The ITO, Ward-6(1), Ahmedabad V. The People Co.Op.Bank Ltd., Ahmedabad

ITA 1717/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8937 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH SENIOR
• Section: 80P; 250; 251; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.1717/AHD/2009 (ASSESSMENT YEAR:- 2005-06) THE INCOME-TAX OFFICER, WARD-6(1), AHMEDABAD V/S THE PEOPLES CO-OPERATIVE BANK LTD., B/S NEW MARKET YARD, KHARAKUVA ROAD, DHOLKA PAN: AAAAP 4206 C [APPELLANT] [RESPONDENT] APPELLANT BY :- SMT. NEETA SHAH, SENIOR DR RESPONDENT BY:- NONE O R D E R PER P K BANSAL (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A ) DATED 03- 03-2009. THE ONLY EFFECTIVE GROUND TAKEN BY THE REV ENUE READS AS UNDER: THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.32,23,856/- MADE U/S 80 P(2)(A)(I) OF THE ACT, ON ACCOUNT OF INCOME DERIVED FROM BANKING ACTI VITIES. 2 THE BRIEF FACTS OF THE CASE ARE THAT THE AO DID NOT ALLOW DEDUCTION TO THE ASSESSEE U/S 80P(2)(A)(I) IN RESPECT OF OVERDUE INTEREST RESERVE. WHEN THE MATTER WENT BEFO RE THE CIT(A), THE CIT(A) ALLOWED THE DEDUCTION TO THE ASS ESSEE BY OBSERVING AS UNDER:- 2 3 THE SUBMISSIONS MADE BY THE AR HAVE BEEN PERUSED AND THE OBSERVATIONS OF THE AO ARE ALSO VERIFIED. IT MAY BE SEEN THAT THE APPELLANT IS A CO-OPERATIVE BANK AND HAVING EXCLUSI VE BANKING ACTIVITIES AMONG ITS MEMBERS ONLY. THEREFORE, THE I NCOME DERIVED FROM SUCH ACTIVITIES IS ENTITLED FOR DEDUCTION U/S 80P(2)(A)(I) OF THE INCOME-TAX ACT. THE AO WAS WRONGLY CARRIED AWAY BY THE INADVERTENT NOTE GIVEN IN THE AUDIT REPORT AND RESTRICTED THE D EDUCTIONS. FURTHER, IT MAY BE SEEN THAT WHATEVER THE INCOME IS DERIVED BY THE CO-OPERATIVE SOCIETY THOUGH ITS BANKING ACTIVITIES IS ENTITLED F OR FULL DEDUCTION. THEREFORE, HAVING CONSIDERED THE FACTS AND CIRCUMST ANCES OF THE CASE, THE AO IS DIRECTED TO ALLOW THE DEDUCTIONS AS CLAIM ED BY THE APPELLANT. 3 NONE APPEARED ON BEHALF OF THE ASSESSEE. WE, THEREFORE, DECIDED TO DISPOSE OF THE APPEAL AFTER H EARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. WE HAVE CAREFU LLY CONSIDERED THE SUBMISSIONS MADE BY THE LEARNED DR. IN OUR OPINION, THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE DECISION OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT I N THE CASE OF CIT V BARODA PEOPLES CO-OPERATIVE BANK LTD. [2006] 280 ITR 282 (GUJ), IN WHICH IT HAS BEEN HELD AS UNDER:- ON A CONJOINT READING OF SECTIONS 80B(5) AND 80AB OF THE INCOME- TAX ACT, 1961, IT IS APPARENT THAT FOR SEEKING DEDU CTION IN RESPECT OF INCOMES FALLING IN ANY OF THE SECTIONS SPECIFIED UN DER HEADING C OF CHAPTER VI-A SUCH INCOME HAS TO BE COMPUTED IN ACCO RDANCE WITH THE PROVISIONS OF THE ACT AND THEN INCLUDED IN THE GROS S TOTAL INCOME; AND THE GROSS TOTAL INCOME MEANS THE TOTAL INCOME, COMP UTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, AND AT B OTH THE STAGES WHILE COMPUTING THE TOTAL INCOME, DEDUCTIONS UNDER CHAPTE