TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 1295
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....ial 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 1.42 9.23 36.90 3 Shriram Sahakari Bank Ltd., Nipani 33.93 (1.44) 6.50 25....
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....ciation 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 of the assessee. The relevant observation of the Tribunal from Para 11 to 14 of the order read as under : "11. We ....
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....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 bank branches in different areas, etc. can be considered to fall within the expression "business or commercial rights of similar nature" con....
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....f 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 its stock in trade. It may please be held that securities held by the appellant bank under Held to Maturity category constitute its stock in trade and cons....
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....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 the issue is covered by the aforesaid precedents. The learned Department Representative has not disputed the aforesaid factual matrix. 17. In this context, we find that so far....
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.... 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 bank being a scheduled bank, the RBI directions should be applied to identify the Doubtful Debts as prescribed u/s 43D.lt is therefore prayed that addition sustained of Rs. 6,53,00,000.00 on account of Sec 43 D....
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....st 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) In the hand written statement of the trustee, the amount received by the trust from the Cosmos Bank in the year 2008-09 is shown at Rs. 3,31,04,100/-. (d) The trust had received a sum of Rs. 66,37,090/- under the head "Security Charges' from the assessee bank in th....
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....ch 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 has very limited role in the selection process or imparting the required skills to the prospective employees, which are basically and essentially carried out by the assessee bank itself. Nothing has been brought on record to show that whether the trust had even the required paraphernalia to rec....
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....ers 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 company was held by the trustees of the trust and their family members. Initially the lease rent was fixed at Rs. 25,000/- per month which was later increased first to Rs. 50,000/- per month and then Rs. 1 lakh per month. The same was subsequently enhanced to Rs. 6,75,000/- per month. The AO applied the pr....
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....n, 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 persons referred to in clause (b) of 40A(2) are as under : (i) where the assessee is an individual any relative of the assessee; (ii) where the assessee is a company, firm, association of persons or Hindu undivided family any director of the company, partner of the firm, or member of the association or fa....
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....ssee-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 Section 2(41) of the Act. However, clause (v) of Section 40A (2)(b) of the Act brings only such companies, firms, HUFs or association of persons within its purview, directors/partners/members of which have a substantial interest in the business or profession of the assessee. The ITAs 53/2000, 251/2007, 253/2007, 257/2007, 223/2002 247/2002, 45/2005, 50/2005, 1207/2005, interest of th....
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....ty 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 stretch of imagination it cannot be considered to be an "association of persons". In CIT v. Harivadan Tribhovandas (1977) 106 ITR 494 (Guj.), Gujarat High Court was of the view that volition on the part of the members of the association is an essential ingredient and merely because a combination of individuals receives income jointly, without anything further, they cannot be regarded as an association of persons.....