ITAT partial relief to bank on actuarial liabilities, NPA interest, and MAT applicability issues.

7. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee’s own case in State Bank of India v/s DCIT, in ITAs no. 3644 and 4563/Mum/2016, for the assessment year 2008-09, vide order dated 03/ 02/2020, while deciding similar issue observed as under:-

“15. We have heard rival contentions on this issue and gone through facts and circumstances of the case. We have also perused the material placed before us including assessment order, order of CIT(A) and case laws. We noted that the assessee provides post-employment benefits such as pension, gratuity, etc. to its employees, under a “Defined Benefit Plan”. In terms of the said plan, the assessee operates a Provident Fund Scheme, Gratuity scheme and Pension Scheme. The Pension scheme comprises of two parts (i) where the assessee makes a contribution to an approved Pension Fund, and (ii) where the assessee provides for pension payable to vested employees on retirement, on death or termination of employment, etc. The issue in the present appeal is only with regard to (ii) above i.e. provision for pension payable to employees based on the employment policy, the assessee provides pension benefits to its employees under a defined benefit plan. The provision is in respect of the defined benefits payable to its employees on retirement in respect of the services rendered by the said employees. The assessee has been measuring its liability for such benefits actuarially and obtains a valuation report every year and, on basis thereof, makes a provision in accordance with the Accounting Standards. During the year under consideration, the assessee has adopted AS-15 issued by the ICAI. Accordingly, an actuarial valuation was obtained to determine the additional obligation of the assessee towards pension liability. In accordance with the transitional provisions of AS-15, a provision of Rs. 3,724 crores were made based on the actuarial valuation by debiting the revenue reserves. The details are filed by the assessee in its note filed vide note 18.9(a)(v)(i) of the financial statements at page no. 73 of the Paper Book -1, filed by assessee.

16. We noted that the above amount was debited to revenue reserves, the assessee claimed a deduction for the same separately in the computation of total income and the relevant details are filed by the assessee at Sr. No. III.14 of the computation of total income on page 2 of the Paper Book – I filed by assessee. As consideration of availing the benefit of the services of the employees during the year it in addition to the salary, bonus, allowances, perquisites, etc. is also obliged to provide various retirement benefits such as pension, gratuity, etc. to the employees. These liabilities although to be discharged in the future relate to the rendering of the services during the year and because of the various imponderables determined based on an actuarial valuation. The assessee explained this by an example stating that, if as per employee policy an amount of Rs. 250/- is payable to each employee towards pension and there are 10,000 employees, the total pension payable would be Rs. 25,00,000/-. However, based on actuarial valuation, which takes into consideration entry into service, length of service and date of retirement of all employees, attrition before retirement, etc. the pension liability amounts to Rs. 18,00,000/-. Accordingly, a provision of Rs. 18,00,000/- is required to be created in the books. Therefore, the pension liability has definitely arisen during the year as the services of the employees are already availed, and they are eligible for the said pension. It is also possible to estimate the pension liability with reasonable certainty. Hence, the provision made is for a present actual liability, payable in future, and not a contingent liability. It is clearly an ascertained liability and has been recognised in the books of account on a scientific basis, based on actuarial valuation. The Supreme Court in the case of Metal Box Co. of India (supra) and Bharat Earth Movers (supra) and several other cases, have held that if a business liability has definitely arisen in the accounting year, a deduction should be allowed if the liability could be reasonably estimated though actually discharged at a later date. Also, the Delhi High Court in the case of Delhi Flour Mills v. CIT [1974] 95 ITR 151 (Delhi) , while allowing the provision for gratuity, observed as under:

“The gratuity payable to an employee represented a part of the emoluments payable to him for rendering service during each year. The right to receive gratuity accrued to the employee as soon as he completed one year of service and, as a corollary, the liability to pay the gratuity to the employee arose to the assessee at the end of each year. The amount of the liability was also ascertainable and there was no question in the instance case of the discounted present value of the liability being not ascertainable. It was no doubt true that the actual payment of the gratuity was deferred to a later date on the happening of a certain event, namely, death or voluntary retirement of the employee. But, these were not uncertain events. Therefore, the provision made by the assessee for the payment of gratuity under the agreement dated 14-2-1956, was in the nature of a revenue expenditure in respect of the assessment years under reference.

17. Accordingly, a deduction was claimed in respect of provision for pension liability based on the principle laid down by the Courts, as discussed above. The claim was further supported by the Accounting Standard 1 notified by the Central Government in terms of section 145(2) of the Act, which mandates the adoption of a policy of prudence pursuant to which a provision is to be made for every known liability even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. But, the Revenue before the Tribunal has emphasised on the following contentions: a. expenditure does not relate to the year under consideration; b. Specific provision of sections 36(1)(iv)/36(1)(v) and 40A(7)/40A(9) of the Act are applicable to the pension liability. Further, the same should only be allowed on payment basis as per section 43B of the Act. Hence, a general provision like section 37(1) of the Act cannot apply.

18. We noted that, in the present case, the provision of Rs. 3,724 crore relates to the transitional liability and has arisen on account of adoption of Revised AS-15 relating to employee benefits issued by the ICAI. The allowability of such transitional provision has been upheld by the Hyderabad Bench of the Tribunal in the case of NMDC Ltd. v. JCIT  (Hyderabad – Trib.) and Chandigarh Bench of the Tribunal in the case of Glaxo Smithkline Consumer Healthcare Ltd. v. ACIT being order dated 2.04.2013 (ITA no. 1148/Chd/2011). Both the aforesaid cases were specifically concerned with similar provision created towards post retirement employee benefits on account of revision of AS-15. In both the cases the Tribunal has allowed a deduction for a liability which the revenue alleged did not pertain to the year, created as in consequence of an adoption of the revised accounting standard.

19. The fact that in year of change of accounting method there may be a distortion was accepted by the Bombay High Court in CIT v. West Coast Paper Mills Ltd. [1992] 193 ITR 349 (Bombay) . The Court was concerned with a case where the assessee changed its method of accounting for claiming deduction of bonus payments to employees from cash to mercantile. Consequently, in the year of change it claimed such deduction in respect of the cash payment for the past year accounts as well as for the provision made for the current year’s liability. The High Court held that whenever there is a change in the method of accounting, something of this kind is bound to happen. In the present case also, liability has arisen on account of change in the policy that was thrust on the assessee as a consequence of the revised accounting standard that was mandated to adopt by the Reserve Bank of India. Therefore, no disallowance could be made on this ground.

20. The assessee is under an obligation to pay pension to their employees as per the agreed terms. With the rise in salary levels and reduction in interest rates and the fact that pension payments will have to be made, based on the salary last drawn before retirement, a huge gap existed between the amount funded to the approved scheme and the actuarial valuation of such liability. With a view to bridge the gap a provision of Rs. 3,724 crores have been made during the year. The basis of arriving at this amount is referred by the AO at pages 22 and 23 of his assessment order. The provision in the present case is not for making contribution to any Fund, but for payment of pension to employees on their retirement over and above what they will be entitled to claim from the approved scheme. A bare perusal of sections 36(1)(iv)/36(1)(v) of the Act shows that, they would apply when deduction is claimed of any sum paid by an assessee as an employer towards a recognised provident fund or an approved superannuation fund or an approved gratuity fund. The amount of Rs. 3,724 crores are clearly not a contribution towards any recognised provident fund or approved superannuation fund or approved gratuity fund. Similarly sections 40A(7)/40A(9) of the Act would apply to provision made as an employer towards contribution to fund or trust or any other entity. We also noted that the amount of Rs. 3,724 crores is not a provision made for contribution to any fund or trust or any other entity. Similarly, section 43B of the Act deals with contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. The amount of Rs. 3,724 crores are not a contribution to a pension fund and is a provision towards pension liability. We are of the view that only the prescribed items can be disallowed in terms of section 43B of the Act. Therefore, the above provisions are clearly not applicable in the present case.

21. It also requires consideration that this aspect of the matter has not been controverted by the Revenue in their submissions before the Tribunal. The aforesaid provision represents the liability arising on account of availing of services during the tenure of the employment recognised as a consequence of the transitional provisions of AS-15. The aforesaid provision does not represent contribution to any pension fund, and hence, the provisions of sections 36(1)(iv)/36(1)(v) or 40A(7)/40A(9) or 43B of the Act are not applicable.

