Interest received by Bank post Liquidation can’t be Taxed if diverted at Source as per DICGCI: ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that Interest received by the bank post liquidation can’t e taxed if diverted at source as per the provision of the Deposit, Insurance and Credit Guarantee Corporation of India (DICGCI) Act.     

The appellant was represented by Shri A.P. Singh & Shri V.K. Singh and the respondent was represented by Shri A.P. Nanavaty.

The revenue challenged the separate orders dated 04.03.2020 passed by the Commissioner of Income Tax (Appeals)-10, Ahmedabad, as against the Assessment order passed under section 147 r.w.s. 143(3) of the Income Tax Act, 1961 (the Act) and assessment orders passed u/s. 143 r.w.s. 263 of the Act for the Assessment Year 2013-14. 

The assessee, General CO.OP Bank Ltd is a Co-Operative Bank under liquidation by an order passed by Govt. of Gujarat and the banking business of the assessee company has been suspended by the Reserve Bank of India.

The assessment made by AO was revised u/s. 263 by the Ld. PCIT-2, on the ground, that the assessee being in liquidation the interest income of the assessee was assessable as “income from other sources” by the Gujarat High Court judgment in the case of M/s. Morvi Mercantile Bank Ltd. reported in 104 ITR 568.

The PCIT held that as the banking license of the assessee is suspended, it cannot claim any loss on realization of nonbanking assets and unabsorbed depreciation.  The Assessing Officer passed assessment order u/s. 143(3) r.w.s. 263 by making disallowance of loss on realization of non-banking assets and unabsorbed depreciation and added as income of Rs. 2,90,00,183/- under the head “income from other sources”. The CIT(A) deleted the addition made by the A.O

It was observed that as per the mandatory conditions of Section 21(2) of the DICGCI Act, all funds realized by Bank under liquidation are diverted at the source till the liability of DICGCI was fully paid.

Ms Annapurna Gupta, Accountant Member and Shri T.R. Senthil Kumar, Judicial Member viewed that the entire income of the assessee including interest income and share dividend income are diverted at the source and the bank under liquidation has no discretion or authority to apply such funds. Such income was not taxable in the hands of the assessee.  The appeals filed by the Revenue are dismissed. 

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates