AI Drafter 
TaxTMI 
TaxTMI 
2016 (5) TMI 1295
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....ion had taken over four banks, namely, Union Commercial Cooperative Bank Ltd., Ahmadabad, Jarandeshwar sahakari Bank Ltd., Satara, National Cooperative Bank Ltd., Ahmadabad and Sriram Sahakari Bank Ltd., Nipani. During the assessment proceedings, it was submitted by the assessee that in case of three banks namely Union Comm. Co-op Bank. Ltd., Ahmadabad, Jarandeshwar Sah. Bank Ltd., Satara, Shriram Sahakari Bank Ltd. Nipani, the net worth was negative at the time of merger and the excess of liabilities over assets of these banks is shown as "Goodwill" in the books of accounts in terms of RBI Circular No. 5/09.16.901/2007-08 dated 13-07-2007. The assessee also pointed out that as per this Circular, goodwill is required to be amortized within five years from the date of merger and in line with this circular; provision at 20% of the total goodwill was debited to the profit & loss account of this year which is as under : Sr. No. Bank Goodwill on merger Credit Debit to goodwill after merger Goodwill written off 2008-09 Goodwill Amt.C/F 1 Union Comm. Co-op Bank Ltd., Ahmedabad 18.38 -- 3.68 14.70 2 Jarandeshwar Sahakari Bank Ltd., Satara 44.71 ....
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....uired by the assessee bank on account of merger. Therefore, the alternate claim of the assessee that depreciation be allowed by treating the excess of liabilities over assets as 'intangible assets' u/s.32(1)(ii) was rejected by him on the ground that the same is not legally tenable on the facts of the case. 7. Aggrieved with such order of CIT(A) the assessee is in appeal before us. 8. The Ld. Counsel for the assessee at the outset drew the attention of the Bench to the order of the Tribunal in assessee's own case for A.Y. 2007-08 and 2008-09 and submitted that the Tribunal vide ITA Nos. 460 and 461/PN/2013 order dated 23-01-2014 has allowed the claim of depreciation on such intangible asset being "business or commercial rights of similar nature contemplated u/s.32(1)(ii) of the Act". 9. The Ld. Departmental fairly conceded that the issue has been decided in favour of the assessee by the order of the Tribunal. 10. After hearing both the sides, we find identical issue had come up before the Tribunal in assessee's own case vide ITA Nos. 460 and 461/PN/2012 for A.Yrs 2007-08 and 2008-09 order dated 23-01-2014. We find the Tribunal has decided the issue in favour ....
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....her authorities concerned, etc. stand transferred to the assessee Bank. Similar is the position with regard to the liabilities of the Transferor Bank including the savings bank account or current bank account or any other deposits of the customers. The scheme also envisaged takingover of all the employers of the Transferor Bank who wished to continue in service. In sum and substance, assessee bank took over the entire business apparatus of the Transferor Bank, which included its client base, operational branches of the bank at different places and also their employees, besides the licenses and other statutory approvals enjoyed by the Transferor Bank. Now, the case set-up by the assessee is that the acquisition of huge client base, operational branches of the banks and the access to new money markets has resulted in a business advantage which is covered within the meaning of the expression "business or commercial rights of similar nature" as contemplated in clause (ii) of sub-section (1) of section 32 of the Act. 13. Therefore, the moot question is as to whether the aforesaid business/ commercial advantages, namely, taking over of huge client base, licenses, operational ban....
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....ss under a slump sale agreement and the consideration paid included, sum paid for acquiring the client base of the transferor. The acquisition of rights over the assets of the transferor, inclusive of its customers base was held to be an 'intangible asset' being 'business or commercial rights of similar nature' contemplated in section 32(1)(ii) of the Act and was held eligible for depreciation. Following the aforesaid discussion, in the present case, the business advantages detailed earlier, are liable to be considered as an intangible asset, being 'business or commercial rights of similar nature' contemplated u/s 32(1)(ii) of the Act. In our considered opinion, the plea of the assessee for allowance of depreciation in terms of section 32(1)(ii) of the Act cannot be faulted either in law or on facts." 11. Respectfully following the decision of the Tribunal in assessee's own case in the immediately preceding 2 assessment years, the ground raised by the assessee is allowed. 12. Ground of appeal No.4 by the assessee reads as under : "The Ld.CIT(A)-III of Income tax was not right legally as well as factually in not holding appellant bank's Head to Maturity securities as ....
