Vanam Mahila Sangam Limited, Hyderabad V. Income Tax Officer, Ward-2, Warangal

ITA 1284/Hyd/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9471 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 14-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Co-operative Credit Society
• Section: 142(1); 80P; 143(2); 2(19); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC BENCH : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 1284/HYD./2019 ASSESSMENT YEAR: 2016-17 VANAM MAHILA SANGAM LIMITED VS. ITO, WARD 2 HYDERABAD WARANGAL PAN: AAAAV5933C (APPELLANT) (RESPONDENT) FOR ASSESSEE : SRI E.S. RANGANATH, C.A. FOR REVENUE : SH. SUNIL KUMAR PANDEY, D.R. DATE OF HEARING : 08/12/2020 DATE OF PRONOUNCEMEN T : 06/01/2021 O R D E R THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF CIT( A)-3, HYDERABAD DATED 20.05.2019 RELATING TO A.Y. 2016-17. THIS APPEAL WAS TAKEN UP FOR HEARING THROUGH VIDEO CONFERENCE ON 08.12.2020 AND BOTH THE PARTIES WERE HEARD. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A CO-OPERATIVE CREDIT SOCIETY AND CARRIES ON ITS ACTIVITIES OF IN PROVIDI NG LOANS TO ITS MEMBERS AND EARNS INTEREST INCOME AND ALSO ACCEPTS THRIFT DEPOS ITS FROM ITS MEMBERS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y. 20 16-17 ON 13.03.2018 ADMITTING TOTAL INCOME AT NIL AFTER CLAIMING DEDU CTION U/S 80 P OF THE INCOME TAX ACT, 1961 (THE ACT). PURSUANT TO SELECTION OF THE RETURN OF INCOME FOR SCRUTINY UNDER CASS, NOTICES U/S 143(2) AND 142(1) WERE ISSUED TO ASSESSEE, IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THE IN FORMATION CALLED FOR BY THE ITA NO.1284/HYD./2019 A.Y. 2016-17 VANAM MAHILA SANGAM LIMITED, HYD. 2 AO. DURING ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS MADE DEPOSITS WITH KOTAK MAHINDRA BANK AND HAS EARN ED INTEREST INCOME THEREFROM. AO HELD THAT SUCH INTEREST INCOME CANNO T BE TREATED AS BUSINESS INCOME BUT HAS TO BE TREATED AS INCOME FROM OTHER SOURCES, AND, ACCORDINGLY, DEDUCTION U/S 80 P OF THE ACT IS NOT T O BE ALLOWED. A SHOW CAUSE NOTICE WAS ACCORDINGLY ISSUED TO ASSESSEE IN RESPON SE TO WHICH ASSESSEE VIDE LETTER DATED 10.12.2018, FILED THE FOLLOWING REPLY. 'WITH REGARD TO INTEREST OF RS. 11,48,429/- ON SAVI NGS BANK ACCOUNT, IT IS STATED THAT THE SOCIETY IS ALLOWED TO OPEN A SAV INGS BANK ACCOUNT WITH BANK TO TRANSACT ITS ACTIVITIES, WHICH IN LATE R YEARS RESTRICTED TO A CURRENT ACCOUNT WHICH DOES NOT CARRY INTEREST. THER EFORE, OPENING SAVINGS BANK ACCOUNT IS ESSENTIAL AND COMPULSION FO R THE SOCIETY TO TRANSACT ITS ACTIVITIES WHICH SOLELY OF THE NATURE OF FINANCIAL TRANSACTIONS AND PROVISIONS OF INCOME TAX ACT PROVI DES FOR BANKING OPERATION FOR ALL FINANCIAL TRANSACTION. EVEN IN CA SE OF INTEREST EARNED ON FIXED DEPOSITS DEDUCTION WAS ALLOWED UNDER SECTI ON 80P OF THE INCOME TAX ACT AS HELD IN NUMBER OF LEGAL DECISIONS . HENCE INTEREST OF RS.11,48,429/- IS ELIGIBLE FOR DEDUCTION UNDER SECT ION 80P(2)(A)(I) OF INCOME TAX ACT. THE SOCIETY IS A COOP SOCIETY AS STATED IN SECTION 2(19) OF INCOME TAX ACT AND HAVING REGISTRATION NO. AMC/WGL/DCO/2007/20 18 DATED 1/10/2007 ISSUED UNDER SECTION 5 OF THE AP MUTUALLY AIDED COOPERATION SOCIETIES ACT, 1995. THEREFORE, THE SOC IETY IS ELIGIBLE FOR DEDUCTION OF THE INCOME COVERED UNDER SECTION 80P(2 )(A)(I) OF INCOME TAX ACT. THE SOCIETY PROVIDED CREDIT FACILITY TO ITS MEMBERS BESIDES ENCOURAGING SAVINGS AMONG MEMBERS. THE SOCIETY HAS NOT BORROWED ANY AMOUNTS FROM ANY OUTSIDE AGENCY. ALL RECEIPTS AND DISBURSEM ENTS ARE LIMITED TO ITS MEMBERS. 2.1. AO OBSERVED THAT IN CASE OF M/S TOTGARS CO-OPERATIVE SALE SOCIETY LTD FOR THE AYS 1991-92 TO 1999-2000, THE HONBLE S UPREME COURT HAS HELD THE ISSUE AGAINST THE ASSESSEE. HE ALSO RELIED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S TUMKUR MERC HANTS CO-OPERATIVE AND CREDIT SOCIETY AND HELD THAT INTEREST EARNED ON DEPOSITS HELD WITH BANK ITA NO.1284/HYD./2019 A.Y. 2016-17 VANAM MAHILA SANGAM LIMITED, HYD. 3 OUT OF SURPLUS FUNDS OF SOCIETY IS TAXABLE UNDER TH E PROVISIONS OF S.56 OF THE ACT. ACCORDINGLY, AO BROUGHT THE SUM OF RS.11,48,43 7/- TO TAX. 2.2. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT(A), WHO CONFIRMED THE ORDER OF AO AND THE ASSESSEE IS IN SE COND APPEAL BEFORE THE TRIBUNAL. 3. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT DEPOSITED BY THE ASSESSEE INTO THE S.B. ACCOUNT AND THE INTE REST INCOME EARNED HAS BEEN OFFERED TO TAX BY ASSESSEE AS BUSINESS INCOME. HE PRAYED THAT SINCE IT HAS BEEN ACCEPTED AS BUSINESS INCOME, IT HAS TO BE ALLOWED AS DEDUCTION U/S 80 P OF THE ACT. 3.1. THE LD.DR, ON THE OTHER HAND, RELIED UPON T HE DECISION OF HONBLE SUPREME COURT AND SUBMITTED THAT SINCE INTEREST IS NOT EARNED FROM THE DEPOSITS MADE BY MEMBERS OR OUT OF ANY BUSINESS EX PEDIENCY, BUT IT IS INTEREST EARNED FROM FIXED DEPOSITS ON SURPLUS FUND S DEPOSITED WITH OTHER BANKS, THE SAME IS NOT TO BE TREATED AS BUSINESS IN COME AND HENCE NO DEDUCTION U/S 80P IS TO BE ALLOWED. 4. HAVING REGARD TO RIVAL CONTENTIONS AND MAT ERIAL PLACED ON RECORD AS WELL AS CASE LAWS RELIED UPON BY THE AO AND THE CIT (A), I FIND THAT THE ONLY ISSUE BEFORE THE TRIBUNAL IS WHETHER THE INTEREST I NCOME EARNED BY THE ASSESSEE FIRM FROM THE DEPOSITS IN THE SAVINGS BANK IS ELIGIBLE FOR DEDUCTION U/S 80P(2) OF THE I.T. ACT. THE AO AND THE CIT (A) HAVE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S TOT GARS CO-OPERATIVE SALE SOCIETY LTD TO DENY THE DEDUCTION. HOWEVER, I FIND THAT THE SAID DECISION IS DISTINGUISHABLE ON FACTS AND IS NOT APPLICABLE TO T HE FACTS OF THE CASE BEFORE THIS TRIBUNAL. IN THE CASE OF M/S TOTGARS CO-OPERA TIVE SALE SOCIETY LTD, THE INTEREST INCOME WAS EARNED ON SHORT TERM BANK DEPOS ITS AND SECURITIES WHICH WERE MADE OUT OF THE SURPLUS FUNDS OF THE MEMBERS R ETAINED BY THE SOCIETY AND WERE NOT IMMEDIATELY NECESSARY FOR THE BUSINESS OF THE ASSESSEE THEREIN. BUT IN THE CASE BEFORE THIS TRIBUNAL, THE ASSESSEE SOCIETY HAD TO MAKE THE ITA NO.1284/HYD./2019 A.Y. 2016-17 VANAM MAHILA SANGAM LIMITED, HYD. 4 DEPOSITS INTO THE SAVINGS BANK A/C HELD WITH KOTAK MAHINDRA BANK AS A BUSINESS REQUIREMENT. SINCE THE ASSESSEES FUNDS WE RE AVAILABLE IN THE SAVINGS BANK A/C, THE ASSESSEE HAS EARNED CERTAIN I NTEREST INCOME THEREON. THUS, IT CAN BE SEEN THAT THE INTEREST INCOME EARNE D IS NOT ON FIXED DEPOSITS, BUT IT IS ON THE FUNDS WHICH ARE AVAILABLE AND WHIC H ARE REQUIRED FOR THE BUSINESS PURPOSE OF THE ASSESSEE. THEREFORE, THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S TOTGARS CO-OPERAT IVE SALE SOCIETY LTD IS CLEARLY NOT APPLICABLE TO THE CASE BEFORE THE TRIBU NAL. FURTHER THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. AN DHRA PRADESH STATE COOP. BANK LTD IN ITA NO.86/03 AND OTHERS DATED 7.6.2011 HAS CLEARLY HELD THAT THE INTEREST INCOME EARNED ON DEPOSITS IN THE BANK IS ALSO IN THE NATURE OF BUSINESS INCOME WHICH IS ELIGIBLE AS DEDUCTION U/S 80P(2) OF THE I.T. ACT. 5. RESPECTFULLY FOLLOWING THE ABOVE, I HOLD THAT THE RELIANCE OF THE AO AND THE CIT (A) ON THE DECISION OF THE HONB LE SUPREME COURT IS MISPLACED AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTIO N U/S 80P(2) OF THE ACT ON THE INTEREST INCOME EARNED FROM THE SAVINGS BANK A/ C HELD WITH THE KOTAK MAHINDRA BANK. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 6 TH JANUARY, 2021 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER DATED 6 TH JANUARY, 2021. GMV/PVV COPY OF ORDER FORWARDED TO: 1. VANAM MAHILA SANGAM LIMITED, 1-7-641, IMMACULATE CONVENT SUBEDARI WARANGAL 506 001. 2. ITO, WARD 2, WARANGAL. 3. ACIT, WARANGAL RANGE, WARANGAL. 4. CIT(A)-3, HYDERABAD. 5. PR.CIT -3, HYDERABAD 6 D.R. ITAT HYDERABAD 7. GUARD FILE