The ITO, Ward-3(4), Petlad V. The Alarsa Nagrik Co.Operative Credit Society Ltd.,

ITA 2072/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6283 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 09-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.2072/AHD/2014 %& ' ()'/ ASSTT. YEAR: 2010-11 ITO, WARD - 3(4) PETLAD (BARODA) VS. THE ALARSA NAGRIK COOPERATIVE BANK SOCIETY LTD. GANDHI CHOWK, ALARSA TAL-BORSAD. PAN : AAATT 3680 P ( APPLICANT ) ( RESPONENT ) REVENUE BY : SHRI PRASOON KABRA, SR.DR ASSESSEE BY : NONE / DATE OF HEARING : 06/04/2017 / DATE OF PRONOUNCEMENT: 10/04/2017 67/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-I, BARODA DATED 16.4.2014 PASSED FOR THE ASSTT.YEAR 2010-11. 2. IN RESPONSE TO THE NOTICE OF HEARING, NO ONE HAS COME PRESENT ON BEHALF OF THE ASSESSEE. WITH THE ASSISTANCE OF THE LD.DR, WE HAVE GONE THROUGH THE RECORD. 3. SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE LD .CIT(A) HAS ERRED IN GRANTING EXEMPTION UNDER SECTION 80P(2)(A)(I) OF TH E INCOME TAX ACT, 1961 TO THE ASSESSEE. ITA NO.2072/AHD/2014 2 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF ELECTRONICALLY ON 20.7.2010 DECLARING TOTAL INCOME AT NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTI NY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS MADE FIXED DEPOSITS IN VARIOUS NATIONALIZED BANKS. IT HAS EARNED INTEREST INCOME ON THESE FDS., AND SINCE IT IS DOING BUSINESS OF BANKING INCLUDING PROVIDING CR EDIT FACILITIES TO THE MEMBERS, IT IS NOT ENTITLED FOR DEDUCTION UNDER SEC TION 80P(2) OF THE ACT. ON APPEAL, THE LD.CIT(A) RE-APPRECIATED THE FACTS AND CIRCUMSTANCES AND PUT RELIANCE UPON JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. JAFARI MOMIN VIKAS COOPERATIVE CREDIT SOCIETY L TD. AND ALLOWED THE CLAIM OF THE ASSESSEE. 5. WE HAVE GONE THROUGH THE RECORD CAREFULLY. A PE RUSAL OF THE IMPUGNED ORDER WOULD INDICATE THAT NEITHER THE AO NOR THE CI T(A) HAS MADE ANY ANALYTICAL STUDY. FOR APPRECIATING THIS ASPECT, LE T US TAKE NOTE OF PARA-5 OF THE ASSESSMENT ORDER, WHICH READS AS UNDER: 5. AFTER SCRUTINY OF THE SUBMISSION/DETAILS FILED AND FACTS OF THE CASE IT IS NOTICED THAT THE CAPTIONED SOCIETY HAS MADE F .D. IN VARIOUS NATIONALIZED BANK. THE CAPTIONED SOCIETY HAS ACCEP TED THE DEPOSITS FROM ITS MEMBERS AND HAS GIVEN VARIOUS TYPES OF LOA NS LIKE VEHICLE LOAN, HOME LOAN, SHORT TERM LOANS, CASH CREDIT, ETC TO IT S MEMBERS ONLY AND EARNED INTEREST OUT OF THESE ACTIVITIES. FROM REMAI NING SURPLUS AMOUNT, THE SOCIETY HAS MADE F.D IN VARIOUS BANKS. FROM THI S, IT IS NOTICED THAT THIS CO-OP CREDIT SOCIETY IS DOING A BUSINESS OF BA NKING INCLUDING PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND CLAI MED DEDUCTION U/S. 80P(2)(A)(I). W.E.F 01.04.2007, THE DEFINITION OF INCOME IN SECTI ON 2(24) HAS BEEN AMENDED BY INSERTING SUB-CLAUSE (IIA) THAT THE PROFIT OR GAIN OF ANY BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITY) CARRIED ON BY CO-OP, SOCIETY WITH ITS