The Mehlav Peoples CO-OP. Credit Society Ltd., Petlad V. The DCIT, Circle-1(3), Vadodara

ITA 2089/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2705 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 19-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DIVYAKANT PARIKH
• Keywords: Business income; Opportunity of being heard
• Section: 143(3); 80P; 56; 263

Judgement Text

SMC-ITA NO. 2089/AHD/2017 THE MAHLAV PEOPLES CO-OP CREDIT SOCIETY LTD VS. DCI T ASSESSMENT YEAR: 2012-13 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD [ BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT ] ITA NO. 2089/AHD/2017 ASSESSMENT YEAR : 2012-13 THE MEHLAV PEOPLES CO-OP. CREDIT SOCIETY LTD ............APPELLANT OPP. GOVERDHANNATH TEMPLE, MEHLAV, TAL. PETLAD 388 440 [PAN AAAAT 2312 D] VS. THE DY. COMMISSIONER OF INCOME-TAX .......................RESPONDENT CIRCLE-1(3), VADODARA APPEARANCES BY: DIVYAKANT PARIKH FOR THE APPELLANT APOORVA BHARDWAJ FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 13.02.2019 DATE OF PRONOUNCING THE ORDER : 26.02.2019 O R D E R 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF LEARNED CIT(A)S ORDER DATED 27 TH JUNE 2017 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2012-13. 2. GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOW S:- 1. THE LEARNED CIT(A)-1, VADODARA ERRED IN LAW AN D/OR ON FATS IN TREATING THE INTEREST INCOME OF RS.17,20,310/- (ON FDRS WITH BA NKS) AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME OF THE APP ELLANT. 2. THE LEARNED CIT(A)-1, VADODARA ERRED IN LAW AND /OR ON FACTS IN NOT CONSIDERING THE INTEREST INCOME OF RS.17,20,310/- F OR ALLOWING DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT. 3. THE LEARNED CIT(A)-1, VADODARA ERRED ON FACTS A ND IN LAW IN RESTRICTING THE CLAIM OF THE APPELLANT THAT THE ENTIRE INCOME EXEMP TED U/S 80P(2)(A)(I) BUT HE RESTRICTED TO ONLY RS.11,60,006/-. SO YOUR HONOUR IS REQUESTED TO DIRECT THE LD. DCIT TO ACCEPT THE FACT LAW THAT SINCE THE APPELLAN T IS CO-OP. CREDIT SOCIETY AND CLAIM OF ENTIRE INCOME U/S 80P(2)(A)(C) BE ALLO WED. SMC-ITA NO. 2089/AHD/2017 THE MAHLAV PEOPLES CO-OP CREDIT SOCIETY LTD VS. DCI T ASSESSMENT YEAR: 2012-13 PAGE 2 OF 6 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE IS SUES IN APPEAL ARE COVERED, IN PRINCIPLE AGAINST THE ASSESSEE SUBJECT TO A STATU TORY DEDUCTION OF RS.50,000/- BEING ALLOWED TO THE ASSESSEE UNDER SECTION 80P(2)( C)(II), BY A DECISION OF THE TRIBUNAL IN THE CASE OF DHANLAXMI CREDIT CO-OP SOCI ETY LTD VS. ITO (ITA NO.2426/AHD/2013; ORDER DATED 24.01.2017), WHEREIN IT HAS BEEN HELD AS FOLLOWS:- 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED ON RECORD AND GONE THROUGH