CIT Vs. DHANALAKSHMI BANK LTD

JUDGEMENT

(1.) All these appeals are filed by the Commissioner of Income Tax, Trichur against the order of the Income Tax Appellate Tribunal, Cochin Bench. I.T.A. Nos.16, 18, 19, 21 and 23 of 2001 arise out of a common order of the Tribunal in I.T.A. Nos.883, 884, 885 / Coch / 90, 7 & 8 / Coch / 91 and 271 / Coch / 91 in the case of Dhanalakshmi Bank, Thrissur. (I.T.A. No.11/01 filed against I.T.A. No.883/90 which was disposed of by the Tribunal by the common order is being dealt with separately since one more question is involved in the said appeal). I.T.A. No.83/02 arises out of the order of the Tribunal in I.T.A. No.79/94 in respect of the assessment year 1990-91 in the case of South Indian Bank Ltd., Thrissur. Similarly I.T.A. Nos.127/01 and 135/01 arise out of the order of the Tribunal in I.T.A. Nos.295 & 296 of 1993 in respect of the assessment years 1988-89 and 1989-90 in the case of Catholic Syrian Bank Ltd., Thrissur. All these appeals are being disposed of by this judgment since the sole question that arises for consideration in all these cases is as to whether the Tribunal is right in law in holding that the rate of penal interest the assessee has to pay under the relevant banking law is interest only and not penalty. In other words, the question is as to whether the payment of penal interest under the Banking Laws is for the infraction of law.

(2.) The respondents assessees in all these cases are scheduled banks, all having their head offices at Thrissur. In the assessment of the respondents assessees for the years already mentioned they have claimed deduction of the penal interest paid to the Reserve Bank of India for non maintenance of cash reserve. The assessing officers concerned had disallowed the same on the ground that the amount represents penal interest. According to the assessees penal interest is paid to the Reserve Bank of India for non maintenance of cash reserve as stipulated by the Banking Regulation Act which cannot be considered as payment for infraction of law. In appeals by the assessees, the Commissioner of Income Tax (Appeals) allowed their claim holding that the payments are not in the nature of the penalty. The first appellate authority also relied on the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. Commr. of Income Tax, Delhi ( 1980 (123) ITR 429 ) and also the order of the Bangalore Bench of the Tribunal in Corporation Bank's case. The Income Tax Department took up the matter in appeal before the Tribunal where the parties have raised the very same contentions. The Tribunal after considering the relevant provisions of the Banking Regulation Act as well as the Reserve Bank of India Act and the principles laid down by the Supreme Court in the various decisions and the order of the Bangalore Tribunal in the case of Corporation Bank and Syndicate Bank's case held that penal interest paid by the assessees under the provisions of the Banking Regulation Act as well as under the Reserve Bank of India Act cannot be treated as penalty for infraction of law and accordingly concurred with the decision of the first appellate authority and dismissed the appeals filed by the department. It is against these orders of the Income Tax Appellate Tribunal that the department has come up in appeal.

(3.) We have heard Shri. P.K.R. Menon, learned senior Central Government Standing Counsel for Taxes appearing for the appellants, senior counsel Sri. Sarangan assisted by Sri. Vinod Chandran and also Sri. P. Balakrishnan for the respondents assessees. Both the counsel advanced their respective contentions as taken before the Tribunal and also relied on various decisions of the Supreme Court and of this Court in respect of their respective contentions.