S.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the rectification order of the AO

Supreme Court Of India

CIT vs. South Indian Bank Ltd.

Section 154

Asst. Years 1979-80, 1980-81

S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal, JJ.

Civil Appeal Nos. 5995 & 5996 of 1999

5th December, 2000 



The question that arises in these appeals by the Revenue against the decision of the High Court of Kerala reads thus : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the rectification order of the AO”

2. The assessee is a scheduled bank. It is required to buy and sell Government securities. During the assessment years in question, namely, 1979-80 and 1980-81, it deducted the interest paid for broken periods and this was originally allowed. Later, the assessing authority invoked the provisions of s. 154 of the IT Act, 1961, and cancelled such allowance for the reason that income by way of interest from purchase and sale of securities should be computed under the head ‘interest on securities’ and the provisions of ss. 18 to 20 did not permit such deduction. The matter went up to the Tribunal and the Tribunal held that a debatable issue was involved and that the assessing authority was, therefore, not justified in invoking the machinery for rectification under s. 154. It held, even on the principal question, in favour of the assessee. Arising out of the order of the Tribunal, the question aforestated was referred to the High Court. The two learned Judges who constituted the Division Bench that originally heard the matter took divergent views both in relation to the applicability of the rectification provision as also on merits. The matter was, therefore, placed before a third learned Judge. The third learned Judge held in favour of the assessee both in regard to the invocation of s. 154 and also on merits. The Revenue is in appeal by special leave against the decision of the High Court.

Having regard to the difference of opinion among the learned Judges of the High Court on the principal question, it is clear that there was a debatable question and error on the face of the record which could be corrected by invocation of the provisions of s. 154. On that ground alone, the appeals must fail.

We make it clear that we are expressing no opinion in regard to the principal issue. The appeals are dismissed.

No order as to costs.

[Citation : 249 ITR 304]

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