Madras High Court
M/S.The Karur Vysya Bank Ltd vs The Commissioner Of Income-Tax on 7 September, 2021
T.C.A.Nos.704 to 711 of 2013
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 07.09.2021
CORAM :
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP
T.C.A.Nos.704 to 711 of 2013
M/s.The Karur Vysya Bank Ltd.,
Karur. ... Appellant
in all appeals
Vs.
The Commissioner of Income-Tax,
Trichy. ... Respondent
in all appeals
Tax Case Appeals in T.C.A.Nos.704 to 709 of 2013 preferred under
Section 260A of the Income Tax Act, 1961, against the order of the Income
Tax Appellate Tribunal, Madras, “A” Bench, dated 17.01.2013 in
I.T.A.Nos.902/Mds/2010, 903/Mds2010, 904/Mds/2010, 907/Mds/2010,
930/Mds/2011 and 931/Mds/2011, for the Assessment Years 1999-2000,
2000-01, 2001-02, 2005-06, 2004-05 and 2006-07, respectively.
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T.C.A.Nos.704 to 711 of 2013
Tax Case Appeals in T.C.A.Nos.710 and 711 of 2013 preferred under
Section 260A of the Income Tax Act, 1961, against the order of the Income
Tax Appellate Tribunal, Madras, “A” Bench, dated 30.01.2013 in
I.T.A.Nos.905/Mds/2010 and 906/Mds/2010 respectively for the Assessment
Year 2002-03.
For Appellant : Mr.R.Vijayaraghavan
for M/s.Subbaraya Aiyar Padmanabhan
in all appeals
For Respondent : Mr.M.Swaminathan
Senior Standing Counsel
and Ms.V. Pushpa
Standing Counsel
in all appeals
COMMON JUDGMENT
(Judgment was delivered by T.S. SIVAGNANAM, J.)
These Tax Case Appeals have been filed by the assessee, M/s.Karur
Vysya Bank Limited, Karur, under Section 260A of the Income Tax Act,
1961 (“the Act” for brevity), challenging the order passed by the Income Tax
Appellate Tribunal, Madras “A” Bench, in I.T.A.Nos.902, 903, 904, 907,
930 and 931/Mds/2011 for the Assessment Years 1999-2000, 2000-01,
2001-02, 2005-06, 2004-05 and 2006-07, respectively, and I.T.A.Nos.905 &
906/Mds/2010 for the Assessment Year 2002-03.
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2.Though the Tax Case Appeals were admitted on 17.04.2014 to
decide nine substantial questions of law, with the consent of the learned
counsel on either side, the questions are re-framed as hereunder :
“1.Whether on the facts and in the circumstances of the
case, the Tribunal was justified in confirming the disallowance
of 2% estimated expenses on exempted income, in the absence
of a finding as to the incurring of expenditure?
2.Whether on the facts and in the circumstances of the
case, the Tribunal was justified in law in confirming the
disallowance of software expenses as being relatable to
capital filed?
3.Whether on the facts and in the circumstances of the
case, the Tribunal was justified in law in disallowing the
payment made to Registrar of Companies for increasing the
authorised capital?
4.Whether on the facts and in the circumstances of the
case, the Tribunal was justified in law in confirming the
disallowance of Rs.3,51,55,372/- being arrears of wages on
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account of upward pay decision as per MOU signed on
11.03.1999?
5.Whether on the facts and in the circumstances of the
case, the Tribunal was justified in law in confirming the
disallowance of Rs.4,13,43,888/- being ex-gratia paid to
employees?
6.Whether on the facts and in the circumstances of the
case, the Tribunal was justified in upholding the reassessment
u/s.147?”
3.Insofar as the substantial question of law No.1 is concerned, it arises
for consideration in all appeals except T.C.A.Nos.706 of 2013 and 711 of
2013, relating to Assessment Years 2001-02 and 2002-03 respectively.
4.So far as the 2nd substantial question of law is concerned, it arises for
consideration only in three appeals, namely, T.C.A.Nos.704 of 2013, 705 of
2013 and 706 of 2013.
5.With regard to the 3rd substantial question of law, it arises for
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consideration in two appeals, namely, T.C.A.Nos.704 of 2013 and 711 of
2013.
6.The 4th substantial question of law, which pertains to disallowance of
arrears of wages, arises for consideration only in one of the appeals, namely,
T.C.A.No.704 of 2013 for the Assessment Year 1999-2000.
7.The 5th substantial question of law arises for consideration only in
one of the appeals, namely, T.C.A.No.709 of 2013 for the Assessment Year
2006-07.
8.The 6th substantial question of law, which pertains to reopening of
assessment under Section 147 of the Act, arises for consideration only in one
of the appeals, namely, T.C.A.No.710 of 2013 for the Assessment Year
2002-03.
9.Heard Mr.R.Vijayaraghavan, learned counsel appearing for
M/s.Subbaraya Aiyar Padmanabhan, learned counsel for the
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appellant/assessee and Mr.M.Swaminathan, learned Senior Standing Counsel
and Ms.V.Pushpa, learned Standing Counsel, appearing for the
respondent/Revenue.
10.Since few of the substantial questions of law, which have been
framed for consideration, are covered by certain decisions, we shall first
dispose of the same, for which purpose, we need not be required to
elaborately deal with the factual situation.
11.The 2nd substantial question of law, which has been framed for
consideration, is as to whether the order of the Tribunal was correct in
confirming the disallowance of software expenses as being relatable to capital
fee. This issue has been squarely covered by the decision of the Division
Bench of this Court in the case of Commissioner of Income Tax v. Southern
Railways Ltd. reported in (2006) 282 ITR 379 (Mad), wherein, the question
was answered in favour of the assessee, which was also taken note of in the
case of Commissioner of Income Tax, Trichy v. The Lakshmi Vilas Bank
Ltd. [T.C.A.Nos.210 and 211 of 2018, dated 24.07.2018]. Thus, the
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substantial question of law No.2 is answered in favour of the
appellant/assessee.
12.Insofar as the substantial question of law No.3 is concerned, the
Tribunal followed the decision of the Hon'ble Supreme Court in the case of
Punjab State Industrial Development Corporation Ltd. v. Commissioner
of Income Tax reported in (1997) 225 ITR 792 (SC). We find no error in
the said decision of the Tribunal. Hence, the 3 rd substantial question of law is
answered against the appellant/assessee.
13.With regard to the 4th substantial question of law, which relates to
disallowance of arrears of wages, which arises for consideration only for one
Assessment Year, namely, AY 1999-2000, the said question is covered by the
decision of the Division Bench of this Court in the case of Commissioner of
Income Tax, Chennai-I v. M/s.Kasturi and Sons Ltd. [T.C.No.958 of 2008,
dated 28.08.2018] and was answered in favour of the assessee. Following
the same, the substantial question of law No.4 is answered in favour of the
appellant/assessee.
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14.The 5th substantial question of law, which pertains to disallowance
of ex-gratia payment, has been decided in favour of the assessee in the
assessee's own case in Commissioner of Income Tax, Chennai v. The
Karur Vysya Bank Ltd., Karur [T.C.A.No.611 of 2014, dated 05.08.2021].
Following the same, the 5th substantial question of law is answered in favour
of the appellant/assessee.
15.Now reverting back to the substantial question of law No.1, which
pertains to disallowance of estimated expenses, the assessee is a Banking
Company and it has got interest free funds, which have been invested. The
assessee's case was that, it did not incur any collection charges and the
amounts were invested out of circulating capital. The Assessing Officer did
not agree with the said submission and referred to the addition made in the
earlier years and as against those additions, the Commissioner of Income Tax
(Appeals), Tiruchirapalli (“CIT(A)” for brevity) had deleted the additions and
the Revenue has challenged the order before the Tribunal and the issue is
pending. Therefore, the Assessing Officer chose to disallow the proportionate
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expenses. The assessee filed an appeal reiterating the earlier stand that the
assessee Bank did not incur any expenditure to get the tax free income and
the assessee Bank, at no point of time, had borrowed money for being
invested in tax free securities and therefore, requested the Commissioner to
delete the addition. The CIT(A) directed the Assessing Officer to restrict the
disallowance to 2% only on tax free bond, which in the opinion of the
CIT(A), was a reasonable disallowance. This finding was questioned by the
assessee before the Tribunal and the Tribunal found 2% to be a reasonable
sum.
