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2021 (11) TMI 702 - AT - Income TaxScope of Deposit Credit Guarantee Corporation of India Act DICGCI - Overriding title on income in favour of DICGCI - accrual of income - Assessee is a cooperative bank and under liquidation - assessee has received the amount of interest income net of expenses in the year under consideration post liquidation - liability of the appellant assessee for repayment to the depositors and DICGC from the recovery made by it from the borrowers against the interest received from the fixed deposit, which has accrued on the amount recovered pending the payment to the depositors. - HELD THAT - As decided in The Visnagar Nagrik Shahakari Bank Ltd. Ors. 2015 (7) TMI 1390 - GUJARAT HIGH COURT whatever amount will be received by the assessee has to be paid firstly to DICGCI after making necessary provision for expenses in relation to liquidation and declaration of dividend. Thus, there remains no ambiguity to the fact that the assessee has no right in the impugned amount of interest income as the same has been diverted to DICGCI as discussed above. Accordingly, the amount of interest though received by the assessee but does not belong to it. The amount of interest in dispute is not an income of the assessee and therefore the same cannot be made subject matter of tax in the hands of the assessee - Decided in favour of assessee.
Issues Involved:
1. Classification of interest on advances as business income. 2. Set-off of interest income on fixed deposits against brought forward business losses. 3. Overriding title on income in favor of DICGCI and its tax implications. Detailed Analysis: Issue 1: Classification of Interest on Advances as Business Income The assessee argued that the interest on advances amounting to ?41,13,228/- should be classified as business income. The rationale was that the advances do not cease to be stock in trade, and thus, the interest derived from them retains the character of business income. However, the Tribunal did not specifically address this issue in its final decision, focusing instead on the overriding title argument. Issue 2: Set-off of Interest Income on Fixed Deposits Against Brought Forward Business Losses The assessee contended that the interest income on fixed deposits, considered as stock in trade, should be set off against brought forward business losses. This argument was based on the Supreme Court judgment in the case of Western States Trading Co (P.) Ltd. v/s. C.I.T. 80 ITR 21 (SC). The Tribunal, however, did not delve into this issue in detail, as the overriding title argument took precedence. Issue 3: Overriding Title on Income in Favor of DICGCI The main contention of the assessee was that due to the overriding title in favor of DICGCI, the income should not be taxable. The facts revealed that the assessee, a cooperative bank under liquidation, had borrowed money from DICGCI to pay depositors. The Gujarat High Court had directed that any amount received by the assessee should first be paid to DICGCI after making necessary provisions for liquidation expenses and dividend declaration. The Tribunal referred to the Gujarat High Court judgment in the case of The Visnagar Nagrik Shahakari Bank Ltd. & Ors. vs. DICGCI, which established that the income received by the assessee in the form of interest was diverted at source to DICGCI due to an overriding title. Therefore, the interest income did not belong to the assessee and was not taxable in its hands. The Tribunal also cited the Supreme Court case of Associated Power Co. Ltd. vs. CIT, which reinforced that income diverted by an overriding title does not reach the person in whose hands it is sought to be assessed. Additionally, the Tribunal referred to a similar case of Janta Commercial Cooperative Bank, where it was held that due to the overriding title, the income was not taxable. Conclusion: The Tribunal concluded that the interest income in dispute did not belong to the assessee and was not taxable due to the overriding title in favor of DICGCI. Consequently, the technical issue raised by the assessee was upheld, and the appeal was partly allowed. The other issues raised by the assessee on the merits were rendered infructuous and dismissed. The Tribunal decided not to remit the matter back to the authorities below, as the facts were already on record and adequately addressed. Final Decision: The appeal of the assessee was partly allowed, with the interest income being deemed non-taxable due to the overriding title in favor of DICGCI.
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