ADARSH SAHKARI GRIH NIRMAN SWAWLAMBI SAMITI LTD THROUGH ITS CHIEF EXECUTIVE Y N YADAV V. COMMISSIONER OF INCOME TAX AND ANR

T.A./15/2015

AI Insights

The case involves Adarsh Sahkari Grih Nirman Swawlambi Samiti Ltd., a cooperative society engaged in construction and sale of residential units, appealing against the decision of the Income Tax Appellate Tribunal, which upheld the taxability of transfer fees and interest receipts, and denied the set-off of business losses from the previous assessment year. The society argued that it was exempt under Section 80P(2)(a)(i) of the Income-tax Act, claiming that its activities qualified for deductions as a cooperative society. However, the court found that the society's primary activities did not align with the provisions of Section 80P(2)(a)(i), leading to the dismissal of the appeal.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 675771 (HC-JHARKHAND)
• Appeal Type: Others
• Pronouncement Date: 14-02-2018
• Assessment Year: misc
• Other Referred Cases: Tatgars' Cooperative Sale Society vs. Income Tax Officer, Karnataka, Citizen Cooperative Society Limited vs. Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad
• Laws Referred To: Income-tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: DEEPAK ROSHAN
• Assessee Lawyers: ABHISHEK KUMAR
• Keywords: Business Loss Set Off; Cooperative Society; Income tax exemption; Interest receipt; Tax appeal; Transfer fee
• Section: 56; 44AD; 28; 139(5); 80P(2)(a)(i)

Judgement Text

"1 IN THE HIGH COURT OF JHARKHAND AT RANCHI Tax Appeal No.15 of 2015 Adarsh Sahkari Grih Nirman Swawlambi Samiti Ltd., registered under the provisions of Jharkhand Swablambi Sahkari Samiti Adhiniyam, 1996 having its office at 6-S, III Phase, Adarsh Nagar, Sonari, PO-Sonari, District – Jamshedpur through its Chief Executive, Y.N. Yadav, son of Late R.P. Yadav, resident of Plot No.12, 1st Phase Adarsh Nagar, PO & PS- Sonari, District – Jamshedpur-831011 … … … … Appellant/Appellant Versus 1. Commissioner of Income Tax, having its office at Office Road, P.O & P.S. Office Road, Jamshedpur, Dist – East Singhbhum 2. Deputy Commissioner of Income Tax, Circle-1, P.O & P.S. Office Road, Jamshedpur, Dist – East Singhbhum … … ... ... Respondents/Respondents ------ CORAM: HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AMITAV K. GUPTA ----- For the Appellant: M/s. Abhishek Kumar, Advocate For the Respondents: M/s. Deepak Roshan, Advocate ------ 13/Dated: 14thFebruary, 2018 (Oral order) Per D.N. Patel, ACJ. 1) This Tax Appeal has been preferred by the assessee being aggrieved and feeling dissatisfied by the order passed by Income Tax Appellate Tribunal, Ranchi Circuit Bench, Ranchi in ITA No.129/Ran/2010 for the assessment year 2003-04. The date of order is 5th December, 2014, when the appeal preferred by this appellant was dismissed and hence, the assessee has preferred the present Tax Appeal. 2) This Tax Appeal has been preferred mainly on the ground that this assessee is a Cooperative Society and is exempted from the payment of income tax upon the transfer fee received from the members. 3) This assessee is engaged in construction of dwelling units, which are being sold to several persons, who are becoming members of this assessee. Sizable transfer fee has been received and the deductions have been claimed, which are not allowed by the Assessing Officer. 4) It is contended by the counsel for the appellant that the interest receipt is covered under Section 80P(2)(a)(i) of the Income-tax Act and, hence, the interest receipt cannot be added to the income of this 2 assessee. It is also contended by the counsel for the appellant that for the assessment year 2002-03, there was a business loss which could not be set-off against the net profit for the assessment year 2003-04. The said amount is at Rs.19,73,670/-. Thus, the addition, which are made by the Assessing Officer, which is at Rs.12,53,140/-, towards transfer fee at Rs.22,07,919/-, towards interest receipt and not allowing the set-off of the business loss at Rs.19,73,670/- for the assessment year 2002-03 from the net profit of the assessment year 2003-04 are de hors the provision of Income-tax Act. These aspects of the matter have not been properly appreciated by the learned Commissioner of Income Tax (Appeals)as well as Income Tax Appellate Tribunal and hence, the orders passed by the Assessing Officer; the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal deserve to be quashed and set aside. 5) Counsel for the respondents submitted that this appellant-assessee has been engaged in construction of dwelling units and selling it to the public at large and is getting the sale price along with the transfer fees. In fact, the main business of this assessee is not to give the loans or the credit to its members. In fact, not a single member of the appellant-Society is fixed one or identified one. Those who are coming to purchase the dwelling units or the flats or the residential units, they have to become members of this appellant. Thus, the provision of Section 80P(2)(a)(i) of the Income-tax Act is not applicable to this appellant looking to the facts of the present case. 6) It is further submitted by the counsel for the respondents that no error has been committed by the Assessing Officer in rejecting the claim of deduction of transfer fee amounting to Rs.12,53,140/-. The appellant- assessee is not a club, nor it is a Cooperative Society having fixed or definite members, who have been contributing towards this assessee- society. In fact, the purchasers of the flats have to become members. Thus, the transfer fee is a part & parcel of the sale price of the flats. Similarly, interest receipt is also to be added in the income of this assessee, because, it is not covered by Section 80P(2)(a)(i) of the Income-tax Act. This assessee is not engaged in business of even credit