2012 (11) TMI 722 - HC - Income Tax

Deletion of Disallowance of Interest u/s 43B - payment of interest to a cooperative bank held that - Sec 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. Shree Mahalaxmi Mercantile Cooperative Bank limited is not 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 - Therefore, no fault can be found with the order of the Tribunal dated 26/10/.2009 - in favour of respondent- assessee and against appellant-revenue.

Summary

Issues:
1) Interpretation of Section 43B of the Income Tax Act regarding the disallowance of interest payable to a cooperative bank.
2) Determination of whether a cooperative bank falls under the definition of a scheduled bank as per Section 43B and Section 11(5) of the Income Tax Act.

Issue 1:
The appeal by the revenue under Section 260 A of the Income Tax Act, 1961 challenges the order of the Income Tax Appellate Tribunal regarding the disallowance of Rs.52,85,205/- interest payable by the assessee to a cooperative bank under Section 43B. The Assessing Officer disallowed the deduction claimed by the assessee as the interest had not been paid by the filing of the income tax return for the assessment year 2004-05. The Commissioner of Income Tax (Appeals) upheld the disallowance under Section 43B. However, the Tribunal held that Section 43B does not apply to interest payment to a cooperative bank, as it is only applicable to scheduled banks. The Tribunal allowed the appeal of the assessee based on this interpretation.

Issue 2:
The crucial aspect of the case revolves around the interpretation of Section 43B and Section 11(5)(iii) of the Income Tax Act to determine whether a cooperative bank qualifies as a scheduled bank for the purposes of interest payment disallowance. Section 43B mandates deductions only on actual payment, specifically mentioning interest payable to a scheduled bank. The Explanation to Section 11(5)(iii) defines a scheduled bank to include specific types of banks, none of which encompass a cooperative bank. The Tribunal correctly concluded that the cooperative bank in question does not fall under the definition of a scheduled bank, thereby exempting the interest payment from the provisions of Section 43B. The reliance on the Explanation to Section 11(5)(iii) is pivotal in determining the applicability of Section 43B, and the Tribunal's decision aligns with the statutory provisions.

In summary, the High Court of Bombay upheld the Tribunal's decision, emphasizing that Section 43B of the Income Tax Act applies only to interest payments to scheduled banks, as defined in Section 11(5)(iii). The judgment clarifies that a cooperative bank does not meet the criteria of a scheduled bank as per the statutory definitions, thereby excluding it from the ambit of Section 43B. The court's detailed analysis underscores the importance of statutory interpretation in tax matters, ultimately ruling in favor of the respondent-assessee and dismissing the revenue's appeal.