M/s. Nagapura Credit Co-operative Society, Bangalore V. Income Tax Officer, Ward- 6(2)(2), Bangalore

ITA 2405/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7682 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-08-2020
• Assessment Year: 2016-2017
• Appeal Filed On: 22-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Source of fund
• Section: 56; 80P; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N V VASUDEVAN, VICE PRESIDENT AND SHRI G MANJUNATHA , ACCOUNTANT MEMBER IT A NO. 2405/BANG/2019 ASSESSMENT YEAR: 2016 - 17 NAGAPURA CREDIT CO-OPERATIVE SOCIETY, NO.411, 5 TH MAIN, 12 TH CROSS, WOC, MAHALAKSHMIPURAM, BANGALORE 560 086. PAN: AABAN 6975D VS. THE INCOME TAX OFFICER, WARD 6(2)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI C. RAMESH, CA RESPONDENT BY : SHRI PRIYADARSHI MISHRA, JT.CIT(DR)( ITAT), BENGALURU. DATE OF HEARING : 20 .0 8 .2020 DATE OF PRONOUNCEMENT : 31 .0 8 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 30.8.2019 OF THE CIT(APPEALS)-6, BENGALURU RELATING TO ASSESSMEN T YEAR 2016-17. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER A SUM OF RS.76,17,450 WHICH WAS INTEREST EA RNED BY THE ASSESSEE ON SURPLUS FUNDS AVAILABLE WITH IT IS ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OR 2(D) OF THE ACT. 3. UNDER SECTION 80P(2)(A)(I) OF THE ACT, IN THE CA SE OF A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, THE WHOLE OF AMOUNT OF P ROFITS & GAINS OF BUSINESS ITA NO.2405/BANG/2019 PAGE 2 OF 6 ATTRIBUTABLE TO CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS ALLOWED AS DEDUCTION IN COMPUTING TOTAL INCOME. 4. UNDER SECTION 80P(2)(D) OF THE ACT, INCOME BY WA Y OF INTEREST OR DIVIDEND DERIVED BY A CO-OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OPERATIVE SOCIETY , THE WHOLE OF SUCH INCOME IS ENTITLED TO DEDUCTION. 5. IT IS NOT IN DISPUTE BEFORE US THAT THE ASSESSEE IS A CREDIT CO- OPERATIVE SOCIETY CARRYING ON BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASSESSEE RECEIVED INTEREST INCOME OF RS.76,17,450 ON THE FOLLOWING INVESTMENTS :- SL.NO NAME OF THE BANK AMOUNT OF INTEREST 1 JANATHA CO-OP BANK 27,84,738 2 JANATHA SEVA CO-OP BANK 45,10,933 3 B.D.C.C. BANK(CO-OP BANK) 1,31,099 4 APEX BANK(CO-OP BANK) 20,639 5 P.M.C. BANK(CO-OP BANK) 1,14,020 6 B.C.C. BANK(CO-OP BANK) 21,248 7 SUDA CO-OP BANK (CO- OP BANK) 31,943 ... 8 YASASHWINI AROGYA FEE 2,830 76,17,450 6. IT CAN BE SEEN FROM THE AFORESAID CHART THAT THE INTEREST RECEIVED FROM THE ASSESSEE WAS FROM CO-OPERATIVE BANKS. THE AO TOOK THE VIEW THAT INTEREST INCOME EARNED BY THE ASSESSEE WAS IN THE NATURE OF INCOME FROM OTHER SOURCES AND THEREFORE DEDUCTION U/S. 8 0P(2)(A)(I) SHOULD NOT BE ALLOWED. ACCORDING TO HIM, THE AMOUNT THAT IS ELIG IBLE FOR DEDUCTION U/S. 80P(2)(A)(I) SHOULD BE THE PROFITS & GAINS OF BUSIN ESS ATTRIBUTABLE TO BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. IN COMING TO THE AFORESAID CONCLUSION, THE AO PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. V. ITA NO.2405/BANG/2019 PAGE 3 OF 6 ITO [2010] 322 ITR 283 (SC) WHEREIN IT WAS LAID DOWN THAT INTEREST INCOME EARNED ON INVESTMENTS WAS ASSESSABLE U/S. 56 OF THE ACT UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE NOT ELIG IBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. 7. AS FAR AS DEDUCTION U/S. 80P(2)(D) OF THE ACT IS CONCERNED, THE AO TOOK THE VIEW THAT THE SAID SECTION WILL APPLY ONLY IF INTEREST INCOME IS RECEIVED FROM A CO-OPERATIVE SOCIETY AND SINCE THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS ON INVESTMENTS WITH CO-OPERATIVE BANKS , THE ASSESSEE WOULD NOT BE ELIGIBLE TO DEDUCTION U/S . 80P(2)(D) OF THE ACT. IN THIS REGARD, THE AO ALSO MADE A REFERENCE TO PRO VISIONS OF SECTION 80P(4) OF THE ACT, WHICH PROVIDED THAT PROVISIONS O F SECTION 80P SHALL NOT APPLY TO CO-OPERATIVE BANKS GOVERNED BY THE BANKING REGULATION ACT, 1949. 8. THE AO ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF DCIT V. TOTGARS CO-OPERATIVE SOCIETY, 395 ITR 611 (KARN) WHEREIN IT WAS HELD THAT INTEREST ON INVESTMENTS RE TAIN THE CHARACTER OF INCOME FROM OTHER SOURCES AND TH EREFORE DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT WILL NOT BE AVAILABLE BECAU SE THE INCOME WAS NOT ATTRIBUTABLE TO BUSINESS OF PROVIDING CREDIT FACILI TIES TO MEMBERS. FOR THE AFORESAID REASONS, HE DENIED THE DEDUCTION U/S. 80P (2)(A)(I) OF THE ACT. 9. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONFIRM ED THE ORDER OF AO, HENCE THIS APPEAL BY THE ASSESSEE BEFORE THE TR IBUNAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND WE FIND THA T THERE ARE CONTRARY JUDGMENTS OF HONBLE HIGH COURT OF KARNATA KA ON THIS ISSUE. THIS ASPECT HAS BEEN DISCUSSED BY THE ITAT A BENCH IN ITA NO.3389 & 3390/BANG/2019 IN THE CASE OF THE JAYANGAR CO-OPERATIVE SOCIETY LTD. V. ITO, ORDER DATED 07.02.2020 WHEREIN THIS TRIBUNAL RESTORED THE ISSUE TO THE AO FOR FRESH CONSIDERATION WITH THE FOLLOWING OBSER VATIONS :- ITA NO.2405/BANG/2019 PAGE 4 OF 6 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRO& PARA 5 OF THE TRIBUNAL ORDER CITED BY LEARNE D AR OF THE ASSESSEE HAVING BEEN RENDERED IN THE CASE OF M/S. T HE JAYANAGAR CO-OPERATIVE SOCIETY LTD., V. ITO (SUPRA). THIS PAR A READS AS UNDER:- 5. WHILE LEARNED AR RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMUKUR MERCHAN TS SOUHARDA CREDIT CO-OPERATIVE LTD., 230 TAXMAN 309 (KARN), THE DR RELIED ON A SUBSEQUENT DECISION OF T HE HONBLE KARNATAKA HIGH COURT IN THE CASE OF PCIT VS . TOTGARS CO-OPERATIVE SALE SOCIETY LTD., 395 ITR 611 (KARN.). WE HAVE CAREFULLY GONE THROUGH THE SAID JUDGMENT. THE FACTS OF THE CASE BEFORE THE HONBLE KARNATAKA HIGH COURT WAS THAT THE HONBLE COURT WAS CONSIDERING A CASE RELATING TO ASSESSMENT YEARS 200 7-08 TO 2011-12. IN CASE DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF THE VERY SAME ASSESSEE, THE ASSESSME NT YEARS INVOLVED WAS ASSESSMENT YEARS 1991-92 TO 1999 - 2000. THE NATURE OF INTEREST INCOME FOR ALL THE ASSESSMENT YEARS WAS IDENTICAL. THE BONE OF CONTENT ION 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 WHIC H WAS THE CLAIM IN AY 1991-92 TO 1999- 2000. THE REASON G IVEN BY THE ASSESSEE WAS THAT IN AY 2007-08 TO 2011-12 INVESTMENTS AND DEPOSITS AFTER THE SUPREME COURT'S DECISION AGAINST THE ASSESSEE TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD. (SUPRA), WERE SHIFTED FROM SCHEDULE BA NKS TO COOPERATIVE BANK. U/S.80P(2)(D) OF THE ACT, INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY A CO-OPERAT IVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OPER ATIVE SOCIETY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SU CH INTEREST OR DIVIDEND INCOME. THE CLAIM OF THE ASSES SEE WAS THAT CO-OPERATIVE BANK IS ESSENTIALLY A CO-OPERATIV E SOCIETY AND THEREFORE DEDUCTION HAS TO BE ALLOWED U NDER CLAUSE (D) OF SEC.80P(2) OF THE ACT. THE HON'BLE KARNATAKA HIGH COURT FOLLOWED THE DECISION OF THE SUPREME COURT IN THE TOTGARS CO-OPERATIVE SALES