M/s Honnali Urban Credit Co-Operative Society Ltd., V. CIT,

ITA 1720/BANG/2013

• Counselvise Citation: 172021114 RSA 2013
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 09-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Gift; Business income; Question of law; Reasonable cause; Benefit of exemption; Condonation of delay
• Section: 143(3); 56; 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NOS. 1720 & 1721/BANG/2013 ASSESSMENT YEARS : 2008-09 & 2009-10 M/S. HONNALI URBAN CREDIT CO-OPERATIVE SOCIETY LTD., T.M. ROAD, HONNALI. PAN : AAATH 4527L VS. THE COMMISSIONER OF INCOME TAX, DAVANGERE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, C.A. RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 27.10.2014 DATE OF PRONOUNCEMENT : 31.10.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THESE APPEALS ARE BY THE ASSESSEE AGAINST THE SE PARATE ORDERS DATED 26.3.2013 & 22.5.2013 PASSED U/S. 263 OF THE ACT BY THE CIT(APPEALS), DAVANGERE RELATING TO ASSESSMENT YEAR S 2008-09 & 2009-10 RESPECTIVELY. 2. THERE IS A DELAY OF ABOUT 195 DAYS AND 138 DAYS IN FILING THE APPEALS FOR THE A.YS. 2008-09 & 2009-10 RESPECTIVEL Y. THE REASONS FOR CONDONATION OF DELAY HAVE BEEN EXPLAINED BY THE SECRETARY OF THE ITA NO.1720 & 1721/BANG/2013 PAGE 2 OF 16 ASSESSEE IN THE AFFIDAVITS FILED BEFORE US. IT HAS BEEN MENTIONED IN THE AFFIDAVITS THAT AFTER RECEIPT OF THE IMPUGNED O RDERS PASSED U/S. 263 OF THE ACT, THE ASSESSEE PLACED THE SAME BEFORE THE IR AUDITORS MR. K.V. NARENDRA, FCA, SHIMOGA, FOR FURTHER ACTION. H E HAD ADVISED THE ASSESSEE THAT SINCE THE CIT HAS REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER, DIRECTING THE AO TO REDO THE ASS ESSMENT AFRESH, THERE IS NO NEED TO FILE ANY APPEAL BEFORE THE TRIB UNAL. IT HAS FURTHER BEEN STATED THAT THE SECRETARY OF THE ASSESSEE APPR OACHED M/S. S. VENKATESAN & CO., CAS., FOR FURTHER ADVICE IN THE M ATTER, WHO ON GOING THROUGH THE PAPERS, ADVISED THE ASSESSEE TO F ILE APPEALS AGAINST THE ORDERS PASSED U/S. 263 OF THE ACT. THE REFORE, THE APPEALS WERE FILED IMMEDIATELY AND IN THE PROCESS THERE OCC URRED A DELAY OF ABOUT 195 DAYS AND 138 DAYS IN FILING THE APPEALS R ESPECTIVELY BEFORE THE TRIBUNAL. IT HAS BEEN PRAYED THAT DELAY IN FIL ING THE APPEALS IS NEITHER WILLFUL NOR DELIBERATE, BUT DUE TO CIRCUMST ANCES EXPLAINED AS ABOVE. THE ASSESSEE HAS THUS PRAYED FOR CONDONATIO N OF DELAY IN FILING THE APPEALS. 3. WE HAVE CONSIDERED THE AFFIDAVITS FILED BY THE A SSESSEE AND ARE SATISFIED THAT DELAY IN FILING THE APPEALS WAS OCCASIONED DUE TO A REASONABLE CAUSE. ACCORDINGLY, DELAY IN FILING THE APPEALS FOR BOTH THE ASSESSMENT YEARS IS CONDONED. ITA NO.1720 & 1721/BANG/2013 PAGE 3 OF 16 ITA 1720/B/13 4. THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERE D WITH THE REGISTRAR OF CO-OPERATIVE SOCIETIES, DAVANGERE VIDE CERTIFICATE OF REGISTRATION DATED 17.7.1999. ASSESSMENT FOR THE A .Y. 2008-09 WAS COMPLETED BY THE ASSESSING OFFICER BY AN ORDER U/S. 143(3) OF THE ACT DATED 30.9.2009. THE ASSESSEE HAD CLAIMED DEDUCTIO N U/S. 80P(2)(A)(I) OF THE ACT AND THE SAME WAS ALLOWED BY THE AO IN THE SAID ORDER OF ASSESSMENT. INCOME OF THE ASSESSEE W AS DETERMINED AT NIL BY THE AO. 5. THE LD. CIT IN EXERCISE OF HIS POWERS U/S. 263 O F THE ACT, WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO SUFFERE D FROM TWO ERRORS WHICH WERE PREJUDICIAL TO THE INTERESTS OF THE REVE NUE. THE FIRST ERROR POINTED OUT BY THE CIT WAS THAT THE ASSESSEE HAD CL AIMED INCOME DERIVED FROM THE ACTIVITY OF PROVIDING CREDIT FACIL ITIES TO ITS MEMBERS AS EXEMPT U/S. 80P(2)(A)(I) OF THE ACT WHICH LAYS DOWN THAT INCOME DERIVED FROM THE BUSINESS OF PROVIDING CREDIT FACIL ITIES TO ITS MEMBERS IS TO BE ALLOWED AS DEDUCTION IN COMPUTING TOTAL IN COME. THE CIT WAS OF THE VIEW THAT U/S. 80P(4) OF THE ACT, PROVISIONS OF S. 80P(2)(A)(I) OF THE ACT WERE NOT APPLICABLE TO A CO-OPERATIVE BANK. THE CIT WAS OF THE FURTHER VIEW THAT ASSESSEE WAS A CO-OPERATIVE B ANK THOUGH IT IS CO-OPERATIVE SOCIETY AND THEREFORE PROVISIONS OF S. 80P(4) WERE APPLICABLE. THE SECOND ISSUE POINTED OUT BY THE CIT WAS THAT ASSESSEE EARNED INTEREST ON DEPOSITS MAINTAINED WIT H OTHER ITA NO.1720 & 1721/BANG/2013 PAGE 4 OF 16 ORGANIZATIONS AND BANKS (DAVANGERE URBAN CO-OP. BAN K) AND THE INTEREST THEREFROM OUGHT TO HAVE BEEN CONSIDERED AS INCOME FROM OTHER SOURCES AND NOT DERIVED FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES U/S.80P(2)(A)(I) OF THE ACT OR INTEREST DERIVED BY A CO-OP. SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OP. SOCIETY, AS CONTEMPLATED BY THE PROVISIONS OF S. 80P(2)(A)(D) O F THE ACT. ACCORDING TO THE CIT, THE DEPOSIT ON WHICH INTEREST WAS EARNED BY THE ASSESSEE WAS A DEPOSIT MADE WITH DAVANGERE URBAN CO -OP. BANK WHICH WAS NOT A CO-OP. SOCIETY AND THEREFORE INTERE ST EARNED WAS NEITHER EXEMPT U/S. 80P(2)(A)(D) OR U/.S 80P(2)(A)( I) OF THE ACT. HE ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALES SOCIETY LTD. V. IT O, (2010) 188 TAXMAN 282 (SC) , WHEREIN IT WAS HELD THAT INTEREST EARNED ON DEPOS ITS WITH OTHER BANKS WOULD FALL UNDER THE HEAD INCOME FROM OTHER SOURCES AND CONSEQUENTLY CO-OPERATIVE SOCIETIES WO ULD NOT BE ENTITLED TO DEDUCTION U/S. 80P OF THE ACT. ACCORDI NG TO THE CIT, THE AO WHILE COMPLETING THE ASSESSMENT DID NOT LOOK INTO T HE ABOVE ASPECTS AND THEREFORE HIS ORDER WAS ERRONEOUS AND PREJUDICI AL TO THE INTERESTS OF REVENUE. THE ORDER OF THE AO WAS ACCORDINGLY SE T ASIDE WITH A DIRECTION TO REDO THE ASSESSMENT AFRESH BY CONSIDER ING THE ABOVE TWO ISSUES. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT, ASSESSEE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. ITA NO.1720 & 1721/BANG/2013 PAGE 5 OF 16 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS FA R AS THE ISSUE OF DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT WITH REGA RD TO INCOME DERIVED BY THE ASSESSEE FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS CONCERNED, THIS TRIBUNAL HAS TAKEN THE VIEW THAT CO -OPERATIVE SOCIETY REGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT COU LD NOT BE CONSIDERED AS A CO-OPERATIVE BANK SO AS TO ATTRACT THE PROVISIONS OF SECTION 80P(4) OF THE ACT. 8. THIS TRIBUNAL, IN THE CASE OF ACIT V. M/S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LT D . IN ITA NO.1069/BANG/2010 , HELD THAT SECTION 80P(4) IS APPLICABLE ONLY TO COOPERATIVE BANKS AND NOT TO CREDIT COOPERATIVE SOC IETIES. THE INTENTION OF THE LEGISLATURE OF BRINGING IN COOPERA TIVE BANKS INTO THE TAXATION STRUCTURE WAS MAINLY TO BRING IN PAR WITH COMMERCIAL BANKS. SINCE THE ASSESSEE IS A COOPERATIVE SOCIETY AND NOT A COOPERATIVE BANK, THE PROVISIONS OF SECTION 80P(4) WILL NOT HAV E APPLICATION IN THE ASSESSEES CASE AND THEREFORE, IT IS ENTITLED TO DE DUCTION U/S 80P(2)(A)(I) OF THE ACT. THE FOLLOWING WERE THE RE LEVANT OBSERVATIONS OF THE TRIBUNAL:- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE WAS DENIED THE DE DUCTION U/S 80-P(2)(A)(I) OF THE ACT FOR THE REASON OF INTR ODUCTION OF SUB SECTION 4 TO SECTION 80P. SECTION 80P(4) READS AS FOLLOWS:- ITA NO.1720 & 1721/BANG/2013 PAGE 6 OF 16 (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. EXPLANATION: FOR THE PURPOSES OF THIS SUB- SECTION, (A) CO-OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); (B) PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LONG TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 9.1 THE ABOVE SUB-SECTION 4 OF SECTION 80P PROVID ES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE AVAIL ABLE TO ANY COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR RURAL DEVELOPMENT BANK. FOR THE PURPOSE OF THE SAID SUB SECTION, COOPERATIVE BANK SHALL HAVE THE MEANING AS SIGNED TO IT IN PART V OF THE BANKING REGULATION ACT, 1949. IN PAR T V OF THE BANKING REGULATION ACT, COOPERATIVE BANK MEANS A STATE COOPERATIVE BANK, A CENTRAL COOPERATIVE BANK AND A PRIMATE COOPERATIVE BANK. 9.2 FROM THE ABOVE SECTION, IT IS CLEAR THAT THE PR OVISIONS OF SECTION 80P(4) HAS GOT ITS APPLICATION ONLY TO COOP ERATIVE BANKS. SECTION 80P(4) DOES NOT DEFINE THE WORD COOPERATIV E SOCIETY. THE EXISTING SUB-SECTION 80P(2)(A)(I) SHALL BE APPL ICABLE TO A COOPERATIVE SOCIETY CARRYING ON CREDIT FACILITY TO ITS MEMBERS. THIS VIEW IS CLARIFIED BY CENTRAL BOARD OF DIRECT T AX VIDE ITS CLARIFICATION NO.133/06/2007-TPL DATED 9 TH MAY, 2007. THE ITA NO.1720 & 1721/BANG/2013 PAGE 7 OF 16 DIFFERENCE BETWEEN A COOPERATIVE BANK AND A COOPERA TIVE SOCIETY ARE AS FOLLOWS:- NATURE COOPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT, 1949 COOPERATIVE SOCIETY REGISTERED UNDER KARNATAKA COOPERATIVE SOCIETY ACT, 1959. REGISTRA -TION UNDER THE BANKING REGULATION ACT, 1949 AND COOPERATIVE SOCIETIES ACT, 1959. COOPERATIVE SOCIETIES ACT, 1959. NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING REGULATION ACT. 2. CAN OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS (DD), PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. COOPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI). 