M/s The A.P. Mahesh Co-operatvie Urban Bank Ltd., Hyderabad V. ACIT, Circle -2(3), Hyderabad

ITA 1304/HYD/2014

• Counselvise Citation: 130422514 RSA 2014
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 07-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BANDY RAMAKRI SHNA
• Assessee Lawyers: B SATYANARAYANA MURTY
• Keywords: Diversion of income
• Section: 154

Judgement Text

ITA NO.1304 OF 2014 AP MAHESH COOP.URBAN BANK LTD H YD. PAGE 1 OF 6 THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1304/HYD/2014 (ASSESSMENT YEAR: 2009-10) THE A.P. MAHESH COOPERATIVE URBAN BANK LTD HYDERABAD PAN: AABAT 4652 K VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(3) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI B.SATYANARAYANA MURTY, DEPARTMENT BY: SHRI BANDY RAMAKRI SHNA, (DR) DATE OF HEARING: 29/12/2014 DATE OF PRONOUNCEMENT: 09 /01/2015 O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER OF THE CIT (A)-III HYDERABAD DATED 29.04.2014 FOR THE A.Y 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE BA NK MADE A CONTRIBUTION OF RS.9,93,176/- TO COOPERATIVE EDUCAT ION FUND MAINTAINED BY THE NATIONAL COOPERATIVE UNION OF IND IA, NEW DELHI DURING THE YEAR RELEVANT TO THE A.Y 2009-10 A ND CLAIMED IT AS A DEDUCTION IN ITS RETURN FOR THAT YEAR. THIS CL AIM WAS DISALLOWED BY THE AO ON THE GROUND THAT THIS IS NOT AN ALLOWABLE DEDUCTION U/S 37. THE ASSESSEE BANK FILED APPEAL BE FORE THE CIT (A) AND RAISED THE FOLLOWING GROUND: ITA NO.1304 OF 2014 AP MAHESH COOP.URBAN BANK LTD H YD. PAGE 2 OF 6 8. THE LD AO ERRED IN DISALLOWING THE CLAIM FOR DEDUCTION OF RS.9,93,176/- BEING CONTRIBUTION TO COOPERATIVE EDUCATION FUND NATIONAL COOPERATIVE UNION OF INDIA. 3. AS THIS MATTER WAS COVERED BY THE APPELLATE ORDE R OF THE CIT (A) RELATING TO A.Y 2010-11, COPY OF THE SAME WAS F ILED BEFORE THE CIT (A) AT THE TIME OF HEARING. THE A.R. AT THE TIM E OF HEARING OF THE APPEAL FOR THE A.Y 2009-10 DID NOT PRESS FOR TH E GROUND NOS. 6 AND 7 RELATING TO DONATIONS U/S 80G. THE CIT (A) DID NOT ADJUDICATE ON THE GROUND NO.8 RELATING TO CONTRIBUT ION TO COOPERATIVE EDUCATION FUND ON THE GROUND THAT IT WA S NOT PRESSED AT THE TIME OF HEARING. A PETITION U/S 154 WAS FILE D ON 6.5.2014 REQUESTING THE CIT (A) TO ADJUDICATE ON GROUND NO.8 AS THE CIT (A) DID NOT CONSIDER IT IN THE APPELLATE ORDER DATE D 29.4.2014. THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL RAISI NG THE FOLLOWING GROUNDS: 1. THE GROUNDS OF THE LOWER AUTHORITIES IN SO FAR AS IT IS AGAINST THE APPELLANT COMPANY ARE CONTRARY TO THE F ACTS OF THE CASE AND PROVISIONS OF LAW. 2. THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN DISA LLOWING THE CLAIM FOR DEDUCTION OF RS.9,93,176/- BEING THE CONTRIBUTION TO COOPERATIVE EDUCATION FUND NATION AL COOPERATIVE UNION OF INDIA. 3. THE LOWER AUTHORITIES SHOULD HAVE APPRECIATED TH AT THIS CONTRIBUTION IS A MANDATORY ONE AS PROVIDED IN MULTI STATE COOPERATIVE SOCIETIES ACT, 2002 WHICH GOVERNS THE APPELLATE BANK. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS SUBMITTED THAT THE ORDER OF THE LOWER ITA NO.1304 OF 2014 AP MAHESH COOP.URBAN BANK LTD H YD. PAGE 3 OF 6 AUTHORITIES BE SET ASIDE OR MODIFIED AS MAY BE DEEM ED FIT. 4. HOWEVER, IN THE APPEAL FILED BEFORE THE TRIBUNAL , NO SPECIFIC GROUND WAS RAISED ON THIS ISSUE RELATING TO THE OBS ERVATION MADE BY THE CIT (A). THEREFORE, THE ASSESSEE BANK HAS RA ISED THE FOLLOWING ADDITIONAL GROUND FOR ADJUDICATION BY THE ITAT. ADDITIONAL GROUND : THE HON'BLE CIT IS NOT JUSTIFIED IN NOT GIVING A F INDING ON THE CONTENTION OF THE APPELLANT BANK THAT THE CONTR IBUTION OF RS.9,93,176/- TO COOPERATIVE EDUCATION FUND IS A N ALLOWABLE DEDUCTION. THE HON'BLE CIT SHOULD HAVE APPRECIATED THAT THE APPELLANT BANK HAD ARGUED ON T HIS POINT AT THE TIME OF HEARING OF THE APPEAL AND FILE D A COPY OF THE APPELLATE ORDER FOR THE A.Y 2010-11 COV ERING THIS ISSUE. THE HON'BLE CIT (A) IS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT BANK DID NOT PRESS THIS GROUND 5. WE HAVE HEARD BOTH THE PARTIES. THE ISSUE IS COV ERED BY THE DECISION OF THE TRIBUNAL IN ITA NO.1580/HYD/2013 FO R A.Y 2010- 11 WHEREIN IT HAS BEEN HELD AS FOLLOWS: 33 BE THAT AS IT MAY, IN VIEW OF THE DIRECT DECISION O F THE SUPREME COURT IN ASSOCIATED POWER CO. LTD.S CASE (SUPRA) AND VELLORE INDIA CO. LTD.S CASE (SUPRA) M AKING OUT A DISTINCTION BETWEEN RESERVE FUND CREATED FOR THE BENEFIT OF CONSUMERS AND RESERVE FUND TO BE USED FO R THE ASSESSEES OWN INCOME TO MEET ANY CONTINGENCIES OCCURRING IN FUTURE CANNOT BE EXCLUDED FROM THE COMPUTATION OF TOTAL INCOME EITHER ON PRINCIPLE OF DIVERSION OF INCOME BY OVERRIDING TITLE OR ON THE P RINCIPLE OF INCOME NOT FORMING PART OF THE REAL INCOME OR AS THE PART OF DEDUCTIBLE EXPENSES UNDER S. 37; THE DECISI ON IN M.P. HIGH COURT CANNOT BE CONSIDERED AS AN AUTHORIT Y LAYING DOWN THE PROPOSITION IN RESPECT OF RESERVE F UND ITA NO.1304 OF 2014 AP MAHESH COOP.URBAN BANK LTD H YD. PAGE 4 OF 6 CREATED BY COOPERATIVE SOCIETIES FOR ITS OWN PURPOS ES AS THE LAW LAID DOWN CORRECTLY AND IS IMPLIEDLY OVERRU LED. 34. THE OTHER DECISIONS REFERRED TO AND RELIED ON B Y THE LEARNED COUNSEL FOR THE REVENUE IN PANDAVAPURA SAHAKARA SAKKARE KARKHANE LTD. (SUPRA), HIRANYAKESH I SAHAKARA SAKKARE KARKHANE (SUPRA) ALL FROM KARNATAK A HIGH COURT PROCEED ON THE PRINCIPLE LAID IN THE POO NA ELECTRIC SUPPLYS CASE, WITHOUT NOTICING THE AFORES AID DISTINCTION AS NOTICED BY THE APEX COURT IN ASSOCIA TED POWER SUPPLYS CASE AND VELLORE INDIA CO. LTD.S CA SE (SUPRA). FOR THE REASON STATED ABOVE WHILE CONSIDER ING DECISION OF M.P. HIGH COURT IN KESHKAL CO-OPERATIVE SOCIETIES CASE, WE EXPRESS OUR INABILITY TO AGREE WITH THE AFORESAID DECISION ALSO. 35. LASTLY, RELIANCE WAS PLACED ON A BENCH DECISION OF THIS COURT IN CIT VS. KOTPUTLI RURAL ELECTRIC CO-OP ERATIVE SOCIETY LTD. (2002) 175 CTR (RAJ) 282 : (2002) 255 ITR 563 (RAJ). FIRSTLY, IT WAS NOT A CASE RELATING TO R ESERVE FUND TO BE CREATED UNDER CO-OPERATIVE SOCIETY. HENC E, THE QUESTION OF EXAMINING THE RESERVE FUND IN THE LIGHT OF PROVISIONS OF THE CO-OPERATIVE SOCIETY WAS NOT BEFO RE THE COURT. SECONDLY, IT WAS A CASE OF CREATING A CONTIN GENCY 30 RESERVE FUND AT 1.5 PER CENT UNDER CL. VI OF SCH . VI TO THE ELECTRIC SUPPLY ACT. RELYING ON THE DECISION IN KESHKAL COOPERATIVE MARKETING SOCIETY LTD.S CASE (SUPRA) AND DECISION OF MADRAS HIGH COURT IN VELLOR E INDIA CO. LTD. (SUPRA) RESERVE FUND WAS HELD AS DEDUCTIBLE WHILE COMPUTING THE INCOME OF THE ASSESS EE- CO-OPERATIVE SOCIETY. WITH UTMOST RESPECT, WE NOTIC E THAT THE LEARNED COUNSEL APPEARING FOR THE PARTIES DID N OT BRING TO THE NOTICE OF THE COURT THAT DECISION OF T HE MADRAS HIGH COURT IN VELLORE INDIA CO. LTD.S CASE HAD SINCE BEEN REVERSED BY THE SUPREME COURT IN VELLORE INDIA CO. LTD. REFERRED TO ABOVE AND DIRECTLY GOVER NED THE CONTROVERSY BEFORE THE