Sri Maheshwara credit Co-op Society Ltd , Haveri V. Income TAx Officer Ward-2 , Haveri

ITA 2698/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5638 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 12-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIMAL ANAND
• Assessee Lawyers: UPPIN
• Keywords: Question of law
• Section: 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-A BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO S . 2698 & 2699 / BANG/2017 ASSESSMENT YEAR S : 2013 - 14 & 2014 - 15 M/S. SRI MAHESHWARA CREDIT CO-OPERATIVE SOCIETY LTD., M.G. ROAD, HAVERI 581 110. PAN: AAAAH 1459F VS. THE INCOME TAX OFFICER, WARD 2, HAVERI. APPELLANT RESPONDENT APPELLANT BY : SHRI M.R. UPPIN, ADVOCATE RESPONDENT BY : SHRI VIMAL ANAND, ADDL. CIT (DR) DATE OF HEARING : 1 9 .01.2018 DATE OF PRONOUNCEMENT : 24 .0 1 .201 8 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. CIT(A), DAVANGERE BOTH DATED 19.07.2017 FOR ASSESSMENT YEARS 2013-14 AND 2014-15. BOTH THESE A PPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS C OMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE CONCISE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE FOR ASSESSMENT YEAR 2013-14 ARE AS UNDER. 1. THE ASSESSING OFFICER AS WELL AS THE APPELLATE A UTHORITY FAILED TO CONSIDER THAT THE PETITIONER IN APPEAL IS A CO-OPER ATIVE SOCIETY ENGAGED EXCLUSIVELY IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND AS SUCH INVESTS ITS SURPLUS FUNDS AS ARE NOT IMMEDI ATELY REQUIRED FOR USE IN ITS BUSINESS IN CO-OPERATIVE SOCIETIES AS WE LL AS NATIONALIZED / COMMERCIAL BANKS. THEREFORE, THE ENTIRE INTEREST IN COME OF RS. 3,28,286/- DERIVED BY THE APPELLANT FORMS PART OF I TS PROFITS AND GAINS ATTRIBUTABLE TO ITS BUSINESS AND CHARGEABLE U/S. 28 OF THE ACT AND QUALIFIES FOR FULL DEDUCTION U/S. 80P(2)(A)(I) OF T HE ACT. THE CITATION OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD . RELIED UPON BY THE RESPONDENT IS NOT APPLICABLE TO THE APPELLANT'S CASE SINCE TOT GARS CO-OP. SALE ITA NOS. 2698 & 2699/BANG/2017 PAGE 2 OF 6 SOCIETY WAS ENGAGED IN NUMEROUS ACTIVITIES UNLIKE THE APPELLANT. 2. THE APPELLANT SUBMITS THAT THE IMPUGNED ORDERS P ASSED BY THE AUTHORITIES BELOW ARE ILLEGAL AND ARE LIABLE TO BE SET ASIDE IN VIEW OF THE JUDGMENT OF THE HON'BLE HIGH COURT OF KARNATAKA IN ITA 29/2015 - M/S. GUTTIGEDARARA CREDIT CO-OP. SOCIETY LTD. MYS ORE VS. ITO, WARD 2(2), MYSORE AND ITA 307/2014 - M/S. TUMKUR ME RCHANTS SOUHARDA CREDIT CO-OP. LTD. VS. ITO, WARD-1, TUMKUR AND ALSO THE RECENT JUDGEMENT DATED 15.12.2017 OF ITAT, HYDERABA D IN ITA NO. 673/HYD/2017 IN S.B.I. OFFICERS COOP. CREDIT SOCIET Y LTD. HYDERABAD VS. ITO WARD 5(3), HYDERABAD. 3. THE GROUNDS RAISED BY THE ASSESSEE FOR ASSESSMEN T YEAR 2014-15 ARE AS UNDER. 