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.... and 461/PN/2012 order dated 23-01-2014 for A.Yrs. 2007-08 and 2008-09 has allowed the claim of the assessee by observing as under : "16. The Ground of Appeal No. 4 is with regard to the assessee's claim that the securities held by the assessee bank under Held to Maturity (HTM) category constitute its stock-in-trade and the consequential loss on valuation of the said securities as on 31.03.2007 on the basis of cost or market value whichever is lower (on the basis of individual scrip) is an allowable deduction. The said claim was made by way of an Additional Ground of Appeal before the CIT(A), which was admitted by him for adjudication but on merits it has been denied. Before us, the claim of the assessee is that the securities held by the assessee bank are part of stockin- trade irrespective of their classification and that a similar matter has been considered by the Pune Bench of the Tribunal in the cases of Latur Urban Coop. Bank Ltd. in ITA No.778/PN/2011 for assessment year 2007- 08 dated 31.08.2012 and The Sangli Bank Ltd. in ITA NO.846/PN/2006 for assessment year 2004-05 dated 30.05.2013 wherein such securities are accepted as stock-in-trade. It was contended that th....
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....ble High Court of Kerala in the case of CIT Vs. Nedungadi Bank Ltd., 264 ITR 545. In the said case, the Hon'ble High Court has held that the securities held by the Bank are in the nature of stock-in-trade. Both the authorities below has merely gone on the nomenclature of the head under which the Securities are held. In our considered view, nomenclature cannot be decisive for the assessee Bank. We, therefore, hold that the loss on the sale of the Securities is revenue in nature and same is allowable. Accordingly, Ground No. 2 is allowed." 18. Following the aforesaid precedent, we hold that the claim of the assessee in Ground of Appeal No. 4 is justified and is allowable." 19. Respectfully following the decision of the Coordinate Bench of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice the above ground by the assessee is allowed. 20. Ground of appeal No.6 by the assessee reads as under : "6. The Learned CIT(A)-III of Income Tax was not right legally as well as factually in holding that Sec 43 D applies to the appellant bank. The Learned CIT(A)-III of Income Tax has overlooked the fact that the appellant ....
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....on, namely, Mr. S.B. Nhalade was recorded by the AO by issuing Summons u/s.131 and operative portion of such statement recorded is reproduced at page 8 & 9 of the assessment order by the AO. In his statement, the trustee has stated that the trust undertakes the processing job of Cosmos Bank for which they recruit staff from unemployed youth and depute them to the bank. The AO analysed the number of recruitments done and details of payments received from the assessee bank by the said trust during the current and preceding Assessment Years. He also analysed the details of security charges paid. 25. On verification of the various information / documents furnished by the bank and the trust on the issue, the following aspects were noted by the Assessing Officer: "(a) The assessee in its written submission has shown to have paid a sum of Rs. 3,39,13,264/- to the Cosmos Foundation and an amount of TDS made thereon is shown at Rs. 12,53,780/-. (b) The Cosmos foundation, in its return of income for Assessment Year 2009-10 has shown the amount of entire TDS in its case at Rs. 10,88,191/- and this TDS also includes the TDS made by other bank on its deposits. (c) ....
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.... test is taken and those who qualify in the test are appointed by the bank as permanent staff. It was claimed that during the year, the Foundation provided 4404 employees to the assessee bank and outsourcing charges were received from the Foundation for the services so rendered. Except making such claims, the assessee has not provided any details about the activities of the Foundation, infrastructure and facilities available with the Foundation to undertake such services on behalf of the assessee. It is also not known whether the Foundation undertakes similar services for other persons and if so whether charges for such services in case of third parties are comparable with charges received from the assessee. He noticed from Annexure K of the Income & Expenditure A/c of the Trust for the year ended 31-03-2009 that the trust has not shown any such service charges from third parties. All these details according to Ld.CIT(A) are essential to ascertain the actual services rendered by the Foundation and whether the payment made is commensurate with the services claimed to have been rendered by the Foundation. He further observed from the process carried out by the assessee that the trust....
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....e strongly objected to the order of the CIT(A). He submitted that the provisions of section 40A(2)(b) are not applicable to the facts of the present case. He submitted that the director of Cosmos Foundation are no doubt the directors of the assessee company. However, they are not substantial shareholders of the assessee company. Referring to the decision of Hon'ble Delhi High Court in the case of Shanker Trading Pvt. Ltd. Vs. CIT reported in 254 CTR 44 he submitted that the ratio laid down by the Hon'ble high Court is squarely applicable to the facts of the assessee company and the provisions of section 40A(2)(b) are not applicable. Referring to the said decision he submitted that in that case the assessee M/s. Shanker Trading Pvt. Ltd. was engaged in the business of Katha and Cutch and has taken on lease w.e.f. 01-06-1978 a factory belonging to Mehta Charitable Prajnalaya Trust which was also engaged in the business of manufacturing of the same product. 2 of the trustees of the said trust were also the directors and shareholders of the assessee company. 3 out of 5 directors of the assessee company were the sons of two trustees of the trust. Bulk of the shares of the assessee compa....
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....that the trust had the required paraphernalia to recruit the manpower on such a major scale or even the necessary infrastructure for giving training in computers etc. There was complete failure on the part of the assessee to bring out the extent of involvement of the trust in the whole process of selection, recruitment and training of the candidates before they are formally absorbed in the muster of the assessee bank. He further noted that the quantum of charges paid to the trust appears to be highly disproportionate and did not commensurate with the expenditure of services claimed to have been rendered by the trust. He further emphasized on the observation of the AO that all the trustees of the trust are either directors of the assessee bank or related to the directors. He also rejected the contention of the assessee that no such disallowance was made in the preceding year. It is the submission of the Ld. Counsel for the assessee that the provisions of section 40A(2)(b) are not applicable since the assessee is a charitable trust and not an association of persons within the meaning of section 40A(2). We find force in the above arguments of the Ld. Counsel for the assessee. The pers....
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.... of the Act is to address evasion of tax under the cloak or guise of permissible deductions by checking payments made or benefits granted made to closely connected persons and entities ostensibly for the goods sold or services rendered by them. Admittedly, Mehta Charitable Prajnalay Trust is a charitable trust and by itself the Trust does not hold any share of the assessee-company. The Trust is not entitled to any profit out of the business being run by the assessee-company. Hence, the Trust does not have a substantial interest in the business of the assessee-company. 30. The Tribunal vide its order dated 25.02.2002 in respect of the assessment years 1994-95 and 1995-96, held that clause-v of Section 40A(2)(b) deals with this type of situation and, therefore, the payments made by the assessee-company to the Trust, if inflated or excessive, could be disallowed under the said provision. It is not in dispute that at least some of the trustees are also directors and shareholders of the assessee-company. The Tribunal vide its order dated 25.02.2002 held that the maximum shareholding in the assessee-company was owned by the trustees and their relatives as defined in Sec....
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....eriving income profit or gains, it is difficult to say that either the trustees or beneficiaries of a trust come altogether and form an association for a common purpose or to take a common action. As observed by a Division of this Court in CIT v. Sae Head Office Monthly Paid Employees Welfare Trust (2004) 271 ITR 159, the beneficiaries do not set up a trust and the trustees derive their authority under the terms of the deed of the trust. Therefore neither the trustees nor the beneficiaries could be said to have come together for a common purpose. The beneficiaries merely enjoy the benefit of the trust whereas the function of the trustees is to administer the trust in terms of the provisions of the trust deed. As observed by this Court in Sae Head Office Monthly Paid Emplyees Welfare Trust (supra), the mere fact that the beneficiaries or the trustees are more than one, cannot lead to a conclusion that they constituted an association of persons. This Court was of the view that in the absence of ITAs 53/2000, 251/2007, 253/2007, 257/2007, 223/2002 247/2002, 45/2005, 50/2005, 1207/2005, element of volition on the part of either the trustees or beneficiaries by no stre....