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The Asst. Commissioner of Income-Tax Versus M/s Tumkur Veerashiva Co-Operative Bank Ltd.

Disallowance of amounts spent on member benevolent fund and member’s death relief fund - Held that:- The amount spent by the assessee for the welfare of its members out of the earmarked funds cannot be deductible as expenditure wholly and exclusively incurred for the purpose of business. From the findings of the facts, the CIT(A) did not appreciated the facts correctly while deleting the impugned additions. There is difference of findings of facts in the orders of the CIT(A). The assessee conten .....

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to the parties.

Disallowance of amortisation of premium paid on Govt. Securities - Held that:- The assessee is eligible for deduction towards amortisation of premium paid on Govt. securities as relying on case of Sir.M. Visweswaraya Co-op Bank Ltd., Vs. JCIT [2012 (9) TMI 774 - ITAT, BANGALORE] - ITA No. 1174/Bang/2014 - Dated:- 16-10-2015 - Vijaypal Rao, JM And G. Manjunatha, AM For the Appellant : Shri PK Srihari, Addl. CIT For the Respondent : None ORDER Per G. Manjunatha, Accounta .....

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re, we proceed to dispose off the appeal on merits after hearing the Departmental representative. 3. The brief facts of the case, are that the assessee is Co-operative Bank which is engaged in the business of banking, filed its return of income for the A.Y. 2010-11 declaring total income of ₹ 2,88,16,767/-. The case was selected for scrutiny assessment by issuing statutory notice u/s 143(2) along with notice u/s 142(1) calling for details. The Assessing Officer completed the assessment u/s .....

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itions of ₹ 12,60, 537/- and ₹ 460,000/- respectively, being amount spent out of members benevolent fund and members death relief fund. (ii) addition of ₹ 9,93,550/- being amortisation of premium paid on Govt. Securities. 5. Let us first take up issue relating to disallowance of amounts spent on member benevolent fund and member s death relief fund. 6. During the course of assessment proceedings, the AO noticed that the assessee claimed deduction in the statement of total incom .....

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Officer however, did not satisfied with the explanations disallowed the amount paid out of members benevolent fund amounting to ₹ 12,60,537/- & members death relief fund amounting to ₹ 4,60,000/- by stating that, these amounts represents the appropriation of profit which cannot be allowed as deduction while computing the taxable income. 7. Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals)-II, Bangalore. Before CIT .....

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ese expenditures and claimed as and when incurred therefore, allowable under section 37 of the income -tax Act. The CIT(A), after considering the submissions, delete the impugned additions. While doing so, the CIT(A), held that, the contributions of member s benevolent fund and death relief funds are clearly intended for the welfare of the employee s and the fund is used to provide assistance to its members therefore, allowable deduction u/s 37 of the Income -tax Act, 1961. 8. The learned Depart .....

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ductible u/s 37 of the Act. 9. We have heard the Ld. DR, perused the material available on record and gone through the orders of the authorities below. Admittedly, the assessee claimed this expenditure out of the funds earmarked from the profits appropriated. It is an admitted fact that this amount is not claimed by debiting to its income and expenditure statement. The assessee claimed this deduction by making adjustment to its net profit in the statement of total income to arrive at income from .....

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. The assessee right from the beginning contended that this amounts represents the amount spent out of the earmarked funds and for the benefit of the members. But, the findings of fact by the CIT(A) states that these amounts are contributed for the welfare of the employees therefore, deleted the additions made by the Assessing Officer. No doubt, if assessee incurred these amounts towards welfare of the employees, it should be allowed as business expenditure incurred exclusively for the business, .....

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for the business, but the amounts incurred for the welfare of the members but not to the staff of the society. 10. In the instant case, from the facts it is clearly shows that the amount spent out of members benevolent fund and members death relief fund are spent for the welfare of the members. It is also clear from the facts that these funds are created out of appropriation of profits. The Karnataka Co-Operative Society Act, 1959 mandates the Societies to appropriate certain percentage of its .....

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der specific provisions. Further, it cannot be claimed under general category by virtue of section 37, because it is not incurred exclusively for the purpose of business and also there is an element of personal in nature, because the benefit was given to members being owners of the society. It is also admitted fact that these deductions are claimed in the statement of total income without routed through profit and loss statement of the assessee. If this amounts are incurred wholly and exclusivel .....

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ence of findings of facts in the orders of the CIT(A). The assessee contends that the amounts spent out of members benevolent fund and members death relief fund but, the CIT(A) states that the amount contributed to these funds are for the welfare of the employees. Thus, there is clear difference between findings of facts by both the authorities, which needs to be relooked by the CIT(A). Therefore, we remit the issue back to the file of the CIT(A) in the light of the discussion above and direct t .....

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it was submitted that as per the laws applicable to Co-Op banks, it needs to invest certain portion of its funds in SLR securities. To comply with the statutory requirements, it has purchased Govt. securities from open market by paying premium on face value of the securities which was amortised over the period of security as per the Circular issued by RBI vide circular No. CO.BSD.1.PCB.44/12.02.2005 and this is as per the prescribed method of accounting suggested by the ICAI as well as CBDT Circ .....

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ies should be capitalised as part of cost of acquisition and cannot be treated as revenue expenditure. In support of his contention, he relied upon the Judgments of Hon ble Supreme Court in the case of Vijaya bank vs CIT, 187 ITR 541 (SC) and Hon ble Madras High Court decision in the case of T.N. Power Finance and Infrastructure Development Corporation Ltd vs JCIT (2006) 280 ITR 491 (Mad). 13. Aggrieved by the assessment order, the assessee preferred an appeal before CIT(A). The Ld. CIT(A) after .....

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lable on record and considered the case laws relied upon by the parties. A. similar issue came for consideration before this Tribunal. The Coordinate bench of this Tribunal decided the issue in favour of the assessee in the case of Sir.M. Visweswaraya Co-op Bank Ltd., Vs. JCIT, in ITA No. 1122/B/2010. In the said case, the Tribunal has allowed the claim of the assessee by observing as under: "08. We have carefully considered the rival submissions and perused the relevant facts and materials .....

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Tribunal decision in the assessee's own case and considering that the assessee bank is following consistent and regular method of accounting system, there is no justification in interfering with the order of the Commissioner of Income-tax (Appeals) on this issue of amortization of premium on government securities. United Commercial Bank v. CIT (1999) 156 CTR (SC) 380 ; (1999) 240 ITR 355 (SC) and South Indian Bank Ltd., (ITA No.126/Coch/2004, dated. Sept, 2005 Followed". (ii) The Khanap .....

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