CITIBANK N A Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY order dated October 9, 1991, the Tribunal has referred to this court, common questions of law under Section 256(1) of the Income -tax Act, 1961, for our opinion.

(2.) THE following two questions have been referred to us at the instance of the assessee : '(1) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the interest received by the bank on the sale of Government securities held by it is assessable to tax as 'income from business' and not as 'interest on securities' ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the discount on treasury bills is assessable as 'income from business' and not as 'interest on securities' ?' Answers : In this reference, we are concerned with the assessment year 1981 -82. In the present case, there is no evidence on record to indicate the nature of the Government securities. There are dated Government securities and there are securities which are not dated. In the present case, no material is placed before us regarding the type of Government securities. In the circumstances, we cannot apply the ratio of the judgment of this court in the case of American Express International Banking Corporation v. CIT : [2002]258ITR601(Bom) , as contended by the Department.

(3.) AT the instance of the Revenue, the following four questions have been referred to us by the Tribunal for our opinion. The said questions are as follows : '(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred on repairs and maintenance of flats owned by the assessee and used for the residence of employees is not perquisite within the meaning of Section 40A(5) of the Income -tax Act ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred by way of payment of ground rent, rates and taxes and society's charges in respect of the premises owned by the assessee and used for the purpose of residence of employees is not to be taken into account for the purpose of disallowance under Section 40A(5) of the Income -tax Act ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of Section 40A(5) should be applied only on that part of the expenditure by way of salaries and perquisites, etc., apportioned under the head 'Profits and gains of business or profession' and not in respect of such expenditure apportioned under the head 'Interest on securities' ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that while apportioning the expenses deductible from 'interest on securities' in the case of the banking company in terms of Section 20(1)(i), the expenses admissible under the provisions of Sections 30, 31, 35 (sic) and 37 of the Act will not be subject to restrictions imposed under Sections 40A(3) (sic), 40A(5) and 44C of the Income -tax Act ?' Arguments on questions Nos. (1) and (2) raised by the Department : With regard to questions Nos. (1) and (2), referred to us at the instance of the Department and quoted hereinabove, Mr. R. V. Desai, learned senior counsel appearing on behalf of the Department, contended that in this case, expenditure was incurred by the assessee on repairs and maintenance of flats owned by the assessee and used for the residence of employees. He contended that such expenditure constituted perquisite. In this connection, he relied upon the judgment of the Bombay High Court in the case of Lubrizol India Ltd. v. CIT [1991] 187 ITR 25. He contended that Section 40A(5)(a)(ii) is in two parts. He contended that we are not concerned with the first part. He contended, however, that the second part of the said sub -section stipulates that where an assessee incurs any expenditure in respect of any of its assets used by its employee then the expenditure incurred by the assessee is covered by the second part of Section 40A(5)(a)(ii). He contradistinguished the second part with the first part, which applies only if the expenditure results in any perquisite to the employee.