M/s Urban Co-operative Credit Society Limited , Ramanagar V. The Income Tax Officer WArd-1 , Ramanagar

ITA 2353/BANG/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1300 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 10-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Source of fund; Co-operative Credit Society; Set aside
• Section: 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA NO.2353/BANG/2018 ASSESSMENT YEAR: 2015-16 M/S. URBAN CO-OPERATIVE CREDIT SOCIETY LTD., NO.1, CHURCH STREET, KANAKAPURA TOWN 562 117. RAMANAGAR DISTRICT. PAN: AAAAU 0541R VS. THE INCOME TAX OFFICER, WARD 1, SRI RAMA COMPLEX, OLD B.M. ROAD, OPP. DISTRICT COURT, RAMANAGAR 562 159. APPELLANT RESPONDENT APPELLANT BY : SHRI B.S. BALACHANDRAN, ADVOCATE RESPONDENT BY : SHRI R. PREMI, JT. CIT(DR)(ITAT) BENGALURU. DATE OF HEARING : 02.12.2019 DATE OF PRONOUNCEMENT : 05.12.2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THE ABOVE APPEAL BY THE ASSESSEE IS AGAINST THE O RDER DATED 11.6.2018 OF THE CIT(APPEALS)-3, BENGALURU, RELATIN G TO ASSESSMENT YEAR 2015-16. 2. THE FIRST ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO THE CLAIM FOR DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME TAX ACT, ITA NO.2353/BANG/2018 PAGE 2 OF 8 1961 (ACT) WHICH WAS DENIED BY THE REVENUE AUTHORIT IES. THE ASSESSEE IS A CREDIT CO-OPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA CO-OPERATIVE SOCIETIES ACT, 1959. IT IS PRIMARILY ENGAGED IN AC CEPTING DEPOSITS AND PROVIDING CREDIT FACILITIES TO ITS MEMBERS THE ASS ESSEE CLAIMED DEDUCTION U/S 80P(2)(A)(I) OF THE ACT ON A SUM OF RS.56,79,2 38/- WHICH WAS INTEREST INCOME DERIVED FROM INVESTMENTS OUT OF SURPLUS FUND S OF THE ASSESSEE. IT WAS THE PLEA OF THE ASSESSEE THAT FUNDS NOT IMMEDIA TELY REQUIRED WERE INVESTED TO EARN INTEREST INCOME AND THEREFORE THE INTEREST INCOME WAS VERY MUCH PART OF THE INCOME DERIVED FROM THE BUSINESS O F PROVIDING CREDIT FACILITIES TO MEMBERS. 3. THE DEDUCTION CLAIMED BY THE ASSESSEE WAS NOT AL LOWED BY THE REVENUE AUTHORITIES FOR THE REASON THAT THE INCOME WHICH WAS CLAIMED AS DEDUCTION WAS INTEREST INCOME WHICH WAS EARNED BY T HE ASSESSEE ON DEPOSITS AND IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PCIT VS. TOTGARS CO-OPERATIVE SALE SOCIETY LTD., 83 TAXM ANN.COM 140 INTEREST INCOME HAD TO BE REGARDED AS INCOME FROM OTHER SOURCES. SINCE INTEREST INCOME WAS NOT INCOME DERIVED FROM T HE BUSINESS OF CO- OPERATIVE SOCIETY, THE DEDUCTION CLAIMED BY THE ASS ESSEE CANNOT BE ALLOWED. THE REVENUE AUTHORITIES ALSO PLACED RELIA NCE ON A SIMILAR DECISION RENDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF PCIT VS. TOTGARS CO-OPERATIVE SALE SOCIETY LTD. 395 ITR 611 (KARN.) . THE AO ALLOWED DEDUCTION OF EXPENSES INCURRED IN EARNING I NTEREST INCOME OF RS.30,17,661/- AND ADDED A SUM OF RS.26,61,577/- TO THE TOTAL INCOME OF THE ASSESSEE BY DENYING THE DEDUCTION U/S.80P(2)(A) (I) OF THE ACT. 4. AGGRIEVED BY THE ORDERS OF THE CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEALS BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNE D AR RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR ITA NO.2353/BANG/2018 PAGE 3 OF 8 MERCHANTS SOUHARDA CREDIT CO-OPERATIVE SOCIETY LTD. VS. ITO 230 TAXMAN 