TMI Blog2018 (5) TMI 1909X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Justice K.S. Jhaveri And Mr. Justice Vijay Kumar Vyas For the Appellant(s) : Mr. Sanjay Jhanwar with Ms. Archana For the Respondent(s) : Mr. R. B. Mathur with Mr. K. D. Mathur Mr. Prateek Kedawat JUDGMENT 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal, whereby the Tribunal has partly allowed the appeal preferred by the assessee. 2. This court while admitting the appeal on 14.02.2018 framed the following question of law:- Whether under the facts and circumstances of the case the addition of ₹ 47,33,34,127/- sustained by the ld. Tribunal treating the transfer of amount of un-reconciled outstanding entries originated up to 31.03.1999 in the inter branch account to the profit and loss account pursuant to RBI instructions is not without authorization of law? 3. The brief facts of the case are that the appellant is a banking company and is carrying on the business of banking and other allied activities in India under Banking Regulation Act, 1949 and has to abide itself by all the regulations and instructions being is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory Reserve) as applicable to the above amount. iii) Any claim in respect of these entries, in future, should be honoured by debit to the same head of Profit and Loss Account viz. Miscellaneous income and an equivalent amount(net of tax benefit, if any, and net of subsequent reduction in transfer to Statutory Reserves) shall be transferred reduction in the transfer to Statutory Reserves) shall be transferred from the General Reserve to the Profit and Loss Account. iv You should maintain a complete record of all the outstanding entries transferred to Profit and Loss Account for verification by internal inspection/audit/RBI inspection. It should be subjected to a 100 per cent audit by the internal auditors, the concurrent auditors and the statutory auditors. v Appropriate disclosure should be made in the Notes to Account of the balance sheet. The disclosure should also contain information regarding the impact on the Profit and Loss Account. vi As a safeguard, honouring of any future claims exceeding Rs. one of whom should be from outside the branch concerned preferably from the controlling office/Head Office. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record. As for the assess-ability in respect of income, if any, embedded in the inter-branch transactions, this issue has come up for consideration before the Delhi Bench of the Tribunal in the case of Punjab National Bank (supra), wherein the Tribunal, after detailed consideration of the contentions of the parties in the light of the various statutory provisions, examined the matter in the light of the decision of the Hon'ble Supreme Court in the case of T.V. Sundaram lyengar Sons Ltd. (222 ITR 344), heavily relied upon in that case by the Assessing officer in the assessment order and the CIT-DR before the Tribunal, and proceeded to conclude this issue, vide paras 33 and 34 of the said order, in the following manner- 33. The facts of the case of the assessee are exactly similar to the facts before the Hon'ble Calcutta High Court in the case of Betts Hartley Huett and Co. Ltd.(supra). In that case, it was held that the transaction between the head office of the assessee and its branch in India was a transaction between the principal and principal. In law, there cannot be a valid transaction of sale between the branch and its head office. As it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent branches, the amounts in question have remained either in debit or credit in different inter branch Accounts and the bank has admittedly not reconciled these accounts for over a long period of time. It is very difficult to say that these have traces of income either at the time of receipt or at the time of write off to the profit loss account. In fact, the Reserve Bank of India has permitted them to close these differences to the profit loss account with a rider that the obligation to discharge the liabilities arising thereunder is upon the bank. Meaning thereby, there is no question of the amounts being treated as income in the hands of the bank. We must appreciate that these transactions in the inter branch accounts are mere accounting entries. When the transactions were made to these accounts initially, these were not in the nature of income either of the branches involved or of the bank as a whole. It is difficult to say that the amounts in question bear the same character as unclaimed deposit received from the customers by the assessee T.V. Sundaram Iyengar Sons Ltd. 34. In the light of the discussions of these facts, it is difficul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of distribution of dividend. In this context of the matter, it cannot be said that it is the money of assessee bank. The RBI instructions are issued as per section 35A of the Banking Regulation Act, 1949 and the same are binding on the assessee bank. Therefore, though it is routed through the profit and loss account, it does not have income character in the hands of the assessee bank and hence, it cannot be brought to tax. Accordingly, the CIT's order invoking revisionary jurisdiction under section 263 of the ACT directing the Assessing Officer the assess an amount of ₹ 52.77 crores is not justified and therefore, is quashed to that extent. It is ordered accordingly. 3. Punjab National Bank vs. Additional Commissioner of Income Tax, ITA No. 2047/Del/2007 ITA No. 2873/Del/2007 decided on 25.10.2011 it has been held as under :- 32. A careful reading of the various instructions issued bt the Reserve Bank of India from time to time to PNB shows that the disputed amounts were part of enter branch transactions and there was mismatch of the transactions between different branches of the same bank and it was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of its business activity. It is nobody's case that these transactions arose out of revenue transations of any of the branches involved. These are mainly inter branch transactions which remained unreconciled. In a way as the bank has pleaded. It is a transaction of its own money with different branches. The Reserve Bank of India while giving permission to close the inter branch differences, has clearly stipulated that the amount so trasferred shall not be treated as available for distribution of dividends, meaning therby the Reserve Bank of India has not permitted the bank to treat it as an income once and for all and it has always stipulated certain conditions and prescribed certain procedures and formalities to safeguard the interest of the bank as a whole but that doesnot take away the basic nature of amounts in question. It cannot in anyway convert the transaction of this nature as revenue transactions of the bank necessitating the same to be treated as income on the revenue account. Atleast, the Reserve Bank of India which was ceased of the issue when it was posted to it didnopt accept the claims of the assessee that this should be treated as misc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of advice forthcoming as regards the closure of the accounts. In any case, any imbalance in the inter branch accounts, in our considered view, cannot give rise to a taxable income under the Income-tax Act. The Assessing Officer as well as CIT-DR has heavily relied upon the decision of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd. - 222 ITR 344. In that case, the assessee received the deposits from customers in the course of its business and transferred the amounts which were not claimed by the customers to its profit loss account. The Assessing Officer was of the view that the sums in question have become the income of the assessee because of the expiry of limitation period or other statutory or contractual rights. The amounts had the character of income and therefore, assessable to tax. The Hon'ble Supreme Court held that although the amounts received originally were not in the nature of an income, the amounts remained with the assessee for a long period unclaimed by the trade parties. By the lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the primary orders passed by the Tribunal on 14-7- 2003 and 14-6-2004 but has chosen to challenge the orders passed by the Tribunal in the present appeals which merely follow these primary orders. There is no reason given by the revenue for this pick and choose attitude or this attitude of accepting favorable orders in respect of one assessed but not accepting the same favorable order in respect of another assessed, without there being any distinction between their cases. Consequently, in view of the arbitrary manner of proceeding in the matter, we do not think that it will be proper or in the interest of justice to allow the revenue to seek to recover tax from one assessed while declining to recover tax from another assessed on identical facts. 9. Following the decisions of the Supreme Court as well as of his Court, we dismiss these appeals and hold that no substantial question of law has arisen for our consideration. 10. Counsel for the respondent Mr. R.N. Mathur has taken us to the finding of AO which reads as under:- Ratio of the above decision apply in the instant case also because there are no claimants of the credit balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, the appellant banker itself has treated the said amount as its trading receipts by crediting the same to the P L A/c. Matching the observation of Hon'ble Supreme Court in the case of CIT v/s T.V. Sundaram Iyangar Sons Ltd. If a common sense view of the matter is taken even in the present case then the appellant banker had become richer by the amount which it transferred to its P L A/c. In the similar manner in the present case also the appellant banker has received said money out of its ordinary banking transactions and though originally when the amount was received it was not in the nature of income but the amount remained with the appellant bank for a long period unclaimed by the concerned persons. True that the banker has not got any right ot forfeit the money but fact remains that for a period of more than 7 years it remained unclaimed by the respective claimants. Though, I agree with the arguments taken by Sh.Jhanwar that strictly the provisions of S.41(1) of I.T. Act cannot be made applicable before treating the same as income but fact remains that when it remained unclaimed for a period of more than 7 years then only it had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in not allowing the said deduction as capital receipt of ₹ 47,33,34,127/- and relevant ground of appeal is hereby rejected. 12. Thereafter, he has taken us to the finding of the Tribunal which reads as under:- We have heard the rival contentions, perused the material available on record and gone through the order of the authorities below. Ld. Counsel for the assessee was not in a position to assist the bench with regard to exact character of the reconciled entries. He submitted that this reconciliation entries cannot be treated as income of the bank even if it is presumed that this money belonging to the depositors. The submissions of the assessee is not supported by any evidence demonstrating that the amount credited in the accounts of the assessee bank would be paid to the concerned account holder or alternatively such entries pertain to its own funds. In our considered opinion, it was incumbent upon the assessee s bank to demonstrate the nature of reconciliation entries of the same, the order of the AO cannot be disturbed. Accordingly, this ground of the assessee s appeal is rejected. 13. He relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y treating them to be the profits. Therefore, in our opinion, the Supreme Court's decision cited supra applies on all fours. In that view we are of the clear opinion that the amount of ₹ 1,77,186 being the credit balances written off and transferred to the general reserve account has to be treated as income of the assessee chargeable to Income Tax. We answer the reference accordingly against the assessee. 2. Commissioner of Income Tax, Madurai vs. T.V. Sundaram Iyengar Sons Ltd. [1996] 222 ITR 344 (SC) :- 17. There is no dispute that the deposits in the case before us were received from trade parties who had not made any claim for repayment of the balance. The Income Tax Officer has pointed out that the amount had arisen as a result of trading transaction and had a character of income. The Tribunal has, however, held that the amount received in course of trade was of capital nature. The Tribunal, thereafter, straightaway applied the principle of Motley v. Tattersall (supra) and held since it was of a capital nature at the time of the receipt, it could not become assessee's income later on. 18. We are unab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f book-keeping had taken place. But, where a new asset came into bring automatically by operation of law, common sense demanded that the amount should be entered in the profit and loss account for the year and be treated as taxable income. In other words, the principle appears to be that if an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee. 23. In the present case, the money was received by the assessee in course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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