Kashti Vividh Karyakari Seva Sah. Society, V. Income-tax Officer,

ITA 264/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1303 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 264/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2008-09 KASHTI VIVIDH KARYAKARI SEVA SAH. SOCIETY KASHTI, AHMEDNAGAR PAN : AAAAK0815A ....... / APPELLANT ' / V/S. INCOME TAX OFFICER, WARD 1, AHMEDNAGAR / RESPONDENT ASSESSEE BY : SHRI NARESH KUMAR REVENUE BY : SHRI A.K. MODI / DATE OF HEARING : 18-06-2015 / DATE OF PRONOUNCEMENT : 14-08-2015 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DATED 20 -11-2013 FOR THE ASSESSMENT YEAR 2008-09. THE ONLY ISSUE RAISED IN APPEAL IS 2 ITA NO. 264/PN/2014, A.Y. 2008-09 DISALLOWANCE OF DEDUCTION U/S. 80P OF THE INCOME TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS THE ACT) CLAIMED BY THE ASSESSEE. 2. THE BRIEF FACTS OF THE CASE ARE : THE ASSESSEE IS REGIS TERED UNDER MAHARASHTRA CO-OPERATIVE SOCIETIES ACT AND IS ENGAGED I N PROVIDING CREDIT FACILITIES TO ITS MEMBERS FOR TRADING IN AGRICULTURE IMPLE MENTS, SEEDS AND OTHER ARTICLES INTENDED FOR AGRICULTURE PURPOSE , ETC. THE ASSESSEE IS SOCIETY HAVING VARIOUS DIVISIONS SUCH AS CHEMIC AL DIVISION, MACHINERY DIVISION, CLOTH DIVISION, READYMADE GARMENTS DIVISION, SADI DIVISION, CONSUMER PRODUCTS DIVISION, GRUHYAUPYOGI DIVISION , MEDICAL DIVISION, SEEDS AND PESTICIDES DIVISION, ETC. THE ASSE SSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 DE CLARING NIL INCOME. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUT INY, ACCORDINGLY, NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 21-08- 2009. THE NET INCOME AS PER THE PROFIT AND LOSS ACCOUNT FILED BY THE ASSESSEE IS RS.43,40,243/-. THE ASSESSEE CLAIMED THE ENTIR E INCOME AS EXEMPT U/S. 80P(2)(A)(I). DURING THE COURSE OF SCRUTINY ASSESS MENT, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS EARNED INC OME OF RS.3,89,174/- FROM SALE OF CONSUMER GOODS AND READYMADE/C LOTH DIVISIONS. THE DETAILS OF SAME ARE AS UNDER: I) CLOTH BUSINESS 16,315 II) READYMADE BUSINESS 1,06,266 III) SADI BUSINESS 62,388 IV) CONSUMABLES 1,13,777 V) GRAHAUPYOGI 38,336 VI) MEDICAL 22,090 3,89,174 2.1. THE ASSESSING OFFICER HELD THAT THE AFORESAID ACTIVITIES OF THE ASSESSEE ARE OUTSIDE THE PREVIEW OF ACTIVITIES OF CREDIT SO CIETIES. THE ASSESSING OFFICER OBSERVED THAT SUCH ACTIVITIES FALL UNDER CO NSUMER 3 ITA NO. 264/PN/2014, A.Y. 2008-09 SOCIETIES, THEREFORE, DEDUCTION CAN BE ALLOWED ON INCOME FROM SALE OF SUCH CONSUMER GOODS ONLY TO THE EXTENT OF RS.1,00,000/- U/S. 80P(2)(C)(I) OF THE ACT. THE ASSESSING OFFICER MADE DISALLOWANCE U /S. 80P(2)(A)(I) OF RS.3,89,174/- AND RESTRICTED THE CLAIM OF ASSES SEE TO RS.1,00,000/- U/S. 80P(2)(C)(I). AGGRIEVED BY THE ASSESSMENT ORDER DATED 02-09-2010, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD TH E FINDINGS OF ASSESSING OFFICER AND DISMISSED THE APPEAL OF THE A SSESSEE. