Delhi HC allows Depreciation on Temporary Structures

PCIT Vs Oriental Bank of Commerce Ltd (Delhi High Court)

Introduction: The Delhi High Court recently delivered a judgment in the case of PCIT vs. Oriental Bank of Commerce Ltd (Delhi High Court), providing significant relief to Oriental Bank of Commerce (OBC). The court allowed depreciation on temporary wooden structures, which had been a subject of dispute between the bank and the Income Tax Department. In this article, we will analyze the key aspects of the judgment, including the issues raised, the court’s reasoning, and the implications.

1. Background and Issues: The case involved multiple assessment years, namely 2014-15, 2015-16, and 2013-14. The Income Tax Appellate Tribunal (Tribunal) had allowed OBC’s appeals in these assessment years. The primary issues in the case were as follows:

• Addition on Section 14A
• HTM Securities
• Depreciation on temporary erections
• Interest on overdue deposits
• Disallowance under Section 36(1)(vii) of the Income Tax Act

2. Section 14A Disallowance: The Tribunal correctly recognized that OBC, being a nationalized bank, was exempt from the provisions of Section 14A of the Income Tax Act. This exemption was based on the nature of shares held as stock-in-trade, following the Supreme Court’s judgments in Maxopp Investment Ltd. v. Commissioner of Income Tax and South Indian Bank v. Commissioner of Income Tax. These judgments clarified that income arising from shares held as stock-in-trade is attributable to the banking business and not subject to Section 14A. The court upheld the Tribunal’s decision in this regard.

3. HTM Securities: The second issue, concerning HTM (Held to Maturity) securities, was resolved based on a previous decision by a coordinate bench of the court. As per this precedent, no substantial question of law was raised regarding HTM securities, and the Tribunal’s decision was accepted.

4. Depreciation on Temporary Erections: Regarding the depreciation on temporary wooden structures, the Tribunal had allowed 100% depreciation. The court referred to a previous decision for AY 2007-08 and noted that the appellant/revenue had not raised any ground in that case against the allowance of depreciation on temporary structures. Applying the principle of consistency, the court upheld the Tribunal’s decision, affirming OBC’s right to claim depreciation on temporary structures.

5. Interest on Overdue Deposits: The fourth issue was found to be covered by a previous decision of a coordinate bench, and, as a result, no substantial question of law was raised. The court affirmed the Tribunal’s decision in favor of OBC.

6. Disallowance under Section 36(1)(vii): The final issue concerned the disallowance of provisions for bad and doubtful debts. The Supreme Court’s judgment in Vijaya Bank v. CIT provided a clear precedent in favor of OBC, and the court ruled accordingly. No substantial question of law was raised on this issue.

Conclusion: In the case of PCIT vs. Oriental Bank of Commerce Ltd, the Delhi High Court delivered a judgment that favored Oriental Bank of Commerce. The court upheld the Tribunal’s decisions, allowing depreciation on temporary wooden structures and resolving various other tax issues in OBC’s favor. This judgment provides important clarity on the taxation of nationalized banks and reinforces the principle of consistency in tax matters.

For Oriental Bank of Commerce, this judgment brings significant relief and reinforces the importance of understanding the specific tax implications for different types of assets held by banks. It also serves as a reminder of the significance of legal precedent in tax disputes.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Allowed, subject to just exceptions.

ITA 521/2023 & CM Nos.47076-77/2023

ITA 522/2023 & CM Nos.47083-84/2023

ITA 524/2023 & CM Nos.47089-90/2023 [Applications filed on behalf of

the appellant seeking condonation of delay of 231 days in filing and 85 days in re-filing the appeals]

2. These are the appeals concerning Assessment Year (AY) 2014-15 [ITA No.521/2023], AY 2015-16 [ITA No.522/2023] and AY 2013-14 [ITA No.524/2023].

3. Via the impugned order dated 04.03.2022, the Income Tax Appellate Tribunal [in short, “Tribunal”] allowed the appeals of the respondent/assessee which were filed not only with respect to the AYs referred to hereinabove, but also with regard to AY 2012-13.

3.1 Simultaneously, cross-appeals filed by the appellant/revenue were also disposed of, via the impugned order.

4. Mr Puneet Rai, learned senior standing counsel, who appears on behalf of the appellant/revenue, has helpfully placed a tabular chart before us, indicating therein the issues which arose for consideration in the aforementioned AYs. The details given in the tabular chart are set forth hereafter:

First Issue [Addition on account of Section 14A]

5. Insofar as the issue concerning disallowance under Section 14A of the Income Tax Act, 1961 [in short, “Act”] is concerned, the Tribunal, in our view, correctly appreciated the fact that the respondent/assessee was a nationalised bank and that in terms of the judgment rendered by the Supreme Court in Max opp Investment Ltd. v. Commissioner of Income Tax, (2018) 402 ITR 640 (SC) qua shares are held as stock-in-trade, the provisions of Section 14A would have no applicability.

5.1    In this regard, the Tribunal also noticed the judgment rendered by the Supreme Court in South Indian Bank v. Commissioner of Income Tax, [2021] 112 CCH 00051 (SC). The relevant portion of the said judgment which is culled out in the impugned order is extracted hereafter for the sake of convenience:

“25. Proceeding now to another aspect, it is seen that the Central Board of Direct Taxes (CBDT) had issued the Circular no. 18 of 2015 dated 02.11.2015, which had analyzed and then explained that all shares and securities held by a bank which are not bought to maintain Statutory Liquidity Ratio (SLR) are its stock-in- trade and not investments and income arising out of those is attributable, to business of banking. This Circular came to be issued in the aftermath of CIT Vs. Nawanshahar Central Cooperative Bank Ltd. [(2007) 15 SCC 611] / [(2007) 160 TAXMAN 48 (SC) ] wherein this Court had held that investments made by a banking concern is part of their banking business. Hence the income earned through such investments would fall under the head Profits & Gains of business. ….”

[Also see PCIT v. State Bank of Patiala, 2017 (393) ITR 476 (P&H)]

6. In our opinion, the Tribunal has correctly deleted the disallowance made under Section 14A as the subject shares were concededly held as stock-in-trade.

Second Issue [HTM Securities]

7. The second issue is covered by the decision rendered by a coordinate bench of this court dated 11.05.2016 passed in ITA No.306/2016, titled Principal Commissioner of Income-Tax-07 v. Oriental Bank of Commerce. Thus, having regard to the decision of the coordinate bench, in our view, no substantial question of law arises for our consideration qua this issue.

Third Issue [Depreciation on temporary erections]

8. As regards the third issue, i.e., depreciation on temporary erections, the Tribunal has made the following observations:

“28. This ground is against the allowance of depreciation on temporary wooden structure at 100% by the ld. CIT(A). The AO has dealt with on facts, page no.9, para no.4 of his order the facts has not been disputed that the nature of furniture of wooden cabins, wiring etc. which are temporary in nature. The above ground of the department has to be dismissed as it is a covered matter in favour of the assessee by the order of the Co-ordinate Bench of ITAT in A.Y. 2007-08 in ITA No.1937/Del/11 and 1961 /Del/11 The matter was set aside to the AO for verification by the ITAT.”

9. Mr Rai has adverted to the decision in ITA No. 306/2016. This appeal arose out of the decision rendered by a coordinate bench of the Tribunal with regard to AY 2007-08 in ITA No.1937/Del/2011 and ITA No.1961/Del/2011.

9.1. A perusal of the said decision would show that the appellant/revenue did not raise any ground in the appeal with regard to the allowance of depreciation on temporary wooden structures. Therefore, applying the principle of consistency, in the AYs in issue, the respondent/assessee should have been allowed depreciation on temporary structures.

9.2. In this regard, no interference is called for with the decision of the Tribunal.

Fourth Issue [Interest on overdue deposits]

10. As regards the fourth issue, it is not disputed by Mr Rai that the said issue is covered by the decision dated 17.01.2018 rendered by a coordinate bench of this court in ITA No.57/2018, titled Oriental Bank of Commerce v. Additional Commissioner of Income Tax.

11. Having regard to this decision, no substantial question of law is required to be framed concerning the said issue.

Fifth Issue [Disallowance under Section 36(1)(vii) of the Act]

12. This brings us to the last issue, which is disallowance of provision made for bad and doubtful debts.

13. As noted by the Tribunal, this issue is squarely covered in favour of the respondent/assessee by virtue of the judgment rendered by the Supreme Court in Vijaya Bank v. CIT, [2010] 323 ITR 166.

14. Thus, for the foregoing reasons, we are not inclined to entertain the above-captioned appeals.

15. As noted above, no substantial question of law arises qua any of the issues noted above.

16. The appeals are, accordingly, closed.

17. Consequently, the pending applications shall also stand closed.

18. Parties will act based on the digitally signed copy of the order.