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ACIT, Ahmednagar Circle, Ahmednagar Versus Nagar Urban Co-op Bank Ltd.

2016 (7) TMI 252 - ITAT PUNE

Addition of unclaimed dividend - Held that:- The lower authorities have mis-directed themselves in taxing the unclaimed dividend as income. Ostensibly, dividend distribution by the assessee bank is an apportioned from its tax paid profits and does not charge against the profits for the purposes of computing taxable income. Once dividend declared by the assessee bank is not a charge against the profits in order to compute taxable income, any unclaimed dividend thereof, cannot be charged as an inc .....

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12. 2. Grounds raised by the Revenue are as under : 1. The CIT(A) erred on the facts and circumstances and legality of the case in deleting the addition of unclaimed dividend of ₹ 53,13,800/- ignoring the fact that the assessee ceases to exercise right over amount set aside for distribution of dividend and hence, cessation of liability, by not following the decision of Supreme Court in the case of CIT Vs. TVS Sundaram Iyangar and Sons Ltd. 222 ITR 344. 2. For these and such other grounds a .....

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rs etc. It filed its return of income on 23-09-2011 declaring total income of ₹ 10,55,67,220/-. During the course of assessment proceedings the AO noticed from the details of general reserve fund account that apart from crediting the profits appropriated for this year, the assessee has credited this account with the following amounts : 1. unclaimed amounts Rs.1,18,476 2. Tr. from suspense A/c. Rs.67,603 3. Entrance fee Rs.17,820 4. Nominal Share amount Rs.15,36,570 5. Dividend 06-07 Rs.53, .....

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amounts and it is for this reason that the assessee credits them to the General Reserve Account. Since such receipts were not routed through the P&L A/c. they escaped taxation. The argument of the assessee that the unclaimed dividend already suffered tax and therefore should not be taxed again was rejected by the AO on the ground that once the dividend is declared, the bank is only the custodian of the money on behalf of the members/shareholders and when the same remains unclaimed and the b .....

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doing business of banking as per guidelines and prudential norms issued by RBI as well as the Maharashtra State Co-op. Society s Act, 1960 and all the Co-op. Banks are bound by the Rules framed by Co-op. Society s Act and any dividend remaining undrawn for three years after having been declared, shall be carried to the Reserve Fund of the Bank as per the said rules. Accordingly, the bank has transferred the said sum of ₹ 53,13,800/- to the Reserve Fund A/c. It was argued that the sharehol .....

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of the members who have not collected their dividend were those whose dividend amount were very small and did not have bank account. It was submitted that the assessee bank has distributed the dividend declared for F.Y. 2006-07 amounting to ₹ 1,21,19,127/- as under : F.Y. 07-08 Rs.56,78,215/- F.Y. 08-09 Rs.6,45,307/- F.Y. 09-10 Rs.3,83,038/- F.Y.10-11 Rs.98,765/- Total Rs.68,05,325/- 6. It was submitted that the above data indicates that there were many shareholders who had not collected .....

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ct nature of transaction. It was argued that the AO had treated it as a cessation of liability, or extinguishment of liability but it was not so and it was just a transfer from one head to another, as per provisions of Co-operative Society s Act. It is not in the nature of trade liability nor any liability which had been created by debiting the same as expenditure to P & L A/c. and hence there was no question of extinguishment of liability. 7. It was further argued that the distribution of d .....

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accordingly claimed that the AO had made double addition of income on which the tax had been already paid as under Income Tax Act and there is no provision which enables the AO to levy tax again on the income which had already been taxed. 8. Based on the arguments advanced by the assessee the Ld.CIT(A) allowed the claim of the assessee by observing as under : 4.3 The submissions made by the Ld. Counsel for the appellant and the relevant material placed on the record are carefully examined. In th .....

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laimed dividend cannot be taxed as income under the provisions of the Income Tax Act, just because the same was taken to the General Reserve account as per RBI norms and provisions of Co-op. Society s Act. This issue came up before ITAT, Mumbai in the case of Apex Urban Co-op. Bank of Maharashtra and Goa Ltd. (134 ITD) 118), wherein it is clearly held that when the assessee has not claimed expenditure when dividend was paid, the write back of the unclaimed dividend cannot be treated as income un .....

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he Tribunal observed as under : In our considered opinion, the lower authorities have mid-directed themselves in taxing the unclaimed dividend as income. Ostensibly, dividend distribution by the assessee bank is an apportioned from its tax paid profits and does not charge against the profits for the purposes of computing taxable income. Once dividend declared by the assessee bank is not a charge against the profits in order to compute taxable income, any unclaimed dividend thereof, cannot be cha .....

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s in appeal before us. 10. The Ld. Counsel for the assessee at the outset filed a copy of the order of the Tribunal in assessee s own case for A.Y. 2010-11 bearing ITA No.1861/PN/2013 and ITA No.1982/PN/2013 order dated 20-05- 2015 and submitted that identical issue has been decided by the Tribunal in favour of the assessee. Therefore, in view of the decision of the Tribunal in assessee s own case the grounds raised by the Revenue should be dismissed. 11. The Ld. Departmental Representative on t .....

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dend. The Ld. Authorized Representative for the assessee pointed out that similar issue had arisen before the Pune Bench of the Tribunal in Ahmednagar Shahar Sahakari Bank Ltd. vs. ACIT vide ITA No.1862/PN/2013 and Other relating to assessment year 2010-11, order dated 20.02.2015, and Tribunal had allowed the claim of the assessee. We find that similar issue/addition made on account of unpaid dividend arose before the Tribunal and it was held as under :- 5. We have carefully considered the rival .....

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bility may be a taxable event but only in situations where such liability has entered the computation of taxable income on an earlier occasion. Quite clearly, the declaration of dividend does not enter the computation of taxable income as the dividend is declared out of the profits remaining after taxation. 6. In so far as, the reliance placed by the CIT(A) on the judgement of the Hon ble Supreme Court in the case of TVS Sundaram Iyengar and Sons Ltd. (supra) is concerned, the same is quite misp .....

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