The State Bank Of Hyderabd vs The Joint Commissioner Of Income ...
2023 Latest Caselaw 33 Tel

         THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
                                            AND
                THE HON'BLE SRI JUSTICE N.TUKARAMJI
                                I.T.T.A.No.131 of 2004
JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)

        Heard Mr. Karthik Ramana Puttamreddy, learned counsel

for the appellant and Mr. J.V.Prasad, learned Standing Counsel,

Income Tax Department representing the respondent.

2. This appeal has been filed by the assessee i.e., State Bank

of India (as amended vide the court order dated 02.01.2018 in

ITTAMP.No.784 of 2017) under Section 260A of the Income

Tax Act, 1961 (briefly 'the Act' hereinafter) against the order

dated 25.06.2004 passed by the Income Tax Appellate Tribunal,

Hyderabad Bench 'B', Hyderabad (Tribunal) in

I.T.A.No.225/Hyd/1999 for the assessment year 1994-95.

3. We may mention that the appeal was admitted

on 17.09.2012 on the following substantial questions of law:

(i) Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that under the provisions of Section 145 of the Act (as it stood at the relevant time), ::2::

income from interest on securities should necessarily be computed on accrual basis and not on due basis for this particular assessment year 1994-95 ?

(ii) Whether on the facts and in the circumstances of this case, the Tribunal is justified in ignoring the letter dated 02.01.1995 addressed by the Central Board of Direct Taxes to the Chief Commissioner of Income Tax, Bangalore, in respect of the assessment of Canara Bank, while deciding the present appeal of State Bank of Hyderabad ?

(iii) Whether on the facts and in the circumstances of this case, the Tribunal is justified in relying on the earlier decision of the Supreme Court of State Bank of Travancore v. CIT, 1996-158-ITR-102 (SC) overlooking the later decisions in the cases of UCO Bank v. CIT, 1999-237-ITR-889 (SC) and United Commercial Bank v. CIT, 1999-240-ItR-355 (SC) ?

(iv) Whether on the facts and in the circumstances of this case, the Tribunal is justified in relying on its own earlier judgment in the case of Global Trust Bank Ltd. v. DCIT, in ITA.No.236/Hyd/1998 dated 31.03.2004, in preference to the judgments rendered by the Supreme Court in UCO Bank v. CIT, 1999-237-ITR-889 (SC) and by the Karnataka High Court in CIT v. Canara Bank, 1992-195-ITR-66 (Karn) ?

4. Basic issue as is discernable from the substantial questions

of law formulated above is whether income from interest on

securities should be computed on accrual basis or on due basis.

::3::

5. From the material papers, we find that an amount of

Rs.177,46,55,613.41 was credited by the appellant to the profit

and loss account as interest earned on securities on due basis.

Assessing officer in the order of assessment dated 07.02.1997

held that such interest income is liable to be taxed on accrual

basis.

6. Against the aforesaid order of the assessing officer

dated 07.02.1997, appellant preferred appeal before

Commissioner of Income Tax (Appeals) (for short 'CIT(A)'

hereinafter). Order of the assessing officer dated 07.02.1997 was

upheld by CIT(A) vide the order dated 11.01.1999. Thereafter,

appellant preferred further appeal before the Tribunal. Tribunal

vide the order dated 25.06.2004 held that interest had accrued on

day-to-day basis and therefore has to be taxed on accrual basis

only.

7. Issue raised in this appeal has been gone into by the

Bombay High Court in Director of Income Tax ::4::

(International Taxation) v. M/s. Credit Suisse First Boston

(Cyprus) Limited1. Bombay High Court has held as follows:

"The appellant's submission is entirely unfounded and is based on the erroneous premise that the amount received upon the sale of a security in excess of the face value thereof includes the interest for the proportionate period upto the date of the sale. The erroneous presumption is that interest accrues de die in diem even when the agreement between the parties stipulates interest to be payable only on a specified date. If the appellant's argument is well founded, it makes no difference as to the broken period for which interest is deemed to have accrued. If, on the other hand and as we have held, it is not well founded, the interest cannot be said to have accrued for any part of the broken period. In other words, interest can be said to have accrued only on the date on which it was due as per the terms and conditions of the security.

When an instrument or an agreement stipulates interest to be payable at a specified date, interest does not accrue to the holder thereof on any date

(2013) 351 ITR 323 ::5::

prior thereto. Interest would accrue or arise only on the date specified in the instrument. That a creditor has a vested right to receive interest on a stated date in future does not constitute an accrual of the interest to him on any prior date. Where an instrument provides for the payment of interest only on a particular date, an action filed prior to such date would be dismissed as premature and not disclosing a cause of action. Subject to a contract to the contrary, a debtor is not bound to pay interest on a date earlier to the one stipulated in the agreement/instrument. In the present case, it is admitted that interest was not payable on any date other than that mentioned in the security. The assignee or purchaser of such a security does not stand on a different footing. He has, by virtue of the assignment or purchase, the right vested in him to receive the interest but only on the terms of the security and subject to all the incidents thereof as were applicable to the original owner.

8. Thus, it has been held that interest can be said to have

accrued only on the date on which it was due as per the terms

and conditions of the security. When an instrument or an

agreement stipulates interest to be payable at specified date, ::6::

interest does not accrue to the holder thereof on any date prior

thereto. Interest would accrue or arise only on the date specified

in the instrument. This decision of the Bombay High Court was

followed by the same High Court in Commissioner of Income

Tax v. State Bank of India2. One of the substantial questions

of law which was considered by the Bombay High Court was

whether Tribunal was right in law in accepting the plea of the

assessee that the interest income of Rs.38.24 crores on the

securities had to be taxed on due basis only instead of accrual

basis as per the mercantile system of accounting followed by the

assessee. Insofar this question is concerned, Bombay High

Court referred to its previous decision in Credit Suisse First

Boston (Cyprus) Limited (1 supra) and held that issue stands

concluded against the revenue and in favour of the assessee.

9. Learned counsel for the appellant submits that against the

aforesaid decision of the Bombay High Court in State Bank of

India (2 supra), revenue preferred SLP(C).No.24250 of 2017,

2016 SCC Online Bombay 9749 ::7::

which was subsequently registered as Civil Appeal No.4357 of

2018. The said appeal was heard and decided by the Supreme

Court along with other civil appeals which have since been

reported in Deputy Commissioner of Income Tax v.

T.Jayachandran3.

10. Learned counsel for the appellant fairly submits that

though in the body of the judgment there is no discussion on the

issue as to the finding of the Bombay High Court that the

interest income on securities has to be taxed on due basis,

nonetheless, by the aforesaid decision, the appeals preferred by

the revenue were dismissed.

11. Be that as it may, we concur with the view expressed by

the Bombay High Court in M/s. Credit Suisse First Boston

(Cyprus) Ltd (1 supra) followed by the decision in State Bank

of India (2 supra).

(2018) 6 SCC 189 ::8::

12. Consequently, the substantial questions of law are

answered in favour of the assessee and against the revenue.

13. Appeal is accordingly allowed. No costs.

As a sequel, miscellaneous petitions, pending if any, stand

closed.

__________________ UJJAL BHUYAN, CJ

_______________ N.TUKARAMJI, J Date: 04.01.2023 LUR