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TMI Blog2024 (10) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... I 11 - SUPREME COURT] - Substantial question of law at Sl.No.1 and 4 require no further deliberation as the substantial questions of law has already been answered by this Court in the above case. Allowance of deduction of amortization loss/expenses on Government securities classified as Held to Maturity Category - Tribunal held that share listing fees is allowable as revenue expenditure and cannot be treated as capital expenditure - HELD THAT:- Hon'ble Supreme Court has answered the issues arising in Brooke Bond India Ltd. [ 1997 (2) TMI 11 - SUPREME COURT] placing reliance on its earlier decision in the case of Punjab State Industrial Development Corpn. Ltd [ 1996 (12) TMI 6 - SUPREME COURT] held though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. Deduction u/s 36(1)(vii) and 36(1)(vii)(a) - We are inclined to remit the issue back to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are concerned they are remitted back to the Assessing Officer to pass a fresh order on merits and in accordance with law. - Honourable Mr. Justice R. Suresh Kumar And Honourable Mr. Justice C. Saravanan For the Appellant : Mr. J. Narayanasamy in all T.C.As. For the Respondent : Mr. T. Suryanarayana Senior Counsel Assisted by Mr. Manasu Ananthan for M/s. King and Partridge JUDGMENT C.SARAVANAN, J. By this common order, all the Tax Appeals are being disposed of. 2. These appeals arise out of a common order dated 08.07.2011 passed by the Income Tax Appellate Tribunal Bench 'B' Chennai. 3. By the Impugned Order dated 08.07.2011, the Appellate Tribunal has allowed / dismissed the following appeals filed by the Appellant / Deputy Commissioner of Income Tax Circle 1, Kumbakonam and the Respondent / Assessee as detailed below:- Table I Appellant/Income Tax Department T.C.A.No. Connected I.T.A.No. Assessment Year Result 268 of 2015 935/Mds/2010 2002-2003 Partly Allowed 269 of 2015 770/Mds/2010 2007-2008 Dismissed 272 of 2015 937/Mds/2010 2004-2005 Dismissed 273 of 2015 939/Mds/2010 2005-2006 Dismissed 274 of 2015 940/Mds/2010 2006-2007 Dismissed Table II Respondent/Assessee I.T.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances of the case, the Tribunal was right in holding that balances lying unclaimed with the bank for more than 3 years cannot be treated as income of the assessee? 2004-2005 2006-2007 2007-2008 1. CIT vs. City Union bank (2020) 118 taxmann.com 96 (Madras) 2. CIT vs. Karnataka Vikas Grameen Bank (2017) 79 taxmann.com 359 (Kar) 3. CIT vs. Raddi Sahakara Bank Niyamitha (2017) 88 taxmann.com 560 (Kar) 4. CIT vs. Canara Bank (2020) 122 taxmann.com 86 (Kar) 5. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that depreciation is to be allowed on on account of shifting of securities from available for sales category (AFS) to held to maturity category (HTM)? 2005-2006 2006-2007 1. CIT vs. City Union Bank (2007) 291 ITR 144 (Mad) 2. United Commercial Bank vs. CIT (1999) 106 Taxman 601 (SC) 3. CIT vs. HDFC Bank Ltd. (2014) 52 taxmann.com 333 (Bombay) 6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled for the deduction with resect to the provision for depreciation on investments under the trading account even though the assessee had valued the closing stock of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Brooke Bond India Ltd. vs. Commissioner of Income Tax, [1997] 91 Taxman 26 (SC). 7. In the case of Commissioner of Income Tax vs. City Union Bank Limited , [2007] 163 Taxman 495 (Madras) following questions of law were framed:- 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the case of the assessee bank interest on securities has to be assessed only on the basis of the interest due on the half-yearly due dates and the interest accrued as at the end of the assessment year is not to be taken ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim of bad debts in relation to non-rural branches of the assessee-bank is allowable without first setting off against the provision already allowed under section 36(1)(viia) when no distinction is made between advances relating to non-rural and rural advances has been made in section 36(1)(vii)? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reduction of Rs. 47,38,984 claimed by the assessee-bank as diminution in the value of investments is allowable w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Legislature in enacting the proviso to clause (vii) of section 36(1) and clause (v) of section 36(2) simultaneously is only to see that a double benefit in respect of the same bad debt is not given to a scheduled bank. A scheduled bank may have both urban and rural branches and advances given from both branches. Having regard to the hazards involved in realising the advances made by rural branches particularly to agriculturists, certainly the assessee-bank might prefer to make provision for bad debt in respect of advances made in the rural branches. As a result of the amendment the scheduled bank will be entitled to the deduction of the entire bad debt relating to advances made by the urban branches written off in the books and also the difference between the amount written off in the books relating to advances made by the rural branches during the previous year relevant to the assessment year and the credit balance in the provisions for bad and doubtful debts account relating to advances made by the rural branches made under clause (viia). If the bad debt written off relates to debts other than for which provision is made under clause (viia) such debt will fall squarely und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital incidentally that would certainly help in the business of the company and may also help in profit making, it still retains the character of a capital expenditure, since the expenditure was directly related to the expansion of the capital base of the company. We are, therefore, of the opinion that the view taken by the different High Courts in favour of the Revenue in this behalf is the preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram s case 11. Operative portion of the Order of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. vs. Commissioner of Income Tax, [1997] 91 Taxman 26 (SC) reads as under:- 6. Dr. Pal has, however, submitted that this decision does not cover a case, like the present case, where the object of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (vii)(a) to Section 36. Proviso to Section 36(1)(vii) relates to cases covered under Section 36(1)(vii)(a) and has to be read with Section 36(2)(v) of the Act. 15. The Hon'ble Supreme Court in the case of Catholic Syrian Bank Limited vs. Commissioner of Income-tax [2012] 18 taxmann.com 282 (SC) has brought out the difference between two Sections and has observed as under:- Income Tax Act, 1961 Section 36 (1) (vii) Section 36(1)(vii)(a) Section 36 (1) (vii) deals with general deductions available to a bank and even non-banking business upon their showing that an account had become bad and written off as irrecoverable in the accounts of the assessee for the previous year, satisfying the requirements contemplated in that behalf under Section 36(2). The provisions of Section 36(1)(vii) operate in their own field and are not restricted by the limitations of Section 36(1)(viia) of the Act. While the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd/or loss on the basis of market value of securities and shares? It has been pointed out that the balance sheet or the audited accounts maintained on the basis of the investment in shares at cost would not disclose the real profit or loss of the bank in view of the fact that depreciation in the value of the shares or fall in the market value of the shares and securities is not provided in the audited accounts. The learned counsel for the appellant submitted that even though in the balance sheet maintained by the assessee, market price of the shares and securities is not mentioned, yet for determining the real income of the assessee-bank, the said price is required to be taken into account. And, for that purpose since years, the assessee-bank was submitting income-tax returns after taking into account the market price of such shares and securities which has been accepted by the department without any objection. He also submitted that not making of proper entries in the balance sheet could hardly be a ground for not assessing the real income. 13. In the background of the aforesaid facts, we would state that it is an established rule of commercial practice and accountancy that closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless, of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's in a business that is continuing are not brought into the charge as a matter of practice, though as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realised. As truly observed by one of the learned Judges in Whimster Co. v. Commissioner of Inland Revenue [1926] 12 Tax Cas. 813,827. Under this law (Revenue law) the profits are the profits realised in the course of the year. What seems an exception is recognised where a trader purchased and still holds goods or stocks which have fallen in value. No loss has been realised. Loss may not occur. Nevertheless, at the close of the year he is permitted to treat these goods or stocks as of their market value. [Emphasis supplied] (p. 486) 17. Even applying the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X
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