(Appeals by special leave from the judgment and order, dated March 1, 1999 of the High Court, Kerala in I.T.Rs. Nos.52 and 53 of 1995)

Income‑tax‑‑‑

‑‑‑‑Rectification of mistakes‑‑‑Banking company‑‑‑Interest on securities‑‑ Purchase and sale of securities in course of business of banking‑‑‑Interest paid for broken periods‑‑‑Whether allowable as business expenditure‑‑ Disputed question of law‑‑‑Such interest allowed as deduction in assessment‑ Cannot be rectified as a mistake apparent from the record‑‑‑Indian Income Tax Act, 1961, Ss. 18 to 20, 37 & 154.

The assessee‑company, a scheduled bank, was required to buy and sell Government securities. From the interest received on Government securities purchased and. sold it claimed deduction of interest paid for broken periods, and this was originally allowed in the assessment. Later, the Assessing Officer invoked section 154 of the Income Tax Act, 1961, providing for rectification of mistakes, and cancelled such allowance for the reason that income by way of interest from purchase and sale of securities should be computed under the head "Interest on securities" and the provisions of sections 18 to 20 did not permit such deduction. The Appellate Tribunal held that a debatable issue was involved and that the Assessing Authority was not justified in invoking the machinery for rectification under section 154; and, even on the principal question, the Tribunal held in favour of the assessee. On a reference to the High Court, there was a difference of opinion between the two Judges and the matter was referred to a third Judge, who held in favour of the assessee both in regard to the invocation of section 154 and also on the merits. On appeal to the Supreme Court:

Held, that, in view of the difference of opinion among the Judges of the High Court on the merits, there was a debatable question on the merits, and there was no error apparent from the record which could be corrected by the Assessing Officer by invoking the provisions of section 154.

CIT v. South Indian Bank Ltd. (2000) 241 ITR 374 affirmed on the ground that there was no mistake apparent from the record.

M.L. Verma, Senior Advoeate (R.N. Verma and Ms. Sttshma Suri, Advocates with him) for Appellant.

B.B. Ahuja, Senior Advocate (S. Sukumaran, Advocate for J.B. Dadachanji & Co., Advocates with him) for Respondent.

ORDER

The question that arises in these appeals by the Revenue against the decision of the High Court of Kerala (see CIT v. South Indian Bank Ltd. (2000) 241 ITR 374) reads thus (page 377):

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the rectification order of the Assessing Officer?"

The assessee is a scheduled bank. It is required to buy and sell Government securities. During the assessment years in question, namely, 1979‑80 and 1980‑81, it deducted the, interest paid for broken periods and this was originally allowed. Later, the Assessing Authority invoked the provisions of section 154 of the Income Tax Act, 1961, and cancelled such allowance for the reason that income by way of interest from purchase and sale of securities should be computed under the head "Interest on securities" and the provisions of sections 18 to 20 did not permit such deduction. The matter went up to the Tribunal and the Tribunal held that a debatable issue was involved and that the Assessing Authority was, therefore, not justified in invoking the machinery for rectification under section 154. It held, even on the principal question, in favour of the assessee.

Arising out of the order of the Tribunal, the question aforestated was referred to the High Court. The two learned Judges who constituted the Division Bench that originally heard the matter took divergent views both in relation to the applicability of the rectification provision as also on the merits. The matter was, therefore, placed before a third learned Judge. The third learned Judge held in favour of the assessee both in regard to the invocation of section 154 and also on the merits. The Revenue is in appeal by special leave against the decision of the High Court.

Having regard to the difference of opinion among the learned Judges of the High Court on the principal question, it is clear that there was a debatable question and (no?) error on the face of the record which could be corrected by invocation of the provisions of section 154. On that ground alone, the appeals must fail.

We make it clear that we are expressing no opinion in regard to the principal issue.

The appeals are dismissed.

No order as to costs.

M.B.A./1034/FCAppeals dismissed.