COMMISSIONER OF INCOME TAX Vs. FEDERAL BANK LIMITED

JUDGEMENT

(1.) THE following questions have been, at the instance of the Revenue, referred to us by the Income-tax Appellate Tribunal, Cochin Bench :

(2.) THE assessee is a scheduled bank. For the assessment year 1975-76, the assessee filed a return of income under the Interest-tax Act, showing the chargeable interest at Rs. 91,70,200. In the revised return dated November 15, 1977, the chargeable interest was shown as Rs. 91,30,360 after deducting a sum of Rs. 2,75,687 being rediscounting charges on bills paid to the Reserve Bank of India. THE assessee also claimed deduction of a sum of Rs. 20,833 representing a portion of the interest paid on borrowings from insurance and other financial companies on accepting participation certificates. THE assessee contended that the kuri business conducted by it has nothing to do with the banking business and hence it does not attract interest-tax liability. THE above deductions were not allowed by the assessing authority. On appeal, the Appellate Assistant Commissioner granted relief to the assessee in part. On further appeal, the Income-tax Appellate Tribunal, Cochin Bench, allowed all the claims for deduction put forward by the assessee. Hence, this reference at the instance of the Revenue.

(3.) REGARDING the re-discounting system, the Income-tax Appellate Tribunal came to the following finding :