Case Law Details
SUPREME COURT OF INDIA
Deputy Commissioner of Income tax
v/s.
Karnataka Bank Ltd.
S.L.P. (C) Nos. 4380 & 4381 of 2009 & 6658 of 2010
civil appeal nos. 6164, 6166 & 6167 of 2012
AUGUST 29, 2012
ORDER
Delay condoned.
Leave granted.
The civil appeals are dismissed.
No order as to costs.
ORDER
Heard learned counsel on both sides.
Delay condoned.
Leave granted.
The issue involved in these cases is covered in favour of the assessee vide judgment of this Court in the case of Catholic Syrian Bank Ltd. v. Commissioner of Income-Tax, reported in [2012] 343 ITR 270.
The civil appeals are, accordingly, dismissed.
No order as to costs.
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HIGH COURT JUDGMENT IS AS FOLLOWS :-
HIGH COURT OF KARNATAKA
Deputy Commissioner of Income-tax (Asst.), Special Range
v/s.
Karnataka Bank Ltd.
JUDGMENT
1. Heard Sri Aravind Kumar, learned counsel for the appellants and Sri G. Sarangan, learned senior counsel for the respondent. This order shall also govern disposal of ITA No. 481/2003, which is between the same parties. The factual aspect and legal scenario in both the appeals being similar, we have heard the learned counsel for the parties in these appeals, analogously and dispose of both the appeals by this common order.
2. Revenue is before us by filing these appeals under section 260A of the Income-tax Act, 1961 (‘the Act’) against the order dated 29-7-2003 passed by the Income-tax Appellate Tribunal, Bangalore “A” Bench, in assessee’s appeals ITA No. 50/BANG/1997 and ITA No. 127/BANG/1997 for the assessment years 1993-94 and 1994-95 respectively. Appeals were also admitted on the substantial questions of law which have been formulated by the revenue in its appeal, but after having heard the learned counsel for the parties and after perusal of the records, we are of the opinion that only following substantial questions of law would arise in these appeals:
“(1)Whether the Appellate Tribunal was correct in holding that deduction under section 36(1)(vii) are allowable independently and irrespective of the provision for bad and doubtful debts created by assessee in relation to the advanced of the rural branches subject to the imitation that an amount should not be deducted twice under section 36(1)(vii) and 36(1)(viia) simultaneously?
(2)Whether Tribunal was correct in applying the Circular No. 258, dated 14-6-1979 to the assessment year 1993-94 though section 36(2) stood amended by Finance Act, 1985 with effect from 1-4-1985?”
3. For the sake of convenience, facts appearing in ITA No. 480/2003 are being taken into consideration.
4. Facts shorn of unnecessary details are mentioned hereinbelow:
“Respondent-assessee being a scheduled bank filed return of income for the assessment year 1993-94 on 30-12-1993 claiming a net loss of Rs. 2,27,23,510. In the return of income filed by the assessee it has claimed a sum of Rs. 38,28,836 as bad debts actually written off. It also claimed provision for bad and doubtful debts under section 36(1)(viia) in a sum of Rs. 1,10,94,360. The claim of the assessee for deduction of debts amounting to Rs. 38,28,836, actually written off was not allowed.
Assessee being aggrieved by the said order passed by the Assessing Officer, preferred an appeal before the Commissioner of Income-tax (Appeals). The Appellate Authority rejected the appeal by upholding the order of Assessing Officer.
Assessee further feeling aggrieved by the said order passed by the Commissioner of Income-tax (Appeals), preferred to file appeal before the Income-tax Appellate Tribunal.
Similarly for the assessment year 1994-95, it filed another appeal against that part of the order of the Commissioner of Income-tax (Appeals) which was against it. That is how both the appeals came up for consideration before the Tribunal, whereby the impugned order came to be passed.”
5. It would be relevant to reproduce section 36(1)(vii) and (viia) as it stood prior to the amendments made by the Finance Act, 1985, which read as follows :
“36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28.
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(vii)subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year;
(viia)in respect of any provision for bad and doubtful debts made by a scheduled bank or a non-scheduled bank in relation to advances made by its rural branches, an amount not exceeding one and a half per cent of the aggregate average advances made by such branches, computed in the prescribed manner.”
Section 36(1)(vii) and (viia) as it stood after the amendment made by the Finance Act, 1985, reads as follows:
“36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28,—
(vii)subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year:
Provided that in the case of bank to which clause (viia ) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause;
(viia)in respect of any provision for bad and doubtful debts made by a scheduled bank (not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher.”
Clause (viia) had again undergone a change, by the Income-tax (Amendment) Act, 1986, from April 1, 1987, the relevant portion of which reads as follows:
“(viia) in respect of any provision for bad and doubtful debts made by—
(a)a scheduled bank (not being a bank approved by the Central Government for the purposes of clause (viia) or a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner.”
There is a further amendment to the main part of clause (via ) by Act 4 of 1988 with effect from April 1, 1989. Clause (vii) main part reads as follows:
“Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.”
Section 36(2) specifies certain conditions to be fulfilled for eligibility to the claims under section 36(1). Section 36(2)(v) introduced by the Finance Act, 1985, which is relevant for the purpose of this case, reads as follows:
“36(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply—
(v )where such debt or part of debt relates to advances made by a bank to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.”
