Case Law Details
CIT Vs Vijaya Bank (Karnataka High Court)
Learned counsel for the revenue submitted that prior to amendment with effect from 01.04.2008, benefit of Section 36(1)(viii) of the Act was not available to a Banking Company and therefore, the assessee is not entitled to claim deduction under Section 36(1)(viii) of the Act. It is further submitted that provisions of Section 36(1)(viii) of the Act were amended with effect from 01.04.2008 and are applicable to the Assessment Year 2008-09. Learned counsel for the revenue has taken us through the amended provisions of Section 36(1)(viii) of the Act and has invited our attention to the expression ‘specified entity’ which includes Banking Company. Therefore, it is submitted that the assessee is not entitled to claim the deduction under Section 36(1)(viii) of the Act. On the other hand, learned counsel for the assessee submitted that Section 36(1)(vii) of the Act, as it was in existence prior to its amendment with effect from 01.04.2008, confined the benefit of Financial Corporation and the expression ‘Financial Corporation’ included the Government Company as well as Public Company. It is further submitted that the assessee, namely, Vijaya Bank in any case, is a Public as well as Government Company as it fulfills the requirement of Sections 3 and 617 of the Companies Act, 1956. In support of the aforesaid submission, reliance has been placed on the decision of High Court of Bombay in ITA No.269/2013.
We have considered the submissions made on both sides and have perused the records. Before proceeding further, it is apposite to take note of Section 36(1)(viii) of the Act, which was in existence at the relevant point of time.
From a perusal of the Section 36(1)(viii) provision, it is evident that the benefit of deduction under Section 36(1)(viii) of the Act was available to a Financial Corporation, which included the Public Company and Government Company. The explanation appended to clause (viii) further specifies that expression ‘Public Company’ shall have the meaning assigned to it under Section 3 of the Companies Act, 1956 and the expression ‘Government Company’ shall have the meaning assigned to it under Section 617 of the Companies Act, 1956. Admittedly, Vijaya Bank is not a Private Company. Therefore, the same fulfills the requirement of Section 3 of the Companies Act, 1956 and is a Public Company. It is also pertinent to note that 51% of the shares of Vijaya Bank are held by the Government of India and therefore, the same is a Government Company within the meaning of Section 617 of the Companies Act, 1956. Therefore, the assessee is squarely covered within the meaning of expression ‘Financial Corporation’ and is entitled to benefit of deduction under Section 36(1)(viii) of the Act. For the aforementioned reasons, the fourth substantial question of law is answered against the revenue and in favour of the assessee.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment Year 2007-08. The appeal was admitted by a Bench of this Court vide order dated 27.10.2017 on the following substantial questions of law:
“1. Whether on the facts and in the circumstances on the case, the Tribunal were right in law in holding that Banking companies are not liable for Minimum Alternate Tax u/s.115JB of the Act against the provisions of the Act?
2. Whether on the facts and in the circumstances on the case, the Tribunal were right in law in holding that the assessee bank is eligible for deduction under section 36(1)(vii) of the Act, when the assessee has not debited any bad debts write off in the profit and loss account and only the provision for bad debts (prudential write off) has been claimed as deduction in the computation of income as bad debt write off?
3. Whether on the facts and in the circumstances on the case, the Tribunal were right in law in holding that the assessee is eligible to claim depreciation on ‘Held to Maturity’ category investments even though the same is notional in nature and against the RBI guidelines for valuation of securities?
4. Whether on the facts and in the circumstances on the case, the Tribunal were right in law in holding that the assessee is eligible for deduction under section 36(1)(viii) of the Act even though the assessee is not an eligible entity under the provisions of the Act prior to amendment w.e.f. 01.04.2008?
5. Whether on the facts and in the circumstances on the case, the Tribunal were right in law in deleting the disallowance made under section 14A of the Act?”
2. The factual background in which the aforesaid substantial questions of law arises for our consideration needs mention.
The assessee is a Banking Company. For the Assessment Year 2007-08, the assessee filed Return of Income on 29.10.2007 and declared the Income as ‘Nil’. The Return was processed under Section 143(1) of the Act on 30.08.2008 and as per Section 115 JB of the Act, the tax was computed at Rs.12,60,62,901/-. Subsequently, the case was selected for scrutiny and Notices under Section 143(2) of the Act were issued on 05.09.2008 and 26.09.2008. The Assessing Officer by order dated 09.12.2009 inter alia disallowed the deduction of Rs.20,00,00,000/- claimed under Section 36(1)(viii) of the Act in respect of special reserve created from the profit earned from long term finance for industrial or agricultural development or development of infrastructure facility in India on the ground that the assessee is not engaged in providing long term finance for sectors mentioned therein. The Assessing Officer added a sum of Rs.143,12,69,349/-being excess provision claimed under Section 36(vii-a) of the Act. The Assessing Officer disallowed the depreciation claimed on securities classified as ‘Held to Maturity’ and further held that the assessee had earned aggregate sum of Rs.68,65,73,177/-, which is exempt under various sub-Sections of Section 10 of the Act and disallowed the aforesaid amount in terms of Section 14A of the Act. A sum of Rs.3,43,28,658/- being 5% thereof was estimated as expenditure incurred for earning such income.
