Commissioner of Income Tax vs The Punjab and Sind Bank Ltd., New Delhi

Arun Kumar, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has referred u/s 256(1) of the Income Tax Act, 1961 (for short the Act) the following questions for the opinion of this Court:

Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in directing the Income Tax Officer to assess the interest from securities on specified dates basis on which the interest was payable and not on accrual basis?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the equipments used in the assessor�s business such as counters, steel equipments, electric fitting, calculating machines and cooling equipments are to be treated as a plant and machinery u/s 32(1)(ii) and Section 33 for the purpose of grant of depreciation and development rebate respectively?

2.Briefly stated, the material facts are that in the original return the assessed bank declared income from interest on securities at Rs. 1,14,97,641/- whereas in the revised return, income from the said source was reduced to Rs. 75,25,591/-. The reason for revising the return was that in the original return, the interest on security was declared on "accrual" basis but in the revised return, the same was declared on "due" basis. The Income Tax Officer, however, assessed the income under the said head on accrual basis mainly on the ground that this was the practice being followed by the assessed in earlier years. On appeal, the Commissioner of Income Tax (Appeals), while observing that the interest on securities would become due only on the dates specified in the securities and not on any other date, accepted the stand of the assessed that the income from interest was to be declared on due basis. The Income Tax Appellate Tribunal concurred with the view taken by the Commissioner of Income Tax.

As regards question No. 2, the assessed bank had claimed 100% depreciation on items costing less than Rs. 750/-, but the said claim was rejected by the Income Tax Officer on the ground that the order of the Tribunal on the issue in respect of the earlier assessment years, though in favor of the assessee, was under challenge. However, on appeal, following the earlier orders of the Tribunal, the Commissioner of Income Tax (Appeals) allowed the assessor�s claim. The Revenue''s appeal before the Tribunal on the issue also failed. While dismissing the appeal, the Tribunal relied on its earlier orders in respect of assessment years 1970-71 and 1971-72. Hence this reference.

Section 18 of the Act reads as follows:

Interest on securities:-(1) The following amounts due to an assessed in the previous year shall be chargeable to income tax under the head "Interest on Securities" -

(i) interest on any security of the Central or State Government;

(ii) interest on any debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act.

(2) Nothing contained in sub-section

(1) shall be construed as precluding an assessed from being charged to income tax in respect of any interest securities received by him in a previous year if such interest had not been charged to income tax for any earlier previous year."

On a bare reading of Section 18 of the Act, it is clear that income from interest on securities is chargeable to tax under sub-section (1) of the Section only on due basis and the same can be charged to income tax on receipt basis only under the circumstances indicated in sub-section (2), which is not the case here. The section cannot be interpreted in any other manner. In this view of the matter, in the light of the finding of fact recorded by the Commissioner of Income Tax (Appeals) and affirmed by the Tribunal that only the amount of interest on securities declared by the assessed in its revised return had become due during the previous year relevant to the assessment year in question, we are of the opinion that income from interest on securities was correctly declared by the assessed in the revised return which could be brought to tax in the relevant assessment year u/s 18 of the Act. Support is lent to this view by a decision of the Karnataka High Court in Commissioner of Income Tax Vs. Canara Bank, .

Regarding question No. 2 as noticed above, the assessor�s claim for 100% depreciation and development rebate was allowed by the Tribunal on the basis of its orders for the assessment years 1970-71 and 1971-72. Learned counsel for the Revenue submits that he has not been able to ascertain as to whether any reference on the question in respect of assessment years 1970-71 and 1971-72 was sought by the Revenue and if so, what was the final result. He is also not in a position to point out the nature of the equipment and the value of each of the items on which the assessed had claimed 100% depreciation on the plea that the value of each of these items was less than Rs. 750/-. In the absence of the requisite details, we are unable to consider and answer the second question.

Accordingly, question No. 1 is answered in the affirmative, i.e. in favor of the assessed and against the Revenue and question No. 2 is returned unanswered. No costs.