New Delhi: Supreme court Investments in bonds, securities and shares have provided a major tax relief to the income of banks and advised the government to keep their tax regime simple to avoid tax liabilities.
In advising, a bench of justices Sanjay K Kouli and Hrishikesho Roy Quote 18th century economist Adam Smith, who in hiswealth of Nations’ had said, “The tax that every person has to pay should be fixed and not arbitrary. The timing of payment, mode of payment, amount to be paid, must be clear and clear to the contributor and every other person.
“Just as the government does not aspire to evade tax equally, it is the responsibility of the government to devise a tax system for which a subject can budget and plan. If a proper balance is achieved between these two , then unnecessary litigation can be avoided without compromising on revenue generation,” Justice Roy, writing the judgment for the bench, said.
Justice Roy said, “It is to be observed here that in the taxation regime, there is no place for presumption and nothing can be taken to imply. The tax which is to be paid by an individual or a corporate, It is a matter of planning. A taxpayer and the government should try to keep it convenient and simple to achieve maximum compliance.”
The assessee banks had raised the following question before the SC – “Whether the proportionate disallowance of interest paid by banks under section 14A of the Income Tax Act for investments made in tax free bonds/securities which are tax free dividends and assessee Banks when the assessee had sufficient interest free own funds in excess of the investment made.”
The assessees are scheduled banks and in the course of their banking business, they also engage in the business of investments in bonds, securities and shares which earn them, interest from such securities and bonds as well as dividends on investments from shares and units of companies. There is also income. NS UTI etc. which are tax free.
Various incomes are classified under Section 14 of the Income Tax Act SalaryIncome from house property, profits and gains of business or profession, capital gains and income from other sources. Section 14A deals with expenditure incurred in respect of income which is not included in total income and which is exempt from tax. Hence, no tax is levied on such exempted income. Section 14A was inserted in the Act to ensure that the expenditure incurred in generating such tax exempt income is not allowed as deduction while computing the total income for the assessee concerned.
Banks clarified that none of them maintain separate accounts for investments made in bonds, securities and shares from where tax-free income is earned so that the disclaimer may be limited to the actual expenditure incurred by the assessee. In other words, interest paid on borrowed funds such as deposits used for investments in securities, bonds and shares, which yield tax-free income, can easily be retained for this purpose. Cannot be linked to a different account.
While ruling in favor of the banks, the Bench said, “Shares and securities held by a bank are stocks in business, and all income received on such shares and securities should be treated as business income. Section 14A shall, therefore, not attract such income.” For.”
“Revenue has failed to refer to any statutory provision which obliges the assessee to maintain segregated accounts which may justify proportionate disallowance. Reply to the issue framed in these appeals against Revenue and has been given in favor of the assessee. Appeals by the assessee are accordingly allowed,” the bench said.
In advising, a bench of justices Sanjay K Kouli and Hrishikesho Roy Quote 18th century economist Adam Smith, who in hiswealth of Nations’ had said, “The tax that every person has to pay should be fixed and not arbitrary. The timing of payment, mode of payment, amount to be paid, must be clear and clear to the contributor and every other person.
“Just as the government does not aspire to evade tax equally, it is the responsibility of the government to devise a tax system for which a subject can budget and plan. If a proper balance is achieved between these two , then unnecessary litigation can be avoided without compromising on revenue generation,” Justice Roy, writing the judgment for the bench, said.
Justice Roy said, “It is to be observed here that in the taxation regime, there is no place for presumption and nothing can be taken to imply. The tax which is to be paid by an individual or a corporate, It is a matter of planning. A taxpayer and the government should try to keep it convenient and simple to achieve maximum compliance.”
The assessee banks had raised the following question before the SC – “Whether the proportionate disallowance of interest paid by banks under section 14A of the Income Tax Act for investments made in tax free bonds/securities which are tax free dividends and assessee Banks when the assessee had sufficient interest free own funds in excess of the investment made.”
The assessees are scheduled banks and in the course of their banking business, they also engage in the business of investments in bonds, securities and shares which earn them, interest from such securities and bonds as well as dividends on investments from shares and units of companies. There is also income. NS UTI etc. which are tax free.
Various incomes are classified under Section 14 of the Income Tax Act SalaryIncome from house property, profits and gains of business or profession, capital gains and income from other sources. Section 14A deals with expenditure incurred in respect of income which is not included in total income and which is exempt from tax. Hence, no tax is levied on such exempted income. Section 14A was inserted in the Act to ensure that the expenditure incurred in generating such tax exempt income is not allowed as deduction while computing the total income for the assessee concerned.
Banks clarified that none of them maintain separate accounts for investments made in bonds, securities and shares from where tax-free income is earned so that the disclaimer may be limited to the actual expenditure incurred by the assessee. In other words, interest paid on borrowed funds such as deposits used for investments in securities, bonds and shares, which yield tax-free income, can easily be retained for this purpose. Cannot be linked to a different account.
While ruling in favor of the banks, the Bench said, “Shares and securities held by a bank are stocks in business, and all income received on such shares and securities should be treated as business income. Section 14A shall, therefore, not attract such income.” For.”
“Revenue has failed to refer to any statutory provision which obliges the assessee to maintain segregated accounts which may justify proportionate disallowance. Reply to the issue framed in these appeals against Revenue and has been given in favor of the assessee. Appeals by the assessee are accordingly allowed,” the bench said.
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