ACIT, Circle-7(1), Hyderabad V. M/s Mahaveer Co-op Urban Bank Limited, Hyderabad

ITA 1011/HYD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69871 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 24-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHANU PRASAD REDDY
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1011/HYD/2013 ASSESSMENT YEAR 2004-05 THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-7(1) HYDERABAD VS. M/S. MAHAVEER CO - OP. URBAN BANK LTD., HYDERABAD PAN: AACCM7104Q APPELLANT RESPONDENT APPELLANT BY: SRI BHANU PRASAD REDDY RESPONDENT BY: SRI A.V. RAGHURAM DATE OF HEARING: 01.10.2013 DATE OF PRONOUNCEMENT: 01.10.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), VIJAYAWADA DATED 22.03.2013 FOR A.Y. 2004 -05. 2. THE REVENUE RAISED THE FOLLOWING GROUND: (2) THE LEARNED CIT(A) ERRED IN ALLOWING THE CLAIM OF EXEMPTION U/S. 80P(2)(A) OF THE IT ACT, 1961 ON INTEREST INCOME EARNED ON INVESTMENT OUT OF SLR/NON SLR SURPLUS FUNDS WHICH FALL UNDER THE PROVISIONS OF SECTION 80P(2)(D) AND NOT SECTION 80P(2)(A). 3. BRIEF FACTS OF THE CASE ARE THAT WITH REGARD TO TH E EXEMPTION U/S. 80P OF THE ACT, THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS DECLARED NET INCOME OF RS. 35,88,673/- AND CLAI MED EXEMPTION U/S. 80P OF THE ACT. THE INCOME STATED TO BE INTERES T INCOME IS EARNED OUT OF THE SURPLUS FUNDS BEYOND THE SLR COVE RED FUNDS I.E., INVESTED IN UTI MUTUAL FUNDS OF RS. 1,40,00,000/- A ND RS. 80,00,000/- INVESTED IN FIXED DEPOSITS. THE INCOME CLAIMED ITA NO. 1011/HYD/2013 M/S. MAHAVEER CO-OP. URBAN BANK LTD. ============================== 2 EXEMPTION OF RS. 35,88,673/- IS NOTHING BUT THE INC OME EARNED THROUGH THE DEPOSITS/ INVESTMENTS MADE IN VARIOUS M UTUAL FUNDS AND CONCERNS BUT NOT CARRYING ON THE BUSINESS OF BANKIN G OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR AS ILLUSTRATED U/S. 80P(2) OF THE ACT. AS SEEN FROM THE PROFIT AND LOSS ACCOUNT, THE A SSESSEE HIMSELF TREATED THE INTEREST INCOME EARNED ON SURPLUS FUNDS AS 'OTHER INCOME'. IN THE PROFIT AND LOSS A/C., THE ASSESSEE HAS ADMITTED INCOME FROM OTHER SOURCES TO THE TUNE OF RS. 40,54, 810/- UNDER THE HEAD 'OTHER RECEIPTS', WHICH CLARIFIES THAT THE INC OME EARNED AND ADMITTED UNDER THE HEAD 'OTHER RECEIPTS' IS NOT FRO M THE OPERATIONS CARRIED OUT BY THE ASSESSEE THE MANNER LAID DOWN U/ S. 80P DURING THE YEAR 2003-04. FURTHER, IT IS CLEAR THAT THE IN COME ADMITTED UNDER THE HAD 'OTHER RECEIPTS' OF RS 40,54,810/- DO ES NOT ATTRACT PROVISIONS OF SECTION 80P OF THE ACT. ACCORDINGLY, THE AO HAS REJECTED THE CLAIM OF THE ASSESSEE U/S. 80P OF THE ACT. ON APPEAL, THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LEARNED DR SUBMITTED THAT IN THIS CASE, THE ISS UE INVOLVED IS WHETHER SECTION 80P(2)(A) OR 80P(2)(D) IS APPLIC ABLE TO THE CASE OF THE ASSESSEE. THE AO HELD THAT THE PROFITS DERIVED BY THE ASSESSEE WITH ITS DEPOSITS UNDER SLR/CRR CATEGORY ONLY ARE E LIGIBLE FOR DEDUCTION U/S. 80P(2)(A). THE ASSESSEE HAD DEPOSIT ED RS. 1.4 CRORES IN MUTUAL FUNDS AND RS. 80 LAKHS IN FIXED DEPOSITS. THE AO HELD THAT THE RETURNS ON THESE DEPOSITS WERE NOT EXEMPT AS TH EY HAD NO BEEN DERIVED FROM CORE BANKING ACTIVITY. THE CIT(A) ALLO WED THE PLEA TAKEN BY THE ASSESSEE. IN THE LIGHT OF THE SUPREME COURT'S DECISION IN THE CASE OF CIT VS. KARNATAKA STATE CO-OPERATIVE APEX BANK (251 ITR 194), ONLY INTEREST INCOME ON SLR FUNDS HAS TO PARTAKE THE CHARACTER OF BUSINESS INCOME. THUS, THE ASSESSEE'S INCOME BY WAY OF DEPOSIT IN NON-SLR FUNDS IN MUTUAL FUNDS AND FIX ED DEPOSITS IS NOT EXEMPT UNDER THE PROVISIONS OF SECTION 80P OF THE AC T. ITA NO. 1011/HYD/2013 M/S. MAHAVEER CO-OP. URBAN BANK LTD. ============================== 3 5. ON THE OTHER HAND, THE LEARNED AR RELIED ON THE JUDG EMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AND HRA PRADESH STATE CO-OPERATIVE BANK LTD. (336 ITR 516) (AP). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE FIND THE SAME ISSUE WAS CONSIDERED BY T HE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. ANDHRA PRA DESH STATE CO- OPERATIVE BANK LTD. (CITED SUPRA) WHEREIN THE HIGH COURT HELD AS UNDER: 'THE PROVISIONS OF SECTION 80P OF THE INCOME-TAX ACT , 1961 DO NOT MAKE ANY DISTINCTION BETWEEN THE INTEREST EARNED BY DEPOSIT IN A BANK AND INTEREST EARNED ON THE COMPULSIVE DEPOSIT MADE AS REQUIRED UNDER THE RELEVANT STATUTE. ALL THE INCOME FROM BANKING BUSINE SS REFERRED TO UNDER SECTION 80P(2)(A)(I) OF THE ACT WO ULD QUALIFY FOR DEDUCTION UNDER THE ACT. THE INCOME EARN ED BY THE CO-OPERATIVE BANK EITHER BY DEPOSIT OF THE PRESCRIBED PERCENTAGE OF ITS RESERVES OR BY DEPOSIT OF THEIR SURPLUS FUNDS IS EXEMPTED. THE INCOME FROM EITHER CATEGORY OF THE DEPOSITS IS CERTAINLY ATTRIBUTABLE TO THE BUSINESS OF BANKING. AS LONG AS THE DEPOSIT O F THE SURPLUS FUNDS IN OTHER BANKS FOR THE PURPOSE OF EAR NING INTEREST IS NOT UNAUTHORIZED OR NOT BARRED BY ANY O F THE APPLICABLE STATUTES, THE INCOME IS CERTAINLY ATTRIB UTABLE TO THE BUSINESS OF BANKING. THERE IS NO CONCEPT OF VOLUNTARY OR NON-STATUTORY RESERVES. WHEN THE RESER VE FUND OF THE SOCIETY EXCEEDS 25 PER CENT. OF ITS WORKING CAPITAL, THE EXCESS COULD BE UTILIZED IN THE BUSINE SS OF THE SOCIETY WITH THE SANCTION OF THE REGISTRAR OF C O- OPERATIVE SOCIETIES. FURTHER, WHEN A SOCIETY IS PROHIBITED BY ITS BYE-LAWS FROM BORROWING EITHER FR OM ITS MEMBERS OR OTHERS, THE WHOLE OF ITS RESERVE FUN D MAY BE UTILIZED IN ITS BUSINESS. IF A CO-OPERATIVE BANK DERIVES INCOME BY LENDING MONEY TO ITS MEMBERS, IT BEING BUSINESS OF BANKING, IS ELIGIBLE FOR DEDUCTIO N. THE STATUTORY LIQUIDITY RATIO, CASH RESERVE OR RESERVE FUND REQUIRED TO BE MAINTAINED BY A SCHEDULED BANK OR A CO- OPERATIVE BANK UNDER THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934, OR THE BANKING REGULATION ACT, 1949, ARE ALL ACTIVITIES WHICH ARE PART OF THE BUSI NESS OF BANKING. IF SECTION 80P(2)(A) OF THE ACT IS GIVEN A RESTRICTIVE MEANING AS INCLUDING THE INTEREST EARNE D ONLY ON THE STATUTORY DEPOSITS MADE BY A CO-OPERATI VE SOCIETY, IT WOULD AMOUNT TO SUPPLYING A CASUS OMISSUS ITA NO. 1011/HYD/2013 M/S. MAHAVEER CO-OP. URBAN BANK LTD. ============================== 4 AND HAS TO BE AVOIDED BY THE COURT. INVESTMENT OF F UNDS BY BANKS INCLUDING THE NON-RESERVES IS PART OF BANKING ACTIVITIES SINCE NO BANK: WOULD LIKE ITS RESERVE FU NDS TO REMAIN IDLE AND NOT EARN ANY INTEREST. THEREFORE, T HE INTEREST EARNED ON SUCH DEPOSITS IS DIRECTLY ATTRIB UTABLE TO THE BUSINESS OF BANKING AND, THEREFORE, EXEMPT UNDER SECTION 80P(2)(A)(I) THE ACT.' 7. IN VIEW OF THE ABOVE DISCUSSION, WE ARE INCLINED TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE ORDER OF TH E CIT(A) IS CONFIRMED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST OCTOBER, 2013 SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 1 ST OCTOBER, 2013 TPRAO COPY FORWARDED TO: 1. THE ASST. COMMISSIONER OF INCOME - TAX, CIRCLE - 7(1), 2 ND FLOOR, B-BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. MAHAVEER CO - OP. URBAN BANK LTD., 15 - 1 - 503/3, FEELKHANA, HYDERABAD. 3. THE CIT(A), VIJAYAWADA. 4. THE CIT - VI, HYDERABAD. 5. THE DR 'B' BENCH, ITAT, HYDERABAD