The Commissioner Of Income Tax-Ii Trichirapalli v. M/S.city Union Bank Limited Central Office

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case (Appeal) No.522 of 2010 The Commissioner of Income Tax-IITrichirapalli....Appellant/RespondentVs. M/s.City Union Bank LimitedCentral office, 149, T.S.R.Big StreetKumbakonam....Respondent/Appellant Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal 'C' Bench, Chennai dated 13.11.2009 in ITANo.739/Mds/2009 for the Assessment year 2001-2002 against theorder of the Commissioner of Income Tax Appeals Tiruchirapallidated 24.03.2009 made in I.T.A. No. 559/2006-2007 for theassessment year 2001-2002 against the order of the AdditionalCommissioner of Income Tax, Kumbakonam dated 29/12/2006 made inPAN/GIR No. C-8010/AAACC1287E for the assessment year 2001-2002. For Appellant : Mr.J.Narayanasamy Senior Standing Counsel For Respondent : Mr.V.S.Jayakumar (Judgment of the Court was delivered by DR.VINEETKOTHARI,J.) This Tax Case Appeal has been filed by the Revenue callingin question the correctness of the order passed by the IncomeTax Appellate Tribunal, 'C' Bench, Chennai dated 13.11.2009 forthe Assessment Year 2001-02 holding in favour of the Assesseethat the amount of stale Demand Drafts not claimed by customersand which had become barred by limitation cannot be treated asincome of the Respondent Assessee Bank. https://hcservices.ecourts.gov.in/hcservices/ 2. The relevant findings of the learned Tribunal are quotedbelow for ready reference. For Appellant : Mr.J.Narayanasamy Senior Standing Counsel For Respondent : Mr.V.S.Jayakumar (Judgment of the Court was delivered by DR.VINEETKOTHARI,J.) This Tax Case Appeal has been filed by the Revenue callingin question the correctness of the order passed by the IncomeTax Appellate Tribunal, 'C' Bench, Chennai dated 13.11.2009 forthe Assessment Year 2001-02 holding in favour of the Assesseethat the amount of stale Demand Drafts not claimed by customersand which had become barred by limitation cannot be treated asincome of the Respondent Assessee Bank. https://hcservices.ecourts.gov.in/hcservices/ 2. The relevant findings of the learned Tribunal are quotedbelow for ready reference. “4. The above ratio was rendered on account of facts ofthat case where the ITO found that for the assessmentyears 1982-83 and 1983-84, the assessee had transferredan amount of Rs.17,381 to the Profit & Loss Account ofthe Company during the accounting period ended on March31, 1982 (assessment year 1982-83) and an amount ofRs.38,975/- during the accounting period ended on March31, 1983 (assessment year 1983-84). But these amountswere not included in the total income of the assessee.The sums were stated to be credit balances standing infavour of the customers of the company. Since thesebalances were not claimed by the customers, the amountswere transferred by the assessee to the Profit & LossAccount. The ITO was of the view that because thesurplus had arisen as a result of trade transactions,the amount had the character of income and had to beadded as income of the assessee for the purpose ofincome-tax assessment. The additions were deleted bythe ld.CIT(A) and this was upheld by the Tribunal. Butthe facts of this case are different because in bankingbusiness, RBI guidelines are to be followed and thatby, simplicitor, efflux of time, say beyond 3 years,ordinary limitation would not apply as the assessee hasbeen showing cumulative total liability at the relevantperiod. In this case, after detailing period totaloutstanding amount has been shown in the Annexureattached to the assessment order. Actually, items arecoming in and going out of this account every now andthen throughout the year, and it is treated like acurrent account operated upon regularly doing in thecourse of business. Given the nature of transactions,the encashment of drafts after revalidation thereof, isa regular feature. Rather the common-sense demandsthat such drafts cannot be treated as unclaimablebecause time-barred, given the nature of bankingtransactions. Drafts issued, becoming stale is not anuncommon factor rather it is a usual and common featurein all banks. Unless the draft amount becomes, infact, unclaimable which can be by virtue ofmultifarious facts available and not by guess work,this cannot be treated as bank's income. There is nosuch law which can convert such a liability into theincome/asset of the assessee-bank after the lapse ofparticular time lag. The decision of the Hon'bleSupreme Court (cited supra) is, otherwise helpful tothe claim of the assessee. The Assessing Officer has not given any clear cut finding as to how the amounthas become unclaimable. Hence we set aside the impugnedfinding and delete the entire addition.” 3. The present appeal filed by the Revenue was admitted bya Coordinate Bench of this Court on the following substantialquestion of law. "Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal wasright in deleting the addition of Rs.49,19,660/-made by the Assessing Officer being the amount ofstale drafts not claimed for more than three yearsand the claim for which had become barred bylimitation without applying the ratio of the SupremeCourt's decision in the case of Commissioner ofIncome Tax Vs.T.V.Sundaram Iyengar & Sons Ltd.(222ITR 344)? ” not given any clear cut finding as to how the amounthas become unclaimable. Hence we set aside the impugnedfinding and delete the entire addition.” 3. The present appeal filed by the Revenue was admitted bya Coordinate Bench of this Court on the following substantialquestion of law. "Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal wasright in deleting the addition of Rs.49,19,660/-made by the Assessing Officer being the amount ofstale drafts not claimed for more than three yearsand the claim for which had become barred bylimitation without applying the ratio of the SupremeCourt's decision in the case of Commissioner ofIncome Tax Vs.T.V.Sundaram Iyengar & Sons Ltd.(222ITR 344)? ” 4. Both the learned counsel fairly submit that, thecontroversy involved in the present appeal is covered by adecision of the Division Bench of the Karnataka High Court in“Commissioner of Income Tax -Vs- Raddi Sahakara Bank Niyamitha”delivered on 30.01.2017 reported in [2017] 395 ITR 652(Karnataka) (to which one of us DR.VINEET KOTHARI, J. was aparty), in which the Division Bench of the Karnataka High Courthas held as under: “4. The learned counsel at bar submitted before thecourt that this controversy is no longer res integraand the Division Bench of this court in CIT v.Karnataka Vikas Grameen Bank in I. T. A. No. 100014 of2014 and connected case, decided on December 14, 2015,has held, following the decision of the hon'ble SupremeCourt in the case of CIT v. T. V. Sundaram Iyengar andSons Ltd. reported in [1996] 222 ITR 344 (SC), thatsuch an addition cannot be made under section 41(1) ofthe Act, since the liability of the assessee-bank topay back the amounts to the customers in respect ofsuch stale demand drafts and pay orders does not ceasein law. The relevant extract from the judgment of theDivision Bench of the court as contained in para 18thereof including the extract from the decision of thehon'ble Supreme Court is quoted below for readyreference : "18. A careful perusal of the above provisionleads us to infer that section 41(1) can be pressed into service when an allowance ordeduction is sought to be made in respect ofloss, expenditure or trad ing liability isincurred by the assessee. In the instantcase, the sum of Rs. 58,38,581 has remainedwith the assessee owing to the fact that thepayees or holders of the draft/pay orders hadnot encashed them. The language employed bythe Legislature being unambiguous, it wouldbe incongruous to construe the said sum aseither a loss, expenditure or tradingliability incurred by the assessee. Whiledeal ing with a situation of unclaimedamount, the hon'ble Supreme Court. In the case of T. V. Sundaram Iyengar andSons Ltd. [1996] 222 ITR 344 (SC), has heldas follows (page 351 of 222 ITR) : "We are unable to uphold the decision of theTribunal. The amounts were not in the natureof security deposits held by the asses seefor performance of contract by itsconstituents. As it appears from the facts ofthe case, the amounts were depleted byadjustments made from time to time. TheCommissioner of Income-tax (Appeals) foundthat the assessee wrote back the amounts toits profit and loss account because thevarious trading parties did not claim theseamounts for a long time. The amountsrepresented credit balances in the name ofthe trading parties and was taken to itsprofit and loss account. The Commissioner ofIncome-tax (Appeals) held that these amountswere not revenue receipts but were of capitalnature. The provisions of section 41(1) werenot attracted in the facts of this casebecause the assessee's liability to pay backthe amounts to its cus tomers had not ceased.The Tribunal agreed with this view.' (underlining is by us) 19. The Tribunal adverting to the aboveruling has rightly deleted the sum of Rs.58,38,581 added by the assessing authority byholding it as unsustainable in law." 19. The Tribunal adverting to the aboveruling has rightly deleted the sum of Rs.58,38,581 added by the assessing authority byholding it as unsustainable in law." 5. Having perused the record, we are in respectfulagreement with the aforesaid decision of the DivisionBench of this court and we do not find any reason totake a different view of the matter and in view of theaforesaid, we do not find any substantial question oflaw arising in the present case.” 5. We agree with the said view of the Karnataka High Courtand accordingly the question of law framed in this appeal isanswered against the Revenue and in favour of the Assessee. TheAppeal filed by the Revenue deserves to be dismissed and isaccordingly dismissed. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant RegistrarKSTTo1. Income Tax Appellate Tribunal 'C' Bench,Chennai.2. The Commissioner of Income Tax- II, Tiruchirapalli.3. The Commissioner of Income Tax Apeal, Tiruchirapalli4. The Additional Commissioner of Income Tax, Kumbakonam.+ 1 CC to MR. J.Narayanaswamy, Advocate, SR 18656+ 1 CC to Mr. V.S.Jayakumar, Advocate, SR 18579 T.C.(A) No.522 of 2010VBA MRP 28/05/2020SP(16/07/2020)