Income Tax Officer Ward-7(2)(4), Bangalore V. M/s Kammavari Credit Co-operative Society Ltd , Bangalore

ITA 1156/BANG/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9916 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 23-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Assessee Lawyers: G S NAGHARISH
• Keywords: Business income; Opportunity of being heard; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, VICE PRE SIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1156/BANG/2017 ASSESSMENT YEAR : 2013-14 THE INCOME-TAX OFFICER, WARD-7(2)(4), BENGALURU. PAN AAAAK 2070 H. VS. M/S KAMMAVARI CREDIT CO- OPERATIVE SOCIETY LTD., NO 1, 22 ND MAIN, JAYANAGAR, HSBC, LAYOUT, PADMANABHANAGAR, PAN AAAAK 2070 H. APPLICANT RESPONDENT APPLICANT BY : SMT. SRINANDINI DAS, ADDL. CIT RESPONDENT BY : SHRI G.S NAGHARISH, ADVOCATE DATE OF HEARING : 26.11.2018 DATE OF PRONOUNCEMENT : 07.12.2018 O R D E R PER SHRI N.V VASUDEVAN, VICE PRESIDENT : THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 21.2.2017 OF CIT(A)-7, BENGALURU, RELATING TO AY 20 13-14. ITA NO.1156/B/17 2 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE REVENUE IS AS TO WHETHER THE REVENUE AUTHORITIES WE RE JUSTIFIED IN ALLOWING THE BENEFIT OF DEDUCTION U/S/80P(2)((A)(I) OF THE INCOME TAX ACT, 1961 (ACT) TO THE ASSESSEE ON INTEREST INCOME OF RS.1,44,84,605 WHICH INTEREST INCOME WAS RECEIVED BY THE ASSESSEE ON INVESTMENT OF THEIR SURPLUS FUNDS. THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT INTEREST INCOME EARNED BY MAKING INVESTMENT OF SURPLUS FUNDS HAS TO BE ASSESSED UNDE R THE HEAD INCOME FROM OTHER SOURCES AND NOT INCOME FROM BUS INESS AND SINCE INTEREST INCOME IS NOT ASSESSED AS BUSINESS INCOME, THE CLAIM FOR DEDUCTION CANNOT BE ALLOWED. IN COMING TO THE ABOV E CONCLUSION, THE AO RELIED ON THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF THE TOGARS CO-OPERATIVE SALES SOCIETY LTD. VS. ITO 322 ITR 283(SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT IS ONLY ON IN COME WHICH IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. IN TEREST EARNED ON INVESTMENT OF SURPLUS FUNDS NOT IMMEDIATELY REQUIRE D IN SHORT TERM DEPOSITS AND SECURITIES BY A CO-OPERATIVE SOCIETY P ROVIDING CREDIT FACILITIES TO MEMBERS OR MARKETING AGRICULTURAL PRO DUCE TO MEMBERS IS NOT BUSINESS INCOME BUT INCOME FROM OTHER SOURCES A ND THE SOCIETY IS NOT ENTITLED TO SPECIAL DEDUCTION. ON APPEAL BY TH E ASSESSEE, THE CIT(A) ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSE E BY FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD V S. ITO 230 TAXMAN 309 (KARN) WHEREIN THE HONBLE KARNATAKA HIG H COURT ITA NO.1156/B/17 3 CONSIDERED THE DECISION OF THE HONBLE APEX COURT I N THE CASE OF THE TOTGARS CO-OPERATIVE SALES SOCIETY (SUPRA) AND HEL D THAT INTEREST INCOME IN RESPECT OF TEMPORARY PARKIONG OF OWN SURP LUS FUNDS NOT IMMEDIATELY REQUIRED IS ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. 3. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL READS THUS: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO L AW AND FACTS OF THE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) WAS JUSTIFIED IN LAW IN ALLOWING DEDUCTI ON U/S.80P(2)(A)(I) OF THE ACT TO THE CO-OPERATIVE SOC IETY CARRYING ON THE BUSINESS OF BAKING, INSPITE OF THE FACT THAT CLAUSE NO.(4) OF SECTION 80P INSERTED WITH EFF ECT FROM 01. 04.2007 CLEARLY BARS THE CO-OPERATIVE SOCI ETY FROM THE ABOVE DEDUCTION, OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) WAS JUSTIFIED IN LAW IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80P (2) IN RESPECT OF INTEREST EARNED FROM INVESTMENTS BY NOT TAKING INTO CONSIDERATION THE JUDGEMENT OF THE HON' BLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S. THE TOTAGAR CO-OPERATIVE SALE SOCIETY LTD (2010) 188 TAXMANN 282 '? 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. ITA NO.1156/B/17 4 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. AS FAR AS GROUND NO.2 IS CONCERNED, IT IS NOT TH E CASE OF THE AO THAT THE DEDUCTION U/S.80P(2)(A)(I) OF THE ACT HAS TO BE DENIED TO THE ASSESSEE BECAUSE OF THE PROVISIONS OF SEC.80P(4) OF THE ACT WHICH LAYS DOWN THAT DEDUCTION U/S.80P(2) OF THE ACT WILL NOT BE AVAILABLE TO A CO-OPERATIVE BANK. THEREFORE THE GROUND OF APPEA L DOES NOT ARISE OUT OF THE ORDERS OF THE REVENUE AUTHORITIES AND HE NCE DISMISSED. 5. AS FAR AS GR.NO.3 IS CONCERNED, THE LEARNED AR R ELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. (SUPRA) , THE DR RELIED ON A SUBSEQUENT DECISION OF THE HONBLE KARNATAKA H IGH COURT IN THE CASE OF PCIT VS. TOTGARS CO-OPERATIVE SALE SOCIETY LTD. 395 ITR 611 (KARN.). WE HAVE CAREFULLY GONE THROUGH THE SAID J UDGMENT. THE FACTS OF THE CASE BEFORE THE HONBLE KARNATAKA HIGH COURT WAS THAT THE HONBLE COURT WAS CONSIDERING A CASE RELATING T O ASSESSMENT YEARS 2007-2008 TO 2011- 2012. IN CASE DECIDED BY T HE HONBLE SUPREME COURT IN THE CASE OF THE VERY SAME ASSESSEE , THE ASSESSMENT YEARS INVOLVED WAS AY 1991-92 TO 1999-2000. THE NA TURE OF INTEREST INCOME FOR ALL THE AYS WAS IDENTICAL. THE BONE OF CONTENTION OF THE ASSESSEE IN AY 2007-08 TO 2011-12 WAS THAT THE DEDU CTION UNDER SECTION 80P(2) OF THE ACT IS CLAIMED BY THE RESPOND ENT ASSESSEE UNDER SECTION 80P(2)(D) OF THE ACT AND NOT UNDER SECTION 80P(2)(A) OF THE ACT WHICH WAS THE CLAIM IN AY 1991-92 TO 1999-2000. THE REASON ITA NO.1156/B/17 5 GIVEN BY THE ASSESSEE WAS THAT IN AY 2007-08 TO 201 1-12 INVESTMENTS AND DEPOSITS AFTER THE SUPREME COURT'S DECISION AGAINST THE ASSESSEE TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD . (SUPRA), WERE SHIFTED FROM SCHEDULE BANKS TO CO-OPERATIVE BANK. U/S.80P(2)(D) OF THE ACT, INCOME BY WAY OF INTEREST OR DIVIDENDS DER IVED BY A CO- OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTH ER CO-OPERATIVE SOCIETY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SU CH INTEREST OR DIVIDEND INCOME. THE CLAIM OF THE ASSESSEE WAS THA T CO-OPERATIVE BANK IS ESSENTIALLY A CO-OPERATIVE SOCIETY AND THER EFORE DEDUCTION HAS TO BE ALLOWED UNDER CLAUSE (D) OF SEC.80P(2) OF THE ACT. THE HONBLE KARNATAKA HIGH COURT FOLLOWED THE DECISION OF THE S UPREME COURT IN THE TOTGARS CO-OPERATIVE SALES SOCIETY LTD. (SUPRA) AND HELD THAT INTEREST EARNED FROM SCHEDULE BANK OR CO-OPERATIVE BANK IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREF ORE THE PROVISIONS OF SEC.80P(2)(D)OF THE ACT WAS NOT APPLICABLE TO SU CH INTEREST INCOME. IT IS THUS CLEAR THAT THE SOURCE OF FUNDS OUT OF WH ICH INVESTMENTS WERE MADE REMAINED THE SAME IN AY 2007-08 TO 2011-12 AND IN AY 1991- 92 TO 1999-2000 DECIDED BY THE HONBLE SUPREME COUR T. THEREFORE WHETHER THE SOURCE OF FUNDS WERE ASSESSEES OWN FUN DS OR OUT OF LIABILITY WAS NOT SUBJECT MATTER OF THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE DECISION CITED BY THE L EARNED DR. TO THIS EXTENT THE DECISION OF THE HONBLE KARNATAKA HIGH C OURT IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CO-OPERATIVE LTD. (SUPRA ) STILL HOLDS GOOD. HENCE, ON THIS ASPECT, THE ISSUE SHOULD BE R ESTORED BACK TO THE AO FOR A FRESH DECISION AFTER EXAMING THE FACTS IN THE LIGHT OF THESE ITA NO.1156/B/17 6 JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LTD. (SUPRA) AND OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMUKU R MERCHNTS SOUHARDA CO-OPERATIVE LTD. (SUPRA). 6. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND FILING APPROPRIATE EVIDENCE, IF DESIRED, BY THE ASSESSEE TO SUBSTANTIATE ITS CASE, BEFORE DECIDING THE ISSUE. 7. IN THE RESULT, APPEAL BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DECEMBER, 2018 . SD/- SD/- (JASON P BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 7/12/2018 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGI STRAR, ITAT, BANGALORE ITA NO.1156/B/17 7 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S ... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT.. 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..