22. In CIT v. Ranbaxy Laboratories Ltd. [2011] 334 ITR 341 (Delhi) , the Delhi High Court was concerned with a case where the assessee had introduced a pension scheme for its managerial employees which was over and above the benefits available under the superannuation scheme of the company. The Delhi High Court held that the pension scheme of the assessee does not envisage any regular contribution to any fund or trust or any other entity and, therefore, allowed the deduction on the basis that liability in this regard accrues year on year. Further, reliance is placed on the decision of Mumbai Bench of the Tribunal in the case of Hindustan Unilever Ltd. v. ACIT [2013] 22 ITR(T) 737 (Mumbai), wherein the issue of allowability of pension payable to employees over and above the amount payable under the LIC scheme was restored to the file of the AO since additional evidence was filed by the assessee. However, in a subsequent decision by an order dated 30.10.2014 in ITA no. 4449/Mum/1999, the Tribunal has allowed the deduction after noting that the deduction was allowed by the AO while giving effect to the earlier year’s order wherein the matter was restored back.

23. The issue is also squarely covered by the decision of the Hon’ble Bench of the Mumbai Tribunal in the case of erstwhile State Bank of Saurashtra (which has merged with the Assessee) v. DCIT in ITA no. 4502/Mum/2013 dated 23.12.2016. The findings of the Tribunal are reproduced below:

“It is not disputed that the assessee has made the provision on the basis of actuarial valuation towards the pension of the employees in accordance with Accounting Standard 15, which was applicable from the impugned assessment year. The liability has therefore, definitely arisen during the impugned assessment year although it has to be discharged on a future date. The case of the assessee, in our view, is duly covered by the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] (245 ITR 428 ) in which it was held as under:

…………………

The provision of section 43B will not apply to the same as this does not represent the sum payable by the assessee as an employer by way of contribution to pension fund. We, therefore, respectfully following the decision of Hon’ble Supreme Court delete the disallowance.”

Hence, this issue is also covered by the Tribunal decision in the case of State Bank of Saurashtra (supra), which has merged with the Assessee.

24. The reliance placed by the learned Departmental Representative at the time of the hearing on the decision of the Madras High Court in the case of Pricol Limited is completely misplaced since the same deals with a case of disallowance of provision towards gratuity which was squarely covered by the provision of section 40A(7) of the Act. Further, it is clarified that section 40A(9) of the Act will not be applicable since the provision is not towards contribution to any pension fund. We are of the view that sections 36(1)(iv) and 36(1)(v) of the Act specifically deal with contribution to a recognized provident fund or an approved superannuation fund or an approved gratuity fund. The said sections do not deal with providing for a liability vis-a-vis pension or any other retirement benefits. Thus, the aforesaid provision for pension made on the basis of an actuarial valuation ought to be allowed as a deduction under section 37(1) of the Act. Since there are specific provisions dealing with contribution to pension fund/ gratuity fund, etc., the provision for pension (which doesn’t represent any contribution to fund) falls under the purview of section 37(1) of the Act and ought to be allowed as deduction. Reliance in this regard is placed on the decision of the Supreme Court in the case of CIT v. Kalyanji Mavji & Co. [1980] 122 ITR 49 (SC) , wherein it was held that if expenditure incurred by the assessee was not covered by the specific provision under section 10(2)(v) of the Act, then, benefit should be given to the assessee under the residuary clause i.e. section 10(2)(xv) of the Act. Moreover, Instruction no. 17/2008 dated 26.11.2008, relied upon by the CIT DR is also not applicable to the facts of the case. As regards, para ix of the aforesaid instruction, it is applicable to deduction towards contribution to provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. Whereas the provision for pension of Rs. 3,724 crore is not towards contribution to any fund, but it is payable to the employees directly. Also, Sr. no. xi of the aforesaid instruction states that contingent liability cannot constitute deductible expenditure. As elaborated above, provision towards pension of Rs. 3,724 crore is not a contingent liability. It is an ascertained liability and has been provided for in the books of account on a scientific basis, as per the actuarial valuation. Further, it would also be contrary to the judgement of the Supreme Court in the case of Metal Box Co. of India (supra) where the Supreme Court observed that contingent liabilities properly discounted were to be allowed as a deduction. In view of the above factual discussion, legal position based on various decisions, we are of the view that this deduction claimed by the assessee is allowable and hence, allowed. This issue of assessee’s appeal is allowed.”

7.17. We find that the Ld. DR has not been able to point out any distinguishing feature in the facts or in law for the year under consideration vis-a-vis the earlier assessment years, wherein identical issues have been examined and decided by the co-ordinate benches of this Tribunal in the assessee’s own case. In the absence of any material change in facts, statutory provisions, or binding judicial precedent, there is no justification for the Revenue to seek a departure from the consistent view already taken.

7.18. It is well settled that while the principle of res judicata may not strictly apply to income-tax proceedings, the doctrine of consistency and judicial discipline mandates that a view consistently taken on identical facts should not be disturbed without cogent reasons. Permitting the Revenue to re-agitate the same issue year after year, without bringing on record any new facts or legal developments, would lead to uncertainty in tax administration and multiplicity of litigation, which cannot be countenanced.

7.19. Respectfully following the consistent view adopted by this Tribunal in the assessee’s own case for earlier years, and in the absence of any justifiable reason to deviate therefrom, we see no reason to interfere with the findings rendered therein.

Accordingly, the claim of the assessee is upheld, and the Ld. AO is directed to allow the provision for pension in accordance with the earlier orders of the Tribunal.”

“7 . At outset it is clarified that none of the assessee banks amongst 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 assessee. In other words, the expenditure incurred towards interest paid on funds borrowed such as deposits utilized for investments in securities, bonds and shares which yielded the tax-free income, cannot conveniently be related to a separate account, maintained for the purpose. The situation is same so far as overheads and other administrative expenditure of the assessee.

8. In absence of separate accounts for investment which earned tax-free income, the Assessing Officer made proportionate disallowance of interest attributable to the funds invested to earn tax-free income. The assessees in these appeals had earned substantial tax-free income by way of interest from tax-free bonds and dividend income which also is tax-free. It is manifest that substantial expenditure is incurred for earning tax free income. Since actual expenditure figures are not available for making disallowance under section 14A, the Assessing Officer worked out proportionate disallowance by referring to the average cost of deposit for the relevant year. The CIT (A) had concurred with the view taken by the Assessing Officer.

9. The ITAT in Assessee’s appeal against CIT(A) considered the absence of separate identifiable funds utilized by assessee for making investments in tax-free bonds and shares but found that assessee bank is having indivisible business and considering their nature of business, the investments made in tax free bonds and in shares would therefore be in nature of stock-in-trade. The ITAT then noticed that assessee bank is having surplus funds and reserves from which investments can be made. Accordingly, it accepted the assessee’s case that investments were not made out of interest or cost bearing funds alone. In consequence, it was held by the ITAT that disallowance under section 14A is not warranted, in absence of clear identity of funds.

10. The decision of the ITAT was reversed by the High Court by acceptance of the contentions advanced by the Revenue in their appeal and accordingly the Assessee Bank is before us to challenge the High Court’s decision which was against the assessee.

11. Since, the scope of section 14A of the Act will require interpretation, the section with sub-clauses (2) and (3) along with the proviso is extracted hereinbelow:— “14A. Expenditure incurred in relation to income not includible in total income – (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure.”

__

(Kar.) and CIT v. Max India Ltd. 388 ITR 81 (Punj. & Har.) . Mr. S Ganesh the learned Senior Counsel while citing these cases from the High Courts have further pointed out that those judgments have attained finality. On reading of these judgments, we are of the considered opinion that the High Courts have correctly interpreted the scope of section 14A of the Act in their decisions favouring the assessees.

20. Applying the same logic, the disallowance would be legally impermissible for the investment made by the assessees in bonds/shares using interest free funds, under section 14A of the Act. In other words, if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax-free securities then in such cases, disallowance under section 14A cannot be made.

21. On behalf of Revenue Mr. Arijit Prasad, the learned Senior Advocate refers to SA Builders Ltd. v. CIT 288 ITR 1 (SC) , where this Court ruled on issue of disallowance in relation to funds lent to sister concern out of mixed funds. The issue in SA Builders is pending consideration before the larger bench of this Court in Addl. CIT v. Tulip Star Hotels Ltd. [SLP (C) No. 14729 of 2012, dated 7-22019]. The counsel therefore, argues that there is no finality on the issue of disallowance, when mixed funds are used. On this aspect, since the issue is pending before a larger Bench, comments from this Bench may not be appropriate. However, at the same time it is necessary to distinguish the facts ofpresent appeals from those in SA Builder Ltd. Tulip Star Hotels Ltd.’s case (supra). In that case, loans were extended to sister concern while here the Assessee-Banks have invested in bonds/securities. The factual scenario is different and distinguishable and therefore the issue pending before the larger Bench should have no bearing at this stage for the present matters.

