State Bank of Saurashtra Vs. Deputy Commissioner of Income Tax - Court Judgment

Excerpt:
as all these five appeals filed by the assessee relating to four consecutive assessment years running from asst. yrs. 1987-88, mostly consist of similar issues, the same were heard together and are being disposed of by this consolidated order for the sake of convenience.2. let us first take up the three appeals namely ita nos. 3557 to 3559/ahd/ 1991 pertaining to asst. yrs. 1988-89 to 1990-91.3. the assessee is state bank of saurashtra, bhavnagar, a public sector bank. there are two common grounds of appeal relating to these three assessment years.4. the first common ground of appeal pertains to the allowability of deduction under s. 32ab of the it act, 1961, in respect of investment deposits as claimed by the assessee bank in relevant assessment years.5. the assessee bank has claimed deduction under s. 32ab i.e., on account of investment deposit in respect of these three assessment years : in support of the claim, the assessee had also filed tax audit report in form no. 3aa of the it rules along with return of income. in all these three assessment years under consideration the assessee-bank had deposited the amounts corresponding to the percentage specified in the s. 32ab of the act, with idbi, ahmedabad in its investments account no.2607. however, the ao rejected the claim of the assessee in all the three assessment years on the plea that the underlying idea of the said s. 32ab was to provide alternative relief to the industrial undertaking engaged in manufacture or processing of goods or articles and the bank is not having any industrial undertaking such as plant and machinery for carrying on such activities of manufacture or processing of goods.aggrieved by this the assessee bank moved on before the cit(a) with its grievance who also rejected the claim of the assessee and upheld the order of the ao on this issue, now on second appeal the assessee has brought the matter for our adjudication.6. the learned counsel for the assessee, shri d.a. mehta had placed on record two detailed paper-books consisting of the relevant materials placed before the lower authorities. the contention of the learned counsel are as follows: (1) the bank is eligible for claim under s. 32ab(2) of the act, which is beyond doubt. h this connection he drew our attention to eligible business or profession appearing in s. 32ab(2) of the act).(2) the reasoning of the ao is illogical and inconsistent (in this connection attention was drawn to s. 32ab(2)(i)(a) and (b).(3) the assessee-bank was described as carrying on eligible business or profession by the team of central auditors appointed by the reserve bank of india in their reports in form no. 3aa under s. 32ab(5) for all these years concerned.(4) the assessee bank was not covered by the excluded category of business specified in s. 32ab(2).(5) the learned cit(a) had not shown any valid, cogent or tenable ground for upholding such rejection.(6) the learned citw's order suffers from lack of application of mind to the submissions made before the ao and himself, which have been similarly rejected without passing a speaking order thereon.(7) if sustained, the rejection of the assessee's claim, would defeat the very object of enacting the provisions of s. 32ab brought on the statute book to provide alternative relief to deduction under s. 32a in the form of investment allowance.(8) as per the clear and unambiguous language of the provisions of s.32ab, the assessee bank was eligible for deduction under the same section.7. the learned counsel for the assessee had also enclosed to the paper-book (a) letter from state bank of saurashtra addressed to the general manager (i&f), state bank of mysore/hyderabad/patiala/travancore/bikaner & jaipurl& bangalore, calling for the position as to the claim under s. 32ab of the it act of the respective banks, (b) a copy of letter received from state bank of travancore, intimating that their claim under s. 32ab had been allowed in all their completed assessments.(c) copy of letter from state bank of bikaner & jaipur intimating that similar claim under s. 32ab have been allowed in their assessments.(d) copy of letter received from state bank of patiala intimating that claim under s. 32ab have been allowed in their assessments.8. on the other hand, the learned departmental representative shri pavan ved contended that the assessee- company was a banking company and its objective was not business. he strongly relied on the orders of the lower authorities and contended that there was no manufacturing activity and the assessee-bank was not an industrial undertaking.9. we have head the rival submissions and perused the materials before us including the detailed paper-books submitted by the learned counsel for the assessee. the crucial point to resolve the issue under consideration is to understand clearly the phrase 'eligible business or profession;. sub-s. (2) of s. 32ab reads as follows: (i) eligible business or profession shall mean business or profession, other than : (a) the business of construction, manufacture or production of articles or thing, specified in the list of eleventh schedule carried on by an industrial undertaking, which is not a small scale undertaking as defined in s. 80hha.1 (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small scale industrial undertaking other than as defined in s. 8011ha, engaged in the business of construction, manufacture or production of any article or thing specified in the list in eleventh schedule.a plain reading of the section as extracted above, in our opinion, clearly shows that the banking business is not barred from the claim of the said allowance, in this connection we would like to refer to circular no. 461 dt. 9th july, 1986 issued by the cbdt reported in (1986) 56 ctr (st.) 1 : (1986) 161 itr 17 (st). relevant portion as appearing in para no. 17.3 of the said circular is extracted below: "the new scheme differs from the existing provisions of investment allowance as under : 1. the existing provisions of the investment allowance apply to only those assessees : (i) who purchases a ship or aircraft, which is first put to use in the business of the assessee; or (ii) who install new machinery or plant in an industrial undertaking for the purposes only of business of construction, manufacture or production of any article or thing not specified in the eleventh schedule to the it act.in the case of small scale industrial undertaking, this benefit is not denied even if such an undertaking produces, a non-priority item listed in the eleventh schedule, like a/coholic spirits, tobacco preparations, cosmetics, etc.the new scheme is applicable to all existing types of assessees as also to the professionals and the leasing companies which have not leased out machinery to those industrial undertakings other than a small scale industrial undertaking engaged in the manufacture or production of articles or things listed in the eleventh schedule to the it act. in other words, the deduction is admissible to all the assessees, who carry on 'eligible business or profession' which as per s. 32abo means business or profession other than the business of construction, manufacture or production of any article or thing specified in the list in the eleventh schedule (in case it not a small scale industrial undertaking) and the business of leasing or hiring of machinery or plant to an industrial undertaking other than a small scale industrial undertaking engaged in the business of low priority items as specified in the list in the eleventh schedule. it may be clarified that the business of construction is an eligible business for the purposes of this profession." 10. a careful reading of the provisions of s. 32ab(2) in the light of the portion as extracted above from the relevant circular of cbdt, will push any one to the conclusion that the banking business is as well an eligible business for claiming the deduction under s. 32ab. also s. 32a dealing with investment allowance does not speak of 'profession' whereas in s. 32ab the phrase found in sub-s. (1) is 'profits and gains of business or profession'. it is as clear as crystal that s. 32ab though brought in replacement of s. 32a is wider in scope than s. 32a inasmuch as it is extended to the professionals and leasing company also. when a particular section is wider in scope to cover the professionals in granting the benefit the question of manufacture of thing or article or industrial undertaking seems to be absurd.11. in our perspective as arising out of the above detailed discussions, the assessee-bank is an eligible entity for claim under s.32ab of the act. accordingly, we modify the orders of the lower authorities and allow the claim of the assessee under s. 32ab of the it act, for all the three assessment years under appeal.12. the next common ground of appeal is against the disallowance of club fees.13. the assessee-bank claimed as deduction in respect of club fees as per details below : the ao relying on the reasons mentioned in the assessment order for asst. yr. 1985-86, treated the same as non-business expenditure and disallowed the same. on appeal, by the assessee, the learned cit(a) had also confirmed the order of the ao, following the earlier year's orders. now the assessee is in appeal before us.14. during the course of hearing, the learned counsel for the assessee brought to our notice that the point at issue is covered in favour of the assessee by the decision of hon'ble gujarat high court in the case of gujarat state export corporation itd. vs. cit (1996) 131 ctr (gul) 23 : (1994) 209 1tr 649 (guj). respectfully following the decision of the jurisdictional high court mentioned above, we are inclined to allow the claim of the assessee in respect of club fees in respect of all the assessment years under consideration.15. now let us turn to the next ground of appeal which relates to asst.yr. 1988-89.16. the facts of the case are that the assessee-bank filed its return of income for asst. yr. 1988-89 on 30th june, 1988, declaring total income of rs. 6,81,84,568 and the same was accepted vide order under s.143(1) of the act resulting in refund which was granted to the assessee at the relevant time. the case was taken up for scrutiny vide notice dt. 6th april, 1990, and in response thereto the assessee-bank submitted a revised statement of income on 16th april, 1990, declaring total income at rs. 6,85,41,810 and also paid tax of rs. 2,10,000 under s. 140a on the said revised income. while doing so, the assessee- company had also included the corresponding amount of interest under s.214 allowable to be withdrawn in view of the revised income. however, the ao while computing the tax payable by the assessee while finalising the assessment under s. 143(3) did not give credit for the payment of rs. 2,10,000 made by the assessee on 16th april, 1990. aggrieved by this, the assessee went in appeal before the cit(a), who upheld the action of the ao in not giving credit for the amount of rs. 2,10,000.now the assessee is in second appeal before us.17. the learned counsel for the assessee contended that the revised return was voluntarily filed by the assessee, consequent upon finding an error on the part of the auditors with regard to admissible depreciation, we claimed under s. 32ab and consequential effect of claim under s. 36(1)(viia). as soon as it was found that the assessee had to pay an additional amount of tax consequent upon the revised return by way of total income promptly it paid the tax of rs. 2,10,000 under s. 140a voluntarily. it was contended that the error in computation was bona fide due to ca/culation error made by the auditors. our attention was also drawn by the learned counsel for the assessee to s. 140a(2) of the act. the learned counsel strongly contended that the credit should not have been denied to the extent of rs. 2,10,000. the learned departmental representative vehemently supported the order of the learned cit(a) and contended that non-giving of credit for rs. 2,10,000 paid after the completion of the assessment under s. 143(a) was correct in law.18. we have heard the rival submissions and perused the materials on record before us. the fact is that the assessee had paid the amount of rs. 2,10,000 after the completion of assessment under s. 143(1) but before the completion of the assessment under s. 143m0 of the act. sec.140am reads as follows: .,after a regular assessment under s. 143 or s. 144 has been made, any amount paid under sub-s. (1) shall be deemed to have been paid towards such regular assessment. " on a plain reading of the above quoted section, even a layman can come to the conclusion that whatever amount paid under s. 140a(1) is to be given credit while computing the tax payable on regular assessment. on the clear appreciation of law in the light of the facts depicted in preceding paragraphs, we are inclined to modify the order of the lower authority and direct the ao to give credit for the impugned amount of rs. 2,10,000 paid under s. 140a before finalisation of the assessment under s. 143(3) of the act.19. now let us turn to ita nos. 2561 & 2562/ahd/1991 relating to asst.yrs. 1987-88 & 1988-89. these two appeals for the consecutive two years filed by the assessee are directed against the order of the cit, rajkot, passed under s. 263 of the act wherein he using his revisionary powers had directed the ao to withdraw the deduction of rs. 85,96,000 and rs. 1,65,00,000 respectively in respect of asst. yrs. 1987-88 and 1988-89 allowed under s. 32ab of the it act.20. now the issue of allowability of deduction under s. 32ab has been decided in favour of the assessee by this very order of the tribunal and hence we are inclined to allow these two appeals, as they are academic in nature.

