THE MUNICIPAL COOPERATIVE BANK LTD. ,MUMBAI vs. DCIT , CIRCLE-1(3)(1), MUMBAI

2. We will first take up the appeal for A.Y.2014-15 wherein assessee has challenged following additions:- (i) Disallowance u/s. 40(a)(ia) in respect of commission paid to RBI and National Payment Corporation of India (NPCI) of Rs.45,86,865/- for banking services handled by these authorities on the ground that TDS was not been deducted. (ii) Addition on account of profit on sale of fixed assets of Rs.2,63,156/- (iii) Addition of Rs.54,19,362/- on ‘Surety Ship Guarantee Fund’ which was credited in the accounts for Recovery of write off amount.

As far as the disallowance u/s.40(a)(ia) is concerned, the ld. AO on the perusal of details of miscellaneous expenses noted that assessee has debited an amount of Rs.45,56,865/- towards commission on clearing charges paid to NPCI/ RBI. He noted that assessee had not deducted TDS on such commission expenses paid to RBI and NPCI. Accordingly, ld. AO made the disallowance u/s.40(a)(ia). The ld. CIT (A) too has confirmed the said disallowance.

After hearing both the parties and on perusal of the relevant finding, we find that ld. AO has disallowed the commission expenses on the ground that TDS was not deducted. However, it has pointed out before us that the CBDT has issued a notification dated 17/06/2016 being Notification No.47 of 2016, & 4144/Mum/2024 The Municipal Co-operative Bank Ltd wherein it has categorically directed that any payment system authorised by RBI under sub-section (2) of Section 4 of the Payment Settlement Systems of 2007, no deduction of tax under Chapter XVII shall be made. For the sake of ready reference, the said notification is reproduced hereunder:-

MINISTRY OF FINANCE (Departmnet of Revenue) (CENTRAL BOARD OF DIRECT TAXES) NOTIFICATION New Delhi, the 17th June, 2016 No. 47/2016 INCOME TAX S.O. 2143{E).—In exercise of the powers conferred by sub-section (IF) of section 197A of the Income-tax Act, 1961 (43 of 1961) and in supersession of the notification of the Government of India, Ministry of Finance (Department of Revenue) number S.O. 3069 (E) dated 31" December, 2012, published in the Gazette of India, Extraordinary, Part n, Section 3, Sub-section (ii), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, or to any payment systems company authorised by the Reserve Bank of India under Sub-section (2) of Section 4 of the Payment and Settlement Systems Act, 2007 (51 of 2007). namely :- i.bank guarantee commission; ii.cash management service charges; iii.depository charges on maintenance of DEMAT accounts; charges for warehousing services for commodities; underwriting service charges; iv. clearing charges (MICR charges) including interchange fee or any other similar charges by whatever name called & 4144/Mum/2024 The Municipal Co-operative Bank Ltd charged at the time of settlement or for clearing activities under the Payment and Settlement Systems Act, 2007; v.credit card or debit card commission for transaction between merchant establishment and acquirer bank.

This notification shall come into force from the date of its publication in the Official Gazette. [Notification No. 47/2016/F. No. 275/53/2012 -IT(B)] SANDEEP S1NGH, Under Secy.

Further, National Payment Corporation of India had issued a Circular No. 167 dated 01/07/2016 to all the banks that no TDS is required to be deducted by members on payments made to NPCI for NACH charges. The relevant Circular reads as under:-

Here in this case also the commission is on account of NACH charges paid to NPCI which are directly deducted by NPCI or RBI. Thus, in view of the CBDT Circular there is no requirement of deduction of TDS and accordingly, disallowance u/s.40(a)(ia) is deleted.

The second issue raised in ground No.3 is not being pressed. The same is dismissed as not pressed.

Assessee has raised issue with regard to addition of Rs. 54,19,362/- with regard to ‘Surety Guarantee Fund”. It has been & 4144/Mum/2024 The Municipal Co-operative Bank Ltd stated that this issue stands covered by the decision of the Tribunal in assessee’s own case for A.Y. 2009-10 in dated 23/05/2022.

The brief facts are that assessee maintains ‘Surety Guarantee Fund” as per the specific guideline issued by RBI and Co- operative department of the Government of Maharashtra. The claim of the assessee that any write off / recovery there from, is not considered as taxable income of the assessee as same is capital receipt or is covered by principle of mutuality. The primary objective of SGF is to create a mutual benefit fund / a common pool among its members to help tide over any losses arising to the assessee due to any loan / advance given by the assessee bank turning bad / irrecoverable. The assessee has been receiving these receipts from its members towards SGF right from A.Y.1986-1987 to 2006-2007. Entire amount was always allowed as capital receipt. The assessee has neither claimed any income nor any deduction on this SGF account. This Tribunal in the appeal for the A.Y. 2009-10 has considered this issue and found that in all the years’ department has accepted the plea of the assessee. Tribunal has also further has noted the following figures of SGF in various assessment years’ right from A.Y.2006-07 to 2019-20 which are as under:-

The Tribunal after noting the above facts held that sum received from members towards SGF has already been accepted as capital receipt by the ld. AO in the earlier as well as in subsequent years. Following the same, the Tribunal held that receipt from members towards SGF is a capital receipt not chargeable to tax. Accordingly, respectfully following the aforesaid judgment of the Tribunal on same issue we hold that amount of Rs.54,19,362/- cannot be taxed and the addition made by the ld. AO is deleted.

In the result appeal for A.Y.2014-15 is partly allowed.

