar question came up for consideration before this
Court in Commissioner of Income Tax v. Corporation Bank
c
-·1
(2008 (166) Taxman 388). This court held as follows:
"Leave granted in special leave petitions.
The short point which arises in this batch of civil appeals
D
is whether interest earned by the assessees-banks on
-~ dated Government securities was liable to be assessed
under section 2(7) read with Section 4 of the Interest Tax
Act, 1974. In our view, there is a basic difference between
loans and advances on the one hand and investments/
securities on the other. This difference is indicated in the E
provisions of the Income tax Act, the Companies Act as
well as the Bank Regulation Act. These aspects have been
discussed in detail in two decisions of the Bombay High
Court, namely Discount and Finance House of India Ltd.
~
,t\ v. S.K. Bhardwaj, CIT reported in MANU/MH/0628/2002, F
as also in another decision of the Bombay High Court
reported in MANU/MH/0629/2002 in the case of CIT v.
United Western Bank Ltd. It is not in dispute that the
revenue has accepted the aforesaid two judgments of the
Bombay High Court. We are in agreement with the view G
expressed by the Bombay High Court.
"""' For the aforestated reasons there is no merit in the civil
appeals filed by the department. The same are dismissed
No order as to costs."
H
\
1
384 SUPREME COURT REPORTS [2008] 14 S.C.R.
A 4. Learned counsel for the appellant submitted that this +-
\
Court's decision related to the interest on government securi-
ties. Learned counsel for the assessee submitted that in the
instant case the interest earned was on government securities
only. The stand is denied by learned counsel for the appellant.
e Let the-Tribunal examine the factual position as to whether the
interest involved in the. present case is on government securi-
ties. If that be so, the ratio of the decision in Corporation Bank's
case (supra) will apply to the facts of the present case and if the
interest earned is not solely on government securities, the ratio
c of the decision will not apply.
5. The appeals are disposed of accordingly.
K.K.T. Appeals disposed of.
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