R VI-A ARE NOT TO BE TAKEN INTO CONSIDERATION. THE NET INCOME RELATAB LE TO A PARTICULAR HEAD OR ITEM HAS TO GO IN AS A COMPONENT OF THE GRO SS TOTAL INCOME BEFORE ANY DEDUCTION UNDER CHAPTER VI-A IS TO BE AL LOWED. IN THE CASE OF AN ASSESSEE CARRYING ON THE BUSINESS OF BANKING, IN THE FIRST INSTANCE, INCOME UNDER SECTION 28 IS COMPUTED IN AC CORDANCE WITH THE PROVISIONS OF SECTION 29 OF THE ACT AND SUCH NET FI GURE IS TAKEN AS A 3 COMPONENT OF THE TOTAL INCOME OR GROSS TOTAL INCOME FOR THE PURPOSE OF DEDUCTION UNDER CHAPTER VI-A. THE PROVISIONS OF SECTION 80P HAVE BEEN INTRODUCED ON THE STATUTE BOOK TO ENCOURAGE AND PROMOTE GROWTH OF THE CO-OPER ATIVE SECTOR IN THE ECONOMIC LIFE OF THE COUNTRY. THE PROVISION ITS ELF GIVES AN INHERENT INDICATION THAT FOR THE PURPOSE OF CONSTITUTING THE SUM DEDUCTIBLE WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE, THE SUM HAS TO BE THE AMOUNT OF PROFITS AND GAINS OF BUSINESS. IT IS NECE SSARY TO TAKE NOTE OF THE FACT THAT IN SUB-SECTION (2) OF SECTION 80P OF THE ACT THE WORD INCOME IS NOT USED BUT THE WORD USED IS SUM WHI CH IS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS. TH EREFORE, UNDER SUB- SECTION (1) THE GROSS TOTAL INCOME HAS TO INCLUDE I NCOME FROM ANY OF THE SPECIFIED ACTIVITIES AND FOR THE PURPOSE OF DED UCTION THE SUMS SPECIFIED IN SUBSECTION (2) SHALL BE DEDUCTED IN CO MPUTING THE TOTAL INCOME OF AN ASSESSEE, NAMELY, A CO-OPERATIVE SOCIE TY. BEFORE ANALYSING SUB-CLAUSE (I) OF CLAUSE (A) OF SU B-SECTION (2) OF SECTION 80P OF THE ACT IT IS NECESSARY TO TAKE NOTE THAT UNDER SUB- SECTION (3) OF SECTION 80P THE DEDUCTION AVAILABLE UNDER SUB-SECTION (1) OF SECTION 80P SHALL BE ALLOWED AFTER REDUCING FROM THE QUALIFYING INCOME, THE INCOME, F ANY, AS REFERRED TO IN THE SE CTIONS SPECIFIED THEREIN, VIZ., SECTION 8OHH ETC. THIS IS ONE MORE I NDICATION AVAILABLE IN THE SCHEME OF THE ACT TO DENOTE THAT WHAT IS DED UCTIBLE UNDER THE PROVISIONS OF CHAPTER VI-A IN TERMS OF THE PROVISIO NS OF THE ACT WITH SPECIAL REFERENCE TO SECTION 80B(5) READ WITH SECTI ON 8OAB OF THE ACT IS THE NET FIGURE. SECTION 80P(2)(A)(I) PERMITS A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CR EDIT FACILITIES TO ITS MEMBERS TO CLAIM DEDUCTION OF THE WHOLE OF THE AMOU NT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO SUCH ACTIVITY, VI Z., BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS. ON A PLAIN READING IT BECOMES APPARENT THAT THE TWO ACTIVITIES ARE DISTINCT AND SEPARATE ACTIVITIES. THE FIRST ACTIVITY, VIZ., CARR YING ON THE BUSINESS OF BANKING CONNOTES A LARGER ACTIVITY THAN THE ACTIVIT Y OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE LATTER IS RESTRICTED QUA THE MEMBERS OF THE SOCIETY WHILE THE FORMER IS WIDE ENOUGH TO TAKE WITHIN ITS SWEEP AS ITS POTENTIAL CUSTOMERS, BOTH MEMBERS AND NON-MEMBE RS. THE INTERPRETATION THAT THE LATTER PHRASE HAS A RESTRIC TIVE EFFECT ON THE 4 FORMER EXPRESSION BUSINESS OF BANKING IGNORES THE WORD OR WHICH OCCURS BETWEEN THE TWO PHRASES. THERE IS NO WARRANT FOR READING THE WORD OR AS AND. ONCE THE LEGISLATURE HAS USED T HE TERM OR THE LOGICAL CONSEQUENCE THAT FLOWS FROM THE CONTEXTUAL SETTING IS THAT IT PROVIDES FOR AN ALTERNATIVE, A DIFFERENT DISTINCT A CTIVITY. WHILE EXAMINING A CASE WHEREIN A CO-OPERATIVE SOCIE TY CLAIMS DEDUCTION UNDER SECTION 80P(2)(A)(I) ONE HAS TO BEA R IN MIND THE OBJECT WITH WHICH THE PROVISION IS INTRODUCED, VIZ., TO EN COURAGE AND PROMOTE GROWTH OF THE COOPERATIVE SECTOR IN THE ECONOMIC LI FE OF THE COUNTRY IN PURSUANCE OF THE DECLARED POLICY OF THE GOVERNMENT. THE SUPREME COURT HAS ALSO STATED THAT F A QUESTION ARISES AS T O WHETHER ANY PARTICULAR CATEGORY OF INCOME OF A COOPERATIVE SOCI ETY IS EXEMPT FROM TAX WHAT HAS TO BE SEEN IS WHETHER THE INCOME FAILS WITHIN ANY OF THE SEVERAL HEADS BECAUSE EACH WOULD BE A SEPARATE AND DISTINCT HEAD AND MERELY BECAUSE CONDITIONS FOR DEDUCTION UNDER ONE H EAD ARE NOT SATISFIED THAT DOES NOT NECESSARILY MEAN THAT AN AS SESSEE IS NOT ENTITLED TO DEDUCTION UNDER ANOTHER HEAD WHEREIN THE CONDITI ONS STAND FI4FILLED. HENCE THE CONTENTION ON BEHALF OF THE REVENUE THAT THE FIRST ACTIVITY, NAMELY, BUSINESS OF BANKING, HAS TO TAKE COLOUR FRO M THE SECOND ACTIVITY, NAMELY, PROVIDING CREDIT FACILITIES TO ME MBERS DOES NOT MERIT ACCEPTANCE. SECTION 80P REQUIRES THAT THE PROFITS A ND GAINS OF BUSINESS MUST BE ATTRIBUTABLE TO ANY ONE OR MORE OF THE SPEC IFIED ACTIVITIES. ON A PLAIN READING OF THE GUJARAT CO-OPERATIVE SOCI ETIES ACT, 1961, THE SCHEME WHICH UNFOLDS IS THAT IN THE CASE OF A S OCIETY CARRYING ON BUSINESS OF BANKING, IT WOULD BE PERMISSIBLE TO MAK E INVESTMENTS OR DEPOSITS IN ANY OF THE SPECIFIED INVESTMENTS AS PRO VIDED IN SECTION 71 OF THE GUJARAT CO-OPERATIVE SOCIETIES ACT INCLUDING IN ANY OF THE MODES SPECIFIED IN SECTION 20 OF THE INDIAN TRUSTS ACT, 1882, WITHOUT THERE BEING ANY UPPER LIMIT AS TO THE AMOUNT THAT C AN BE INVESTED, ONCE THE STATUTORY REQUIREMENT OF RESERVE FUND AS STIPUL ATED IN SECTION 67(2) OF THE GUJARAT CO-OPERATIVE SOCIETIES ACT IS SATISF IED. THE PROVISIONS OF THE BANKING REGULATION ACT, 1949, INDICATE THAT AN ENTITY CARRYING ON THE BUSINESS OF BANKING IS NOT ABSOLUTELY OR WHO LLY FREE; IT IS AMENABLE TO SUPERVISION/REGULATION. IN OTHER WORDS, ITS INVESTMENTS ARE SUBJECT TO SCRUTINY: AND ANY IMPERMISSIBLE INVESTME NT, F ANY MADE, WILL NOT BE PERMITTED TO CONTINUE BY THE REGULATOR, I.E., THE RESERVE BANK OF INDIA. BEARING IN MIND THAT SECTION 80P(2)( A)(I) REQUIRES A CO- OPERATIVE SOCIETY AND NOT A COOPERATIVE BANK DEFINE D UNDER THE GUJARAT CO-OPERATIVE SOCIETIES ACT, TO BE ENGAGED IN CARRYI NG ON BUSINESS OF BANKING IT IS NOT POSSIBLE TO RESTRICT THE SCOPE OF THE BUSINESS TO THE 5 DEFINITION OF BANKING UNDER SECTION 5(B) OF THE B ANKING REGULATION ACT. EVEN OTHERWISE A BANKING COMPANY INCLUDING A C O-OPERATIVE SOCIETY, MAY ACCEPT DEPOSITS FOR THE PURPOSE OF LEN DING OR INVESTMENT. THE DEFINITION DOES NOT STIPULATE THAT INVESTMENT H AS TO BE ONLY TO THE EXTENT PROVIDED EITHER BY THE GUJARAT CO-OPERATIVE SOCIETIES ACT OR THE BANKING REGULATION ACT. HENCE WHEN INVESTMENTS ARE MADE IN SECURITIES, WHICH ARE A PERMISSIBLE MODE OF INVESTM ENT, EITHER UNDER THE BANKING REGULATION ACT OR THE GUJARAT CO-OPERAT IVE SOCIETIES ACT READ WITH THE INDIAN TRUSTS ACT INCOME ARISING THER EFROM WOULD BE ATTRIBUTABLE TO THE BUSINESS OF BANKING AND THE ASS ESSEE WOULD BE ELIGIBLE FOR DEDUCTION IN TERMS OF SECTION 80P(2)(A )(I). THE JUDGMENT AND ORDER OF A HIGH COURT WHEN CARRIED IN APPEAL BEFORE THE SUPREME COURT ON THE VERY SAME ISSUE, WOULD NOT HAVE ANY INDEPENDENT EXISTENCE THEREAFTER IN THE LIGHT OF TH E PRINCIPLES OF MERGER. THE JUDGMENT AND ORDER OF THE HIGH COURT WO ULD STAND MERGED IN THE JUDGMENT AND ORDER OF THE SUPREME COU RT, ESPECIALLY IN A CASE WHERE THE ISSUE IN QUESTION IS DIRECTLY CONS IDERED BY THE SUPREME COURT. THE DECISION IN GUJARAT STATE CO-OPE RATIVE BANK LTD. V. CIT [2001] 250 ITR 229 (GUJ) WAS CONSIDERED BY T HE SUPREME COURT IN MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD. V. ITO [2001] 251 ITR 522 AND HAS MERGED IN IT. THE ORDER OF THE SUPREME COURT COULD NOT AND SHOULD NOT BE CONSTRUED IN A MA NNER SO AS TO BE INCONSISTENT WITH THE PROVISIONS OF THE STATUTE AS THE SUPREME COURT COULD NOT HAVE CONTEMPLATED PASSING AN ORDER CONTRA RY TO THE PROVISIONS OF THE ACT. THE DIRECTION OF THE SUPREME COURT IN MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANKS CASE [2001] 25 1 ITR 522 CAN ONLY REFER TO ASCERTAINMENT OF UTILISATION OF NET I NCOME OF EARLIER YEARS, WHICH FORMS PART OF THE FUNDS WHICH ARE INVESTED, A ND GIVEN THE NOMENCLATURE OF VOLUNTARY RESERVES. THE ASSESSEE A CO-OPERATIVE BANK EARNED INTEREST FR OM INVESTMENTS IN (I) IDBI BONDS; (II) SBI BONDS; (III) SARDAR SAROVA R NARMADA BONDS; AND (IV) KISAN VIKAS PATRA. THE ASSESSING OFFICER T REATED ALL THE AFORESAID INVESTMENTS AS FIXED CAPITAL AND HELD T HAT THE INVESTMENTS WERE NOT AVAILABLE FOR NORMAL BANKING BUSINESS. THE REFORE THE ENTIRE INCOME WAS TAXABLE. THE SPECIAL BENCH OF THE TRIBUN AL HELD THAT THE INCOME WAS ENTITLED TO SPECIAL DEDUCTION UNDER SECT ION 80P. ON APPEAL TO THE HIGH COURT: 6 HELD, DISMISSING THE APPEAL, THAT THE TRIBUNAL WAS RIGHT IN ALLOWING DEDUCTIONS UNDER SECTION 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME AS BEING ATTRIBUTABLE TO THE BUSINESS OF BANKING. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF T HE CIT(A) IN DELETING THE ADDITION OF RS.32,23,856/-. 4 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 25-09-2 009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 25-09-2009 COPY OF THE ORDER FORWARDED TO : 1. THE PEOPLES CO-OPERATIVE BANK LTD., B/S NEW MARK ET YARD, KHARAKUVA ROAD, DHOLKA 2. THE ITO, WARD-6(1), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA