Case Law Details

Case Name : Prathamik Shikshak Sahakari Bank Ltd Vs ACIT, (ITAT Pune)
Appeal Number : ITA No.491/PUN/2015
Date of Judgement/Order : 17.05.2017
Related Assessment Year : 2011-12
Courts : All ITAT (4266) ITAT Pune (127)

1. Briefly, in the facts of the case, the assessee had filed the return of income declaring total income of Rs.2,31 ,61 ,482/-. The case of the assessee was taken up for scrutiny. The Assessing Officer during the course of assessment proceedings noted that the assessee had claimed deduction of Rs.16,97,027/- towards broken period interest. The assessee was show caused to explain why the same should be allowed. The show cause notice issued by the Assessing Officer and the submissions of assessee are reproduced in the assessment order. However, the Assessing Officer held that the assessee was not eligible for broken period interest in respect of securities purchased during the previous year by the bank for the reason that such expenditure was laid out as capital outlay. Therefore, any interest element included in the purchase consideration was not allowable as expenditure against income accruing in those securities. Reliance was placed on the ratio laid down by the Hon’ble Supreme Court in Vijaya Bank Vs. CIT reported in 187 ITR 541 (SC) and he Hon ble Hgh Court of Rajasthan in CIT Vs. Bank of Rajasthan Ltd. (2009) 178 Taxman 304 (Raj).

2. The CIT(A) upheld the order of Assessing Officer and  The assessee is in appeal against the order of CIT(A).

3. Similar issue arose before the Tribunal in assessees own case relating to assessment year 2010-11. The Tribunal relied on the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. HDFC Bank Ltd reported in 366 ITR 505 (Bom), which in turn had relied on the ratio laid down by he Hon ble Bombay High Court in American Express International Banking Corporation Vs. CIT reported in 258 ITR 601 (Bom), which in turn, had distinguished the ratio laid down by the Hon’ble Supreme Court in Vijaya Bank Vs. CIT (supra) and the Hon’ble High Court of Rajasthan In CIT Vs. Bank  Rajasthan Ltd (supra) and had held that broken period interest is allowable as deduction. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of broken period interest of Rs.16,97,027/-. The ground of appeal No.1 raised by the assessee is thus, allowed.

Ex-gratia payment made to the retiring employees in recognition of their services was profits in lieu of salary and is duly allowable as expenditure under section 37(1) of the Act.

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1. Brief facts relating to the issue are that, the assessee during the year under consideration had claimed sum of Rs.26,05,728/- as ex-gratia payments to prematurely retired employees. The Assessing Officer disallowed the claim of assessee in the absence of any scheme formulated by the assessee bank. The plea of the assessee that the ex-gratia payment was made to the employees in recognition of their long term and meritorious services to the bank, was not accepted in the absence of formulation of any voluntary retirement scheme. The assessee claimed the ex-gratia payment as in the nature of profits and in lieu of salary, on which TDS had been deducted; but the Assessing Officer held the expenditure incurred neither qualified for deduction under section 35DDA of the Act nor as revenue expenses under section 37(1) of the Act.

2. The CIT(A) upheld the order of Assessing Officer and The assessee is in appeal against the order of CIT(A).

3. The learned Authorized Representative for the assessee pointed out that the said issue is also decided in favour of the assessee by the Pune Bench of Tribunal in The Satara District Central Co.Op Bank Ltd. Vs. DCIT (supra), wherein it was held as under:-

“21. We have heard the rival contention and perused the record. The assessee had debited a sum of Rs.32,46, 100/- under the head staff voluntary payments. The assessee claimed to have made certain ex-gratia payments to its retiring employees in recognition of their service to the assessee bank. The said payments were not under any scheme of voluntary retirement formulated its assessee but were purely ex-gratia payments made in recognition of meritorious service given by the retiring employees. The assessee claimed the said expenditure to be allowable under section 37(1). The Assessing Officer on verification of the details noted that the amount was paid to 9 employees of the bank who retired from the service due to illness and consequently, the same was disallowed by the Assessing Officer. The CIT(A) on the other hand treated the said expenditure to be capital in nature as the services of the said employees resulted in long term benefit to the assessee and hence was not allowable as revenue expenditure under section 37(1).

22. In the facts and circumstances of the case, where the assessee in recognition of the services provided to its retiring employees make certain ex-gratia payments in recognition of their services, which are not based on any scheme or instruction formulated by the employer assessee, then the same partakes the nature of profit in lieu of salary. The relationship between the assessee and retiring employees was admittedly as of employer and employee and the remuneration paid to such employees is part of the salary due to the said employee. Even the ex-gratia payment made by the assessee over and above the remuneration due to the employees partakes the character of profits in lieu of salary to such employee and is duly allowable as an expenditure in the hands of the assessee under section 37(1) of the Act. We find no merit in the stand of the CIT(A) that such expenditure is capital in nature. Reversing the order of the CIT(A), we direct the Assessing Officer to allow the expenditure of Rs.32,46, 180/-. The Ground no.3, is thus allowed.

4. The issue arising before us is identical to the issue before the Tribunal in The Satara District Central Co.Op Bank Ltd. Vs. DCIT (supra) and following the same parity of reasoning, we hold that the ex-gratia payment made to the retiring employees in recognition of their services was profits in lieu of salary and is duly allowable as expenditure under section 37(1) of the Act. The ground of appeal No.2 raised by the assessee is thus, allowed.

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One response to “Broken period interest is allowable as deduction”

  1. Ashwani Kumar Motwani says:

    I am retired 68 yrs. old and provide marketing consultancy services ( resident representative) to one Germany based company industrial testing & inspection services providing company . I get commission based on Work Orders generated in India. Am I liable to pay Service Tax under GST ? if yes how much? Thanks & Regards

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