Case Note & Summary
The case involves an appeal by the Commissioner of Income Tax-2 against an order of the Income Tax Appellate Tribunal (Tribunal) dated 26/10/2009 for the assessment year 2004-05. The respondent-assessee, Upendra T. Kapadia, is an individual engaged in the business of trading in cotton bales. The Assessing Officer had disallowed an amount of Rs.52,85,205/- under Section 43B of the Income Tax Act, 1961, being interest payable by the assessee to Shree Mahalaxmi Mercantile Co-operative Bank Limited, on the ground that there was no evidence furnished by the assessee to substantiate that the payment of interest was made before the filing of the return of income. The Tribunal deleted the disallowance, holding that Shree Mahalaxmi Mercantile Co-operative Bank Limited is not a scheduled bank within the meaning of Section 43B and Section 11(5) of the Act, and therefore the provisions of Section 43B(e) would not apply. The revenue appealed to the High Court, which admitted the appeal on two questions of law: (A) whether the Tribunal was justified in deleting the disallowance of Rs.52,85,205/- made under Section 43B, and (B) whether the Tribunal was justified in holding that the bank is not a scheduled bank. The High Court, after hearing the advocates for both sides, held that a co-operative society engaged in banking is a scheduled bank under Section 43B(e) read with Section 11(5) of the Act, and thus the provisions of Section 43B apply. The Court further noted that the assessee had not furnished evidence of payment before filing the return. Consequently, the High Court allowed the appeal, set aside the Tribunal's order, and restored the Assessing Officer's disallowance.
Headnote
A) Income Tax - Section 43B Disallowance - Interest Payable to Co-operative Bank - The Tribunal deleted the disallowance of interest payable to Shree Mahalaxmi Mercantile Co-operative Bank Limited, holding that the bank is not a scheduled bank under Section 43B read with Section 11(5) of the Income Tax Act, 1961. The High Court reversed this, holding that a co-operative bank engaged in banking business is a scheduled bank for the purposes of Section 43B, and the assessee must provide evidence of payment before filing the return to claim deduction. (Paras 2-4) B) Income Tax - Scheduled Bank Definition - Section 43B and Section 11(5) - The Tribunal erred in holding that Shree Mahalaxmi Mercantile Co-operative Bank Limited is not a scheduled bank. The High Court held that a co-operative society engaged in banking is a scheduled bank under Section 43B(e) read with Section 11(5) of the Act, and thus the provisions of Section 43B apply to the assessee. (Paras 2-4)
Issue of Consideration
Whether the Tribunal was justified in deleting the disallowance of Rs.52,85,205/- made under Section 43B of the Income Tax Act, 1961, being interest payable to Shree Mahalaxmi Mercantile Co-operative Bank Limited, and whether the Tribunal was justified in holding that the said bank is not a scheduled bank within the meaning of Section 43B and Section 11(5) of the Act.
Final Decision
The High Court allowed the appeal, set aside the Tribunal's order, and restored the disallowance made by the Assessing Officer under Section 43B of the Income Tax Act, 1961.
Law Points
- Section 43B disallowance applies to interest payable to co-operative banks
- Co-operative banks engaged in banking are scheduled banks under Section 43B read with Section 11(5) of Income Tax Act
- 1961
- Payment before filing return must be evidenced
