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TMI Blog2021 (11) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. - ITA No. 2251/Ahd/2015 - - - Dated:- 30-9-2021 - Rajpal Yadav, Vice President And Waseem Ahmed, Member (A) For the Appellant : A.P. Nanavaty, A.R. For the Respondents : Ritesh Parmar, CIT, D.R. ORDER Per Waseem Ahmed, Accountant Member The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals)-7, Ahmedabad dated 19.03.2015 passed for Assessment Year 2011-12. 2. The assessee vide letter dated 27-01-2020 has filed the revised grounds of appeal: (1) Assessee has realized interest on advances of ₹ 41,13,228/-. In the course of realizing advances from borrowers such advances do not cease to be stock in trade nor such interest cease to have characterization of business income hence Ld. CIT(A) ought to have held that interest on advances of ₹ 41,13,228/- is business income. (2) Assessee has realized advances and has kept surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee carried the matter before the learned CIT(A) and has taken a different stand by referring the ground of appeal as reproduced under: (2) The learned Income Tax Officer ought to have allowed the 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. 6. The assessee in the statement of facts filed before the learned CIT(A) contended that it is not carrying on any business activity post liquidation. The duty of the liquidator was to realize debts/assets which was to be distributed to the creditors in the rank of the priority. As such there was some dispute with regard to the rank of priority of the creditors and therefore the amount realized by the assessee was parked with other institutions by it as trustee of the creditors. Thus, interest earned by it on such amount is not taxable under the Act. 7. However, learned CIT(A) rejected the contention of the assessee by observing that the assessee itself has shown the net income of ₹ 6,53,15,515/- in its profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est belongs to it or it belongs to DICGCI. In this connection we find pertinent to refer the judgment of the Hon'ble Gujarat High Court in the own case of the assessee i.e. The Visnagar Nagrik Shahakari Bank Ltd. Ors. vs. DICGCI in LPA No. 1300 of 2010 and LPA No. 906 of 2010 vide order dated 06-07-2015. The relevant extract of the judgment is reproduced as under: In view of the above and for the reasons stated above, the impugned common judgement and order passed by the learned single Judge passed in Special Civil Application No. 4260 of 2009, Special Civil Application No. 7617 of 2009 and Special Civil Application No. 6978 of 2009 are hereby quashed and set aside and the Letters Patent Appeals are allowed to the aforesaid extent by directing the concerned official liquidator of the concerned Bank in liquidation to make the payment first to DICGC i.e. the amount which is paid by DICGC to the concerned depositor/s to the extent of ₹ 1 Lac each, however after making necessary provisions for the expenses in relation to the liquidation proceedings and for declaration of dividend. Rest of the Letters Patent Appeal Nos. 1305 of 2010, Letters Patent Appeal No. 1755 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank under liquidation within the limit of ₹ 1 Lakh or less and accordingly DICGCI has paid bank under liquidation ₹ 3,65,71,875/- which was utilized for the purpose of repayment of depositors to the extent of ₹ 1 Lakh. However, according to DICGCI Act, bank was authorized to realize its assets and advances coercively and whatever proceeds are realized, bank could utilize such proceeds for repayment of liabilities of depositors and other liabilities. In view of the aforesaid mandate available by virtue of DICGCI Act, a deficit of ₹ 1,05,461/- arose in the hands of the assessee in the process of recovery and repayment. Under the circumstances, it was the case of the assessee before the CIT(A) that bank under liquidation shall not have any taxable income till the liability of DICGCI is fully paid off due to diversion of income at source. 7. The CIT(A) has examined the issue threadbare and has recorded a finding in favour of the assessee for non-applicability of Section 139(3) of the Act in the circumstances which reads as under: 4. DECISIONS: I have considered the facts of the case and the argument of the appellant carefully. All three grounds are ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61. While considering alternative plea of diversion of income at source, I have gone through judgement of Supreme Court as well as judgement of Gujarat High Court in the case of Visnagar Nagarik Sahakari Bank Ltd. (Supra) as jurisdictional High Court has upheld statutory obligation upon banks under liquidation availing insurance claim for deposits and in fact such liability has been fully paid off to DICGCI and therefore till such obligation all funds realised by bank under liquidation are diverted at source entire income of assessee based on observation in the case of Moti Lal Chhadami Jain v/s CIT 190 ITR 1 (SC) r.w judgement in the case of Smt. Sarla Devi K. v/s. CIT 222 ITR 211 (Kerala) and associated. Power Company Ltd. 218 I T R 195 (SC.) therefore entire interest income and share dividend income is diverted at source and bank under liquidation has no discretion or authority to apply such funds as it wishes and hence such funds are not available to appellant as income and therefore such income is not taxable in the hands of appellant. In view of facts and ratio laid down in the case laws (supra), ground No. 1 2 are allowed. As appellant has not made any submissions on ..... 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