DCIT Vs National Bank for Agriculture & Rural Development (ITAT Mumbai)
ITAT Mumbai held that NABARD has acted as nodal or implementing agency for the schemes framed by GOI. Hence the amounts transferred to Tribal Development Fund/Watershed Development Fund are diverted at source itself and hence not taxable in the hands of the assessee.
Facts-
The assessee claimed a sum of Rs.2872.36 crores as interest expenditure. The AO noticed that the above said amount included a sum of Rs.682.55 crores which has been credited to Tribal Development Fund (TDF) account in the liability side of the Balance Sheet, i.e., the AO noticed that the said sum of Rs.682.55 crores was not payable to any bank or any other person, but the same has been claimed as expenditure. The AO also noticed that the assessee has credited a sum of Rs.4.88 crores to another fund named “Watershed Development Fund”.
AO rejected the submissions of the assessee and took a view that entire surplus amount is income of the assessee and the amount transferred to TDF is only a provision made for the future expenses.
Accordingly, the AO held that the amount transferred to RIDF is only application of income. Accordingly, he assessed the above said sum of Rs.682.55 crores as income of the assessee. The assessee also administered another scheme named “Short term Co-operative Rural Credit fund (STCRC). The excess amount to the tune of Rs.4.88 crores was transferred from this scheme to WDF. On almost identical reasoning, the AO assessed the amount of Rs.4.88 crores as income of the assessee.
CIT(A) allowed the appeal of the assessee. Being aggrieved, revenue has preferred the present appeal.
Conclusion-
The AO has taken the view that, since the assessee did not keep the funds pertaining to TDF/WDF in separate bank accounts and used it for its own business purposes, the amount so transferred to these funds would constitute income of the assessee. We notice that the manner of keeping funds is not the criteria for determining whether there is diversion of funds by overriding title.
Held that we are of the view that the assessee has acted as nodal or implementing agency for the schemes framed by GOI. Hence the amounts transferred to TDF/WDF are diverted at source itself and hence, the same does not belong to the assessee. Accordingly, the amounts so diverted to TDF/WDF cannot be brought to tax in the hands of the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals are directed against the order dated 26th February, 2016 passed by Ld CIT(A)-8, Mumbai and they relate to the assessment year 2010-11.
2. The assessee is a Government of India undertaking formed as an autonomous body by an Act of Parliament in 1982. It is popularly called as “NABARD”. The assessee is engaged in development of agricultural and rural development activities. It is providing and regulating credit to agricultural and rural areas, providing grants, subsidies and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, rural infrastructure, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promote integrated rural development. The assessee filed its return of income for the year under consideration declaring a total income of Rs.1817.68 crores. The assessing officer completed the assessment determining total income of the assessee at Rs.2534.50 crores by making certain additions. The appeal filed by the assessee before Ld CIT(A) was partly allowed. Aggrieved by the order passed by Ld CIT(A), both the parties have filed these appeals on the issues decided against each of them.
3. We shall first take up the appeal filed by the revenue. The grounds of appeal urged by the assessee give rise to the following two issues:-
(a) Relief granted in respect of interest receipts of Rs.628.55 crores transferred to Tribal development fund (TDF).
(b) Relief granted in respect of interest receipt of Rs.4.88 crores transferred to Short term co-operative rural credit Fund (STCRC)/Watershed Development Fund (WDF).
4. The facts relating to both the issues are identical in nature and are being discussed in brief. The assessee claimed a sum of Rs.2872.36 crores as interest expenditure. The AO noticed that the above said amount included a sum of Rs.682.55 crores which has been credited to Tribal Development Fund (TDF) account in the liability side of the Balance Sheet, i.e., the AO noticed that the said sum of Rs.682.55 crores was not payable to any bank or any other person, but the same has been claimed as expenditure. The AO also noticed that the assessee has credited a sum of Rs.4.88 crores to another fund named “Watershed Development Fund”.
5. The contention of the assessee was that the above said amounts of Rs.682.55 crores and Rs.4.88 crores do not belong to it. The facts relating to the above said claim are stated in brief. The RBI/GOI had directed all scheduled commercial banks to lend at least 18% of net bank credit to agricultural and rural sector. In order to ensure that the banks earmark minimum amount prescribed by GOI/RBI for giving loans to agricultural and rural sector, a new scheme was announced by GOI, i.e., A fund called “Rural infrastructure development fund” (RIDF) was established by the Honourable Finance Minister of India in his Budget Speech given on 15th March, 1995 and it was announced that the same will be established with in NABARD for giving loans to the various State Governments and State owned corporations for quick completion of on-going process. If any of the banks does not reach the prescribed limit of 18%, then the short fall amount shall be deposited by them to RIDF announced by the Honourable Finance Minister. The maturity period of the deposit will be up to 5 years from the date of each deposit. These funds shall be used by the assessee to give advances to various State Governments and also to “National Rural Road Development Agency” (NRRDA) in order to enable them to carry out various activities in agriculture and rural development.
5.1 The assessee shall grant interest to the banks on the deposits made by it at the rate prescribed by RBI in this behalf. In turn, the assessee would collect interest from State Governments and NRRDA @ 6.50%, which rate has also been fixed by RBI/GOI. It was submitted that, out of the difference between interest received/receivable from State Governments/NRRDA and interest payable to commercial banks, the assessee is allowed to retain 0.50% as its fees for acting in this manner. The “surplus amount” in excess of the margin of 0.50% was also called as “Relative margin”. It was submitted that the assessee has been directed to credit this surplus amount/relative margin to a separate fund called “Tribal Development Fund” (TDF). It was submitted that the above said amount of Rs.682.55 crores represents the surplus amount of relative margin. It is the contention of the assessee that it does not have right over the above said surplus amount or relative margin, as the RIDF amount itself is administered by it as per the directions given by GOI/RBI. Accordingly, the assessee has transferred the surplus amount/relative margin to TDF account by debiting “interest expenses” account. In support this submission, the assessee placed its reliance on various circulars issued by RBI from time to time, which has been tabulated by AO as under in the assessment order:-
