1986-VIL-393-KAR-DT

Equivalent Citation: [1986] 159 ITR 464, 52 CTR 117, 26 TAXMANN 546

KARNATAKA HIGH COURT

Date: 07.01.1986

COMMISSIONER OF INCOME-TAX

Vs

SYNDICATE BANK (FORMERLY SYNDICATE BANK LIMITED)

BENCH

Judge(s)  : R. S. MAHENDRA., K. S. PUTTASWAMY

JUDGMENT

The judgment of the court was delivered by

K. S. PUTTASWAMY J.-In these references and cross-reference made under section 256 of the Income-tax Act, 1961 (the Act), the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore (Tribunal), at the instance of the Revenue and the assessee has referred four questions of law for the opinion of this court.

As question No. (1) referred in I.T.R.Cs. Nos. 189 and 190 of 1978 and the sole question referred in I.T.R.C. No. 273 of 1985 are interconnected, we will first notice and examine them together setting out such facts that are necessary to appreciate them in the first instance.

Question No. (1) in I.T.R.Cs. Nos. 189 and 190 of 1978 referred to us reads thus:

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that what could be assessed as interest under section 214 was not the entire sum of Rs. 5,75,264 and that it should be reduced by a sum of Rs. 2,10,264 ? "

The sole question referred to us in I.T.R.C. No. 273 of 1985 reads thus :

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 2,10,264 being the amount of interest granted under section 214 of the Income-tax Act, 1961, in respect of income-tax assessments (provisional under section 141 A) for 1967-68 and 1968-69 and withdrawn in the previous year relevant to the assessment year 1973-74 on completion of regular assessments under section 143(3) was not an admissible deduction for the assessment year 1973-74 ? "

M/s. Syndicate Bank Ltd. was one of the banking companies nationalised by the Government of India with effect from July 19, 1969, under the Banking Companies Nationalisation Scheme of the country. On and after such nationalisation, the banking business of the company is carried on by an undertaking called " Syndicate Bank" which is the assessee in these cases.

For the assessment years 1967-68 and 1968-69 relevant to the accounting years ending on December 31, 1966, and December 31, 1967, respectively, the bank had paid considerable amounts as advance taxes under the Act. On March 16, 1970, the First Income-tax Officer, Mangalore Circle, Mangalore, made an order provisionally determining the amounts refundable to the assessee from out of such advance taxes for the aforesaid assessment years and the interest, if any, payable on the excess of advance tax paid thereon. In the said order, he found that a sum of Rs. 5,75,264 was payable to the assessee as interest under section 214 of the Act and directed its payment, with which payment we are concerned. In pursuance of the said order of the Income-tax Officer, the said amount of Rs. 5,75,264 was also paid to the assessee on or before December 31, 1970.

On January 31, 1971, the Income-tax Officer, completed the regular assessment for the aforesaid assessment years in which he found that the assessee was entitled for payment of a sum of Rs. 3,65,000 only as interest under section 214 of the Act as against the earlier provisional determination of Rs. 5,75,264 and, therefore, called upon the assessee to pay back sum of Rs. 2,10,264 with which it complied and paid back that sum on or before December 31, 1972, which payment became the subject of dispute for the assessment year 1973-74.

For the assessment year 1971-72 relevant to the accounting year ending on December 31, 1970, the assessee claimed that the net interest only determined at the regular assessment should be treated as income and not the sum of Rs. 5,75,264 initially paid over to it which stood reduced on such regular assessment. But the Income-tax Officer on March 6, 1974, rejected the same and treated the whole of the sum of Rs. 5,75,264 as income chargeable to tax for that year.

Aggrieved by the said rejection of the Income-tax Officer, the assessee filed an appeal in Appeal No. ITA 43 of 1974-75 before the Appellate Assistant Commissioner of Income-tax, Bangalore, who by his order dated March 4, 1976, allowed the same and accepted the said claim of the assessee and directed the Income-tax Officer to modify the assessment for the said year. Against the said order of the Appellate Assistant Commissioner allowing the claim of the assessee, the Revenue filed an appeal before the Tribunal which by its order dated May 17, 1977, dismissed the same.

While the above proceedings for the assessment year 1971-72 had not reached finality, for the assessment year 1973-74, the assessee claimed the sum of Rs. 2,10,264 repaid by it as excess or difference of interest as deduction under section 37 of the Act, which was rejected by the Income-tax Officer and the Appellate Assistant Commissioner holding that the same did not fall within the purview of section 37 or any other specific provision of the Act. In the second appeal filed by the assessee against those orders, the Tribunal did not grant the same on the ground that it had granted relief to the assessee in its order dated May 17, 1977, for the assessment year 1971-72.

While question No. 1 in I.T.R.Cs. Nos. 189 and 190 of 1978 has been referred at the instance of the Revenue, the sole question in I.T.R.C. No. 273 of 1985 has been referred at the instance of the assessee.

Sri K. Srinivasan, learned senior standing counsel for the Income-tax Department appearing for the Revenue, contends that the total sum of Rs. 5,75,264 received by the assessee on or before December 31, 1970, as interest under section 214 of the Act in its entirety had to be treated as " income " for the assessment year 1971-72, and its chargeability to tax decided on that basis without reference to the later reduction at the regular assessment and repayment of Rs. 2,10,264 thereon by the assessee at all and the contrary conclusion reached by the Tribunal was clearly opposed to the provisions of the Act.

Sri K. P. Kumar, learned counsel for the assessee, refuting the contentions of Sri Srinivasan, contends that the interest amount that stood reduced and repaid cannot be treated as income chargeable to tax under the Act.

On this rival claim of the parties, the Tribunal had expressed thus:

" 10. Section 214(1) provides that Central Government shall pay simple interest at the prescribed percentage on the amount by which the aggregate sum of payments exceeds the amount of tax determined on regular assessment. The period for which the interest is to be paid is also mentioned. In other words, the interest on the excess payments as advance tax is payable in respect of the amount of advance tax paid in excess of the tax determined on regular assessment so that the interest payable under section 214 is only referable to the interest computed with reference to the regular assessment. Regarding this provision along with sub-section (4)(b) or section 141A, it appears to us that only to the extent of interest payable by the Government as determined on regular assessment, interest so paid on provisional assessment under section 141A can be taken as interest payable by the Government under the provisions of section 214 and hence such amount only can be taken to be the income of the assessee, the excess amount, if any, is held by the assessee to be repaid as if it is tax payable under the provisions of section 214(1A) as well as the provisions of section 141A(4)(b). In other words, the position is that the assessee is merely trustee for the Government in respect of the excess amount of interest which he is under a legal obligation to repay under the above provisions, and, therefore, such excess amount of interest cannot be considered as the assessee's income at all.

11. The interpretation which we have placed on the relevant provisions is a reasonable one while the interpretation urged OD behalf of the Department clearly leads to great Injustice since the assessee will be required to pay tax on amounts which it has to refund to the Government. It is well-settled that when there is a doubt about the interpretation of a section, that interpretation has to be preferred which is in favour of the assessee. Therefore, even if it can be said that there is some doubt about the interpretation, the interpretation which we have given being favourable to the assessee has to be adopted. In this view of the matter, we uphold the order of the Appellate Assistant Commissioner."

Whether this view is sound or not falls for our examination.

The assessee does not dispute that it had received a sum of Rs. 5,75,264 before December 31, 1970, as interest under section 214 of the Act. The assessee does not also dispute that this receipt was not capital receipt and was a revenue receipt for that year.

What is once treated as a revenue receipt must normally be treated as such for that very amount, as we apprehend, is even elementary and is the normal rule in income-tax law. The Act nowhere provides for treating the same otherwise, that too with reference to later events to sustain the reasoning and conclusion of the Tribunal and the Appellate Assistant Commissioner. In the absence of any such specific provision in the Act, we are clearly of the view that the later events cannot affect the earlier nature of receipt as also the quantum of that receipt. On this conclusion itself, we find it difficult to subscribe to the view expressed by the Tribunal and the Appellate Assistant Commissioner on the point.

Section 141A of the Act on which reliance has been placed by the Tribunal governs cases of refund of taxes on provisional assessments and not to repayment of amounts provisionally paid as interest under section 214 of the Act to sustain its claim. Section 214 also has no application to sustain the conclusion of the Tribunal. Sri Kumar has not been able to show any other provision in the Act to sustain the view expressed by the Tribunal.

When the language of the provisions are plain and unambiguous, there is hardly any scope for more than one construction. We find no ambiguity or difficulty in the construction of any of the relevant provisions to hold that a construction favourable to taxpayer should be placed as held by the Tribunal. On the provisions of the Act, we cannot, therefore, hold that the earlier income stands reduced to the extent the assessee was compelled to pay back to the Government.

Sri Kumar, relying on section 214(1A) of the Act, contends that the amount paid back by the assessee was tax and the same should be treated as reduced when originally paid. Section 214(1A) of the Act on which reliance is placed at the material period reads thus:

" Where on completion of the regular assessment the amount on which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly. "

The section deems the excess interest, if any, paid to the assessee and becoming repayable by the assessee to the Government under the Act as tax under the Act, and makes applicable all other provisions of the Act for such deemed tax.

In Ex parte Walton [1881] 17 Ch D. 746, James L.J., stated the principle of a deeming provision in these words (at p. 756) :

" When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to. "

In R. v. Norfolk County Court [1892] 60 LJ QB 380, Cave J., dealing with a deeming provision, expressed thus:

" When a thing is to be deemed something else, it is to be treated as that something else with the attendant consequences, but it is not something else. "

We are of the view that these principles are apposite in construing the true scope and ambit of section 214(1A) of the Act. When we apply these principles, it is clear that the excess interest paid to the assessee earlier and later repayable by him is not really tax levied under the Act on income but is treated as tax for purposes of the Act. The deeming or declaration made in section 214(1A) of the Act is only to facilitate its recovery under the Act, but that cannot and does not make that a tax levied on income under the Act. We see no merit in this alternative contention urged by Sri Kumar to concur with the view expressed by the Tribunal.

On the foregoing discussion, it follows that our answer to question No. (1) must be in the negative, in favour of the Revenue and against the assessee.

We now pass on to examine the other question referred to us at the instance of the assessee in I.T.R.C. No 273 of 1985.

While examining question No. (1) in I.T.R.C. Nos. 189 and 190 of 1978, we have noticed that the assessee was paid a sum of Rs. 5,75,264 as interest under section 214 of the Act on the basis of the provisional assessment and it was compelled to pay back a sum of Rs. 2,10,264 as excess interest on regular assessment for the year ending December 31, 1972, or for the assessment year 1973-74.

Whatever be the deficiency in the return filed for the assessment year 1973-74, the assessee claimed the said sum of Rs. 2,10,264 as a permissible deduction under section 37 of the Act during the said year. We have also noticed as to how the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal dealt with the same.

Sri Kumar contends that on the very reasons we have answered question No. (1) in I.T.R.C. Nos. 189 and 190 of 1978 in favour of the Revenue and otherwise also, the amount paid back by the assessee must necessarily be held as an expenditure paid out by the assessee in the course of its business and was a permissible deduction under section 37 of the Act on which view we must answer the question referred to us in the negative, in favour of the assessee and against the Revenue.

Sri Srinivasan contends that the amount of excess interest paid back by the assessee was a tax under the Act and cannot be allowed as a permissible deduction under section 37 of the Act. In support of his contention, Sri Srinivasan has placed strong reliance on a Division Bench ruling of this court in CIT v. International Instruments (P) Limited [1983] 144 ITR 936 and a Division Bench ruling of the Calcutta High Court in Balmer Lawrie & Co. Ltd. v. CIT [1960] 39 ITR 751.

While examining question No. (1) in I.T.R.C. Nos. 189 and 190 of 1978, we have explained the true scope and ambit of section 214(1A) of the Act and held that the amount of Rs. 2,10,264 paid back by the assessee was not tax levied on income under the Act. We need hardly say that that the reasoning and conclusion justify us to reject the contention urged for the Revenue before us and the authorities also.

What was paid by the assessee for the assessment year was an involuntary payment, which, however, was not tax on income under the Act and that payment which does not fall within the purview of sections 29 to 31 must necessarily fall within the residuary provision of section 37 of the Act only. We are of the view that this conclusion that does justice to the assessee, does not also do any injustice to the Revenue. After all, justice is not totally alien in the administration of tax laws also in the country. We are also of the view that the construction of section 37 of the Act and its application to the facts and circumstances is in accord with the progressive rule of construction of taxing statutes enunciated by the Supreme Court in K. P. Varghese v. ITO [1981] 131 ITR 597, reiterated in CIT v. Gotla [1985] 156 ITR 323 (SC).

We are also of the view that in the rulings relied on by Sri Srinivasan, the precise question in the manner it has arisen did not arise and, therefore, the ratio in those cases does not bear on the point.

On the foregoing discussion, we hold that the question referred to us in I.T.R.C. No. 273 of 1985 has to be answered in the negative, in favour of the assessee and against the Revenue.

We now pass on to examine question No. (2) in I.T.R.C. Nos. 189 and 190 of 1978 which reads thus :

" (2) Whether, on the facts and in the circumstances of the case, the inclusion of Rs. 1,00,060 representing the actual realisation of interest on U.P. Zamindari Bonds was correct in law? "

On this very question, for another assessment year, between the same parties, a Division Bench of this court consisting of Chandrashekhar C.J. and Venkataramiah J. (as his Lordship then was) had occasion to examine the same in I.T.R.C. Nos. 162 and 163 of 1975 decided on February 8, 1979 and furnish its answer which opinion necessarily governs the same. For the very reasons stated in I.T.R.C. Nos. 162 and 163 of 1975 we must answer question No. (2) in the same way this court answered the very question between the same parties in I.T.R.C. Nos. 162 and 163 of 1975.

We now pass on to examine question No. (3) in I.T.R.C. Nos. 189 and 190 of 1978 which reads thus

" (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in remanding the claim of the assessee for deduction of Rs. 8,809 representing expenditure on its Visiting Officers' Quarters at Bombay for consideration in terms of rule 6C of the Income-tax Rules, 1962 ? "

Sri Kumar sought to distinguish the ratio of the Division Bench ruling of this court in N.G.E.F. Ltd. v. CIT [1985] 153 ITR 197, on the sole ground that the language of the relevant provision was somewhat different. We are of the view that the language of section 37(4) of the Act prior to April 1, 1972, or thereafter is not materially different and, therefore, this question is governed by N.G.E.F.'s case [1985] 153 ITR 197. For the very reasons stated in the said case, we must answer question No. (3) in the affirmative (sic), against the assessee and in favour of the Revenue.

In the light of our above discussion, we furnish our answers to the questions referred to us as hereunder :

Questions Answers

I.T.R.C. Nos. 189 & 190 of 1978

Question No. (1) In the negative, in favour of the Revenue and against the assessee.

Question No. (2) On the facts and circumstances of the case, the Tribunal should have held that that portion of the annual repayment received or receivable by the assessee during the accounting year relevant to the assessment year 1971-72 which represented interest, was assessable to tax under the Income-tax Act and the remaining portion of such annual repayment which represented capital, was not assessable to such tax.

Question No. (3) In the affirmative (sic), against the assessee and in favour of the Revenue.

I.T.R.C. No. 273 of 1985

Question No. (1) In the negative, in favour of the assessee and against the Revenue.

In view of the divided success and failure of the parties, it is just and proper to direct the parties to bear their own costs. We, therefore, direct the parties to bear their own costs.

 

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.