3. The assessee, thereupon, filed an appeal. The Commissioner of Income Tax (Appeals) by an order dated 31.05.2011 partly allowed the appeal. Being aggrieved, the revenue as well as the assessee filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short). The Tribunal by an order dated 11.09.2015, allowed the appeal preferred by the assessee and dismissed the appeal preferred by the revenue. In the aforesaid factual background, the revenue is in appeal before this Court.
4. Learned counsel for the assessee submitted that the first substantial question of law has already been answered against the revenue by a Bench of this Court vide order dated 16.01.2020 passed in ITA No.18/2014 and connected matters. The aforesaid statement made by learned counsel for the assessee could not be disputed by learned counsel for the revenue. For the reasons assigned in the order dated 16.01.2020 passed in ITA No.18/2014 and connected matters, the first substantial question of law framed by this Court is answered against the revenue and in favour of the assessee.
5. Insofar as second substantial question of law is concerned, learned counsel for the assessee pointed out that second substantial question of law has also been answered against the revenue by a Bench of this Court vide order dated 21.10.2014 passed in ITA No.1066/2008. The aforesaid fact also could not be disputed by learned counsel for the revenue. Thus, for the reasons assigned by a Bench of this Court vide order dated 21.10.2014 passed in ITA No.1066/2008, the second substantial question of law is also answered
against the revenue and in favour of the assessee.
6. Now we may advert to the third substantial question of law. Learned counsel for the assessee again pointed out that the third substantial question of law is also been answered against the revenue in the case of ‘KARNATAKA BANK LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)’, ‘[2013] 34 taxmann.com 150 (Karnataka)’. The aforesaid aspect could not be disputed by learned counsel for the revenue. For the reasons assigned in the aforesaid decision, the third substantial question of law is also answered against the revenue and in favour of the assessee.
7. With respect to the fifth substantial question of law, it was pointed out that the aforesaid question is also answered against the revenue by a Bench of this Court vide Judgment dated 17.01.2020 passed in ITA No.97/2010 and connected matter. The aforesaid fact could not be disputed by learned counsel for the revenue. For the reasons assigned in the aforesaid Judgment, the fifth substantial question of law is also answered against the revenue and in favour of the assessee.
8. The only substantial question of law, which survives for our consideration is substantial question of law No.4, which pertains to eligibility of the assessee for grant of deduction under Section 36(1)(viii) of the Act. Learned counsel for the revenue submitted that prior to amendment with effect from 01.04.2008, benefit of Section 36(1)(viii) of the Act was not available to a Banking Company and therefore, the assessee is not entitled to claim deduction under Section 36(1)(viii) of the Act. It is further submitted that provisions of Section 36(1)(viii) of the Act were amended with effect from 01.04.2008 and are applicable to the Assessment Year 2008-09. Learned counsel for the revenue has taken us through the amended provisions of Section 36(1)(viii) of the Act and has invited our attention to the expression ‘specified entity’ which includes Banking Company. Therefore, it is submitted that the assessee is not entitled to claim the deduction under Section 36(1)(viii) of the Act. On the other hand, learned counsel for the assessee submitted that Section 36(1)(vii) of the Act, as it was in existence prior to its amendment with effect from 01.04.2008, confined the benefit of Financial Corporation and the expression ‘Financial Corporation’ included the Government Company as well as Public Company. It is further submitted that the assessee, namely, Vijaya Bank in any case, is a Public as well as Government Company as it fulfills the requirement of Sections 3 and 617 of the Companies Act, 1956. In support of the aforesaid submission, reliance has been placed on the decision of High Court of Bombay in ITA No.269/2013.
9. We have considered the submissions made on both sides and have perused the records. Before proceeding further, it is apposite to take note of Section 36(1)(viii) of the Act, which was in existence at the relevant point of time. The relevant extract of Section 36(1)(viii) of the Act, reads as under:-
“(viii) in respect of any special reserve created and maintained by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing long-term finance (computed under the head “Profits and gains of business or profession” before making
any deduction under this clause) carried to such reserve account:
Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital and of the general reserves of the corporation or, as the case may be, the company, no allowance under this clause shall be made in respect of such excess.
Explanation,-In this clause,-
(a) “financial corporation” shall include a public company and a Government company;
(b) “public company” shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);
(c) “Government company” shall have the meaning assigned to it in section 617 of the Companies Act, 1956 (1 of 1956);”
10. From a perusal of the aforesaid provision, it is evident that the benefit of deduction under Section 36(1)(viii) of the Act was available to a Financial Corporation, which included the Public Company and Government Company. The explanation appended to clause (viii) further specifies that expression ‘Public Company’ shall have the meaning assigned to it under Section 3 of the Companies Act, 1956 and the expression ‘Government Company’ shall have the meaning assigned to it under Section 617 of the Companies Act, 1956. Admittedly, Vijaya Bank is not a Private Company. Therefore, the same fulfills the requirement of Section 3 of the Companies Act, 1956 and is a Public Company. It is also pertinent to note that 51% of the shares of Vijaya Bank are held by the Government of India and therefore, the same is a Government Company within the meaning of Section 617 of the Companies Act, 1956. Therefore, the assessee is squarely covered within the meaning of expression ‘Financial Corporation’ and is entitled to benefit of deduction under Section 36(1)(viii) of the Act. For the aforementioned reasons, the fourth substantial question of law is answered against the revenue and in favour of the assessee.
In view of the preceding analysis, we do not find any merit in this appeal. Accordingly, the same fails and is hereby dismissed.
