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TMI Blog2017 (6) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... e by not allowing deduction u/s. 80(P)(2)(a)(i) of the IT Act, 1961. 3. The relevant facts as culled out from the materials on record are as under:- 3.1 Assessee was a co-operative Bank. At present, the assessee is in liquidation process. No banking activities have been carried out by the bank. The bank earns interest income from deposits with bank. 3.2 In its profit and loss account, the assessee has shown interest of Rs. 36,76,825/- on fixed deposits with banks. The assessee has also shown interest received on advances with its members at Rs. 2,64,27,420/- as also claimed interest rebate at Rs. 3,07,56,618/- and ultimately a loss of Rs. 43,29,198/- was debited in its profit and loss account. 3.3 Vide questionnaire u/s. 142(1) of the Income-tax Act, 1961, the assessee was requested to state as under: "It is noticed that no banking activities have been carried out by the bank. It was further noticed that your banking license for carrying on banking business in India was cancelled u/s.22 of the Banking Regulation Act, 1949 by the Reserve Bank of India on 27/03/2007. Since the society was in the process of being winded up by the Officer Liquidator as stated by your auditor. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the license was cancelled subject to restart upon fulfillment of it. The regular business of earning income of interest from investment and advance to members is continued even after cancellation of credit society as bank as per Banking Regulation Act. The cancellation of registration does not disentitle to carry on business of providing credit facilities to the members. The source of interest income is out of investment and advance to members. The income consists of interest earned on advance to members and investment. The expense consists of interest payable on deposits and borrowings. There is no change in any source of income or loss in the bank. The advances and investment of credit society made out of deposits, borrowing and reserve. The net loss of earlier year is carried forward and set of in future year upon starting the advance as performing assets and earn interest income is to be allowed u/s.72(1) of the Income-tax Act. The source of earning of interest is continued till this assessment year having filed regularly profit and loss account and balance sheet in return of income. It was stated that the loss as incurred in earlier year be allowed as set off in determining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idation Officer (Liquidator) acts in the place of Board of Directors of Nagrik Co-operative Banks in liquidation till registration of society is not cancelled under clause-20 of Gujarat Co-operative Society Act, 1961 and he attains all administrative powers under clause 74 of Co-operative Act and attains power under clause 110. As per Clause 108(4) of Co-operative Act, the Liquidation Officer (Liquidator) shall function under the guidance, supervision and control of Registrar. Therefore, the provisions of guide-lines and Banking Regulation Act of Reserve Bank of India become useless in the case of co-operative Banks gone in liquidation. Moreover, it was felt necessary that state Government declares one time settlement scheme and is implemented uniformly so that confidence of the people in co-operative sector is sustained, cooperative activities are encouraged, deposit-holder are paid back their deposit, credibility of the banks are strengthened, members are given back their institution and to maintain consistency in recovery of dues of the banks and for maintaining transparency in transaction of recovery of dues of the bank, a conducive atmosphere is created in co-operative sector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, the AAC held that the income should be treated as a business income since in his opinion the liquidator was carrying on the business for beneficial winding up of the company. The Tribunal held that the income should be treated as income from other sources and disallowed the carry-forward of losses. On reference: HELD No company can carry on banking business without license issued by the Reserve Bank of India save as otherwise provided in section 22 of the Banking Regulation Act, 1949, and it is only such banking company which can carry on additional business as specified in section 6 of the aforesaid Act It was common ground, that the main business of the assessee-company had come to an end as the compulsory winding up order had been passed by the High Court. It was also common ground that there was no question of accepting deposits from public or withdrawals by cheques, drafts, orders or otherwise. The Reserve Bank of India had suspended the license of the assessee-company, so far as carrying on the business of banking was concerned. The net effect would be, therefore, that the assessee-company ceased to be competent to carry on banking business. If, therefore, it ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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