Case Note & Summary
The appellant, M/s Pragathi Krishna Gramin Bank, a regional rural bank, filed appeals under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) dated 03.08.2017 for Assessment Years 2011-12 and 2012-13. The core issue was whether the expenditure incurred by the bank for raising capital was allowable as a deduction under Section 36(1)(viii) of the Act. The Assessing Authority and the ITAT had disallowed the expenditure, treating it as capital expenditure. The appellant argued that the expenditure was revenue in nature, incurred for the purpose of business, and should be allowed. The respondent, the Joint Commissioner of Income Tax, supported the disallowance. The High Court, after hearing both sides, held that the expenditure for raising capital by a bank is revenue expenditure and not capital expenditure, as it is incurred to augment working capital and not for acquiring a capital asset. The court allowed the appeals, set aside the ITAT order, and directed the Assessing Officer to allow the expenditure. The judgment was delivered by Dr. Vineet Kothari J. and Dr. H.B. Prabhakara Sastry J. on 28.05.2018.
Headnote
A) Income Tax - Allowability of Expenditure - Section 36(1)(viii) Income Tax Act, 1961 - Expenditure on Raising Capital - The issue was whether expenditure incurred by a regional rural bank for raising capital is allowable as revenue expenditure under Section 36(1)(viii) of the Income Tax Act, 1961. The court held that such expenditure is revenue in nature and allowable, as it is incurred for the purpose of business and not for acquisition of a capital asset. (Paras 1-3) B) Income Tax - Capital vs Revenue Expenditure - Section 36(1)(viii) Income Tax Act, 1961 - Regional Rural Banks Act, 1976 - The court distinguished between capital and revenue expenditure, holding that expenditure for raising capital by a bank is revenue expenditure because it is incurred to augment working capital and is not for acquiring a capital asset. The court allowed the appeal and set aside the order of the ITAT. (Paras 2-3)
Issue of Consideration
Whether the Assessing Authority and Appellate Authorities were justified in disallowing the expenditure incurred for raising capital by the assessee bank under Section 36(1)(viii) of the Income Tax Act, 1961?
Final Decision
The appeals are allowed. The order of the Income Tax Appellate Tribunal dated 03.08.2017 in ITA Nos.11 & 12/Bang/2016 for Assessment Years 2011-12 and 2012-13 is set aside. The Assessing Officer is directed to allow the expenditure incurred for raising capital as revenue expenditure.
Law Points
- Expenditure on raising capital is revenue expenditure
- Section 36(1)(viii) of Income Tax Act
- 1961
- Regional Rural Banks Act
- 1976
- Allowability of expenditure
- Capital vs revenue expenditure
