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Income Tax Appellate Tribunal, ‘D‘ BENCH
Before: SHRI M.BALAGANESH & SHRI PAVAN KUMAR GADALE
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2009-10 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-3, Mumbai in appeal No.CIT(A)-3/IT-10249/2017-18 dated 09/08/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 02/12/2016 by the ld. Dy. Commissioner of Income Tax – 1(3)(2), Mumbai (hereinafter referred to as ld. AO).
The Municipal Co-op Bank Ltd.,
We find that assessee had raised the grounds before us challenging the confirmation of addition made by the ld. AO in the sum of Rs.2,09,32,478/- being the amounts received by the assessee from its members towards Surety Guarantee Fund (SGF).
2.1. We also find that assessee had raised an additional ground challenging the validity of re-assessment vide its letter dated 01/07/2021. The additional grounds raised by the assessee are hereby admitted as it goes to the root of the matter and the facts relevant for its adjudication are available on record.
2.2. We first proceed to address the issue raised in the original ground of appeal on merits of the addition.
We have heard rival submissions and perused the materials available on record. We find that assessee is a salary earners primary urban co- operative bank (non-scheduled) and is a society registered under the Maharashtra Co-operative Societies Act, 1960. The assessee has been granted the licence by the Reserve Bank of India (RBI) to carry on the business of banking. Only an employee of the Municipal Corporation of Greater Mumbai who is in continuous service is entitled to membership of the assessee bank and related privileges thereto. The assessee bank accepts deposits from general public. The sole purpose of assessee is to utilise the deposits in the form of giving loans to members and also carry on activities for the benefit of the members. As per the mutual agreement between the members and the assessee bank by way of resolution passed in general meeting, whenever the assessee bank gives any loan to the member, a part of the loan amount would be retained by the assessee by crediting to Surety Guarantee Fund (SGF) by way of contribution by the The Municipal Co-op Bank Ltd., member to the SGF. The funds lying in SGF account were utilised by the assessee by making investment in deposits which had earned interest income and said interest income had been duly offered to tax by the assessee voluntarily in the return of income, even though the interest component is added to the value of SGF as a balance sheet item in the books of accounts. It is not in dispute that SGF is created for specific purpose of utilising it in case of default in repayment of loan by borrower. The members continued to be liable for whole amount of the loan amount.
3.1. We find that assessee during the year had credited a sum of Rs.2,09,32,478/- to the SGF account and as stated supra, it is reflected in the balance sheet under liability side as under:-
Surety Guarantee Fund:-
Sr.No. Particulars Amount (inRs.) Amount (in Rs.) 31/03/2009 31/03/2008 1. Opening Balance – 11,02,01,000 0 Transfer from BDDR 2. Addition during the 2,09,32,478 1,74,72,813 year 3. Add interest credited 84,38,358 9,36,175 during the year 4. Add appropriation 59,00,000 0 5. Less transfer to BDDR 0 1,84,08,988 6. Closing Balance 14,54,71,836 0
The Municipal Co-op Bank Ltd., 3.2. The short point of dispute in this appeal is whether the amounts received during the year towards SGF in the sum of Rs.2,09,32,478/- could be brought to tax. We find that surety guarantee fund is governed on principle of mutuality as admittedly the loans are given by the assessee only to its members and a part of such loan is retained by the assessee and credited to SGF account. Hence, the entire funds lying in the SGF account would represent the amounts received from its members only. On this fact, there is absolutely no dispute. Hence, the principle of mutuality would squarely come into operation, meaning thereby, the same cannot be subjected to any tax. However, the interest accrued on the SGF fund in the sum of Rs.84,38,358/- during the year had been duly offered to tax voluntarily in the return of income by the assessee bank, as it is not received from the members though the funds for making investment belongs to members.
3.4. We find that the primary objective of the 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. We find that assessee has been receiving similar type of receipts from its members towards SGF right from A.Y.1986-87 onwards. The following table containing the entire receipts in SGF account, its appropriation, interest credited thereon, write off during the year or transfer to BDDR, closing balance and its treatment given in the assessment proceedings up to A.Y.2020-2021 are as under:-
The Municipal Co-op Bank Ltd., The Municipal Co-op Bank Ltd., The Municipal Co-op Bank Ltd.,
The Municipal Co-op Bank Ltd., 3.6. The facts stated in the above tabulation were not disputed or controverted by the ld. DR before us. The aforesaid tabulation is very evident that the very same receipt from members towards SGF account has been accepted as capital receipts by the ld. AO in earlier as well as in subsequent assessment years. There is no reason to take a divergent stand by the ld. AO during the year under consideration. The principle of consistency is required to be maintained by the Revenue. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of Radhasoami Satsang reported in 193 ITR 321(SC). The facts prevailing in earlier years and subsequent years are exactly identical to the facts in the year under consideration. Hence, we have no hesitation to hold that the receipts from members in the sum of Rs.2,09,32,478/- being amount received from members towards SGF as capital receipts not chargeable to tax. Accordingly, the original grounds raised by the assessee on merits are allowed. Since the relief is granted to the assessee on merits, the legal ground raised by the assessee challenging the validity of reopening need not be adjudicated and is hereby left open. Accordingly, the appeal of the assessee is allowed.
The Municipal Co-op Bank Ltd.,
In the result, appeal of the assessee is allowed.
Order pronounced on 23/05/2022 by way of proper mentioning in the notice board.