The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) while providing relief to National Bank for Agriculture & Rural Development ( NABARD ) allowed Interest Expenditure incurred from the Government set up fund of RIDF and STCRCF allowable as deduction.
The Assessee National Bank for Agriculture & Rural Development is engaged in development of agricultural and rural activities throughout the Country. Its business consisted of 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 rural development in an integrated way.
During the assessment proceedings the AO noted that noticed that the assessee has claimed “interest expenditure” on amounts held under the name ‘Rural Infrastructure Development Fund’ ( RIDF ) and ‘Short term Cooperative Rule Credit Fund’ ( STCRCF ) in the liability side of Balance Sheet. It was noticed that the above said interest amount was not actually paid to anyone, but was credited to “Watershed Development Fund” & other such types of funds.
The AO noticed that the assessee is not required to pay interest expenditure to anyone in respect of these funds. Accordingly, the AO took the view that the said claim is not allowable as deduction
Aggrieved by the order the assessee filed an appeal before the CIT(A) who allowed the appeal. Therefore the revenue filed another appeal before the tribunal.
Jehangir D. Mistry, the counsel for assessee submitted that the RIDF/STCRC are schemes framed by the Government of India and it has appointed the assessee as implementing agency. As per the scheme, the scheduled commercial banks would deposit money with the assessee equivalent to the shortfall in the priority sector lending and the said money was credited to the RIDF account.
Further the assessee is directed to lend this amount to State Governments /NRRDA for carrying out various rural development schemes. The rate of interest to be given to the banks on the deposits made by them and the rate of interest to be collected on the loan given by the assessee are fixed by GOI/RBI.
The counsel for assessee further submitted that the assessee is only a nodal agency for implementing the above said scheme of Government of India. As per the directions given by GOI/RBI, it has transferred the surplus fund/relative margin to TDF account and held the said funds as trustee of GOI.
S. Srinivasu,counsel for revenue supported the order of assessing officer submitted that the assessee is only trustee of funds and cannot bind the revenue.
After reviewing the facts the ITAT bench of Justice (Retd.) C.V. Bhadang, (President) and B.R Baskaran,(Accountant Member) observed that Since the assessee has used those funds also for its business purposes, the income attributable to RIDF/STCRCF, which is credited to TDF/WDF, does not belong to the assessee.
Further the bench found that interest expenditure claimed by the assessee, in reality, is in the nature of claim for exclusion of interest income diverted at source and such a claim made in AY 2010-11 has been allowed by the Tribunal.
Therefore the assessee’s claim for deduction of interest expenditure, which is in the nature of interest income attributable to RIDF/STCRCF and diverted at source, is allowable as deduction.
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