TMI Blog2008 (3) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolve common questions of law and are between the same parties and are, therefore, being decided by common order. Though these are two sets of appeals, one being Appeal No. 12 of 2005, which has been filed against the order of the learned Tribunal dated July 15, 2004, while the other three appeals are against the common judgment of the Tribunal dated May 29, 2003, but then the judgment dated July 15, 2004, simply follows the judgment dated May 29, 2003. Thus, these appeals involve common questions of law. Appeal No. 12 was admitted, vide order dated March 24, 2005, by framing the following substantial question of law: "Whether, on the facts and circumstances of the case, the difference in interest amount accounted for by the assessee on accrual basis in his books of account and the amount actually offered for taxation in computation of income submitted by the assessee should be the subject-matter of adjustment under section 143(1)(a) for raising a demand of tax and additional tax on that basis ?" 2. While the other three appeals have been admitted, vide order dated December 13, 2005, by framing the following three substantial questions of law: "(i) Whether since sections 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and gains of business. The second question is about continuity of transaction being covered by the ratio of the judgment of the hon'ble the Supreme Court in Vijaya Bank Ltd. v. Addl. CIT [1991] 187 ITR 541 for the period subsequent to the amendment in the Income-tax Act and the third question comprehends the power of the revisional authority. Thus, in substance the question is as to whether the amount of broken period interest paid by the bank can be claimed as allowable deduction from the income of the bank. 4. It is not in dispute that for the relevant period involved in these appeals the provisions of sections 18 to 21 of the Income-tax Act, as they stood, did stand deleted. However, since much of the controversy is raised on the aspect of effect of the deletion of these sections, we think it appropriate to quote the provisions of sections 18 to 21, as they stood earlier, and they read as under: "18. Interest on securities. - (1) The following amounts due to an assessee in the previous year shall be chargeable to income-tax under the head 'Interest on securities' - (i) interest on any security of the Central or State Government; (ii) interest on debentures or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed' includes moneys received by way of deposits. 21. Amounts not deductible from interest on securities. - Notwithstanding anything contained in sections 19 and 20, any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head 'Interest on securities'." 5. After deletion of the above provisions, the income earned by the bank by way of interest is chargeable under section 28(i) as income under the head "Profits and gains of business or profession". Then, a look at section 36(1)(iii) does show that the deduction in pari materia in terms of erstwhile section 19 is admissible under this clause. For the present purpose, sections 20 and 21, as they earlier existed, are not relevant for the present controversy. 6. It is in this background, that the learned Tribunal has set aside the order of the Commissioner passed in revision under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the order of the learned Commissioner of Income-tax passed under section 263 was quashed.' 7. A look at the judgment in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) does show that of course that judgment did consider the provisions of section 18, as they existed at that time, but then a look at the question framed therein does show that the precise question was as to whether deduction could be claimed under sections 19, 20 and 37 of the Income-tax Act for the amount of Rs. 58,568, being interest accrued on securities taken over by the assessee-bank, from Jayalakshmi Bank Ltd. and Rs. 11,630 being the interest accrued up to the date of purchase in the case of securities purchased by the assessee-bank from the open market and relying upon the English judgment in CIR v. Pilcher [1949] 31 TC 314, 332 (CA) wherein it was held that it is a well-settled principle that outlay on the purchase of an income-bearing asset is in the nature of capital outlay and no part of the capital so laid out can for income-tax purposes be set off as expenditure against income accruing from the asset in question and it was held that, in that instant case, the assessee purchased securities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sections 18 and 19 obviously sections 20 and 21 are not relevant for the present purpose. That being the position, the ratio propounded in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC), even though it proceeds on consideration of the then provisions of sections 18 and 19, still does hold good. 11. Then we take up the judgment in American Express International Banking Corporation's case [2002] 258 ITR 601 (Bom). A reading of that judgment shows that reasons given by the Bombay High Court for distinguishing the judgment in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) proceed on a different line of reasoning. While, in our view, when the Supreme Court judgment proceeds on the established legal principle, deduced from previous English judgment. With all humility at our command, we feel bound by the ratio laid down in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC). Even otherwise, so far as the reasoning in American Express International Banking Corporation's case [2002] 258 ITR 601 (Bom) is concerned, we do not find ourselves able to agree with the reasonings inasmuch as if carried to logical conclusion it permits a postmortem of the purchase com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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