THE JUDGMENT AND DECISION Q UOTED BY LD. AR. AFTER GOING THROUGH THE GROUNDS AND THE SUBMISSIONS MADE BY LD. AR AND AFTER CONSIDERING THE ISSUE IN THE LIGHT OF RATIO LAID DO WN IN THE JUDGMENT OF HON. JURISDICTIONAL HIGH COURT IN THE CASE OF SBI VS. CI T (SUPRA), THE GRIEVANCE REMAINS TO BE ADJUDICATED IS TOWARDS ALLOWING OF PR O RATA EXPENSES FOR EARNING INTEREST INCOME OF RS.8,55,854/- EARNED FROM DEPOSI TS WITH NATIONALIZED/SCHEDULED BANKS AND ALSO ALLOWING STAT UTORY DEDUCTION OF RS.50,000/- U/S 80P(2)(C) OF THE ACT. 8. WE OBSERVE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER DENIED THE CLAIM U/S 80P(2)(A)(I) OF THE ACT AND ALSO OBSERVED THAT INCOME FROM INTEREST ON DEPOSIT OTHER THAN THOSE HELD WITH CO- OP. SOCIETY ARE LIABLE TO BE TAXED AS INCOME FROM O THER SOURCES U/S 56 OF THE ACT. THEREAFTER WHEN THE MATTER WAS CARRIED BEFORE LD. CIT(A) ASSESSEES APPEAL WAS PARTLY ALLOWED TO THE EFFECT THAT ASSESS EE WAS HELD TO BE ELIGIBLE FOR CLAIMING DEDUCTION U/S 80P(2)(A)(I) OF THE ACT, BUT INTEREST EARNED FROM DEPOSITS WITH SCHEDULED/NATIONALIZED BANKS WAS HELD TO BE TAXABLE U/S 56 OF THE ACT. ASSESSEE CAME UP IN APPEAL BEFORE THE TRIB UNAL AGAINST THE ACTION OF LD. CIT(A) DENYING DEDUCTION U/S 80P(2)(A)(I) OF TH E ACT ON THE INTEREST OF RS.8,55,854/-. 9. THEREAFTER IN DUE COURSE OF TIME HON. JURISDICTI ONAL HIGH COURT IN THE CASE OF SBI VS. CIT (SUPRA) DECIDED THE ISSUE IN THE CAS E OF CREDIT CO-OPERATIVE SOCIETY ABOUT TREATMENT OF INTEREST INCOME FROM DEP OSITS OF SURPLUS FUNDS IN BANK TO BE TAXED U/S 56 OF THE ACT AS INCOME FROM O THER SOURCES. HON. COURT WHILE DECIDING SO OBSERVED AS FOLLOWS :- HELD, DISMISSING-THE APPEALS, (I) THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80P AND NOT SPECIFICALLY UN DER SECTION 80P(2)(A)(I). THE ASSESSEE HAD ALSO NOT SHOWN ANY B IFURCATION OF THE INCOME DERIVED FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THE INTEREST EARNED BY DEPOSITING SURPLUS FUNDS WITH TH E BANK. IN RESPONSE TO THE NOTICE UNDER SECTION 263, THE ASSESSEE HAD C ONTENDED THAT THE REASON FOR TREATING THE INTEREST INCOME RECEIVED FR OM DEPOSITS AS BUSINESS INCOME WAS THAT THE FUNDS OF THE BUSINESS WERE KEPT IN INTEREST EARNING ACCOUNT WITH FACILITY TO WITHDRAW THE FUND AS AND WHEN NECESSARY TO EARN INTEREST FOR AND ON BEHALF OF ITS MEMBERS AND THAT IT WAS ONE OF ITS ACTIVITIES AS PROVIDED IN SECTION 80 P(2)(A) AND THAT THE GAINS OF BUSINESS ATTRIBUTABLE TO SUCH ACTIVITY WER E EXEMPTED FROM TAXABLE INCOME. THE CONTENTION OF THE ASSESSEE THAT THE COMMISSIONER HAD NOT HELD THAT THE INTEREST DERIVED FROM THE DEP OSITS IN THE BANK WAS INCOME FROM OTHER SOURCES DID NOT MERIT CONSIDERATI ON FOR THE REASON SMC-ITA