22. The High Court herein endorsed the proportionate disallowance made by the Assessing Officer under section 14A of the Income-tax Act to the extent of investments made in tax-free bonds/securities primarily because, separate account was not maintained by assessee. On this aspect we wanted to know about the law which obligates the assessee to maintain separate accounts. However, the learned ASG could not provide a satisfactory answer and instead relied upon Honda Siel Power Products Ltd. v. Dy. CIT [2012]   (Mag.)/340 ITR 64 (SC) , to argue that it is the responsibility of the assessee to fully disclose all material facts. The cited judgment, as can be seen, mainly dealt with reopening of assessment in view of escapement of income. The contention of the department for reopening was that the assessee had earned tax-free dividend and had claimed various administrative expenses for earning such dividend income and those (though not allowable) was allowed as expenditure and therefore the income had escaped assessment. On this, suffice would be to observe that the action in Honda Siel Power Products Ltd. (supra), related to reopening of assessment where full disclosure was not made. An assessee definitely has the obligation to provide full material disclosures at the time of filing of Income-tax Return but there is no corresponding legal obligation upon the assessee to maintain separate accounts for different types offunds held by it. In absence of any statutory provision which compels the assessee to maintain separate accounts for different types offunds, the judgment cited by the learned ASG will have no application to support the Revenue’s contention against the assessee.

23. It would now be appropriate to advert in some detail to Maxopp Investment Ltd. v. CIT 402 ITR 640 (SC) . This case interestingly is relied by both sides’ counsel. Writing for the Bench, Justice Dr. A.K. Sikri noted the objective for incorporation of section 14A in the Act in the following words:-

“3. …………The purpose behind section 14-A of the Act, by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such an income…………”

The following was written explaining the scope of section 14-A(1):

“41. In the first instance, it needs to be recognised that as per Section 14-A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee “in relation to income which does not form part of the total income under this Act”. Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.” Adverting to the law as it stood earlier, this Court rejected the theory of dominant purpose suggested by the Punjab & Haryana High Court and accepted the principle of apportionment of expenditure only when the business was divisible, as was propounded by the Delhi High Court.

Finally adjudicating the issue of expenditure on shares held as stock-in-trade, the following key observations were made by Justice Sikri:

“50. It is to be kept in mind that in those cases where shares are held as “stock-intrade”, it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. [Maxopp Investment Ltd. v. CIT 2011 SCC OnLine Del 4855 (2012) 347 ITR 272 ] where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits………..”

The learned Judge then considered the implication of Rule 8D of the Rules in the context of Section 14-A(2) of the Act and clarified that before applying the theory of apportionment, the Assessing Officer must record satisfaction on suo motu disallowance only in those cases where, the apportionment was done by the assessee. The following is relevant for the purpose of this judgment:

“51……….. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect…………”

24. Another important judgment dealing with section 14A disallowance which merits consideration is Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2017] 1 SCC 421. Here the assessee had access to adequate interest free funds to make investments and the issue pertained to disallowance of expenditure incurred to earn dividend income, which was not forming part of total income of the Assessee. Justice Ranjan Gogoi writing the opinion on behalf of the Division Bench observed that for disallowance of expenditure incurred in earning an income, it is a condition precedent that such income should not be includible in total income of assessee.

This Court accordingly concluded that for attracting provisions of Section 14A, the proof offact regarding such expenditure being incurred for earning exempt income is necessary. The relevant portion of Justice Gogoi’s judgment reads as follow:

“36………. what cannot be denied is that the requirement for attracting the provisions of section 14-A (1) of the Act is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income…………..”

25. Proceeding now to another aspect, it is seen that the Central Board of Direct Taxes (CBDT) had issued the Circular no. 18 of 2015 dated 2-11-2015, which had analyzed and then explained that all shares and securities held by a bank which are not bought to maintain Statutory Liquidity Ratio (SLR) are its stock-in-trade and not investments and income arising out of those is attributable to business of banking. This Circular came to be issued in the aftermath of CIT v. Nawanshahar Central Co-operative Bank Ltd 289 ITR 6 (SC) , wherein this Court had held that investments made by a banking concern is part of their banking business. Hence the income earned through such investments would fall under the head Profits & Gains of business. The Punjab and Haryana High Court, in the case of Pr CIT v. State Bank of Patiala 393 ITR 476 (Punj. & Har.) , while adverting to the CBDT Circular, concluded correctly that 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.

26. Reverting back to the situation here, the Revenue does not contend that the Assessee Banks had held the securities for maintaining the Statutory Liquidity Ratio (SLR), as mentioned in the circular. In view of this position, when there is no finding that the investments of the Assessee are of the related category, tax implication would not arise against the appellants, from the said circular.

27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under section 14A of Income Tax Act for investments made in tax-free bonds/securities which yield taxfree dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees.

28. The above conclusion is reached because nexus has not been established between expenditure disallowed and earning of exempt income. The respondents as earlier noted, have failed to substantiate their argument that assessee was required to maintain separate accounts. Their reliance on Honda Siel (supra) to project such an obligation on the assessee, is already negated. The learned counsel for the revenue has failed to refer to any statutory provision which obligate the assessee to maintain separate accounts which might justify proportionate disallowance.

29. In the above context, the following saying of Adam Smith in his seminal work -The Wealth of Nations may aptly be quoted:

“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.”

Echoing what was said by the 18th century economist, it needs to be observed here that in taxation regime, there is no room for presumption and nothing can be taken to be implied. The tax an individual or a corporate is required to pay, is a matter of planning for a taxpayer and the Government should endeavour to keep it convenient and simple to achieve maximization of compliance. 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.”

“29. We have gone through the facts and noted that assessee has also made provisions for various long term employee benefits, which were debited to the profit and loss account – the details whereof are given hereunder [see page 33 of the assessment order]:

30. The assessee claimed a deduction for the items mentioned at Sr. Nos. 2,3,4 and 5 above in the computation of total income and offered to tax the write back for items at Sr. Nos. 6 and 7. The assessee filed the details vide note No. 9 to the revised return of income on page 7 of the Paper Book – I. The AO disallowed these provisions on the basis that the same cannot be allowed under section 37(1) of the Act and the provisions of section 43B of the Act are applicable.

31. Out of the above, the CIT(A) allowed items mentioned at Sr. Nos. 4, 5 & 7 aggregating Rs. 3.90 crore and upheld the disallowance of items mentioned at Sr. Nos. 2, 3 & 6 aggregating Rs. 41.50 crore. With respect to item mentioned at Sr. No. 1, a separate ground of appeal viz. ground of appeal No. 3 has been raised in the captioned appeal, whereas ground of appeal No. 2.2 has been raised with respect to items mentioned at Sr. Nos. 2, 3 & 6 aggregating Rs. 41.50 crore.

32. Provision for Leave Travel and Home Travel Concession represents provision towards actual payments to be made by the assessee to its employees for the travel costs incurred by them such as rail fare, air fare, etc. on availment of the leave the employees are entitled to. It is not towards any encashment of leave at the credit of the employee so as to fall within the scope of section 43B(f) of the Act. Further, provision for casual leave and sick leave represents provision for the loss of services of the employees for the period of such leave which the employees of the assessee are entitled to, but not availed during the year. The above category of leave can only be availed by them and cannot be encashed. Therefore, these provisions are also not in lieu of any leave, but in respect of services of the employees utilised in respect of the leave not availed by the employees and which leave will be availed in future.

33. With respect to ground of appeal No. 2.1, the arguments put forth for ground of appeal No. 1 shall apply mutatis mutandis since the AO has disallowed Rs. 471.13 crore arising on account of transitional provisions of AS-15 in respect of other employee benefits on the same basis as for provision for pension. The CIT(A) however, has upheld the aforesaid disallowance by holding that provisions of section 43B(f) of the Act applies.

