Friday, September 2, 2011

SC issues notice to Citibank on petition filed by I-T deptThe Supreme Court has

SC issues notice to Citibank on petition filed by I-T dept
The Supreme Court has issued notice to US-based Citibank on a petition filed by the income tax department alleging that the bank was liable to pay more than R59.19 crore as tax during 1991-92 for violating the RBI guidelines on Portfolio Management Scheme (PMS). A bench headed by Chief Justice SH Kapadia has sought reply from the bank on the issue. Under the PMS, the bank received money from customers and invested the same in shares, debentures, public sector bonds, securities, and so on. The investment was made for and on behalf of the customers. The role of the bank was purely custodial and managerial. The bank earned commission, fees and service charges for managing PMS on behalf of its customers. The RBI had issued guidelines for the proper management of the scheme and for acceptance of funds by the bank from time to time. Under the scheme, money has to be placed by the customer for a certain period of time. Challenging the Bombay HC judgment that dismissed its plea for delay, the revenue department said that the high court failed to consider that the income on account of the so-called portfolio account holders (PAH) was nothing but a deposit taken. "As per the RBI guidelines, certain maximum amount of interest was only permitted on the deposits. Any excess payment has not legally been permitted and, therefore, all the income of the company from portfolio management has to be treated as the income of the company against which payment of interest to the various so-called PAH was to be allowed subject to the maximum of the right permitted by RBI," the petition stated. According to the revenue department, the bank had collected substantial amounts from corporate under PMS in violation of the RBI guidelines. In view of such alleged violations , an addition of R54.77 crore was made by the assessing officer in respect of such PMS transcations. However, Income Tax Appellate Tribunal, in appeal by the bank, had allowed the assessee's appeal related to the addition on the PMS account by holding that the question of disallowance would arise only were either such loss or expenditure was claimed in profit and loss account or in computation in income and not otherwise. Besides, the tribunal also allowed the assessee's claim in respect of bad debts on the grounds that such debts were written off in its books of accounts.

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