IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 24TH DAY OF JANUARY 2020 PRESENT HONBLE MR. JUSTICE ALOK ARADHE AND HONBLE MR. JUSTICE RAVI V. HOSMANI I.T.A. NO. 256 OF 2011 C/W I.T.A. NO.258 OF 2011 I.T.A. NO. 256 OF 2011 BETWEEN: 1. COMMISSIONER OF INCOME TAX-III C.R. BUILDING, QUEENS ROAD BANGALORE. 2. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, CANARA TOWERS MISSION HOSPITAL ROAD UDUPI-576101, MANGALORE. 3. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-I, UDUPI-576101. APPELLANTS (By Sri. E.I. SANMATHI, ADV.) AND: M/S. SYNDICATE BANK H.O. ACCOUNTS DEPT. MANIPAL. RESPONDENT 2 (By Sri. T. SURYANARAYANA RAO, ADV.) THIS I.T.A. IS FILED U/S.260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 16-3-2011 PASSED IN ITA NO.118/BANG/2008 AND 227/BANG/2008, FOR ASSESSMENT YEAR 2004-05, PRAYING TO FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. SET ASIDE APPELLATE ORDER DATED 16/3/2011 PASSED BY ITAT, BENCH, BANGALORE IN ITA NO.118/BANG/2008 AND 227/BANG/2008, AS SOUGHT FOR IN THIS APPEAL, IN INTERST OF JUSTICE AND EQUITY. I.T.A. NO.258 OF 2011 BETWEEN: 1. COMMISSIONER OF INCOME TAX-III C.R. BUILDING, QUEENS ROAD BANGALORE. 2. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, CANARA TOWERS MISSION HOSPITAL ROAD UDUPI-576101, MANGALORE. 3. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-I, UDUPI-576101. APPELLANTS (By Sri. E.I. SANMATHI, ADV.) AND: M/S. SYNDICATE BANK H.O. ACCOUNTS DEPT. MANIPAL. RESPONDENT (By Sri. T. SURYANARAYANA RAO, ADV.) 3 THIS I.T.A. IS FILED U/S.260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 16-3-2011 PASSED IN ITA NO.117/BANG/2008 AND 226/BANG/2008, FOR ASSESSMENT YEAR 2003-04, PRAYING TO FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. SET ASIDE APPELLATE ORDER DATED 16/3/2011 PASSED IN ITA NO.117/BANG/2008 AND 226/BANG/2008, BY ITAT, BENCH, BANGALORE, AS SOUGHT FOR IN ABOVE APPEAL, IN INTEREST OF JUSTICE AND EQUITY. THESE I.T.As. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT ITA No.256/2011 has been preferred by revenue under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act , for short), which was admitted on 04.06.2012 by bench of this court on following substantial questions of law: 1) Whether on facts and in circumstances of case, tribunal was right in law in allowing deduction claimed towards bad and doubtful debts without making provision and without considering that section 36(1)(vii) and 36(1)(viia) are separate and independent, apart from that assesses s claim under section 36(1)(vii) of I.T. Act is limited to amount which 4 exceeds credit balance of provisions made under section 36(1)(viia) of I.T. Act? . 2) Whether on facts and in circumstances of case tribunal s order can be considered as perverse in nature since tribunal has allowed assessee s appeal by over-looking provisions of I.T. Act?. 3) Whether on facts and in circumstances of case tribunal erred in law in deleting addition representing excess claim of bad debts written off under section 36(1)(vii) of I.T. Act, exceeding credit balance of provision made under section 36(1)(viia) of I.T. Act when provisions of said section do not permit such action?. ITA No.258/2011 has been filed by revenue, which was admitted on 04.06.2012 by bench of this court on following substantial questions of law: 1) Whether on facts and in circumstances of case, tribunal was 5 right in law in allowing deduction claimed towards bad and doubtful debts without making provision and without considering that section 36(1)(vii) and 36(1)(viia) are separate and independent, apart from that assesses s claim under section 36(1)(vii) of I.T. Act is limited to amount which exceeds credit balance of provisions made under section 36(1)(viia) of I.T. Act?. 2) Whether on facts and in circumstances of case tribunal s order can be considered as perverse in nature since tribunal has allowed assessee s appeal by over-looking provisions of I.T. Act? 3) Whether on facts and in circumstances of case tribunal was right in law in allowing interest on zero coupon bonds even when interest on zero coupon bonds is not exempt income under provisions of I.T. Act and assessee had shown interest income in books of account? . 6 2. For facility of reference, facts from ITA No. 258/2011 are being referred to assessee is Public Limited Company engaged in banking business. assessee filed return of income on 24.11.2003 along with audit report under Section 44AB of Act, declaring income of Rs.293,25,57,628/- for Assessment year 2003-04. Return was processed under Section 143(1) on 05.04.2004 and order of refund of Rs.82,69,52,235/- was determined and order of refund of Rs.82.50/-Crores was issued. Subsequently, order under Section 154 of Act was passed on 10.08.2004 for refund of amount of Rs.82.50/- Crores. Thereafter, order under Section 154 of Act was passed on 17.02.2003, by which Minimum Alternative Tax credit of Rs.68,07,83,946/- was withdrawn. While going through computation of income, it was found that net loss of Rs.8,17,44,119/- under long term capital loss after set off of short term capital gain of Rs.51,06,737/-. According to Assessing Officer 7 set off of short term capital gain against long term capital loss was not permissible under Section 70(3) of Act. order was passed withdrawing amount of Rs.51,06,737/- from long term capital loss and same has been taxed as short term capital gains. Notices under Section 143(2) / 142(1) of Act were issued to Assessee order under Section 143(3) of Act was passed on 28.02.2005 disallowing