KARNATAKA BANK LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference is made by the Income-tax Appellate Tribunal, Bangalore, under section 256(1) of the Income-tax Act, 1961, (hereinafter referred to as "the Act" :). The question referred to us reads as follows :

(2.) THE Karnataka Bank Ltd, which is carrying on the business of banking, is the assessee in this case. During the accounting year corresponding to the assessment year 1969-70, the assessee had realised certain amount on the sale of its securities. Out of the sale proceeds of the said securities, a sum of Rs. 82,305, was treated by the assessee as interest realised by it in respect of the broken period up to the date of sale, although, in fact, the interest in respect of these securities had been realised by the renders when they became due and payable. Before the Income-tax Officer, the assessee claimed that under section 18 of the Act, a sum of Rs. 82,305 which represented the interest on the securities sold by it could not be taxed as the interest had, in fact, been realised by the purchaser after the sale. It also claimed that the said sum was not taxable under any other provision of the Act. THE Income-tax Officer rejected the claim of the assessee-holding that the said sum was part of the profits of the banking business carried on by the assessee and it was taxable under section 28 of the Act. THE appeal filed by the assessee against the order of the Income-tax Officer before the Appellate Assistant Commissioner of Income-tax was allowed in the first instance, but, on further appeal, the Income-tax Appellate Tribunal set aside the order of the Appellate Assistant Commissioner and remanded the case to examine the true character of the receipt in question, whether it was interest or whether it was profits realised on sale of securities. After remand, the Appellate Assistant Commissioner rejected the claim of the assessee and dismissed the appeal. THE appeal filed by the assessee against the order of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal also ended in dismissed. Hence, this reference.

(3.) IT is not is dispute that the securities in question had been held by the assessee as part of its circulating capital in the course of its banking business. Any profits derived by it on the sale of such securities has got to be treated as income from business falling under section 28 of the Act in view of the decision of the Privy Council in Punjab Co-operative Bank Ltd, v. Commissioner of Income-tax [1940] 8 ITR 635 and the decisions of the Supreme Court in Sardar Indra Singh and Sons Ltd. v. Commissioner of Income-tax and Bihar State Co-operative Bank Ltd. v. Commissioner of Income-tax [1960] 39 ITR 114.