The Udhna Udyognagar Sahakari Sangh Ltd., Surat V. The Income tax Officer, Ward-3(1), Surat

ITA 1215/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9786 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 07-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDIP GARG
• Keywords: Unexplained cash credit; Capital asset; Gift; Business income; Depreciation; Business expenditure
• Section: 68; 6; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI BHAVNESH SAINI,JM & SHRI A N PAHUJA,AM ITA NO.1215/AHD/2008 (ASSESSMENT YEAR:-2005-06) THE UDHNA UDYOGNAGAR SAHAKARI SANGH LTD., CENTRAL ROAD NO.10, POST BOX NO. 1224, UDYOGNAGAR, UDHNA, SURAT-394210 [PAN: AAAAT 2932 K] V/S INCOME-TAX OFFICER, WARD- 3(1), ROOM NO. 116,1 ST FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT [APPELLANT] [RESPONDENT] ITA NO.2021/AHD/2008 (ASSESSMENT YEAR:-2005-06) INCOME-TAX OFFICER, WARD- 2(1), SURAT V/S THE UDHNA UDYOGNAGAR SAHAKARI SANGH LTD., CENTRAL ROAD NO.10, POST BOX NO. 1224, UDYOGNAGAR, UDHNA, SURAT [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI SUNIL TALATI, AR REVENUE BY:- SHRI SANDIP GARG, DR O R D E R A N PAHUJA: THESE CROSS APPEALS AGAINST AN ORDER DATED 07-03- 2008 OF THE LD. CIT(APPEALS)-II, SURAT, RAISE THE F OLLOWING GROUNDS:- ITA NO.1215/AHD/2008[ASSESSEE] 1. THAT THE CIT(A) ERRED IN SUSTAINING THE AOS ACTION IN TREATING THE RENTAL INCOME OF RS.5,26,472/- AS INCOME FROM BUSIN ESS AND THEREBY NOT ALLOWING STATUTORY DEDUCTION U/S 24 OF RS.1,57,942/-. 2. THAT THE CIT(A) ERRED IN CONFIRMING THE AOS ACT ION OF NOT ALLOWING THE DEDUCTION U/S 80P(2)(D) ON CO-OPERATIVE BANK IN TEREST TO THE EXTENT OF RS.1,89,205/-. THE CIT(A) HAS ALREADY TREATED THE SAME AS INTERES T INCOME AS INCOME FROM OTHER SOURCES. ITA NO.1215&2021/AHD/08 2 3. THAT THE CIT(A) HAS ERRED IN NOT ALLOWING DEDUCT ION U/S 80P(2)(E) OF RS.16,319/- BEING WAREHOUSE RENT. 4. THAT THE AMOUNT OF RS.5,26,472/- BE TREATED AS I NCOME FROM HOUSE PROPERTY & STATUTORY DEDUCTION OF RS.1,57,924/- SHO ULD BE ALLOWED U/S 24. 5 THAT THE CO OPERATIVE BANK INTEREST OF RS.1,89,20 5/- SHOULD BE ALLOWED AS DEDUCTION U/S 80P(2)(D). 6 THAT THE WAREHOUSE RENT OF RS.16,319/- BE ALLOWED DEDUCTION U/S 80P(2)(E). 7 THAT APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, VARY AND / OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF APPEAL. ITA NO.2021/AHD/2008[ REVENUE] [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW , THE LD. CIT(A) HAS ERRED IN GIVING RELIEF IN TREATMENT AS SUM OF R S.13,32,660/- AS INCOME FROM BUSINESS AS AGAINST INCOME FROM OTHER S OURCES AS CLAIMED BY THE ASSESSEE. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. [3] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF AO BE RESTORED. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF THE ASSESSEE, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT TH E RETURN DECLARING NIL INCOME FILED ON 31-08-2005 BY THE ASSESSEE, ENGAGED IN DEVELOPMENT & MAINTENANCE OF INDUSTRIAL ESTATES, AF TER BEING PROCESSED ON 4.4.2006 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], WAS SELECTE D FOR SCRUTINY WITH THE SERVICE OF NOTICE U/S 143(2) OF THE ACT ON 05-0 7-2006.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER (AO IN SHORT) NOTICED FROM THE STATEMENT OF COMPUTATION OF INCOME ENCLOSED WITH THE RETURN THAT THE ASSESSEE HAD DISCLOSED REN TAL INCOME OF RS. 509,953/- FROM HOUSE PROPERTY ON LEASING OF THEIR P ROPERTY TO BHARAT SANCHAR NIGAM LTD. [BSNL] AND POST OFFICE BESIDES L EASE RENT OF RS. 200/- AND GODOWN RENT OF RS.16,319/-. TO A QUER Y BY THE AO AS ITA NO.1215&2021/AHD/08 3 TO WHY THE RENTAL INCOME BE NOT ASSESSED AS BUSINES S INCOME, THE ASSESSEE REPLIED VIDE LETTER DATED 17-08-2007 THAT EVEN THOUGH THE SOCIETY WAS ENGAGED IN THE BUSINESS OF DEVELOPING A ND MAINTAINING INDUSTRIAL ESTATES, LETTING OUT OF PROPERTY WAS NOT OF RECURRING NATURE. SINCE LETTING OUT WAS NOT INCIDENTAL AND SU BSERVIENT TO THEIR MAIN BUSINESS NOR THE SAID PROPERTY WAS HELD AS STO CK IN TRADE, THEREFORE, THE AMOUNT WAS CORRECTLY SHOWN AS INCOME UNDER THE HEAD HOUSE PROPERTY. INTER ALIA, THE ASSESSEE REL IED UPON THE DECISIONS IN THE CASE OF CIT VS. NATIONAL STORAGE L TD.,66 ITR 596(SC),MANOHAR SINGH VS. CIT,58 ITR 592(P&H),CIT V S. AP SMALL SCALE INDUSTRIAL DEVELOPMENT CORPORATION,175 ITR 35 2(AP),CIT VS. CHUGANDAS & CO. (1965) 55 ITR 17 (SC),KARANPURA DEV ELOPMENT CO. LTD. VS. CIT (1954) 44 ITR 362 (SC),RAMPUR INDU STRIES LTD. VS. CIT (1971) 82 ITR 23 (ALL),PAREKH TRADERS VS. CIT ( 1984) 150 ITR 310 (BOM),MAHARASHTRA FERTILIZERS & CHEMICALS VS. C IT (1984) 150 ITR 310 (BOM),CIT VS. NATIONAL STORAGE P. LTD. (196 3) 48 ITR 577 (BOM),CIT VS. SARABHAI P. LTD. (2003) 263 ITR 197,S HAMBHU INVESTMENTS P LTD. VS. CIT (2003) 263 ITR 143 AFFIR MING CALCUTTA H C IN 249 ITR 47, ANNAMALAI VS. CIT 12 ITR 254,ARUNA CHALAM VS. CIT 13 ITR 183,BENGAL JUTE VS. CIT 17 ITR 308,8 ORMSPSV FIRM VS. CIT 39 ITR 327,ANAIKAR VS. CIT 186 ITR 175, MAJUMDA R VS. CIT 15 ITR 484,EAST INDIA SYNDICATE VS. CEPT 19 ITR 571,RA MNIKLAL VS. CIT 36 ITR 464,CIT VS. PHABIOMAL 158 ITR 773,N L ME HTA VS. CIT 208 ITR 975,INDIAN OVERSEAS BANK VS. CIT 246 ITR 20 6 AND EAST INDIA HOUSING & LAND DEVELOPING TRUST LTD. VS. CIT 42 ITR 49 (SC).HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEES MAIN OBJ ECT WAS TO DEVELOP AND MAINTAIN THE ESTATES AND THUS, ALL THE PROPERT Y OWNED BY IT WAS IN THE FORM OF STOCK-IN-TRADE. IN THE INSTANT CASE, THE LETTING WAS ONLY INCIDENTAL AND SUBSERVIENT TO THE MAIN BUSINESS OF THE ASSESSEE AN D THEREFORE, RENTAL INCOME WAS NOT ASSESSABLE UNDER THE HEAD 'INCOME FROM HOUS E PROPERTY' BUT AS 'INCOME FORM BUSINESS AND PROFESSION'. THE AO ALSO OBSERVED THAT THE SOCIETY HAD SOLD SOME SHOPS HELD BY IT IN 'SHOPPING CENTRE NO.3' AND CLASSIFIED THE ITA NO.1215&2021/AHD/08 4 INCOME DERIVED FROM THE SAME AS 'INCOME FORM BUSINE SS AND PROFESSION'. MOREOVER, THE DOMINANT PURPOSE OF LETTING OUT OF AC COMMODATION PREMISES WAS TO CARRY ON ITS BUSINESS MORE EFFICIENTLY AND SMOOTHLY WHILE THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION ON THE SAID PROPERTY AS EVIDEN T FROM THE SCHEDULE OF ASSETS I.E. THE SCHEDULE DETAILING PROPERTIES ON WHICH THE 'SANGH' HAS CLAIMED THE DEPRECIATION BESIDES DEBITING REPAIR AND MAINTENANC E CHARGES TO ITS P&L ACCOUNT. MOREOVER, THE ASSESSEE DID NOT ESTABLISH T HAT THESE PROPERTIES WERE NOT HELD BY IT AS 'COMMERCIAL ASSET'. THE ASSESSEE HAD NOT GIVEN THE PROPERTIES IN QUESTION ON RENT / LEASE SOON ALTER THEIR CONSTRUCT ION AND HAD USED FOR THESE FOR ITS OWN BUSINESS. THUS, THESE COMMERCIAL ASSETS LET OUT TO OTHER PERSONS I.E. BSNL AND POST OFFICE FOR USE IN THEIR BUSINESS OR T RADE, WAS THE PROFIT OF BUSINESS IRRESPECTIVE OF THE MANNER IN WHICH ASSET WAS EXPL OITED BY THE OWNER OF THE BUSINESS. THE AO ALSO DREW SUPPORT FROM THE RETURN OF INCOME(S) FILED BY THE ASSESSEE FOR THE AY 2006-07 AND AY 2007-08 WHEREIN MORE AND MORE PROPERTIES WERE SHOWN TO BE LET OUT. IN THESE CIRCUMSTANCES, R ELYING UPON THE DECISION IN THE CASE OF MERCANTILE & MARINE SERVICE S VS. CIT (1998) 233 ITR 257, CIT VS. G.V. RATTHIAH & CO. (2002) 256 ITR 351 (AP), AND CIT VS. DELHI CLOTH & GENERAL MILLS CO. LTD. (1 966) 59 ITR 152 (PUNJ.), THE AO ASSESSED THE AMOUNT OF RS.5,26,472/ - AS INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION . 3. ON APPEAL, THE LEARNED CIT(A) UPHELD THE FINDING S OF THE AO IN THE FOLLOWING TERMS:- 6. IT HAS BEEN CLAIMED BY THE AR THAT THE SHOPPING CENTRE NO. 3 WHICH HAD BEEN SOLD AND THE SALE PROCEED SHOWN AS B USINESS INCOME WAS A COMMERCIAL ASSET WHEREAS THE LET OUT PROPERTIES R EPRESENTED INVESTMENTS OF THE ASSESSEE. THE BASIS ON WHICH THI S CLASSIFICATION WAS MADE BY THE ASSESSEE, HAS NOT BEEN FURNISHED. TO ME IT SEEMS PURELY ARBITRARY, IN THE MANNER IN WHICH THE ASSESSEE SEGR EGATED THE ASSETS TO SUIT ITS OWN CONVENIENCE. BY SHOWING THE SALE PROCE EDS AS BUSINESS RECEIPT THE ASSESSEE WAS ABLE TO CLAIM EXPENSES AGA INST SUCH INCOME. IN RESPECT OF THE LET OUT PROPERTIES ALSO THE ASSESSEE HAD CLAIMED MAINTENANCE AND OTHER EXPENSES WHICH HAD BEEN DEBIT ED TO THE P&L A/C. THE ASSESSEE IS ESSENTIALLY A BUSINESS AND COMMERCI AL ENTITY. ITS PURPOSE IS TO DEVELOP AND MAINTAIN THE INDUSTRIAL ESTATE AT UDHANA. APART FROM PROVIDING AMENITIES TO THE MEMBERS ALL THE OTHER AC TIVITIES OF ASSESSEE AS A CO-OP SOCIETY WAS AIMED AT GENERATING INCOME FROM OUT OF ITS VARIOUS ITA NO.1215&2021/AHD/08 5 ASSETS. ASSESSEE CO-OP. SOCIETY RUNS ESSENTIALLY ON THE CO-OPERATION OF ITS MEMBERS WHO CONTRIBUTE FUNDS ON A REGULAR BASIS AND OF PRE-DETERMINED AMOUNTS FOR THE COMMON PURPOSE OF LOOKING AFTER THE INTEREST OF ALL THE MEMBERS OF THE CO-OP. SOCIETY. HOWEVER, ONCE THE CO -OP SOCIETY GOES BEYOND ITS ACTIVITIES OF CO-OPERATION AMONGST MEMBE RS, SUCH ACTIVITIES BECOME BUSINESS VENTURES. THIS WAS CLEARLY ESTABLIS HED FROM THE DISCLOSURE OF THE SALE PROCEEDINGS OF THE SHOPPING COMPLEX AS BUSINESS INCOME. THE LETTING OUT OF SOME OF THE PROPERTIES W AS CLEARLY INCIDENTAL AND SUBSERVIENT TO THE MAIN BUSINESS ACTIVITY OF THE AS SESSEE. THE PURPOSE AND INTENT OF THE ASSESSEE WAS CLEAR. IT WAS TO ENS URE THE GENERATION OF A CONTINUOUS FLOW OF INCOME FROM SUCH ASSET. IF SOME OF THE ASSETS COULD BE TREATED AS COMMERCIAL OR BUSINESS ASSETS FROM WHICH BUSINESS INCOME IS GENERATED THEN THE OTHER ASSETS WOULD ALSO HAVE TO BE TREATED AS COMMERCIAL OR BUSINESS INCOME ESPECIALLY WHEN THERE WAS NO REASONABLE OR RATIONAL GROUND OR BASIS FOR CLASSIFYING THE ASS ETS AS COMMERCIAL AND NON-COMMERCIAL. 6.1 THE CASE-LAWS RELIED UPON BY THE AR MAINLY PERT AIN TO CASES WHERE CERTAIN INCOMES HAVE BEEN TREATED AS HOUSE PROPERTY INCOME. THE TREATMENT GIVEN BY THE HON. COURTS WERE OF THE BASI S OF SPECIFIC FACTS OF THE EACH CASE. THE AR HAS NOT SHOWN AS TO HOW THE R ATIO OF SUCH CASES WOULD BE APPLIED TO THE FACTS OF THE ASSESSEE'S CAS ES. THE COURTS HAVE REPEATEDLY HELD THAT TO ESTABLISH WHETHER OR NOT AN INCOME IN THE NATURE OF BUSINESS INCOME, THE INTENTION AND PURPOSE BEHIND T HE GENERATION OF SUCH INCOME WILL HAVE TO BE EXAMINED AND VERIFIED. IF TH E INCOME IS GENERATED ON A REGULAR AND RECURRENT BASIS IT WOULD HAVE TO B E TREATED AS BUSINESS INCOME. IN THE CASE OF THE ASSESSEE, ALL THE FIXED ASSETS IN THE INDUSTRIAL ESTATE, THE MEMBERS OF WHICH WERE ALL ENGAGED IN CO MMERCIAL AND BUSINESS ACTIVITIES, WERE ESSENTIALLY HELD AS BUSIN ESS ASSETS. THIS HAD BEEN CLEARLY ESTABLISHED FROM THE MANNER OF .DISCLO SURE OF THE SALE PROCEEDS OF THE SHOPPING COMPLEX. THE PROPERTIES IN QUESTION WHICH WERE LET OUT WERE ALSO BUSINESS ASSETS AND THE ONLY DIFF ERENCE WAS INSTEAD OF BEING SOLD THESE PROPERTIES WERE LET OUT TO BSNL AN D POST OFFICE FOR THE SOLE PURPOSE OF ENSURING THE GENERATION OF CONTINUO US AND RECURRING FLOW OF INCOME IN THE HANDS OF ASSESSEE. TO THIS EXTENT, THE FIXED ASSETS OF THE ASSESSEE WERE IN THE NATURE OF STOCK IN TRADE. AS E NSHRINED IN ITS BYE- LAWS, THE ASSESSEE WAS COMPETENT TO PURCHASE, TAKE ON LEASE OR AS GIFTS ETC. PLOTS OF LAND OR OTHER ASSETS IN THE VILLAGE U DHNA AND ITS VICINITY FOR THE PURPOSE OF THE OBJECTS OF THE CO-OP. SOCIETY. THIS MEANT THAT THIS STRENGTHENS THE VIEW THAT ALL THE FIXED ASSETS OF T HE ASSESSEE WERE STOCK IN TRADE OR TRADING ASSETS. THEREFORE ANY INCOME GENER ATED BY SUCH ASSETS WHETHER THROUGH SALE OR BY LETTING OUT, COULD NECES SARY HAD TO BE TREATED AS BUSINESS INCOME. THE AO'S ACTION IN TREATING THE RENTAL INCOME OF RS.5,26,472/- AS INCOME FROM BUSINESS IS THEREFORE SUSTAINED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LD. AR ON BEHAL F OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD . CIT(A), CONTENDED ITA NO.1215&2021/AHD/08 6 THAT THE INCOME FROM RENT WAS ENJOYED BY THE ASSESS EE AS OWNER OF THE PROPERTY, WHICH WAS SEPARATELY SHOWN IN THE BAL ANCE SHEET UNDER THE HEAD FIXED ASSETS. WHILE INVITING OUR A TTENTION TO THE BALANCE SHEET OF THE RELEVANT YEAR, THE LEARNED AR CONTENDED THAT THE ASSESSEE DID NOT CLAIM DEPRECIATION ON THE LET OUT PROPERTIES SINCE INCEPTION AND THE AO WAS SWAYED AWAY BY THE FACT OF SALE PROCEEDS OF SHOPPING CENTRE NO.3 SHOWN AS INCOME UN DER THE HEAD BUSINESS. SINCE THE ASSESSEE DID NOT CARRY OUT ANY SYSTEMATIC ACTIVITY IN THE FORM OF BUSINESS WHILE LETTING OUT THE PROPERTY TO BSNL / POST OFFICE, RELYING UPON THE DECISIONS IN THE CA SES OF SHAMBHU INVESTMENTS PVT. LTD. VS. CIT 263 ITR 143 (SC), CIT VS. SARABHAI PVT. LTD. 263 ITR 197 (GUJ), CIT VS. CHUGANDAS & CO . 55 ITR 17 (SC), KARANPURA DEVELOPMENT CO. LTD. VS. CIT 44 ITR 362 (SC), CIT VS. NATIONAL STORAGE P. LTD. 48 ITR 577 (BOM) AND C IT VS. NEW INDIA INSURANCE LTD. 201 ITR 208 (GUJ), THE LD. AR CONTE NDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE FINDINGS OF THE AO.ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS OF T HE LOWER AUTHORITIES. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDERS, THE LD. CIT(A) AND THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEP RECIATION ON THE BUILDINGS LET OUT TO BSNL / POST OFFICE AND HAD DEBITED EXPENDITURE ON REPAIRS AND MAINTENANCE OF THESE BU ILDINGS IN THEIR PROFIT AND LOSS ACCOUNT WHILE EARLIER PROPERTIES WE RE BEING USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. EVEN THE B ASIS OF CLASSIFICATION OF ASSETS AS COMMERCIAL OR NON-COMME RCIAL WAS NOT FURNISHED AND THE SALE PROCEEDS OF SHOPPING CENTRE NO.3 WERE SHOWN AS BUSINESS INCOME. IN THESE CIRCUMSTANCES, ESPECIA LLY WHEN THE ASSESSEE DID NOT ESTABLISH AS TO HOW DECISIONS RELI ED UPON BY THEM WERE APPLICABLE TO THE FACTS OF THE CASE ,BOTH THE AO AS WELL AS CIT(A) CONCLUDED THAT SINCE THE ASSESSEES MAIN OBJ ECT WAS TO DEVELOP AND MAINTAIN THE ESTATES AND ALL THE PROPERTIES OWNED BY IT WERE IN THE FORM OF STOCK- ITA NO.1215&2021/AHD/08 7 IN-TRADE, THE LETTING OUT OF THE PROPERTIES WAS I NCIDENTAL AND SUBSERVIENT TO THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE AND THEREFOR E, RENTAL INCOME WAS ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION. THOUGH THE LD. AR ON BEHALF OF THE ASSESSEE PLEADED BEFORE US THAT IN THE PRECEDING YEARS, THE RENTAL INCOME FROM THESE PROPE RTIES HAD BEEN ASSESSED AS INCOME UNDER THE HEAD INCOME FROM HOUS E PROPERTY, DESPITE SPECIFIC DIRECTIONS OF THE BENCH, THE LD. A R DID NOT SUBSTANTIATE THIS PLEA ON THE GROUND THAT COPIES OF RELEVANT ASSESSMENT ORDERS WERE NOT AVAILABLE. EVEN THE CO MPUTATION OF INCOME FOR THE AY 2004-05 AND 2005-06 ENCLOSED WITH THE RESPECTIVE RETURNS ,DO NOT SUFFICIENTLY IDENTIFY THE PROPERTY LET OUT NOR IT IS EVIDENT THAT RENTAL INCOME WAS BEING RETURNED OR A SSESSED AS INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN THE EARLIER YEARS. THE COPIES OF RELEVANT AGREEMENTS, LETTING OUT THE PROPERTIES, WERE ALSO NOT PLACED BEFORE US. THERE IS NO MATERI AL BEFORE US TO SUGGEST AS TO HOW THE PROPERTY WAS BEING USED SINCE INCEPTION AND SINCE WHEN RENTAL INCOME HAD BEEN EARNED OR WAS AS SESSED AS INCOME UNDER THE HOUSE PROPERTY OR BUSINESS OF P ROFESSION. THE LD. DR ALSO COULD NOT THROW ANY LIGHT ON THESE ASPE CTS. THE LD. AR ALSO DENIED THE FINDINGS OF THE AO & THE LD. CIT(A) THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THESE PROPERTIES. HOWEV ER, SINCE VARIOUS IMMOVABLE PROPERTIES ARE NOT SUFFICIENTLY I DENTIFIED IN THE BALALNCESHEET NOR COPIES OF RELEVANT ORDERS FOR THE PRECEDING YEARS HAVE BEEN PLACED BEFORE US, IT IS NOT EVIDENT AS TO WHETHER OR NOT ANY CLAIM OF DEPRECIATION WAS MADE OR ALLOWED. AS REGARDS FINDINGS OF THE LOWER AUTHORITIES IN RESPECT OF DEBIT OF EXP ENDITURE ON REPAIR OR MAINTENANCE OF THESE BUILDINGS IN THE PROFIT AND LOSS ACCOUNT, THE LD. AR DID NOT MAKE ANY SUBMISSIONS AT ALL. IN THES E CIRCUMSTANCES, ESPECIALLY WHEN FACTS IN RELATION TO THE AFORESAID PROPERTIES LET OUT TO BSNL/POST OFFICE FOR THE FIRST TIME IN THE YEAR UNDER CONSIDERATION, ARE NOT EVIDENT FROM RECORDS NOR T HE RESPECTIVE PARTIES COULD THROW MUCH LIGHT WHILE THESE PROPERT IES ARE NOT SUFFICIENTLY IDENTIFIABLE IN THE RETURN OF INCOME O R BALANCESHEET, WE ITA NO.1215&2021/AHD/08 8 ARE OF THE OPINION THAT MATTER REQUIRES RECONSIDER ATION BY THE LD. CIT(A) AFTER ASCERTAINING THE COMPLETE FACTS AND CI RCUMSTANCES. 5.1 AS ALREADY STATED SINCE FACTS AND CIRCUMST ANCES IN RESPECT OF ISSUE BEFORE US ARE NOT EVIDENT FROM THE IMPUGNED O RDERS, WE ARE NOT ADVERTING TO THE DECISIONS REFERRED TO IN THE I MPUGNED ORDERS OR RELIED UPON BY THE LD. AR .HOWEVER, WE MAY POINT O UT THAT HONBLE JURISDICTIONAL HIGH COURT WHILE REFERRING TO THE FOLLOWING TEST LAID DOWN IN THE CASE OF CIT V. ANAND RUBBER AND PLASTICS (P) LTD. [1989] 178 ITR 301 (P & H): ' 'THUS, IN EACH CASE, WHAT HAS TO BE SEEN IS WHETH ER THE ASSET IS BEING EXPLOITED COMMERCIALLY BY THE LETTING OUT OR WHETHER IT IS BE ING LET OUT FOR THE PURPOSE OF ENJOYING THE RENT. THE DISTINCTION BETWEEN THE TWO IS A NARROW ONE AND HAS TO DEPEND ON CERTAIN FACTS PECULIAR TO EACH CASE, CULLED OUT FOLLOWING PRINCIPLES ON THE BASIS OF O BSERVATIONS OF HONBLE APEX COURT AND HIGH COURTS IN THEIR VARIOUS DECISIONS, IN THE CASE OF CIT VS. NEW INDIA INSURANCE LTD.,201 IT R208(GUJ): (I) NO GENERAL PRINCIPLE COULD BE LAID DOWN WHICH I S APPLICABLE TO ALL CASES AND EACH CASE HAS TO BE DECIDED ON ITS OWN FACTS AND CI RCUMSTANCES. (II) WHETHER AN INCOME FALLS UNDER ONE HEAD OR ANOT HER HAS TO BE DECIDED ACCORDING TO THE COMMON NOTIONS OF A PRACTICAL AND REASONABLE MAN, FOR THE ACT DOES NOT PROVIDE ANY GUIDANCE IN THE MATTER. (III) IN EACH CASE, WHAT HAS TO BE SEEN IS WHETHER THE ASSET IS BEING EXPLOITED COMMERCIALLY BY THE LETTING OUT OR WHETHER IT IS BE ING LET OUT FOR THE PURPOSE OF ENJOYING THE RENT. THE DISTINCTION BETWEEN THE TWO IS A NARROW ONE AND HAS TO DEPEND ON CERTAIN FACTS PECULIAR TO EACH CASE. PURE AND SIMPLE, COMMERCIAL ASSETS LIKE MACHINERY, PLANT, TOOLS, INDUSTRIAL SHE DS OR GODOWNS HAVING HIGH BUSINESS POTENTIAL STAND ON A DIFFERENT FOOTING FRO M ASSETS LIKE LAND OR BUILDING. (IV) IF AN ASSESSEE DERIVED INCOME FROM A COMMERCIA L ASSET WHICH IS CAPABLE OF BEING USED AS A COMMERCIAL ASSET, THEN IT IS INCOME FROM HIS BUSINESS, WHETHER HE USES THAT COMMERCIAL ASSET HIMSELF OR LETS IT OU T TO SOMEBODY ELSE TO BE USED. THE ASSET WOULD NOT CEASE TO BE COMMERCIAL ASSET SI MPLY BECAUSE TEMPORARILY IT WAS PUT OUT OF USE OR IT WAS LET OUT TO ANOTHER PER SON FOR HIS USE. (V) SO LONG AS THE COMMERCIAL ASSET IS CAPABLE OF B EING EXPLOITED AS SUCH, ITS INCOME IS BUSINESS INCOME IRRESPECTIVE OF THE MANNE R IN WHICH THE ASSET IS EXPLOITED BY THE OWNER OF THE BUSINESS. HE IS ENTIT LED TO EXPLOIT IT TO HIS BEST ITA NO.1215&2021/AHD/08 9 ADVANTAGE AND HE MAY DO SO EITHER BY USING IT HIMSE LF PERSONALLY OR BY LETTING IT OUT TO SOMEBODY ELSE. (VI) IF THE COMMERCIAL ASSET IS NOT CAPABLE OF BEIN G USED AS SUCH OR AS A COMMERCIAL ASSET, THEN ITS BEING LET OUT TO OTHERS DOES NOT RESULT IN THE ACCRUAL OF BUSINESS INCOME. (VII) WHEN THE ASSESSEE HAS STOPPED DOING BUSINESS ALTOGETHER AND WHEN THE ASSET CEASES TO HAVE THE CHARACTER OF BUSINESS OR C OMMERCIAL ASSET, IT BECOMES A CAPITAL ASSET. QUA SUCH ASSET, THE ASSESSEE IS NO T CARRYING ON ANY BUSINESS. AS THE OWNER OF THE ASSET, HE MAY EXPLOIT SUCH ASSET B UT, IN SUCH CIRCUMSTANCES, INCOME WHICH HE RECEIVES IS NO LONGER BUSINESS INCO ME BUT INCOME FROM PROPERTY OWNED BY HIM AND HENCE, ' INCOME FROM HOUSE PROPERT Y. (VIII) WHEN THE ASSET IS IN THE NATURE OF LAND OR B UILDING CAPABLE OF BEING USED FOR ANY OTHER PURPOSE AND WHEN THE ASSESSEE CEASES TO U SE IT AS A COMMERCIAL ASSET EITHER HIMSELF OR EVEN THROUGH OTHERS, THE IN COME DERIVED BY HIM BY RENTING OUT THE SAME WOULD MORE APPROPRIATELY FALL UNDER TH E HEAD ' INCOME FROM HOUSE PROPERTY ' AS, LIKE ANY OTHER OWNER OF PROPERTY, HE GETS INCOME FROM THAT PROPERTY AS OWNER. IN SUCH CASES, IT IS NOT THE FACTUM OF HI S BUSINESS OR COMMERCIAL ACTIVITY WHICH BRINGS INCOME TO HIM BUT IT IS HIS I NVESTMENT IN PROPERTY OR HIS OWNERSHIP OF PROPERTY WHICH BRINGS INCOME TO HIM. I N SUCH CASES, LEASING OF PROPERTY ITSELF IS THE ACTIVITY. IT IS LEASED WITH A VIEW TO PRODUCE INCOME, A TRANSACTION QUITE APART FROM THE ORDINARY BUSINESS ACTIVITIES OF THE ASSESSEE. (IX) IN DECIDING WHETHER AN ASSESSEE DEALT WITH ITS PROPERTY AS OWNER OR AS A BUSINESSMAN OR AS A PRUDENT MAN OF COMMERCE, ONE MU ST SEE NOT THE FORM WHICH IT GAVE TO THE TRANSACTION BUT TO THE SUBSTAN CE OF THE MATTER. IT WILL BE ESSENTIAL TO FIND OUT THE USER OF THE PROPERTY AND THE CHARACTER IN WHICH THAT PROPERTY IS USED. OWNERSHIP OF PROPERTY AND LEASING IT OUT MAY BE DONE AS A PART OF BUSINESS OR IT MAY BE DONE AS A LANDOWNER. WHETH ER IT IS THE ONE OR THE OTHER MUST NECESSARILY DEPEND UPON THE OBJECT WITH WHICH THE ACT IS DONE. IF THE DOMINANT OBJECT OF LEASING OUT IS INCIDENTAL TO AND FOR THE PURPOSES OF THE ASSESSEE'S BUSINESS, THE INCOME WOULD BE BUSINESS I NCOME. WHAT HAS TO BE DISCOVERED IS WHETHER THE PROPERTY IS SUBSERVIENT T O THE MAIN BUSINESS OF THE ASSESSEE. ' 5.2 IN THE CASE OF SULTAN BROTHERS P. LTD. V. CIT REPORTED IN [1964] 51 ITR 353 (SC) THE APEX COURT WHILE CONSIDERING WHETHER INCOM E FROM LETTING OUT A BUILDING WAS A BUSINESS INCOME OR A PROPERTY INCOME, OBSERVE D AS FOLLOWS: 'WHETHER A PARTICULAR LETTING IS BUSINESS HAS TO BE DECIDED IN THE CIRCUMSTANCES OF EACH CASE. EACH CASE HAS TO BE LOOKED AT FROM A BUSINESSMAN'S POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER.' ITA NO.1215&2021/AHD/08 10 5.3 IN THE LIGHT OF AFORESAID DECISIONS, WE AR E OF THE OPINION THAT NO STRAITJACKET FORMULA CAN BE DEVISED TO DETERMINE CONCLUSIVELY AS TO UNDER WHICH HEAD RENTAL INCOME FROM EXPLOITATION OF IMMOVABLE PROPERTY SHO ULD FALL. IT DEPENDS UPON THE TERMS AND CONDITIONS STIPULATED IN THE RELEVANT AGR EEMENT. ALL THE RELEVANT FACTORS NEED TO BE NECESSARILY LOOKED INTO TO DECIDE THE CH ARACTER OF INCOME. IF THE FACTS SHOW THAT THE ASSESSEE IS DOING A COMPLEX COMMERCIA L ACTIVITY BY EXPLOITING THE IMMOVABLE PROPERTY, THEN THE INCOME WOULD FALL UNDE R THE HEAD 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION'. THE YIELD OF INCOME B Y EXPLOITING A COMMERCIAL ASSET IS THE PROFIT OF THE BUSINESS IRRESPECTIVE OF THE MANNER IN WHICH THAT ASSET IS EXPLOITED BY THE OWNER OF THE BUSINESS. HE IS ENTIT LED TO EXPLOIT IT TO HIS BEST ADVANTAGE AND HE MAY DO SO EITHER BY USING IT HIMSE LF PERSONALLY OR BY LETTING IT OUT TO SOMEBODY ELSE. IF ON THE OTHER HAND, THE ASS ESSEE HAS SIMPLY LET OUT THE PROPERTY AND IS EARNING THE RENTAL INCOME, IT WOULD FALL UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. 5.4 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN C OMPLETE FACTS AND CIRCUMSTANCES ARE NOT EVIDENT FROM THE IMPUGNED ORDERS IN THE INS TANT CASE NOR THE RESPECTIVE PARTIES COULD THROW ANY LIGHT , WE CONSIDER IT FAI R AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE ISSUES RAI SED IN GROUND NO.1 TO THE APPEAL TO HIS FILE FOR DECIDING THE MATTER AFRESH IN ACCOR DANCE WITH LAW AFTER ASCERTAINING COMPLETE FACTS AND IN THE LIGHT OF OUR AFORESAID OB SERVATIONS AND OF COURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES , KEEPING IN VIEW VARIOUS JUDICIAL PRONOUNCEMENTS ,INCLUDING THOSE REFERRED TO ABOVE. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED CIT(A) SHALL PAS S A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 1 IS DISPOSED OF. 6. GROUND NO.2 IN THE APPEAL OF THE ASSESSEE REL ATES TO DEDUCTION OF RS.1,89,205/- U/S 80P(2)(D) OF THE ACT . THE AO NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80P(2)(D) O F THE ACT ON THE INTEREST AND DIVIDEND INCOME TO THE EXTENT OF RS.12 ,08,058/-.THE ASSESSEE ALSO OBTAINED AN OVERDRAFT LIMIT AGAINST T HE FDRS KEPT WITH THE SURAT NATIONAL COOPERATIVE BANK. IN RESPONSE TO A SHOW CAUSE ITA NO.1215&2021/AHD/08 11 NOTICE AS TO WHY THE DEDUCTION U/S 80P(2)(D) BE NOT DISALLOWED ON THE INTEREST OF RS.4,65,859/- EARNED ON THE SAID F DRS, THE ASSESSEE EXPLAINED VIDE LETTER DATED 17-08-2007 THAT EARNING OF INTEREST AND TAKING OVERDRAFT ON THE STRENGTH OF THESE SECURITIE S WERE DIFFERENT ASPECTS. SINCE NO EXPENDITURE WAS INCURRED FOR EARN ING OF INTEREST ON FDRS, THE ENTIRE AMOUNT OF INTEREST WAS ELIGIBLE FOR DEDUCTION U/S 80P(2)(D) OF THE ACT, THE ASSESSEE SUBMITTED. HOWEV ER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE G ROUND THAT ONLY NET AMOUNT OF INTEREST WAS ELIGIBLE FOR DEDUCTION U /S 80P(2)(D) OF THE ACT AND NOT THE GROSS AMOUNT. SINCE THE ASSESSEE EA RNED THE INTEREST OF RS.12,07,805/- BY WAY OF INTEREST ON FD RS WHILE IT PAID INTEREST OF RS.1,89,205/- ON OVERDRAFT, THE AO REDU CED THE DEDUCTION U/S 80P(2)(D) TO RS.10,18,600/-, RELYING UPON THE D ECISIONS OF THE HONBLE GUJARAT HIGH COURT IN THE CASES OF GANDEVI TALUKA KHEDUT SAHAKARI MANDALI LTD. VS. CIT 207 ITR 175 AND CIT V S. SURAT DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD. 211 ITR 726. 7. ON APPEAL, THE LEARNED CIT(A) UPHELD THE FINDING S OF THE AO IN THE FOLLOWING TERMS:- 14. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . I AM IN AGREEMENT WITH THE ACTION TAKEN BY THE AO. THE SUM OF RS.1,89 ,205 WAS THE INTEREST PAID BY THE ASSESSEE ON THE OVERDRAFT. THIS MEANT T HAT THE AO HAD ALLOWED DEDUCTION U/S.80P(2)(D) ON THE SUM OF RS.10 ,18,600 WHOSE MAIN CONSTITUENT WAS THE INTEREST EARNED ON THE FD. THE AO HAD THEREFORE CLEARLY TAKEN A CONTRADICTORY POSITION. ON ONE HAND HE TREATED THE INTEREST ON FD AS BUSINESS INCOME WHILE ON THE OTHER HAND HE ALLOWED DEDUCTION U/S.80P(D)(D) ON THE SAME SUM. HOWEVER, SINCE WHILE DECIDING THE SECOND GROUND OF APPEAL IT HAS BEEN HELD THAT THE INTEREST INCOME FROM THE FDS WAS TO BE TREATED AS INCOME FROM OTHER SOURCES, THE DEDUCTION U/S.80P(2)(D) HAVE TO BE ALLOWED ON SUCH INCOME. TO THIS EXTENT, THE AO'S ACTION WILL HAVE TO BE SUSTAINED. ON THE OTHER HAND , SINCE THE SUM OF RS.1,89,205 HAD ALREADY BEEN ALLOWED AS A DEDUCTION AS BUSINESS EXPENDITURE, NO FURTHER DEDUCTION COULD BE ALLOWED U/S.80-P(2)(D) OF THE IT ACT. THE AO'S ACTION IS ONCE AGAIN SUSTAINED AND TH E ASSESSEE'S APPEAL ON THIS GROUND IS REJECTED. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LD. AR ON BEHAL F OF THE ASSESSEE ITA NO.1215&2021/AHD/08 12 CONTENDED THAT THE AO WAS NOT JUSTIFIED IN REDUCING THE AMOUNT ELIGIBLE FOR DEDUCTION U/S 80P(2)(D) OF THE ACT BY RS.1,89,205/- SINCE THE SAID AMOUNT WAS NOT INCURRED IN EARNING THE INT EREST ON FDRS. RELYING UPON THE DECISION IN THE CASE OF CIT VS. JA MNAGAR JILLA SAHAKARI KHARIDVECHAN SANGH LTD. 283 ITR 116 (GUJ), THE LEARNED AR REITERATED THAT OVERDRAFT HAD NO NEXUS WITH THE EARNING OF INTEREST ON FDRS FROM COOPERATIVE BANK. THE LEARNED AR ADDED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISIONS OF T HE ITAT IN THE CASE OF THE SURAT DISTRICT CO-OP. MILK PRODUCERS UN ION 12 TTJ (AHD) 166 AND PETLAD TALUKA PURCHASE & SALE UNION 42 ITD 442.ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS OF TH E LD. CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, THE ASSESSEE EARNED GROSS I NTEREST AND DIVIDENDS OF RS.12,07,805/- FROM OTHER CO-OP. SOCI ETIES ,INCLUDING INTEREST ON FDRS WITH THE CO-OP. BANKS, SHOWN AS IN COME UNDER THE HEAD OTHER SOURCES AND CLAIMED DEDUCTION U/S 80P( 2)(D) OF THE ACT THEREON. THE AO REDUCED THE INTEREST PAID ON OVERDR AFT FROM THE SAID AMOUNT ON THE GROUND THAT ONLY NET AMOUNT WAS ELIGI BLE FOR DEDUCTION U/S 80P(2)(D) OF THE ACT. THERE IS NOTHIN G TO SUGGEST IN THE IMPUGNED ORDER NOR ANY MATERIAL HAS BEEN PLACED BEF ORE US, SUGGESTING THAT THE INTEREST OF RS.1,89,205/- ON OV ERDRAFT WAS INCURRED FOR EARNING THE INTEREST ON FDRS WITH THE CO-OP. BANKS. IN THE ABSENCE OF ANY NEXUS OF THE SAID AMOUNT OF INTE REST ON OVERDRAFT WITH THE EARNING OF INTEREST ON FDRS, THE LEARNED C IT(A) WAS NOT JUSTIFIED