COMMISSIONER OF INCOME-TAX VS TAMIL NADU MERCANTILE ' BANK LTD.
2001 PTD 3177
[240 I T R 929]
[Madras High Court (India)]
Before R. Jayasimha Babu and Mrs. A. Subbulakshmy, JJ
COMMISSIONER OF INCOME‑TAX
Versus
TAMIL NADU MERCANTILE BANK LTD.
Tax Cases Nos. 301 and 302 of 1997, decided on 13/07/1998.
Income‑tax‑‑‑
‑‑‑‑Reference‑‑‑Business‑‑‑Tribunal allowing deduction of loss on revaluation of securities ‑‑‑Tribunals's decision based on High Court judgment where Revenue had taken a contrary stand‑‑‑Question whether Tribunal's decision was correct could not be referred ‑‑‑Indian Income Tax Act, 1961, S.256(2).
Held, dismissing the application for directing reference, that the Court in T.C. Nos.359 and 360 of 1986 and 1259 of 1987, concluded that the investment made by the bank was in the nature of and forming part of its stock‑in‑trade and the profit arising out of the redemption of securities was assessable under the head "Business profit" and not under the head "Capital gains". In these petitions, which concerned the assessment year 1988‑89, the Tribunal followed the judgment of the Karnataka High Court which had been referred to with approval by the Court, and held that the change in the method of valuation of the investment was permissible, as the assessee had the option of valuing the investment at cost or at market price. The fact that the assessee had adopted the cost price in earlier years, but chose to change that mode of valuation to the market price was not in any way contrary to the requirements of the Act. No exception could have been taken to that finding of the Tribunal. The Revenue sought reference taking contradictory stands in respect of the same assessee, in spite of the fact that its contention to the contrary had been upheld by the Court on the earlier occasion.
CIT v. Madras Central Urban Bank Ltd. AIR 1929 Mad. 387; Karnatka Bank Ltd. v. CIT (1978) 114 ITR 421 (Kar.); Punjab Cooperative Bank Ltd, v. CIT (1940) 8 ITR 635 (PC); Sardar Indra Singh & Sons Ltd. v. CIT (1953) 24 ITR 415 (SC); State Bank of Hyderabad v. CIT (1985) 151 ITR 703 (AP) and Union Cold Storage Co. v. Simpson (Inspector of Taxes) (1939) 7 ITR 630 (CA) ref.
C.V. Rajan for the Commissioner.
P.P.S. Janarthana Raja for the Assessee.
JUDGMENT
R. JAYASIMHA BABU, J.‑‑‑The Revenue wants to blow hot and cold. It contended in a case concerning the same assessee in respect of an earlier assessment year that the investment held by it is stock‑in‑trade. It now wants to contend to the contrary and claim that investment made by the assessee‑bank is not stock‑in‑trade.
The contention of the Revenue with regard to the nature of the investment made by the bank was examined in an elaborate order made by a Bench of this Court in Tax Cases Nos.359 and 360 of 1986 and 1259 of 1987. This Court, after considering the nature of the activity of the bank, the effect of section 24 of the Banking Regulation Act and the decisions of the Privy Council and of other High Courts, viz., the decision of the Privy Council in the case of Punjab Cooperative Bank Ltd. v. CIT (1940) 8 ITR 635, that of the Andhra Pradesh High Court in the case of State Bank of Hyderabad v. CIT (1985) 151 ITR 703, as also the decision of the Supreme Court in the case of Sardar Indra Singh & Sons Ltd. v. CIT (1953) 24 ITR 415, upheld the contention of the Revenue that the investment made by the banking company to fulfil its obligations under section 24 of the Banking Regulation Act is stock‑in‑trade as the bank had the option of either maintaining a cash reserve or holding the money in investments. This Court also in the course of the order made in the earlier tax case, referred with approval to the decision of the Karantaka High Court in the case of Kamatka Bank Ltd. v. CIT (1978) 114 ITR 421 and after referring to the Full Bench of this Court in the case of CIT v. Madras Central Urban Bank Ltd., AIR 1929 Mad. 387, noticed the fact that the decision of the Full Bench of this Court was in conflict with the decision of the Supreme Court in the case of Sardar Indra Singh & Sons Ltd. v. C IT (1953) 24 ITR 415 and in the case of Union Cold Storage Co. v. Simpson (Inspector of Taxes) (1939) 7 ITR 630 (CA). After considering all these decisions, the Court concluded that the investment made‑by the bank was in the nature of and forming part of its stock‑in‑bade and the profit arising out of the redemption of securities is assessable under the head "Business profit" and not under the head "Capital gains".
In these petitions, which concerns the assessment year 1988‑89, the Tribunal followed the judgment of the Karnatka High Court which had been referred to with approval by this Court, and held that the change in the method of valuation of the investment was permissible, as the assessee had the option of valuing the investment at cost or at market price. The fact that the assessee had adopted the cost price in earlier years, but chose to change that mode of valuation to the market price was not in any way contrary to the requirements of the Act. No exception could have been taken to that finding of the Tribunal.
The Revenue, however, moved the Tribunal to refer the question now sought to be raised before us and that application was rejected by the Tribunal and, while doing so, the Tribunal rightly observed that its order was supported by the decision of this Court in Tax Cases Nos.359 and 360 of 1986 and 1259 of 1987, the parties to those references being Commissioner of Income‑tax, Madurai, and the assessee. The Revenue ought to have seen the light, at least then if it had failed to do so earlier. However, it has persisted and has come up with these petitions seeking reference on a question, which has been considered and decided by this Court against the Revenue, and wherein, the arguments advanced by the Revenue contrary to the one now sought to be advanced by the same Revenue was upheld by the Court.
We must express our strong disapproval of the manner in which the Revenue is seeking to have references made taking contradictory stands in respect of the same assessee, in spite of the fact its contention to the contrary had been upheld by this Court on the earlier occasion and, thereafter, seeking to raise an entirely contradictory argument and seeking reference of such a question as well.
The tax case petitions are, therefore, dismissed with exemplary costs of Rs.4,000.
M.B.A./399/FCPetitions dismissed.