MEMBERS. FURTHER, SUB-SECTION (4) OF SECTION 80-P INSERTED W.E.F 01.04.2007 READ AS UNDER: ITA NO.2072/AHD/2014 3 'THE PROVISION OF THIS SECTION SHALL NOT APPLY IN R ELATION TO ANY CO-OP.BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OP. AGRICULTURAL AND RURAL DEVELOPMENT B ANK' 6. A PERUSAL OF THE ABOVE PARAGRAPH WOULD INDICATE THAT THE LD.AO WAS TOTALLY CONFUSED ABOUT WHETHER HE WAS TREATING THE ASSESSEE AS COOPERATIVE BANK OR COOPERATIVE CREDIT SOCIETY. HE HAS NOT WOR KED OUT WHAT IS THE EXACT AMOUNT OF INTEREST EARNED BY THE ASSESSEE ON THE FD RS., WITH THE NATIONALIZED BANKS. THE LD.AO OUGHT TO HAVE TAKEN NOTE OF THE T OTAL INTEREST INCOME SHOWN BY THE ASSESSEE IN THE ACCOUNTS I.E. INCOME EARNED FROM ITS MEMBERS BY PROVIDING CREDIT FACILITIES AS WELL AS THE INCOME E ARNED FROM FDRS., WITH NATIONALIZED BANKS. HIS ORDER IS TOTALLY SILENT ON THIS ISSUE. ON APPEAL TO THE LD.CIT(A) THIS SITUATION HAS BEEN AGGRAVATED MORE. THE LD.CIT(A) THOUGH DEVOTED 11 PAGES TO ARRIVE AT A CONCLUSION THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80P, BUT NOWHERE MADE ANALY TICAL EXAMINATION OF THE FACTS OF THE PRESENT CASE. HE SIMPLY REPRODUCED TH E ASSESSMENT ORDER AND THE JUDGMENT OF JAFARI MOMIN VIKAS COOPERATIVE CREDIT S OCIETY LTD. HE HAS DEVOTED MORE ENERGY TOWARDS TAKING COGNIZANCE OF TH E FACTS FROM THE SAID JAFARI MOMIN VIKAS COOPERATIVE CREDIT SOCIETY LTD. IN OTHER WORDS, THERE IS NO HEAD-AND-TAIL IN THE ORDER AND NO REASONS ARE DI SCERNIBLE FOR ARRIVING AT A CONCLUSION THAT THE ASSESSEE IS ENTITLED FOR EXEMPT ION UNDER SECTION 80P(2) OF THE ACT. THE LD.DR HAS BROUGHT TO OUR NOTICE JUDGM ENT OF THE HONBLE GUJARAT COURT IN THE CASE OF STATE BANK OF INDIA VS . CIT RENDERED IN TAX APPEAL NO486 AND 487 OF 2015 AND SUBMITTED THAT THE ISSUE REQUIRED TO BE RE- ADJUDICATED AT THE LEVEL OF AO AFRESH IN THE LIGHT OF THIS DECISION. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. WE FIND THAT A CONTROVERSY WHETHER COOP ERATIVE CREDIT SOCIETY COULD CLAIM DEDUCTION UNDER SECTION 80P(2) OF INTER EST INCOME EARNED BY IT WITH INVESTMENT IN NATIONALIZED BANKS HAS COME BEFO RE THE HONBLE GUJARAT ITA NO.2072/AHD/2014 4 HIGH COURT IN THE CASE OF STATE BANK OF INDIA VS. C IT (SUPRA). THE HONBLE HIGH COURT VIDE ITS DECISION DATED 25.4.2016 CONSID ERED TWO QUESTIONS OF LAW. FOR THE PURPOSE OF CONTROVERSY IN HAND, THE QUESTIO N NO.2 IS THE RELEVANT QUESTION. IT READS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLD ING THAT INTEREST INCOME OF RS.16,14,579/- ON DEPOSITS PLACED WITH ST ATE BANK OF INDIA WAS NOT EXEMPT UNDER SECTION 80P(2)(A)(I) OF THE IN COME TAX ACT, 1961? 