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SC to Government: Keep the taxation structure straight forward & user-friendly

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Court :
Supreme Court of India

Brief :
In South Indian Bank Ltd. v. Commissioner of Income Tax [Civil Appeal No. 9606 of 2011 (with several other analogous appeals) dated September 09, 2021], South Indian Bank ("the Appellant") along with several other banks ("the Appellants") filed a civil appeal in the Supreme Court challenging the judgment of the Honorable Madras High Court and seeking clarity on the interpretation of Section 14 A of the Income Tax Act, 1961 ("the IT Act"). The Appellant sought lucidity on account of why the expenditure incurred, by them, in bonds and shares is not tax deductible under Section 14 A of the IT Act.

Citation :
Civil Appeal No. 9606 of 2011 (with several other analogous appeals) dated September 09, 2021

In South Indian Bank Ltd. v. Commissioner of Income Tax [Civil Appeal No. 9606 of 2011 (with several other analogous appeals) dated September 09, 2021], South Indian Bank ("the Appellant") along with several other banks ("the Appellants") filed a civil appeal in the Supreme Court challenging the judgment of the Honorable Madras High Court and seeking clarity on the interpretation of Section 14 A of the Income Tax Act, 1961 ("the IT Act"). The Appellant sought lucidity on account of why the expenditure incurred, by them, in bonds and shares is not tax deductible under Section 14 A of the IT Act.

In this case, the Appellants contended that the investments made in bonds and shares should be considered to have been made out of interest-free funds which were essentially more than the investment made and therefore the interest paid by the assesse on its deposits and other borrowings should not be considered to be expenditure incurred in relation to tax free income on bonds and shares and as an analogy, there should be no disallowance under Section 14 A of the IT Act.

As opposed to the Appellants, the Respondents quoted the erstwhile given reasoning of the Honorable Madras High Court; wherein it was stated that none of the Appellants maintained separate accounts for the investments made in bonds, securities and shares wherefrom the tax-free income is earned so that disallowances could be limited to the actual expenditure incurred by the Appellants.

At the perusal of all the facts and evidences, the Apex Court opined that the proportionate disallowance is not warranted, under Section 14A of the IT Act. The Court gave the aforementioned ratio because there was a lack of consonance established between expenditure disallowed and the earning of exempt income.

Furthermore, the Court observed that it is the moral obligation of the Central Government to set up a taxation system that is user-friendly and easily accessible. If such convenience is achieved, unnecessary litigation can be avoided without compromising on generation of revenue.

 

Bimal Jain
on 11 September 2021
Published in Income Tax
Views : 17
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