Judgment:
As all these five appeals filed by the assessee relating to four consecutive assessment years running from asst. yrs. 1987-88, mostly consist of similar issues, the same were heard together and are being disposed of by this consolidated order for the sake of convenience.

2. Let us first take up the three appeals namely ITA Nos. 3557 to 3559/Ahd/ 1991 pertaining to asst. yrs. 1988-89 to 1990-91.

3. The assessee is State Bank of Saurashtra, Bhavnagar, a public sector bank. There are two common grounds of appeal relating to these three assessment years.

4. The first common ground of appeal pertains to the allowability of deduction under s. 32AB of the IT Act, 1961, in respect of investment deposits as claimed by the assessee bank in relevant assessment years.

5. The assessee bank has claimed deduction under s. 32AB i.e., on account of investment deposit in respect of these three assessment years : In support of the claim, the assessee had also filed tax audit report in Form No. 3AA of the IT Rules along with return of income. In all these three assessment years under consideration the assessee-bank had deposited the amounts corresponding to the percentage specified in the s. 32AB of the Act, with IDBI, Ahmedabad in its investments account No.2607. However, the AO rejected the claim of the assessee in all the three assessment years on the plea that the underlying idea of the said s. 32AB was to provide alternative relief to the industrial undertaking engaged in manufacture or processing of goods or articles and the bank is not having any industrial undertaking such as plant and machinery for carrying on such activities of manufacture or processing of goods.

Aggrieved by this the assessee bank moved on before the CIT(A) with its grievance who also rejected the claim of the assessee and upheld the order of the AO on this issue, Now on second appeal the assessee has brought the matter for our adjudication.

6. The learned counsel for the assessee, Shri D.A. Mehta had placed on record two detailed paper-books consisting of the relevant materials placed before the lower authorities. The contention of the learned counsel are as follows: (1) The bank is eligible for claim under s. 32AB(2) of the Act, which is beyond doubt. h this connection he drew our attention to eligible business or profession appearing in s. 32AB(2) of the Act).

(2) The reasoning of the AO is illogical and inconsistent (in this connection attention was drawn to s. 32AB(2)(i)(a) and (b).

(3) The assessee-bank was described as carrying on eligible business or profession by the team of Central Auditors appointed by the Reserve Bank of India in their reports in Form No. 3AA under s. 32AB(5) for all these years concerned.

(4) The assessee bank was not covered by the excluded category of business specified in s. 32AB(2).

(5) The learned CIT(A) had not shown any valid, cogent or tenable ground for upholding such rejection.

(6) The learned CITW's order suffers from lack of application of mind to the submissions made before the AO and himself, which have been similarly rejected without passing a speaking order thereon.

(7) If sustained, the rejection of the assessee's claim, would defeat the very object of enacting the provisions of s. 32AB brought on the statute book to provide alternative relief to deduction under s. 32A in the form of investment allowance.

(8) As per the clear and unambiguous language of the provisions of s.

32AB, the assessee bank was eligible for deduction under the same section.

7. The learned counsel for the assessee had also enclosed to the paper-book (a) Letter from State Bank of Saurashtra addressed to the General Manager (I&F), State Bank of Mysore/Hyderabad/Patiala/Travancore/Bikaner & Jaipurl& Bangalore, calling for the position as to the claim under s. 32AB of the IT Act of the respective banks, (b) A copy of letter received from State Bank of Travancore, intimating that their claim under s. 32AB had been allowed in all their completed assessments.

(c) Copy of letter from State Bank of Bikaner & Jaipur intimating that similar claim under s. 32AB have been allowed in their assessments.

(d) Copy of letter received from State Bank of Patiala intimating that claim under s. 32AB have been allowed in their assessments.

8. On the other hand, the learned Departmental Representative Shri Pavan Ved contended that the assessee- company was a banking company and its objective was not business. He strongly relied on the orders of the lower authorities and contended that there was no manufacturing activity and the assessee-bank was not an industrial undertaking.

9. We have head the rival submissions and perused the materials before us including the detailed paper-books submitted by the learned counsel for the assessee. The crucial point to resolve the issue under consideration is to understand clearly the phrase 'eligible business or profession;. Sub-s. (2) of s. 32AB reads as follows: (i) Eligible business or profession shall mean business or profession, other than : (a) the business of construction, manufacture or production of articles or thing, specified in the list of Eleventh Schedule carried on by an industrial undertaking, which is not a small scale undertaking as defined in s. 80HHA.1 (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small scale industrial undertaking other than as defined in s. 8011HA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in Eleventh Schedule.

A plain reading of the section as extracted above, in our opinion, clearly shows that the banking business is not barred from the claim of the said allowance, In this connection we would like to refer to Circular No. 461 dt. 9th July, 1986 issued by the CBDT reported in (1986) 56 CTR (St.) 1 : (1986) 161 ITR 17 (St). Relevant portion as appearing in para No. 17.3 of the said Circular is extracted below: "The new scheme differs from the existing provisions of investment allowance as under : 1. The existing provisions of the investment allowance apply to only those assessees : (i) who purchases a ship or aircraft, which is first put to use in the business of the assessee; or (ii) who install new machinery or plant in an industrial undertaking for the purposes only of business of construction, manufacture or production of any article or thing not specified in the Eleventh Schedule to the IT Act.

In the case of small scale industrial undertaking, this benefit is not denied even if such an undertaking produces, a non-priority item listed in the Eleventh Schedule, like a/coholic spirits, tobacco preparations, cosmetics, etc.

The new scheme is applicable to all existing types of assessees as also to the professionals and the leasing companies which have not leased out machinery to those industrial undertakings other than a small scale industrial undertaking engaged in the manufacture or production of articles or things listed in the Eleventh Schedule to the IT Act. In other words, the deduction is admissible to all the assessees, who carry on 'eligible business or profession' which as per s. 32ABO means business or profession other than the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule (in case it not a small scale industrial undertaking) and the business of leasing or hiring of machinery or plant to an industrial undertaking other than a small scale industrial undertaking engaged in the business of low priority items as specified in the list in the Eleventh Schedule. It may be clarified that the business of construction is an eligible business for the purposes of this profession." 10. A careful reading of the provisions of s. 32AB(2) in the light of the portion as extracted above from the relevant circular of CBDT, will push any one to the conclusion that the banking business is as well an eligible business for claiming the deduction under s. 32AB. Also s. 32A dealing with investment allowance does not speak of 'profession' whereas in s. 32AB the phrase found in sub-s. (1) is 'Profits and gains of business or profession'. It is as clear as crystal that s. 32AB though brought in replacement of s. 32A is wider in scope than s. 32A inasmuch as it is extended to the professionals and leasing company also. When a particular section is wider in scope to cover the professionals in granting the benefit the question of manufacture of thing or article or industrial undertaking seems to be absurd.

11. In our perspective as arising out of the above detailed discussions, the assessee-bank is an eligible entity for claim under s.