facility to its members. This assessee is selling the flats to the public at large and those who are purchasing the flats, have to become member of this appellant. Thus, the interest receipt by such type of assesses are not covered by Section 80P(2)(a)(i) of the 3 Income-tax Act. So far as claim of set-off of Rs.19,73,670/-, which is the business loss of the year 2002-03, from the net profit of assessment year of 2003-04 is concerned, the returns of 2002-03 was filed on 31st October, 2002; the revised returns was filed on 05.10.2004, which was beyond the time limit, which is 31st March, 2004, as per Section 139(5) of the Income-tax Act. Thus, the revised returns, which was filed on 05.10.2004 by the assessee, was non est returns and hence, business loss cannot be carried forward, until it has been determined in pursuance to a returns filed under Section 139 of the Income-tax Act and hence, no error has been committed by the Assessing Officer in determining the total income at Rs.59,68,570/-. These aspects of the matter have been properly appreciated by the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal and, hence, this appeal may not be entertained by this Court. 7) Reasons: Having heard counsels for both sides and looking to the facts and circumstances of the case, we see no reason to entertain this Tax Appeal, as no substantial question of law is involved, mainly for the following facts and reasons: - (i) This appellant is claiming to be a Cooperative Society and, hence, claiming exemption under Section 80P(2)(a)(i) of the Income-tax Act. This contention is not helpful to this assessee- appellant mainly for the reason that the main activity of this appellant is to construct dwelling units or residential flats and to sell it to the public at large. There are no fixed or definite members of this appellant. (ii) It further appears from the facts that those who are purchasing the flats from this appellant, they have to pay the sale price as well as transfer fee. Hence, the transfer fee is a part & parcel of the sale price. In the present case, such transfer fee accumulated for the assessment year 2003-04 is at Rs.12,53,140/-. This is not exempted at all, looking to the nature of activity of this appellant. This transfer fee has been received by this appellant from a new member on their joining to the Society. Thus, firstly the flat is purchased, thereafter the purchaser becomes member of the Society. The main object of this Society is to construct the residential flats and to sell them 4 to the public at large. Thus, the transfer fee is a part & parcel of the sale price. This aspect of the matter has been properly appreciated by the Income Tax Appellate Tribunal under the Income-tax Act. (iii) It further appears from the facts that sizable interest receipt has been claimed by this assessee as exempted under Section 80P(2)(a)(i) of the Income-tax Act on the ground that this appellant is giving credit facility to its members. This contention is not accepted by this Court mainly for the reasons that the basic purpose of this assessee is not to provide credit facility to the members. Basically, the members are not fixed or definite persons. The basic goal of this assessee is to construct residential flats and to sell it to the public at large. After purchase of the flats, the purchasers have to become members of the Society. Thus, provision of Section 80P(2)(a)(i) of the Income-tax Act is not applicable to the facts of the present case. For the ready reference, Section 80P of the Income Tax Act reads as under:- “80P. Deduction in respect of income of co-operative societies (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— (a) In the case of co-operative society engaged in – (i) Carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or 5 (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities: Provided that in the case of co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:- (1) the individuals who contribute their labour, or as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government; (b) in the case of a co-operative society, being a primary society engaged in the business of supplying milk, oilseeds, fruits or vegetables raised or grown by its members to – (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying 6 milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business. (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,- (i) where such co-operative society is a consumers’ co-operative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.-In this clause, “consumers’ co-operative society’ means a society for the benefit of the consumers; (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers’ society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of powers, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation.- For the purpose of this section, an “urban consumers’ co-operative society” means a society for the benefit of consumers within the limits of a municipal corporation, municipality, municipal 7 committee, notified area committee, town area or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80J or section 80JJ, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHB, section 80HHC, section 80HHD, section 80-I, section 80-IA, section 80J and 80JJ. (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation.- For the purposes of this sub-section,- (a) “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the banking Regulation Act, 1949 (30 of 1949); (b) “primary co-operative agricultural and rural development bank” means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.” (Emphasis supplied) The interest receipt is only incidental and the Society cannot be said to be in the business of providing credit facility to its so-called members. The prime object of this assessee is purely a commercial in nature of construction of residential flats and selling of the same to the public at large and, hence, this appellant-Society is not eligible for deduction under the aforesaid Section of the Income-tax Act. This aspect of the matter has been properly appreciated by the Assessing Officer, as well as by the Commissioner of Income Tax 8 (Appeals) as well as by the Income Tax Appellate Tribunal while passing the impugned orders. (iv) It has been held by Hon’ble The Supreme Court in the case of Tatgars’ Cooperative Sale Society vs. Income Tax Officer, Karnataka reported in (2010) 3 SCC 223, at paragraphs 15, 16, 17, 19 and 21 as under: - “15. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80-P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purpose. The assessee(s) markets the produce of its members and wholesale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question before us is – whether interest on such deposits/securities, which strictly speaking accrues to the members’ account, could be taxed as business income under Section 28 of the Act? In our view, such interest income would come in the category of “Income from other sources”, hence, such interest income would be taxable under Section 56 of the Act, as rightly held by the assessing officer. 16. In this connection, we may analyse Section 80-P of the Act. This section comes in Chapter VI-A, which, in turn, deals with “Deductions in respect of certain incomes”. The headnote to Section 80-P indicates that the said section deals with deductions in respect of income of cooperative societies. Section 80-P(1), inter alia, states that where the gross total income of a cooperative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee Society. An income, which is attributable to any of the specified activities in Section 80-P(2) of the Act, would be eligible for deduction. The word “income” 9 has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically “business profits” into the definition of the word “income”. Therefore, we are required to give a precise meaning to the words “profits and gains of business” mentioned in Section 80-P(2) of the Act. 17. In the present case, as stated above, the assessee Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression “profits and gains of business”. Such interest income cannot be said also to be attributable to the activities of the Society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80-P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as “investment”. 19. An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by Section 56 of the Act, even then, the assessee Society is entitled to the benefit of Section 80-P(2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80-P(2)(a)(i) of the Act cannot be placed on a par with Explanation (baa) to Section 80-HHC, Section 80-HHD(3) and Section 80-HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject- matter. For example, Section 80-HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of Section 80-HHC is, therefore, different from the scope of Section 80-P of the Act, which deals with deduction in respect of income of cooperative societies. Even Explanation (baa) to Section 80-HHC was added to restrict the deduction in respect of profits retained for export 10 business. The words used in Explanation (baa) to Section 80- HHC, therefore, cannot be compared with the words used in Section 80-P of the Act which grants deduction in respect of “the whole of the amount of profits and gains of business”. 21. An important point needs to be mentioned. The words “the whole of the amount of profits and gains of business” emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In this particular case, the evidence shows that the assessee Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of “Other income” which has been rightly taxed by the Department under Section 56 of the Act.” (Emphasis supplied) (v) It has also been held by Hon’ble The Supreme Court in the case of Citizen Cooperative Society Limited vs. Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad reported in (2017) 9 SCC 364, at paragraphs 17 to 21 as under: - “17. We have considered the submissions of the counsel for the parties with reference to the record of this case. 18. We may mention at the outset that there cannot be any dispute to the proposition that Section 80-P of the Act is a benevolent provision which is enacted by Parliament in order to encourage and promote growth of cooperative sector in the economic life of the country. It was done pursuant to the declared policy of the Government. Therefore, such a provision has to be read liberally, reasonably and in favour of the assessee (see Bajaj Tempo Ltd. v. CIT). It is also trite that such a provision has to be construed as to effectuate the object of the legislature and not to defeat it (see CIT v. Mahindra and Mahindra Ltd.). Therefore, it hardly needs to be emphasised that all those cooperative societies which fall within the purview of Section 80-P of the Act are entitled to deduction in respect of any income referred to in sub-section (2) thereof. Clause (a) of sub-section (2) gives exemption of whole of the 11 amount of profits and gains of business attributable to any one or more of such activities which are mentioned in sub-section (2). 19. Since we are concerned here with sub-clause (i) of clause (a) of sub-section (2), it recognises two kinds of cooperative societies, namely: (i) those carrying on the business of banking and; (ii) those providing credit facilities to its members. 20. In Kerala State Coop. Mktg. Federation Ltd. v. CIT, this Court, while dealing with classes of societies covered by Section 80-P of the Act, held as follows: (SCC p. 52, paras 6-7) “6. The classes of societies covered by Section 80-P of the Act are as follows: (a) engaged in business of banking and providing credit facilities to its members; * * * 7. We may notice that the provision is introduced with a view to encouraging and promoting growth of cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a cooperative society is exempt from tax what has to be seen is whether income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption.” 