Income Tax Appellate Tribunal - Ahmedabad
Anand Urban Co-Op Bank Ltd.,, Anand vs Income Tax Officer, Ward-1,, Anand on 29 May, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ *,l-,e-lh* अहमदाबाद ।
*,l-,e-
IN THE INCOME TAX APPELLATE TRIBUNAL
" SMC " BENCH, AHMEDABAD
सव ी एन.के. ब लैया, लेखा सद य एवं महावीर साद, या यक सद य के सम ।
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER And
SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.No.2731/Ahd/2013
( नधा रण वष / Assessment Year :2010-11 )
Anand Urban Co-op Bank बनाम/ Income Tax Officer
Ltd. Vs. Ward-1,
Urban Chamber, Anand.
Urban Bank Road,
Anand - 388001.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AADFA 3041 J
(अपीलाथ' /Appellant) .. ( (यथ' / Respondent)
अपीलाथ' ओर से /Appellant by : Shri M.G. Patel, AR
(यथ' क* ओर से/Respondent by : Ms. Richha Rastogi, Sr. DR
ु वाई क* तार.ख /
सन Date of Hearing 06/03/2017
घोषणा क* तार.ख /Date of Pronounce ment 29/05/2017
आदे श / O R D E R
PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER :
This appeal by the assessee is directed against the order of the Commissioner of Income Tax(Appeals)-IV, Baroda, dated 27/09/2013 for the Assessment Year (AY) 2010-11.
ITA No.2731/Ahd/2013Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -2-
2. Assessee has been taken following Grounds of appeals:
(i) The learned Commissioner of Income Tax (Appeals)-IV, Baroda has erred in law and on facts of the case by treating the income of Rs.36,76,825/- as income from other sources instead of income from business.
(ii) The learned Commissioner of Income Tax (Appeals)-IV, Baroda has erred in law and on facts of the case by not allowing set off brought forward business loss of earlier years against income of Rs.36,76,825/-.
(iii) The learned Commissioner of Income Tax (Appeals)-IV, Baroda has erred in law and on facts of the case by not allowing deduction u/s. 80(P)(2)(a)(i) of the IT Act, 1961.
3. The relevant facts as culled out from the materials on record are as under:-
3.1 Assessee was a co-operative Bank. At present, the assessee is in liquidation process. No banking activities have been carried out by the bank. The bank earns interest income from deposits with bank.
3.2 In its profit and loss account, the assessee has shown interest of Rs.36,76,825/- on fixed deposits with banks. The assessee has also shown interest received on advances with its members at Rs.2,64,27,420/- as also claimed interest rebate at Rs.3,07,56,618/- and ultimately a loss of Rs.43,29,198/- was debited in its profit and loss account.ITA No.2731/Ahd/2013
Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -3- 3.3 Vide questionnaire u/s. 142(1) of the Income-tax Act, 1961, the assessee was requested to state as under:
"It is noticed that no banking activities have been carried out by the bank. It was further noticed that your banking license for carrying on banking business in India was cancelled u/s.22 of the Banking Regulation Act, 1949 by the Reserve Bank of India on 27/03/2007. Since the society was in the process of being winded up by the Officer Liquidator as stated by your auditor. Hence, the receipts during the previous year relevant to assessment year under consideration were not on account of engaging in any business of profession. During the previous year relevant to AY 2010-11, the assessee's income was exclusively from interest receipts. The assessee has not carried on any business during the previous year and, as per the provisions of Section 28(1) of the Act, the income could not be computed under the head "profits and gains of business or profession". Thus, the interest income derived by you is chargeable to income tax under the head "income from other sources". Please file your explanation in this regard.
As mentioned above, the income of the current assessment year was chargeable under the head "income from other sources", hence brought forward business loss could not be set off against such income as per the provisions of section 72(1) of the Act. Also no carried forward brought forward loss will be allowed to be carried forward."
3.4 In response to this, the assessee vide its letter dated 04/12/2012 has furnished its written submission. It was contented that the assessee is a co-operative credit society carrying on business of providing credit facilities to members and earning income from it. The income consists of interest earned on advance to members and investment. The expenses consist of interest payable on deposits and borrowings. In order to speed up the recovery of advances and earn interest on non-performing assets the Registrar of Co-operative Societies, Gandhinagar has deputed officer ITA No.2731/Ahd/2013 Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -4- to look after and monitor the credit society with a onetime settlement scheme announce from time to time announced from time to time. It is planned improve the liquidity in the business by early recovery for smooth and efficient functioning of the credit business. The advances and investment of credit society made out of deposits, borrowing and reserve. The credit society is registered on 05/04/1965 and since then it regularly and perpetually carrying credit facilities to members as provided u/s. 80P (2)(a)(i) of the Act.
3.5 It was further stated that our society is a co-operative society carrying on business of providing credit facility to the members. Prior to July, 2003, the assessee was function as bank having granted banking license from Reserve Bank of India. Thereafter, due to non-fulfillment of certain rules and regulation, the license was cancelled subject to restart upon fulfillment of it. The regular business of earning income of interest from investment and advance to members is continued even after cancellation of credit society as bank as per Banking Regulation Act. The cancellation of registration does not disentitle to carry on business of providing credit facilities to the members. The source of interest income is out of investment and advance to members. The income consists of interest earned on advance to members and investment. The expense consists of interest payable on deposits and borrowings. There is no change in any source of income or loss in the bank. The advances and investment of credit society made out of deposits, borrowing and reserve.
ITA No.2731/Ahd/2013Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -5- The net loss of earlier year is carried forward and set of in future year upon starting the advance as performing assets and earn interest income is to be allowed u/s.72(1) of the Income-tax Act. The source of earning of interest is continued till this assessment year having filed regularly profit and loss account and balance sheet in return of income. It was stated that the loss as incurred in earlier year be allowed as set off in determining total income of this year.
3.6 It was further contended that alternatively since our society duly registered and functioning as credit societies be allowed exemption u/s.80P (2)(a)(i) of the Income Tax Act in accordance with the law.
4. Learned CIT(A) was not agree with the contention of the assessee. Hence treating the income of Rs.36,76,825/- as income from other sources instead of income from business.
5. Against the said order appeal of the appellant is before us.
6. We have gone through the relevant record and impugned order. Undoubtedly, this society has been registered under the Gujarat Society Act. Appellant has filed a copy of Resolution No.NSB/12/2005/M.97/Ch, passed by the Gujarat Government, Agriculture and Co-operative Department, which has been reproduced as under:
ITA No.2731/Ahd/2013Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -6- (1). Provisions of Clause - 3; Clause 107 to 115 of Gujarat Co-
operative Society Act.
By Resolution dated 18/05/2007, settlement scheme was declared for recovering dues from the borrowers of the Co-operative Banks in liquidation in the State. The purpose of this Scheme was to recover dues from the borrowers, to return deposits to deposit-holders and moreover to keep co-operative sector intact and to make the confidence of the people sustain in the co-operative sector. There was provision in the scheme passed under the above resolution not to give benefit of this scheme in the cases of willful defaulter, fraud and malfeasance.
Because of lack of awareness of above scheme amongst the borrowers, not allowing benefit of the scheme in the cases of willful defaulter, fraud and malfeasance and provisions of charging interest as much as at 8%, 10% and 12%, few debtors had come forward to take benefit of this Scheme. As a result, the main purpose of getting recovery was not achieved.
Consequent upon cancelling of banking license of Nagrik Co- operative Banks by the Reserve Bank of India, banking function of the Nagrik co-operative banks under liquidation comes to close. And as per the direction of Reserve Bank, bank is taken into liquidation as per provisions of Co-operative Act in which a liquidation officer (Liquidator) is appointed by the Registrar as per provisions of Co- operative Act. Bank loses its status as a Bank once gone in liquidation. However, it continues to exist as a co-operative society under Co- operative Act and it holds status of credit society of different nature. The liquidation Officer (Liquidator) acts in the place of Board of Directors of Nagrik Co-operative Banks in liquidation till registration of society is not cancelled under clause-20 of Gujarat Co-operative Society Act, 1961 and he attains all administrative powers under clause 74 of Co-operative Act and attains power under clause 110. As per Clause 108(4) of Co-operative Act, the Liquidation Officer (Liquidator) shall function under the guidance, supervision and control of Registrar. Therefore, the provisions of guide-lines and Banking Regulation Act of ITA No.2731/Ahd/2013 Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -7- Reserve Bank of India become useless in the case of co-operative Banks gone in liquidation.
Moreover, it was felt necessary that state Government declares one time settlement scheme and is implemented uniformly so that confidence of the people in co-operative sector is sustained, co- operative activities are encouraged, deposit-holder are paid back their deposit, credibility of the banks are strengthened, members are given back their institution and to maintain consistency in recovery of dues of the banks and for maintaining transparency in transaction of recovery of dues of the bank, a conducive atmosphere is created in co-operative sector.
Resolution At the end of expanded discussed, it is resolved to implement a special one-time settlement scheme for the purpose for effecting overdue recovery of Nagrik Co-operative Bank of the State Government under liquidation subject to guide-lines and conditions mentioned in Annexure enclosed.
7. In this case, RBI has restricted the operations of the bank from 27/03/2007, and since then the bank has not accepted any deposits or given any loan to public.
7.1 Investments are stated at the cost of acquisition. Rs.1 crore was invested with interest @12.5%, with a premium of Rs.4.25 lacs. This amount was received and credited to account with Axis bank on its maturity. However, the premium amount is shown in the balance sheet as other current asset, and not expensed out in the profit and loss account.
ITA No.2731/Ahd/2013Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -8- 7.2 It has been held in case of Jafari Momin Vikas Co-op Credit Society Ltd. vs. CIT. ITA No.902/Ahd/2012, in matter, Co-operative Credit Society purely functioning as society without bank is entitled to exemption as provided above in the Act.
7.3 Since the society duly registered and functioning as credit societies be allowed exemption u/s.80(P)(2)(a)(i) of the Act.
8. Assessee has cited the judgment of Jurisdictional High Court [1976] 104 ITR 568 (Gujarat) in the case of Morvi Mercantile Bank Ltd. vs. Commissioner of Income Tax:
Section 56, read with section 28(i) of the Income Tax Act, 1961 - Income from other sources - Chargeable as - Assessment year 1969-70 - Whether where assessee a banking company was wound up and its licence to carry on business of banking had been suspended by Reserve Bank of India, it could not be said that liquidator when he was realising assets and investing realisation in short-term deposits with permission of Court pending distribution amongst creditors was really carrying on business - Held, yes - Whether therefore, received by liquidator in such deposits was taxable as income from other sources and not as business income - Held, ye FACTS The assessee, a banking company was compulsorily wound up and the official liquidator of the High Court was appointed as the provisional liquidator. The Reserve Bank of India suspended the licence of the assessee-company. The liquidator realised the assets and invested the money in short-term deposits pending distribution. The ITO treated this income as income from other sources. On appeal, the AAC held that the income should be treated as a business income since in his opinion the ITA No.2731/Ahd/2013 Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11 -9- liquidator was carrying on the business for beneficial winding up of the company. The Tribunal held that the income should be treated as income from other sources and disallowed the carry-forward of losses.
On reference:
HELD No company can carry on banking business without license issued by the Reserve Bank of India save as otherwise provided in section 22 of the Banking Regulation Act, 1949, and it is only such banking company which can carry on additional business as specified in section 6 of the aforesaid Act It was common ground, that the main business of the assessee-company had come to an end as the compulsory winding up order had been passed by the High Court. It was also common ground that there was no question of accepting deposits from public or withdrawals by cheques, drafts, orders or otherwise. The Reserve Bank of India had suspended the license of the assessee-company, so far as carrying on the business of banking was concerned. The net effect would be, therefore, that the assessee-company ceased to be competent to carry on banking business. If, therefore, it ceased to be competent to carry on banking business, as undoubtedly it did, it could not be said to be legally competent to carry on the additional business under section 6 of the Banking Regulation Act, 1949.
When the liquidator realised the assets and invested the money in short- term deposits pending distribution he was not embarking upon any business. The realisation and distribution of assets cannot, be said to be carrying on business. It is obligatory upon the liquidator to realise the assets and to distribute the money amongst the creditors, and if pending distribution he invested the amount, it cannot be said that he was carrying on the business of investment merely because it may be one of the objects either under the memorandum or under the statute. The assets which the liquidator seized and which he tried to realise for purposes of winding up were of capital nature and they could not be said to be business assets, nor could it be said that merely because he was investing the realisations, assuming that that was permissible either under the memorandum or under the statute, the activities which he was carrying on as a liquidator were those of a businessman. In the circumstances, therefore, it could not be held that the liquidator was ITA No.2731/Ahd/2013 Anand Urban Co-op Bank Ltd. vs. ITO Asst.Year -2010-11
- 10 -
making for mercantile necessity the investment of realisations as a business for beneficial winding' up of the company. The Tribunal had found as a fact that the main business of the assessee-company having gone as a result of the winding-up order, there did not remain any other activity which could be legitimately said to be a business activity and Whatever the liquidator did was merely as a liquidator for purposes of liquidation of the company. There were no justifying grounds for disturbing this finding of fact.
Therefore, the Tribunal was right in law in holding that the interest on deposits was taxable as income from other sources and not as a business income.
9. We allow the set off brought forward business loss of earlier years against income of Rs.36,76,825/-.
10. In the result appeal filed by the assessee is allowed.
This Order pronounced in Open Court on 29/05/2017
Sd/- Sd/-
एन.के. ब लैया महावीर साद
(लेखा सद य) ( या यक सद य)
( N. K. BILLAIYA ) ( MAHAVIR PRASAD )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 29/05/2017
Priti Yadav, Sr.PS
ITA No.2731/Ahd/2013
Anand Urban Co-op Bank Ltd. vs. ITO
Asst.Year -2010-11
- 11 -
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ' / The Appellant
2. (यथ' / The Respondent.
3. संबं6धत आयकर आयु8त / Concerned CIT
4. आयकर आय8
ु त(अपील) / The CIT(A)-IV, Baroda.
5. 9वभागीय त न6ध, आयकर अपील.य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स(या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy
1. Date of dictation 15/05/2017 (dictation-pad 6 pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member 15/05/2017
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S 16/05/2017
5. Date on which the fair order is placed before the Dictating Member for Pronouncement 16/05/2017
6. Date on which the fair order comes back to the Sr.P.S./P.S.......
7. Date on which the file goes to the Bench Clerk...29/05/2017
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................