COURT. THE DECISION RESTS ON AN OVERRULED DECISION AND CONTRARY TO THE SUPREME COUR T DECISION ON THE SAME ISSUE. KESHKAL CO-OPERATIVE MARKETING SOCIETY LTD.S CASE (SUPRA), THE OTHER CA SE REFERRED WHICH HAD FOLLOWED THE POONA ELECTRIC SUPP LY CO. LTD.S CASE (SUPRA) WAS ALSO DEMONSTRABLY CONTR ARY TO THE PRINCIPLE ENUNCIATED BY THE SUPREME COURT IN TH E TWO ITA NO.1304 OF 2014 AP MAHESH COOP.URBAN BANK LTD H YD. PAGE 5 OF 6 CASES REFERRED TO ABOVE BY US. THE SUPREME COURT DR EW THE DISTINCTION OBVIOUS IN POONA ELECTRIC SUPPLY CA SE THAT THERE IS NO PARITY BETWEEN THE CONTINGENCY RESERVE FOR THE BENEFIT OF THE SOCIETY ITSELF AND THE CONSUMER BENE FIT RESERVE FUND, WHICH WAS INTENDED TO BE RETURNED TO THE CONSUMERS, THE LATTER NEVER BECOMES PART OF THE COMPANIES BUSINESS ASSETS. SINCE THE AFORESAID DECI SION OF THIS COURT IS FOUNDED ON A REVERSED JUDGMENT OF THE MADRAS HIGH COURT AND DECISION OF THE OTHER HIGH CO URT FOUNDED ON THE JUDGMENT OF THE SUPREME COURT WHICH HAS BEEN DISTINGUISHED ON THE VERY SAME PRINCIPLE WHICH HAS BEEN APPLIED BY THE POONA ELECTRIC SUPPLY CO. LTD. S CASE (SUPRA), THE JUDGMENT MUST BE DEEMED TO HAVE BEEN RENDERED PER INCURIAM AND NOT A BINDING PRECEDENT. 36. AS A RESULT OF AFORESAID DISCUSSION, WE ALLOW THIS APPEAL AND HOLD THAT THE AMOUNT OF RESERVE FUND (SI C NET PROFIT) TRANSFERRED TO THE NET PROFIT (SICRESERVE FUND) UNDER S. 62 OF THE CO-OPERATIVE SOCIETIES ACT, 1965 R/W R. 68 OF THE CO-OPERATIVE RULES, 1966 IS NOT ALLOWABLE AS DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE SO CIETY ON ANY OF THE GROUNDS RAISED BY THE ASSESSEE. THE JUDGMENT OF THE TRIBUNAL IS SET ASIDE AND THAT OF T HE AO IS RESTORED. 13.1. THUS, RESPECTFULLY FOLLOWING THE PRINCIPLES L AID DOWN BY THE ABOVE JUDGMENT, WE ARE OF THE OPINION T HAT THE AMOUNT CONTRIBUTED BY ASSESSEE TO THE NATIONAL COOPERATIVE UNION, NEW DELHI IS APPROPRIATION FROM THE NET PROFITS. THERE IS A RIGHT TO RECEIVE THE INCOME INDEPENDENT OF ACCRUAL AND RECEIPT OF INCOME BY TH E ASSESSEE BEFORE THIRD PARTY COULD LAY CLAIM TO ANY PART OF IT. SINCE INCOME REACHED ASSESSEE BEFORE IT REAC HED TO A THIRD PARTY, THERE IS NO DIVERSION. AS ALREADY ST ATED, THERE IS NO PAYMENT IN THE YEAR OF LOSSES. THEREFOR E, PAYMENT UNDER SECTION 63(1)(B) IS ONLY AN APPROPRIA TION OF PROFIT. MOREOVER, THIS AMOUNT PAID DURING THE YE AR IS ALSO NOT OUT OF THE PROFITS OF THIS YEAR BUT PROFIT S OF EARLIER YEAR. THEREFORE, ON THAT COUNT ALSO AMOUNT CANNOT BE ALLOWED AS DEDUCTION DURING THE YEAR. FOR THESE REASONS, WE UPHOLD THE ORDER OF THE AUTHORITIES AND REJECT ASSESSEES GROUNDS ON THE ISSUE. ITA NO.1304 OF 2014 AP MAHESH COOP.URBAN BANK LTD H YD. PAGE 6 OF 6 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMI SSED. 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION IN THE ASSESSEES OWN CASE, WE DISMISS THE GROUNDS OF APPEAL AND THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 7. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JANUARY, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 9 TH JANUARY, 2015. VNODAN/SPS COPY TO: 1. THE A.P. MAHESH COOPERATIVE URBAN BANK LTD, 5-3-989 SHERZA ESTATE, NIZAM SHAHI ROAD, OSMANGUNJ, HYDERAB AD 500095 2. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(3) 8 TH FLOOR, IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 500004 3. THE CIT(A) III HYDERABAD 4. THE CITHYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER