Rytha Seva Sahakara Bank Niyamitha, K.R. Nagar V. ITO, Mysore

ITA 105/BANG/2015

• Counselvise Citation: 10521114 RSA 2015
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 04-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRATIBHA
• Keywords: Question of law
• Section: 56

Judgement Text

ITA.015/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.105/BANG/2015 (ASSESSMENT YEARS : 2010-11) RYTHA SEVA SAHAKARA BANK NIYAMITHA, GAVADAGERE VIA K. R. NAGAR 571 610 .. APPLICANT PAN : AAAAR1838E V. INCOME-TAX OFFICER, WARD 1(3), MYSORE .. RESPONDENT APPLICANT BY : SMT. PRATIBHA, ADVOCATE RESPONDENT BY : SHRI. BHASKAR REDDY, JCIT HEARD ON : 24.08.2015 PRONOUNCED ON : 27 .08.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, ITS GRIEVANCE IS THAT ITS CLAIM FOR DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT) WAS DISALLOWED ON INTEREST EARNED BY IT FROM OTHER BANKS. 02. FACTS APROPOS ARE THAT ASSESSEE HAD FILED RETUR N INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING NIL INCOME AFTER CLAIMING DEDUCTION U/S.80P(2)(A)(I) OF ITA.015/BANG/2015 PAGE - 2 THE ACT. IT HAD RECEIVED INTEREST OF RS.34,63,090/ - ON FIXED DEPOSITS PLACED WITH OTHER BANKS. AO WAS OF THE OPINION THAT INTEREST E ARNED ON SUCH DEPOSITS COULD NOT BE GIVEN BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) OF T HE ACT IN VIEW OF THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF TOTGARS COOPERAT IVE SALE SOCIETY LTD V. ITO [(2010) 322 ITR 283]. ASSESSEE REPLIED TO THIS INT ER ALIA STATING THAT WHAT WERE DEPOSITED BY IT WAS ONLY THE STATUTORY RESERVE THAT WAS REQUIRED TO BE KEPT. HOWEVER AO WAS OF THE OPINION THAT OF THE TOTAL DEPOSIT OF RS.2,67,35,492/-, STATUTORY RESERVES AVAILABLE TO THE ASSESSEE WAS ONLY RS.1,10 ,09,164/-. ACCORDING TO HIM INTEREST EARNED ON THE BALANCE DEPOSITS WAS OUT OF EXCESS SURPLUS FUND AVAILABLE WITH THE ASSESSEE AND TAXABLE UNDER THE HEAD INCOME FRO M OTHER SOURCES. HE WORKED OUT SUCH AMOUNT AT RS.21,20,280/- AND PLACED IT UND ER THE HEAD INCOME FROM OTHER SOURCES. EFFECTIVELY HE DISALLOWED THE CLAIM U/S. 80P(2)(A)(I) OF THE ACT. 03. ASSESSEES APPEAL BEFORE THE CIT (A) DID NOT ME ET WITH ANY SUCCESS. ACCORDING TO CIT (A), INTEREST EARNED ON DEPOSITS P LACED WITH OTHER BANKS WOULD FALL ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES IN VIEW OF HONBLE APEX COURT JUDGMENT IN TOTGARS COOPERATIVE SALE SOCIETY LTD (SUPRA). 04. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DER OF CIT (A) SUBMITTED THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD (ITA.307 OF 2014, DT.28.10.2014), HAD CONSIDERED THE ISSUE OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT, FOR INTEREST INCOME. ACCORDING TO HIM, HONBLE JURISDICTIONAL H IGH COURT HAD CITED THE JUDGMENT OF HONBLE ANDHRA PRADESH HIGH COURT IN TH E CASE OF CIT V. ANDHRA ITA.015/BANG/2015 PAGE - 3 PRADESH STATE COOPERATIVE BANK LTD, [(2011) 200 TAX MAN 220] AND HELD IN FAVOUR OF THE ASSESSEE. 05. PER CONTRA, LD. DR SUBMITTED THAT IN THE CASE O F TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE SOCIETY (SUPRA) THE AMO UNTS WHICH WERE DEPOSITED WERE FOR SHORT-TERM, WHEREAS IN THE CASE OF THE ASS ESSEE, AMOUNTS WERE PLACED IN FDS ON LONG-TERM BASIS. RELIANCE WAS PLACED ON JUD GMENT OF HONBLE APEX COURT IN THE CASE OF TOTGARS COOPERATIVE SALE SOCIETY LT D (SUPRA). 06. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE DEPOSITS GIVING RISE TO THE INTERE STS WERE MADE OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE. THIS IS CLEAR FROM PA RA 6.2 OF THE ASSESSMENT ORDER REPRODUCED HEREUNDER : 6.2 AS ALREADY STATED, TOTAL INTEREST FREE FUNDS ( BEING SHARE CAPITAL AND RESERVES) TO THE EXTENT OF RS.2,72,28,541/- WAS AVAILABLE WITH THE SOCIETY, ANY INVESTMENTS MADE OUT OF SUCH INTEREST FREE FUNDS IS FREE OF COST AND HENCE, OBVIOUSLY NO DEDUCTION TOWARDS EXPE NDITURE IS REQUIRED TO BE ALLOWED. IN SIMILAR CIRCUMSTANCES, THE HONB LE HIGH COURT OF KARNATAKA IN THE CASE OF THE TOTGARS COOPERATIVE SA LE SOCIETY LTD., V. ITO, W-1, SIRSI (322 ITR 272) HAS HELD THAT PROPORT IONATE EXPENSES FOR MAKING SUCH INVESTMENTS ARE NOT ALLOWABLE AS DEDUCT ION. 07. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE SOCIETY (SUPRA), HAD HE LD AS UNDER AT PARAS 3 TO 10 OF THE JUDGEMENT DT.28.10.2014 : '4. THE LEARNED COUNSEL FOR THE ASSESSEE ASSA ILING THE IMPUGNED ORDER CONTENDED, THE INTEREST ACCRUED IN A SUM OF RS.1,77 ,305/- IS FROM THE DEPOSITS MADE BY THE ASSESSEE IN A NATIONALIZED BAN K OUT OF THE AMOUNTS WHICH WAS USED BY THE ASSESSEE FOR PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE THE SAID INTEREST AMOUNT IS A TTRIBUTABLE TO THE CREDIT FACILITIES PROVIDED BY THE ASSESSEEAND FORMS PART OF PROFITS AND ITA.015/BANG/2015 PAGE - 4 GAINS OF BUSINESS AND THEREFORE HE SUBMITS THE APPE LLATE AUTHORITIES WERE NOT JUSTIFIED IN DENYING THE SAID BENEFIT IN TERMS OF SUB-SEC.(2) OF SECTION 80P OF THE ACT. IN SUPPORT OF HIS CONTENTIONS, HE R ELIED ON SEVERAL JUDGMENTS AND POINTED OUT THAT THE APEX COURT IN TH E AFORESAID JUDGMENT HAS NOT LAID DOWN ANY LAW. 5. PER CONTRA, LEARNED COUNSEL FOR THE REVENUE STRO NGLY RELIED ON THE SAID JUDGMENT OF THE SUPREME COURT AND SUBMITTED, THE CA SE IS COVERED BY THAT JUDGMENT OF THE APEX COURT AND NO CASE FOR INTERFER ENCE IS MADE OUT. 6. FROM THE AFORESAID FACTS AND RIVAL CONTENTIONS, THE UNDISPUTED FACTS WHICH EMERGES IS, THE SUM OF RS. 1,77,305/- REPRESE NTS THE INTEREST EARNED FROM SHORT-TERM DEPOSITS AND FROM SAVINGS BA NK ACCOUNT. THE ASSESSEE IS A COOPERATIVE SOCIETY PROVIDING CRE DIT FACILITIES TO ITS MEMBERS. IT IS NOT CARRYING ON ANY OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE ASSESSEE BY PROVIDING CREDIT FACILITI ES TO ITS MEMBERS IS DEPOSITED IN THE BANKS FOR A SHORT DURATION WHICH H AS EARNED INTEREST. THEREFORE, WHETHER THIS INTEREST IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IS THE QUESTION. IN THIS REGARD, IT IS NECESSARY TO NOTICE THE RELEVANT PROVISION O F LAW IE., SECTION 80P(2)(A)(I): DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOC IETIES: 80P (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A C O-OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AN D 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 THE FOLLOWING, NAMELY: (A) IN THE CASE OF CO-OPERATIVE SOCIETY ENGAGED IN (I) )CARRYING ON THE BUSINESS OF BANKING OR PROVIDI NG CREDIT FACILITIES TO ITS MEMBERS, OR (II) XXX (III) XXX (IV) XXX (V) XXX (VI) XXX (VII) XXX THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUS INESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES. ITA.015/BANG/2015 PAGE - 5 7. THE WORD ATTRIBUTABLE USED IN THE SAID SECTION IS OF GREAT IMPORTANCE. THE APEX COURT HAD AN OCCASION TO CONSI DER THE MEANING OF THE WORD ATTRIBUTABLE AS SUPPOSED TO DERIVE FR OM ITS USE IN VARIOUS OTHER PROVISIONS OF THE STATUTE IN THE CASE OF CAMB AY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX, GUJARAT-LL REPORTED IN ITR VOL. 113 (1978) PAGE 842 AT PAGE 93 AS UNDER: AS REGARDS THE ASPECT EMERGING FROM THE EXPRESSION ATTRIBUTABLE TO OCCURRING IN THE PHRASE PROFITS AND GAINS ATTRIBUTABLE TO THE BUSINESS OF THE SPECIFIED INDUS TRY HERE GENERATION AND DISTRIBUTION OF ELECTRICITY ON WHICH THE LEARNED SOLICITOR-GENERAL RELIED, IT WILL BE PERTINENT TO O BSERVE THAT THE LEGISLATURE HAS DELIBERATELY USED THE EXPRESSION A TTRIBUTABLE TO AND NOT THE EXPRESSION DERIVED FROM. I T CANNOT BE DISPUTED THAT THE EXPRESSION ATTRIBUTABLE TO IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION DERIVED FROM. HAD THE EXPRESS ION DERIVED FROM BEEN USED, IT COULD HAVE WITH SOME F ORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISING FROM THE SALE OF OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED AS PROFI TS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF G ENERATION AND DISTRIBUTION OF ELECTRICITY. I N THIS CONNECTION, IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLI CITOR GENERAL, IT HAS USED THE EXPRESSION DERIVED FROM, AS, FOR INS TANCE, IN SECTION 80J. IN OUR VIEW, SINCE THE EXPRESSION OF WIDER IMP ORT, NAMELY, ATTRIBUTABLE TO, HAS BEEN USED, THE LEGISLATURE I NTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. 8. THEREFORE, THE WORD ATTRIBUTABLE TO IS CERTAIN LY WIDER IN IMPORT THAN THE EXPRESSION DERIVED FROM. WHENEVER THE LE GISLATURE WANTED TO GIVE A RESTRICTED MEANING, THEY HAVE USED THE EXPRESSION DERIVED FROM. THE EXPRESSION ATTRIBUTABLE TO BE ING OF WIDER IMPORT, THE SAID EXPRESSION IS USED BY THE LEGISLAT URE WHENEVER THEY INTENDED TO GATHER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS. A COOPERATIVE SOCIETY WHIC H IS CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, EARNS PROFITS AND GAINS OF BUSINESS BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPI TAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO THE MEMBERS, THE Y CANNOT KEEP THE SAID AMOUNT IDLE. IF THEY DEPOSIT THIS AMOUNT I N BANK SO AS TO EARN INTEREST, THE SAID INTEREST INCOME IS ATTRIBUT ABLE TO THE PROFITS ITA.015/BANG/2015 PAGE - 6 AND GAINS OF THE BUSINESS OF PROVIDING CREDIT FACIL ITIES TO ITS MEMBERS ONLY. THE SOCIETY IS NOT CARRYING ON ANY SE PARATE BUSINESS FOR EARNING SUCH INTEREST INCOME. THE INCOME SO DER IVED IS THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABL E TO THE ACTIVITY OF CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS BY A CO-OPERATIVE SOCIETY AND IS LIA BLE TO BE DEDUCTED FROM THE GROSS TOTAL INCOME UNDER SECTION 80P OF THE ACT. 9. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF THE APEX COURT IN THE CASE OF M/S. TOTGARS CO-OPERATIVE SALE SOCIETY LTD., ON WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEALING W ITH A CASE WHERE THE SOCIETY, APART FROM PROVIDING CREDIT FACI LITIES TO THE MEMBERS, WAS ALSO IN THE BUSINESS OF MARKETING OF A GRICULTURAL PRODUCE GROWN BY ITS MEMBERS. THE SALE CONSIDERATIO N RECEIVED FROM MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WAS RETAINED IN MANY CASES. THE SAID RETAINED AMOUNT WHICH WAS PAYA BLE TO ITS MEMBERS FROM WHOM PRODUCE WAS BOUGHT, WAS INVESTED IN A SHORT- TERM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH WAS RET AINED BY THE ASSESSEE - SOCIETY WAS A LIABILITY AND IT WAS SHOWN IN THE BAL ANCE SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXT ENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY M ENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR UNDER SECTION 80 P(2)(A)(III) OF THE ACT. THEREFORE IN THE FACTS OF THE SAID CASE, THE A PEX COURT HELD THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHER THEY MAD E IT CLEAR THAT THEY ARE CONFINING THE SAID JUDGMENT TO THE FACTS O F THAT CASE. THEREFORE IT IS CLEAR, SUPREME COURT WAS NOT LAYING DOWN ANY LAW. 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVES TED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBERS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR A CCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MO NEY TO THE MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HA D DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. THE SAID IN TEREST INCOME IS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT. IN FACT SIMILAR VIEW IS TAKEN BY THE ANDHRA PRADESH HIGH CO URT IN THE CASE OF COMMISSIONER OF INCOME-TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., REPORTED IN (2011) 200 TAXMAN 220/12 IN THAT VIEW O F THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYI NG THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIA L QUESTION OF LAW ITA.015/BANG/2015 PAGE - 7 IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER. APPEAL IS ALLOWED.' 08. HONBLE JURISDICTIONAL HIGH COURT HAD CONSIDERE D THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF THE TOTGARS COOPERATIVE S ALE SOCIETY LTD, (SUPRA) AND THEREAFTER HELD THAT INTEREST EARNED ON SHORT-TERM DEPOSITS AND SB ACCOUNT BALANCES WHICH WERE FROM SURPLUS FUNDS, COULD BE ATTRIBUTAB LE TO CARRYING ON THE BUSINESS OF BANKING. HOWEVER IN THE CASE BEFORE US, THERE IS N OTHING ON RECORD TO SHOW WHETHER THE DEPOSITS PLACED BY THE ASSESSEE WERE FOR SHORT- TERM OR LONG TERM. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ISSUE RE QUIRES A FRESH LOOK BY THE AO, SO AS TO CORRECTLY CONSIDER THE ALLOWABILITY OF THE CL AIM, AFTER ASSIMILATING THE FACTS CORRECTLY. WE THEREFORE SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND REMIT IT BACK TO LD. AO FOR CONSIDERATION AFRESH IN ACCORDAN CE WITH LAW. 09. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH DAY OF A UGUST, 2015. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTA NT MEMBER MCN* ITA.015/BANG/2015 PAGE - 8 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR