9911796707
TMI Blog2024 (11) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an allowable deduction in computing the assessable income under the provisions of Indian Income Tax Act, 1961.? 2. The above substantial questions have been answered in the case of this very assessee for other assessment years by this Court in T.C.A.No.755 of 2009 and batch dated 30.06.2022. Their discussion and conclusion are as follows:- "Statutory Reserve Fund 5.1. The assessee's are Non-Banking Financial Companies. They had transferred certain amount to a statutory reserve under section 45 IC of the Reserve Bank of India Act, 1934 (hereinafter shortly referred to as the "RBI Act") and claimed deduction in computing the income under the provisions of the Income Tax Act, 1961 (hereinafter shortly referred to as "the Act") under the regular computation and under section 115 JB, as the case may be. During the course of assessment proceedings, the assessing officer disallowed the said claim on the premise that the assessee's received income which was kept in the reserve fund as mandated under the provisions of the RBI Act and hence, it is only an application of income. The said finding of the assessing officer was also affirmed by both the appellate authorities. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 45-IC of the RBI Act and they have to wait for the directives to be issued by the Reserve Bank of India from time to time. Therefore, the learned Senior counsel submitted that the amount so transferred to the statutory reserve is only an application of income and the deduction claimed by the assessee's for the same, cannot be disallowed by the authorities below. To strengthen his submissions, the learned senior counsel placed reliance on the following decisions: (i)Commissioner of Income Tax v. Travancore Sugar & Chemicals Ltd [(1973) 3 SCC 274]; (ii)Commissioner of Income Tax v. M/s.Vasisth Chay Vyapar Ltd [(2019) 13 SCC 747]; (iii)Commissioner of Income Tax v. Salem Cooperative Sugar Mills Limited [(1998) 229 ITR 285 (Madras)]; and (iv)Keshkal Co-operative Marketing v. Commissioner of Income Tax [(1987) 165 ITR 437 (MP)]. 5.4. Per contra, the learned Senior Standing Counsel for the respondent / Revenue submitted that the assessee's being Non-Banking Financial Companies had transferred certain amount to the statutory reserve fund as mandated by the Reserve Bank of India Regulations as well as Section 45-IC of the RBI Act, however, the said transfer to stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the decisions in (i)Associated Power Co Ltd. V. CIT, [218 ITR 195 (SC)]; (ii)SREI Infra Structure Finance Limited v. CIT [54 Tax Man 254 (Del)] and (iii) Seshasayee Paper Boards Limited v. CIT [237 ITR 488 (Mad)]. Thus, the learned senior standing counsel prayed for dismissal of the appeals filed by the assessee's. 5.6. This court considered the rival submissions and case laws relied upon by both sides. It could be seen that for the assessment years under consideration, the assessee's claimed deduction for the amount transferred to statutory reserve fund created under section 45 IC of the RBI Act, which reads as follows: (1) Every non-banking financial company shall create a reserve fund and transfer therein a sum not less than twenty per cent of its net profit every year as disclosed in the profit and loss account and before any dividend is declared. (2) No appropriation of any sum from the reserve fund shall be made by the non-banking financial company except for the purpose as may be specified by the Bank from time to time and every such appropriation shall be reported to the Bank within twenty-one days from the date of such withdrawal: Provided that the Bank may, in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer held that the amount transferred to the statutory reserve is not an allowable deduction and the same has to be added back to the total income of the assessee's in both the regular computation and the computation of book profits under section 115 JB of the Act, as the case may be. 5.8. When the aforesaid orders of the assessing officer were put to challenge by the assessee's before the appellate authorities viz., CIT(A) and ITAT, the same ended in failure. For better appreciation, the findings of the Tribunal in ITA Nos.570, 571, 806 & 807 /Mds/2008 dated 6th February, 2009, relating to the AY 2003-04 in respect of two assessee's viz., Shriram Transport Finance Co. Ltd and Shriram Investments Ltd, are quoted below: "2.5 We have heard both the counsels and perused the relevant records. We find that the transfer to reserve in this case is only an appropriation of the profits. It is settled law that appropriations are not a change to the profits and cannot be deducted in computation of business income. Moreover, the amount transferred to a reserve is as per Reserve Bank of India Act but the purpose for which the reserve has to be utilized has not been specified. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diversion of income by overriding title nor can the amount set apart be claimed as expenditure and it also cannot be stated that it was a loss. ..... 2.17....Upon careful consideration, we do not see any reason to hold that this decision is helpful to the case of the assessee. The ratio from the Hon'ble Madras High Court decision in the case of T.N.Power Finance and Infrastructure Development Corporation Ltd. vs. JCIT clearly applies to the facts of the case. Moreover, as discussed earlier, this is only an appropriation of profits for purposes which have not yet been specified. Moreover, amount involved is very much under the control of the assessee and is lying in its business. Hence, in the background of aforesaid discussion and precedents, we uphold the well reasoned order of the learned Commissioner of Income Tax (Appeals) in this regard and decide the issue against the assessee's." The aforesaid order was followed by the Tribunal, while deciding the cases relating to the subsequent assessment years as well. 5.9. In Salem Co-operative Sugar Mills Ltd case, referred to on the side of the appellants, it was concluded by this court that the Tribunal was correct in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in lieu of takeover of three undertakings of the government is deductible under section 10(2)(xv) of the Act. It was ultimately concluded by the Hon'ble Supreme Court that the assessee did not have any choice since its inception and therefore, the amount paid according to the terms of agreement with the Government, had to be deducted. That decision will also render no support to the appellants' case, as the amount was paid by the assessee, as per the terms of the agreement with the Government and in the present case, it is only kept as reserve. 5.13. On the other hand, in the decisions relied on the side of the respondent / Revenue in Associated Power Co. Ltd case, the Hon'ble Supreme Court was of the categorical view that the amount kept under contingency reserve as per the provisions of Electricity (Supply) Act and Sixth Schedule under it, must not be allowed as deduction and must be taxed. In Seshasayee Paper Boards Ltd case, this court, while considering the issue, whether the amount transferred to general reserve as required under section 205(2A) of the Companies Act, can be claimed as deduction, at the time of computing the total income, ultimately held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... datory provisions of the RBI Act, which do not call for any interference by this court. Accordingly, the main issue stands answered against the assessee's. 5.14. As regards the consequential issue raised by the assessee's, it is to be noted that the assessing officer added the fund transferred to the statutory reserve to the total income of the assessee's, while computing the taxable income under section 115JB, which was also affirmed by the appellate authorities. For better appreciation, the finding recorded by the Tribunal in the case of Shriram Transport Finance Company Limited relating to the AY 2012-13, is reproduced below: "For the purpose of section 115 JB of the Act, the book profit has to be computed as per the provisions of the companies Act and further addition or deduction has to be made as provided under Explanation to section 115JB of the Act. It is not the case of the assessee that the amount transferred to statutory reserve is an item to be reduced from the book profit computed as per the provisions of companies Act. In the absence of any provision in Explanation to section 115JB of the Act to reduce the amount transferred to statutory reserve as per the guideli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1956 by the Institute of Chartered Accountants of India would indicate that reserves and surplus are generally classified as; (a)capital reserve; (b)capital redemption reserve; (c)securities premium reserve; (d)debenture redemption reserve; and (e)revaluation reserve or other reserves. In addition, there can be share options outstanding account and surplus, i.e, the balance in the statement of profit and loss disclosing allocations and appropriations such as dividend, bonus shares and transferred to from reserves, etc.? Further, the Delhi High Court did not agree with the applicability of cases concerning Molasses Storage Fund and observed that reserve under section 45 IC is created out of profits earned and it cannot be said to be the diversion of income at source. Ultimately, it was held as follows: "?32.As noticed above, 'provision' and 'reserves' are different accounting terms. A provision created to meet a known liability is a charge against the profit. Hence, it is debited to the profit and loss account and reduces the profit. Provisions should be created, even if there is insufficient profit. Provision is not, therefore, invested. On the other hand, & ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