amount of Rs.192,53,21,426/- on reversal of interest pertaining to earlier years as deduction out of current years income and added back to interest on zero coupon bonds to tune of RS.1,03,53,095/- along with other additions/disallowance in computation of regular income/book profit. It was held that as per section 36(1)(viia) of Act, assessee is required to make provisions in books of account, which assessee has not done. 3. Commissioner of Income Tax (Appeals) by order dated 14.11.2007 partly allowed appeals 8 and held that since, no interest accrued on zero coupon bonds, therefore, making addition in respect of book profit under Section 115JB of Act, is not called for. Commissioner of Income Tax (Appeals) also granted relief to appellant in respect of doubtful debts. Being aggrieved, assessee as well as revenue filed appeals against order of Commissioner of Income Tax (Appeals). Income Tax Appellate Tribunal vide order dated 16.03.2011, allowed appeal of assessee and dismissed appeal preferred by revenue. In this background, revenue has filed these appeals. 4. Learned counsel for Revenue has invited our attention to budget speech of Finance Minister and has pointed out provision to promote rural banking was incorporated to grant deduction in respect of provision made for bad and doubtful debts. While referring to Memorandum explaining provisions in Finance Bill, 1979 and Circular dated 30.06.1982 it is contended that deduction under Section 36(1)(viia) of 9 Act is made in respect of provisions made by them for bad and doubtful debts relating to advances made by their rural branches. It is further contended that in order to claim deduction under Section 36(1)(vii)(a) of Act, provision for bad and doubtful debt should be made in accounts of assessee. In this connection, reliance has been placed on Division Bench decision of this COURT IN COMMISSIONER OF INCOME TAX VS. M/S. VIJAY BANK , IN ITA NO.1066/2008 DATED 21.10.2014. 5. On other hand, learned counsel for assessee has placed reliance on decision of Supreme Court in CATHOLIC SYRIAN BANK LTD VS. COMMISSIONER OF INCOME TAX , (2012) 18 TAXMANN.COM 282 (SC) and has submitted that Section 36(1)(viia) was introduced by Finance Act, 1979 to promote rural banks and to assist Scheduled Commercial Banks in making adequate provision from their current profits to provide for risk in relation to their 10 rural advances and deductions were to be limited as specified in Section. It is further argued that Section 36(1) (vii) and Section 36(1)(viia) operate in different fields. It is also argued that provision in taxing Statute granting incentive for promoting growth and development should be construed literally. In this connection, reliance is placed on BAJAJ TEMPO LIMTED VS. COMMISSIONER OF INCOME TAX , (1992) 62 TAXMAN 480 (SC). It is contended that for determining real income entries in Statutory form may not be conclusive. For aforesaid proposition reference is made to UNITED COMMERICAL BANK VS. COMMISSIONER OF INCOME TAX , (1999) 106 TAXMAN 601. While referring to DEPUTY COMMISSIONER OF INCOME TAX (ASST.) SPECIAL RANGE VS. KARNATAKA BANK LTD , (2008) 175 TAXMAN 325 it is urged that deduction under Section 36(1)(vii) is allowable independently of provision contained in Section 36(1)(viia) of Act. 11 6. We have considered submissions made on both sides and have perused record. Before proceeding further, is it apposite to take note of Section 37(1)(viia) of Act which reads as under:- 37. Insofar as 1st substantial question of law is concerned, it revolves around interpretation of Section 36(1)(viia), which reads as follows: (viia) in respect of any provision for bad and doubtful debts made by (a) scheduled bank [not being bank incorporated by or under laws of country outside India or non- scheduled bank [or co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank], amount [not exceeding seven and one- half per cent] of total income (computed before making any deduction under this clause and Chapter VIA) and amount not exceeding [ten] per cent of aggregate average advances made by rural branches of such bank computed in 12 prescribed manner: Provided that scheduled bank or non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of relevant assessment years, deduction in respect of any provision made by it for any assets classified by Reserved Bank of India as doubtful assets or loss assets in accordance with guidelines issued by it in this behalf, for amount not exceeding five per cent of amount of such assets shown in books of account of bank on last day of previous year: Provided further that for relevant assessment years commencing on or after 1st day of April, 2003 and ending before 1st day of April, 2005, provisions of first proviso shall have effect as if for words five per cent , words ten per cent had been substituted: Provided also that scheduled bank or non-scheduled bank referred to in this sub-clause shall, at its option, be allowed further deduction in excess of limits specified in foregoing provisions, for amount not exceeding income derived 13 from redemption of securities in accordance with scheme framed by Central Government: Provided also that no deduction shall be allowed under third proviso unless such income has been disclosed in return of income under head Profits and gains of business or profession . Explanation. For purposes of this sub-clause, relevant assessment years means five consecutive assessment years commencing on or after 1st day of April, 2000 and ending before 1st