Mutholy Service Co-operative Bank Ltd, Kottayam V. The ITO, Kottayam

ITA 11/COCH/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7259 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 15-01-2014
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: JOSE KUTTY JACOB
• Keywords: Business income
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : COCHIN BENCH : KOCHI. [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMB ER AND SHRI GEORGE GEORGE. K., JUDICIAL MEMBER] ./I.T.A. NO. 11/COCH/2014. / ASSESSMENT YEAR : 2010-2011. M/S. MUTHOLY SERVICE CO - OPERATIVE BANK LTD, PULIYANNOR P.O. KOTTAYAM DIST. 686 573 [ PAN AAAJM 0328H ] VS. THE INCOME TAX OFFICER, WARD 4 KOTTAYAM. ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI. JOSE KUTTY JACOB , C.A. /RESPONDENT BY : SHRI. A. DHANARAJ, SR. D. R /DATE OF HEARING : 20 - 03 - 201 7 /DATE OF PRONOUNCEMENT : 23 - 03 - 201 7 !' !' !' !' / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS IS AN APPEAL REMITTED BACK TO THIS TRIBUNAL BY HONBLE JURISDICTIONAL HIGH COURT. ORIGINALLY ASSESSEE HAD CLAIMED DEDUCTION U/S.80P (2) (A) (I) OF THE ACT ON INTEREST INCOME R ECEIVED BY IT. THIS WAS NOT ALLOWED FOR A REASON THAT SUCH INTEREST PAR TOOK THE NATURE OF INCOME FROM OTHER SOURCES AND WAS NOT BUSINESS INCOME. WHEN THE ISSUE REACHED THIS TRIBUNAL, THIS TRIBUNAL RELYIN G ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF TOTGARS CO-OPERATIVE SOCIETY LTD ITA NO. 11/COCH/2014 :- 2 -: VS. ITO 322 ITR 283 HELD THAT INTEREST ON FIXED DEPOSITS HELD WITH SUB-TREASURY, MEENACHILI, KADAPPATTOOR AND SBI PALA AGGREGATING TO RS.20,21,909/- WERE OUT SURPLUS FUNDS OF THE ASSE SSEE AND COULD NOT BE TREATED AS BUSINESS INCOME ENTITLED FOR DED UCTION U/S. 80P(2)(A) (I) OF THE ACT. ASSESSEE THEREUPON MOVED THE HONBLE JURISDICTIONAL HIGH COURT. THEIR LORDSHIP IN JUDGM ENT IN ITA NO.72 OF 2016 DATED 18 TH OCTOBER, 2016 HELD AS UNDER:- 2. LEARNED COUNSEL FOR THE APPELLANTS SUBMITS THA T THE ISSUE RELATABLE TO THE APPLICABILITY OF SECTION 80P OF THE INCOME TAX ACT, 1961 TO THE APPELLANTS IS COVERED B Y THE DECISION OF THIS COURT IN CHIRAKKAL SERVICE CO-OPER ATIVE BANK LIMITED V. COMMISSIONER OF INCOME TAX [2016(2) KLT 535]. HE FURTHER POINTS OUT THAT CIRCULAR NO.18 /2015 DATED 02.11.2015 IS SUFFICIENT ENOUGH TO ANSWER THE ISSUES RAISED IN RELATION TO 'INCOME FROM OTHER SOU RCES' AND 'PROFITS AND GAINS OF BUSINESS' AS COVERED BY QUESTIONS OF LAW B AND C. HAVING BESTOWED OUR ANXIOUS CONSIDERATION TO THE SUBMISSIONS OF THE LEA RNED COUNSEL FOR THE APPELLANTS VIS--VIS THE SUBMISSION S OF THE LEARNED SENIOR STANDING COUNSEL FOR THE DEPARTM ENT, WHO SAID THAT ALL THE ISSUES APPEAR TO BE INTRICATE LY CONNECTED INASMUCH AS THE QUESTIONS UNDER SECTION 8 0P CAN ALSO BE CONSIDERED ONLY IN THE LIGHT OF THE QUE STION WHETHER INTEREST DERIVED BY THE SOCIETY IS INCOME F ROM OTHER SOURCES, WE ARE OF THE VIEW THAT IT IS NECESS ARY THAT THE TRIBUNAL RE-CONSIDERS ALL THE ISSUES ARISING FO R DECISION IN THESE APPEALS, IN PARTICULAR, THE APPLI CABILITY OF CIRCULAR NO.18/2015 DATED 02.11.2015 AND THE QUESTI ON OF APPLICABILITY OF THE RATIO OF THE DECISION IN CH IRAKKAL SERVICE CO-OPERATIVE BANK LIMITED (SUPRA) AS TO THE EFFECT OF SECTION 80P OF THE INCOME TAX ACT ON THE APPELLANTS. TO ENABLE A COMPREHENSIVE CONSIDERATION BY THE INCOME TAX APPELLATE TRIBUNAL OF ALL THE ISSUES ARISING FOR DECISION IN THESE APPEALS, IN THE APPEA LS BEFORE THE TRIBUNAL, IN THE LIGHT OF WHAT WE HAVE S TATED ABOVE, THE IMPUGNED ORDERS OF THE TRIBUNAL ARE VACA TED AND THE CASES ARE REMITTED TO THE TRIBUNAL FOR RE- CONSIDERATION. PARTIES ARE DIRECTED TO MARK APPEARA NCE ITA NO. 11/COCH/2014 :- 3 -: BEFORE THE TRIBUNAL ON 15.11.2016. THESE INCOME TAX APPEALS ARE ORDERED ACCORDINGLY. 2. ACCORDINGLY, APPEAL WAS TAKEN UP TODAY. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BY VIRTUE OF CIRCULAR NO. 18/2015 DATED 02.11.2015, WHEN ASSESSEE WAS DOING A BUSINESS AKI N TO BANKING THEN INTEREST ON DEPOSITS RECEIVED COULD BE TREATE D ONLY AS PART OF BUSINESS INCOME. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT ASSESSEE FOR DEDUCTION U/S. 80P(2)(A) (I) OF THE A CT ASSESSEE CLAIMED ITSELF TO BE A PRIMARY AGRICULTURAL CREDIT SOCIETY WHEREAS FOR THE PURPOSE OF CLAIMING INTEREST INCOME AS PART OF BUSI NESS RECEIPTS, IT WAS PROJECTING ITSELF AS A BANKING COMPANY. FURTHE R, ACCORDING TO LD. DEPARTMENTAL REPRESENTATIVE, BY VIRTUE OF JUDGMENT OF HONBLE APEX COURT IN THE CASE OF TOTGARS CO-OPERATIVE SOCIETY LTD (SUPRA) INTEREST INCOME OF A NON BANKING COMPANY COULD BE CONSIDERED ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. HONBLE JURISDICTI ONAL HIGH COURT HAD REMITTED THE APPEAL BACK TO US WITH A CLEAR DIRECTI ON TO CONSIDER CIRCULAR NO.18/2015, DATED 02.11.2015 AND JUDGMENT OF THEIR LORDSHIP ITA NO. 11/COCH/2014 :- 4 -: IN THE CASE OF CHIRAKKAL SERVICE CO-OPERATIVE BANK LTD. VS. CIT 38 4 ITR 490. CIRCULAR NO.18/2015, DATED 02.11.2015 IS REPRODUCE D HEREUNDER:- SUBJECT : INTEREST FROM NON-SLR SECURITIES OF BANKSREG. IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT IN THE CASE OF BANKS, FIELD OFFICERS ARE TAKING A V IEW THAT, EXPENSES RELATABLE TO INVESTMENT IN NON-SLR SECURITIES NEED TO BE DISALLOWED UNDER SECTION 57(I ) OF THE ACT AS INTEREST ON NON-SLR SECURITIES IS INCOME FROM OTHER SOURCES. 2. CLAUSE (ID) OF SUB-SECTION (1) OF SECTION 56 OF THE ACT PROVIDES THAT INCOME BY WAY OF INTEREST ON SECURITIES SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, IF, THE INCOME IS NOT CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION . 3. THE MATTER HAS BEEN EXAMINED IN LIGHT OF THE JUDICIAL DECISIONS ON THIS ISSUE. IN THE CASE OF CI T V. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. [2007] 160 TAXMAN 48 (SC), THE APEX COURT HELD THAT THE INVESTMENTS MADE BY A BANKING CONCERN ARE PART OF THE BUSINESS OF BANKING. THEREFORE, THE INCOME ARISING FROM SUCH INVESTMENTS IS ATTRIBUTABLE TO TH E BUSINESS OF BANKING FALLING UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. 3.2 EVEN THOUGH THE ABOVEMENTIONED DECISION WAS IN THE CONTEXT OF CO-OPERATIVE SOCIETIES/BANKS CLAIMING DEDUCTION UNDER SECTION 80P(2)(A)(I) OF TH E ACT, THE PRINCIPLE IS EQUALLY APPLICABLE TO ALL BANKS/COMMERCIAL BANKS, TO WHICH BANKING REGULATION ACT, 1949 APPLIES. 4. IN THE LIGHT OF THE SUPREME COURTS DECISION IN THE MATTER, THE ISSUE IS WELL SETTLED. ACCORDINGLY, THE BOARD HAS DECIDED THAT NO APPEALS MAY HENCEFORTH BE FILED ON THIS GROUND BY THE OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILED, IF ANY, O N THIS GROUND BEFORE COURTS/TRIBUNALS MAY BE ITA NO. 11/COCH/2014 :- 5 -: WITHDRAWN/NOT PRESSED UPON. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. IT MAY BE TRUE THAT FOR APPLICATION OF SEC. 80P(2) (A)(I) OF THE ACT ASSESSEE WAS CONSIDERED AS A PRIMARY AGRICULTURAL CREDIT SOCIETY BASED ON CERTIFICATE ISSUED BY JOINT REGISTRAR, KOTTAYAM. IN OUR OPINION PARA 3.2 OF THE CIRCULAR REPRODUCED ABOVE HAS ACCEPTED T HE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD 289 ITR 6, AS CORRECT FOR COOPERATIVE SOCIETIES /BANKS CLAIMING DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. IN OTHER WORDS, THE BOARD HAS TAKEN A VIEW THAT INTEREST EAR NINGS OF A COOPERATIVE SOCIETY WHICH WAS HAVING AS ITS PRIMARY BUSINESS, PROVIDING CREDIT FACILITIES TO ITS MEMBERS WHO WERE AGRICULTURISTS, COULD BE CONSIDERED UNDER THE HEAD INCOME FROM BUSINESS A ND NOT FROM INCOME FROM OTHER SOURCES. SIMILAR VIEW WAS TAKEN BY THE CO-ORDINATE BENCH IN THE CASE OF THE KIZATHADIYOOR SERVICE COOPERATIVE BANK LTD VS. ITO (IN ITA NO.525/COCH/2014) DATED 20.07.2016 . IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT ASSESSEE HAS TO SUCCEED IN THIS APPEAL. INTEREST EARNED BY THE ASSESSEE FROM ITS DEPOSITS PLACED IN SUB-TREASURY AND BANKS ARE ELIGIBLE FOR DEDUCTIO N U/S. 80P(2)(A)(I) ITA NO. 11/COCH/2014 :- 6 -: OF THE ACT. ORDERED ACCORDINGLY. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-03-2017. SD/- ( GEORGE GEORGE. K) # # # # !$ !$ !$ !$ / JUDICIAL MEMBER SD/ - (ABRAHAM P. GEORGE) !$ !$ !$ !$ / ACCOUNTANT MEMBER COCHIN &! / DATED: 23RD MARCH, 2017 KV !' ' (' / COPY TO: !' ' (' / COPY TO: 1 . / APPELLANT 3. ) () / CIT(A) 5. ',- / DR 2. / RESPONDENT 4. ) / CIT 6. -. / / GF BY ORDER . (ASSISTANT REGISTRAR I.T.A.T., COCHIN.