IN UPHOLDING THE FINDINGS OF THE AO, REDU CING THE AMOUNT FROM THE GROSS AMOUNT OF INTEREST EARNED ON FDRS. T HERE IS NOTHING TO SUGGEST THAT THE AMOUNT OF RS.1,89,205/- HAS ANY NEXUS WITH THE INTEREST INCOME OF RS.12,07,805/-. THEREFORE, OBS ERVATIONS OF THE LD. CIT(A) THAT SINCE THE SAID AMOUNT OF RS.1,89,20 5/- HAS BEEN ALLOWED AS BUSINESS EXPENDITURE, THEREFORE NO FURTH ER DEDUCTION CAN BE ALLOWED, HAS NO RELEVANCE. THUS, GROUND NO.2 IN THE ASSESSEES APPEAL IS ALLOWED. ITA NO.1215&2021/AHD/08 13 10. GROUND NO.3 IN THE ASSESSEES APPEAL RELATES TO AMOUNT OF RS.16,319/- ON ACCOUNT OF INCOME FROM WAREHOUSING A CTIVITY. DESPITE THE SHOW CAUSE NOTICE, THE ASSESSEE DID NOT FURNISH ANY EVIDENCE THAT THE SAID AMOUNT OF RENT HAD BEEN RECEIVED FROM WAREHOUSING ACTIVITY NOR SUBMITTED ANY CONFIRMATION FROM THE OP POSITE PARTY. ACCORDINGLY, THE AO TREATED THE AMOUNT OF RS.16,319 /- AS UNEXPLAINED CREDIT AND ADDED U/S 68 OF THE ACT. 11. ON APPEAL, THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO ON THE GROUND THAT THERE WAS NO EVIDENCE THAT THE AMOU NT WAS DERIVED FROM WAREHOUSING ACTIVITY AND THEREFORE THE ASSESSE E WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(E) OF THE ACT. HO WEVER, THE SINCE THE AMOUNT WAS ALREADY INCLUDED IN THE RENTAL INCOM E OF RS.5,26,472/-, THE LEARNED CIT(A) DIRECTED THE AO T O DELETE THE DOUBLE ADDITION. 12. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LD. AR ON BEHA LF OF THE ASSESSEE MERELY ARGUED THAT THE ISSUE IS REQUIRED TO BE REST ORED TO THE FILE OF THE AO IN ORDER TO VERIFY AS TO WHETHER OR NOT THE AMOUNT IS ALREADY INCLUDED IN THE OTHER INCOME. ON THE OTHER HAND, TH E LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF RS.16,319/- U/S 80P(2)(E) OF THE ACT IN THE ABSENCE OF ANY EVIDENCE THAT THE AMOUNT HAD BEEN EARNED AS INCOME FROM WARE HOUSING ACTIVITY FALLING UNDER THE SAID PROVISION. EVEN BEF ORE THE LD. CIT(A) NO SUCH EVIDENCE WAS FILED. THEREFORE, THE LD. CIT( A) UPHELD THE FINDINGS OF THE AO. EVEN BEFORE, SITUATION IS NO BE TTER. THE LD. AR DID NOT PRODUCE ANY EVIDENCE BEFORE US THAT THE AMO UNT WAS RECEIVED AS INCOME FROM LETTING OF GODOWNS OR WARE HOUSES FOR STORAGE, PROCESSING OR FACILITATING THE MARKETING O F COMMODITIES. IN ITA NO.1215&2021/AHD/08 14 THESE CIRCUMSTANCES, WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A) THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S 80P(2)(E) OF THE ACT. HOWEVER, THE AO SHALL ENSURE THAT THE AMOUNT OF RS.16,319/- IS NOT DOUBLY TAXED. WITH THESE OBSERVATIONS, GROUND NO.3 IN THE ASSESSEES APPEAL IS DISMISSED. 14. ADVERTING NOW TO GROUND NO.1 IN THE APPEAL OF THE REVENUE RELATING TO AN AMOUNT OF RS. 13,32,660/- ASSESSED B Y THE AO AS INCOME UNDER THE HEAD BUSINESS OR PROFESSION, THE AO NOTICED THAT THE ASSESSEE REFLECTED INTEREST INCOME OF RS. 13,32,913/- UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AMOUNT CO MPRISED RS.253/- ON ACCOUNT OF INTEREST FROM SB ACCOUNT, RS .12,07,805/- ON ACCOUNT OF INTEREST ON FDRS WITH THE BANKS AND RS.1 ,24,855/- ON ACCOUNT OF OTHER INTEREST. IN RESPONSE TO THE SHOW CAUSE NOTICE, AS TO WHY THIS AMOUNT BE NOT ASSESSED AS INCOME FROM B USINESS OR PROFESSION, THE ASSESSEE VIDE LETTER DATED 17-08-20 07 REPLIED THAT EARNING OF INTEREST IS NOT BUSINESS OF THE ASSESSEE WHILE THE INTEREST PAID ON OVERDRAFT RAISED ON ASSETS WAS NOT AT ALL L INKED UP WITH THE SECURITIES FROM WHICH INTEREST WAS GENERATED. RELYI NG UPON THE DECISION IN THE CASE OF UNITED COMMERCIAL BANK LTD. VS. CIT 32 ITR 688, CIT VS. CHUGANDAS 51 ITR 17 / 21 (SC) AND CIT VS. NATIONAL BANK 202 ITR 559, THE ASSESSEE CONTENDED THAT SINCE FDRS WERE NOT HELD AS TRADING ASSETS, NOR THE LENDING & BORRO WING WAS THE BUSINESS OF THE ASSESSEE, INTEREST COULD NOT BE ASS ESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. HOWEVER , THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE G ROUND THAT IN TERMS OF POINT 5(F) OF BYE-LAWS OF THE SOCIETY, THE GENERAL FUNDS OF THE SOCIETY WHEN NOT UTILIZED IN THEIR BUSINESS, WE RE REQUIRED TO BE INVESTED OR DEPOSITED AS REQUIRED BY SECTION 71 OF GUJARAT COOPERATIVE SOCIETIES ACT, 1962. SINCE THE SOCIETY HAD KEPT FDRS IN TERMS OF PROVISIONS OF SECTION 71 OF GUJARAT COOPER ATIVE SOCIETIES ACT, 1962, AND THE ASSESSEE HAD OBTAINED OVERDRAFT FACILITIES AGAINST THE SAID FDRS AND UTILIZED THE SAME FOR RUNNING ITS DAY TO DAY ITA NO.1215&2021/AHD/08 15 ACTIVITIES, THE INTEREST INCOME HAS TO BE ASSESSED AS INCOME FROM BUSINESS OR PROFESSION. THE AO FURTHER OBSERVED THA T THE DOMINANT PURPOSE OF PARKING IDLE FUNDS IN THE FORM OF FDRS W AS TO CARRY ON ITS BUSINESS MORE EFFICIENTLY AND SMOOTHLY. ACCORDINGLY , THE AO BROUGHT THE ENTIRE AMOUNT OF RS.13,32,660/- TO TAX UNDER TH E HEAD INCOME FROM BUSINESS OR PROFESSION. 15. ON APPEAL, THE LEARNED CIT(A) CONCLUDED AS UNDE R:- 10. I DO NOT AGREE WITH THE VIEW TAKEN BY THE AO. AS MENTIONED BY THE AO HIMSELF, THE FDS WERE MADE WITH THE SURPLUS FUND S OF THE ASSESSEE SOCIETY. IN ACCORDANCE WITH ITS STATUTORY OBLIGATIO N U/S.71 OF THE GUJARAT CO-OP. SOCIETY ACT FROM 1962, THE INTEREST GENERATE D BY SUCH FIXED DEPOSITS OR EVEN THE SAME IN BANK ACCOUNT COULD NOT BE TREATED AS BUSINESS INCOME SINCE, THERE WAS NO INTENT OR PURPO SE OF GENERATING ANY INCOME FROM SUCH FIXED DEPOSITS. THE DEPOSITS WERE MADE SINCE THE ASSESSEE WAS OBLIGED TO DO SO. SIMPLY BECAUSE THE A SSESSEE OBTAINED A OVERDRAFT LOAN AGAINST SUCH SECURITY DEPOSIT AND UT ILIZED THE BORROWED MONEY TO MEET ITS REGULAR EXPENSES, THE INTEREST EA RNED FROM SUCH SECURITY COULD NOT BE TREATED AS BUSINESS INCOME BY ANY STRE TCH OF IMAGINATION. THE AO HAS UNNECESSARY GONE INTO THE DEFINITION OF SECURITY ETC. THE POINT RAISED BY HIM THAT THE ASSESSEE HAD BEEN UNABLE TO PROVE THAT SUCH CONTRIBUTION OF THE MEMBERS HAD BEEN HELD BY THE AS SESSEE AS SECURITY AGAINST ANY FUTURE EVENTUALITY WAS ALSO NOT RELEVAN T. THE AO THEREFORE IS DIRECTED TO TREAT THE INTEREST INCOME OF RS.13,32,6 60 AS INCOME FROM OTHER SOURCES. 16. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, THE FDRS WERE PURCHASED FRO M THE BANKS OUT OF SURPLUS FUNDS OF THE SOCIETY, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71 OF GUJARAT COOPERATIVE SOCIETIES ACT, 1962. SINCE THE MAIN OBJECT OF THE SOCIETY IS TO ESTABLISH, ORGANIZ E, DEVELOP, RUN AND / OR MAINTAIN INDUSTRIAL ESTATE OR ESTATES FOR FACT ORIES OF EVERY OR ANY DESCRIPTIONS FOR SMALL SCALE INDUSTRIES AND TO ORGA NIZE, DEVELOP, ESTABLISH, RUN AND / OR MAINTAIN GODOWNS, WARE-HOUS ES, STORE ITA NO.1215&2021/AHD/08 16 HOUSES, RESIDENTIAL PREMISES FOR FACTORY OWNERS AND /OR ITS OWN OR THEIR STAFF AT OR AROUND UDHNA, IN DISTRICT SURAT A ND NOT THE MONEY LENDING, WE ARE OF THE OPINION THAT THE INTEREST E ARNED ON SUCH FIXED DEPOSITS KEPT WITH THE BANKS COULD NOT BE ASSESSED AS INCOME FROM BUSINESS OR PROFESSION. MERELY BECAUSE THE ASSESSEE OBTAINED OVERDRAFT AGAINST SECURITY OF THE AFORESAID FDRS OR UTILIZED BORROWED FUNDS FOR MEETING ITS DAY TO DAY EXPENSES, DOES NOT MEAN THAT THE ASSESSEE HAD EARNED THE INTEREST ON FDRS, AS BUSIN ESS INCOME. IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. V. CIT [1997] 227 ITR 192, THE APEX COURT HELD THAT INTEREST EARNED BY THE ASSESSEE FRO M THE BANK DEPOSITS HAD TO BE ASSESSED UNDER THE HEAD 'OTHER SOURCES'. WHERE SURP LUS FUNDS ARE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON IT CAN ONLY BE CATEGORISED AS INCOME FROM OTHER SOURCES. THIS RECEIPT MERITS SEPARATE TREATM ENT UNDER SECTION 56 OF THE ACT WHICH IS OUTSIDE THE RING OF PROFITS AND GAINS FROM BUSINESS AND PROFESSION. [CIT VS. SHRIRAM HONDA POWER EQUIP.,289 ITR 475(DELHI )]. IN CIT VS. RAKESH RAKHEJA ,166 TAXMAN 50(DELHI), HONBLE HIGH COURT H ELD THAT THE INCOME EARNED BY THE ASSESSEE FROM FDRS IS REQUIRED TO BE ASSESSE D AS INCOME FROM OTHER SOURCES. IN CIT V. DR. V. P. GOPINATHAN [2001] 248 ITR 449 (SC) INTEREST ON FIXED DEPOSITS WAS HELD NOT TO QUALIFY FOR SETTING OFF AG AINST INTEREST ON LOANS BORROWED. IN THE LIGHT OF VIEW TAKEN IN THESE DECISIONS, ESPE CIALLY WHEN THE REVENUE HAVE NOT PLACED ANY MATERIAL BEFORE US THAT EARNING OF INTEREST WAS BUSINESS ACTIVITY OF THE ASSESSEE, NOR THE OBJECT O F THE ASSESSEE PLACED ON PAGES 21 TO 23 OF THE PAPER BOOK REVEAL S O, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LEARNED CIT(A). THEREFORE, GROUND NO.1 IN THE APPEAL OF THE REVENUE IS DISMIS SED. 18. GROUND NOS.4 TO 6 IN THE APPEAL OF THE ASSESSEE AND GROUND NOS.2 AND 3 IN THE APPEAL OF THE REVENUE BEING MER E PRAYER AND GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJU DICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN T ERMS OF RESIDUARY GROUND NO.7 IN THE APPEAL OF THE ASSESSEE, ALL THES E GROUNDS ARE DISMISSED. ITA NO.1215&2021/AHD/08 17 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHILE THAT OF THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 24 -09-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 24-09-2010 COPY OF THE ORDER FORWARDED TO: 1. THE UDHNA UDYOGNAGAR SAHAKARI SANGH LTD., CENTRA L ROAD NO.10, POST BOX NO. 1224, UDYOGNAGAR, UDHNA, SURAT 2. ITO, WARD-3(1), SURAT 3. CIT CONCERNED 4. CIT(A)-II, SURAT 5. DR, BENCH-D, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD