Hyderabad Mutual Benefit Society, Hyderabad V. Income Tax Officer, Ward 5(3), Hyderabad

ITA 1511/Hyd/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2484 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 29-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KOMALI KRISHNA
• Assessee Lawyers: B SATYANARAYANA MURTY
• Keywords: Capital expenditure
• Section: 80HHC; 14A; 147; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH SMC-B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA NOS. 1511 & 1512/HYD/2017 ASSESSMENT YEAR: 2007-08 & 2011-12 HYDERABAD MUTUAL BENEFIT SOCIETY, HYDERABAD. PAN AAATH 2738 Q VS. INCOME-TAX OFFICER, WARD 5(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI B. SATYANARAYANA MURTY REVENUE BY : SMT. KOMALI KRISHNA DATE OF HEARING 08/02/2018 DATE OF PRONOUNCEMENT 28/02/2018 O R D E R THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDERS PASSED BY CIT(A) 4, HYDERABAD AND THEY PE RTAIN TO AYS 2007-08 AND 2011-12. THE ISSUE INVOLVED IN BOTH THE APPEALS BEING IDENTICAL, I PROCEEDED TO DISPOSE OF THESE APPEALS BY A COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. AS NOTICED FROM FORM NO. 36, IN RESPECT OF THE A PPEAL FOR AY 2007-08, FOLLOWING GROUNDS WERE URGED BEFORE THE TR IBUNAL. THE GROUNDS FOR AY 2011-12 ARE ALSO IDENTICAL. 1. THE ORDER OF THE HON'BLE COMMISSIONER OF INCOME TAX, IN SO FAR AS IT IS AGAINST THE APPELLANT-SOCIETY, IS CONT RARY TO THE FACTS OF THE CASE AND PROVISIONS OF LAW. 2. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JU STIFIED IN SUSTAINING THE DISALLOWANCE OF PROPORTIONATE EXPEND ITURE IN COMPUTING THE INCOME OF THE APPELLANT-SOCIETY. 2 ITA NO. 1511 & 1512 /HYD/2017 HYDERABAD MUTUAL BENEFIT SOCIETY,K HYD. 3. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HA VE APPRECIATED THAT COLLECTING FUNDS AND BANKING THEM HAS BEEN A CONTINUOUS AND DAILY PROCESS AND THAT ALL THE EMPLO YEES OF THE APPELLANT-SOCIETY ARE INVOLVED IN THIS PROCESS. THE REFORE, THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE ALLO WED THE DEDUCTION FROM BANK INTEREST AT A PROPORTIONATE FIG URE AS CALCULATED BY THE APPELLANT-SOCIETY. 4. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD ALTERNATIVELY HAVE GIVEN A DIRECTION TO THE ASSESSI NG OFFICER FOR COMPUTING THE INCOME APPLYING THE PROVISIONS OF SEC TION 14A READ WITH RULE-8D OF THE INCOME TAX RULES. 5. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JU STIFIED IN ENHANCING THE INCOME OF THE APPELLANT-SOCIETY WITHO UT COMPLYING WITH THE CONDITIONS THEREFOR. 6. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JU STIFIED IN HOLDING THAT THERE IS ESCAPEMENT OF INCOME IN THE A SSESSMENT MADE BY THE ASSESSING OFFICER. THE HON'BLE COMMISSI ONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THE ASSESSI NG OFFICER IN FACT REJECTED THE CLAIM OF THE APPELLANT-SOCIETY FOR ALLOWANCE OF PROPORTIONATE EXPENDITURE IN TAXING THE TAXABLE INTEREST. 3. WITH REGARD TO THE APPEAL FOR AY 2007-08, WHILE GIVING EFFECT TO THE ORDER OF THE ITAT, AO OBSERVED THAT INTEREST ON FDRS, SB ACCOUNT AND IT REFUND IS ASSESSABLE TO TAX UNDER THE HEAD OTHER SOURCES, BUT, REFUSED TO ALLOW DEDUCTION U/S 57(III) OF THE I.T. ACT. WITH REGARD TO PROPORTIONATE EXPENDITURE ATTRIBUTABLE TO NON-ME MBERS IT WAS NOT ACCEPTED ON THE GROUND THAT NO EXPENDITURE WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING T HE SAID INCOME AND EVEN OTHERWISE, THE ASSESSEE HAS RAISED THE ABOVE I SSUE FOR THE FIRST TIME. 3.1 IN RESPECT OF AY 2011-12, THE PROCEEDINGS WERE INITIATED U/S 147 OF THE ACT, WHEREIN ASSESSEE MADE A SIMILAR CLA IM. BASED ON THE EARLIER ORDER OF THE ITAT, AO TREATED THE INCOME UN DER THE HEAD OTHER SOURCES, BUT, THE CLAIM OF DEDUCTION OF RS. 37,35,000/- AS PROPORTIONATE EXPENDITURE WAS NOT ACCEPTED; ONLY A SUM OF RS. 3 ITA NO. 1511 & 1512 /HYD/2017 HYDERABAD MUTUAL BENEFIT SOCIETY,K HYD. 50,000/- WAS ALLOWED BY HOLDING THAT IT IS SUFFICIE NT TO MEET THE EXPENDITURE RELATABLE TO EARNING OF THE SAID INCOME . 4. LD. CIT(A) CONFIRMED THE ORDERS OF AO AND, THUS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH THE YEARS UNDER CONSIDERATION. 5. AT THE OUTSET, IT MAY BE NOTED THAT THE TRIBUNAL I ITA NOS. 692 & 693/HYD/2017 IN ASSESSEES OWN CASE FOR AYS 2006-07 AND 2008-09) PASSED AN ORDER ON 29/12/2017 ON THE SAME ISSUE WHE REIN 10% OF THE INTEREST INCOME WAS TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME BY AD OPTING A DIFFERENT FORMULA. FOR THE SAKE OF CLARITY, PARAS 5 TO 5.2 O F THE SAID ORDER ARE EXTRACTED BELOW: 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND EXAM INED THE FACTS AS PLACED ON RECORD. ASSESSEE IS A MUTUAL BEN EFIT SOCIETY AND ITS INCOME WAS CLAIMED AS 'EXEMPT'. HOWEVER, CE RTAIN SURPLUS FUNDS WERE DEPOSITED IN THE BANKS AND INTER EST WAS EARNED ON THOSE AMOUNTS WHICH IS THE MAJOR PART OF INCOME, BEING TAXED. FOR AY. 2006-07, THE FD WITH BANK WAS TO THE TUNE OF RS. 4.10 CRORES, AS ON 31-03-2005, WHICH WAS RED UCED TO RS. 2.60 CRORES AS ON 31-03-2006. THE FDS, HOWEVER, HAV E INCREASED TO RS. 3.14 CRORES AS ON 31-03-2008, WHER EAS THE OPENING FD WAS RS. 1.19 CRORES AS ON 31-03-2007. IF WE ADOPT THE RATIO OF RULE 8D, AS AN ANALOGY, NO DIRECT EXPE NDITURE HAS BEEN CLAIMED BY ASSESSEE. FOR ADOPTING PROPORTIONAT E EXPENDITURE OF OTHER ITEMS, THE INTEREST PAYMENTS UNDER RULE 8D(II) ARE ALL DIRECTLY RELATED TO ASSESSEE'S ACTIV ITY AS MUTUAL BENEFIT SOCIETY. THEREFORE, NO PART OF SUCH EXPENDI TURE CAN BE ATTRIBUTABLE TO THE EARNING INTEREST. 5.1. COMING TO THE PROPORTIONATE EXPENDITURE UNDER RULE 80(2), EVEN THOUGH THE ACT PROVIDES THAT ONLY THAT EXPENDI TURE [NOR BEING CAPITAL EXPENDITURE) LAID OUT WHOLLY AND NECE SSARILY FOR THE PURPOSE OF EARNING SUCH INCOME SHOULD BE ALLOWE D UNDER 57 (III). IT IS VERY DIFFICULT TO ADOPT PROPORTIONATE EXPENDITURE PERTAINING TO MANAGEMENT AND ADMINISTRATIVE EXPENDI TURE ON THE BASIS OF INCOMES EARNED WHICH MAY NOT GIVE AN A PPROPRIATE AMOUNT. AS CAN BE SEEN FROM THE EXPENSES WORKED OUT BY ASSESSEE, IN BOTH THE YEARS BEING MORE OR LESS SAME , EVEN THOUGH THE TAXABLE INCOME VARIED. IN VIEW OF THAT, I AM OF THE OPINION THAT THE ADOPTION OF PROPORTIONATE EXPENDIT URE IS NOT AN 4 ITA NO. 1511 & 1512 /HYD/2017 HYDERABAD MUTUAL BENEFIT SOCIETY,K HYD. APPROPRIATE METHOD. LIKEWISE, ADOPTION OF 0.5% ON A VERAGE INVESTMENTS(UNDER RULE 8D(2)(III)) ALSO MAY NOT YIE LD APPROPRIATE AMOUNT AS THE DEPOSITS ARE WITHDRAWN AT THE LAST MOMENT, AS STATED IN AY. 2006-07. SINCE THE ANALOGY ON RULE 80 MAY NOT WORK OUT TO GIVE CORRECT EXPENDITURE, RE LIANCE CAN BE MADE TO THE PROVISIONS OF SECTION 80HHC (BAA), W HEREIN WHILE WORKING OUT THE DEDUCTION U/S. 80HHC, THE LEG ISLATURE IN ITS WISDOM, HAS EXCLUDED 10% OF THE AMOUNTS. THE PR OVISIONS OF SECTION 80HHC (BAA)ARE AS UNDER: '(BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS OR PROFESSION' AS REDUCED BY- (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUS ES (IIIA), (IIIB), (WE), (IIID) AND (IIIE) OF SECTION 28 OR OF ANY REC EIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR A NY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT S,' AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE O R ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA ; ' 5.2. THIS PROVISION WAS IN OPERATION FOR A LONG PER IOD AND MOST OF ASSESSEES HAVE ACCEPTED THE DEDUCTIONS BY EXCLUD ING 10% RECEIPTS AS EXPENDITURE AND EXCLUDED 90% OF THE AMO UNTS UNDER THE PROVISIONS OF SECTION 80HHC(BAA). TAKING CUE FROM THE ABOVE, I AM OF THE OPINION THAT ABOUT 10% OF TH E RECEIPTS BEING TAXED CAN BE CONSIDERED AS AN 'EXPENDITURE LA ID OUT WHOLLY AND NECESSARILY FOR EARNING THE INTEREST INC OME'. ACCORDINGLY, AO IS DIRECTED TO ALLOW AN AMOUNT OF 1 0% OUT OF THE INTEREST EARNED ON FDS AND SB A/C AS EXPENDITUR E AND WORK OUT THE TAXABLE INCOME. 6. BOTH THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS LD. DR CONCEDED THAT THE ISSUE IS SQUARELY COVERED BY THE AFORECITED DECISION. 7. HAVING REGARD TO THE CIRCUMSTANCES, WE DIRECT TH E AO TO TREAT 10% OF THE INCOME EARNED AS HAVING BEEN INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INC OME AND ALLOW THE SAME U/S 57(III) OF THE ACT. 5 ITA NO. 1511 & 1512 /HYD/2017 HYDERABAD MUTUAL BENEFIT SOCIETY,K HYD. 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE TREATED AS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/- (D. MANMOHAN) VICE PRESIDENT HYDERABAD, DATED: 28 TH FEBRUARY, 2018 KV COPY TO:- 1) HYDERABAD MUTUAL BENEFIT SOCIETY, C/O VENUGOPAL & CHENOY, 4-1-889/16/2, TILAK ROAD, HYDERABAD 500 001. 2) ITO, WARD 5(3), HYDERABAD. 3) CIT(A) 4, HYDERABAD. 4) PR. CIT 4, HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE