The Dhanera Nagrik Sahkari Mandli Ltd., Banaskantha V. The ACIT, B.K.Circle, Palanpur

ITA 2402/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9651 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 22-12-2015
• Assessment Year: 2012-2013
• Appeal Filed On: 12-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MAURYA
• Assessee Lawyers: N C AMIN
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMADABAD , BEFORE: SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO. 2402/AHD/2015 ASSESSMENT YEAR : 2012-13 THE DHANERA NAGRIK SAHKARI MANDLI LTD. GANJ BAZAR, DHANERA, DIST. B.K. 385310 V/S . THE ACIT, BANASKANTHA CIRCLE, PALANPUR, 2 ND FLOOR, SHREE HARI COMPLEX, ABU HIGH WAY, PALANPUR, DIST. B. K. 385001 PAN NO. AAABT2382G (APPELLANT) .. (RESPONDENT) /BY ASSESSEE SHRI N. C. AMIN, A.R. /BY REVENUE SHRI R. P. MAURYA, D.R. /DATE OF HEARING 22.12.2015 /DATE OF PRONOUNCEMENT 05.02.2016 O R D E R PER : RAJPAL YADAV, JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A)-4 DATED 09 TH JUNE, 2015 PASSED FOR A.Y. 2012-13. THE GROUNDS O F APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH RULE 8 OF ITAT RULES, 1963. THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. 2. IN BRIEF, THE GRIEVANCE OF THE ASSESSEE IS THAT LD. CIT(A) HAS ERRED IN DENYING THE CLAIM OF DEDUCTION U/S.80P(2)(A)(I) OF INTEREST INCOME AMOUNTING TO ITA NO. 2402/AHD/15 A.Y.12-13 (THE DHANERA NAGRIK SAHKARI MANDLI LTD. VS. ACIT) PAGE 2 RS.3,93,533/- WHICH WAS EARNED BY THE ASSESSEE ON D EPOSITS MADE OUT OF SURPLUS FUNDS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE SOCIETY REGISTERED UNDER GUJARAT CO-OPERATIVE SOCIETY ACT, 1961 CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ER. IT HAS FILED ITS RETURN OF INCOME ON 29 TH OF SEPTEMBER, 2012 DECLARING TOTAL INCOME AT NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND A NOTICE U/S.143(2) OF THE INCOME TAX ACT WAS ISSUED AND SERVED UPON THE ASSES SEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE SOCIETY HAS RECEIVED INTEREST INCOME FROM BANKS ON DEPOSITS. IN THE OPI NION OF THE ASSESSING OFFICER, SUCH INTEREST INCOME IS NOT ELIGIBLE FOR GRANT OF D EDUCTION U/S.80P(2)(A)(I) OF THE INCOME TAX ACT BECAUSE SUCH BANKS WERE NOT CO-OPERA TIVE BANKS. ACCORDINGLY, LD. A.O. HAS MADE AN ADDITION OF RS.3,93,533/-. 4. APPEAL TO THE LD. CIT(A) DID NOT BRING ANY RELIE F TO THE ASSESSEE. 5. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF GUTTIGEDARARA C REDIT CO-OPERATIVE SOCIETY LTD. VS. ITO REPORTED IN [2015] 60 TAXMANN.COM 215 (KARNATAKA). THE HONBLE KARNATAKA HIGH COURT HAS REVERSED THE ORDER OF THE TRIBUNAL AND HELD THAT INTEREST INCOME EARNED BY A CREDIT CO-OPERATIVE SOC IETY ON DEPOSITS OF SURPLUS FUNDS WITH SCHEDULED BANK WOULD QUALIFY FOR DEDUCTI ON U/S.80P(2)(A)(I) OF THE INCOME TAX ACT. THE QUESTIONS FRAMED BY HONBLE KA RNATAKA HIGH COURT READ AS UNDER: (I) WHETHER THE TRIBUNAL FAILED IN LAW TO APPRECIA TE THAT THE INTEREST EARNED ON SHORT-TERM DEPOSITS IN BANKS WERE ONLY INVESTMENT I N THE COURSE OF ACTIVITY OF PROVIDING CREDIT FACILITIES TO MEMBERS AND THAT THE SAME CANNOT BE CONSIDERED AS INVESTMENT MADE FOR THE PURPOSE OF EARNING INTEREST INCOME AND CONSEQUENTLY PASSED A PERVERSE ORDER ? ITA NO. 2402/AHD/15 A.Y.12-13 (THE DHANERA NAGRIK SAHKARI MANDLI LTD. VS. ACIT) PAGE 3 (II) WHETHER THE TRIBUNAL IS CORRECT IN LAW IN HOLD ING THAT THE INTEREST EARNED ON THE DEPOSITS BY THE APPELLANT/CO-OPERATIVE SOCIETY DOES NOT QUALIFY FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE INCOME TAX ACT, 1 961 ON THE FACTS AND CIRCUMSTANCES OF THE CASE? (III) WITHOUT PREJUDICE, WHETHER THE TRIBUNAL IS JU STIFIED IN NOT HOLDING THAT IF AT ALL THE INTEREST EARNED FROM DEPOSITS WITH SCHEDULED BA NKS IS HELD TO BE NOT ATTRIBUTABLE TO THE ACTIVITY OF PROVIDING CREDIT TO MEMBERS, THEN T HE WHOLE OF SUCH INCOME IS NOT LIABLE TO TAX BUT ONLY THE NET INCOME AFTER REDUCING THE E XPENDITURE INCURRED TO EARN SUCH INTEREST INCOME WOULD BE LIABLE TO TAX ON THE FACTS AND CIRCUMSTANCES OF THE CASE? THE HONBLE KARNATAKA HIGH COURT HAS RECORDED THE F OLLOWING FINDINGS WHILE DECIDING THE ABOVE QUESTIONS IN FAVOUR OF ASSESSEE: 7. FROM THE AFORESAID FACTS AND RIVAL CONTENTIONS, THE UNDISPUTED FACTS WHICH EMERGE ARE, CERTAIN SUMS OF INTEREST WERE EARNED FR OM SHORT-TERM DEPOSITS AND FROM SAVINGS BANK ACCOUNT. THE ASSESSEE IS A CO-OPERATIV E SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS NOT CARRYING ON AN Y OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE ASSESSEE BY PROVIDING CREDIT FACILITI ES TO ITS MEMBERS IS DEPOSITED IN THE BANKS FOR A SHORT DURATION WHICH HAS EARNED INTERES T. THEREFORE, WHETHER THIS INTEREST IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IS THE QUESTION. 8. IN THIS REGARD, IT IS NECESSARY TO NOTICE THE RE LEVANT PROVISION OF LAW I.E., SECTION 80P(2)(A)(I): 80P DEDUCTION IN RESPECT OF INCOME OF CO- OPERATIV E SOCIETIES: (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO-OPERATIVE SOC IETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, THE SUMS SPECIFIED IN SUB-SECTION (2), IN COMPUTING THE TOTA L INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E THE FOLLOWING, NAMELY: (A) IN THE CASE OF CO-OPERATIVE SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS, OR (II) TO (VII) ** ** ** THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUS INESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES.' 9. THE WORD 'ATTRIBUTABLE' USED IN THE SAID SECTION IS OF GREAT IMPORTANCE. THE APEX COURT HAD AN OCCASION TO CONSIDER THE MEANING OF THE WORD 'ATTRIBUTABLE' AS SUPPOSED TO DERIVE FROM ITS USE IN VARIOUS OTHER PR OVISIONS OF THE STATUTE IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [ 1978] 113 ITR 84 (AT PAGE 93) AS UNDER: ITA NO. 2402/AHD/15 A.Y.12-13 (THE DHANERA NAGRIK SAHKARI MANDLI LTD. VS. ACIT) PAGE 4 'AS REGARDS THE ASPECT EMERGING FROM THE EXPRESSION 'ATTRIBUTABLE TO' OCCURRING IN THE PHRASE 'PROFITS AND GAINS ATTRIBUT ABLE TO THE BUSINESS OF THE SPECIFIED INDUSTRY (HERE GENERATION AND DISTRIBUTIO N OF ELECTRICITY) ON WHICH THE LEARNED SOLICITOR-GENERAL RELIED, IT WILL BE PE RTINENT TO OBSERVE THAT THE LEGISLATURE HAS DELIBERATELY USED THE EXPRESSION 'A TTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT CANNOT BE DISPUTED TH AT THE EXPRESSION 'ATTRIBUTABLE TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. HAD THE EXPRESSION 'DERIVED FROM' BEEN USED, IT COULD HAVE WITH SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISIN G FROM THE SALE OF OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED AS PROFI TS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF GENERATION AND DISTR IBUTION OF ELECTRICITY. IN THIS CONNECTION, IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR- GENERAL, IT HAS USED THE EXPRESSION 'DERIVED FROM', AS. FOR INSTANCE, IN SECTION 80J. IN OUR VIEW, SINCE THE EXPRESSION OF WIDER IMP ORT, NAMELY, 'ATTRIBUTABLE TO', HAS BEEN USED, THE LEGISLATURE INTENDED TO COV ER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GE NERATION AND DISTRIBUTION OF ELECTRICITY.' 10. THEREFORE, THE WORD 'ATTRIBUTABLE TO' IS CERTAI NLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM. WHENEVER THE LEGISLATUR E WANTED TO GIVE A RESTRICTED MEANING, THEY HAVE USED THE EXPRESSION DERIVED FRO M'. THE EXPRESSION 'ATTRIBUTABLE TO' BEING OF WIDER IMPORT, THE SAID EXPRESSION IS U SED BY THE LEGISLATURE WHENEVER THEY INTENDED TO GATHER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS. A CO-OPERATIVE SOCIETY WHICH IS CARRYING ON THE BUS INESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, EARNS PROFITS AND GAINS OF BUSINESS BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPI TAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO THE MEMBERS, THE SOCIETY CANNOT KEEP THE SAID AMOUNT IDLE. IF THEY DEPOSIT THIS AMOUNT IN BANK SO AS TO EARN INTEREST, THE SAI D INTEREST INCOME IS ATTRIBUTABLE TO THE PROFITS AND GAINS OF THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS ONLY. THE SOCIETY IS NOT CARRYING ON ANY SEPARATE BUSINES S FOR EARNING SUCH INTEREST INCOME. THE INCOME SO DERIVED IS THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO THE ACTIVITY OF CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS BY A CO-OPERATIVE SOCIETY AND IS LIABLE TO BE DEDUCTED FROM THE GROSS TOTAL INCOME UNDER SECTION 80P OF THE ACT. 11. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF THE APEX COURT IN TOTGARS CO- OPERATIVE SALE SOCIETY'S CASE (SUPRA), ON WHICH REL IANCE IS PLACED, THE SUPREME COURT WAS DEALING WITH A CASE WHERE THE ASSESSEE/CO-OPERA TIVE SOCIETY, APART FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS AL SO IN THE BUSINESS OF MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS. THE SALE CONSIDERATION RECEIVED FROM MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WAS R ETAINED IN MANY CASES. THE SAID RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS FR OM WHOM PRODUCE WAS BOUGHT. WAS INVESTED IN A SHORT-TERM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE-S OCIERY WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITY SIDE. T HEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR UNDER SECTION 80P(2)(A)( III) OF THE ACT. THEREFORE IN THE FACTS OF THE SAID CASE, THE APEX COURT HELD THE ASS ESSING OFFICER WAS RIGHT IN TAXING THE ITA NO. 2402/AHD/15 A.Y.12-13 (THE DHANERA NAGRIK SAHKARI MANDLI LTD. VS. ACIT) PAGE 5 INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHER THEY MADE IT CLEAR THAT THEY ARE CONFINING THE SAID JUDGMENT TO THE FACTS OF THAT CASE. THEREFORE IT IS CLEAR, SUPREME COURT WAS NOT LAYING DOWN ANY LAW. 12. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVES TED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBERS. IT WAS NOT THE LI ABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNT. IN FACT THIS AMOUNT WHI CH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO ITS MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HA D DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. THE SAID INTEREST INCOME IS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO B E DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT. IN FACT SIMILAR VIEW IS TAKEN BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. ANDHRA PRADESH STATE CO-OPERATIV E BANK LTD. [2011] 336 ITR 516/200 TAXMAN 220/12 TAXMANN.COM 66. 13. IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTIONS O F LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS TH E FOLLOWING ORDER: APPEAL IS ALLOWED. THE IMPUGNED ORDER DATED 19.9.20 14 IS SET ASIDE. PARTIES TO BEAR THEIR OWN COSTS. 6. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE KARNATAKA HIGH COURT, WE ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO GRANT DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME TAX ACT ON THE INTEREST INCOME EARNED BY THE ASSESSEE FROM DEPOSITS WITH SCHEDULED BANKS. SUCH INTEREST INCOME HAS BEEN REPORTED BY THE ASSESSEE AT RS.3,93,533/-. TH IS AMOUNT WILL BE ELIGIBLE FOR GRANT OF DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME T AX ACT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 05.02.2016 SD/- SD/- ( PRAMOD KUMAR) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. ! / RESPONDENT ITA NO. 2402/AHD/15 A.Y.12-13 (THE DHANERA NAGRIK SAHKARI MANDLI LTD. VS. ACIT) PAGE 6 3. '#'$% ! ! & / CONCERNED CIT 4. ! ! & - / CIT (A) 5. '( )! **$% , ! ! $% , # / DR, ITAT, AHMEDABAD 6. ) -. / GUARD FILE. BY ORDER/ , / ! ' ! ! $% , #