Commissioner of Income Tax vs Tamil Nadu Mercantile Bank Ltd.

R. Jayasimha Babu, J.—The Revenue wants to blow hot and cold. It contended in a case concerning the same assessee in respect of an

earlier assessment year that the investment held by it is stock-in-trade. It now wants to contend to the contrary and claim that investment made by

the assessee-bank is not stock-in-trade.

The contention of the Revenue with regard to the nature of the investment made by the bank was examined in an elaborate order made by a

Bench of this court in Tax Cases Nos. 359 and 360 of 1986 and 1259 of 1987. This court, after considering the nature of the activity of the bank,

the effect of Section 24 of the Banking Regulation Act and the decisions of the Privy Council and of other High Courts, viz., the decision of the

Privy Council in the case of Punjab Co-operative Bank Ltd. v. CIT [1940] 8 ITR 635, that of the Andhra Pradesh High Court in the case of State

Bank of Hyderabad Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, , as also the decision of the Supreme Court in the case of

Sardar Indra Singh and Sons Ltd. Vs. Commissioner of Income Tax, West Bengal, , upheld the contention of the Revenue that the investment

made by the banking company to fulfil its obligations u/s 24 of the Banking Regulation Act is stock-in-trade as the bank had the option of either

maintaining a cash reserve or holding the money in investments. This court also in the course of the order made in the earlier tax case, referred with

approval to the decision of the Karnataka High Court in the case of Karnataka Bank Ltd. Vs. Commissioner of Income Tax, Karnataka-I, and

after referring to the Full Bench of this court in the case of Commissioner of Income Tax Vs. Madras Central Urban Bank (Ltd.), , noticed the fact

that the decision of the Full Bench of this court was in conflict with the decision of the Supreme Court in the case of Sardar Indra Singh and Sons

Ltd. Vs. Commissioner of Income Tax, West Bengal, and in the case of UNION COLD STORAGE CO. Vs. SIMPSON (INSPECTOR OF

TAXES). UNION COLD STORAGE CO. v. ELLERKER (INSPECTOR OF TAXES)., . After considering all these decisions, the court

concluded that the investment made by the bank was in the nature of and forming part of its stock-in-trade and the profit arising out of the

redemption of securities is assessable under the head ""Business profit"" and not under the head ""Capital gains"".

In these petitions, which concerns the assessment year 1988-89, the Tribunal followed the judgment of the Karnataka High Court which had

been referred to with approval by this court, and held that the change in the method of valuation of the investment was permissible, as the assessee

had the option of valuing the investment at cost or at market price. The fact that the assessee had adopted the cost price in earlier years, but chose

to change that mode of valuation to the market price was not in any way contrary to the requirements of the Act. No exception could have been

taken to that finding of the Tribunal.

The Revenue, however, moved the Tribunal to refer the question now sought to be raised before us and that application was rejected by the

Tribunal and, while doing so, the Tribunal rightly observed that its order was supported by the decision of this court in Tax Cases Nos. 359 and

360 of 1986 and 1259 of 1987, the parties to those references being Commissioner of Income Tax, Madurai, and the assessee. The Revenue

ought to have seen the light, at least then if it had failed to do so earlier. However, it has persisted and has come up with these petitions seeking

reference on a question, which has been considered and decided by this court against the Revenue, and, wherein, the arguments advanced by the

Revenue contrary to the one now sought to be advanced by the same Revenue was upheld by the court.

We must express our strong disapproval of the manner in which the Revenue is seeking to have references made taking contradictory stands in

respect of the same assessee, in spite of the fact its contention to the contrary had been upheld by this court on the earlier occasion and, thereafter,

seeking to raise an entirely contradictory argument and seeking reference of such a question as well.

The tax case petitions are, therefore, dismissed with exemplary costs of Rs. 4,000.