1987 (11) TMI 58 - HC - Income Tax

Summary

Issues:
1. Entitlement to development rebate on safe deposit lockers.
2. Taxability of a sum received as brokerage and commission.

Entitlement to development rebate on safe deposit lockers:
The High Court of Karnataka addressed the issue of entitlement to development rebate on safe deposit lockers in the context of the Syndicate Bank. The court clarified that this issue was already settled in a previous ruling in favor of the assessee. The court referred to the earlier judgment in Syndicate Bank v. CIT [1984] 150 ITR 198, where it was held that the assessee is entitled to development rebate on safe deposit lockers. The court, therefore, answered this question in the negative and in favor of the assessee, as it was already covered by the previous ruling.

Taxability of a sum received as brokerage and commission:
The court examined the taxability of a sum of Rs. 6,12,677 received by the Syndicate Bank as brokerage and commission. The Income-tax Officer treated this amount as a revenue receipt and made it taxable, as opposed to the earlier method followed by the assessee. The Appellate Assistant Commissioner upheld this decision, stating that the bank acted as an underwriter and the amount received was revenue income. However, the bank argued that the amount was not profit but a reduction in the cost of investment due to the failure of public subscription. The bank relied on expert advice and legal precedents to support its position. The court analyzed the nature of underwriting, commission, and brokerage in such transactions, emphasizing that the amount received was by way of discount and should be treated as a reduction in the cost of investment, not as business profit. The court found that the brokerage and commission were intertwined with the bank's direct subscription to shares in the absence of public subscription, and thus, not taxable as income. The court also considered guidelines from the Indian Banks Association and previous judgments to support its conclusion. Therefore, the court answered the second question in the negative and in favor of the assessee, determining that the sum received was not taxable as a revenue receipt.

In conclusion, the High Court of Karnataka clarified the issues of entitlement to development rebate on safe deposit lockers and the taxability of a sum received as brokerage and commission by the Syndicate Bank, providing detailed analysis and legal reasoning for each issue, ultimately ruling in favor of the assessee in both instances.