NO. 2089/AHD/2017 THE MAHLAV PEOPLES CO-OP CREDIT SOCIETY LTD VS. DCI T ASSESSMENT YEAR: 2012-13 PAGE 3 OF 6 THAT IT WAS FOR THE ASSESSING OFFICER, PURSUANT TO THE ORDER UNDER SECTION 263 TO EXAMINE THE NATURE OF THE INCOME AND TAX IT ACCORDINGLY. HAVING REGARD TO THE STAND ADOPTED BY THE ASSESSEE IN RESPONSE TO THE NOTICE UNDER SECTION 263, IT COULD NOT BE SAID THAT THE COMMISSIONER HAD TRAVELLED BEYOND THE SCOPE OF THE NOTICE UNDER SECTION 263, INASMUCH AS, HE HAD ONLY DEALT WITH THE CONTENTION RAISED BY THE ASSESSEE. THE APPELLATE TRIBUNAL WAS JUSTIFIED IN U PHOLDING THE INVOCATION OF POWERS UNDER SECTION 263 OF THE ACT B Y THE COMMISSIONER AND THAT THE ORDER DID NOT SUFFER FROM ANY LEGAL IN FIRMITY. (II) THAT THE ASSESSEE DID NOT CARRY ON ANY BANKING BUSINESS AND ITS OBJECTS DID NOT CONTEMPLATE INVESTMENT OF SURPLUS F UNDS RECEIVED FROM ITS MEMBERS. THE BUSINESS OF A CREDIT SOCIETY LIKE THAT OF THE ASSESSEE WAS LIMITED TO PROVIDING CREDIT TO ITS MEMBERS AND THE INCOME THAT WAS EARNED BY PROVIDING SUCH CREDIT FACILITIES TO ITS M EMBERS WAS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I). THE CHARACTER OF INTERE ST WAS DIFFERENT FROM THE INCOME ATTRIBUTABLE TO THE BUSINESS OF THE ASSE SSEE-SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INT EREST INCOME DERIVED FROM INVESTING SURPLUS FUNDS WITH THE BANK MUST BE CLOSELY LINKED WITH THE BUSINESS OF PROVIDING CREDIT FACILITIES FOR IT TO BE HELD ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE. THEREFORE, THE PROFIT S AND GAINS COULD BE SAID TO BE DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS IF THERE WAS A DIRECT AND PROXIMATE CONNECTION BETWEEN THE PROFITS AND GAINS AND THE BUSINESS OF T HE ASSESSEE. THERE WAS NO OBLIGATION ON THE ASSESSEE TO INVEST ITS SUR PLUS FUNDS WITH THE BANK. INVESTING SURPLUS FUNDS IN A BANK WAS NO PART OF THE BUSINESS OF THE ASSESSEE PROVIDING CREDIT FACILITIES TO ITS MEM BERS AND HENCE IT COULD NOT BE SAID THAT THE INTEREST DERIVED FROM DE POSITING ITS SURPLUS FUNDS WITH THE BANK WAS PROFITS AND GAINS OF BUSINE SS ATTRIBUTABLE TO THE ACTIVITIES OF THE ASSESSEE. IT WAS ONLY THE INT EREST INCOME DERIVED FROM THE CREDIT PROVIDED TO ITS MEMBERS WHICH WAS D EDUCTIBLE UNDER SECTION 80P(2)(A)(I) AND THE INTEREST INCOME DERIVE D BY DEPOSITING THE SURPLUS FUNDS WITH THE BANK NOT BEING ATTRIBUTABLE TO THE BUSINESS CARRIED ON BY THE ASSESSEE COULD NOT BE DEDUCTED UN DER SECTION 80P(2)(A)(I). THERE WAS NO INFIRMITY IN THE ORDERS OF THE APPELLATE TRIBUNAL WARRANTING INTERFERENCE. 