SHRI VEERSHAIV CO. OP. BANK LTD.,KOLHAPUR V. ACIT, CIRCLE 2, KOLHAPUR , KOLHAPUR

ITA 175/PUN/2025

AI Insights

The case involves Shri Veershaiv Cooperative Bank Ltd., which appealed against the order of the Addl/JCIT(A)-2, Coimbatore National Faceless Appeal Centre, Delhi, concerning the assessment year 2017-18. The primary issue was the classification of Nominal Membership fees and Share Transfer fees received by the bank as either capital or revenue receipts. The Assessing Officer (AO) had treated these fees as revenue receipts, leading to an addition of Rs.17,54,900 to the bank's income. The Tribunal, referencing its previous decisions on similar issues, ruled in favor of the bank, classifying the fees as capital receipts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47230 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: Peerless General Finance & Investment Company Ltd. vs. Reserve Bank of India, Commissioner of Income Tax vs. Sahara Investment India Ltd., CIT vs. India Discount Co. Ltd., Godhra Electricity Co. Ltd vs. CIT, Chowringhee Sales Bureau P. Ltd. vs. CIT, Sinclair Murray and Co. P. Ltd. vs. CIT, Lakshmi Vilas Bank Ltd. vs. CIT, Citizen Co-operative Society Limited vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A.D.KULKARNI
• Assessee Lawyers: PRAMOD S. SHINGTE
• Keywords: Capital receipt
• Section: 191

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B”, PUNE BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.175/PUN/2025 Assessment Year : 2017-18 Shri Veershaiv Cooperative Bank Ltd., 517/A-1, Plot No.6,Tararani Chowk, Shivaji Park,Central Bus Stand Road, Kolhapur – 416001 Maharashtra PAN : AABAS4688N Vs. ACIT, Circle-2, Kolhapur Appellant Respondent आदेश / ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The captioned appeal at the instance of assessee pertaining to Assessment Year 2017-18 is directed against the order dated 21.112024 framed by Addl/JCIT(A)-2, Coimbatore National Faceless Appeal Centre, Delhi passed u/s.250 of the Income Tax Act, 1961 ( in short ‘the Act’) which inturn is arising out of the Assessment Order dated 26.12.2019 passed u/s.143(3) of the Act. 2. The only issue for our consideration in the instant appeal is that whether the Nominal Membership fees and Share Transfer fees received one time is of Capital Nature or Revenue nature. 3. Facts of the case in brief are that the assessee is a Cooperative Bank and income of Rs.9,24,24,070/- declared in Appellant by : Shri Pramod S. Shingte Revenue by : Shri A.D. Kulkarni Date of hearing : 02.04.2025 Date of pronouncement : 09.04.2025 ITA No.175/PUN/2025 Shri Veershaiv Coop. Bank Ltd., 2 the return for A.Y. 2017-18 furnished on 25.10.2017. After the case being selected for scrutiny through CASS and validly serving of notices for carrying out the assessment proceedings, ld. AO noticed that the assessee has credited the following amounts directly to the Reserve Fund : Sl.No. Particulars Amount (Rs.) 1. B Class Fee 1719100/- 2. Member Share Entrance Fee 9600/- 3. Member Admission Fee 26300/- 4. The assessee claimed the alleged sum to have been received and these being capital receipts are consistently credited to the Reserve Fund. Ld. AO was not satisfied and treated them as Revenue receipt and made addition of Rs.17,54,900/- and assessed the income at Rs.9,41,78,970/-. 5. Aggrieved assessee preferred appeal before the ld.CIT(A) but failed to succeed. Now the assessee is in appeal before this Tribunal. 6. During the course of hearing before us, ld. Counsel for the assessee submitted that this issue is squarely covered by the decision of this Tribunal in ITA Nos.604 to 606 and 2611/PUN/2017 order dated 12.01.2021 in assessee’s own case for A.Yrs.2009-10, A.Y. 2012-13, 2013-14 and 2014-15 and also referred to the relevant paras of the decision. 7. Ld. DR failed to controvert the same and merely relied on the orders of the lower authorities. 