2013 (5) TMI 636 - AT - Income Tax

Interest from Oriental Bank of Commerce - addition as not been credited in the Profit and Loss A/c. or not offered for taxation in the subsequent year - Assessee is a co-operative bank in liquidation with no banking activities were carried - Held that - Assessee bank is under liquidation and is maintaining its books of accounts on cash basis & submitted that it can demonstrate that the accrued interest has already been included in its Profit and Loss account & it will lead to taxing the same income twice if addition made - Assessee granted one more opportunity to prove its contention that the interest is already included in income - ground of assessee allowed for statistical purposes. Interest income of the Bank - income from other sources v/s income from business - Held that - Considering the case of Morvi Mercantile Bank Ltd 1975 (8) TMI 31 - GUJARAT High Court 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 the 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 - no fault can be found with the order of AO to treat it as income from other sources. Against assessee.

Summary

Issues Involved:
1. Addition of interest income from Oriental Bank of Commerce.
2. Classification of interest income as "income from other sources."

Analysis:

Issue 1: Addition of interest income from Oriental Bank of Commerce
The appellant, a cooperative bank in liquidation, filed an appeal against the order of the CIT(A) for the assessment year 2009-10. The Assessing Officer made an addition of Rs. 31,73,391/- as interest income from Oriental Bank of Commerce (OBC) not credited in the Profit and Loss Account. The appellant contended that the interest was already included in the total income from OBC. However, the Assessing Officer found the appellant's explanations insufficient and treated the interest as income of the year. The CIT(A) upheld this decision. On appeal, the appellant argued that the interest had already been accounted for in the total income. The Tribunal remitted the issue to the Assessing Officer to verify the appellant's claim, granting an opportunity to provide evidence. The Tribunal allowed the appellant's ground for statistical purposes, pending verification by the Assessing Officer.

Issue 2: Classification of interest income as "income from other sources"
The Assessing Officer considered the interest income as "income from other sources" instead of "income from business" due to the suspension of the appellant's banking license by the RBI. The CIT(A) affirmed this decision, noting that the appellant was not engaged in banking business post the license cancellation. The appellant argued that despite the license suspension, it continued recovery proceedings, repayments to depositors, and compliance with RBI guidelines, indicating ongoing business activities. However, the Tribunal referenced the Morvi Mercantile Bank Ltd case, where it was held that activities during liquidation do not constitute business. The Tribunal upheld the decisions of the Assessing Officer and CIT(A), dismissing the appellant's argument and classifying the interest income as "income from other sources."

In conclusion, the Tribunal partly allowed the appeal of the Assessee, remitting the first issue for further verification while dismissing the second issue regarding the classification of interest income.