34. We noted that Section 43B(f) of the Act seeks to allow on cash basis any sum payable by an assessee as an employer in lieu of any leave at the credit of his employee i.e. it covers a provision for leave salary which is only encashable by the employees. Hence, we are of the view that the provision for leave can be discharged in two manners i.e. one by availing the leave and other by way of encashment. In so far as availment of leave is concerned, the salary paid to the employee is known as leave with pay and it does not amounts to salary paid in lieu of leave and, hence, the provisions of section 43B(f) of the Act to that extent do not apply. Leave fare concession/Leave travel concession is in respect of actual payment made to the employees for the travel cost incurred by them on availment of the leave entitled to employees. The same is not towards any leave encashment, and hence it cannot be considered as a sum payable in lieu of any leave to which alone section 43B(f) of the Act applies. As stated above, the provision in respect of unavailed casual leave and sick leave is not encashable and, hence, is not covered by section 43B(f) of the Act. Reliance in this regard is placed by the assessee on the decision of the Bangalore Bench of the Tribunal in the case of Robert Bosch Engineering & Business Solutions Ltd. v/s. DCIT [ITA No. 336/Bang/2014 dated 21.04.2017. Further, the provision made is for an ascertained liability based on an actuarial valuation and is to be allowed as a deduction under section 37(1) of the Act while computing the total income. It is provided towards an ascertained liability, based on actuarial valuation, on a scientific basis and is not contingent in nature. In view of the above factual discussion, legal position based on various decisions, we are of the view that this deduction claimed by the assessee allowable and hence, allowed. This issue of assessee’s appeal allowed and that of the revenue is dismissed.”

“62. Before us it was argued that from the financial year 2004-05, the assessee has been valuing investments in ‘Available for Sale’ (AFS) and ‘Held for Trading’ (HFT) in books after netting off classification-wise depreciation and appreciation, computed scrip-wise and providing for net depreciation in each classification while ignoring net appreciation, as required by RBI guidelines. However, for tax purposes, investments in AFS and HFT categories are being consistently valued scrip wise and depreciation, if any, was provided scrip wise while ignoring appreciation. Valuation of investments in AFS and HFT categories has consistently been done scrip-wise for tax purposes in earlier years. The same has also been accepted by the AO upto assessment year 2004-05 i.e. prior to the change in the treatment given in books of account. Therefore, for tax purposes valuation is done on the basis of lower of cost or market value computed scripwise and providing for depreciation in each of the scrip, while ignoring any appreciation. The assessee has claimed a deduction on this account vide note 24 to the revised return of income.

63. We noted that revenue rejected the claim of the assessee following the decision of the Mumbai Tribunal in the case of Deutsche Bank AG. The CIT(A) upheld the disallowance made by the AO following the earlier years order of CIT(A) for assessment year 2007-08. The Revenue before the Tribunal has emphasised on the applicability of Mumbai Tribunal’s decision in the case of Deutsche Bank AG and that the valuation is as per RBI guidelines. It was contended by the assessee that it is a well settled principle of law that unrealised gains on stock are not to be brought to the tax net. Reliance in this regard is placed on the decision of the Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC) , wherein it is held that profit cannot “arise out of the valuation of the closing stock”. The relevant extract of the judgment of the Supreme Court is reproduced below:

“While we agree with the conclusion that no part of the profits of the firm in the accounting year can be said to have accrued or arisen at Bikaner, the reasoning by which the learned Judges arrived at that conclusion seems to us, with all respect, to proceed on a misconception. It is wrong to assume that the valuation of the closing stock at market rate has, for its object, the bringing into charge any appreciation in the value of such stock. The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss actually 25stoppel on the year’s trading.

….. While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year’s account in a business that is continuing are not brought into the charge as a matter ofpractice, though, as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually 26stoppel.

….. Again, it is a misconception to think that any profit “arises out of the valuation of the closing stock” and the sites of its arising or accrual is where the valuation is made. As already stated, valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as the “source” of such profits.”

64. The Supreme Court in the case of A.L.A. Firm v. CIT (1991) (189 ITR 285 ) (SC) has observed that closing stock cannot be valued at a market value higher than the cost as that will result in taxation of the notional profits which the assessee has not realised. The relevant extract of the judgment of the Supreme Court is reproduced below:

“The valuation of the closing stock at market value invariably will create a problem. For if the market value is higher than cost, the accounts will reflect notional profits not actually 26stoppel. On the other hand, if the market value is less, the assessee will get the benefit of a notional loss he has not incurred. Nevertheless, as mentioned earlier, the ordinary principles of commercial accounting permit valuation ‘at cost or market price, whichever is the lower’. [para 27]

The proper practice is to value the closing stock at cost. That will eliminate entries relating to the same stock from both sides of the account. To this rule custom recognises only one exemption and that is to value the stock at market value if that is lower. But on no principle can one justify the valuation of the closing stock at a market value higher than cost as that will result in the taxation of notional profits the assessee has not 26stoppel. [para 28]”

65. In Sanjeev Woollen Mills v. CIT [2005] 279 ITR 434 (SC) , the Supreme Court was concerned with a case where the assessee had valued its finished goods at market value. For assessment year 1992-93, the opening stock was valued at Rs.90 per kg (market price as on 1.4.1991 was Rs.98 per kg) and the closing stock at Rs. 130 per kg. For assessment year 1993-94, the opening stock was valued at Rs.130 per kg and there was no closing stock. The assessee returned a loss of Rs.54,420 for the second year. The AO held that the profits were artificially inflated in assessment year 1992-93 to claim higher deduction under section 80HHC of the Act. The Supreme Court held that the profit earned by valuing finished goods at market value is notional imaginary profit which could not be taxed. In view of the above, it is argued that appreciation in value of investments cannot be taken into account. The netting off of appreciation against the depreciation within a classification is therefore contrary to the principle laid down by the Supreme Court in the aforementioned judgements.

66. In context of netting off depreciation against appreciation, the Madras High Court in the case of CIT v. Chari & Ram [1949] 17 ITR 1 (Madras) has held that there would be no assurance that there would be a market for the entire stock of articles of which the market value is higher and therefore, it would be hazardous to assume that the entire stock could be sold at the prevailing market rate and necessarily bring in a profit. The High Court also held that there is no provision of law or principle according to which the assessee could be compelled to adopt either the average cost for all the items or the market rate for all the items. Further, the Supreme Court in the case of United Commercial Bank v. CIT [1999] 240 ITR 355 (SC) has held that there is no such question of following two different methods for valuing its stock-in-trade (investments) because bank was required to prepare balance sheet in the prescribed form and it had no option to change it and for the purpose of income-tax, what is taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee. In view of the above, it was claimed that the assessee be allowed a deduction in respect of depreciation on each securities, scrip wise, while ignoring the appreciation.

67. Further, the assessee claimed that it has consistently been following the method of valuation of lower of cost or market price in respect of securities. Accordingly, the method of valuation followed by the assessee is required to be accepted. Reliance in this regard is placed on the following decisions:

Further, the issue was not disputed upto financial year 2003-04 and hence, the AO is not justified in taking a different view.

68. The assessee also relied on the judgment of the Bombay High Court in the case of Union Bank of India dated 08.02.2016 in ITA 1977 of 2013. The assessee in this case for the purpose of its books was netting off the depreciation in its securities against appreciation in other securities while for tax purpose, the assessee has been claiming gross depreciation that is without netting of the appreciation in other securities held as a part of investment. The Bombay High Court has dismissed the appeal of the Revenue and has decided the issue in favour of the assessee. It is argued that the facts of the present case are exactly same as in the aforesaid case of Union Bank of India. This issue stands covered by the judgment of the jurisdictional High Court. The facts of the assessee’s case and the facts in the decision of the Bombay High Court in the case of Harinagar Sugar Mills Ltd. v. CIT [1994] 207 ITR 901 (Bombay) , relied by the AO are different. In the aforesaid decision, the assessee had changed the method of valuation of stock in the year under consideration, whereas in the assessee’s case, there is no change in the method of valuation. Also, in that case, sugar was valued differently by bifurcating the stock into ‘levy sugar’ and ‘free sugar’. The Court’s conclusion is based on the fact that there was no justification for bifurcation of sugar between free and levy sugar. The Mumbai Tribunal in the case of DCIT v. Majestic Holdings And Finvest (P.) Ltd. [2010] 2 ITR(T) 407 (Mumbai) has noted that the reliance of the Departmental Representative on the judgement of the Bombay High Court in the case of Harinagar Sugar Mills Ltd. is misconceived inasmuch as in that case there was nothing to show the bifurcation of the closing stock of sugar into levy sugar and free sugar and hence, the assessee was obligated to value the entire stock at one value. In the assessee’s case as well, each scrip is different and therefore requires independent valuation. The CIT DR placed reliance on the decision of the Mumbai Tribunal in the case of JCIT v. Dena Bank (Mumbai) . In the aforementioned case, the security was purchased in year 1 at Rs. 100 and the market price at the end of the year was Rs. 90. Accordingly, the stock was valued at market price of Rs. 90 being lower than the cost. In year 2, the market price went upto Rs. 95. Accordingly, the stock was valued at market price of Rs. 95 being lower than the cost. However, suppose in year 3, the market value rises to Rs. 120, in such a situation, the stock would be valued at cost i.e. Rs. 100, being lower than the market price. The Mumbai Tribunal held that excess of appreciation over the cost price would not be considered for valuing the closing stock. In the present case, we are not concerned with a scenario where in the later year the depreciation provided in earlier years is reduced. Further, the decision of the Mumbai Tribunal in the case of Deutsche Bank A.G v. DCIT [2003] 86 ITD 431 (Mumbai) , relied by the AO is in connection with valuation of foreign exchange forward contracts. In this case the assessee did not account for in the financial statement the anticipated/contingent profits from the contracts to the extent not settled as on the last day of the accounting year whereas any loss on such contracts was provided for by a charge in the profit and loss account on the best estimates. The Department brought to tax the profit on such forward exchange contracts and stated that one method for valuation of the entire stock of securities should be followed. This resulted in a situation of taxing appreciation of stock, which goes against the general and settled principle of non-taxation of notional income, as laid by the Supreme Court in the case of Sanjeev Woollen Mills v. CIT [2005] 279 ITR 434 (SC) and others discussed supra. Hence, we are of the view that this disallowance of depreciation/ reducing of depreciation on appreciation in the value of securities held as available for sale and held for trading category are allowable. We direct the AO accordingly.”

“29. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee’s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:-

“71. We have noted the facts that the assessee has claimed that provision for standard assets should be taken into consideration for computing the deduction under section 36(1)(viia) of the Act. The assessee has also filed the details vide note 17 and Annexure 6 to the revised return of income on pages 8, 9 and 20 of Paper Book – 1 filed by assessee. As per the provisions of section 36(1)(viia) of the Act, a bank is eligible to avail deduction in respect of provision made for bad and doubtful debts, of an amount not exceeding 7.5% of total income and 10% of the aggregate average advances made by the rural branches of the bank. The provision is created by the assessee on the basis of RBI Guidelines. The assessee is required to create provision on nonperforming assets on the basis of the classification of assets into the four prescribed categories i.e. loss assets, doubtful assets, substandard assets and standard assets [refer para 5.1.2 of the RBI Guidelines].

72. The Revenue before us emphasized that the provision for standard assets is not same as provision for bad and doubtful debts and the same is contingent in nature, since it is created only out of abundant caution. We noted from the provisions that the assessee is required to make a provision on all its debts ranging from 0.25% to 100% depending upon the categorization of loan in terms of the guidelines issued by RBI. The provision on debts made by the assessee is in line with the RBI guidelines and section 36(1)(viia) of the Act does not have a requirement that the provision for debts should be in respect of specified debts only. Section 36(1)(viia) of the Act provides for a deduction to the bank in respect of ‘any provision made for bad and doubtful debts’ subject to certain ceiling. It does not specify the methodology for calculation of provision for bad and doubtful debts. The banks are required to make provision for bad and doubtful debts in accordance with the RBI guidelines. All the loan assets are initially classified as ‘Standard’. Later on depending upon the problems arising, if any,

and symptoms of sickness shown including delays in the repayment of the principal and interest, deterioration of security, etc., they may be shifted to other categories. A provision made on any loan assets is a provision for ‘bad and doubtful debts’ irrespective of the category in which the loan falls. This is to provide for the inherent risk of loan losses which the bank may suffer in subsequent years.

73. We noted from the provision of Section 36(1)(viia) of the Act that the same allows a deduction to banks in respect of any provision made ‘for’ bad and doubtful debts. It does not restrict the allowance to provision made ‘on’ bad and doubtful debts. Even in respect of assets that are classified as standard assets, a part of the debts are doubtful of recovery. The fact that a provision is made for standard assets by itself indicates that a part of the standard assets are doubtful of recovery. Accordingly, the entire provision made by the assessee, including in respect of standard assets, is for bad and doubtful debts as envisaged by section 36(1)(viia) of the Act. Thus, in light of above, the assessee is eligible to claim deduction under section 36(1)(viia) of the Act even in respect of the provision made for standard assets. This issue was considered by the ITAT in assessee’s own case for the assessment year 2006-07 in ITA 3145/Mum/2009 dated 6.09.2016, in an appeal against the revision order of the CIT passed under section 263 of the Act, wherein it is held as under:

“So, however, we may also clarify that we are in principle in agreement that a provision for bad and doubtful debts cannot include that against standard assets i.e. which the bank (assessee) itself regards as good for receipt and, therefore with the decision by the tribunal in Bharat Overseas Bank Ltd. (supra) relied upon by the Revenue. A provision by definition a charge against profits, while that in respect of an asset, considered good, would be more in the nature of an appropriation of profit i.e. a reserve. This is precisely what the Tribunal in Bharat Overseas Bank Ltd. (supra) means when it states of the deduction being not in the nature of a standard allowance. No contrary judgement by the Tribunal or a higher court has even otherwise been brought to our notice. At the same time, the provision as per RBI guidelines – which are contended to have been followed / adopted, provide for minimum provision, and the bank is free to make a higher provision, i.e., than that prescribed by the RBI norms. Provisioning, it may be noted, is a management function, made reflecting its risk assessment qua different assets. If therefore, the assessee-bank is able to satisfy the assessing authority that the provision as made is justified with reference to the debts considered by it as bad and doubtful, we see no reason as to why the same cannot be allowed. The matter is accordingly restored back to the file of the Assessing Officer for fresh determination by issuing definite findings of fact. Even as the primary onus would be on the assessee, the Assessing Officer cannot substitute his own judgment with regard to the risk assessment qua a particular asset and, correspondingly, the provision in its respect. His purview would be to examine the reasonableness of the assessee’s claim in light of the facts and circumstances qua each asset/s in respect of which provision is made. In arriving at our decision, we have taken a holistic view of the matter, placing due emphasis on the words ‘provision’ preceding the words ‘for bad and doubtful debts’ as well as the words ‘not exceeding’ occurring in the section, and which stand highlighted for the purpose. We decide accordingly.”

74. In view of the above discussion, arguments of both the sides, we are of the view that the assessee is eligible for claim of deduction u/s 36(1)(viia) of the Act on standard assets and this issue is covered by Tribunal’s decision in assessee’s own case for AY 2006-07 in ITA no.3145/Mum/2004 vide order dated 06.09.2016. Hence, we allow this issue of assessee’s appeal.”

30. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee’s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedents in assessee’s own case cited supra, we uphold the plea of the assessee and allow the claim of deduction on provisions for standard assets under section 36(1)(viia) of the Act. Accordingly, ground no.7, raised in assessee’s appeal is allowed.

31. The issue arising in ground no.8, raised in assessee’s appeal, is pertaining to the taxation of interest income from Non-Performing Assets (“NPA”).”

“34. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee’s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:-

“78. We noted that the assessee does not offer to tax, the interest income on NPAs, classified in terms of RBI guidelines, on accrual basis. The same is offered to tax in the year in which the same is received and credited to the profit and loss account in terms of the RBI guidelines. Presently, the period to recognise an advance as a NPA as per RBI guidelines is where interest and/ or instalment of principal remained overdue for 90 days whereas as per Rule 6EA, the same is 180 days. The AO has brought to tax the notional interest on sticky advances having irregularities for the period between 90 days to 180 days on accrual basis, relying on section 43D of the Act and rule 6EA of the Rules. The CIT(A) has upheld the disallowance made by the Assessing Officer following the directions of the DRP for the assessment year 2012-13.

79. The Revenue before the Tribunal has emphasized on the applicability of the criteria prescribed as per rule 6EA and that the interest on NPAs cannot fall under the exception provided in clause (e) of rule 6EA. But, the assessee argued that the action of the lower authorities cannot be sustained due to the following three reasons viz.,

80. In relation to the above, it was argued that the provisions of section 43D of the Act provide that the categories of bad or doubtful debts would be prescribed having regard to the guidelines issued by the RBI in relation to such debts. In other words, the Legislature envisages that the RBI guidelines are the primary criteria for determining whether a debt is bad or doubtful and the categories prescribed in rule 6EA necessarily have to follow the RBI guidelines. Accordingly, rule 6EA operates in a very narrow scope and has to be read in conjunction with RBI guidelines.

81. We have gone through the case law in American Express Bank Ltd. v. Addl. CIT  (Mumbai) , wherein the Mumbai Tribunal was considering a case where the loans on which interest/principal remained unpaid for 90 days were classified as non-accrual loans. The unpaid interest in respect of such loans was reversed to an account called Reserve for Doubtful Interest (RFDI) account. All subsequent interest accruals of such loans were credited to RFDI account and not to the profit and loss account. The assessee offered to tax the net amount credited to the RFDI account i.e. the interest accruals in the RFDI account net of recoveries. However, it was argued that such tax treatment leads to offering interest on non-accrual loans to tax on accrual basis, even if the same is not credited to the profit and loss account. The Mumbai Tribunal held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. The aforesaid decision has been affirmed by the Bombay High Court in the case of DIT v. American Express Bank Ltd  (Bombay) . In the present case the assessee argued that there is no credit entry in the books of the account in respect of the interest on such NPAs and, accordingly, the addition made cannot be sustained. Hence according to assessee the issue stood covered by the first proposition in terms of the Bombay High Court in assessee’s favour and hence, no further submissions were made on other two propositions.

82. We noted that this issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of American Express Bank Ltd (supra), wherein it is held that there is no credit entry in the books of the account in respect of the interest on such NPAs, no addition can be made. Further, even the Mumbai Tribunal in the case of American Express Bank Ltd (supra) has considered this issue and held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. Hence, we delete the addition of interest income and allow this issue of assessee’s appeal.”

35. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee’s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedents in assessee’s own case cited supra, we uphold the plea of the assessee, and the addition made by the AO on this issue is hereby deleted. Thus, ground no.8, raised in assessee’s appeal is allowed.”

39. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee’s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:-

“85. We noted that the RBI guidelines require interest on non performing securities also to be reckoned as income on realisation basis and the same has regularly been recognised in the books of account accordingly. The case law cited by the learned Counsel for the assessee before us in the case of CIT v. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi) , the Delhi High Court had to consider a case where the assessee, being a NBFC, treated the inter corporate deposits as an NPA, in terms of the directions of the RBI and, hence, did not recognise interest income in respect of the same. The Delhi High Court has recognised the real income theory and this was approved by the Supreme Court in the case of Southern Technologies and held that provisions of other enactment which contain a non obstante clause, would override the provisions of the Act. In view of the above, the Delhi High Court held that the interest on inter corporate deposits recognised as NPA, in terms of the directions of RBI was not taxable. The aforesaid decision of Hon’ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra) has been affirmed by Hon’ble Supreme Court in the case of CIT v. Vasisth Chay Vyapar Ltd. [2019] 410 ITR 244 (SC) .

86. In view of the above decision of Hon’ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra), which was affirmed by Hon’ble Supreme Court, the facts and circumstances are exactly identical in the present case before us and hence, respectfully following the same, we delete the addition of interest income from non-performing investments made by the AO. This issue of assessee’s appeal is allowed.”

40. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee’s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedents in assessee’s own case cited supra, we uphold the plea of the assessee and delete the addition of interest income from NPIs. Accordingly, ground no.9, raised in assessee’s appeal is allowed.”

“44. Having heard the submissions of both the sides and perused the material on record, we find that co-ordinate bench of the Tribunal in assessee’s own case for assessment years 1997-98 and 1998-99 in ITA No. 3823-3824/Mum/2005, vide order dated 29/04/2016, while deciding similar issue observed as under:-

“We have heard the rival submissions and perused the materials before us. We find that in the case of State Bank of Travancore(supra), the AO had disallowed the claim of the Bank in respect of the contribution to medical benefit scheme, amounting to RS.50.00 lakhs. The AO. Was of the opinion that the provision of section 40A(9) of the Act were applicable and the assessee was not entitled to claim the expenditure as an allowable item Matter travelled upto the Tribunal and it deliberated upon the provisions of Section 40A(9)of the Act at length, The Tribunal held that the basic intention of the legislature for insertion of sub section 9 of section 40A was to discourage the practice of creation of camouflage Trust funds, ostensibly for the welfare of the employees and transferring huge funds to such Trusts by way of contribution, that in those cases the investment of the trust corpus was also left to the complete discretion of the Trustees, that to avoid hardship in the case where Trust/Funds had been set up wholly and exclusively for the welfare of the employees prior to 1.4.1984 sub section (10) was also inserted to section 40A. The Tribunal was of the opinion that provisions of section 40A(9) should not make any harm to the expenditure incurred bonafide, that the contribution by the assessee bank was not disputed by the AO, stating that the same was not bonafide, that the funds were not controlled by the assessee banks, that the bonafide contribution made by the assessee as an employer was not hit by section 9 of section 40A of the Act.In the case under consideration, there is no doubt genuineness of payment nor it is the case of the AO or FAA that Trust was not bonafide incurred wholly employees. Considering these facts of the case and following the judgment of State Bank of Travancore (supra),Ground No.9 is decided in favour of the assessee. ”

45. We further find that the Hon’ble jurisdictional High Court, vide order dated 18/06/2019, dismissed the appeal filed by the Revenue on this issue in PCIT v/s State Bank of India, ITA no.718 of 2017. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee’s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedent in assessee’s own case cited supra, we uphold the plea of the assessee and allow the contribution made to the Retired Employees Medical Benefit Scheme. Accordingly, ground no.10, raised in assessee’s appeal is allowed.”

“56. We have considered the submissions of both sides and persused the material available on record. The plea of the assessee is that the income earned by foreign branches of the assessee shall not be liable to tax in India in terms of the relevant tax treaties. In support of its submission, the assessee placed reliance upon the decision of the Hon’ble Jurisdictional High Court in CIT v. Bank of India,   (Bom.) . Reliance was also placed upon the decision of the coordinate bench of the Tribunal rendered in assessee’s own case in State Bank of India (supra), vide order dated 03/02/2020, for the assessment year 2008-09, wherein the coordinate bench observed as under:-

“95. Now before us assessee claimed that income earned by the branches of the assessee located outside India is not to be taxed in India in light of the tax treaties between India and the countries where the branches are located, as the income has been subject to tax in foreign countries. The details of the income earned by foreign branches were submitted to the AO vide Annexure 1 of letter dated 19.02.2010 and now enclosed in assessee paper book 1 at page 325. It was contended that the assessee raised an additional ground before the CIT(A) in this regard. However, the CIT(A) dismissed the additional ground raised by the assessee on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 2007-08 and that the facts of this issue are not verified during the assessment proceedings and appellate proceedings.

“96. The Revenue before the Tribunal emphasized that no details were filed before the AO in connection with income from foreign branches and that the Notification No. 91/2008 dated 28 August 2008 issued under section 90(3) by the CBDT is clarificatory in nature and applicable to the assessee for the year.

“97. During the course of the hearing, it was pointed out that the details of income earned by foreign branches were submitted to the AO vide Annexure 1 of letter dated 19.02.2010. In fact, based on the said details, the AO has allowed relief for the tax credit in respect of taxes paid in the foreign branches as can be verified from the assessment order. The issue is decided in favour of the assessee by the decision of the Mumbai Tribunal in the case of Bank of India v. ACIT  (Mumbai.Trib) , wherein it has been held that income attributable to foreign branches being permanent establishments outside India cannot be taxed in India having regard to the mandate contained in Article 7(1) of the relevant double taxation avoidance agreements. The aforesaid decision has been affirmed by the Bombay High Court   (Bombay) . When under the relevant tax treaty it is provided that tax ‘may be’ charged in a particular State in respect of the specified income, it is implied that tax will not be charged by the other State. Once an income is held to be taxable in a particular jurisdiction under a tax treaty, unless there is a specific mention that it can be taxed in the other jurisdiction, the other jurisdiction is denuded of its powers to tax the same. As regards the learned CIT DR’s reliance on the Notification No. 91/2008 dated 28 August 2008 issued under section 90(3), it is submitted as under:

section 90(3) empowers the Central Government to define any term which is not defined in the Income-tax Act, 1961 or in the relevant tax treaty. The legal meaning of ‘term’ is any expression or phrase which has a fixed or known meaning in art, science, or profession. Accordingly, it is submitted that sale, transfer, gift, etc. could be regarded as terms; however ‘may be taxed’ cannot be regarded as a term. Hence, the said notification is not applicable.

The Notification does not define any ‘term’; it only gives a result / clarification.

Section 90(3) empowers the Central Government to define any term which is not inconsistent with the provisions of the Incometax Act, 1961 or the tax treaty. As the Supreme Court has already interpreted the meaning of the phrase ‘may be taxed’ in the case of CIT v/s. PAVL Kulandagan Chettiar [267 ITR 654 ], the notification cannot give a meaning to ‘may be taxed’ which is inconsistent with the views of the Supreme Court.”

98. Without prejudice to the above argument made was that even if it is held that the above notification is applicable, the same can be said to be applicable prospectively (i.e. from assessment 2009-10 onwards) and, hence, is not applicable for the year under consideration. Reliance in this regard is placed on the decision of the Supreme Court in case CIT v. Vatika Township (P.) Ltd. [2014] 367 ITR 466 (SC) , wherein it was held that one established rule for interpretation of legislation is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. Similar view has been taken by the Madras High Court in V.R.S.M Firm [1994] 208 ITR 400 (Madras) .

99. We noted from the above discussion that this issue is squarely covered by the decision of Bank of India (supra), wherein the co-ordinate Bench held that income attributable to foreign branches being permanent establishment outside India cannot be taxed in India, having regard to the mandate given in Article 7(1) of the DTAA. This view has been affirmed by Hon’ble Bombay High Court. Since, the issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Bank of India (supra), respectfully following the same, we allow this issue in favour of assessee.

57. Therefore, from the aforesaid decision, it is evident that the coordinate bench in assessee’s own case treated the Notification no. 91 of 2008 dated 28/08/2008 to be having a prospective effect from the assessment year 200910 onwards and therefore considered to be not applicable for the assessment year 2008-09, i.e. the year under consideration before the coordinate bench. Further, the coordinate bench placed reliance upon the decision in Bank of India v/s ACIT  (Mumbai.Trib) , for the assessment year 2003-04, wherein it was held that the income attributable to foreign branches being permanent establishment outside India cannot be taxed in India, having regard to the mandate given in Article 7(1) of the tax treaty. The coordinate bench further noted that this decision has further been affirmed by the Hon’ble jurisdictional High Court in CIT v/s Bank of India, (Bom.) .

58. Before proceeding further, it is pertinent to note that the aforesaid Notification no. 91 of 2008 was issued under section 90(3) of the Act, which reads as under:-

“(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf.”

59. Further, Notification no. 91 of 2008 dated 20/08/2008 issued by the Central Government as per section 90(3) of the Act, reads as under:-

“In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax or as the case may be, avoidance of double taxation, provides that any income of a resident of India ‘may be taxed’ in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement.”

60. Therefore, as is evident from section 90(3) of the Act, the same refers to term used but not defined both in the Act as well as in the tax treaty. Thus, we find no basis in the submission made on behalf of the assessee that the aforesaid notification has no applicability to the tax treaty. Further, the word ‘term’ used in section 90(3) of the Act not only means a word but also means a phrase and thus cannot be restricted to words such as salary, dividend, etc. as claimed by the assessee but also includes phrase such as ‘may be taxed’ as used in the tax treaty.

61. We further find that the aforesaid notification as well as the aforesaid decision of the Hon’ble jurisdictional High Court in Bank of India (supra) was considered by the coordinate bench of the Tribunal in Technimont (P.) Ltd. v/s ACIT, [2020]   (Mumbai – Trib.) . The coordinate bench of the Tribunal, after taking into consideration the change in legal provisions, i.e. amendment to section 90 of the Act w.e.f. 01/04/2004 and also the decisions rendered in the case of Bank of India for subsequent years, observed as under:-

16. None of these judicial precedents take into account the developments with respect to the provisions of Section 90(3) and the notification issued thereunder. The only exception is a coordinate bench decision in the case of Bank of India (supra) wherein the issue of notification was specifically raised but then the coordinate bench, following Hon’ble jurisdictional High Court’s judgment in assessee’s own case for the assessment year 2003-04 and without realizing that the amendment in law was effective 1st April 2004 i.e. assessment year 2004-05, decided the issue in favour of the assessee. The impact of amendment with effect from 1st April 2004 not having been noted or having been brought to the notice of the coordinate bench, this decision is clearly per incuriam and, as such, not a binding judicial precedent. As a matter of fact, when subsequent assessment years of this very assessee came up for consideration of another bench, the said precedent was not followed and, vide order dated 30th November 2018, it was observed that “the decision of the Hon’ble High Court in assessee’s own case pertained to the assessment years 2001-01 and 2003-04 and the Hon’ble High Court never had any occasion to examine the taxability of income of foreign branches in India keeping in view provisions of Section 90(3) read with the Government notification dated 28th August 2008” and that “we are unable to accept the submission of the learned authorised representative that the issue is covered by earlier decisions of the Tribunal”. The assessee, therefore, does not derive any benefit from this legal precedent relied upon. All other judicial precedents hold good in respect of the pre-amendment law, but then the legal position, as analysed above, has changed, and, under the changed legal position, these judicial precedents do not hold good. As regards the DRP decisions for the immediately two preceding assessment years, we have noted that the post amendment legal position was not even brought to the notice of the Dispute Resolution Panel. There is not even a whisper of a suggestion that the amendment in law in Section 90(3) and the post amendment notification was brought to the notice of the DRP. Learned counsel’s arguments before the DRP simply proceeded on the basis that there was no change in statutory provisions after the Kulandagan Chettiar’s judgment. That is simply unacceptable. While we restrain from making any observations on the conduct of the representatives of the assessee, we find it difficult to believe that a big-4 accounting firm, as the assessee’s representative before the DRP, as indeed before us, would really be oblivious of the correct legal position and that it was anything less than a calculated ignorance, before the DRP, on the basic legal position. Advising the correct legal position and then making whatever aggressive claim one makes is one thing, but not explaining the correct legal position and then hoping to succeed with the claim, by keeping the adjudicator in dark about the statutory developments, is quite another. The path chosen by the assessee could have fallen in the first category if submissions were made before the DRP about the amendment in law by way of Section 90(3) and notification thereunder, and yet the exemption claim was to be justified due to no fresh notification being issued after the substitution of Section 90(3) with effect from 1st October 2009. That is not the case. In any case, the DRP decisions cannot fetter our adjudication.”

62. We further find that the coordinate bench of the Tribunal in Bank of India v/s ACIT, (Mumbai – Trib.) , for the assessment year 2015-16, following the aforesaid decision in Technimont (P.) Ltd. (supra) rejected the similar plea, as raised by the assessee in the present appeal, by observing as under:-

“7. Learned counsel has shown, in accepting the fact that even though the issue is covered in favour of the assessee by earlier decisions of the coordinate benches, these coordinate bench decisions cease to be binding judicial precedents inasmuch as reasoning adopted therein does not hold good any longer in the light of the decision in the case of Technimont (P.) Ltd. (supra), admirable grace. It is not clear to us whether this approach is to preempt a detailed discussion on merits of the matter, or whether this approach is indeed bonafide stand of the assessee. That does not, however, matter much at this stage, as all the facets of this matter are covered above nevertheless. The basis on which the relief was granted in the earlier years has been examined and that basis being ex facie incorrect and even rendered by inadvertence is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28th August 2008 was not issued in the context of the business income and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. We see no substance in this plea either. The notification deals with connotations of the expression “may be taxed”, appearing in the tax treaties entered into by India, and there is absolutely no basis whatsoever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation in treatment of business and non-business income is envisaged in the said notification, nor do we see any justification for inferring the same. Learned counsel does not have any material whatsoever in support of the proposition canvassed by him, nor does this proposition make any sense on the first principles- inasmuch as once the notification is issued without any such specific restriction for application to business income, we cannot infer a restriction in its application. We, therefore, reject the plea of the assessee, and thus decline to interfere in the matter. We uphold the action of the Assessing Officer including the profits of the assessee’s overseas branches, amounting to Rs. 1,408.32 crores, in its taxable income in India.”

63. Therefore, in view of the above, respectfully following the decisions rendered by the coordinate bench of the Tribunal in Technimont (P.) Ltd. (supra) and Bank of India (supra) for the assessment year 2015-16, we find no merits in the submissions of the assessee. As a result, ground no. 14 raised in assessee’s appeal is dismissed.”

52. Having considered the submissions of both sides and perused the material available on record, we find that the Co-ordinate Bench of the Tribunal in assessee’s own case in State Bank of India (supra) for the assessment year 2008-09, vide order dated 03/02/2020, while deciding similar issue observed as under:-

“88. Brief facts are that during the year under consideration the assessee has recovered bad debts written off in earlier years, in respect of which no claim for deduction was made under section 36(1)(vii) of the Act in the past. The assessee raised an additional ground before the CIT(A) in this regard. But, the CIT(A) has dismissed the additional ground raised on the basis that a similar issue was decided against the assessee by the CIT(A) in assessment year 2007-08 and that the facts of this issue are not verified during the assessment proceedings and appellate proceedings.

89. The Revenue before the Tribunal has emphasized that the claim made for deduction under section 36(1)(viia) of the Act and also under section 36(1)(vii) of the Act, to the extent the write off exceeds the opening credit balance for the provision made for bad and doubtful debts and that even if the assessee has not claimed deduction under section 36(1)(vii) of the Act, but has claimed a deduction under section 36(1)(viia) of the Act, the same will be hit by the provisions of section 41(1) or 41(4) of the Act. In relation to the above, the assessee argued that the provisions of section 41(4) of the Act are applicable only when the recovery of bad debts are in relation to a debt for which a deduction under section 36(1)(vii) of the Act is allowed. The assessee has been allowed a deduction in relation to provision made for bad debts under section 36(1)(viia) of the Act in the earlier years. This provision, as if by a fiction deems something to be income, has to be strictly construed. Therefore, the provisions of section 41(4) of the Act, do not apply.

90. We noted from the above arguments of both the sides and case law cited by the parties, that the issue is squarely covered by a decision of the Bangalore Bench of the Tribunal in the case of State Bank of Mysore v. DCIT [2009] 33 SOT 7 (Bangalore) , now merged with assessee. We noted that the Tribunal in the case of State Bank of Mysore (supra) narrated the facts and the facts in the present case are exactly the same as in the case of State Bank of Mysore. In the case of State Bank of Mysore (supra), the assessee had claimed deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act. Accordingly, the Bangalore Tribunal has held that section 41(4) of the Act cannot be invoked. Sections 41(1), 41(2), 41(3) and 41(4) of the Act operate in different spheres. Each of the sub-sections to section 41 of the Act deals with different and distinct circumstances. Each of the subsections deals with different and distinct topics and one cannot read recoupment under one sub-section into another. We have considered the decision relied on in this regard of Supreme Court in the case of Nectar Beverages (P.) Ltd. v. DCIT [2009] 314 ITR 314 (SC) wherein the Supreme Court has dealt with the specific section 41(2) of the Act for taxing balancing charge versus taxing the same under section 41(1) of the Act and has concluded that section 41(1) of the Act shall not be applicable.

91. As the aspects of bad and doubtful debts is dealt with specifically under section 41(4) of the Act, as laid down by the Supreme court in Nectar Beverages (supra), section 41(1) of the Act is not applicable in case of the assessee. Further, the primary condition to be satisfied for taxing an amount as deemed income under section 41(1) of the Act is that a deduction/allowance should have been claimed by the assessee in respect of a loss, expenditure or trading liability. A deduction under section 36(1)(viia) of the Act is not for a loss, expenditure or trading liability, but for a provision for bad and doubtful debts. We noted that the learned CIT Departmental Representative had raised a contention that the CIT(A) and AO have not perused the details and, hence, the matter may be restored back which was opposed. In relation to the above contention, without prejudice to the assessee’s objection, in the event the matter is proposed to be remanded back to the AO, a direction may be given to the AO to delete the addition, if the recovery of the amount is in respect of a write off claimed and allowed as a deduction under section 36(1)(viia) of the Act and not under section 36(1)(vii) of the Act in the earlier years.

92. In view of the above discussion, we are of the view that principally the assessee is entitled for claim of deduction under section 36(1)(viia) of the Act, which has rightly been claimed. The assessee has not made claim under section 36(1)(vii) of the Act in this regard. Hence, we allow the claim of assessee but the matter is restored back to the file of the AO for verification purposes. This issue of assessee’s appeal is allowed for statistical purposes.”

53. The learned DR could not show any reason to deviate from the aforesaid decision rendered in assessee’s own case and no change in facts and law was alleged in the relevant assessment year. Therefore, respectfully following the judicial precedent in assessee’s own case cited supra, we uphold the plea of the assessee that provisions of section 41(4) of the Act is applicable only when recovery of bad debts are in relation to debts for which a deduction under section 36(1)(vii) is allowed. However, this issue is restored to the file of the AO to verify if the recovery of the amount, in the present case, is in respect of a write-off of the claim allowed as a deduction under section 36(1)(viia) or under section 36(1)(vii) of the Act in earlier years. Accordingly, ground no.13, raised in assessee’s appeal is allowed for statistical purposes.

96. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The only issue in this ground of appeal is that when the bank issues guarantee, and receives the guarantee commission, whether guarantee commission should be accrued and chargeable to tax in the hands of the bank as and when it is received [at the time of issuing the guarantee] or such income can be spread on the basis of the time for the period for which guarantee is persisting. Revenue recognition policy of the bank as per accounting policy number 9.2 (a) wherein the commission other than the commission on deferred payment guarantee and government transactions) is recognized on realization basis. Thus, the deferred payment guarantee is recognized as income not on realization basis. We also do not find any revenue recognition policy with respect to commission on deferred payment guarantee in the annual accounts of the assessee. Therefore, those are accounted for on accrual basis as per policy number 9.1.

98. The decision of the coordinate bench in assessee’s own case for assessment year 1984 in ITA number 2448/bomb/1988 (22 August 2006) in ground number 4 has discussed this issue and following the decision of the Calcutta High Court in case of Bank of Tokyo Ltd   the issue was restored to the file of the learned assessing officer to decide afresh after taking into the decision into consideration. However, decision for the assessment year 2005 – 06 rendered on 22 March 2022 in ITA number 3685/M/2013 as per paragraph number 6 – 9 following the decision in assessee’s own case has allowed the claim.

99. Hon Calcutta High court in case of bank of Tokyo Limited relied on by the ITAT while allowing the claim of the assessee has following fact that the Tribunal has also recorded a finding of fact that the assessee-bank has been refunding guarantee commission to its different clients in those cases where guarantee contract was revoked prematurely. In other words, the assessee-bank has been refunding guarantee commission for the unexpired period of guarantee in case the guarantee contract was revoked earlier. This finding negatives the stand taken and/or allegation made by the IAC (Assessment) to the effect that the guarantee contract was irrevocable, and the bank was not refunding the guarantee commission for the unexpired period. It was contended on behalf of the revenue that the commission was payable initially and not year by year. That being the mandatory requirement, the right to receive accrued at the point of time the guarantee agreement is entered. Further under rule 16 framed by the Foreign Exchange Dealers’ Association of India the guarantee commission was refundable, if the guarantee is cancelled before the expiry of the full period.

100. Facts do not show that such deferred guarantee commission is refundable at all subsequently. Thus, facts in the case of assessee are distinguishable. If such guarantee commission is not received on the basis of time period for which guarantee is issued, but at the time of issue of guarantee, there is no logic and reason in saying that such guarantee commission will accrue as per period of time for which guarantee is issued. Further the facts of the decision of Honourable Kerala High court are more near and adjunct to the case of assessee.

101. We find that the learned Departmental Representative has correctly relied on the judgment rendered by the Hon’ble Kerala High Court in Kerala Urban Development Finance Corpn. Ltd. v. CIT [2004] 266 ITR 245  in which case the administration and supervision charges were collected and retained by the assessee, a nodal agency for disbursement and loan realized by HUDCO to various urban local bodies. It has been held in this case that the income accrued to the assessee at the time of disbursal of loan and hence assessable to tax in the year in which the loan amount was disbursed. Certain other decision relied by the learned Departmental Representative reiterate the same view.

102. We also find that Mumbai Bench of the Tribunal in the case of Dy. DIT (International Taxation) v. Chohung Bank [2010] 126 ITD 448 considered almost a similar case in which that the assessee bank gave guarantee for the period extending the close of the year. The question arose as to whether such commission should be considered for the period of guarantee or charged to tax in the year in which the guarantee was given. The Tribunal held that the entire commission accrued at the time of giving guarantee and no part of it can be spread to next year.

103. Accordingly, respectfully following the decisions of the tribunal in assessee’s own case for the earlier years, we find that the commission on deferred guarantee issued by the bank is chargeable to tax as and when deferred guarantee is issued and commission is received. Accordingly ground number 1 of the appeal is dismissed.