2014 (10) TMI 907 - AT - Income Tax

Unclaimed dividend transferred to Reserve - AO as well as the CIT(A) were of the view that unclaimed dividend were transferred to the General Reserve Account which showed that such liability ceased to exist and therefore, the same was liable to be taxed - Held that - The lower authorities have mis-directed themselves in taxing the unclaimed dividend as an income. Ostensibly, dividend distribution by the assessee bank is an apportioned from its tax paid profits and does not a charge against the profits for the purposes of computing taxable income. Once dividend declared by the assessee bank is not a charge against the profits in order to compute taxable income, any unclaimed dividend thereof, cannot be charged as an income under the Act. Therefore, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the impugned addition. - Decided in favour of assessee Addition on account of other liabilities - Held that - The stand of the Revenue is unsustainable. It is abundantly clearly that assessee had reflected the impugned sum as a liability in the Balance Sheet. If at all, the Assessing Officer was to treat the same as income in the hands of the assessee, the onus was on him to explain as to how the amounts are to be taxed as incomes. The Assessing Officer does not justify as to why he has treated the impugned sum as income to be taxed under the Act. There is nothing to support the assertions of the Assessing Officer that the bank has ceased to be liable to return the impugned sums. Therefore, we are unable to uphold the stand of the income tax authorities on this aspect and accordingly, we set aside the order of CIT(A) and direct the Assessing Officer to delete the impugned addition - Decided in favour of assessee

Summary

Issues:
1. Addition on account of Nominal Membership fees and Share Transfer Fees
2. Addition on account of unclaimed dividend transferred to Reserve Account
3. Addition on account of penal interest
4. Addition on account of Other Liabilities

Analysis:

1. Addition on account of Nominal Membership fees and Share Transfer Fees:
The appellant contested the addition made by the Assessing Officer regarding Nominal Membership fees and Share Transfer Fees. The appellant argued that these fees were necessary for conducting business activities and should be treated as capital receipts. The Tribunal noted that the fees were collected for compliance with legal requirements and were not operational revenue. The Tribunal agreed with the appellant's arguments and directed the Assessing Officer to delete the addition.

2. Addition on account of unclaimed dividend transferred to Reserve Account:
The Assessing Officer and CIT(A) added unclaimed dividend transferred to the Reserve Account as taxable income, stating that the liability ceased to exist. However, the Tribunal disagreed, stating that dividend distribution is from tax-paid profits and does not impact taxable income. As unclaimed dividend is not a charge against profits, it cannot be taxed as income. The Tribunal directed the Assessing Officer to delete this addition.

3. Addition on account of penal interest:
The appellant chose not to press this ground of appeal, and it was dismissed as not pressed.

4. Addition on account of Other Liabilities:
The Assessing Officer added an amount under 'Other Liabilities' as income, considering it as outstanding dues. The appellant argued that these amounts were deposits or outstanding dues to be returned later. The Tribunal found the Assessing Officer's reasoning unjustified and directed the deletion of the addition, stating that the amounts were reflected as liabilities in the Balance Sheet. The Tribunal held that the onus was on the Assessing Officer to justify treating the amounts as income, which was not done. The addition was set aside.

In conclusion, the Tribunal partly allowed the appeal for the assessment year 2010-11, while dismissing certain grounds for the assessment years 2008-09 and 2009-10. The Tribunal ruled in favor of the appellant on grounds related to unclaimed dividends and other liabilities, directing the Assessing Officer to delete the additions.