In A.Y.2018-19, assessee has challenged-  Firstly, addition of Rs.2,23,82,548/- on account of deferred tax entry.  Secondly, the disallowance of octroi commission income and  lastly, loss on sale of fixed asset debited to the profit and loss account of Rs.8,29,145/- & 4144/Mum/2024 The Municipal Co-operative Bank Ltd 13. The brief facts are that assessee has claimed deduction of Rs.4,28,25,912/- as ‘Any other amount allowable as deduction’ out of net profit. This amount included sum of Rs.2,23,82,548/- on account of deferred tax. The ld. AO held that it is not allowable expenditure u/s.37, because it has not been expended for generating of revenue therefore, notional expenses cannot be allowed. Assessee stated that the deferred tax is a mandatory disclosure concept in compliance of accounting standard -AS-22 which is a disclosure made in the financial statement and it is neither an income nor an expense by itself. In the notes forming part of the accounts, assessee has made its disclosure of deferred tax assets / liabilities arising on account of difference between book profit and taxable profits. Thus, it was neither treated as an income nor the expense, therefore, there was no reason to make any addition. Assessee has finally reduced it from net profit and the computation of income whereas, ld. AO has misunderstood that assessee has followed AS-22 and once it has made the disclosure the same should have been offered for tax.

From the perusal of the accounts submitted before us it is seen that assessee has made disclosure for the purpose of AS-22 for sum of Rs.2,23,82,548/- and then it was reduced from the computation to arrive at the taxable income. Initially assessee had disclosed the deferred tax income u/s.43B however, the same was correct in the revised return. In the statement of total income, it is seen that assessee has reduced the deferred tax income, and did not claim the amount during the year. Simply & 4144/Mum/2024 The Municipal Co-operative Bank Ltd because assessee has made disclosure in AS-22 that does not mean it is an income and accordingly, addition made by the ld. AO is deleted because deferred tax is a non-revenue item. Accordingly, grounds raised by the assessee are allowed.

As far as disallowance of corporate commission is concerned, the assessee has disclosed receipts of commission on account of collection of Octroi on behalf of BMC on a contract in which assessee was entitled for revenue commission income. It has been stated that initially as per the contract assessee was to receive commission @0.50%. Since assessee was following mercantile system of accounting that is, based on accrual basis assessee disclosed commission @ 0.50%, however, later on assessee received only 0.25%. In the notes to the account it was stated that assessee bank had booked Octroi commission income @ 0.50% instead of 0.25% thereby reducing the income of Rs.2,66,99,080/- in the current F.Y.2017-18 and also reversal of Octroi commission income of the earlier financial years on the same ground from F.Y.2011-12 to 2015-16 of Rs.5,74,84,029/- resulting into total reduction of Octroi commission income of Rs.8,41,83,109/-. However, ld. AO did not allow the deduction on account of Octroi commission of Rs.5,74,84,029/-. The same has been confirmed by the ld. CIT (A) also.

Before us it has been stated that, earlier the contract for collection of Octroi on behalf of BMC, the rate of commission was fixed @0.50%. However, later on the BMC reduced the commission from 0.50% to 0.25% with retrospective effect. Since & 4144/Mum/2024 The Municipal Co-operative Bank Ltd assessee was following mercantile system of accounting, therefore, assessee was showing the commission income @0.50%. However later on when rate of commission was reduced to 0.25% from retrospective date, assessee has written back the income shown earlier. The details of commission have been given hereunder:- THE MUNICIPAL CO-OPERATIVE BANK LTD ,MUMBAI STATEMENT OF OCTROI COMMISSION RECEIVED FOR APRIL 2016 TO MARCH 2017 MONTHS TOTAL OCTROI TOTAL OCTROI SERVICE COMM COLLECTION COMMISION TAX RECD APPLICAB LE Apr-16 3299380328.84 15523121.20 1125426 16328771 May-16 3278317855.58 15594932.89 1130633 16404310 Jun-16 3189150050.56 15119345.07 1133951 15941837 Jul-16 3140139645.27 14824755.45 1111857 15631222 Aug-16 3411485699.83 16144027.35 1210802 17022262 Sep-16 3245959884.66 15306249.79 1147969 16138910 Oct-16 3932836108.32 18304984.29 1372874 19300775 Nov-16 3144475552.40 14718404.26 1103880 15519085 Dec-16 3552974334.02 16697235.66 1252293 17605565 Jan-17 3505561112.07 16362067.25 1227155 17252164 Feb-17 3353478902.08 15387050.71 1154029 16224106 Mar-17 3949432103.00 18411933.00 1380895 19413542 TOTAL 41003191576,6 192394106.92 14351763 202782551 3 Reed from MCGM 145297444 Add:- TDS 3963319 Add:- Penalty charged 1078 26 AS 149261841 20,50,15,957.59 Amount credited to PL in 2016-17 22,33,406.39 Difference

Assessee has also filed a letter issued by the BMC reducing the rate of commission from 0.50% to 0.25%.

On perusal of the records placed before us it is seen that there was communication received from Municipal Corporation of Greater Mumbai that the earlier rate of commission @0.50% on Octroi collection has been reduced to 0.25%. The MCGM has also disapproved the Octroi commission amounting to Rs.5,74,84,029 pertaining to the period from F.Y.2011-12 to 2015-16 and has deducted this amount from the payment of Octroi commission during the year and accordingly, the income of the assessee was reduced during the year and the amount shown as commission in the earlier years has been written back.