Alka Verma-
Published on: September 13, 2021 at 10:39 IST
The Supreme Court of India has provided major relief to bank earnings from investments in bonds, securities and shares by providing reduction in tax.
The Court asked the Government to keep its tax regime low to stop avoidance of tax liabilities.
A Bench comprising Justices Sanjay K Kaul and Hrishikesh Roy quoted Adam Smith definition of ‘Wealth of Nations’.
“The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor and to every other person,” quoted the Bench.
While writing the Order, Justice Roy said, “Just as the government does not wish for avoidance of tax equally, it is the responsibility of the regime to design a tax system for which a subject can budget and plan. If proper balance is achieved between these, unnecessary litigation can be avoided without compromising on generation of revenue.”
The Bench ordered this while it was dealing with a question raised by banks.
The banks asked the Court, “Whether proportionate disallowance of interest paid by the banks is called for under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to assesses Banks when assesses had sufficient interest free own funds which were more than the investments made.”
The Bench ruled in favor of the bank and stated, “Shares and securities held by a bank are stock in trade, and all income received on such shares and securities must be considered to be business income. That is why Section 14A would not be attracted to such income.”
“The revenue has failed to refer to any statutory provision which obligates the assesses to maintain separate accounts which might justify proportionate disallowance. The issue framed in these appeals is answered against the Revenue and in favour of the assesses. The appeals by the assesses are accordingly allowed,” added the Bench.
It should be noted here that the Assesses are scheduled banks they also earn from investment in bonds securities and shares during their course of banking and interest from source of incomes are tax free.
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