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS, PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT AS CLEARING AGENT, FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. SOCIETY ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE COOPERATIVE SOCIETIES ACT. FILING OF RETURNS COOPERATIVE BANKS HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR. SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPEC- TION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO COOPERATIVE BANKS. PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO COOPERATIVE BANKS. USE OF WORDS THE WORD BANK, BANKER, BANKING CAN BE USED BY A COOPERATIVE BANK. THE WORD BANK, BANKER, BANKING CANNOT BE USED BY A COOPERATIVE SOCIETY. 9.3 IF THE INTENTION OF THE LEGISLATURE WAS NOT TO GRANT DEDUCTION U/S 80P(2)(A)(I) TO COOPERATIVE SOCIETIES CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, THEN THIS SECTION WOULD HAVE BEEN DELETED. THE NEW PROV ISO TO SECTION 80P(4) WHICH IS BROUGHT INTO STATUTE IS APP LICABLE ONLY TO COOPERATIVE BANKS AND NOT TO CREDIT COOPERATIVE SOC IETIES. THE INTENTION OF THE LEGISLATURE OF BRINGING IN COOPERA TIVE BANKS INTO ITA NO.1720 & 1721/BANG/2013 PAGE 8 OF 16 THE TAXATION STRUCTURE WAS MAINLY TO BRING IN PAR W ITH COMMERCIAL BANKS. SINCE THE ASSESSEE IS A COOPERATIVE SOCIETY AND NOT A COOPERATIVE BANK, THE PROVISIONS OF SECTION 80P(4) WILL NOT HAVE APPLICATION IN THE ASSESSEES CASE AND THEREFORE, I T IS ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. HENCE, WE A RE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCO RDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. 9. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF TA X APPEAL NO.442 OF 2013 WITH TAX APPEAL NO.443 OF 2013 WITH TAX APPEAL NO.863 OF 2013 IN THE CASE OF CIT VS. JAFARI MOMIN VIKAS CO-OP CREDIT SOCIETY LTD. BY JUDGMENT DATED 15.1.2014 HAD TO DEAL WITH THE FOLLOWING QUESTION OF LAW:- WHETHER THE HONBLE TRIBUNAL IS CORRECT IN ALLOWIN G DEDUCTION UNDER SECTION 80P(2)(A)(I) TO ASSESSEES SOCIETY EVEN THOUGH SAME IS COVERED UNDER SECTION 80P(4) RW S 2(24) (VIIA) BEING INCOME FROM PROVIDING CREDIT FAC ILITIES CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBE R? THE HONBLE COURT HELD AS FOLLOWS: 4. AS PER SECTION 80P(4), THE PROVISIONS OF SECTI ON 80P WOULD NOT APPLY IN RELATION TO ANY CO-OPERATIVE BAN K OTHER THAN PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO-O PERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. AS PER THE EXPLANATION, THE TERMS CO-OPERATIVE BANK AND PRIMARY AGRICULT URAL CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIG NED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949. 5. ASSESSING OFFICER HELD THAT BY VIRTUE OF SECTIO N 80P(4), THE RESPONDENT ASSESSEE WOULD NOT BE ENTITLED TO BE NEFITS OF DEDUCTION UNDER SECTION 80P. CIT(APPEALS) AS WELL A S THE TRIBUNAL REVERSED THE DECISION OF THE ASSESSING OFF ICER ON THE PREMISE THAT THE RESPONDENT ASSESSEE NOT BEING A BA NK, EXCLUSION PROVIDED IN SUB-SECTION(4) OF SECTION 80P WOULD NOT APPLY. THIS, IRRESPECTIVE OF THE FACT THAT THE RESPONDENT WOULD NOT FALL WITHIN THE EXPRESSION PRIMARY AGRICULTURAL CREDIT SOCIETY . ITA NO.1720 & 1721/BANG/2013 PAGE 9 OF 16 6. HAD THIS BEEN THE PLAIN STATUTORY PROVISIONS UN DER CONSIDERATION IN ISOLATION, IN OUR OPINION, THE QUE STION OF LAW COULD BE STATED TO HAVE ARISEN. WHEN, AS CONTENDED BY THE ASSESSEE, BY VIRTUE OF SUBSECTION(4) ONLY CO-OPERAT IVE BANKS OTHER THAN THOSE MENTIONED THEREIN WERE MEANT TO BE EXCLUDED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80P, A Q UESTION WOULD ARISE WHY THEN LEGISLATURE SPECIFIED PRIMARY AGRICULTURAL CREDIT SOCIETIES ALONG WITH PRIMARY COOPERATIVE AGR ICULTURAL AND RURAL DEVELOPMENT BANKS FOR EXCLUSION FROM SUCH EXC LUSION AND IN OTHER WORDS, CONTINUED TO HOLD SUCH ENTITY AS EL IGIBLE FOR DEDUCTION. HOWEVER, THE ISSUE HAS BEEN CONSIDERABLY SIMPLIFIED BY VIRTUE OF CBDT CIRCULAR NO.133 OF 2007 DATED 9.5 .2007. CIRCULAR PROVIDES AS UNDER:- SUBJECT: CLARIFICATION REGARDING ADMISSIBLY OF DEDUCTION UNDER SECTION 80P OF THE INCOME-TAX ACT, 1961. 1. PLEASE REFER TO YOUR LETTER NO.DCUS/30688/2007, DATED 28.03.2007 ADDRESSED TO CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES, ON THE ABOVE GIVEN SUBJECT. 2. IN THIS REGARD, I HAVE BEEN DIRECTED TO STATE THAT SUB-SECTION(4) OF SECTION 80P PROVIDES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE ALLOWABLE TO ANY CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. FOR THE PURPOSE OF THE SAID SUB-SECTION, CO-OPERATI VE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART V OF THE BANKING REGULATION ACT, 1949. 3. IN PART V OF THE BANKING REGULATION ACT,CO- OPERATIVE BANK MEANS A STATE CO-OPERATIVE BANK, A CENTRAL CO-OPERATIVE BANK AND A PRIMARY CO- OPERATIVE BANK. 4. THUS, IF THE DELHI CO OP URBAN T & C SOCIETY LTD. DOES NOT FALL WITHIN THE MEANING OF CO-OPERAT IVE BANK AS DEFINED IN PART V OF THE BANKING REGULATIO N ACT, 1949, SUBSECTION(4) OF SECTION 80P WILL NOT AP PLY IN THIS CASE. ITA NO.1720 & 1721/BANG/2013 PAGE 10 OF 16 5. THE ISSUES WITH THE APPROVAL OF CHAIRMAN,CENTRAL BOARD OF DIRECT TAXES. 7. FROM THE ABOVE CLARIFICATION, IT CAN BE GATHER ED THAT SUB- SECTION(4) OF SECTION 80P WILL NOT APPLY TO AN ASSE SSEE WHICH IS NOT A CO-OPERATIVE BANK. IN THE CASE CLARI FIED BY CBDT, DELHI COOP URBAN THRIFT & CREDIT SOCIETY LTD. WAS UNDER CONSIDERATION. CIRCULAR CLARIFIED THAT THE SA ID ENTITY NOT BEING A COOPERATIVE BANK, SECTION 80P(4) OF THE ACT WOULD NOT APPLY TO IT. IN VIEW OF SUCH CLARIFICATIO N, WE CANNOT ENTERTAIN THE REVENUES CONTENTION THAT SECT ION 80P(4) WOULD EXCLUDE NOT ONLY THE CO-OPERATIVE BANK S OTHER THAN THOSE FULFILLING THE DESCRIPTION CONTAINED THE REIN BUT ALSO CREDIT SOCIETIES, WHICH ARE NOT COOPERATIVE BA NKS. IN THE PRESENT CASE, RESPONDENT ASSESSEE IS ADMITTEDLY NOT A CREDIT CO-OPERATIVE BANK BUT A CREDIT CO-OPERATIVE SOCIETY . EXCLUSION CLAUSE OF SUB-SECTION(4) OF SECTION 80P, THEREFORE, WOULD NOT APPLY. IN THE RESULT, TAX APPEALS ARE DIS MISSED. 10. IN A RECENT JUDGMENT DATED 5.2.2014 OF THE HON BLE HIGH COURT OF KARNATAKA IN CIT V. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT IN ITA NO.5006/2013 DATED 5.2.2014, THE HONBLE JURISDICTIONAL HIGH COURT TOOK THE VIE W THAT WHEN THE STATUS OF THE ASSESSEE IS A CO-OPERATIVE S OCIETY AND NOT A CO-OPERATIVE BANK, THE ORDER PASSED BY THE AO EXTEN DING THE BENEFIT OF EXEMPTION FROM PAYMENT OF TAX 80P(2)(A)(I) OF TH E ACT IS CORRECT AND SUCH AN ORDER IS NOT ERRONEOUS AND THEREFORE, JURIS DICTION U/S. 263 OF THE ACT CANNOT BE INVOKED. ITA NO.1720 & 1721/BANG/2013 PAGE 11 OF 16 11. IN VIEW OF THE AFORESAID DECISIONS, WE SET ASID E THE ORDER OF THE LD. CIT AND UPHOLD THE ORDER OF THE AO ALLOWING DED UCTION U/S. 80P(2)(A)(I) OF THE ACT TO THE ASSESSEE. 12. AS FAR AS THE ISSUE WITH REGARD TO INTEREST EAR NED ON DEPOSITS WITH DAVANGERE URBAN CO-OP. BANK IS CONCERNED, WE A RE OF THE VIEW THAT THE LD. CIT RIGHTLY INVOKED HIS POWERS U/S. 26 3 OF THE ACT. THIS TRIBUNAL IN THE CASE OF SRI BASAVESHWARA CREDIT CO-OPERATIVE SOCIETY LTD. , HIREKERUR IN ITA NO.524/BANG/2012 BY ORDER DATED 10.5.2013 HELD AS FOLLOWS:- 17. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL CONTENTIONS. THE ASSESSEE IS A SOCIETY REGIS TERED UNDER THE CO-OPERATIVE SOCIETIES ACT PROVIDING CRED IT FACILITIES TO ITS MEMBERS. THE ASSESSEE ACCEPTS DE POSITS FROM MEMBERS AND LENDS MONEY ONLY TO MEMBERS. THE INCOME OF THE SOCIETY IS IN THE FORM OF THE INTERES T THAT IT EARNS ON CREDIT FACILITIES EXTENDED TO ITS MEMBERS. UNDER SECTION 80P(2)(A)(I) OF THE ACT, THE PROFITS AND GA INS OF A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUS INESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS IS EXEMPT. WHAT IS EXEMPT IS THE BUSINESS INCOME ATTRI BUTABLE TO THE ACTIVITIES OF BANKING OR PROVIDING CREDIT FA CILITIES TO THE MEMBERS WHICH IS INCLUDED IN THE GROSS TOTAL IN COME OF THE SOCIETY. DEDUCTION WILL BE ALLOWED ONLY WHEN TH ERE IS DIRECT OR PROXIMATE CONNECTION WITH OR NEXUS TO THE INCOME AND THE BUSINESS CARRIED ON BY THE SOCIETY. AS WE HAVE ALREADY SEEN, IN THE PRESENT CASE, THE INTEREST INC OME WHICH IS IN DISPUTE IN THE PRESENT APPEAL ARISES OUT OF F IXED DEPOSIT WITH BANKS. THE CLAIM OF THE ASSESSEE IS THAT THE FIXED DEPOSITS IN BANKS WERE MADE TO REPAY FIXED DEPOSITS TO THE MEMBERS AND ALSO TO ENSURE THAT FUNDS ARE NOT KEPT IDLE AND THEY EARN SOME INTEREST INCOME. AS WE HAVE ALREADY SEEN THAT THERE SHOULD BE NEXUS BETWEEN THE EARNING OF I NTEREST ITA NO.1720 & 1721/BANG/2013 PAGE 12 OF 16 AND BUSINESS OF THE ASSESSEE. THE INTEREST INCOME EARNED ON EXTENDING CREDIT FACILITIES WILL BE BUSINESS INC OME AS THERE EXISTS NEXUS BETWEEN THE INCOME AND THE BUSIN ESS OF THE SOCIETY WHICH IS EXTENDING CREDIT FACILITY TO I TS MEMBERS. ONE CANNOT SAY THAT THERE IS SUCH NEXUS BETWEEN THE INTEREST EARNED ON DEPOSITS MADE WITH THE BANKS. IT MAY BE TRUE THAT DEPOSITS ARE MADE IN BANKS SO THAT THE FUNDS ARE NO T KEPT IDLE AND ALSO TO ENSURE THAT DEPOSITS ARE REPAID ON MATURITY. WHATEVER MAY BE THE MOTIVE FOR MAKING DEPOSITS WITH BANKS THAT CANNOT CHANGE THE CHARACTER OF INTEREST INCOME EARNED ON DEPOSIT MADE IN BANKS AS ONE ARISING FROM BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBER . IN FACT THE ISSUE HAS BEEN DEALT WITH THREADBARE BY THE HON BLE SUPREME COURT IN THE CASE OF TOTGARS CCS LTD. (SUPRA). IN PARA-10 OF ITS ORDER, THE HONBLE SUPREME COURT HAS HELD THAT INTEREST INCOME EARNED BY INVESTING FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND G AINS OF BUSINESS'. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAME LY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO I TS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEM BERS. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE HONBLE SUPREME COURT: 10. AT THE OUTSET, AN IMPORTANT CIRCUMSTANCE NEEDS TO BE HIGHLIGHTED. IN THE PRESENT CASE, THE INTEREST HELD NOT ELIGIBLE FOR DEDUCTION UNDER S. 80P(2)(A)(I) OF THE ACT IS NOT THE INTEREST RECEIVE D FROM THE MEMBERS FOR PROVIDING CREDIT FACILITIES TO THEM. WHAT IS SOUGHT TO BE TAXED UNDER S. 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT-TERM DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES. ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION, BEFORE US, I S WHETHER INTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS' ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER ITA NO.1720 & 1721/BANG/2013 PAGE 13 OF 16 S. 28 OF THE ACT ? IN OUR VIEW, SUCH INTEREST INCOM E WOULD COME IN THE CATEGORY OF 'INCOME FROM OTHER SOURCES', HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER S. 56 OF THE ACT, AS RIGHTLY HELD BY THE AO. IN THIS CONNECTION, WE MAY ANALYZE S. 80P OF THE ACT. THIS SECTION COMES IN CHAPTER VI-A, WHICH, IN TURN, DEALS WITH 'DEDUCTIONS IN RESPECT OF CERTAIN INCOMES'. THE HEADNOTE TO S. 80P INDICATES THAT THE SAID SECTION DEALS WITH DEDUCTIONS IN RESPECT OF INCOME OF CO-OPERATIVE SOCIETIES. SEC. 80P(1), INTER ALIA, STATES THAT WHE RE THE GROSS TOTAL INCOME OF A CO-OPERATIVE SOCIETY INCLUDES ANY INCOME FROM ONE OR MORE SPECIFIED ACTIVITIES, THEN SUCH INCOME SHALL BE DEDUCTED FROM THE GROSS TOTAL INCOME IN COMPUTING THE TOTAL TAXABLE INCOME OF THE ASSESSEE-SOCIETY. AN INCOME, WHICH IS ATTRIBUTABLE TO ANY OF THE SPECIFIED ACTIVITIES IN S. 80P(2) OF THE ACT, WOULD BE ELIGIB LE FOR DEDUCTION. THE WORD 'INCOME' HAS BEEN DEFINED UNDER S. 2(24)(I) OF THE ACT TO INCLUDE PROFITS AND GAINS. THIS SUB-SECTION IS AN INCLUSIVE PROVISION. THE PARLIAMENT HAS INCLUDED SPECIFICALLY 'BUSINESS PROFITS' INTO THE DEFINITION OF THE WORD 'INCOME'. THEREFORE, WE ARE REQUIRED TO GIVE A PRECISE MEANING TO THE WORDS 'PROFITS AND GAINS OF BUSINESS' MENTIONED IN S. 80P(2) OF THE ACT. IN THE PRESENT CASE, AS STATED ABOVE, ASSESSEE-SOCIETY REGULARLY INVESTS FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES. INTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS. WHEN THE ASSESSEE-SOCIETY PROVIDES CREDIT FACILITIES TO ITS MEMBERS, IT EARNS INTEREST INCOME. AS STATED ABOVE, IN THIS CASE, INTEREST HEL D AS INELIGIBLE FOR DEDUCTION UNDER S. 80P(2)(A)(I) I S NOT IN RESPECT OF INTEREST RECEIVED FROM MEMBERS. IN THIS CASE, WE ARE ONLY CONCERNED WITH INTEREST WHICH ACCRUES ON FUNDS NOT REQUIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINESS PURPOSES AND WHICH HAVE BEEN ONLY INVESTED IN SPECIFIED SECURITIES AS 'INVESTMENT'. FURTHER, AS STATED ITA NO.1720 & 1721/BANG/2013 PAGE 14 OF 16 ABOVE, ASSESSEE(S) MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS THE SALE PROCEEDS IN MANY CASES. IT IS THIS 'RETAINED AMOUNT' WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WAS INVESTED IN SHORT-TERM DEPOSITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETAINED BY THE ASSESSEE-SOCIETY, WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN S. 80P(2)(A)(I) OF THE ACT OR IN S. 80P(2)(A)(III) OF THE ACT. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE VIEW THAT THE AO WAS RIGHT IN TAXING THE INTEREST INCOME, INDICATED ABOVE, UNDER S. 56 OF THE ACT. 13. IN THE PRESENT CASE, THE INTEREST IN QUESTION I S FROM THE DEPOSITS MAINTAINED WITH DAVANGERE URBAN CO-OP. BAN K, WHICH IS A CO-OPERATIVE BANK AND THE MAKING OF SUCH DEPOSIT HA S NO NEXUS WITH THE BUSINESS OF THE ASSESSEE. THE INTEREST EARNED O N SUCH DEPOSIT CAN THEREFORE BE NOT CONSIDERED AS INCOME DERIVED F ROM THE BUSINESS OF PROVIDING CREDIT FACILITIES U/S.80P(2)(A)(I) OF THE ACT OR INTEREST DERIVED BY A CO-OP. SOCIETY FROM ITS INVESTMENTS WI TH ANY OTHER CO-OP. SOCIETY, AS CONTEMPLATED BY THE PROVISIONS OF S. 80 P(2)(A)(D) OF THE ACT. THEREFORE, FOLLOWING THE DECISION OF THE TRI BUNAL IN THE CASE OF SRI BASAVESHWARA CREDIT CO-OPERATIVE SOCIETY LTD., HIREKERUR (SUPRA) , WE HOLD THAT THE ORDER OF THE LD. CIT U/S. 263 O F THE ACT ON THIS ISSUE CALLS FOR NO INTERFERENCE. 14. IN THE RESULT, THE APPEAL FOR THE A.Y. 2008-09 IS PARTLY ALLOWED. ITA NO.1720 & 1721/BANG/2013 PAGE 15 OF 16 ITA 1721/B/13 15. IN THIS APPEAL FOR THE A.Y. 2009-10, THE ONLY I SSUE ON WHICH THE LD. CIT INVOKED HIS POWERS U/S. 263 OF THE ACT IS O N THE GROUND THAT INCOME EARNED BY THE ASSESSEE FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS NOT ENTITLED TO DEDUCTION U/S. 80P(2)(A) (I) OF THE ACT BECAUSE ASSESSEE WAS A CO-OPERATIVE BANK AND THEREF ORE PROVISIONS OF SECTION 80P(4) APPLY. WE HAVE ALREADY HELD, WHIL E DECIDING THE APPEAL OF THE ASSESSEE FOR THE EARLIER A.Y., THAT A SSESSEE COULD NOT BE REGARDED AS A CO-OPERATIVE BANK. FOR THE REASON S STATED THEREIN, WE ARE OF THE VIEW THAT THE ASSESSEE WAS ENTITLED T O DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT AND EXERCISE OF JURISDICTIO N U/S. 263 OF THE ACT BY THE LD. CIT WAS NOT PROPER. ACCORDINGLY, ORDER OF THE LD. CIT IS QUASHED AND APPEAL OF THE ASSESSEE IS ALLOWED. 16. IN THE RESULT, THE ITA 1720/B/13 FOR A.Y. 2008- 09 IS PARTLY ALLOWED AND ITA 1721/B/13 FOR A.Y. 2009-10 IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER , 2014 . SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE, DATED, THE 31 ST OCTOBER, 2014 . /D S/ ITA NO.1720 & 1721/BANG/2013 PAGE 16 OF 16 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.