Bombay High Court
Commissioner Of Income Tax-2 vs Unknown on 30 October, 2012
Bench: J.P. Devadhar, M.S. Sanklecha
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.602 OF 2011
Commissioner of Income Tax-2,
Aayakar Bhavan, M.K.Road,
Mumbai- 400 020. ..Appellant.
v.
Upendra T. Kapadia,
Laxmi Niwas,
37, L. Jagmohandas Marg,
Mumbai-400036. ..Respondent.
Mr. Vimal Gupta, Sr. Advocate with Ms. Padma Divakar for the
Appellant.
Mr.Atul K. Jasani for the Respondent.
CORAM : J.P. DEVADHAR AND
M.S. SANKLECHA, JJ.
DATE : 30TH OCTOBER, 2012
JUDGMENT ( PER M.S. SANKLECHA, J.):
This appeal by the revenue under Section 260 A of
the Income Tax Act, 1961 ("the Act") is against the order dated
26/10/2009 passed by the Income Tax Appellate Tribunal ("the
Tribunal") relating to the assessment year 2004-05.
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2) Being aggrieved, the following questions of law have
been formulated by the appellant for the consideration by this
Court.
A) Whether on the facts and in the
circumstances of the case and in law the
Tribunal was justified in deleting the dis-
allowance of Rs.52,85,205/- made by the
Assessing Officer u/s. 43B of the Income Tax Act
being interest payable by the assessee to Shree
Mahalaxmi Mercantile Co-operative Bank
Limited even though there was no evidence
furnished by the assessee to substantiate the
claim that the assessee had made the payment
of interest before the filing of his return of
income?
B) Whether on the facts and in the
circumstances of the case and in law the
Tribunal was justified in holding that Shree
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Mahalaxmi Mercantile Co-operative Bank Ltd. is
not a scheduled bank within the meaning of
Section 43B and Section-11(5) of the Income Tax
Act even though the said Shree Mahalaxmi
Mercantile Co-operative Bank Limited is a co-
operative society which is engaged in banking
and thus the provisions of section 43B(e) will not
apply to the assessee?
3) The appeal is admitted on questions (a) and (b). At the
request of the Advocates for the appellant and the respondent the
appeal is itself taken up for final hearing.
4) The respondent-assessee is an individual engaged in
the business of trading in cotton bales. For the assessment year
2004-05, the respondent-assessee filed his return of income
declaring a loss of Rs.61.38 lacs. In his return the respondent
assessee had claimed a deduction/expense on account of interest
of Rs.52.85 lacs payable by him to Shree Mahalaxmi Mercantile
Co-operative Bank Limited on a loan taken. During the course of
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the assessment proceedings the Assessing Officer noticed that
the aforesaid amount of interest of Rs.52.85 lacs had not been
actually paid even upto the date of filing of return of income for the
assessment year 2004-05. Consequently, the Assessing Officer in
his assessment order dated 30/11/2006 disallowed the
deduction/expenses claimed by the assessee on account of
interest of Rs.52.85 lacs under Section 43B of the Act and added
it back to the income of the assessee.
5) Being aggrieved, the respondent-assessee filed an
appeal to the Commissioner of Income Tax (Appeals). By an order
dated 25/9/2008, the Commissioner of Income Tax (Appeals)
dismissed the respondent-assessee's appeal on the ground that it
is an admitted position that the interest of Rs.52.85 lacs had not
been paid to Shree Mahalaxmi Mercantile Co-operative Bank
Limited upto the date of filing of the return. In the circumstances,
on application of Section 43B of the Act the order of the
Assessing Officer dated 30/11/2006 was upheld.
6) On second appeal, the Tribunal by its order dated
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26/10/2009 held that Section 43B of the Act would not apply in
case of payment of interest to a co-operative bank for the reason
that the section is applicable only in respect of interest payable on
a loan taken from a scheduled bank. Under terms of Explanation
4(aa) to Section 43B of the Act a scheduled bank would have a
meaning assigned to it in the Explanation to clause (iii) of sub
section 5 of Section-11 of the Act. The Tribunal held that Shree
Mahalaxmi Mercantile Co-operative Bank Ltd. is not covered
within the definition of scheduled bank under Section 43B of the
Act. Thus, the appeal of the respondent-assessee was allowed.