21. In CIT v. Punjab State Coop. Bank Ltd., while dealing with an identical issue, the High Court of Punjab and Haryana held as follows: (SCC OnLine P&H paras 8 & 13) “8. The provisions of Section 80-P were introduced with a view to encouraging and promoting the growth of the cooperative sector in the economic life 12 of the country and in pursuance of the declared policy of the Government. The different heads of exemption enumerated in the section are separate and distinct heads of exemption and are to be treated as such. Whenever a question arises as to whether any particular category of an income of a cooperative society is exempt from tax, then it has to be seen whether such income fell within any of the several heads of exemption. If it fell within any one head of exemption.… It means that a cooperative society engaged in carrying on the business of banking and a cooperative society providing credit facilities to its members will be entitled for exemption under this sub-clause. The carrying on the business of banking by a cooperative society or providing credit facilities to its members are two different types of activities which are covered under this sub-clause. * * * 13. So, in our view, if the income of a society is falling within any one head of exemption, it has to be exempted from tax notwithstanding that the condition of other heads of exemption are not satisfied. A reading of the provisions of Section 80-P of the Act would indicate the manner in which the exemption under the said provisions is sought to be extended. Whenever the legislature wanted to restrict the exemption to a primary cooperative society, it was so made clear as is evident from clause (f) with reference to a milk cooperative society that a primary society engaged in supplying milk is entitled to such exemption while denying the same to a federal milk cooperative society.” The aforesaid judgment of the High Court correctly analyses the provisions of Section 80-P of the Act and it is in tune with the judgment of this Court in Kerala State Coop. Mktg. Federation Ltd.” (Emphasis supplied) (vi) It further appears from the facts that the assessee is claiming set-off of the business loss of Rs.19,73,670/- for the assessment year 2002-03 from the net profit of the assessment 13 year 2003-04. This is also not permissible mainly for the reasons that, (a) The returns of the assessment year 2002-03 was filed on 31st October, 2002. (b) Revised returns of the income was filed on 05.10.2004 which is beyond the period of limitation prescribed under Section 139(5) of the Income-tax Act. Such revised returns could have been filed only upto 31stMarch, 2004 and, hence, the loss of Rs.19,73,670/-, which was determined by the assessee was a non est returns. (c) Hence, the business loss cannot be carried forward unless it is determined in pursuance to a returns filed under Section 139 of the Income-tax Act. (vii) Section 44AD of the Income-tax Act reads as under: - “44AD.(1) Notwithstanding anything to the contrary contained in section 28 to 43C, in the case of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to eight per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assesse in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. Provided that nothing contained in this sub-section shall apply in case the aforesaid gross receipts paid or payable exceed an amount of forty lakh rupees. (2) … … … … (3) … … … … (4) … … … … (5) … … … … (6) … … … … Explanation. – For the purposes of this section, the expression “civil construction” includes – (a) The construction or repair of any building, bridge, dam or other structure or of any canal or road; (b) the execution of any works contract.” (Emphasis supplied) 14 (viii) Unnecessarily the Assessing Officer has shown leniency in calculation of the profit at the rate of 5%. It should have been at the rate of 8%. In fact, the respondents-authorities cannot be more charitable than the law. (ix) The aforesaid aspects have been properly appreciated by the Assessing Officer while passing the order for the assessment year 2003-04 dated 24th December, 2007. Similarly, no error has been committed by the Commissioner of Income Tax (Appeals), Jamshedpur while deciding the appeal against the aforesaid order and no error has been committed by the Income Tax Appellate Tribunal, Circuit Bench at Ranchi while dismissing the appeal preferred by this appellant. 8) Hence, there is no substance in this Tax Appeal, as no substantial question of law is involved. This Tax Appeal is dismissed with a cost of Rs.5000/- (Rs. Five Thousand only) which will be deposited by the appellant before the Secretary, Department of Women and Child Development & Social Welfare, Government of Jharkhand, towards the Juvenile Justice Fund. This amount will be deposited in Bank A/c No.3734498462-5, Jharkhand Juvenile Justice Fund, State Bank of India, Project Bhawan, Hatia, either by cheque or bank draft, within a period of six weeks from the date of receipt of a copy of this judgment, towards Juvenile Justice Fund. The aforesaid amount shall be utilized for the welfare of the juveniles as per the duties assigned by the State in the Juvenile Justice Act. 9) Copy of this order will be sent to the Secretary, Department of Women and Child Development & Social Welfare, Government of Jharkhand, and the Member Secretary, Jharkhand State Legal Services Authority, Ranchi, Nyaya Sadan, Doranda, Ranchi. 10) With the aforesaid observations and directions, this Tax Appeal is dismissed. (D. N. Patel, ACJ) Manoj/ (Amitav K. Gupta, J) "