The ITO,Patan Ward-3, Mehsana V. The Sardar Patel Co.Op.Credit So.Ltd., Mehsana

ITA 1723/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1877 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: H V DOSHI
• Keywords: Business income
• Section: 143(3); 142(1); 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI SHAILENDRA YADAV, JM, & SHRI MANISH BORAD, AM. ITA NO.1723 /AHD2012 ALONG WITH C.O. NO.161/AHD/2012 ASST. YEAR:2009-10 ITO, PATAN WARD-3, MEHSANA VS. SARDAR PATEL CO-OP. CREDIT SOCIETY LTD., PLOT NO.19, JUNA GANJ BAZAR, VIJAPUR APPELLANT RESPONDENT PAN AAAAT 4741 N APPELLANT BY SHRI DINESH SINGH, SR.DR RESPONDENT BY SHRI H. V. DOSHI, AR DATE OF HEARING: 6/4/2016 DATE OF PRONOUNCEMENT: 07/04/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL BY REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT( A), GANDHINAGAR, AHMEDABAD, DATED 11.5.2012 IN APPEAL NO.CIT(A)/GNR/ 158/2011-12. ASSESSMENT WAS FRAMED U/S 143(3) OF THE IT ACT, 196 1 (IN SHORT THE ACT) FOR ASST. YEAR 2009-10 ON 18/11/2011 BY ITO, P ATAN WARD-3, MEHSANA. REVENUE HAS RAISED FOLLOWING GROUNDS OF AP PEAL :- ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 2 1. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND O N FACTS IN DELETING THE DISALLOWANCE OF RS.35 ( 90,300 MADE BY THE AO U/S.80P(2)(A)(I) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEARNE D CLT(APPEALS) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO TH E ABOVE EXTENT. 2. GROUNDS RAISED BY ASSESSEE IN ITS CROSS OBJECTIO N ARE AS UNDER :- 1. THE LEARNED CIT(A) HAS ERRED IN LAW & FACTS IN DISA LLOWING DEDUCTION U/S. 80-P TO THE EXTENT OF RS.63190/- BY TREATING T HE INCOME FROM INTEREST ON BANK DEPOSITS AS TAXABLE U/S, 56 OF I.T . ACT. 2. THE APPELLANT, THEREFORE/PRAYS THAT THE LEARNED INC OME TAX OFFICER MAY BE DIRECTED TO MODIFY THE ASSESSMENT ACCORDINGLY 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT ASSESSEE IS A CO-OPERATIVE CREDIT SOCIETY. IT FILED ITS RETURN OF INCOME ON 18/9/2009 DECLARING NIL INCOME. CASE WAS SELECTE D FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 18.8 .2010 FOLLOWED BY NOTICE U/S 142(1) OF THE ACT ON 9.11.2011 ALONG WIT H DETAILED QUESTIONNAIRE. NECESSARY REPLY WAS SUBMITTED ALONG WITH FURNISHING OF DETAILS AND EVIDENCES CALLED FOR BY THE ASSESSIN G OFFICER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS SHOWN TOTAL GROSS RECEIP TS OF RS.71,75,856/- AND HAS CLAIMED DEDUCTION U/S 80P(2) (A)(I) OF THE ACT AT RS.35,90,297/-. LD. ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE BEING A CO-OPERATIVE BANK AND IS THEREFORE , NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT BECAUSE OF TH E INSERTION OF ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 3 SECTION 80P(4) OF THE ACT FROM ASST. YEAR 2007-08 A ND THE REPLY OF THE ASSESSEE THAT IT IS NOT A CO-OPERATIVE BANK BUT IS A CREDIT CO- OPERATIVE SOCIETY AND PROVISIONS OF SECTION 80P(4) ARE NOT APPLICABLE ON THE ASSESSEE, COULD NOT CHANGE THE MIND OF THE A SSESSING OFFICER AND HE WAS OF THE VIEW THAT DEDUCTION CLAIMED UNDER SEC. 80P(2)(A)(I) OF THE ACT IS NOT ALLOWABLE ON THE REA SON THAT THE CO-OP. SOCIETY IS ENGAGED IN BANKING BUSINESS AND DENIED D EDUCTION OF RS.35,90,297/- CLAIMED BY ASSESSEE U/S 80P(2)(A)(I) OF THE ACT AND ASSESSED THE INCOME AT RS.35,90,297/-. 4. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE THE LD . CIT(A) WHO VIDE HIS APPELLATE ORDER DELETED THE ADDITION MADE BY LD. ASSESSING OFFICER BY OBSERVING THAT ASSESSEE IS NOT A CO-OP. BANK BUT IS A CO- OP. CREDIT SOCIETY WHICH CONFINES ITS ACTIVITIES ON LY TO ITS MEMBERS AND DOES NOT PERFORM BANKING FUNCTION AND ALLOWED THE G ROUND OF ASSESSEE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. HOWEVER, ON GOING THROUGH THE FINANCIAL STATEMENT OF THE CO-OP. CREDI T SOCIETY, LD. CIT(A) OBSERVED THAT ASSESSEE HAS EARNED BANK INTEREST AND CALCULATED THE SAME AT RS.63,190/- AS INTEREST INCOME TAXABLE U/S 56 OF THE ACT AND FOR DOING SO LD. CIT(A) FOLLOWED THE DECISION OF HO N. SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD. VS. ITO, KARNATAKA 322 ITR 283 (SC). 5. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US AG AINST THE ACTION OF LD. CIT(A) ALLOWING DEDUCTION U/S 80P(2)( A)(I) OF THE ACT AND ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 4 ASSESSEE HAS ALSO FILED CROSS OBJECTION FOR THE ADD ITION OF RS.63,190/- MADE BY LD. CIT(A). 6. FIRST WE WILL TAKE UP REVENUES APPEAL IN ITA NO .1723 /AHD2012. 7. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER AND THE LD. AR RELIED ON THE ORDER OF LD. CIT(A) IN REGARD TO HIS DECISION IN RELATION TO DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE RAISED BY REVENUE IS AGAI NST THE ACTION OF LD. CIT(A) DELETING THE DISALLOWANCE OF RS.35,90,30 0/- MADE U/S 80P(2)(A)(I) OF THE ACT. FROM PERUSAL OF THE RECORD , WE OBSERVE THAT ASSESSEE IS A CO-OP. CREDIT SOCIETY WHICH CONFINES ITS BUSINESS ONLY TO ITS MEMBERS AND OBJECTS OF THE ASSESSEE SOCIETY DEP ICTS THE PICTURE OF THE WORKING OF THE SOCIETY WHEREIN THE OBJECT RE LATES TO COLLECTING FUNDS AND DEPOSITS FROM ITS MEMBERS AND TO GIVE FUN DS FOR ITS BUSINESS AND OTHER NEEDS TO ITS MEMBERS. FURTHER FR OM GOING THROUGH THE ORDER OF LD. CIT(A) WE FIND THAT THE ISSUE HAS BEEN DEALT IN ELABORATELY BY OBSERVING AS UNDER :- 6. I HAVE GONE THROUGH THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE SUBMISSIONS. AS PER THE DEFINITION OF BANKING AS PER SEC 5(B) OF BANKING REGULATION ACT, 'BANKING' MEANS THE ACCEPTING FOR THE PU RPOSE OF LENDING OR , OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUE, DRAFT, ORDER OR OTHERWISE. TH E DEFINITION IS BASIC LAW TO BE CONSIDERED TO DECIDE WHETHER A CREDIT SOCIETY IS A CO-OPERATIVE BANK OR NOT. ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 5 ONLY, THOSE CREDIT SOCIETIES WHICH ARE ALLOWED TO T AKE DEPOSITS OF MONEY FROM THE PUBLIC AND DO OTHER BANKING ACTIVITIES AS DEFINED I N THE SEC 5(B) OF BANKING REGULATION ACT WOULD QUALITY TO BE A COOPERATIVE BA NK. IN MY CONSIDERED VIEW DEPOSITS FROM PUBLIC CANNOT BE EQUIVALENT TO TAKING DEPOSITS FROM MEMBER S OF THE SOCIETY ONLY WHICH HAS GOT A MUCH RESTRICTED ME ANING AND THE RELATIONSHIP BETWEEN A SOCIETY AND A PUBLIC HAS TO BE UNDERSTOOD IN A MUCH LARGER SENSE. THE ISSUE HAS BEEN EXPLAINED IN A REPORT OF A HIGH LEVEL COMMITTEE APPOINTED BY THE RESERVE BANK OF INDIA IN MAY 1999 UNDER THE CHA IRMANSHIP OF SHRI K. MADHAVA RAO, EX-CHIEF SECRETARY, GOVERNMENT OF ANDH RA PRADESH TO REVIEW THE PERFORMANCE OF URBAN COOPERATIVE BANKS (UCBS) AND S UGGEST NECESSARY MEASURES TO STRENGTHEN THIS SECTOR. THE REPORT WAS PUBLISHED ON 14/01/2000 AND IN PARA. 7.1 & 7.2 OF THE REPORT, THE FOLLOWING HAS BEEN NARRATED: '7.1 COOPERATIVE CREDIT STRUCTURE IN INDIA IS CHARA CTERISED BY A PLETHORA OF INSTITUTIONAL SEGMENTS. LEAVING ASIDE THE AGRICULTU RAL COOPERATIVE CREDIT INSTITUTIONS, IN THE URBAN COOPERATIVE CREDIT FOLD ITSELF, THERE ARE 3 TYPES OF INSTITUTIONS RECOGNISED BY THE BANKING REGULATION A CT 1949 (AS APPLICABLE TO COOPERATIVE SOCIETIES). AS DISCUSSED ELSE WHERE IN THE REPORT, THESE ARE (I) PRIMARY CREDIT SOCIETIES, WHO VIRTUALLY FUNCTIO N LIKEBANKS, BUT WHOSE NETWORTH IS LESS THAN RS.L LAKH; WHO ARE NOT MEMBER S OF THE PAYMENT SYSTEM AND TO WHOM DEPOSIT INSURANCE' IS NOT EXTEND ED, (II) PRIMARY COOPERATIVE BANKS, POPULARLY CALLED UR BAN COOPERATIVE BANKS, WHOSE NET WORTH IS RS.L LAKH AND ABOVE; WHO ARE REC OGNISED AS BANKS, ARE MEMBERS OF PAYMENT SYSTEM AND WHO ENJOY DEPOSIT INS URANCE (III) COOPERATIVE CREDIT SOCIETIES, WHO CO NFINE THEIR ACTIVITIES TO THEIR MEMBERS ALONE AND WHO DO NOT ,V PERFORM BANKI NG FUNCTIONS. IN THIS CHAPTER, THE COMMITTEE DEALS WITH THESE COOPERATIVE CREDIT SOCIETIES. 7.2 UNDER THE PROVISIONS OF SECTION 5(CCII) OF BANK ING REGULATION ACT, 1949 (AACSJ, A COOPERATIVE CREDIT SOCIETY IS DEFINED AS A COOPER ATIVE SOCIETY, 'THE PRIMARY OBJECT OF WHICH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS AND INCLUDES A COOPERA TIVE LAND MORTGAGE BANK.' THIS TYPE OF INSTITUTIONS ARE THRIF T SOCIETIES. THE DISTINCTION BETWEEN A PRIMARY CREDIT SOCIETY AND A COOPERATIVE CREDIT SOCIETY IS WITH REFERENCE TO THEIR NATURE OF BUSINE SS. THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF A PRIMARY CREDIT SOCIETY I S THE TRANSACTION OF BANKING BUSINESS. WHEN ITS PAID UP CAPITAL AND RESERVES ATTAIN THE LEVEL OF RS.L LAKH, A PRIMARY CREDIT SOCIETY AUTOMA TICALLY BECOMES A PRIMARY COOPERATIVE BANK. HOWEVER, EVEN AFTER A PRI MARY CREDIT SOCIETY ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 6 BECOMES A COOPERATIVE BANK, IT HAS TO APPLY TO RBI FOR A LICENSE TO CARRY ON BANKING BUSINESS. BUT IT CAN CARRY ON BANK ING BUSINESS UNTIL IT IS GRANTED A LICENSE OR NOTIFIED THAT A LICENSE CAN NOT BE GRANTED TO IT.' THE ABOVE REPORT CLEARLY DEFINES THE CIRCUMSTANCES IN WHICH A CREDIT SOCIETY CAN BE ALLOWED TO CARRY ON BANKING BUSINESS . THESE INCLUDE 'PRIMARY CREDIT SOCIETY', WHEN ITS PAID UP CAPITAL AND RESERVE ATTAIN THE LEVEL OF RS. 1 LAC, WHICH CAN CARRY ON BUSINESS OF BANKING UNTIL IT IS GRANTED A LICENSE OR NOTIFIED THAT A LICENSE CANNOT BE GRANTED TO IT. THESE CREDIT SOCIETIES WOULD NOT GET THE BENEFIT OF THE DEDUCTION U/S 80P(2)(A)(I). CONSIDERING THE ABOVE FACTS, IT IS CLEAR THAT THE A PPELLANT IS NOT ALLOWED TO DO BANKING BUSINESS AS DEFINED UNDER BANKING REG ULATION ACT AND THEREFORE, IS NOT A CO-OPERATIVE BANK. THEREFORE, I T IS NOT EXCLUDED FROM THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT 'AS IT DOES NOT FALL UNDER THE EXCEPTIONS AS PROVIDED U/S 80P(4). I HAVE ALSO NOTED THE DECISION OF HONORABLE ITAT MUMBAI BENCH IN THE CASE OF SALGAON SANMITRA SAHAKARI PATHPED LTD. 12 TAXMANN.COM 246 ; WHERE BOTH THE CIT (APPEALS) AND THE HAT HAVE HELD THAT THE CO RPORATIVE CREDIT SOCIETY IN THAT CASE WAS NOT A COOPERATIVE BANK. THEREFORE, IT IS HELD THAT THE APPELLANT IS ENTITLE D TO THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT. 9. WE ARE, THEREFORE, OF THE VIEW THAT ASSESSEE BEI NG A CREDIT CO- OP. SOCIETY DOES NOT FALL WITHIN THE PROVISIONS OF SECTION 80P(4) OF THE ACT AS THE ASSESSEE SOCIETY IS NOT REQUIRED TO BE REGISTERED WITH RESERVE BANK OF INDIA BECAUSE FOR CARRYING ON BANKI NG BUSINESS IT IS MUST. WE ARE THEREFORE OF THE VIEW THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT AND NO INTERF ERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) RELATING TO THIS GROUND. REVENUES GROUND IS DISMISSED. 10. OTHER GROUNDS OF REVENUE ARE GENERAL IN NATURE, WHICH NEED NO ADJUDICATION. ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 7 11. NOW WE TAKE UP ASSESSEES CROSS OBJECTION. ASSE SSEE HAS FILED THIS CROSS OBJECTION AGAINST THE ORDER OF LD. CIT(A) WHEREIN NEW ADDITION OF RS.63,190/- HAS BEEN MADE BY LD. CIT(A) BY WAY OF DISALLOWING DEDUCTION U/S 80P(2)(A)(I) OF THE ACT O N THE INTEREST EARNED FROM BANK DEPOSITS BY TREATING IT AS TAXABLE INCOME U/S 56 OF THE ACT BY APPLYING THE DECISION OF HON. SUPREME CO URT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD. VS. ITO(SUPRA). 12. AT THE OUTSET LD. AR SUBMITTED THAT THE ISSUE R AISED IN THIS CROSS OBJECTION IS SQUARELY COVERED BY THE DECISION OF CO -ORDINATE BENCH IN THE CASE OF ITO VS. M/S JAFARI MOMIN VIKAS CO-OP. C REDIT SOCIETY LTD. IN ITO NO.1491/AHD/2012 WITH CO NO.138/AHD/2012 FOR ASST. YEAR 2009-10 VIDE ORDER DATED 31.10.2012, WHEREIN INTERE ST FROM BANK DEPOSITS EARNED BY ASSESSEE CREDIT CO-OP. SOCIETY I N VIEW OF KEEPING LIQUID FUNDS AVAILABLE FOR THE BENEFIT OF MEMBERS W AS HELD TO BE ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT AND ALSO FACTS WERE CLEARLY DISTINGUISHED WITH THE FACTS WHICH WERE THE RE BEFORE HON. SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SO CIETY LTD. VS. ITO(SUPRA). 13. LD. DR SUPPORTED THE ORDER OF LD. CIT(A). 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. SOLITARY GRIEVANCE RAISED BY THE ASSESSE E IN ITS CROSS OBJECTION IS ARISING OUT OF THE DECISION OF LD. CIT (A) WHO HAS HELD THAT INTEREST INCOME ON BANK DEPOSITS AT RS.63,190/- IS TAXABLE AS INCOME ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 8 FROM OTHER SOURCES U/S 56 OF THE ACT AND IS NOT ELI GIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT AS IT HAS NOT EARNED TH E SAME THROUGH THE REGULAR ACTIVITIES RELATE TO ITS MEMBERS AS ENUMERA TED IN THE OBJECTS OF THE ASSESSEE CO-OP. CREDIT SOCIETY. 15. WE FIND THAT LD. AR HAS REFERRED AND RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF ITO VS. M/S JA FARI MOMIN VIKAS CO-OP. CREDIT SOCIETY LTD.(SUPRA) WHEREIN SIMILAR I SSUE CAME UP BEFORE THE BENCH AS THAT OF THE PRESENT ASSESSEE. W E FURTHER OBSERVE THAT CO-ORDINATE BENCH IN ITS DECISION (REFERRED AB OVE) HAS CLEARLY DISTINGUISHED THE FACTS BEFORE IT VIS--VIS THE FAC TS BEFORE HON. SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SO CIETY LTD. VS. ITO(SUPRA) AND HAS COME TO A CONCLUSION THAT LOOKIN G TO THE NATURE OF BUSINESS OF THE ASSESSEE CREDIT CO-OP. SOCIETY WHER EIN IT ACCEPTS DEPOSITS FROM AND LENDS THE SAME TO ITS MEMBERS AND IN ORDER TO MEET ANY EVENTUALITY LIQUIDITY FUNDS NEEDS TO BE MA INTAINED AND FOR THIS PURPOSE SHORT TERM DEPOSITS ARE KEPT WITH THE BANKS WHICH FETCH BANK INTEREST AND SIMILARLY INTEREST IS ALSO EARNED ON THE BANK BALANCES AND CERTAINLY SUCH INTEREST EARNED FROM BA NKS ARE ELIGIBLE TO CLAIM U/S 80P(20(A)(I) OF THE ACT AND WHILE DECIDIN G SO THE CO-ORDINATE BENCH HAS OBSERVED AS UNDER :- 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE EITHER PARTY, PERUSED THE RELEVANT RECORDS AND ALSO THE CASE LAW ON WHICH THE LEARNED AR HAD RESERVATION IN ITS APPLICABLY IN THE CIRCUMSTANCES OF THE ASSESSEES CASE. 18. IT WAS THE STAND OF THE LEARNED CIT (A) THAT TH E ENTIRE INCOME WAS NOT EXEMPT AND THAT IT WAS TO BE EXAMINED AS TO WHETHER THERE WAS ANY I NTEREST INCOME ON THE SHORT TERM BANK DEPOSITS AND SECURITIES INCLUDED IN THE TOTAL INCOM E OF THIS SOCIETY WHICH HAS BEEN CLAIMED AS EXEMPT. ACCORDING TO THE CIT (A), A SIMI LAR ISSUE TO THAT 13 OF THE PRESENT ONE WAS DEALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 9 LTD V. ITO (SUPRA). THE ISSUE BEFORE THE HONBLE CO URT FOR DETERMINATION WAS WHETHER INTEREST INCOME ON SHORT TERM BANK DEPOSITS AND SEC URITIES WOULD BE QUALIFIED AS BUSINESS INCOME U/S 80P (2)(A)(I) OF THE ACT. 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME COU RT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION OF FACTS, AS UNDER: WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOSITS AND SEC URITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES? THE 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 BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION, BEFORE US, IS-WHETHER INTEREST ON SUCH DE POSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT? IN OUR VIEW, SUCH INTEREST I NCOME WOULD COME IN THE CATEGORY OF INCOME FROM OTHER SOURCES, HENCE, SUCH INTEREST I NCOME WOULD BE TAXABLE UNDER SECTION 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSESSING OFF ICER 19.1 HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT WAS OBSERVED THAT THE FIXED DEPOSI TS MADE WERE TO MAINTAIN LIQUIDITY AND THAT THERE WAS NO SURPLUS FUNDS WITH THE ASSESSEE A S ATTRIBUTED BY THE REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HONBLE SUPREME CO URT (ON PAGE 286) 7BEFORE THE ASSESSING OFFICER, I T WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND, CONSEQUENTLY , SUCH ACT OF INVESTMENT CONSTITUTED A BUSINESS ACTIVITY BY A PRUDENT BUSINESSMAN; THERE FORE, SUCH INTEREST INCOME WAS LIABLE TO BE TAXED UNDER SECTION 28 AND NOT UNDER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE 14 ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECT ION 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS A LSO BY THE TRIBUNAL AND THE HIGH COURT, HENCE, THESE CIVIL APPEALS HAVE BEEN FILED B Y THE ASSESSEE(S). 19.2 FROM THE ABOVE, IT EMERGES THAT (A) THAT ASS ESSEE (ISSUE BEFORE THE SUPREME COURT) HAD ADMITTED BEFORE THE AO THAT IT HAD INVESTED SUR PLUS FUNDS, WHICH WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF ITS BUSINES S, IN SHORT TERM DEPOSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED ON TWO ACTIV ITIES, NAMELY, (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSITS TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D) THAT THE SURPLUS HAD ARISEN EMPHAT ICALLY FROM MARKETING OF AGRICULTURAL PRODUCES. 19.3 IN THE PRESENT CASE UNDER CONSIDERATION, THE E NTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THERE WERE NO SURPLUS FUND S. ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 10 19.4 WHILE COMPARING THE STATE OF AFFAIRS OF THE PR ESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COURT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAMELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE WERE NO SURPLUS FUNDS; - IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS AD MITTED BEFORE THE AO, OUT OF RETAINED AMOUNTS ON MARKETING OF AGRICULTURAL PRODU CE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT CARRY O UT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; - IN THE CASE OF TOTGARS, THE HONBLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS; 19.5 CONSIDERING THE ABOVE FACTS, WE FIND THAT THER E IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE NOT A CO-OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSI TS FROM AND LENDS THE SAME TO ITS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESS EE THAT IT HAD INVESTED IN SHORT-TERM DEPOSITS. FURTHERMORE, THE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AND THE BALANCE AS AT 31.3.2009 WAS RS.13,69,955/- [SOU RCE: BALANCE SHEET OF THE ASSESSEE AVAILABLE ON RECORD] 19.6 IN OVERALL CONSIDERATION OF ALL THE ASPECTS, W E ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP SALE SOCIETY LTD (SUPRA) CANNOT IN ANY WAY COME TO THE RESCUE OF EITHER THE LD. CIT (A) OR THE REVENUE. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN COMING TO A CONCLUSION THAT THE SU M OF RS.9,40,639/- WAS TO BE TAXED U/S 56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 16. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH IN THE CASE OF ITO VS. M/S JAFARI MOMIN VIKAS CO-OP. C REDIT SOCIETY LTD.(SUPRA), WE ARE OF THE VIEW THAT ASSESSEE IS EL IGIBLE FOR DEDUCTION OF BANK INTEREST OF RS.63,190/- AND ALLOW THE GROUN D RAISED BY ASSESSEE IN ITS CROSS OBJECTION. 17. OTHER GROUND OF THE C.O. IS GENERAL IN NATURE. ITA NO. 1723 & CO.161/AHD/2012 ASST. YEAR 2009-10 11 18. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED A ND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/04 / 201 6 SD/- SD/- (SHAILENDRA YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 7/4/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASS T. REGISTRAR, ITAT, AHMEDABAD. 1. DATE OF DICTATION: 7/4/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 7/4/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 8/4/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: