REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. OF 2008
(Arising out of SLP (C) Nos. 1478-1480 of 2004)
The Commissioner of Income
Tax-Kolhapur
....Appellant
Versus
The Ratnakar Bank Ltd. ....Respondent
J U D G M E N T
Dr. ARIJIT PASAYAT, J.
1. Leave granted.
2. Challenge in these appeals is to the judgment of final order
passed by the Bombay High Court in a group of appeals filed by the
revenue under Section 260A of the Income Tax Act, 1961 (in short the
`Act’) read with Section 24 of the Interest Tax Act, 1974 (in short
the `Interest Act’). Question involved was whether interest earned by
the assessee bank on government securities was liable to be assessed
under Section 2(7) of the Interest Act? The Income Tax Appellate
Tribunal (in short the `Tribunal’) held that it was not chargeable.
The High Court by the impugned judgment upheld the view of the
Tribunal. The revenue filed the present appeals against the judgment
of the High Court. It was submitted by learned counsel for the
appellant that the Tribunal and the High Court were not justified in
holding that loans and advances do not include interest on securities,
bonds, debentures and therefore not liable to tax under the
provisions of the Interest Act. It is submitted that interest on
securities falls within the meaning of “Interest chargeable to tax” as
defined under Section 2(7) of the Interest Act.
3. Learned counsel for the respondent assessee-Bank on the other
hand supported the judgment of the Tribunal as upheld by the High
Court.
4. A similar question came up for consideration before this Court in
Commissioner of Income Tax v. Corporation Bank (2008 (166) Taxman
388). This court held as follows:
“Leave granted in special leave petitions.
The short point which arises in this batch of civil
appeals is whether interest earned by the assessees-
banks on dated Government securities was liable to be
assessed under section 2(7) read with Section 4 of the
Interest Tax Act, 1974. In our view, there is a basic
difference between loans and advances on the one hand
and investments/securities on the other. This
difference is indicated in the provisions of the Income
tax Act, the Companies Act as well as the Bank
Regulation Act. These aspects have been discussed in
detail in two decisions of the Bombay High Court,
namely Discount and Finance House of India Ltd. v. S.K.
Bhardwaj, CIT reported in MANU/MH/0628/2002, as also in
another decision of the Bombay High Court reported in
MANU/MH/0629/2002 in the case of CIT v. United Western
Bank Ltd. It is not in dispute that the revenue has
accepted the aforesaid two judgments of the Bombay High
Court. We are in agreement with the view expressed by
the Bombay High Court.
For the aforestated reasons there is no merit in the
civil appeals filed by the department. The same are
dismissed No order as to costs.”
5. Learned counsel for the appellant submitted that this Court’s
decision related to the interest on government securities. Learned
2
counsel for the assessee submitted that in the instant case the
interest earned was on government securities only. The stand is denied
by learned counsel for the appellant. Let the Tribunal examine the
factual position as to whether the interest involved in the present
case is on government securities. If that be so, the ratio of the
decision in Corporation Bank’s case (supra) will apply to the facts of
the present case and if the interest earned is not solely on
government securities, the ratio of the decision will not apply.
6. The appeals are disposed of accordingly.
…………………………………………J.
(Dr. ARIJIT PASAYAT)
………………………………………..J.
(Dr. MUKUNDAKAM SHARMA)
New Delhi,
October 13, 2008
3