TMI Blog1982 (7) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... exceeding the current market price, an amount which shall not at the close of business on any day be less than the prescribed percentage of the total of its time and demand liabilities in India. There is an Explanation to this section which gives an inclusive definition of, 'unencumbered approved securities'. According to this Explanation, such securities shall include its approved securities lodged with another institution for an advance or any other credit arrangement to the extent to which such securities have not been drawn against or availed of as detailed thereunder. At the time, when these assessment proceedings were going on, according to the manager, general department of the assessee, this percentage of the liquid assets required to be so maintained was 34 per cent of the total time and demand liabilities of the bank. The bank in this regard, therefore, has to make investment in the Government and other trustee securities which are approved in compliance of the above provisions of the Banking Regulation Act. The bank finds the Government securities available in bulk and also approved for investment and, therefore, makes investment generally in these securities in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductible from the profits of the current year.' The ITO also noted that even otherwise it was only a book loss because earlier, the securities were being valued at cost and only on sale of such securities the profit or loss was worked out. It was for the first time, according to him, that the assessee worked out the loss on the difference between the market value and the book value of these securities for the assessment year 1975-76. 5. For the assessment year 1976-77, the representative of the assessee emphasised before the ITO that the securities were held as stock-in-trade of the bank and as such the bank was entitled to value the securities either at cost or at market price, whichever is less. Certain decisions were quoted before him for his consideration. The ITO observed that the securities were not part of the stock-in-trade of the assessee. According to him, there had been no change in the securities held by the assessee 'for the last number of years'. According to him, this indicated that only surplus funds of the bank had been invested in the securities to earn income. On such facts, according to him, the claim of the assessee was incorrect. He disallowed it. 6. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction of loss on account of securities, the learned Commissioner (Appeals) took up the matter with regard to claim for deduction of the sum of Rs. 70,92,000. This claim he disposed of as under : " 6. The fifth and sixth ground relates to the claim of provision of gratuity made by the appellant and was disallowed amounting to Rs. 61,29,000 out of Rs. 70,92,000 claimed as a provision on the grounds that the same pertained to the earlier years, i.e., 1971 to 1974. It was explained by the A.R. that the amount represented the contribution made by the bank towards gratuity fund approved by the CIT vide his letter Jud/I/Gratuity/Fund/SHP/72-73/31616, dated 11-12-1972 effective from 1-1-1970 and in terms of rule 104 read with section 36(1)(v) it would be admissible being initial contribution towards an approved gratuity fund because the same represented the contribution as calculated on the actuarial valuation and calculations vide certificate from the Fellow of the Institute of Actuaries, London, made available in this regard. That being the position, the appellant will get a relief of Rs. 61,29,000 under this head. " Now, out of the above impugned orders of the learned Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... face value of Rs. 4,09,49,900. Similarly, the assessee purchased securities for the assessment years 1974-75 to the extent of Rs. 5,43,94,100. He also indicated that there were purchases in the similar manner for the assessment years 1975-76 and 1976-77. These details appear at pages 6 to 9 of the paper book. He also pointed out that there was redemption of securities, during the calendar year 1972, relevant to the assessment year 1973-74 and in such redemption there was surplus of Rs. 25,197.74. Similarly for the calendar year 1973, there was redemption of securities resulting into loss of Rs. 5,375. Similar figures for the assessment years 1975-76 and 1976-77 have been given. These details appear at pages 10 to 13 of the first paper book of the assessee. The learned counsel for the assessee submitted that in the income-tax proceedings, the principles of res judicata and estoppel are not applicable. For this, he placed reliance upon the ratio of the following judgments : New Jehangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137 (SC) and H.M. Ipoh v. CIT [1968] 67 ITR 106 (SC). He, therefore, contended that the authorities below instead of following the decisions taken in the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, income from interest on securities and even in the earlier years, nevertheless, partakes the character of business income of the assessee in view of the judgment of the Supreme Court in the case of United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688. He contended that mere crediting or debiting a particular amount under a particular head by the assessee, cannot and should not determine its taxability under that head and that it should be taxed under the proper head in accordance with law. In nutshell, his argument was that whatever method had been adopted by the assessee, in accounting for the interest on the securities and the difference between the purchase and sale when they were sold in the earlier years, should be considered as immaterial for determining the issue in appeals before us now. If the proper perspective, according to him, is kept in view about the nature and the method of functioning of the assessee-bank, there cannot be any doubt that the income from interest on securities and the sale and purchase difference is nothing but business income of the assessee and should be treated as such for taxation purposes. He contended that when an assessee bona fide changes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income. The authorities below were, therefore, fully justified in the treatment given to the claim of the assessee for the two years under appeal. 15. The revenue argued its appeal bearing IT Appeal No. 380 of 1978-79 with regard to the observations of the learned Commissioner (Appeals) in his impugned order regarding the sum of Rs. 70.92 lakhs. The ground taken by the revenue originally was that the learned Commissioner (Appeals) erred in holding that the sum of Rs. 61,29,000 representing 'provision of gratuity' is an allowable deduction under section 36(1)(v). The revenue has filed what is described as additional grounds and, inter alia, in these grounds marked as 4, 5 and 6 projected different aspects of the same problem. We have admitted these grounds for our consideration as the issue involved before us required consideration and decision on various facts which have been projected in these grounds by the revenue. The revenue contended that the learned Commissioner (Appeals) gave a very summary disposal with regard to the issue of deduction of Rs. 61,29,000 and did not make a reasoned order. In this regard, the learned departmental representative particularly brought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment in law by the insertion of sub-section (7), the gratuity is deductible only in three cases : (i) where it is paid or has become payable from the accounting period ; (ii) where a contribution is made towards an approved gratuity fund or the provision is made for such contribution ; and (iii) where a contribution is made towards an unapproved gratuity fund held under a trust. Clause (b)(ii) of this sub-section makes a special provision for deduction of liability for gratuity for the assessment years 1973-74 to 1975-76 to mitigate partially the injustice that may arise from the retrospective operation of this sub-section. There are certain conditions to be satisfied and the matter requires very careful consideration with regard to such matters. But when we see the order of the learned Commissioner (Appeals), we are constrained to observe that the grievance of the revenue is fully justified. After recording the amounts required to be deducted and the contentions of the assessee, what the Commissioner (Appeals) has done is as under : " That being the position, the appellant will get a relief of Rs. 61,29,000 under this head. " We cannot consider this as a satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in Punjab Co-operative Bank Ltd.'s case was projected to their Lordships of the Supreme Court and their Lordships in the ratio of this judgment have held that " income from 'interest on securities' falls under section 8 of the Income-tax Act, 1922, and not under section 10 of the 1922 Act, it cannot be brought under a different head or income, viz., 'profit and gains of business' under section 10, even though the securities are held by a banker as part of his trading assets in the course of his business ". But their Lordships considered this issue again in the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC) and observed that income from securities, which formed part of the assessee's trading assets, was part of its income from business and, therefore, the loss incurred in the business in the earlier years could be set off against the income from securities also in the succeeding years. At page 311, their Lordships of the Supreme Court have observed that the decision of the said Court in the case of United Commercial Bank Ltd. did not lay down any different proposition. It held, after an exhaustive review of the authorities, that under the scheme of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a different method of keeping accounts or of valuation. In the case of Bank of Cochin Ltd., the Kerala High Court has held that it is a sound commercial practice to value the closing stock at cost or market price, whichever is lower. The mode of valuation of a closing stock can be changed by the assessee provided such changed method is followed regularly. In that case, the assessee had adopted the method of valuing the stock at cost price from 1960 to 1965. In 1966, the assessee adopted the market price which was lower and in the subsequent years, i.e., 1967 and 1968, the assessee adopted the cost price which was lower than the market price. The assessee changed the method of valuation and adopted the method of valuation of the closing stock at cost or market price, whichever was lower and followed it in the subsequent assessment years. This was approved by the Court and the action of the assessee was justified. 21. We have to examine the case of the assessee in the light of the above position of law. We have already set out the facts of the case. From these facts, it becomes clear that in carrying on the business of banking, the act of making investment in the Government secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The second objection of the revenue is that the securities are actually investments by the assessee and any difference arising out of their valuation or purchase or sale has to be treated as something pertaining to the investment and taking into consideration the statutory period of holding these investments, the profit or loss will be long-term or short-term on the facts of each transaction. 23. It is now well settled that the principles of estoppel and res judicata do not apply to the income-tax proceedings. On this issue, the learned counsel for the assessee has cited two judgments which we have adverted to in para 10 above. In the case of M.M. Ipoh, the Hon'ble Supreme Court after considering a number or authorities on the issue decided earlier held that the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for the assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of the assessment, the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not bin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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