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2016 (7) TMI 252 - AT - Income TaxAddition of unclaimed dividend - Held that - The lower authorities have mis-directed themselves in taxing the unclaimed dividend as income. Ostensibly, dividend distribution by the assessee bank is an apportioned from its tax paid profits and does not 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
Issues Involved:
1. Deletion of addition of unclaimed dividend of ?53,13,800. 2. Whether the unclaimed dividend should be taxed as income due to cessation of liability. Detailed Analysis: Issue 1: Deletion of Addition of Unclaimed Dividend of ?53,13,800 The Revenue challenged the deletion of the addition of ?53,13,800 by CIT(A), arguing that the assessee ceases to exercise right over the amount set aside for distribution of dividend, thus constituting cessation of liability. They cited the Supreme Court's decision in CIT Vs. TVS Sundaram Iyengar and Sons Ltd. 222 ITR 344. The assessee, a Cooperative society engaged in banking, had credited various amounts, including unclaimed dividends, to its General Reserve Fund account. The AO added these amounts to the income, stating they had become available for free use and were not routed through the P&L account, thus escaping taxation. The assessee argued that unclaimed dividends, as per the Maharashtra State Co-op. Society’s Act, must be transferred to the Reserve Fund if unclaimed for three years, maintaining that the bank remains custodian of these funds. They contended the AO misunderstood the nature of the transaction, which was a transfer per statutory requirements, not a cessation of liability. CIT(A) upheld the assessee's view, stating that the dividend was paid out of profits and was not an expenditure claim. The write-back of unclaimed dividends to the Reserve Fund, as per RBI norms, could not be taxed as income. CIT(A) referenced ITAT Mumbai's decision in Apex Urban Co-op. Bank of Maharashtra and Goa Ltd. and ITAT Pune's decision in Bhingar Urban Co-op. Bank Ltd., which supported the non-taxability of such transfers. Issue 2: Whether the Unclaimed Dividend Should be Taxed as Income Due to Cessation of Liability The Revenue argued that the unclaimed dividend should be taxed as income due to cessation of liability, citing the Supreme Court's decision in TVS Sundaram Iyengar and Sons Ltd. The assessee countered that the dividend distribution was an appropriation of profit, not an expenditure, and had already been taxed. They argued that the AO's treatment of the transaction as cessation of liability was incorrect, as it was a statutory transfer, not a trade liability. The Tribunal, referencing its decision in the preceding assessment year, found the facts identical and upheld CIT(A)'s decision. It noted that dividends are paid from tax-paid profits and are an apportionment of income. Taxing unclaimed dividends would result in double taxation. The Tribunal reiterated that cessation of liability is taxable only if it had entered the computation of taxable income previously, which was not the case here. The Tribunal found no merit in the Revenue's reliance on the Supreme Court's decision in TVS Sundaram Iyengar and Sons Ltd., as the fact pattern was different. The unclaimed dividend was not a receipt in the course of trading transactions, and thus, could not be taxed as income. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming CIT(A)'s deletion of the addition of ?53,13,800 on account of unclaimed dividends. The Tribunal confirmed that unclaimed dividends transferred to the Reserve Fund, as per statutory requirements, do not constitute taxable income due to cessation of liability, thereby supporting the assessee's stance and maintaining consistency with previous rulings.
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