32AB of the Act. Accordingly, we modify the orders of the lower authorities and allow the claim of the assessee under s. 32AB of the IT Act, for all the three assessment years under appeal.

12. The next common ground of appeal is against the disallowance of club fees.

13. The assessee-bank claimed as deduction in respect of club fees as per details below : The AO relying on the reasons mentioned in the assessment order for asst. yr. 1985-86, treated the same as non-business expenditure and disallowed the same. On appeal, by the assessee, the learned CIT(A) had also confirmed the order of the AO, following the earlier year's orders. Now the assessee is in appeal before us.

14. During the course of hearing, the learned counsel for the assessee brought to our notice that the point at issue is covered in favour of the assessee by the decision of Hon'ble Gujarat High Court in the case of Gujarat State Export Corporation ITD. vs. CIT (1996) 131 CTR (Gul) 23 : (1994) 209 1TR 649 (Guj). Respectfully following the decision of the Jurisdictional High Court mentioned above, we are inclined to allow the claim of the assessee in respect of club fees in respect of all the assessment years under consideration.

15. Now let us turn to the next ground of appeal which relates to asst.

yr. 1988-89.

16. The facts of the case are that the assessee-bank filed its return of income for asst. yr. 1988-89 on 30th June, 1988, declaring total income of Rs. 6,81,84,568 and the same was accepted vide order under s.

143(1) of the Act resulting in refund which was granted to the assessee at the relevant time. The case was taken up for scrutiny vide notice dt. 6th April, 1990, and in response thereto the assessee-bank submitted a revised statement of income on 16th April, 1990, declaring total income at Rs. 6,85,41,810 and also paid tax of Rs. 2,10,000 under s. 140A on the said revised income. While doing so, the assessee- company had also included the corresponding amount of interest under s.

214 allowable to be withdrawn in view of the revised income. However, the AO while computing the tax payable by the assessee while finalising the assessment under s. 143(3) did not give credit for the payment of Rs. 2,10,000 made by the assessee on 16th April, 1990. Aggrieved by this, the assessee went in appeal before the CIT(A), who upheld the action of the AO in not giving credit for the amount of Rs. 2,10,000.

Now the assessee is in second appeal before us.

17. The learned counsel for the assessee contended that the revised return was voluntarily filed by the assessee, consequent upon finding an error on the part of the auditors with regard to admissible depreciation, we claimed under s. 32AB and consequential effect of claim under s. 36(1)(viia). As soon as it was found that the assessee had to pay an additional amount of tax consequent upon the revised return by way of total income promptly it paid the tax of Rs. 2,10,000 under s. 140A voluntarily. It was contended that the error in computation was bona fide due to ca/culation error made by the auditors. Our attention was also drawn by the learned counsel for the assessee to s. 140A(2) of the Act. The learned counsel strongly contended that the credit should not have been denied to the extent of Rs. 2,10,000. The learned Departmental Representative vehemently supported the order of the learned CIT(A) and contended that non-giving of credit for Rs. 2,10,000 paid after the completion of the assessment under s. 143(a) was correct in law.

18. We have heard the rival submissions and perused the materials on record before us. The fact is that the assessee had paid the amount of Rs. 2,10,000 after the completion of assessment under s. 143(1) but before the completion of the assessment under s. 143M0 of the Act. Sec.

140AM reads as follows: .,after a regular assessment under s. 143 or s. 144 has been made, any amount paid under sub-s. (1) shall be deemed to have been paid towards such regular assessment. " On a plain reading of the above quoted section, even a layman can come to the conclusion that whatever amount paid under s. 140A(1) is to be given credit while computing the tax payable on regular assessment. On the clear appreciation of law in the light of the facts depicted in preceding paragraphs, we are inclined to modify the order of the lower authority and direct the AO to give credit for the impugned amount of Rs. 2,10,000 paid under s. 140A before finalisation of the assessment under s. 143(3) of the Act.

19. Now let us turn to ITA Nos. 2561 & 2562/Ahd/1991 relating to asst.

yrs. 1987-88 & 1988-89. These two appeals for the consecutive two years filed by the assessee are directed against the order of the CIT, Rajkot, passed under s. 263 of the Act wherein he using his revisionary powers had directed the AO to withdraw the deduction of Rs. 85,96,000 and Rs. 1,65,00,000 respectively in respect of asst. yrs. 1987-88 and 1988-89 allowed under s. 32AB of the IT Act.

20. Now the issue of allowability of deduction under s. 32AB has been decided in favour of the assessee by this very order of the Tribunal and hence we are inclined to allow these two appeals, as they are academic in nature.