8. BRIEF FACTS IN THIS CASE ARE THAT THE ASSESSEE S OCIETY WAS REGISTERED UNDER GUJARAT COOPERATIVE SOCIETIES ACT, 1961. IT WAS CO NSTITUTED WITH OBJECT OF ACCEPTING DEPOSITS FROM SALARIED PERSONS OF THE STA TE BANK OF INDIA, GUJARAT REGION WITH A VIEW TO ENCOURAGE THRIFT AND PROVIDIN G CREDIT FACILITY TO THEM. THE ASSESSEE SOCIETY HAS LAUNCHED VARIOUS DEPOSITS SCHEMES SUCH AS TERM DEPOSITS, RECURRING DEPOSITS, AID TO FAMILY SCHEME, MEMBERS RETIRING BENEFIT FUND ETC. IT HAS PROVIDED LOANS TO MEMBERS, SUCH A S CONSUMER GOODS LOAN, CAR VEHICLE LOAN, FOOD-GRAIN LOAN AND GENERAL PURPOSES LOAN. THE ASSESSEE SOCIETY HAD MADE DEPOSITS WITH NATIONALIZED BANKS WHICH HAS RESULTED INTEREST INCOME OF RS.16,14,579/-. IT CLAIMED DEDUCTION OF THIS AM OUNT UNDER SECTION 80P(2) OF THE ACT. 9. IN THE BACKGROUND OF THE ABOVE FACTS, THE HONBL E COURT HAS OBSERVED THAT DEDUCTION UNDER SECTION 80P(2) IS NOT AVAILABL E. FINDING RECORDED IN PARA-13 AND 14 OF THE JUDGMENT IS WORTH TO NOTE. I T READS AS UNDER: 13. IN THE OPINION OF THIS COURT, IN CASE OF A SOC IETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS, INCOME FROM INVES TMENTS MADE IN BANKS DOES NOT FALL IN ANY OF THE CATEGORIES MENTIONED UNDER S ECTION 80P(2)(A) OF THE ACT. IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIE TY (SUPRA), AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE RESPONDENT , THE COURT WAS DEALING WITH TWO KINDS OF ACTIVITIES: INTEREST INCOME EARNE D FROM THE AMOUNT RETAINED FROM THE AMOUNT PAYABLE TO THE MEMBERS FROM WHOM PR ODUCE WAS BOUGHT ITA NO.2072/AHD/2014 5 AND WHICH WAS INVESTED IN SHORT-TERM DEPOSITS/SECUR ITIES; AND THE INTEREST DERIVED FROM THE SURPLUS FUNDS THAT THE ASSESSEE TH EREIN INVESTED IN SHORT- TERM DEPOSITS WITH THE GOVERNMENT SECURITIES. THIS IS FURTHER CLEAR WHEN ONE PERUSES THE DECISION OF THE KARNATAKA HIGH COURT FR OM WHICH THE MATTER TRAVELLED TO THE SUPREME COURT WHEREIN IT WAS THE C ASE OF THE ASSESSEE THAT IT WAS CARRYING ON THE BUSINESS OF PROVIDING CREDIT FA CILITIES TO ITS MEMBERS AND THEREFORE, THE APPELLANT-SOCIETY BEING AN ASSESSEE ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS, THE INTEREST RECE IVED ON DEPOSITS IN BUSINESS AND SECURITIES IS ATTRIBUTABLE TO THE BUSINESS OF T HE ASSESSEE AS ITS JOB IS TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS AND MARKET ING THE AGRICULTURAL PRODUCTS OF ITS MEMBERS. THIS COURT IS, THEREFORE, OF THE VIEW THAT THE ABOVE DECISION IS NOT RESTRICTED ONLY TO THE INVESTMENTS MADE BY THE ASSESSEE THEREIN FROM THE RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS BUT ALSO IN RESPECT OF FUNDS NOT IMMEDIATELY REQUIRED FOR BU SINESS PURPOSES. THE SUPREME COURT HAS HELD THAT INTEREST ON SUCH INVEST MENTS, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION PROFITS AND GAINS OF BUSINESS AND THAT SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE T O THE ACTIVITIES OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVID ING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS. THE COURT HAS HELD THAT WHEN THE ASSESSEE SOCIETY PROVIDES CREDIT FACILITIES TO ITS MEMBERS, IT EARNS INTEREST INCOME. THE INTEREST WHICH ACCRUE S ON FUNDS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES AND WHICH HAS BEEN INVESTED IN SPECIFIED SECURITIES AS INVESTMENT AR E INELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. FOR THE ABOV E REASONS, THIS COURT RESPECTFULLY DOES NOT AGREE WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD . V. INCOME TAX OFFICER WARD-V, TUMKUR (SUPRA) THAT THE DECISION OF THE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY (SUPRA) IS RESTRI CTED TO THE SALE CONSIDERATION RECEIVED FROM MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WHICH WAS RETAINED IN MANY CASES AND INVESTED IN SH ORT TERM DEPOSIT/SECURITY AND THAT THE SAID DECISION WAS CONFINED TO THE FACT S OF THE SAID CASE AND DID NOT LAY DOWN ANY LAW. 14. THUS, IN THE LIGHT OF THE PRINCIPLES ENUNCIATED BY THE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY (SUPRA), IN CASE OF A SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS, INCOME FROM INVESTMENTS MADE IN BANKS DOES NOT FALL WITHIN ANY OF THE CATEGORIES ME NTIONED IN SECTION 80P(2)(A) OF THE ACT. HOWEVER, SECTION 80P(2)(D) OF THE ACT SPECIFICALLY EXEMPTS INTEREST EARNED FROM FUNDS INVESTED IN CO-O PERATIVE SOCIETIES. THEREFORE, TO THE EXTENT OF THE INTEREST EARNED FRO M INVESTMENTS MADE BY IT WITH ANY CO-OPERATIVE SOCIETY, A CO-OPERATIVE SOCIE TY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SUCH INCOME UNDER SECTION 80P(2)(D) OF THE ACT. HOWEVER, INTEREST EARNED FROM INVESTMENTS MADE IN ANY BANK, NOT BEING A CO-OPERATIVE SOCIETY, IS NOT DEDUCTIBLE UNDER SECTION 80P(2)(D) OF THE ACT. ITA NO.2072/AHD/2014 6 10. A PERUSAL OF THIS JUDGMENT WOULD SUGGEST THAT D EDUCTION UNDER SECTION 80P(2)1) IS NOT AVAILABLE ON THE INTEREST INCOME EA RNED ON SURPLUS MONEY DEPOSITED WITH NATIONALISED BANKS. BUT IF ASSESSEE HAS INCURRED ANY EXPENDITURE, WHICH IS ATTRIBUTABLE TO THE EARNING O F INTEREST INCOME, THEN, THE AO SHALL EXAMINE THAT ASPECT AND EXCLUDE THE INTERE ST EXPENDITURE IF ANY INCURRED BY THE ASSESSEE FOR EARNING THIS INTEREST FROM BANK. IN OTHER WORDS, THE ONLY NET INTEREST INCOME IS TO BE EXCLUDED FROM THE CLAIM OF DEDUCTION UNDER SECTION 80P(2) OF THE ACT. RESPECTFULLY FOL LOWING THE JUDGMENT OF HONBLE GUJARAT COURT WE SET ASIDE BY THE ORDERS OF THE REVENUE AUTHORITIES AND RESTORE THIS ISSUE TO THE FILE OF THE AO FOR RE -ADJUDICATION. THE LD.AO SHALL WORK OUT NET INTEREST INCOME EARNED BY THE AS SESSEE FROM THE FDRS. WITH NATIONALIZED BANKS. HE THEREAFTER DISALLOW THAT AMO UNT ONLY FROM THE EXEMPTION ADMISSIBLE TO THE ASSESSEE UNDER SECTION 80P(2). 11. WE MAKE IT FURTHER CLEAR THAT THE ASSESSEE IS A CREDIT COOPERATIVE SOCIETY. IT IS ENTITLED FOR DEDUCTION UNDER SECTI ON 80P(2)(1) ON THE INTEREST INCOME EARNED BY IT FROM ITS MEMBERS. THE INTEREST INCOME EARNED ON THE INVESTMENT OF SURPLUS FUND WITH NATIONALIZED BANK I S ONLY TO BE EXCLUDED FROM THE CLAIM OF 80P(2)(A)(I) OF THE ACT. THE LD.AO SH ALL CARRY OUT THIS EXERCISE AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE A SSESSEE. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 10 TH APRIL, 2017 AT AHMEDABAD. SD/- SD/- ( MANISH BORAD ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 10/04/2017