1. THE ASSESSING OFFICER AS WELL AS THE APPELLATE A UTHORITY FAILED TO CONSIDER THAT THE PETITIONER IN APPEAL IS A CO-OPER ATIVE SOCIETY ENGAGED EXCLUSIVELY IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND AS SUCH INVESTS ITS SURPLUS FUNDS AS ARE NOT IMMEDI ATELY REQUIRED FOR USE IN ITS BUSINESS IN CO-OPERATIVE SOCIETIES AS WE LL AS NATIONALIZED / COMMERCIAL BANKS. THEREFORE, THE ENTIRE INTEREST IN COME OF RS. 1,81,190/- DERIVED BY THE APPELLANT FORMS PART OF I TS PROFITS AND GAINS ATTRIBUTABLE TO ITS BUSINESS AND CHARGEABLE U/S. 28 OF THE ACT AND QUALIFIES FOR FULL DEDUCTION U/S. 80P(2)(A)(I) OF T HE ACT. THE CITATION OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. RELIED UPON BY THE RESPONDENT IS NOT APPLICABLE TO THE APPELLANT'S CASE SINCE TOT GARS CO-OP. SALE SOCIETY WAS ENGAGED IN NUMEROUS ACTIVITIES UNLIKE THE APPELLANT. 2. THE APPELLANT SUBMITS THAT THE IMPUGNED ORDERS P ASSED BY THE AUTHORITIES BELOW ARE ILLEGAL AND ARE LIABLE TO BE SET ASIDE IN VIEW OF THE JUDGMENT OF THE HON'BLE HIGH COURT OF KARNATAKA IN ITA 29/2015 - M/S. GUTTIGEDARARA CREDIT CO-OP. SOCIETY LTD. MYS ORE VS. ITO, WARD 2(2), MYSORE AND ITA 307/2014 - M/S. TUMKUR ME RCHANTS SOUHARDA CREDIT CO-OP. LTD. VS. ITO, WARD-1, TUMKUR AND ALSO THE RECENT JUDGEMENT DATED 15.12.2017 OF ITAT, HYDERABA D IN ITA NO. 673/HYD/2017 IN S.B.I. OFFICERS COOP. CREDIT SOCIET Y LTD. HYDERABAD VS. ITO WARD 5(3), HYDERABAD. 4. IT WAS SUBMITTED BY LD. AR OF THE ASSESSEE THAT THE ISSUE WAS DECIDED BY CIT(A) BY FOLLOWING THE JUDGEMENT OF HON'BLE KARNAT AKA HIGH COURT RENDERED IN THE CASE OF PCIT AND ANOTHER VS. TOTAGARS CO-OPERAT IVE SALE SOCIETY AS REPORTED IN 395 ITR 611 (KARN). HE SUBMITTED THAT THE FACTS OF THAT CASE ARE DIFFERENT AND THEREFORE, THIS JUDGMENT IS NOT APPLI CABLE IN THE PRESENT CASE. HE DRAWN MY ATTENTION TO THE SECOND PARA OF THIS JUDGM ENT ON PAGE 616 OF 395 ITR AND POINTED OUT THAT AS PER THE FACTS OF THAT CASE NOTED BY HON'BLE KARNATAKA ITA NOS. 2698 & 2699/BANG/2017 PAGE 3 OF 6 HIGH COURT IN THIS PARA, THE AMOUNT DEPOSITED BY AS SESSEE IN BANK WAS PAYABLE TO ITS MEMBERS FROM WHOM PRODUCE WAS BOUGHT AND IT WAS A LIABILITY AND IT WAS SHOWN BY ASSESSEE IN THE BALANCE SHEET O N THE LIABILITY SIDE. THEREAFTER, HE PLACED RELIANCE ON AN EARLIER JUDGEM ENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD. VS. ITO IN ITA NO. 307/2014 DATED 28.10.2014 AND DRAWN MY ATTENTION TO PARA NO. 10 OF THIS JUDGEMENT AND POIN TED OUT THAT IN THAT CASE, THE FACTS WERE THIS THAT THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBERS AND IT WAS NOT LIABILITY AND IT WAS NOT SHOWN AS LIABILITY IN THE BALANCE SHEET. THEREAFTE R HE DRAWN MY ATTENTION TO PARA NO. 3.2 OF THE ASSESSMENT ORDER AND IT WAS POI NTEDOUT THAT THE AO HIMSELF HAS NOTED IN THIS PARA OF THE ASSESSMENT ORDER THAT THE ASSESSEE WAS HAVING SURPLUS AND RESERVE FUNDS CREATED OUT OF ACCUMULATE D PROFITS OF THE SOCIETY AND SUCH FUNDS ARE NOT IMMEDIATELY REQUIRED FOR THE BUS INESS AS THERE WERE NO LOAN TAKERS AND HENCE, THE SOCIETY HAS INVESTED SUCH FUN DS WITH NATIONALIZED AND CO-OP BANKS. HE SUBMITTED THAT THE FACTS OF THE PR ESENT CASE ARE SIMILAR TO THE FACTS IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CRED IT COOPERATIVE LTD. VS. ITO(SUPRA) AND THEREFORE, THE JUDGMENT OF HON'BLE K ARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMKUR MERCHANTS SOUHARDA C REDIT COOPERATIVE LTD. VS. ITO(SUPRA) IS APPLICABLE IN THE PRESENT CASE AN D NOT THE LATER JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F PCIT AND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA) BECAUSE THE FACTS OF THAT CASE ARE DIFFERENT. THE LD. DR OF REVENUE SUPPORTED THE ORD ERS OF AUTHORITIES BELOW. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL I REPRODUCE PARA NO. 3.2 OF ASSESSMENT ORDER FOR NOTING DOWN THE FACTS OF THE P RESENT CASE. THE SAME IS AS UNDER. 3.2THE ASSESSEE IS A CO-OP CREDIT SOCIETY, THE ACTI VITY OF THE SOCIETY IS 'PROVIDING CREDIT FACILITY TO ITS MEMBERS' AND IT I S RUNNING ON THE BASIS OF 'MUTUALITY CONCEPT'. THE ASSESSEE HAS SURPLUS AN D RESERVE FUNDS CREATED OUT OF ACCUMULATED PROFITS OF THE SOCIETY A ND SUCH FUNDS ARE NOT IMMEDIATELY REQUIRED FOR THE BUSINESS OR AS THE RE WERE NO LOAN TAKERS AND HENCE, THE SOCIETY HAS INVESTED SUCH FUN DS WITH NATIONALIZED AND CO-OP BANKS. THE NATIONALIZED AND CO-OP BANKS ARE NOT MEMBERS OF THE SOCIETY AND ACCORDINGLY THE INTE REST EARNED BY THE ITA NOS. 2698 & 2699/BANG/2017 PAGE 4 OF 6 SOCIETY FROM ITS INVESTMENT WITH NON MEMBERS SUCH A S NATIONALISED AND CO-OP BANKS ARE NOT QUALIFIED FOR CLAIMING THE DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. FURTHER, THE PROVISIONS OF SEC. 80P(2)(A)(I) WHICH CLEARLY STATES THAT, DEDUCTION IS ALLOWABLE O NLY WHERE 'BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMB ERS'. HOWEVER, IN THE PRESENT CASE THE SOCIETY HAS EARNED INTEREST FR OM ITS INVESTMENT WITH CO-OP BANKS WHICH ARE NOT A MEMBERS OF THE SOC IETY AND HENCE, THE INTEREST EARNED BY THE SOCIETY OF RS.3,28,286 I S REQUIRED TO BE EXCLUDED FROM ALLOWING DEDUCTION U/S 80P(2)(A)(I). 6. I ALSO REPRODUCE THE RELEVANT PARA FROM THE JUDG EMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF PCIT AND ANOTHER VS. TOTAGARS CO- OPERATIVE SALE SOCIETY (SUPRA) BEING SECOND PARA ON PAGE 616 OF 395 ITR. THE SAME IS ASUNDER. FURTHER, AS STATE ABOVE, THE ASSESSEE(S) MARKETS TH E AGRICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS THE SALE PROCEED S IN MANY CASES. IT IS THIS 'RETAINED AMOUNT' WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WAS INVESTED IN SHOR T-TERM DEPOS- ITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETAINED BY THE ASSESSEE- SOCIETY, WAS A LIABILITY AND IT WAS SHOWN IN THE BA LANCE-SHEET ON THE LIABILITY-SIDE. THEREFORE, TO THAT EXTENT, SUCH INT EREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENT IONED IN SECTION 80P(2)(A)(I) OF THE ACT OR IN SECTION 80P(2)(A)(III ) OF THE ACT. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES O F THIS CASE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME, INDICATED ABOVE, UNDER SECTION 56 OF THE AC T. 7. I ALSO REPRODUCE PARA NO. 10 FROM THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMKUR MERCHANTS SOUH ARDA CREDIT COOPERATIVE LTD. VS. ITO(SUPRA). THE SAME READS AS UNDER. 10. 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 LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR A CCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MO NEY TO THE MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HA D DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. THE SAID IN TEREST INCOME IS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P (1) O F THE ACT. IN FACT SIMILAR VIEW IS TAKEN BY THE ANDHRA PRADESH HIGH CO URT IN THE CASE OF COMMISSIONER OF INCOME-TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., REPORTED IN (2011) 200 TAXMAN 220/12. IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYI NG THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ITA NOS. 2698 & 2699/BANG/2017 PAGE 5 OF 6 ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER: APPEAL IS ALLOWED. THE IMPUGNED ORDER IS HEREBY SET ASIDE. PARTIES TO BEAR THEIR OWN COST . 8. WHEN I GO THROUGH BOTH THESE JUDGEMENTS OF HON'B LE KARNATAKA HIGH COURT, I FIND THAT THERE IS NO CONTRADICTION IN BOTH THESE J UDGEMENTS. BOTH THESE JUDGEMENTS ARE IN THE SAME LINE THAT IF THE DEPOSIT IN BANK ARE OUT OF OWN FUNDS OF SOCIETY THEN THE INTEREST ON SAME IS ELIGIBLE FO R DEDUCTION U/S. 80P (1) AND IF THE DEPOSIT IN BANK IS OUT OF THE FUND AVAILABLE WI TH THE SOCIETY IN THE FORM OF LIABILITY THEN THE SAME IS NOT ELIGIBLE FOR DEDUCTI ON U/S. 80P (2) OF IT ACT. THE CONCLUSION IS DIFFERENT IN BOTH THE JUDGEMENTS BECA USE THE FACTS ARE DIFFERENT IN BOTH THESE CASES. HENCE, I HAVE TO SEE THAT IN THE FACTS OF THE PRESENT CASE, WHICH JUDGEMENT IS APPLICABLE. THE FACTS OF THE PR ESENT CASE ARE ALSO REPRODUCED BY ME BEING PARA 3.2 OF ASSESSMENT ORDER . WHEN I COMPARE THE FACTS OF THE PRESENT CASE WITH THE FACTS OF THESE T WO JUDGMENTS, I FIND THAT THE FACTS IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CRED IT COOPERATIVE LTD. VS. ITO(SUPRA) ARE TALLYING AND NOT THE FACTS IN THE CA SE OF JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF PCIT A ND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA). HENCE, I RESPEC TFULLY FOLLOW THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CAS E OF TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD. VS. ITO (SUPRA) AN D DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE IN BOTH YEARS. 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 24 TH JANUARY, 2018. /MS/ ITA NOS. 2698 & 2699/BANG/2017 PAGE 6 OF 6 COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.