day of April, 2005; (b) bank, being bank incorporated by or under laws of country outside India, amount not exceeding five per cent of total income (computed before making any deduction under this clause and Chapter VIA); (c) public financial institution or State financial corporation or State industrial investment corporation, amount not exceeding five per cent of total income (computed before making any 14 deduction under this clause and Chapter VI-A): Provided that public financial institution or State financial corporation or State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of two consecutive assessment years commencing on or after 1st day of April, 2003 and ending before 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by Reserve Bank of India as doubtful assets or loss assets in accordance with guidelines issued by it in this behalf, of amount not exceeding ten per cent of amount of such assets shown in books of accounts of such institution or corporation, as case may be, on last day of previous years . 7. Explanatory notes on provisions contained in Circular No.346 dated 30.01.1982 deals with object of deductions made in respect of payments to associations 15 and doubtful debts under Section 36 (1)(viia) of Act. relevant extract reads as under:- 17.3 As non-scheduled commercial banks are also engaged in providing rural credit and promoting rural banking, Finance Act has amended clause (viia) of sub-Section 36 of IT Act to extend provision relating to deduction in respect of provisions made by scheduled commercial banks for bad and doubtful debts relating to advances by rural branches to non-scheduled commercial banks as well. For this purpose, expression non-scheduled Bank means banking company as defined incl. (c) of S.5 of Banking Regulation Act, 1949 but which is not scheduled bank. 8. Thus, conjoint reading of provision contained in Section 36(1)(viia) and explanatory note dated 30.06.1982 it is evident that deduction provided in Section 36(1)(viia) shall be allowed in respect of matters dealt therein in computing income. condition precedent for claiming deduction under Section 36(1)(viia) of Act is that provision for bad and 16 doubtful debt should be made in accounts of assessee. aforesaid Section mentions maximum amount for which such provision should be made. If provision is made in excess of limits prescribed under Section, assessee would not be entitled to deduction of excess amount. Once provision is made and amount of deduction is within limit prescribed under Act, assessee would be entitled to deduction of amount for which provision is made in books of accounts. 9. language employed in Section36(1)(viia) of Act is clear and unambiguous. It is well established Rule of interpretation stated by LORD CAIRNS that if person sought to be taxed comes within letter of law he must be taxed, however great hardship may appear to judicial mind to be. On other hand, if Crown seeking to recover tax, cannot bring subject within letter of law, subject is free, however apparently within spirit of law case 17 might otherwise appear to be. It is equally well settled legal proposition that in taxing act once has to look merely as what is said. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at language used. [SEE: COMMISSIONER OF INCOME TAX, MADRAS VS. KASTURI AND SONS LTD., AIR 1999 SC 1275 and MAHIM PATRAM (P) LTD. VS. UNION OF INDIA (2007) 3 SCC 668] [See: PRINCIPLES OF STATUTORY INTERPRETATION, JUSTICE G.P.SINGH, 14TH EDITION, PAGE 879]. Therefore, question of going into intention or object behind provision viz., Section 36(1)(viia) of Act does not arise. 10. submission that even in absence of any provision, assessee is entitled to deduction cannot be accepted. assessee is entitled to 18 deduction to extent provision made in accounts subject to limit mentioned in Section 36(viia) of Act. 11. So far as decision in CATHOLIC SYRIAN BANK is concerned, from perusal of para 16, it is evident that aforesaid decision is authority for proposition that section 36(1)(vii) and 36(1)(viia) are independent provisions and from perusal of para 23 and 24 of decision, it is axiomatic that Supreme Court has taken note of statement of objections and reasons for Finance Act, 1986 and has held that amendments were intended to encourage rural advances and making of provision for bad debts in relation to such rural branches. Supreme Court in aforesaid decision negatived contention that grant benefits under 36(1)(vii) and 36(1)(viia) of Act, amounts to double deduction and in para 41 has concluded that bad bedts, written off in debts other than those for which provisions is made under Section 36(1)(viia) of Act will be covered under main part or Section 36(1)(vii) of Act. Thus, 19 aforesaid decision is also authority for proposition that Section 36(1)(viia) of Act, permits deduction in respect of provision made by bank in respect of bad and doubtful debts. Therefore, aforesaid decision is of no assistance in fact situation of cases to assessee. 12. In view of preceding analysis substantial questions of law in ITA No.256/2011 are answered in favour of revenue and substantial questions of law Nos.1 & 2 in ITA No.258/2010 are answered in favour of revenue and hence, substantial question of law No.3 in ITA No.258/2010 is answered in terms of judgment dated 17.01.2020 passed by this Court in ITA No.97/2010. Accordingly, appeals are disposed of. Sd/- JUDGE Sd/- JUDGE ss CIT-III, Bangalore / ACIT, Circle-1, UDUPI / DCIT, Circle-I, UDUPI v. Syndicate Bank