Interest — Tax — Interest as Government securities not chargeable to Interest Tax

13. Interest — Tax — Interest as Government securities not
    chargeable to Interest Tax

[CIT vs. Ratnakar Bank Ltd. (2008) 305 ITR 257 (SC)].

The question involved before the Supreme Court was whether
interest earned by the assessee-bank on Government securities was liable to be
assessed under Section 2(7) of the Interest-tax Act ? The Tribunal had held
that it was not chargeable. The High Court had upheld the view of the
Tribunal. The Supreme Court observed that the issue was considered by it
earlier in CIT vs. Corporation Bank, (2007) 295 ITR 193 (SC), wherein
the appeals filed by the Department were dismissed. However, the learned
counsel for the Department submitted that the said decision related to the
interest on Government securities. The learned counsel for the assessee
submitted that in the instant case, the interest earned was on Government
securities only. This stand was denied by the learned counsel for the
Department. In the circumstances, the Supreme Court remitted the matter back
to the Tribunal to examine the factual position as to whether the interest
involved in the present case was on Government securities. The Supreme Court
clarified that if the interest was earned on Government securities, the ratio
of the decision in Corporation Bank’s case would apply to the facts of the
present case and if the interest earned was not solely on Government
securities, the ratio of the decision would not apply.