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. SHRI NARESH KUMAR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS PRIMARILY DEALING WITH ITS M EMBERS AND SALE OF GARMENTS/CLOTHS AND CONSUMER GOODS ARE FOR THE BENEFIT OF THE MEMBER. ONLY SMALL PART OF THE ASSESSEES TURNOVER RELA TES TO NON- MEMBERS. WHENEVER THE SALES ARE MADE TO NON-MEMBERS, A SEPARATE MARKING IS MADE IN THE SALE REGISTER. THE SALES SUMMARY A RE PREPARED ON MONTHLY BASIS TO IDENTIFY SALES MADE TO MEMBERS AND NON-MEMBERS. AT THE END OF THE YEAR, AVERAGE RATIO OF SALES TO MEMBER S AND NON- MEMBERS IS WORKED OUT. IN THE YEAR UNDER APPEAL, THE S ALES TO NON- MEMBERS IS ONLY 20%. THE ASSESSEE IS GOVERNED BY THE PRINCIPLES OF MUTUALITY. THE ACTIVITIES LIKE GRAHAK BHANDAR, CLOTH DIVISION, GRAHAPYOGI DIVISION, MEDICAL DIVISION ETC. ARE VERY MUCH PART OF THE OBJECTS OF THE SOCIETY FOR THE BENEFIT OF ITS MEMBERS. THE MAJORITY OF TRANSACTIONS I.E. MORE THAN 80% ARE WITH MEMBERS ALONE. T HE ASSESSEE HAS BEEN CARRYING ON THESE ACTIVITIES FOR LONG AND NO OBJ ECTION WHATSOEVER WAS RAISED BY THE DEPARTMENT IN EARLIER ASSE SSMENT YEARS. THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2005-06, 20 06-07 AND 2007-08 WERE MADE U/S. 143(3). THE REVENUE DID NOT DIS PUTE THE 4 ITA NO. 264/PN/2014, A.Y. 2008-09 ACTIVITIES OF THE ASSESSEE IN SCRUTINY ASSESSMENT. EVEN IN ASSESSMENT YEAR 2010-11 THE ASSESSING OFFICER ACCEPTED THE DEDUCTIO N CLAIMED BY THE ASSESSEE ON SUCH ACTIVITIES. THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING AND THERE HAS BEE N NO CHANGE IN THE BUSINESS ACTIVITIES OF THE ASSESSEE. IT IS ONLY IN THE ASSESSMENT YEARS 2008-09 AND 2009-10 THAT THE REVENUE HAS RAISE D OBJECTION TO THE INCOME EARNED BY ASSESSEE FROM SUCH ACTIVITIES. ON T HE PRINCIPLES OF CONSISTENCY, THE LD. AR PLACED RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT RE PORTED AS 336 ITR 287 (BOM). ON THE ISSUE WHETHER THE ASSESSEE CAN UNDERTAKE THE ACTIVITIES OF SALE OF CONSUMER GOODS AND CLOTH DIVISION E TC. FOR THE BENEFIT OF ITS MEMBERS, THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. BAN KIPUR CLUB LTD. REPORTED AS 226 ITR 97 (SC). 4. ON THE OTHER HAND SHRI A.K. MODI REPRESENTING THE DEP ARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF AUTHORITIES BELOW AND PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF AUTHORIT IES BELOW. WE ALSO CONSIDERED THE JUDGMENTS ON WHICH THE LD. AR HAS PLA CED RELIANCE. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS A CO-OPE RATIVE SOCIETY AND IS ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND S UBSTANTIAL PART OF ITS EARNINGS ARE FROM THE ACTIVITIES RELATED TO SA LE OF AGRICULTURE IMPLEMENTS AND MACHINES, CHEMICALS, PESTICIDES, SEEDS ETC. I T HAS COME ON RECORD THAT THE ASSESSEE IS HAVING NET INCOME OF RS.43,40,243/- OUT OF WHICH MERELY RS.3,89,174/- RELATES TO INCOME FROM SALE OF CONSUMER GOODS, CLOTH/READYMADE BUSINESS ETC . IT HAS NOT BEEN DISPUTED THAT 80% OF THE TRANSACTIONS BY THE ASSE SSEE ARE WITH ITS 5 ITA NO. 264/PN/2014, A.Y. 2008-09 MEMBERS ALONE. THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 8 0P(2)(A)(I). THE RELEVANT EXTRACT OF THE SECTION UNDER WHICH THE ASS ESSEE HAS CLAIMED DEDUCTION IS AS UNDER: SECTION 80P(2): THE SUMS REFERRED TO IN SUB-SECTIO N (1) SHALL BE THE FOLLOWING NAMELY :- (A) IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED I N - (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS. 6. AS STATED EARLIER, IT IS AN UNDISPUTED FACT THAT THE A SSESSEE IS PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASSESSEE IS FO LLOWING THE PRINCIPLES OF MUTUALITY. THE CONSUMER DIVISION AND GARMENTS DIVISION WAS SET UP FOR THE BENEFIT OF THE MEMBERS OF THE ASSESSE E SOCIETY. THE REVENUE HAS DENIED DEDUCTION ON THE PROFITS EARNED BY A SSESSEE FROM CONSUMER AND GARMENTS DIVISION ON THE GROUND THAT SUCH ACTIVITIES ARE AKIN TO THE ACTIVITIES OF CONSUMER SOCIETY. THE DEDUCTION ON EARNINGS FROM SUCH ACTIVITIES CAN BE ALLOWED MAXIMUM TO THE EXTENT OF RS.1,00,000/- ONLY IN ACCORDANCE WITH THE PROVISIONS OF SE CTION 80P(2)(C)(I). THE RELEVANT EXTRACT OF CLAUSE (C) OF SECTION 80P(2) READS AS UNDER: (C) IN THE CASE OF A CO-OPERATIVE 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 SPECIF IED), SO MUCH OF ITS PROFITS AND GAINS ATTRIBUTABLE TO SUCH ACTIVITIES AS [DOES NOT EXCEED, (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-OPERATI VE SOCIETY MEANS A SOCIETY FOR THE BENEFIT OF THE CONSUMERS;] 7. IT IS AN ADMITTED POSITION THAT THESE ACTIVITIES WERE C ARRIED OUT BY THE ASSESSEE FOR SEVERAL YEARS AND NO OBJECTION WHATSO EVER WAS RAISED 6 ITA NO. 264/PN/2014, A.Y. 2008-09 BY THE DEPARTMENT ON THIS COUNT. THE ASSESSEE HAS BE EN CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING AND THE NATURE OF ACTIVITIES CARRIED OUT IN THE PAST, AS WELL AS, IN SUBSEQUENT ASSESS MENT YEARS IS SAME. IT WAS ONLY DURING THE IMPUGNED ASSESSMENT YEAR AND THE FOLLOWING ASSESSMENT YEAR THAT THE REVENUE HAS RAISED DIS PUTE WITH RESPECT TO PROFITS FROM CONSUMER GOODS AND GARMENTS DIV ISION. THE LD. AR OF THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE ASS ESSMENT ORDER PASSED IN THE ASSESSMENT YEAR 2010-11 U/S. 143(3) WHERE IN NO SUCH DISPUTE WAS RAISED. WE ARE OF THE CONSIDERED VIEW THAT SINCE THE TURNOVER FROM THE CONSUMER DIVISIONS AS COMPARED TO THE TOTAL TURNOVER OF THE ASSESSEE IS MINISCULE, IT WOULD NOT CHANGE THE NAT URE OF ACTIVITIES OF CO-OPERATIVE SOCIETY. THE ASSESSEE CO-OPERATIVE SOCIE TY IS PRIMARILY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND IT IS FOR THE BENEFIT FOR MEMBERS THAT CONSUMER DIVISION AND CLOTH DIVIS ION HAVE BEEN INCLUDED IN THE ACTIVITIES OF THE SOCIETY. BY PROVIDING SUCH FACILITIES TO ITS MEMBERS IT CANNOT BE SAID THAT THE ASSESS EE IS ENGAGED IN TRADING OF CONSUMER GOODS ON COMMERCIAL BASIS. THE PRO FITS ARISING FROM AFORESAID DIVISIONS ARE NOT LIABLE TO BE TAXED UNDER T HE PRINCIPLE OF MUTUALITY. THE HON'BLE PATNA HIGH COURT IN THE CASE OF CI T VS. RANCHI CLUB LTD. REPORTED AS 100 CTR 295 WHILE DEALING WITH QUEST ION WHETHER INCOME DERIVED BY THE ASSESSEE-CLUB FROM SALE OF LIQUOR, ET C., TO ITS MEMBERS AND THEIR GUESTS IS NOT TAXABLE IN ITS HAND? HAS HELD : .. THAT MERELY BECAUSE THE ASSESSEE-COMPANY HAD ENTERED INTO TRANSACTIONS WITH NON-MEMBERS AND EARNED PROFITS OU T OF TRANSACTIONS HELD WITH THEM, ITS RIGHT TO CLAIM EXEMPTION ON THE PRINCIPLE OF MUTUALITY IN RESPECT OF TRANSACTIONS HELD BY IT WITH ITS MEMB ERS WAS NOT LOST. THE ASSESSEE WAS A MUTUAL CONCERN. THE INCOME DERIVED BY IT FROM ITS HOUSE PROPERTY LET TO ITS MEMBERS AND THEIR GUESTS AND FR OM THE SALE OF LIQUOR, ETC., TO ITS MEMBERS AND THEIR GUESTS WAS NOT TAXAB LE IN ITS HAND. 7 ITA NO. 264/PN/2014, A.Y. 2008-09 8. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. BANKIPUR CLUB LTD. (SUPRA) HAS HELD AS UNDER: 14. NOW WE TURN TO THE MAIN QUESTION CANVASSED BY THE REVENUE IN THE APPEALS COMING UNDER GROUPS A TO D, NAMELY, WHETHER THE ASSESSEE MUTUAL CLUBSARE ENTITLED TO EXEMPTION FOR THE RECE IPTS OR SURPLUS ARISING FROM THE SALES OF DRINKS, REFRESHMENTS ETC. OR AMOU NTS RECEIVED BY WAY OF RENT FOR LETTING OUT THE BUILDINGS OR AMOUNTS RE CEIVED BY WAY OF ADMISSION FEES, PERIODICAL SUBSCRIPTIONS AND RECEIP TS OF SIMILAR NATURE, FROM ITS MEMBERS? IN ALL THESE CASES, THE TRIBUNAL AS ALSO THE HIGH COURT HAVE FOUND THAT THE AMOUNTS RECEIVED BY THE CLUBS W ERE FOR SUPPLY OF DRINKS, REFRESHMENTS OR OTHER GOODS AS ALSO THE LET TING OUT OF BUILDING FOR RENT OR THE AMOUNTS RECEIVED BY WAY OF ADMISSION FE ES, PERIODICAL SUBSCRIPTION ETC. FROM THE MEMBERS OF THE CLUBS WER E ONLY FOR/TOWARDS CHARGES FOR THE PRIVILEGES, CONVENIENCES AND AMENIT IES PROVIDED TO THE MEMBERS, WHICH THEY WERE ENTITLED TO AS PER THE RUL ES AND REGULATIONS OF THE RESPECTIVE CLUBS. IT HAS ALSO BEEN FOUND THAT D IFFERENT CLUBS REALISED VARIOUS SUMS ON THE ABOVE COUNTS ONLY TO AFFORD TO ITS MEMBERS THE USUAL PRIVILEGES, ADVANTAGES, CONVENIENCES AND ACCOMMODAT ION. IN OTHER WORDS, THE SERVICES OFFERED ON THE ABOVE COUNTS WER E NOT DONE, WITH ANY PROFIT MOTIVE, AND WERE NOT TAINTED WITH COMMERCIAL ITY. THE FACILITIES WERE OFFERED ONLY AS A MATTER OF CONVENIENCE FOR THE USE OF THE MEMBERS, (AND THEIR FRIENDS, IF ANY, AVAILING OF THE FACILITIES O CCASIONALLY). IN THE LIGHT OF THE ABOVE FINDINGS, IT NECESSARILY FOLLOWS THAT THE RECEIPTS FOR THE VARIOUS FACILITIES EXTENDED BY THE CLUBS TO ITS MEMBERS, AS STATED HEREINABOVE, AS PART OF THE USUAL PRIVILEGES, ADVAN TAGES AND CONVENIENCES, ATTACHED TO THE MEMBERSHIP OF THE CLU B, CANNOT BE SAID TO BE 'A TRADING ACTIVITY.' THE SURPLUSEXCESS OF RECE IPTS OVER THE EXPENDITUREAS A RESULT OF MUTUAL ARRANGEMENT, CANN OT BE SAID TO BE 'INCOME' FOR THE PURPOSE OF THE ACT. THUS, WE CAN SAFELY CONCLUDE THAT ANY INCOME GENERATED FROM FACILITIES, AMENITIES, PRIVILEGES PROVIDED TO THE MEMBERS IN ACCO RDANCE WITH THE BYE-LAWS AND REGULATIONS OF THE SOCIETY IS EXEMPT ON THE PRINCIPLE OF MUTUALITY. 8 ITA NO. 264/PN/2014, A.Y. 2008-09 9. IN THE LIGHT OF FACTS OF THE CASE AND THE JUDGMENTS DISCUSSED ABOVE, WE ACCEPT THE APPEAL OF THE ASSESSEE AND SET AS IDE THE IMPUGNED ORDER. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 14 TH DAY OF AUGUST, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 14 TH AUGUST, 2015 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-IT/TP, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- / ITAT, PUNE