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TMI Blog1997 (7) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... arned D.R. has submitted that the issue relating to allowability of interest on securities for the broken period in view of the binding nature of the Supreme Court decision over the Board';s circular; is covered in Revenue';s favour as per the decision of the Supreme Court in the case of Vijaya Bank Ltd. v. CIT (1991) 187 ITR 541/ 57 Taxman 152in which the interest paid for broken period has been held to be not allowable as revenue expenditure. The learned D.R. has further submitted that as far as the Board';s circular is concerned it is in the nature of clarification and the same having been withdrawn only as a result of the decision of the Hon';ble Supreme Court in the case of Vijaya Bank Ltd. (supra), the assessee is not entitled to the benefits available under that circular. The assessee';s counsel on the other hand has submitted that in view of the Board';s Circular No. 599, dated 24-3-1991, which was issued after the Supreme Court decision the assessee is entitled to the deduction of the interest as revenue expenditure. Accordingly to him, the circular is applicable always retrospectively, however, its withdrawal is prospective and not retrospective. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-79, 1979-80, 1981-82, 1983-84 and 1982-83, have been rejected by the Tribunal, vide its orders listed in para 4 hereinabove. For the detailed reasons given in those orders, Department';s ground for this year is also rejected. 15. Reference to the aforesaid order has been made only to find out as to whether the decision of the Hon';ble Supreme Court in the case of Vijaya Bank Ltd. (supra) was ever considered or not but none of the order suggests that it was ever considered. However, we will decide the issue on the basis of both the possibilities. 16. (A) (i) In case the Supreme Court decision was not referred to or considered by the Tribunal then there is no question of following the Tribunal';s order and (ii) presuming that the Supreme Court decision referred to by the D.R. in the case of Vijaya Bank Ltd. (supra) was referred and considered by the Tribunal then on the basis of this assumption as well as the fact that the Supreme Court decision has been considered by the Tribunal in the case of Bank of America (supra) for asst. year 1984-85 decided on 29-4-1992, we are of the considered opinion that none of the Tribunal';s decisions are liable to be followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that question before us is not as to whether a circular can be withdrawn retrospectively or prospectively. Neither there is the question before us regarding the binding nature of the circular on the Income-tax authorities, because, it is settled law that a benevolent circular is binding on the income-tax authorities but not on the Tribunal and Courts and also the proposition that it cannot be withdrawn retrospectively. 20. The question before us is of the precedent value i.e., when on one side there is a decision of the Hon';ble Supreme Court laying down a legal proposition and on the other side there is a Board';s circular, issued after the completion of the assessment and the decision of the CIT(Appeals) but is withdrawn before the issue comes up before the Tribunal and the withdrawal is on the basis of that very decision of the Supreme Court itself; then which of the two has precedent value i.e., whether the Tribunal should follow the Supreme Court order or should follow the Board';s circular since withdrawn. 21. It is well settled that though the effect of Supreme Court decision by virtue of Article 141 of the Constitution is that the Supreme Court dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court, no doubt, in the case reported in 187 ITR 541has taken a contrary view, but in view of the beneficial Circular No. 599, dated 24-4-1991, the claim of the assessee cannot be resisted. The circular has a retrospective operation is a matter which is not in serious doubt and in this connection reference can be made to the decisions relied upon by the assessee. It is also well settled, especially in the light of the decision of the Supreme Court reported in 158 ITR 102, that beneficial circulars could be withdrawn only prospectively. Thus, the position of the assessee is quite secured during the period the circular was in operation. We also do not accept the argument of the learned D.R. that the decision of the Supreme Court reported in 177 ITR 193has given a decent burial to the proposition that a circular which deviates from the written test of law has to be ignored. As rightly contended by the assessee, the reference to the Board';s circular is only a casual one. The relevant observations could be seen at page 197 of 177 ITR and for the sake of convenience they are reproduced below : ';We have carefully considered the matter and we do not think that the circulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19, 20 and 37 of the Income-tax Act, 1961 : - (a)Rs. 58,568, interest accrued on securities taken over by the assessee bank from Jayalakshmi Bank Ltd.; and (b)Rs. 11,630, interest accrued upto the date of purchase in the case of securities purchased by the assessee bank from the open market. The Assessing Officer declined to grant the deduction. The Tribunal accepted the assessee';s claim. On a reference at the instance of the Revenue, it was contended on behalf of the assessee that the amount paid for the expectation of interest must be treated as expenditure falling within the scope of section 19(1) of the Act and the same was, therefore, liable to be treated as an expenditure incurred for the purpose of realisation of interest which ultimately came to be paid to the assessee on the due date. The Hon';ble High Court of Karnataka in the case of Addl. CIT v. Vijaya Bank Ltd. 1976 Tax LR 524 did not agree with such contention. The observation in this regard by the Hon';ble High Court reads as under : - On the plain language of section 19(1), it is seen that the word ';realising';, in the context in which it appears, means nothing more than ';co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Case 314, which has been referred to in B.D. Sassoon';s case. That was a case where a cherry orchard was purchased with the current crop. The assessee had valued the fruits separately for the purpose of such purchase. The realisations from the sale of cherries were brought into the profit and loss account as a trading receipt. It was contended by him that he was entitled to deduct the cost of such cherries as separately assessed by him at the time of purchase of the orchard, from out of the receipts from their sale. This contention was negatived and it was observed by Jenkins L.J., at page 332, thus : ';It is a well-settled principle that outlay on the purchase of an income-bearing asset is in the nature of capital outlay, and no part of the capital so laid out can, for income-tax purposes, be set off as expenditure against income accruing from the asset in question.'; In the light of this, the High Court reversed the order of the Tribunal. The Supreme Court has affirmed the decision of the Karnataka High Court. Therefore, the issue would have been decided by us in the above manner in the light of the Supreme Court decision. Our decision would have to be in no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt decision cited supra. The language of Circular No. 610 makes it clear that circular No. 599 did not have the benefit of going through the Supreme Court decision in the matter. In the light of this clear background, we have to examine the effect of such a circular. Under the provisions of section 119 of the Income-tax Act, 1961, the Board is entitled to issue orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of the Act. In our opinion, the present circular is in the nature of a clarification and what the Board thinks to be the law on the subject. The CIT v. Central Bank of India Ltd. (1990) 88 CTR (Bom.) (FB) 94, the Bombay High Court held that the contents of a circular explaining the provisions of an Act or Bill cannot be treated as an order, instruction or direction within the meaning of this section. It has also been now admitted that the Board is not entitled to issue any circulars overriding, modifying or, in effect, amending the provisions of the Act. It has also been observed by the Karnataka High Court in Citizen Watch Co. Ltd. v. IAC (1984) 148 ITR 774/(1983) 15 Taxman 438and also by the Calcutta High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us, Circular No. 599 was neither existing at the time when the Assessing Officer framed the impugned assessments nor was allowed to remain in operation for a considerable period. The said circular is withdrawn as soon as the Board realised that such clarification issued by it was contrary to the principle laid down by the Supreme Court and the Board has rightly withdrawn the circular within about three months from the date of first issue of the circular. The circular issued by the Board is in the nature of clarification or, at best the departmental view on the subject, which is not binding on the Courts. We, therefore, are of the opinion that the decision of the Supreme Court in the case of Vijaya Bank Ltd. (supra) settles the law of the land on the issue and puts to rest all conflicts in this regard. In our considered opinion, in spite of the circular the law laid down by the Supreme Court has to prevail in deciding the issue in dispute. 26. (i) Our aforesaid view is supported by yet another proposition relating to the effect of the decision of the Supreme Court. The Hon';ble Madras High Court in the case of K.S. Gopalaswami Iyer v. Sales Tax Appellate Tribunal (1965) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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