SOC IETY LTD. (SUPRA) AND HELD THAT INTEREST EARNED FROM SCH EDULE BANK OR COOPERATIVE BANK IS ASSESSABLE UNDER THE HE AD INCOME FROM OTHER SOURCES AND THEREFORE THE PROVISI ONS OF SEC.80P(2)(D)OF THE ACT WAS NOT APPLICABLE TO SUCH INTEREST INCOME. IT IS THUS CLEAR THAT THE SOURCE O F FUNDS ITA NO.2405/BANG/2019 PAGE 5 OF 6 OUT OF WHICH INVESTMENTS WERE MADE REMAINED THE SAM E IN AY 2007-08 TO 2011-12 AND IN AY 1991-92 TO 1999- 2000 DECIDED BY THE HON'BLE SUPREME COURT. THEREFOR E WHETHER THE SOURCE OF FUNDS WERE ASSESSEE'S OWN FUN DS OR OUT OF LIABILITY WAS NOT SUBJECT MATTER OF THE DECI SION OF THE HON'BLE KARNATAKA HIGH COURT IN THE DECISION CITED BY THE LEARNED DR. TO THIS EXTENT THE DECISION OF THE HON' BLE KARNATAKA HIGH COURT IN THE CASE OF TUMUKUR MERCHAN TS 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 EXAMINING THE FAC TS IN THE LIGHT OF THESE JUDGMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF THE TOTGARS CO-OPERATIVE SA LE SOCIETY LTD. (SUPRA) AND OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CO- OPERATIVE LTD. (SUPRA). 5. WE FIND THAT IN THAT CASE, THE MATTER WAS RESTOR ED BACK TO THE FILE OF AO BY THE TRIBUNAL FOR A FRESH DECISION AFTER EXAMINING THE FACTS IN THE LIGHT OF THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF THE TOTGARS CO-OPERATIVE SALES SOCIETY LTD. (SUPRA) AND OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CO-OPERATIVE LTD. (SUPRA ). RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, IN THE PRESENT CASE ALSO. WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR FRESH DECISION, AFTER EXAMINING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THESE TWO JUDGMENTS AFTER PROVIDING ADEQUATE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. WE ALSO FIND THAT THE HONBLE HIGH COURT OF KAR NATAKA IN THE CASE OF PR. CIT V. TOTGARS CO-OPERATIVE SALES SOCIETY, 392 ITR 74 (KARN) CONFIRMED THE ORDER OF TRIBUNAL ALLOWING DEDUCTION U/S. 80P(2)(D) OF THE ACT ON INTEREST RECEIVED FROM INVESTMENTS MADE IN CO-OP ERATIVE BANK. THIS DECISION WAS, HOWEVER, NOT FOLLOWED IN A SUBSEQUENT DB JUDGMENT IN THE CASE OF PR. CIT V. TOTGARS CO-OPERATIVE SALES SOCIETY, 395 ITR 611 [KARN]. IN THE LATER DECISION, THE HONBLE HIGH COURT HELD THAT INTEREST INCOME EARNED ON DEPOSITS WILL BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE THE ENTIRE DEDUCTION U/S. 80 P(2)(A)(I) OR 80P(2)(D) OF THE ACT WOULD NOT BE AVAILABLE TO THE ASSESSEE. ITA NO.2405/BANG/2019 PAGE 6 OF 6 12. THE CIT(APPEALS) HAS, HOWEVER, IN THE IMPUGNED ORDER PROCEEDED UNDER THE ASSUMPTION THAT IN THE LATER DB JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IT HAS BEEN LAID DOWN THAT DEDUC TION U/S. 80P(2)(D) IS NOT AVAILABLE TO INTEREST INCOME EARNED ON DEPOSITS WITH CO-OPERATIVE BANKS. IN OUR VIEW, THIS CONCLUSION OF THE CIT(AP PEALS) IS NOT CORRECT. WE THEREFORE, FOLLOWING THE DECISION OF THE ITAT BANGA LORE BENCH IN THE CASE OF THE JAYANGAR CO-OPERATIVE SOCIETY LTD. (SUPRA) , REMAND THE QUESTION OF ALLOWING DEDUCTION U/S. 80P(2)(A)(I) AS WELL AS 80P (2)(D) OF THE ACT TO THE AO FOR FRESH CONSIDERATION AS PER DIRECTIONS CONTAI NED IN THE ORDER OF TRIBUNAL IN THE CASE OF THE JAYANGAR CO-OPERATIVE SOCIETY LTD. (SUPRA) . 13. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2020. SD/- SD/- ( G MANJUNATHA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBE R VICE PRESIDENT BANGALORE, DATED, THE 31 ST AUGUST, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.