16.The assessee is on appeal before us questioning the same, by
referring to the decision of the Hon'ble Supreme Court in the case of Maxopp
Investment Ltd. v. Commissioner of Income Tax reported in (2018) 402
ITR 640 (SC), the decision of the Hon'ble Supreme Court in the case of
Commissioner of Income Tax v. State Bank of Patiala reported in (2018)
102 CHH 289 ISCC and the decision of the High Court of Delhi in the case
of Principal Commissioner of Income Tax-7 v. M/s.Punjab and Sind Bank
[I.T.A.Nos.904 and 906 of 2019, dated 16.10.2019].
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17.The argument of the learned counsel for the assessee is that the
recent decision of the High Court of Delhi had taken note of the decision of
the Hon'ble Supreme Court in Maxopp Investment Ltd. and decided the
matter concerning a Banking company and the said decision would squarely
apply to the assessee's case, which is also a Banking company and the
question of disallowance of an adhoc amount of 2% would not be
sustainable.
18.The learned Senior Standing Counsel appearing for the Revenue
strenuously contended that the submission made by the assessee before this
Court is a submission made for the first time, not supported by any facts. In
the assessee's own case in the earlier year, the Tribunal took note of the
decision of this Court in the case of M/s.Simpson & Co. Ltd. v. The Deputy
Commissioner of Income Tax, Company Circle-VI, Chennai [T.C.No.2621
of 2006, dated 15.10.2012] and confirmed the order passed by the CIT(A),
and no interference is called for and prayed that the question may be
answered against the assessee.
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19.As rightly pointed out by the learned Senior Standing Counsel for
the respondent/Revenue, the decisions relied on by the learned counsel for the
appellant/assessee were not available when the Tribunal decided the matter,
because, those decisions were rendered during the year 2018-19. In any
event, the legal question requires to be considered. However, we find that,
though the assessee specifically took a stand that they did not incur any
expense to get the tax free income and assessee Bank has got more interest
free funds for investing in the tax free income, the CIT(A) did not examine
the said aspect, but merely directed the Assessing Officer to restrict the
disallowance in this regard to 2% only on tax free bonds, finding the same to
be reasonable. Had the CIT(A) adjudicated the correctness of the stand taken
by the assessee and rendered a finding, the Tribunal could have tested the
correctness of the same. Further, there has been development in law. We do
not propose to deny the benefit of the assessee to place reliance on those
decisions and put forth their submissions and for such purpose alone, we are
inclined to remand the matter back to the Tribunal for fresh consideration.
The substantial question of law No.1 is left open for fresh consideration by
the Tribunal.
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20.Insofar as the substantial question of law No.6 is concerned, which
arises for consideration in T.C.A.No.710 of 2013, pertaining to the
Assessment Year 2002-03, with regard to reopening of the assessment, the
learned counsel for the appellant/assessee has filed a memo not pressing the
said issue. The said memo is placed on record and the substantial question of
law No.6 is left open.
21.In the result, these Tax Case Appeals are disposed of and the
substantial questions of law, which arise for consideration in these appeals,
are answered as follows :
➢ The 1st substantial question of law is left open for fresh consideration
by the Tribunal. The matter is remanded back to the Tribunal for fresh
consideration insofar as the 1st substantial question of law is concerned.
➢ The 2nd substantial question of law is answered in favour of the
assessee.
➢ The 3rd substantial question of law is answered in favour of the
Revenue.
➢ The 4th substantial question of law is answered in favour of the
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assessee.
➢ The 5th substantial question of law is answered in favour of the
assessee.
➢ The 6th substantial question of law is left open, as not pressed by the
appellant/assessee.
No costs.
(T.S.S., J.) (S.S.K., J.)
07.09.2021
mkn
Internet : Yes
Index : Yes / No
T.S. SIVAGNANAM, J.
and
SATHI KUMAR SUKUMARA KURUP, J.
mkn
To
1.The Income Tax Appellate Tribunal,
“A” Bench, Chennai.
2.The Commissioner of Income Tax,
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Trichy.
T.C.A.Nos.704 to 711 of 2013
07.09.2021
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