6. Learned senior counsel for the respondent Sri G. Sarangan at the outset submitted that the questions of law projected in both the appeals stand answered by two judgments of Kerala and Madras High Courts in South Indian Bank Ltd. v. CIT [2003] 262 ITR 5791, CIT v. City Union Bank Ltd. [2007] 291 ITR 1442. In the judgment of Madras High Court the earlier judgment of Kerala High Court has been elaborately considered. Thus we would consider the ratio decidendi of the case of Kerala High Court. After considering the provisions of section 36(1)(vii) and (viia), the following finding has been recorded :
“In other words, as already pointed out, a scheduled bank may be having both urban and rural branches and advances are given from both branches. Having regard to the hazards involved in realising the advances made by rural branches particularly to agriculturists, certainly the assessee-bank will prefer to make provision for bad debt in respect of advances made in the rural branches. If an assessee makes a provision under clause (viia) in respect of bad debts relating to rural advances only, to deny such an assessee the benefit provided under clause (vii) which is available to all other assessees who are engaged in money lending business will result in discrimination without reason. The Legislature cannot be presumed to have intended such a result in the case of scheduled banks. The intention of the Legislature in enacting the proviso to clause (vii) of section 36(1) and clause (v) to section 36(2) simultaneously is only to see that a double benefit in respect of the same bad debt is not being given to a scheduled bank. It is only for the said purpose, the proviso and clause (v) were introduced simultaneously by the Amendment Act, 1985, with effect from April 1, 1985. According to us, the scope of the proviso to clause (vii) of section 36(1) of the Act is only to deny the deduction to the extent of bad debt written off in the books with respect to which provision was made under clause (viia) of the Act. To make it clear, if the bad debt written off relates off relates to debts other than for which the provision is made under clause (viia), such debts will fall squarely under the main part of clause (vii) which is entitled to deduction and in respect of that part of the debt with reference to which a provision is made under clause (viia), the proviso will operate to limit the deduction to the extent of the difference between that part of debt written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under clause (viia).
The first appellate authority in the case of the Dhanalakshmi Bank Ltd. for the assessment years 1985-86, 1986-87 and 1987-88 had held that any such debt ‘referred to in the proviso relate to the debts in respect of the rural branches and not to all debts’, and that since the bad debts written off in these two assessment years relate only to urban branches, there is no case to make any disallowance under the proviso to section 36(1)(vii) of the Act. However, the Tribunal did not go into the factual aspects of any of these cases. According to the Tribunal, the assessee-bank is entitled to the deduction under clause (vii) only of the difference between the provision made under clause (viia) and the bad debts written off in the accounts, without making any distinction in respect of debts relating to urban advances or rural advances. According to us, the Tribunal has not approached the issue in the proper perspective with reference to the provisions of sections 36(1)(vii), (viia) and 36(2)(v ) of the Act. Now that we have explained the scope of the provisions of the proviso to clause (vii) of section 36(1) of the Act, we are of the view that the matter requires fresh consideration in the light of the said interpretation. Accordingly, we are of the view that the matter must go back to the Assessing Officer for consideration with reference to the interpretation placed by us in this judgment in the first instance. For the said limited purpose, we set aside the orders of the Tribunal and the first appellate authority on this point and direct the Assessing Officer to recompute the deduction available under clause (vii) of section 36(1) of the Act in the light of the interpretation placed by us on the proviso to the said clause under the section.
These appeals are disposed of as above.” (p. 586)
7. In the aforesaid view of the matter, we have no doubt that questions projected are to be answered in favour of the assessee and against the revenue.
8. However, on account of lack of evidence we are not able to grant full relief to the assessee as the amount of Rs. 38,28,836 does not categorically reflect whether this amount was pertaining to rural debts or urban debts, even though before the Tribunal, it was contended by the learned counsel for the assessee that the aforesaid amount pertained to other than rural debts, but the same was not substantiated by any other evidence in this regard. In the absence of evidence, it could not be recorded by the Tribunal or by other authorities below whether the amount of Rs. 38,28,836 reflected as other than the rural debts.
9. Confronted this situation, learned counsel for the assessee contended that let the matter be remanded to the Tribunal to examine this aspect of the matter, where the assessee would also be able to substantiate whether the aforesaid amount pertains to other than rural debts.
10. In this view of the matter, as mentioned hereinabove, the questions of law referred to above are answered in favour of the assessee and against the revenue, but to ascertain the aforesaid fact, we remand the matter to the Tribunal for hearing afresh, after giving opportunity to both the parties to substantiate their points by producing evidence in this regard. Needless to say the aforesaid two judgments of Kerala and Madras High Courts would be kept in mind by the Tribunal while deciding the matter.
11. Even though after hearing the learned counsel for the parties, we were of the considered opinion that only the aforesaid two substantial questions of law would arise for consideration by this Court, but the learned counsel for the appellant – revenue insisted that the following substantial questions of law would also arise for consideration:
“1. Whether Tribunal was right in allowing loss of on account of revaluation of permanent assets though permanent assets are capital assets?
2. Whether Tribunal is correct in allowing the claim for depreciation of flats of which the assessee was not the owner and of which no registered sale-deed has come into existence?”
12. However we notice from the impugned order of the Tribunal that these two questions have been answered by the Tribunal in favour of the assessee and against the revenue, on the strength of the judgment of the Supreme Court in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 6251 and in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 7752 (SC). In this view of matter, the aforesaid two questions of law which according to the revenue would also arise, in fact do not arise for our consideration as the same have already been answered by the aforesaid judgments of the Supreme Court.
13. Thus only the first two substantial questions of law stand answered by us in favour of the assessee and against the revenue and matter stands remanded to the Tribunal as mentioned hereinabove. The latter two questions of law already stand answered by the judgments of the Supreme Court, which are no more required to be answered by us.
14. Appeals thus stand disposed of.