309 (KARN) WHEREIN THE HONBLE KARNATAKA HIGH COURT CONSIDERE D THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF T HE TOTGARS CO- OPERATIVE SALES SOCIETY (SUPRA) AND HELD THAT INTEREST INCOME IN RESPECT OF TEMPORARY PARKING OF OWN SURPLUS FUNDS NOT IMMEDIAT ELY REQUIRED IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. THE LEAR NED DR RELIED ON A SUBSEQUENT DECISION OF THE HONBLE KARNATAKA HIGH C OURT IN THE CASE OF PCIT VS. TOTGARS CO-OPERATIVE SALE SOCIETY LTD. 395 ITR 611 (KARN.) . 6. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT RELI ED BY THE LEARNED DR. THE FACTS OF THE CASE BEFORE THE HONBLE KARNA TAKA HIGH COURT IN THE DECISION CITED BY THE LEARNED DR WAS THAT THE HONB LE COURT WAS CONSIDERING A CASE RELATING TO ASSESSMENT YEARS 200 7-2008 TO 2011- 2012. IN CASE DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF THE VERY SAME ASSESSEE, THE ASSESSMENT YEARS INVOLVED WAS AY 1991-92 TO 1999- 2000. THE NATURE OF INTEREST INCOME FOR ALL THE AY S WAS IDENTICAL. THE BONE OF CONTENTION OF THE ASSESSEE IN AY 2007-08 TO 2011-12 WAS THAT THE DEDUCTION UNDER SECTION 80P(2) OF THE ACT IS CLAIME D BY THE RESPONDENT ASSESSEE UNDER SECTION 80P(2)(D) OF THE ACT AND NOT UNDER SECTION 80P(2)(A) OF THE ACT WHICH WAS THE CLAIM IN AY 1991 -92 TO 1999-2000. THE REASON GIVEN BY THE ASSESSEE WAS THAT IN AY 2007-08 TO 2011-12 INVESTMENTS AND DEPOSITS, AFTER THE SUPREME COURT'S DECISION AGAINST THE ASSESSEE IN TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD. (SUPRA) , WERE SHIFTED FROM SCHEDULE BANKS TO CO-OPERATIVE BANK. U/S.80P( 2)(D) OF THE ACT, INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY A CO-OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OPERATIVE SO CIETY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SUCH INTEREST OR DIVIDEND INCOME. THE CLAIM OF THE ASSESSEE WAS THAT CO-OPERATIVE BANK IS ESSENTIA LLY A CO-OPERATIVE SOCIETY AND THEREFORE DEDUCTION HAS TO BE ALLOWED U NDER CLAUSE (D) OF SEC.80P(2) OF THE ACT. THE HONBLE KARNATAKA HIGH C OURT FOLLOWED THE ITA NO.2353/BANG/2018 PAGE 4 OF 8 DECISION OF THE SUPREME COURT IN THE TOTGARS CO-OPERATIVE SALES SOCIETY LTD. (SUPRA) AND HELD THAT INTEREST EARNED FROM SCHEDULE BANK OR CO- OPERATIVE BANK IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE THE PROVISIONS OF SEC.80P(2)(D)OF THE ACT WAS NOT APPLICABLE TO SUCH INTEREST INCOME. IT IS THUS CLEAR THAT THE SOURCE OF FUNDS OUT OF WHICH INVESTMENTS WERE MADE REMAINED THE SAME IN AY 2007-08 TO 2011- 12 AND IN AY 1991-92 TO 1999-2000 DECIDED BY THE HO NBLE SUPREME COURT. THEREFORE WHETHER THE SOURCE OF FUNDS WERE A SSESSEES OWN FUNDS OR OUT OF LIABILITY WAS NOT SUBJECT MATTER OF THE D ECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE DECISION CITED BY THE L EARNED DR. TO THIS EXTENT THE DECISION OF THE HONBLE KARNATAKA HIGH C OURT IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CO-OPERATIVE LTD. (SUPRA ) STILL HOLDS GOOD. HENCE, ON THIS ASPECT, THE ISSUE SHOULD BE RESTORED BACK TO THE AO FOR A FRESH DECISION AFTER EXAMININGG THE FACTS IN THE LI GHT OF THESE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LTD. (SUPRA) AND OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CO-OPERATIVE LTD. (SUPRA ) . 7. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND FILING APPROPRIATE EVIDENCE, IF DESIRED, BY THE ASS ESSEE TO SUBSTANTIATE ITS CASE, BEFORE DECIDING THE ISSUE. 8. THE SECOND ISSUE THAT ARISES FOR CONSIDERATION I N THIS APPEAL IS AS TO WHETHER THE CIT(A) IN EXERCISE OF HIS POWERS OF ENH ANCEMENT WAS JUSTIFIED IN BRINING TO TAX A SUM OF RS.1,67,25,066/- WHICH S UM REPRESENTED INTEREST INCOME ON INVESTMENTS IN THE FORM OF FIXED DEPOSITS WITH ANOTHER CO- OPERATIVE SOCIETY WHICH WAS ALLOWED AS DEDUCTION BY THE AO U/S.80P(2)(D) OF THE ACT. U/S.80P(2)(D) OF THE ACT, INCOME BY WA Y OF INTEREST OR DIVIDENDS DERIVED BY A CO-OPERATIVE SOCIETY FROM ITS INVESTME NTS WITH ANY OTHER CO- OPERATIVE SOCIETY IS ENTITLED TO DEDUCTION OF THE W HOLE OF SUCH INTEREST OR ITA NO.2353/BANG/2018 PAGE 5 OF 8 DIVIDEND INCOME. THE AO ALLOWED THE CLAIM FOR DEDU CTION AS MADE BY THE ASSESSEE. 9. THE CIT(A) IN EXERCISE OF HIS POWERS OF ENHANCEM ENT BY ORDER SHEET ENTRY DATED 7.6.2018 CALLED UPON THE ASSESSEE TO SH OW CAUSE AS TO WHY THE DEDUCTION ALLOWED BY THE AO U/S.80P(2)(D) OF TH E ACT SHOULD NOT BE DISALLOWED IN VIEW OF THE JUDGMENT OF HONBLE SUPRE ME COURT IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD. VS. ACIT (2017) 8 4 TAXMANN.COM 114(SC) WHEREIN IT WAS HELD THAT PRINCIPLE OF MUTUALITY HA S TO BE SATISFIED BEFORE DEDUCTION OF INCOME DERIVED BY A CO-OPERATIV E SOCIETY FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS CAN BE ALLOWED U/S.80P(2)(A)(I) OF THE ACT. ACCORDING TO THE CIT(A ), THE PRINCIPLE OF MUTUALITY WAS NOT SATISFIED IN THE CASE OF THE ASSE SSEES AS THE ASSESSEE HAD IN THE HEARING ON 7.9.20178 ADMITTED THAT IT HA D NOMINAL MEMBERS AND THE SCHEDULED BANKS AND CO-OPERATIVE SOCIETIES IN WHICH IT MAKES DEPOSITS ARE NOT ITS MEMBERS. THE FOLLOWING WERE THE RELEVA NT OBSERVATIONS OF THE CIT(A) IN THIS REGARD:- 5.1 IN RESPONSE TO THE SAME THE APPELLANT SUBMITT ED THAT FATS OF ITS CASE ARE IDENTICAL TO THAT OF CITIZEN CO-OPERATIVE SOCIETY (SUPRA) AS IN ITS CASE TOO THERE ARE NOMINAL MEMBERS AND IT MAKES DEPOSITS WITH SCHEDULED BANKS AS WELL AS OTHER COOP ERATIVE BANKS/SOCIETIES, ALTHOUGH THE SAME ARE NOT MEMBERS OF THE APPELLANT SOCIETY. THE AR SUBMITTED THAT IN VIEW OF ABOVE HE DOESN'T HAVE ANYTHING TO SAY AND THE CASE MAY BE TR EATED AS HEARD AS NO FURTHER SUBMISSIONS ARE REQUIRED TO BE MADE(ORDER SHEET ENTRY DT 07.06.2018). 5.2 THE SUBMISSIONS OF THE APPELLANT HAVE DULY BE EN CONSIDERED. THE APPELLANT HAS ADMITTED THAT THE FAC TS OF ITS CASE ARE IDENTICAL TO THAT OF CITIZEN CO-OPERATIVE SOCIETY (SUPRA). IN VIEW OF THE SAME, IT CAN BE CONCLUDED THAT THE BUSI NESS OF THE APPELLANT DOES NOT INVOLVE TRANSACTIONS WITHIN' THE SOCIETY WITH AN ELEMENT OF MUTUALITY BUT THE SAME IS AKIN TO A FINA NCE BUSINESS. THE SURPLUS FUNDS GENERATED FROM THESE ACTIVITIES A RE DEPOSITED ITA NO.2353/BANG/2018 PAGE 6 OF 8 BY THE APPELLANT WITH VARIOUS BANKS/SOCIETIES TO EA RN INTEREST INCOME. THESE BANKS/SOCIETIES ARE NOT MEMBERS OF TH E APPELLANT SOCIETY. THE APPELLANT SUBMITTED THAT THE SOCIETY P LACED THE UNUTILIZED DEPOSIT MONEY RECEIVED FROM THE MEMBERS IN THE BANK/OTHER SOCIETIES AS FIXED DEPOSITS OR IN SAVING BANK ACCOUNTS AND EARNED INTEREST ON THE SAME. FROM THESE ACTIVIT IES IT