8. We have heard the rival contentions and perused the record placed before us. We find that the issue raised in the instant appeal is squarely covered by the decision of this ITA No.175/PUN/2025 Shri Veershaiv Coop. Bank Ltd., 3 Tribunal. Ld. AO has treated the amount as Revenue receipt but the assessee treated the B-Class Fees, Member Share Entrance and Admission Fees received for one time from Members as Capital Receipt and credited it to Reserve Fund. We find that in the preceding years, i.e. A.Ys. 2009-10, 2012- 13, 2013-14 and 2014-15 also similar issue was raised and this Tribunal vide order dated 12.01.2021 held that the fee received by the assessee does not constitute Revenue Receipt by observing as under : “9. We heard the rival submissions and perused the material on record. The only issue which requires to be adjudicated in the present appeal is whether the Membership fee received by the appellant society from members constitutes revenue receipt or capital receipt? It is undisputed fact that the appellant society had transferred the subscription or membership fee to the reserve fund. This treatment given in the books of account is stated to be in accordance with the provisions of the bylaws of the appellant society and also in conformity with the provisions of the Maharashtra State Co-operative Society Act, 1960. The Hon’ble Apex Court in the case of Peerless General Finance & Investment Company Ltd. (supra) vide para 10 held as follows :- “10. While it is true that there was no direct focus of the Court on whether subscriptions so received are capital or revenue in nature, we may still advert to the fact that this Court has also, on general principles, held that such subscriptions would be capital receipts, and if they were treated to be income, this would violate the Companies Act. It is, therefore, incorrect to state, as has been stated by the High Court, that the decision in Peerless General Finance and Investment Co. Limited (supra) must be read as not having laid down any absolute proposition of law that all receipts of subscription at the hands of the assessee for these years must be treated as capital receipts. We reiterate that though the Court's focus was not directly on this, yet, a pronouncement by this Court, even if it cannot be strictly called the ratio decidendi of the judgment, would certainly be binding on the High Court. Even otherwise, as we have stated, it is clear that on general principles also such subscription cannot possibly be treated as income. Mr. Ganesh is right in stating that in cases of this nature it would not be possible to go only by the treatment of such subscriptions in the hands of accounts of the assessee itself. In this behalf, he cited a decision of the Division Bench of the Allahabad High Court in Commissioner of Income Tax vs. Sahara Investment India Ltd., reported as Volume 266 ITR page 641 in which the Division Bench followed Peerless ITA No.175/PUN/2025 Shri Veershaiv Coop. Bank Ltd., 4 General Finance and Investment Co. Limited (supra), and then held as follows: “In Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India (1992) 75 Comp Cas 12, the Supreme Court on similar facts held that the deposits were capital receipts and not revenue receipts (vide paragraphs 67 & 68 of the aforesaid judgment). That case also pertains to a finance company which used to collect deposits, and credited part of its deposits to the profit and loss account, as in the present case. Hence, the ratio of the said decision, in our opinion, applies to this case also. It is well settled in income-tax law that book keeping entries are not decisive or determinative of the true nature of the entries as held by the Supreme Court in CIT vs. India Discount Co. Ltd. [1970] 75 ITR 191 and in Godhra Electricity Co. Ltd v. CIT [1997] 225 ITR 746 (SC). It has been held in those decisions that the court has to see the true nature of the receipts and not go only by the entry in the books of account. We agree with the Tribunal that these deposits are really capital receipts and not revenue receipts. In Chowringhee Sales Bureau P. Ltd. V. CIT [1973] 87 ITR 542 (SC) which was followed in Sinclair Murray and Co. P. Ltd. V. CIT [1974] 97 ITR 615, the Supreme Court observed (page 619): “It is the true nature and quality of the receipt and not the head under which it is entered in the account books that would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt. It has been held by the Supreme court that the primary liability and onus is on the Department to prove that a certain receipt is liable to be taxed vide Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC). Sri Chopra then relied on the decision of the Supreme Court in CIT v. Lakshmi Vilas Bank Ltd. [1996] 220 ITR 305. In our opinion that decision is also distinguishable because in that case the deposit was forfeited and the result of the transaction was that the bank became full owner of the security and the amount lying in deposit with it became its own money. In the present case there is no such finding that the deposit was forfeited or that at the end of the transaction the security deposit became the property of the assessee or that changed from a capital receipt to a revenue receipt. Hence, that decision is clearly distinguishable.” This Court, on 21.07.2015, in appeal against the said judgment held as under: ITA No.175/PUN/2025 Shri Veershaiv Coop. Bank Ltd., 5 “After reading of the decision of the High Court, we find that the High Court has rightly relied upon the judgment of this Court in “Peerless General Finance & Investment Co. Ltd. & Anr. v. Reserve Bank of India” (1992) 2 SCC 343. Since the case is squarely covered by the judgment, we do not find any merit in these appeals and petitions which are accordingly, dismissed.” It is also correct to state that there can be no estoppel against a settled position in law [See Commissioner of Income-Tax, Bombay vs. C. Parakh & Co. (India) Ltd. 29 ITR 661 at 665 and Commissioner of Income-Tax, Madras vs. V.MR.P. Firm, Muar (1965) 56 ITR 67.” 10. Thus, reading of the above judgement, we find that a subscription or admission fee normally constitutes a capital receipt and not liable to tax and also transfer of income to reserve fund in compliance with the statutory provisions constitute a charge against the profits of the income. From the very nature of Membership fee collected from members, it is clear that fees was not charged from the members for rendering any specific evidence by society. Further, there is no expressed provision in the Income Tax Act providing that such fees is taxable as revenue receipt. In the light of this dictum laid down in the above decisions of the Hon’ble Apex Court, we are of the considered opinion that the subscription or admission fee received from the class B members does not constitute a revenue receipt in the hands of the appellant society. 11. We will be failing in our duty, if we do not refer to the decision of the Hon’ble Apex Court in the case of Citizen Co-operative Society Limited vs. ACIT, 397 ITR 1 wherein the Hon’ble Supreme Court held that a particular class of members having no voting rights cannot be treated as members of the society and consequently the principle of mutuality cannot be made applicable. The dictum laid down in this decision had not application to issue on hand, inasmuch as, the issue in the present appeal does not involve the exemption of income on mutuality principle. Therefore, we are of the considered opinion that the income received by the appellant society in the form of subscription or admission fee does not constitute revenue receipt in the hands of the appellant society. Accordingly, the grounds of appeal no.1 and 2 are allowed. 12. In the result, the appeal in ITA No.604/PUN/2017 for the assessment year 2009-10 is partly allowed. 13. Since the grounds raised by the assessee in rest of three appeals i.e. ITA Nos.605, 606 and 2611/PUN/2017 for the assessment years 2012-13, 2013-14 and 2014-15 respectively are identical to grounds raised in ITA No.604/PUN/2017 for the assessment year 2009-10, therefore, our decision in ITA No.604/PUN/2017 for the assessment year 2009-10 shall apply mutatis mutandis to rest of these three appeals of the assessee. ITA No.175/PUN/2025 Shri Veershaiv Coop. Bank Ltd., 6 Accordingly, the grounds raised by the assessee in rest of three appeals are partly allowed.” 9. We have gone through the above decision and find the same is squarely applicable on the facts of the instant case. Ld. DR failed to place any other binding precedent in favour of the Revenue. We therefore respectfully following the decision of this Tribunal (supra), reverse the finding of ld.CIT(A) and allow the grounds of appeal raised by the assessee. 10. In the result, the appeal of the assessee is allowed. Order pronounced on this 09th day of April, 2025. Sd/- Sd/- (VINAY BHAMORE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; \u0001दनांक / Dated : 09th April, 2025. Satish आदेश क\u0002 \u0003ितिलिप अ ेिषत / Copy of the Order forwarded to : 1. अपीलाथ / The Appellant. 2. \u000eयथ / The Respondent. 3. The Pr. CIT concerned. 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, “B” ब\u0014च, पुणे / DR, ITAT, “B” Bench, Pune. 5. गाड\u0004 फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune. "