2022 (10) TMI 213 - AT - Income Tax

Nature of receipt - Amounts received from its members towards Surety Guarantee Fund (SGF) - whether the amounts received during the year towards SGF could be brought to tax? - HELD THAT - Tabulation is very evident that the very same receipt from members towards SGF account has been accepted as capital receipts by the AO in earlier as well as in subsequent assessment years. There is no reason to take a divergent stand by the AO during the year under consideration. The principle of consistency is required to be maintained by the Revenue. Reliance in this regard is placed on the decision of the Hon ble Supreme Court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT . The facts prevailing in earlier years and subsequent years are exactly identical to the facts in the year under consideration. Hence, we have no hesitation to hold that the receipts from members in the sum being amount received from members towards SGF as capital receipts not chargeable to tax. Accordingly, the original grounds raised by the assessee on merits are allowed. Since the relief is granted to the assessee on merits, the legal ground raised by the assessee challenging the validity of reopening need not be adjudicated and is hereby left open. Accordingly, the appeal of the assessee is allowed.

Summary

Issues:
1. Addition made by the ld. AO in the sum of Rs.2,09,32,478/- towards Surety Guarantee Fund (SGF).
2. Validity of re-assessment.

Analysis:
1. The appeal addressed the addition made by the ld. AO towards the Surety Guarantee Fund (SGF) amount of Rs.2,09,32,478/-. The assessee, a salary earners primary urban co-operative bank, accepted deposits from the general public and utilized the funds by giving loans to members. A portion of the loan amount was retained in the SGF account by crediting contributions from the members. The interest income earned from the SGF funds was voluntarily offered to tax by the assessee. The Tribunal found that the principle of mutuality applied to the SGF, as the funds were received only from members and were utilized for their benefit in case of loan default. The interest accrued on the SGF fund was already taxed. The Tribunal noted that similar receipts from members towards SGF were treated as capital receipts in previous assessment years, and consistency was required. Relying on the principle of consistency and the decision of Radhasoami Satsang case, the Tribunal allowed the original grounds raised by the assessee on merits, concluding that the SGF amount was not chargeable to tax.

2. The Tribunal admitted an additional ground challenging the validity of re-assessment. However, since the appeal was allowed on the merits of the addition towards SGF, the Tribunal did not adjudicate the legal ground challenging the validity of reopening. The Tribunal granted relief to the assessee on the merits, thereby allowing the appeal.

In conclusion, the Tribunal allowed the appeal of the assessee, holding that the amounts received from members towards SGF were not chargeable to tax, based on the principle of mutuality and consistency in treatment of such receipts as capital receipts. The validity of re-assessment was left open as it was not necessary to adjudicate given the allowance of the appeal on the merits.