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TMI Blog2011 (2) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... to the dividend income - Whether, Disallowance under section 14A could be invoked in absence of r. 8D r/w ss. 14A (2) and 14A(3) of Act - Held that:- Do not see as to how answer could be in negative. If that be so, no disallowance could be made u/s. 14A for assessment years 2002-03 and 2006-07. Section 14A is admittedly declarative of law as it always stood. Apex court in case of Rajasthan Warehousing Corporation vs. CIT [2000 (2) TMI 5 - SUPREME Court] stated that there is nothing to merit an allocation of expenditure qua taxable and tax-free incomes arising out of one, individual business, but that position can no longer be said to obtain in view of section 14A. Dividend Income - Whether in absence of prescribed, standard method, disallowance of dividend income u/s 14A could obtain – Held that:- assessee has earned dividend income, which does not form part of total income under Act - Assessee tried to justified its stand on basis that tax-free securities yield lower return, which would not be viable on basis of interest-bearing capital - Assessee has not furnished any material to justify investment in shares and units as self-financed - In absence of which consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, even here, unless the bank can assume proprietary rights over the same, and for which the relevant provisions of the applicable laws may have to be examined, it cannot be said that it no longer represents a liability of the bank, which must, in order to be so, be satisfied on both factual and legal counts. - Decided against the revenue. Additions on account of surplus realised by the bank on the sale of gold ornaments pledged with it - Held that:- The doctrine of unjust enrichment, or the question of cessation of liability u/s. 41, would not arise in the facts of the case, and reference thereto is wholly unwarranted. Where is the question of an Rs. unjust’ enrichment, one may ask, when there are no claimants. Had there been so, they would have prevented the sale of gold or, in any case, lodged a claim for the balance surplus. - The decisions by the apex court in the case of Sinclair Murray & Co. (P.) Ltd. v. CIT [1974 (11) TMI 3 - SUPREME Court] and Chowringhee Sales Bureau (P.) Ltd. v. CIT [1972 (10) TMI 4 - SUPREME Court] may be referred to in this regard, wherein the hon’ble court, while holding the amount collected (though held in a separate account) as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial expediency. This was, in view of the assessee s claim as a business expenditure computing u/s. 37(1) as well as its reliance on the decision in the case of CIT vs. T. Stanes Company Ltd., 105 ITR 251 (Mad.), affirmed by the supreme court vide its decision reported at (1991) 188 ITR 237 (SC) which had, infact, been relied upon by both the parties. The matter was accordingly restored to the AO with like directions. Aggrieved, the assessee is in appeal. 3. The assessee during the hearing pointed out the tribunal s order in its own case for the immediately preceding year (i.e., A.Y. 2004-05) (in I.T.A. No. 854/Coch/2007 dated 6.8.2009) holding in favour of the assessee in view of the decision by the apex court in the case of T. Stanes Co. Ltd. (supra). We observe that the tribunal in the assessee s case for earlier years (viz. AY 1999-00/ in ITA No. 26/Coch/2008 dated 30/6/2009 and AY 2000-01 (in ITA No. 345/Coch/2008 dated 6/8/2009) had, similarly, restored the matter back to the file of the AO for examining and determining the question of quantum. The legal issues sought to be raised by the AO no longer obtain, i.e., in view of the consistent stand taken by the tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s found, is not qua depreciation charge, but only purports to allocate the lease rental between the capital recovery and the finance income. Noticing divergent views, it held in favour of the assessee. Under the circumstances, we have no hesitation in following the same and for the same reason/s as found by the tribunal on earlier occasions. We decide accordingly. 5.1 The next issue raised by the assessee pertains to the disallowance in respect of interest attributable to the dividend income which is exempt u/ss. 10(34) and 10(35), effected u/s. 14A of the Act. The assessee has a common pool of interest bearing and interest free funds invested in its business. As there was no evidence to exhibit that only the interest-free funds have financed the tax-free investment, i.e., that yielding tax-free income/s; the same was taken as financed proportionately, leading to a disallowance of the proportionate interest. He relied on the decisions in the case of Coffee Consolidated Ltd. vs. State of Karnataka (2000) 248 ITR 432 (SC); CIT vs. V.I. Baby Co., 254 ITR 248 (Ker.); K. Somasundaram Brothers vs. CIT, 238 ITR 939 (Mad.); CIT vs. H.R. Sugar Factory Pvt. Ltd., 187 ITR 363 (All.), e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )] does not arise and has no bearing in the present case. The AO has neither applied the said sections or the said rule, nor possibly could, having been prescribed only later, and his order is de hors any reference there-to. 6.2 The first question that needs to be addressed, therefore, is whether section 14A could be invoked in the absence of r. 8D r/w ss. 14A (2) and 14A(3) of the Act. We do not see as to how the answer could be in the negative. If that be so, no disallowance could be made u/s. 14A for the assessment years 2002-03 and 2006-07. This is more so as section 14A is admittedly declarative of the law as it always stood. No doubt, the apex court in the case of Rajasthan Warehousing Corporation vs. CIT (2000) 242 ITR 450 (SC) has said that there is nothing to merit an allocation of expenditure qua taxable and tax-free incomes arising out of one, individual business, but that position can no longer be said to obtain in view of section 14A. 6.3 The next question is whether in the absence of the prescribed, standard method, the disallowance u/s. 14A could obtain. We are, again, unable to see as to how it could not be. Whether there is any income not forming part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT vs. Hero Cycles Ltd., 31 DTR 301 (P H) is mis-placed. The same is based on the factual finding by the tribunal that the investment in the relevant securities stood financed by the assessee from its own/interest-free capital, so that the hon ble court held that the disallowance u/s. 14A could not be a matter of presumption, and would not follow merely because the assessee had a tax-free income. In fact, this is precisely what we have observed, i.e., that financing of the impugned investments cannot be a matter of presumption, but is to be established as a matter of fact. In the facts of that case, the interest expenditure, part of which was sought to be disallowed u/s. 14A, was less than the interest income of the assessee-respondent s single unit, i.e., the entire interest bearing capital could be said to have been invested to yield interest income; the assessee furnishing detailed fund flow statement to refurbish its stand. The said case, thus, has no application in the facts of the present case. 7. The last issue raised per the assessee s appeal is in respect of the inclusion of the excess cash with the assessee-bank as on 31.3.2005. The cash account is closed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the current year being at Rs. 94,404/- only. As such, the entire of it could not possibly be its income for the year; the words income and assessment year having been specifically defined under the Act. 8.2 We have given a careful consideration to the matter, whereupon, we are inclined to be in agreement with the Revenue, i.e., in principle. The amounts stand received by the bank only in the ordinary course of its day-to-day activities/regular business. That there are no claims in its respect is also admitted. How could, therefore, it could be considered as an existing liability? The same can at best be a contingent liability of the bank, i.e., to be given to the customer in case he is able to substantiate his claim. No such claims are outstanding, and which would, if so, only lead to a segregation of the amount subject to such claim/s. The ownership of the bank, under the circumstances, cannot be denied. We find the principles enumerated by the apex court in the case of Shree Digvijay Cement Mills Ltd. vs. Union of India (supra), relied upon by the Revenue, and CIT vs. T.V. Sundaram Iyengar Sons Ltd. (1996) 222 ITR 344 (SC), as applicable in the undisputed facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in future qua cash considered as income for a year would qualify for deduction for that year. We decide accordingly, and the assessee s relevant ground(s) are dismissed. I.T.A. No. 66/Coch/2009 (Revenue s Appeal) . . 9.1 The first issue in the Revenue s appeal is the deletion of a disallowance in the sum of Rs. 29,62,88,373/- effected by the AO u/s. 36(1)(vii), i.e., toward debts written off in books as irrecoverable, in the computation of the assessee s taxable income for the year (refer assessee s Ground No. 2 before the ld. CIT(A) ). The Revenue s ground, however, agitates the deletion in the sum of Rs. 8,68,96,796/- only. This is, as we discern from the orders of the authorities below, for the reason that the assessee had made a claim u/s. 36(1)(vii) of the Act for Rs. 868.97 lakhs only (refer para 2, pg. 2 of the assessment order). As such, the disallowance could be effected only to that extent, and the Revenue s appeal, limiting its grievance to the latter amount, appears to be in recognition of the error committed by the AO. 9.2 Coming to the facts of the case, the assessee s claim stood disallowed by the AO as, being a bank and, further, which had claimed and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rruled by the full bench judgement (in ITA No. 161 of 2009 dated 16/12/2009, copy on record). The observations and the stand by the hon ble court per its Full Bench (supra) endorse the claims and contentions by the Revenue per the assessment order, as also found by the tribunal (Cochin Bench) in its order in the case of The Federal Bank Ltd. v. Dy. CIT (in ITA Nos. 710 718/Coch./2008 dated 17/9/2010). We, therefore, have no hesitation in upholding the same in principle. However, as there is considerable and unexplained variation between the provision account as drawn in the assessment order and that provided by the assessee pe its Rs. statement of facts before the first appellate authority, we only consider it fit to restore the matter back to the file of the AO, who shall also examine the satisfaction of the condition .of section 36(2)(v) (which he claims as not met, to no finding by the ld. CIT(A)), to compute the assessee s claim u/s. 36(1)(vii) as exigible under law as further explained by the hon ble high court per its Full Bench decision in the case of South Indian Bank Ltd. (supra) and, of course, after allowing reasonable opportunity of hearing to the assessee. We decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by section 26 of the Banking Regulation Act, 1949. As per the same, the bank has to intimate all such accounts, to be classified separately, where inoperative for 10 years, to the RBI within 30 days of the end of each calendar year. The intention behind the same is to enable the RBI to consider the date for the transfer of such deposits to the Government. There is, thus, no question of these amounts being appropriated by the bank at any stage. Section 22 of Limitation Act, 1963 provides for no limitation for holding and /or claiming deposits. The limitation is only with respect to the re-payment thereof, i.e., within three years of the claim by the depositor or the person claiming through him. In fact, the latest instruction by the RBI (Circular No. RBI/2008-09/138, DBOD No. Leg. BC.34/9.7.005/2008-09 dated 22.8.2008) requires the banks to provide interest on such accounts, while seeking out the account holders proactively. The same, thus, continue to be the bank s liability at all times. On facts, on the basis of sample details called for by the ld. CIT(A), it was found by her that the bank had honoured a claim qua fixed deposits eleven (11) years after the same had matured. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the RBI, with it having the power to direct the banks to transfer the same, where inoperative for 10 years, to the account of the Central Government. That the RBI has not directed so, and that the amounts, as we observe, continue to outstand in the books of the assessee since 1950, is an altogether different matter. In other words, the said deposits are under law within the regulatory mechanism of the Central Bank, which provides for guidelines in its respect to the banks from time to time. Its recent advisory of August, 2008 (copy on record) requires the banks to review its accounts annually for the same, classifying such accounts as inoperative where there are no transactions debit or credit for a period of two years, while being put on enquiry and initiating steps to locate the customers and, in their absence, other claimants, etc. on one year of no transaction. The banks are also required to provide interest on the deposits at the extant rate(s). It has also advised caution in dealing with such accounts, being prone to frauds etc., albeit, without putting the customers to inconvenience. The bank is an incorporeal entity, a separate legal person, with perpetual existence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate (of realization). In other words, the borrower-owners of the gold are not traceable. In fact, the bank would have proceeded to auction their valuables only after due notice to them, i.e., at the address as communicated or known to it, and only after waiting sufficiently long for their response; rather, contemplating such steps for recovery only on there being no operation in the account for a reasonably long time. The excess amount realised is qua gold held as security by the bank. The same, as its accounts and the underlying contract would show, without doubt belongs to the borrower concerned or anyone claming under him. This is a matter of fact, and admitted. As such, reference to the Kerala Money Lender s Act, or other decisions holding so, would not be of much relevance. The moot question, however, is: Whether, there are any such claims or claimants? If not, as is the case, how could it be considered as the bank s liability, implying a real liability, so that the identification of the claimant is necessary. For all we know, the borrower/s may not even be aware of the bank having realized its asset or of the excess. The surplus, realised in the course of its trade, under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ichment, or the question of cessation of liability u/s. 41, would not arise in the facts of the case, and reference thereto is wholly unwarranted. Where is the question of an Rs. unjust enrichment, one may ask, when there are no claimants. Had there been so, they would have prevented the sale of gold or, in any case, lodged a claim for the balance surplus. We are conscious and alive to the possibility of some amount being claimed and, in fact, paid by the bank out of such surplus, i.e., subsequently. This is as limitation, though estoppes the claimant, does not prevent the respondent-beneficiary from paying the amount, as Rs. 2890/- paid by the bank on 20.4.2005. The bank, where it writes back the amount in accounts, could, based on past experience, create a provision qua the amount that could find a claimant, debiting the same with the amount paid. The provision, which would, thus, represent an admitted liability, i.e., as likely to materialize, would, thus, not form part of the bank s income. Further, in the case of non-write back, the amount, if any, paid out of the past claims, would, at being shown as so, qualify for deduction as a business outgoing. The decisions by the apex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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