7) Mr. Vimal Gupta, Senior Counsel appearing for the
revenue in support of the appeal submits that there is no dispute
that the amount of interest has not been actually paid by the
respondent-assessee to Shree Mahalaxmi Mercantile Co-
operative Bank Limited up to the date of filing of the return for the
assessment year 2004-05. Further, he contends that a co-
operative bank being a co-operative society would be covered
within the meaning of scheduled bank under Section-43B of the
Act read with Section 11(5) (iii) of the Act. In the circumstances
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he contends that the deduction/expenses of Rs.52.85 lacs being
the interest payable to Shree Mahalaxmi Mercantile Co-
operative Bank Limited is not allowable in view of the bar under
Section 43B of the Act. As against the above, Mr. Atul Jasani,
Advocate for the respondent-assessee submits that though there
is no dispute about the non payment of interest till the date of
filing of the return, the same is not germane to the controversy at
hand. Mr. Jasani submits that Section 43B of the Act is not
applicable to the payment of interest made to Shree Mahalaxmi
Mercantile Co-op. Bank Ltd. In support of his submission, he
relies upon an order of the Tribunal dated 26/10/2009 and states
that no substantial question of law arises and the appeal be
dismissed.
8) We may usefully reproduce the relevant portion of
Section-43B of the Act and Section 11(5)(iii) of the Act for an
appropriate adjudication of the present controversy. The relevant
portion of Section 43B of the Act reads as under:
"Certain deductions to be only on actual
payment.
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43B. Notwithstanding anything contained in
any other provision of this Act, a deduction
otherwise allowable under this Act in respect
of-
(a) ......
(b) ......
(c) ......
(d) .....or
(e) any sum payable by the assessee as
interest or any loan or advances from a
scheduled bank in accordance with the terms
and conditions of the agreement governing
such loan or advance or
(f) any sum payable by the assessee as an
employer in lieu of any leave at the credit of his
employee,
shall be allowed (irrespective of the previous
year in which the liability to pay such sum was
incurred by the assessee according to the
method of accounting regularly employed by
him) only in computing the income referred to
in section 28 of that previous year in which
such sum is actually paid by him.
Explanation 4-For the purposes of this section.-
(a) "public financial institution " shall have the
meaning assigned to it in section 4A of the
Companies Act, 1956 ( 1 of 1956);
(aa) "scheduled bank "shall have the meaning
assigned to it in the Explanation to clause (iii)
of sub-section (5) of section 11;
Section 11(5)(iii) of the Act is reproduced along
with the explanation as under:
(iii) deposit in any account with a scheduled
bank or a co-operative society engaged in
carrying on the business of banking (including
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a co-operative land mortgage bank or a co-
operative land development bank).
Explanation- In this clause, "scheduled bank"
means the State Bank of India constituted
under the State Bank of India Act, 1955 (23 of
1955), a subsidiary bank as defined in the
State Bank of India (Subsidiary Banks) Act,
1959 (38 of 1959), a corresponding new bank
constituted under section 3 of the Banking
Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (5 of 1970), or under
section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act,
1980 (40 of 1980) or any other bank being a
bank included in the Second Schedule to the
Reserve Bank of India Act, 1934 ( 2 of 1934);"
From the reading of the above sections, it is amply
clear that Section 43B of the Act is applicable only in respect of
any amount paid as interest to a scheduled bank. A scheduled
bank as defined in Explanation 4 to Section 43B of the Act would
have the same meaning as contained in the Explanation to
Section 11(5) (iii) of the Act. The Explanation to Section 11(5)(iii)
of the Act defines a scheduled bank to mean various banks
referred to therein i. e. State Bank of India, its subsidiaries,
Nationalized Banks and any bank included in the second schedule
to Reserve Bank of India Act, 1924. The Shree Mahalaxmi Co. op.
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Bank Ltd. Is not mentioned in the second schedule to the Reserve
Bank of India Act, 1934 nor covered by any other Banks
mentioned to the Explanation to Section 11(5)(iii) of the Act.
Consequently, the Tribunal was correct in its conclusion that non
payment of interest amount to a co-operative bank would not
attract the provisions of Section 43B of the Act. This is for the
reason that in terms of Explanation (4) to Section 43B of the said
Act scheduled bank would have a meaning given to it in the
Explanation to Section 11(5)(iii) of the Act. Therefore, one has to
merely look at the Explanation to Section 11(5)(iii) of the Act to
determine whether or not Shree Mahalaxmi Mercantile Co-
operative Bank limited is included within the meaning of a
Scheduled Bank. Sub Clause (iii) of sub section 5 of Section 11
speaks about the deposit of any amount in a scheduled bank or
co-operative Society engaged in banking but the same is of no
consequence. This is for the reason that for purposes of Section
43B of the Act we would be governed by the meaning given in the
explanation to Section 11(5) (iii) of the Act and not by the main
part thereof. Therefore, no fault can be found with the order of the
Tribunal dated 26/10/.2009.
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9) In view of the above clear position of law both the
questions of law (a) and (b) are answered in the affirmative i. e. in
favour of the respondent-assessee and against the appellant
-revenue.
10) Appeal is dismissed. No order as to costs.
(M.S.SANKELCHA, J.) (J.P. DEVADHAR, J.)
