COMMISSIONER OF INCOME TAX Vs. INDIAN BANK

JUDGEMENT

(1.) THE assessee is a bank, which has its registered office within the jurisdiction of this court, and has branches outside India including Ceylon and Singapore. It claimed the benefit of Section 35B of the Income-tax Act, 1961, by way of weighted deduction for the expenditure incurred by it on its branches at Ceylon and Singapore for the assessment year 1978-79. THE Income-tax Officer held that the assessee was not entitled to weighted deduction on the expenditure of Rs. 1,04,62,703 spent by it, but only on Rs. 41,68,374 as in his view the difference represented the gross interest paid by the assessee to its customers, who had made deposits with the bank, and such gross interest could not be treated as expenditure, as in his view, it is only the amount of expenditure determined after setting off the interest received by the bank from its customers against the interest paid by it, that was relevant for the purposes of Section 35B(1)(b) of the Act. That view of the Income-tax Officer was affirmed by the Commissioner. THE Tribunal, however, disagreed, and held that the assessee was entitled to the benefit of Section 35B of the Act on the gross interest payments, as the interest was paid to its depositors who were different from the persons who had borrowed money from the bank and paid interest to the bank on the loans obtained by them. THE Tribunal was of the view that the interest receipts of the assessee were not relevant for determining the expenditure incurred by the assessee by way of interest payments to its depositors.

(2.) IT is not in dispute that Section 35B(1)(b) of the Act had been properly invoked by the assessee. The only dispute is as to whether the entire amount of interest paid by the assessee to its depositors at that branch should be regarded as expenditure incurred by it for the purposes of Section 35B(1)(b) of the Act, or as to whether that amount should be reduced by the amount of interest received by the bank from the customers to whom it had lent monies.