CANNOT BE SAID THAT THE APPELLANT CO-OPERATIVE SOCIETY IS ONL Y FOR ITS MEMBERS AND ITS BUSINESS ACTIVITIES ARE ONLY WITH I TS MEMBERS. THUS THE APPELLANT SOCIETY IS NOT MEETING THE REQUI REMENTS OF THE PROVISIONS OF THE CO-OPERATIVE SOCIETIES ACT. THUS THE APPELLANT SOCIETY HAS GIVEN A GO BY TO THE PRINCIPLE OF MUTUA LITY. THEREFORE, THE APPELLANT CO-OPERATIVE SOCIETY CANNOT BE SAID T O BE ELIGIBLE FOR DEDUCTION U/S. 80P OF THE LT. ACT. 10. THE ACTION OF THE CIT(A) RESULTED IN THE ENTIRE INTEREST INCOME OF RS.2,24,04,304/- EARNED BY THE ASSESSEE COMPRISING OF RS.1,67,25,066/- EARNED ON FIXED DEPOSITS WITH OTHER CO-OPERATIVE SO CIETIES WHICH WAS CLAIMED EXEMPT U/S.80P(2)(D) OF THE ACT AND THE INT EREST INCOME OF RS.56,79,238/- EARNED ON DEPOSITS WITH NON-COOPERAT IVE SOCIETIES WHICH WAS CLAIMED AS DEDUCTION U/S.80P(2)(A)(I) OF THE AC T BEING DENIED. 11. AGGRIEVED BY THE ACTION OF THE CIT(A) IN DENYIN G DEDUCTION U/S.80P(2)(D) OF THE ACT, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE ARE OF THE VIE W THAT THE CIT(A)S ACTION IN MAKING THE IMPUGNED ADDITION IN EXERCISE OF POWERS OF ENHANCEMENT REQUIRES RECONSIDERATION BY THE AO. TH E QUESTIONS THAT NEED TO BE ANSWERED ARE WHETHER THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD., (SUPRA) WOULD APPLY TO A CLAIM FOR DEDUCTION U/S.80P(2)(D) OF THE ACT AND WH ETHER THE PRINCIPLE OF MUTUALITY CAN BE EXTENDED TO SEC.80P(2)(D). THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD., (SUPRA) WAS RENDERED IN THE CONTEXT OF SEC.80P(2)(A)(I) OF THE ACT WHICH ALLOWS DEDUCTION OF INCOME EARNED BY A CO-OPERATIVE SOCIET Y FROM THE BUSINESS OF ITA NO.2353/BANG/2018 PAGE 7 OF 8 PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE TE RM MEMBERS WERE INTERPRETED BY THE HONBLE SUPREME COURT TO MEAN ME MBERS WHO ARE BOTH CONTRIBUTORS AND PARTICIPATORS OF THE SAME INCOME. THAT ANALOGY CANNOT BE IMPORTED INTO THE PROVISIONS OF SEC.80P(2)(D) OF TH E ACT WHICH PROVIDES FOR DEDUCTION OF INTEREST EARNED ON DEPOSITS WITH OTHER CO-OPERATIVE SOCIETIES. THE PURPOSE BEHIND DEDUCTION U/S.80P(2)(D) IS NOT D EPENDANT ON SATISFACTION OF THE PRINCIPLE OF MUTUALITY. NEVERT HELESS, WE ARE OF THE VIEW THAT SINCE THIS ISSUE HAS NOT BEEN EXAMINED BY THE AO. IF THE AO COMES TO A CONCLUSION THAT THE PRINCIPLE OF MUTUALITY IS APP LICABLE TO SEC.80P(2)(D) OF THE ACT ALSO THEN HE HAS TO EXAMINE WITH SPECIFIC R EFERENCE TO THE FACTS OF THE CASE AND THE RELEVANT STATUTORY PROVISIONS OF L AW WITH REGARD TO CO- OPERATIVE SOCIETIES AS PREVALENT IN THE STATE OF KA RNATAKA, WHETHER THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO-OPERATIVE SOCIETY LTD., (SUPRA) CAN BE APPLIED TO THE CASE OF THE ASSESSEE. WE ACCORDINGLY SET ASIDE THE ORDER OF CI T(A) ON THIS ISSUE AND RESTORE THE ISSUE TO THE AO TO CONSIDER IT AFRESH, AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 12. IN THE RESULT, APPEAL BY THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF DECEMBER, 2019. SD/- SD/- ( D S SUNDER SINGH ) ( N V VASUDEVA N ) ACCOUNTANT MEMBER VICE PRE SIDENT BANGALORE, DATED, THE 05 TH DECEMBER, 2019. / DESAI S MURTHY / ITA NO.2353/BANG/2018 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(E) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.