Tribunal rules in favor of assessee on unclaimed dividends tax, dismisses Revenue's appeal on premium amortization disallowance.

The Tribunal allowed the assessee's appeal regarding the taxability of unclaimed dividends, directing the deletion of the addition of Rs. 6,71,662. The Revenue's appeal concerning the disallowance of amortization of premium on HTM securities was dismissed, affirming the deletion of the disallowance of Rs. 11,38,000 by the CIT(A).

---

---

Issues Involved:
1. Taxability of unclaimed dividends.
2. Deductibility of amortization of premium paid for acquisition of securities categorized as Held to Maturity (HTM).

Detailed Analysis:

1. Taxability of Unclaimed Dividends:
The primary issue in the assessee's appeal was the addition of Rs. 6,71,662/- on account of unpaid dividends. The Assessing Officer (AO) noted that this amount, credited to the General Reserve Account, represented unclaimed dividends. The AO viewed this as a cessation of liability, making it taxable. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, relying on the Supreme Court judgment in CIT vs. TVS Sundaram Iyengar and Sons Ltd., which dealt with unclaimed deposits being taxed as income.

However, the Tribunal found no merit in the Revenue's stance. It was noted that dividends are paid out of tax-paid profits and are an apportionment of income. Adding unclaimed dividends back to taxable income would result in double taxation. The Tribunal emphasized that cessation of liability is a taxable event only if the liability was part of the taxable income computation earlier. Since dividends are declared from post-tax profits, they do not enter the taxable income computation. The Tribunal also found the reliance on the TVS Sundaram Iyengar case misplaced, as it dealt with unclaimed deposits, not dividends. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of Rs. 6,71,662/-. The appeal of the assessee was allowed.

2. Deductibility of Amortization of Premium Paid for Acquisition of Securities Categorized as HTM:
In the Revenue's cross-appeal, the issue was the disallowance of Rs. 11,38,000/- for amortization of premium paid on HTM securities, which the AO considered capital in nature. The CIT(A) deleted this addition, following a decision by the Pune Tribunal in a similar case. The Tribunal upheld the CIT(A)'s decision, referencing the Pune Bench's ruling in Pune District Central Co. Operative Bank Ltd. vs. Addl.CIT, which allowed such deductions based on RBI guidelines and CBDT instructions.

The Tribunal noted that the Hon'ble Bombay High Court in CIT vs. HDFC Bank Ltd. had upheld the deduction for amortization of premium on HTM securities, citing RBI guidelines. The Tribunal found that the amortization of premium expenditure for HTM securities is allowable as business expenditure. Consequently, the Tribunal affirmed the CIT(A)'s action in deleting the disallowance of Rs. 11,38,000/-. The appeal of the Revenue was dismissed.

Conclusion:
- The appeal of the assessee regarding the taxability of unclaimed dividends was allowed, with the Tribunal directing the deletion of the addition of Rs. 6,71,662/-.
- The appeal of the Revenue regarding the disallowance of amortization of premium on HTM securities was dismissed, affirming the CIT(A)'s deletion of the disallowance of Rs. 11,38,000/-.

Order pronounced on 20th February, 2015.

---