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Chargeable interest - Interest on government securities
January, 30th 2008

CIT vs Corporation Bank and Ors.
Citation 295 ITR 193 
Affirmed CIT vs Vijaya Bank 149 TAXMAN 674; 194 Taxation 681; 199 CTR 329; 285 ITR 97

Chargeable interest - Interest on government securities
The interest earned by the assessee bank on government securities was not chargeable to tax under the Interest Tax Act 1974.

Supreme Court of India

CIT vs Corporation Bank and Ors.

Civil Appeal No. 1770 of 2006 with Civil Appeals Nos. 1771 to 1773, 2188 to 2191, 2646, 3047 of 2006, and Civil Appeals Nos. 138, 3186 and 3187 of 2007

S.H. Kapadia and B. Sudershan Reddy, JJ

19 July 2007

Mohan Parasaran, Additional Solicitor-General of India (Alka Sharma, Raghavendra Rao, Kailash Pandey and B. V. Balaram Das, Advocates, with him) for the Appellant
G. Sarangan, Sr. Adv. (Sanjay Kunur, R. N. Keshwani and N. N. Keshvani, Advs. with him) for the Respondent


Leave granted in special leave petitions.

The short point which arises in this batch of civil appeals is whether interest earned by the assessee-banks on dated Government securities was liable to be assessed under section 2(7) read with section 4 of the Interest-tax Act, 1974. In our view, there is a basic difference between loans and advances on the one hand and investments/securities on the other. This difference is indicated in the provisions of the Income-tax Act, the Companies Act as well as the Banking Regulation Act. These aspects have been discussed in detail in two decisions of the Bombay High Court, namely, Discount and Finance House of India Ltd. v. S. K. Bhardwaj, CIT reported in [2003] 259 ITR 295, as also in another decision of the Bombay High Court reported in [2003] 259 ITR 312 in the case of CIT v. United Western Bank Ltd. It is not in dispute that the Revenue has accepted the aforestated two judgments of the Bombay High Court. We are in agreement with the view expressed by the Bombay High Court.

For the aforestated reasons there is no merit in the civil appeals filed by the Department. The same are dismissed. No order as to costs.

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