COMMISSIONER OF INCOME TAX Vs. NEDUNGADI BANK LTD

JUDGEMENT

(1.) . All these Appeals arise under the Income Tax Act, 1961 (for short, the Act ). The main question involved in all these cases is as to whether the Government securities held by the appellants as required under the provisions of the Banking Regulation Act, 1949 are stock-in-trade of the assessee Banks and consequently the assessee Banks are entitled to re-value the said securities at the close of the assessment year and claim depreciation in respect of the notional loss suffered by the assessee Banks in respect of the said securities in the assessment under the Act. The other questions in some of the appeals are (1) regarding the validity of the assessments made under S. 147 of the Act and (2) regarding the entitlement for deduction of the interest paid for the broken period claimed by the assessee.

(2.) ALL these appeals are filed by the Revenue challenging the orders of the Income Tax Appellate Tribunal, Cochin Bench. The Nedungadi bank Ltd. , Calicut is the respondent assessee in I. T. A. Nos. 157/01,17/02,5/02,39/02,48/02,. 32/02,89/02,95/02,92/02 and 4/02. The dhanalakshmi Bank Ltd. is the respondent assessee in I. T. A. Nos. 214/01, 62/02, 21/02, 33/02 and 14/02. The South Indian Bank Limited is the respondent assessee in I. T. A. Nos. 47/02,13/02,63/02,51/02,65/02,38/02,59/02 and 90/02. The Catholic Syrian Bank is the respondent/ assessee in ITA No. 25/02. Various assessment years ranging from 1981-1982 upto 1992-93 are involved in these appeals. It is not necessary to give all the details of the assessment years, for nothing turns on the relevant assessment years in deciding the issue involved.

(3.) THE Revenue contended before the tribunal that as per s. 24 of the Banking Regulation Act, every Scheduled Bank has to maintain a fixed SLR by depositing any gold or cash in any unencumbered approved government securities, and that approved securities are risk-free investments which give rise to definite income at definite intervals and redeem the interest on a definite interval. It was specifically contended that the purchase of Government Securities by the Bank for the purpose of maintaining the SLR was only in the nature of a capital asset and the sale proceeds of the same after the maturity period can only be a capital receipt. It was also pointed out that the Bank cannot dispose of these securities unless and until the value exceeded the SLR and that the securities forming part of the SLR are not stock-intrade, and therefore, are not capital asset of the Bank. Various other contentions are also urged before the tribunal to the effect that the securities purchased by the assessee bank for the purpose of complying with the requirement of maintaining the SLR cannot be treated as stock-in-trade of the assessee. It was also contended that the securities purchased for the purpose of fulfilment of the SLR and remain at the close of the year cannot be treated as unsold stock in trade for the purpose of revaluing the closing stock and for claiming depreciation on account of the notional loss. THE appellant had also filed a very detailed argument note, Annexure E to substantiate the contention that the securities held by the assessee bank cannot be treated as the stock-in-trade of the business of the assessee, and that the same cannot be revalued and the difference between the cost price and the market price, if it is a loss, cannot be allowed as a deduction in the computation of the profits and gains of the business of the assessee. THE assessee had also filed cross-objection challenging the orders of the assessing authority as confirmed by the first appellate authority regarding the validity of the reopening. It is contended before the tribunal that in view of the provisions of the proviso to s. 147 of the Act, since the assessee had disclosed all material facts necessary for completion of the assessment and since the assessing authority has reopened the assessment only on the basis of the decision in Vijaya Bank's case supra, the assessing authority is entitled to reopen the assessment and to make a re-assessment only within four years from the end of the assessment year concerned. THE assessee accordingly contended that since the notice under S. 148 of the Act was issued for the assessment years 1982-83,1983-84,1984-85 beyond the four years specified in the proviso to S. 147 of the Act, the re-assessment for the three assessment years are barred by limitation. THE tribunal had accepted the said contention and held that the re-assessments are barred by limitation. THE contentions of the Department that the securities held by the assessee bank for complying with the requirements of maintaining the SLR as provided under the provisions of the Banking Regulation Act, 1949 cannot be treated as the stock-in-trade of the assessee, was rejected by the tribunal relying on the decisions of this Court and of the Supreme Court. THE Revenue have filed appeal against the aforesaid findings of the tribunal. So far as the respondent assessees in the other cases namely South Indian Bank Ltd. and dhanalakshmi Bank Ltd. are concerned, both the factual and legal situations are identical and the tribunal has rendered the same findings in those cases also on the main issue involved in these appeals.