10. WE FURTHER OBSERVE THAT DURING THE COURSE OF HE ARING HEFORE US, LD. AR ACCEPTED THAT ASSESSEE IS NOT ELIGIBLE TO CLAIM DED UCTION U/S 80P(2)(A)(I) OF THE ACT ON THE INTEREST EARNED ON SURPLUS DEPOSITS/ INVESTMENTS HELD WITH SCHEDULED/NATIONALIZED BANK BUT URGED FOR ALLOWING DEDUCTION ON PRO RATA EXPENSES INCURRED FOR EARNING THE INTEREST INCOME A ND ALSO FOR ALLOWING STATUTORY DEDUCTION OF RS.50,000/- U/S 80P(2)(C)(II ) OF THE ACT. LD. AR ALSO SUBMITTED THAT A TOTAL EXPENSES INCURRED FOR THE YE AR STOOD AT RS.28,60,298/- AND PRO RATA EXPENSES FOR EARNING INTEREST INCOME O F RS.8,55,854/- AS AGAINST TOTAL INTEREST INCOME OF RS.42,39,515/- WILL BE CAL CULATED AT RS.5,77,423/-. 11. WE OBSERVE THAT LD. AR HAS REFERRED TO THE DECI SION OF THE CO-ORDINATE BENCH IN THE CASE OF KHERAVA CO-OP. CREDIT SOCIETY LTD. VS. ITO, WARD-4, MEHSANA IN ITA NO.2704/AHD/2015 FOR ASST. YEAR 2012 -13 WHEREIN SIMILAR SMC-ITA NO. 2089/AHD/2017 THE MAHLAV PEOPLES CO-OP CREDIT SOCIETY LTD VS. DCI T ASSESSMENT YEAR: 2012-13 PAGE 4 OF 6 ISSUE OF ALLOWING PRO RATA EXPENSES AND ALLOWING ST ATUTORY DEDUCTION OF RS.50,000/- U/S 80P(2)(II) OF THE ACT HAS BEEN ADJ UDICATED BY THE CO- ORDINATE BENCH BY OBSERVING AS UNDER :- 10. FROM GOING THROUGH THE ALTERNATE SUBMISSIONS MA DE BY THE ASSESSEE WE FIND THAT MAJOR PORTION OF INTEREST INC OME IS FROM GOVERNMENT SECURITIES AND ARE NOT IN THE NATURE OF SHORT TERM DEPOSITS. THEREFORE, THE FACTS OF THE CASE ARE CLEARLY DISTIN GUISHABLE FROM THE FACTS DISCUSSED IN THE CASE OF TOTAGARS CO-OP. SALE SOCIETY LTD. VS. ITO (SUPRA) AND THAT OF CO-ORDINATE BENCH IN THE CA SE OF JAFARI MOMIN VIKAS CO-OP. CREDIT SOCIETY LTD. (SUPRA) AS WELL AS IN THE CASE OF DHANALAXMI CREDIT CO-OP. SOCIETY LTD. VS. ITO (SUPR A). THIS INTEREST INCOME IS ON INVESTMENTS NOT OF SHORT TERM NATURE E XCEPT BANK INTEREST WHICH TOO INCLUDES INTEREST ON FIXED DEPOSITS. IN T HESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT AS THE ASSESSEE SUO MOTO HA S GIVEN A PROPOSITION OF TAXING THE INTEREST AND COMMISSION I NCOME ON INVESTMENTS TO BE TAXED U/S 56 OF THE ACT AND HAS A LSO SHOWN THAT PROPORTIONATE EXPENSES OF RS.3,31,828/- HAVE BEEN I NCURRED TO EARN THE ABOVE INCOME AND THE SAME HAS DULY BEEN ACCEPTE D BY THE ASSESSING AUTHORITY, SO WE FIND IT JUSTIFIED THAT A SSESSING OFFICER HAS RIGHTLY TAXED THE INTEREST INCOME OF RS.2,16,689/- AS INCOME FROM OTHER SOURCES. HOWEVER, DEDUCTION U/S 80P(2)(C) OUGHT TO HAVE BEEN ALLOWED TO THE ASSESSEE AS SECTION 80P(2)(C) READS AS UNDER :- SECTION 80P(2)(C) (C) IN THE CASE OF A CO- OPERATIV E SOCIETY ENGAGED IN ACTIVITIES OTHER THAN THOSE SPECIFIED IN CLAUSE (A) OR CLAUSE (B) (EITHER INDEPENDENTLY OF, OR IN ADDITION TO, ALL OR ANY OF THE ACTIVITIES SO SPECIFIED), SO MUCH OF ITS PROFIT S AND GAINS ATTRIBUTABLE TO SUCH ACTIVITIES AS 1 DOES NOT EXCEE D,- (I) WHERE SUCH CO- OPERATIVE SOCIETY IS A CONSUMERS ' CO- OPERATIVE SOCIETY, ONE HUNDRED THOUSAND RUPEES; AND (II) IN ANY OTHER CASE, FIFTY THOUSAND RUPEES. EXPLANATION.- IN THIS CLAUSE,' CONSUMERS' CO- OPERA TIVE SOCIETY' MEANS A SOCIETY FOR THE BENEFIT OF THE CONSUMERS;] FROM GOING THROUGH THE ABOVE PROVISIONS IT IS VERY CLEAR THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF RS.50,000/- U /S 80P(2)(A)(I) OF THE ACT AND THE SAME SHOULD HAVE BEEN ALLOWED BY THE ASSESSING AUTHORITY. 11. THEREFORE, IN VIEW OF OUR ABOVE DISCUSSION, WE QUASH THE ORDER OF LD. CIT(A) ENHANCING THE ADDITION AND ALSO PARTLY ALLOW THE APPEAL OF ASSESSEE AND ACCORDINGLY THE ADDITION MADE BY ASSESSING OFFICER SHALL BE REDUCED TO RS.1,68,305/- [RS.2,16,689/- MINUS RS.50,000/- DEDUCTION U/S 80P( 2)(C)]. SMC-ITA NO. 2089/AHD/2017 THE MAHLAV PEOPLES CO-OP CREDIT SOCIETY LTD VS. DCI T ASSESSMENT YEAR: 2012-13 PAGE 5 OF 6 11. RESPECTFULLY FOLLOWING THE JUDGMENT OF HON. JUR ISDICTIONAL HIGH COURT AND EXAMINING THE FACTS OF THE CASE AS ALSO IN THE LIGH T OF DECISION OF THE CO- ORDINATE BENCH DISCUSSED IN THE ABOVE PARAGRAPHS, W E ARE OF FOLLOWING VIEW :- (1) ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80P( 2)(A)(I) OF THE ACT ON THE INTEREST INCOME EARNED FROM SURPLUS DEPOSITS HELD W ITH NATIONALIZED/SCHEDULED BANKS. (2) ASSESSEE WILL BE ELIGIBLE TO STATUTORY DEDUCTIO N OF RS.50,000/- U/S 80P(2)(C)(II) OF THE ACT. (3) ASSESSEE WILL ALSO BE ELIGIBLE TO CLAIM PRO RAT A EXPENSES FOR EARNING INTEREST INCOME OF RS.8,55,854/- ASSESSEES CLAIM O F PRO RATA EXPENSES OF RS.5,77,423/- AGAINST THE INTEREST INCOME OF RS.8,5 5,854/- AFTER DUE VERIFICATION BY THE LEARNED ASSESSING OFFICER. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO VERIFY ASSESSEES CLAIM OF PRO RATA EXPENSES BY EXAMINING THE RECORD TO BE SHOWN FOR VERIFICATION B Y THE ASSESSEE. NEEDLESS TO MENTION PROPER OPPORTUNITY OF BEING HEARD IS TO BE GIVEN TO THE ASSESSEE. WE ORDER ACCORDINGLY. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4. I SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MA TTER THAN THE VIEW SO TAKEN BY THE TRIBUNAL. RESPECTFULLY FOLLOWING THE ABOVE PRE CEDENT, I REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF ALLOWING RELIEF IN TERMS OF THE DIRECTION SET OUT IN PARAGRAPH NO. 11 OF THE ORDER EXTRACTED ABOVE WHICH WILL APPLY MUTATIS MUTANDIS IN THE PRESENT CONTEXT AS WELL. THE ASSESSEE WILL GET RELIEF ON THE SAME LINES IN THIS CASE AS WELL. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN T HE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 26 TH FEBRUARY, 2019. SD/- PRAMOD KUMAR (VICE PRES IDENT) AHMEDABAD, THE 26 TH DAY OF FEBRUARY, 2019 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD