Appeal details
Counselvise Citation
[2012] 122 COUNSELVISE.COM (IT) 7897 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
31-10-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2009-2010
Appeal Filed On
21-08-2012
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO.1491/AHD/2012 A. Y.: 2009-10 THE INCOME TAX OFFICER,WARD-2, PATAN, 1 ST FLOOR, SANTOKA HALL, RAJMAHAL ROAD, PATAN VS M/S. JAFARI MOMIN VIKAS CO-OP CREDIT SOCIETY LTD., AT & PO KAKOSHI, TAL-SIDHPUR, DIST. PATAL 384 290 P. A. NO. AAAAJ 1053 F (APPELLANT) (RESPONDENT) C.O. NO.138/AHD/2012 (IN ITA NO.1491/AHD/2012:Y.: 2009-10) M/S. JAFARI MOMIN VIKAS CO-OP CREDIT SOCIETY LTD., AT & PO KAKOSHI, TAL-SIDHPUR, DIST. PATAL 384 290 P. A. NO. AAAAJ 1053 F VS THE INCOME TAX OFFICER,WARD- 2, PATAN, 1 ST FLOOR, SANTOKA HALL, RAJMAHAL ROAD, PATAN (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY SHRI S. P. TALATI, SR. DR ASSESSEE BY SHRI A. C. SHAH, AR DATE OF HEARING: 04-09-2012 DATE OF PRONOUNCEMENT: 31-10-2012 O R D E R PER A. MOHAN ALANKAMONY: THESE TWO APPEALS (I) ONE BY THE REVENUE; AND (II) CROSS OBJECTION BY THE ASS ESSEE ARE DIRECTED AGAINST THE IMPUGNED ORDER OF THE LD. CIT (A), AHMEDABAD IN APPEAL NO. CIT (A)/GNR/63/2011-12 DATED 17.4.201 2 FOR THE ASSESSMENT YEAR 2009-10. 2 I. ITA NO.1491/A/2012 BY THE REVENUE: 2. THE REVENUE HAS RAISED THREE GROUNDS IN WHICH GROUND NOS.2 AND 3 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDI CATION. GROUND NO.1 RELATES TO A SOLITARY ISSUE, NAMELY, THE CIT (A) HAS ERRED IN ALLOWING DEDUCTION U/S 80P (2)(A)(I) OF TH E ACT, AMOUNTING TO RS.71,88,101/-. II. C.O NO.138/A/2012 BY THE ASSESSEE: 3. THE ASSESSEES LONE CROSS OBJECTION RELATES TO A N ISSUE THAT THE CIT (A) HAS ERRED IN DISALLOWING DEDUCTION U/S 80P TO THE EXTENT OF RS.6,40,639/- BY TREATING THE INCOME FROM INTEREST ON BANK DEPOSIT AS TAXABLE U/S 56 OF THE ACT. 4. AS THE ISSUES RAISED BY THE RIVAL PARTIES PERTAI NING TO THE SAME ASSESSMENT YEAR, THEY WERE HEARD, CONSIDERED TOGETH ER AND DISPOSED OFF, FOR THE SAKE OF CONVENIENCE, IN THIS CONSOLIDATED ORDER. I. ITA NO.1491/A/2012 BY THE REVENUE: 5. BRIEFLY STATED, THE ASSESSEE, A CO-OPERATIVE CRE DIT SOCIETY, ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBE RS, HAD FURNISHED ITS RETURN OF INCOME, ADMITTING NIL INCOME BY CLAIMING DEDUCTION U/S 80P (2)(A) OF THE ACT. THE RETURN WAS INITIALLY PROCES SED U/S 143(1) OF THE ACT AND, SUBSEQUENTLY, TAKEN UP FOR SCRUTINY BY THE AO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO FURNISH ITS REPLY AS TO WHY THE CLAIM OF DEDUCTION U/S 80P (2) OF THE 3 ACT SHOULD NOT BE DISALLOWED IN VIEW OF INSERTION O F SUB-SECTION (4) OF S. 80P OF THE ACT. 6. AFTER DUE CONSIDERATION OF THE ASSESSEES CONTEN TIONS AND FOR THE REASONS RECORDED IN THE ASSESSMENT ORDER, THE A O HAD DISALLOWED THE ASSESSEES CLAIM ON THE PRIME REASON ING THAT 4 ..... IN VIEW OF THE ABOVE, CO OP CREDIT SOCIETY W HICH ARE NOT COVERED UNDER THE AGRICULTURAL CREDIT SOCIETY AS THE BYE LAWS DOE S NOT PERMIT TO PROVIDING THE FINANCE FACILITIES FOR THE AGRICULTURAL PURPOSE S ONLY AND IN VIEW OF THE ABOVE ARE NOT COVERED AS AGRICULTURAL CREDIT SOCIET Y, SO IT DOES NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80P (2)(A) OF I.T. ACT. THE AS SESSEE ALSO FAILED TO PROVE THE ADVANCE GRANTED FOR THE AGRICULTURAL PURPOSES A ND THE SAME WAS UTILIZED FOR THE AGRICULTURAL PURPOSES. IT IS CRYSTAL CLEAR THAT THE ASSESSEE IS NOT A PRIM ARY AGRICULTURAL CO-OP SOCIETY AND, HENCE, THE DEDUCTION CLAIMED BY THE ASSESSEE U /S 80P (2)(A) OF I.T. ACT IS NOT ALLOWABLE. 7. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WITH T HE LD. CIT (A) FOR RELIEF. AFTER CONSIDERING THE ASSESSEES CONTEN TIONS AND IN CONSONANCE WITH HIS FINDINGS ON AN IDENTICAL ISSUE FOR THE EARLIER ASSESSMENT YEAR IN THE ASSESSEES OWN CASE AS EXTRA CTED IN HIS ORDER UNDER CONSIDERATION, THE CIT (A) HELD THAT TH E ASSESSEE WAS ENTITLED FOR THE BENEFIT OF DEDUCTION U/S 80P(2)(I) OF THE ACT. 8. AGITATED, THE REVENUE HAS COME UP WITH THE PRESE NT APPEAL. DURING THE COURSE OF HEARING, THE LEARNED DR SUPPOR TED THE STAND OF THE AO. EXTENSIVELY QUOTING THE INSERTION OF SUB-S ECTION (4) OF S.80P OF THE ACT W. E. F. 1.4.2007 WHICH HAS BEEN DULY AN ALYZED BY THE AO, THE LEARNED D R PLEADED THAT THE STAND OF THE CIT(A ) REQUIRES TO BE REVERSED ON THIS POINT. 4 9. ON THE OTHER HAND, THE LEARNED A R CAME UP WITH A LENGTHY SUBMISSION, THE SUBSTANCE OF WHICH IS SUMMARIZED AS UNDER: - THAT THE ASSESSEE IS A CREDIT SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS BY AC CEPTING DEPOSITS FROM THE MEMBERS AND LENDING TO THEM; AND THAT PROVIDING CREDIT FACILITIES TO HIS MEMBERS IS THE O NLY ACTIVITY CARRIED ON BY THE ASSESSEE; - THAT FROM THE OBJECTS OF THE ASSESSEE EXTRACTED HEREUNDER CLEARLY EXHIBITS THAT THE ASSESSEE IS A CREDIT SOCI ETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS: (I) TO ENCOURAGE SAVING AND THRIFT AND MUTUAL CO-CO URAGE SAVING AND THRIFT AND MUTUAL CO-OPERATION AMONG TO MEMBERS ; (II) TO ACCEPT DEPOSITS FROM MEMBERS (III) TO MAKES SAVING SCHEMES FOR COLLECTION OF DEP OSITS; (IV) TO GIVE LOANS TO MEMBERS; (V) TO GIVE LOANS TO MEMBERS BY GETTING CASH CREDIT FOR CENTRAL LOAN INSTITUTION; (VI) TO WORK AS INSURANCE AGENT FOR INSURANCE OF LI FE AND ASSETS OF MEMBERS; & (VII) TO PURCHASE, TO SALE, TO MAKE LEASE, TO CONST RUCT MOVABLE AND IMMOVABLE ASSETS FOR WORKING OF SOCIETY. - THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF THE PR OFIT OF RS.7.28 LAKHS AS PER S. 80P (2)(A)(I), BUT, THE AO ERRED IN DISALLOWING THE SAME ON THE GROUND THAT THE ASSESSE E IS NOT PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK IN VIEW OF INSERTION OF SUB-SECTION (4) OF S.80P OF THE ACT; - THAT THE CIT (A) IN HIS ORDER UNDER DISPUTE, HELD THAT THE ASSESSEE IS A CREDIT SOCIETY AND, THUS, ELIGIBLE FO R DEDUCTION; - THAT S. 80P(2)(A)(I) GRANTS DEDUCTION OF THE WHOL E OF PROFITS OF BUSINESS OF CO-OP BANK AND CREDIT SOCIETIES; AND TH AT THE DEDUCTION GRANTED TO CO-OP BANK IS WITHDRAWN BY INS ERTION OF 5 SUB-SECTION (4) TO S. 80P, HOWEVER, IT WAS ARGUED, THE INSERTION DOES NOT TAKE AWAY THE DEDUCTION OF PROFIT IN THE C ASE OF CREDIT SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO I TS MEMBERS; - TO DRIVE HOME HIS POINT, THE LEARNED A R HAD PLAC ED STRONG RELIANCE ON THE FOLLOWING CASE LAWS: (I) TOTGARS CO-OP. SALE SOCIETY LTD V. ITO 322 IT R 283 (SC); (II) DCIT V. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOU HARDA SAHAKARI LTD ITA NOS. 01 TO 03/PNJ/2012 DT: 30.3. 2012; & (III) ACIT V. M/S. BANGALORE COMMERCIAL TRANSPORT C REDIT CO- OP SOCIETY LTD. IN ITA NO. 1069/BANG/2010 DATED 8.4.2011. IN CONCLUSION, IT WAS PRAYED THAT THE FINDINGS OF T HE CIT (A) REQUIRES TO BE SUSTAINED. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD AND ALSO THE CASE LAWS ON WHICH THE LEARNED AR HAD REPOSED HIS CONFIDENCE. 10.1 WE SHALL NOW PROCEED TO ANALYZE THE LEGAL VIE W ON THE ISSUE AS UNDER: (I) ACIT V. M/S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OP. SOCIETY LTD. ITA NO.1069/BANG/2010 DT. 8.4.2011: IN THIS CASE, THE ASSESSEE WAS A CO-OPERATIVE SOCIE TY REGISTERED UNDER THE CO-OPERATIVE SOCIETY ACT. DURING THE ASSE SSMENT YEAR UNDER CONSIDERATION, THE ASSESSEES CLAIM U/S 80 P( 2) (A) (I) OF THE ACT WAS DENIED BY THE AO ON THE PREMISE THAT THE AS SESSEE WAS DOING BANKING BUSINESS AND, THEREFORE, NOT ENTITLED TO THE CLAIM BY 6 VIRTUE OF INTRODUCTION OF SUB-SEC. 4 TO S.80P OF TH E ACT. AFTER DULY ANALYZING THE PROVISIONS OF SUB-SECTION 4 TO S. 80P , THE HONBLE BENCH HAS RECORDED ITS FINDINGS AS UNDER: 9.3. IF THE INTENTION OF THE LEGISLATURE WAS NOT TO GRANT DEDUCTION U/S 80P(2)((A)(I) TO CO-OPERATIVE SOCIETIES CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, THEN, THIS SECTIO N WOULD HAVE BEEN DELETED. THE NEW PROVISO TO SECTION 80P (4) WHICH IS BROUGHT INTO STATUTE IS APPLICABLE ONLY TO CO-OPERATIVE BANKS AND NOT TO CR EDIT CO-OPERATIVE SOCIETIES. THE INTENTION OF THE LEGISLATURE OF BRING IN CO-OPE RATIVE BANKS INTO THE TAXATION STRUCTURE WAS MAINLY TO BRING IN PAR WITH COMMERCIAL BANKS. SINCE THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND NOT A CO -OPERATIVE BANK, THE PROVISIONS OF SECTION 80P(4) WILL NOT HAVE APPLICAT ION IN THE ASSESSEES CASE AND, THEREFORE, IT IS ENTITLED TO DEDUCTION U/S 80P (2)(A)(I) OF THE ACT.. (II) DCIT V. JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUDHARD A SAHARKARI LTD IN ITA NO. 1 TO 3/PNJ/2012 & ITA NO.4 TO 6/PNJ/2012 DATED 30.3.2012: PRECISELY THE ISSUE BEFORE THE HONBLE PANAJI BENCH OF THE TRIBUNAL WAS 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT (A) WAS CORRECT IN HOLDING THAT THE PROVISIONS OF SUB-SECTI ON (4) OF S. 80P ARE APPLICABLE ONLY TO CO-OPERATIVE BANKS AND NOT TO CR EDIT CO-OPERATIVE SOCIETIES WHICH ARE ENGAGED IN BUSINESS OF BANKING, INCLUDING PROVIDING CREDIT FACILITIES TO THEIR MEMBERS; & 2. WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CAS E THAT CIT (A) WAS CORRECT IN HOLDING THAT THE ASSESSEE IS A CO-OPERAT IVE SOCIETY AND NOT A CO- OPERATIVE BANK IN TERMS OF SUB-SECTION (4) OF S. 80 P WITHOUT CONSIDERING THE MEANING OF CO-OPERATIVE BANK AS ENVISAGED UNDER PAR T V OF BANKING REGULATION ACT 1949 WHEREIN IT IS DEFINED THAT CO-O PERATIVE BANK INCLUDES PRIMARY CO-OPERATIVE BANK WHICH IS FURTHER DEFINED AS CO-OPERATIVE SOCIETY WITH THE PRIMARY OBJECT OF TRANSACTIONS OF BANKING BUSINESS. 10.2 AFTER COMPREHENSIVELY ANALYZING THE ISSUE AS WELL AS THE PROVISIONS OF S.80P(4) OF THE ACT, OBJECTS OF THE S OCIETY AND TAKING INTO ACCOUNT THE CONTENTIONS OF EITHER PARTY, THE HONBL E BENCH HAD RECORDED ITS FINDINGS AS UNDER: 7 12. FROM THE AFORESAID OBJECTS, IT IS APPARENT TH AT NONE OF THE AIMS AND OBJECTS ALLOWS THE ASSESSEE CO-OPERATIVE SOCIETY TO ACCEPT DEPOSITS OF MONEY FROM PUBLIC FOR THE PURPOSE OF LENDING OR INVESTMEN T. IN OUR OPINION UNTIL AND UNLESS THAT CONDITION IS SATISFIED, IT CANNOT B E SAID THAT THE PRIME OBJECT OR PRINCIPAL BUSINESS OF THE ASSESSEE IS BANKING BU SINESS. THEREFORE, THE ASSESSEE WILL NOT COMPLY WITH THE FIRST CONDITION A S LAID DOWN IN THE DEFINITION AS GIVEN U/S 5(CCV) OF THE BANKING REGUL ATION ACT, 1959 FOR BECOMING PRIMARY CO-OPERATIVE BANK. THE ASSESSEE , THEREFORE, CANNOT BE REGARDED TO BE A PRIMARY CO-OPERATIVE BANK AND IN C ONSEQUENCE THEREOF, IT CANNOT BE A CO-OPERATIVE BANK AS DEFINED UNDER PART V OF THE BANKING REGULATION ACT 1949. ACCORDINGLY, IN OUR OPINION T HE PROVISIONS OF SECTION 80P (4) READ WITH EXPLANATION THERE UNDER WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE, THEREFORE, IN OUR O PINION, WILL BE ENTITLED FOR THE DEDUCTION U/S 80P (2)(A)(I). 10.3 FURTHER, TO MAKE THE ISSUE EXPLICITLY CLEAR W E HEREIN BELOW QUOTE SECTION 80P (1) AND (2) (A) (I) OF THE ACT:- DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOCI ETIES 80. P.(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 S UB- SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E FOLLOWING, NAMELY:- (A) IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS OF BANKING PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR 10.4 THUS, THE PROVISIONS OF SECTION 80 P(2) (A) ( I) SPECIFICALLY PROVIDE DEDUCTION IN RESPECT OF CO-OPERATIVE SOCIET IES ENGAGED IN CARRYING ON THE BUSINESS OF BANKING PROVIDING CREDI T FACILITIES TO ITS 8 MEMBERS. SECTION 80 P(4) WHICH STIPULATES THAT 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 ONLY TAKES OUT CO-OPERATIVE BANKS FROM THE AMBIT OF DEDUCTION U/S 80 P OF THE ACT BUT FURTHER GRANTS EXEMPTION TO CO-OPERATIVE BANK W HICH IS PRIMARILY AN AGRICULTURAL CREDIT SOCIETY OR CO-OPERATIVE AGRI CULTURAL AND RURAL DEVELOPMENT BANK. THIS VIEW IS ALSO CLARIFIED BY CE NTRAL BOARD OF DIRECT TAXES VIDE ITS CLARIFICATION NO. 133/06/2007 -TPL DATED 9 TH MAY 2007. FURTHER, THE DISTINCTION BETWEEN CO-OPERATIVE SOCIETY UNDER BANKING REGULATIONS ACT, 1949 AND CO-OPERATIVE SOCI ETY REGISTERED UNDER STATE CO-OPERATIVE SOCIETIES ACT, VIZ. KARNAT AKA STATE CO- OPERATIVE SOCIETIES ACT, 1959 IS VIVIDLY BROUGHT OU T IN THE ITAT ORDER, BANGALORE BENCH IN THE CASE OF ACIT VS BANGALORE CO MMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LTD. IN ITA N O.1069/BANG/2010 FOR AY 2007-08 DATED 08-04-2011 AS UNDER: NATURE CO-OPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT,1949 CO-OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA CO-OPERATIVE SOCIETIES ACT, 1959 REGISTRATION UNDER THE BANKING REGULATION ACT, 1949 AND CO-OPERATIVE SOCIETIES ACT, 1959 CO-OPERATIVE SOCIETIES ACT, 1959 NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING REGULATION ACT. 2. CAN OPEN SAVINGS BANK ACCOUNT, 1. AS PER THE BYE LAWS OF THE CO-OPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT 9 CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFT(DD), PAY ORDER, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. CO-OPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES DDS, PAY ORDERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI) ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS, PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT AS CLEARING AGENT FOR CHEQUES, AGENT FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. SOCIETY ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE CO-OPERATIVE SOCIETIES ACT. FILING OF RETURNS CO-OPERATIVE BANKS HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR. SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPECTION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO CO- OPERATIVE BANKS. PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO CO-OPERATIVE BANKS. USE OF WORDS THE WORD BANK, BANKER, BANKING CAN BE USED BY CO-OPERATIVE BANK. THE WORD BANK, BANKER, BANKING CANNOT BE USED BY A CO-OPERATIVE SOCIETY. 10 10.5 THUS, T AKING INTO ACCOUNT OF ALL THE FACTS AND THE ISSUE WE ARE IN CONFORMITY WITH THE ORDER OF THE LEARNED CIT(A) AND ACCORDINGLY HOLD THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P (2)(A)(I) OF THE ACT. II. C.O NO.138/A/2012 BY THE ASSESSEE: 11. THE GRIEVANCE OF THE ASSESSEE IN ITS CROSS OBJ ECTION IS THAT THE CIT (A) HAD ERRED IN DISALLOWING DEDUCTION U/S 80P OF THE ACT TO THE EXTENT OF RS.6.4 LAKHS. 12. BRIEFLY, THE AO HAD DISALLOWED THE ENTIRE CLAI M OF RS.78,28,742/- WHICH INCLUDED INTEREST INCOME OF RS .6,40,639/- U/S 80P (2)(A) OF THE ACT. 13. AGGRIEVED, THE ASSESSEE TOOK UP THIS ISSUE BEF ORE THE CIT (A) FOR RELIEF. THE CIT (A), AFTER ELABORATELY QUOT ING THE RULING OF THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD. V. ITO CITED SUPRA, CAME TO THE CONCLUSION THA T THE INTEREST INCOME IS TAXABLE U/S 56 OF THE ACT. THE REASONS R ECORDED BY THE CIT (A) ARE AS UNDER: 6.. (ON PAGE 8) IN THE LIGHT OF THE ABOVE, THE INTEREST INCOME, IF ANY, EARNED FROM KEEPING THE SURPLUS FUND IN BANKS WOULD BE TAX ABLE U/S 56 AND WILL NOT QUALIFY FOR DEDUCTION U/S 80P. IT IS SEEN THAT THE TOTAL INTEREST EARNED FROM BANK I.E., DENA BANK AND DEVELOPMENT BANK IS RS.19, 13,743/-. THE APPELLANT HAS MIXED FUNDS WHEREIN THE MEMBERS INTE REST FREE CONTRIBUTION AND ACCUMULATED PROFITS ARE MIXED WITH INTEREST BEA RING FUNDS. THE INTEREST EARNED FROM MEMBERS IS RS.1,84,56,163/- AND INTERES T PAID IS RS.1,36,20,112/-. THE APPELLANT HAS TAKEN NET AMOU NT OF INTEREST I.E., 11 RS.48,36,151/- TO THE P & L ACCOUNT. BESIDES, THE APPELLANT HAS INTEREST FROM CO-OPERATIVE SOCIETIES EXEMPT U/S 80P(2)(D) OF THE ACT, TOTALING RS.1,03,943/-. THEREFORE, FOR EARNING TOTAL INTEREST OF RS.2,04,73 ,899/-, THE APPELLANT HAS SPENT RS.1,36,20,112/-. TAKING ON PRO-RATA BASIS, THE INTEREST EXPENSES ON EARNING THE INTEREST FROM BANK TAXABLE U/S 56 WOULD BE RS.12,73,104/- [RS.1913743 X 13620112 / RS.20473899]. THEREFORE, THE INTEREST INCOME WHICH IS TAXABLE U/S 56 AND IS NOT EXEMPT WOULD BE RS.6,40,639/- [RS.1913743 1273104]..L 14. AGITATED, THE ASSESSEE HAS COME UP WITH THE PR ESENT APPEAL [CROSS OBJECTION] BEFORE US. 15. DURING THE COURSE OF HEARING, THE SUBMISSIONS MADE BY THE LEARNED A R ARE SUMMARIZED AS UNDER: - THAT THE CIT (A) HAD HELD THAT INTEREST OF RS.6.4 LAKHS FROM SHORT TERM DEPOSIT WAS TAXABLE AS INCOME FROM OTHE R SOURCES U/S 56 OF THE ACT BY PLACING RELIANCE OF THE HONBL E SUPREME COURT IN THE CASE OF TOTGARS CO.OP SALE SOCIETY LIM ITED (SUPRA); - THAT THE CIT (A) HAD MISCONCEPTION IN FOLLOWING T HE SAID DECISION; THAT, IN FACT, THE HONBLE COURT HAD HELD THAT IF THERE IS SURPLUS FUNDS NOT REQUIRED IMMEDIATELY FOR THE PURP OSE OF BUSINESS AND, IF INVESTED IN SHORT TERM DEPOSITS TH AN INCOME THERE-FROM IS TAXABLE AS INCOME FROM OTHER SOURCE U/S 56 HOWEVER, THE PRESENT ASSESSEE DREW THE AOS ATTENTI ON TO THE FACT THAT THE ASSESSEE WAS BOUND TO KEEP MONEY READ Y FOR REPAYMENT OF DEPOSIT TO ITS MEMBERS ON MATURITY AND , THEREFORE, THE SAME WAS KEPT INVESTED IN BANK. FOR SUCH REASON S IT WAS ARGUED THAT THE ASSESSEE HAD NO SURPLUS FUNDS AND T HE RATIO OF THE HONBLE SUPREME COURT (SUPRA) HAS NO APPLICATIO N TO THE ASSESSEES CASE; - THAT, WITHOUT PREJUDICE, THE CIT (A) HAD TREATE D THE INTEREST INCOME OF RS.6.4 LAKHS INCOME FROM OTHER SOURCES U/S 56 OF THE ACT WHICH AMOUNTED TO ENHANCEMENT OF INCOME; AN D THAT THE ASSESSEE WAS NOT SERVED WITH ANY SHOW-CAUSE NOT ICE FOR ENHANCEMENT OF THE ASSESSEES INCOME; & 12 - THAT AS PER THE ASSESSMENT ORDER, THE ASSESSEES INCOME WAS DETERMINED AT RS.78,28,740/- U/S 28 OF THE ACT BY D ISALLOWING THE CLAIM OF THE ASSESSEE U/S 80P(2)(A)(I) OF THE A CT. THE SAME WAS CHALLENGED BEFORE THE CIT (A). THE CIT (A) HEL D THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80P (2)(A)(I ), HOWEVER, DISALLOWED INTEREST INCOME OF RS.6,40,639/- ON SHOR T TERM DEPOSITS IS TAXABLE U/S 56 OF THE ACT. THE CIT (A) HAD GONE BEYOND THE SUBJECT MATTER OF APPEAL AS HE CANNOT TA X THE SOURCE WHICH WAS NOT PROCESSED BY THE AO IN THE ASS ESSMENT ORDER. THE AO HAD TREATED THE ENTIRE INCOME U/S 28, BUT, GAVE NO FINDINGS REGARDING THE INCOME FROM OTHER SOURCE S U/S 56. THEREFORE, IT WAS ARGUED, THE ADDITION OF RS. 6.4 L AKHS U/S 56 OF THE ACT WAS BAD IN LAW. - RELIES ON THE CASE LAW - CIT V. SARDARI LAL & CO . 251 ITR 864 (DEL). 16. ON THE OTHER HAND, THE LEARNED D R HAD FULLY S UPPORTED THE STAND OF THE CIT (A) AND URGED THAT THE ASSESSE E HAS NO CAUSE TO AGITATE AND, THEREFORE, PLEADED THAT THE FINDINGS O F THE CIT (A) REQUIRE TO BE SUSTAINED. 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE EITHER PARTY, PERUSED THE RELEVANT RECORDS AND ALSO THE CASE LAW ON WHICH THE LEARNED AR HAD RESERVATION IN ITS APPLIC ABLY IN THE CIRCUMSTANCES OF THE ASSESSEES CASE. 18. IT WAS THE STAND OF THE LEARNED CIT (A) THAT T HE ENTIRE INCOME WAS NOT EXEMPT AND THAT IT WAS TO BE EXAMINE D AS TO WHETHER THERE WAS ANY INTEREST INCOME ON THE SHORT TERM BAN K DEPOSITS AND SECURITIES INCLUDED IN THE TOTAL INCOME OF THIS SOC IETY WHICH HAS BEEN CLAIMED AS EXEMPT. ACCORDING TO THE CIT (A), A SIM ILAR ISSUE TO THAT 13 OF THE PRESENT ONE WAS DEALT WITH BY THE HONBLE SU PREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD V. ITO (SUPRA). THE ISSUE BEFORE THE HONBLE COURT FOR DETERMINATION WA S WHETHER INTEREST INCOME ON SHORT TERM BANK DEPOSITS AND SECURITIES W OULD BE QUALIFIED AS BUSINESS INCOME U/S 80P (2)(A)(I) OF THE ACT. 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME CO URT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIAT ION OF FACTS, AS UNDER: WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOS ITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES? TH E ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE 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 BY SUCH RETENTION WAS NOT REQU IRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SEC URITIES. THE QUESTION, BEFORE US, IS-WHETHER INTEREST ON SUCH DEPOSITS/SEC URITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT? IN OUR VIEW, SU CH 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 19.1 HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT W AS OBSERVED THAT THE FIXED DEPOSITS MADE WERE TO MAINTAIN LIQUIDITY AND THAT THERE WAS NO SURPLUS FUNDS WITH THE ASSESSEE AS ATTRIBUTED BY THE REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HONBLE S UPREME COURT (ON PAGE 286) 7BEFORE THE ASSESSING OFFICER, I T WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND, CONSEQUENTLY, SUCH ACT OF INVESTMENT CONSTITUTED A BUSINESS ACTIV ITY BY A PRUDENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS L IABLE TO BE TAXED UNDER SECTION 28 AND NOT UNDER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE 14 ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTIO N 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND THE HIGH COURT, HENCE, THESE CIVIL APPEALS HAVE BEEN FILED BY THE ASSESSEE(S). 19.2 FROM THE ABOVE, IT EMERGES THAT (A) THAT ASSESSEE (ISSUE BEFORE THE SUPREME COURT) HAD ADMITTED BEFORE THE AO THAT IT HAD INVESTED SURPLUS FUNDS, WHICH WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF ITS BUSINESS, IN SHORT TERM DEPOSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED ON TWO ACTIVITIES, NAMELY , (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSIT S TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUC E; AND (D) THAT THE SURPLUS HAD ARISEN EMPHATICALLY FROM M ARKETING OF AGRICULTURAL PRODUCES. 19.3 IN THE PRESENT CASE UNDER CONSIDERATION, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THER E WERE NO SURPLUS FUNDS. 19.4 WHILE COMPARING THE STATE OF AFFAIRS OF THE P RESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COU RT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAMELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS W ERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE WERE NO SUR PLUS FUNDS; - IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS ADMITTED BEFORE THE AO, OUT OF RETAINED AMOUNTS ON MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT CAR RY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES TO ITS MEMBER S AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAI LABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS MEMBERS AND, THU S, THERE WAS NO SURPLUS FUNDS AS SUCH; 15 - IN THE CASE OF TOTGARS, THE HONBLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS ; 19.5 CONSIDERING THE ABOVE FACTS, WE FIND THAT THE RE IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE NOT A CO-OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH B ANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSITS FROM AND LENDS THE SAME TO ITS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS S UBMITTED BY THE ASSESSEE THAT IT HAD INVESTED IN SHORT-TERM DEPOSIT S. FURTHERMORE, THE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AND THE BALANCE AS AT 31.3.2009 WAS RS.13,69,955/- [SOU RCE: BALANCE SHEET OF THE ASSESSEE AVAILABLE ON RECORD] 19.6 IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP SALE SOCIETY LTD (SUPRA) CANNOT IN ANY WAY COME TO THE RESCUE OF EITHER THE LD. CIT (A) OR THE REVENUE. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN COMING TO A CO NCLUSION THAT THE SUM OF RS.9,40,639/- WAS TO BE TAXED U/S 56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 19.7 BEFORE PARTING WITH, WE WOULD, WITH DUE REGAR DS, LIKE TO RECORD THAT THE RULING OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT V. MANEKBANG CO-OP HOUSING SOCIETY LTD REPORTED IN (2012) 22 TAXMANN.COM 220(GUJ) HAS BEEN KEPT IN VIE W WHILE DECIDING THE ISSUE. 16 20. IN THE RESULT ( I) THE REVENUES APPEAL IS DISMISSED; & (II) THE ASSESSEES CROSS OBJECTION IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-10-2012 SD/- SD/- (D. K. TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT LAKSHMIKANT LAKSHMIKANT LAKSHMIKANTA AA A DEKA/ DEKA/ DEKA/ DEKA/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 26-10-12/30-10-12 DIRECT O N COMPUTER. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 30-10-12 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER:
