CIT Vs Karnataka Bank Ltd. (Karnataka High Court)
The Karnataka High Court at Bengaluru dismissed the appeal filed by the Revenue against Karnataka Bank Ltd. under Section 260A of the Income-tax Act, 1961. The Division Bench of Justice Alok Aradhe and Justice Hemant Chandangoudar delivered its judgment on 27 July 2021 in ITA No. 402 of 2018. The Revenue challenged the Bengaluru ITAT order dated 19 January 2018 in ITA No. 1265/Bang/2013. The appeal papers identify Assessment Year 2011-12, whereas the body of the judgment describes Assessment Year 2008-09. The discrepancy is present in the source itself. The first substantial question concerned disallowance relating to the bank’s investment portfolio and securities classified as held to maturity. The Revenue disputed the Tribunal’s reliance on earlier decisions concerning the treatment of such investments. The second question challenged deletion of disallowance under Section 14A read with Rule 8D(2)(ii) and (iii), with the Revenue arguing that the bank had not established the flow of its own funds into investments yielding exempt income.
The third question concerned the application of minimum alternate tax under Section 115JB to the bank. The Revenue contended that the statutory definition of company supported applying the MAT provisions. The fourth question related to payments of ATM charges to other banks and the applicability of tax deduction at source under Section 194H, together with consequential disallowance under Section 40(a)(ia). Counsel for the bank submitted that the first and third questions stood covered by the Karnataka High Court’s judgment in CIT v. ING Vysya Bank Ltd., reported at [2020] 114 taxmann.com 506 (Karnataka). The bank further relied on CIT v. Quest Global Engineering Services Pvt. Ltd., ITA No. 133/2015, judgment dated 15 February 2021, for the second question, and a Karnataka High Court judgment dated 23 November 2020 in ITA No. 427/2015 for the fourth question. The Revenue did not dispute that the issues were covered.
Following the reasoning in those earlier judgments, the High Court answered all four substantial questions in favour of the assessee and against the Revenue. Consequently, the Revenue’s appeal was dismissed. The present order does not independently reproduce the detailed reasoning from those precedents.
Cases Discussed
- CIT v. ING Vysya Bank Ltd. — [2020] 114 taxmann.com 506 (Karnataka High Court), 16.01.2020.
- CIT v. Quest Global Engineering Services Pvt. Ltd. — ITA No. 133/2015 (Karnataka High Court), 15.02.2021.
- Karnataka High Court decision in ITA No. 427/2015, dated 23.11.2020 — parties not named in the supplied judgment.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee against the order dated 19.01.2018 passed by the Income Tax Appellate Tribunal. The subject matter of the appeal pertains to the Assessment year 2008-2009. The appeal was admitted by a bench of this Court on the following substantial questions of law:
“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance made under the head investment portfolio by following earlier decisions which has not reached finality even when the assessing authority rightly made disallowance by holding that irrespective of RBI guidelines were applicable to the assessee for the purposes of the I.T.Act or not, as per the principles of accountancy and the various decisions of Apex Court, income should be recognized in a way which reflects a true and fair picture of the affairs of the assessee and accordingly, when bank itself is treating the securities as “held to maturity”, for any reason whatsoever, the same should be the case for purposes of Income Tax as this representation alone reflects the true picture of the accounts of the assessee?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance made under Section 14A read with Rule 8D(2) (ii) and (iii) of the Act on expenditure incurred on earning exempt income even when the assessing authority rightly made disallowances as conditions for making such disallowances were satisfied and assessee failed to show flow of its own funds to those investments from which income is exempt?
3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law holding that the assessee-Bank cannot be considered as a Company by following decisions which has not reached finality and even when as per Section 2(17) of the Act, the Company is defined as an Institution, association or body which is or otherwise assessable or assessed as a Company and as such Section 115JB is applicable to assessee Bank for MAT purposes?
4. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance in setting aside disallowance made under Section 40(a) (ia) of the Act on ATM charges of other Banks even though Section 194H and Explanation to said section is applicable to assessee-Bank and as such assessee ought to have deducted TDS on such payments?
2. When the matter was taken up today,the learned counsel for the assessee submitted that the 1st and 3rd substantial questions of law involved in this appeal have already been answered in favour of the assessee by this Court vide judgment dated 16.01.2020 in the case of COMMISSIONER OF INCOME-TAX, BANGALORE Vs. ING VYSYA BANK LTD reported in [2020] 114 COM 506 (KARNATAKA)
3. It is further also submitted that the 2nd substantial question of law involved in this appeal also has already been answered in favour of the assessee by this Court vide judgment dated 15.02.2021 in ITA No.133/2015 the case of THE COMMISSIONER OF INCOME-TAX AND ANOTHER. Vs. M/S QUEST GLOBAL ENGINEERING SERVICES PVT. LTD. It is further submitted that the 4th substantial question of law is also answered by a bench of this Court vide Judgment dated 23.11.2020, passed in ITA No.427/2015 in favour of the assessee and against the revenue.
4. The aforesaid submission could not be disputed by the learned counsel for the revenue.
5. For the reasons assigned by us in the aforementioned judgments supra the substantial questions of law framed in this appeal are answered in favour of the assessee and against the revenue.
In the result, appeal filed by the revenue fails and is hereby dismissed.
