Shree Modhpatni Co.Op. Credit Society Ltd., Surat V. The Dy.CIT, Circle-2(3), Surat

ITA 2710/AHD/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6285 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 24-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 2

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA NO.2710/AHD/2015 / ASSTT. YEAR: 2012-2013 SHREE MODHPATNI CO-OP CREDIT SOCIETY LTD. 4/391-392, GALEMANDI MAIN ROAD MAHIDHARPURA SURAT 395 004. PAN : AAGTS 5442 L VS. DCIT, CIR.2(3) SURAT. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI MEHUL SHAH, AR REVENUE BY : SHRI MADHUSUDAN, SR.DR ! / DATE OF HEARING : 21/03/2017 '#$ ! / DATE OF PRONOUNCEMENT: 10/04/2017 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-I, SURAT DATED 31.8.2015 PASSED FOR THE A SSTT.YEAR 2012-13. 2. THOUGH THE ASSESSEE HAS TAKEN FIVE GROUNDS OF AP PEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ., THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXEMPTION AVAILABLE TO THE ASSESSEE ITA NO.2710/AHD/2015 2 UNDER SECTION 80P(2)(A) ON THE INTEREST INCOME AMOU NTING TO RS.54,31,730/- RECEIVED FROM STATE BANK OF INDIA. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE CREDIT SOCIETY. IT HAS FILED ITS RETURN OF INCOME ON 6.9. 2012 DECLARING NIL INCOME. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED T O THE AO THAT THE ASSESSEE HAD MADE FIXED DEPOSITS WITH NATIONALIZED AND PRIVATE BANKS, FROM WHERE IT HAS EARNED INTEREST INCOME. IN THE O PINION OF THE AO, SUCH INCOME DOES NOT QUALIFY FOR GRANT OF DEDUCTION UNDER SECTION 80P(2) OF THE INCOME TAX ACT, 1961. ACCORDINGLY, H E DISALLOWED DEDUCTION UNDER SECTION 80P ON INTEREST INCOME OF R S.54,31,730/-. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO TH E ASSESSEE. 4. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT A CONTR OVERSY WHETHER COOPERATIVE CREDIT SOCIETY COULD CLAIM DEDUCTION UN DER SECTION 80P(2) OF INTEREST INCOME EARNED BY IT WITH INVESTMENT IN NAT IONALIZED BANKS HAS COME BEFORE THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF STATE BANK OF INDIA VS. CIT RENDERED IN TAX APPEAL NO486 AND 487 OF 2015. THE HONBLE HIGH COURT VIDE ITS DECISION DATED 25.4.201 6 CONSIDERED TWO QUESTIONS OF LAW. FOR THE PURPOSE OF CONTROVERSY I N HAND, THE QUESTION NO.2 IS THE RELEVANT QUESTION. IT READS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLD ING THAT INTEREST INCOME OF RS.16,14,579/- ON DEPOSITS PLACED WITH ST ATE BANK OF INDIA WAS NOT EXEMPT UNDER SECTION 80P(2)(A)(I) OF THE IN COME TAX ACT, 1961? 5. BRIEF FACTS IN THIS CASE ARE THAT THE ASSESSEE S OCIETY WAS REGISTERED UNDER GUJARAT COOPERATIVE SOCIETIES ACT, 1961. IT WAS CONSTITUTED WITH OBJECT OF ACCEPTING DEPOSITS FROM SALARY PERSONS OF THE ITA NO.2710/AHD/2015 3 STATE BANK OF INDIA, GUJARAT REGION WITH A VIEW TO ENCOURAGE THRIFT AND PROVIDING CREDIT FACILITY TO THEM. THE ASSESSEE SO CIETY HAS LAUNCHED VARIOUS DEPOSITS SCHEMES SUCH AS TERM DEPOSITS, REC URRING DEPOSITS, AID TO FAMILY SCHEME, MEMBERS RETIRING BENEFIT FUND ET C. IT HAS PROVIDED LOANS TO MEMBERS, SUCH AS CONSUMER GOODS LOAN, CAR VEHICLE LOAN, FOOD- GRAIN LOAN AND GENERAL PURPOSES LOAN. THE ASSESSEE SOCIETY HAD MADE DEPOSITS WITH NATIONALIZED BANKS WHICH HAS RESULTED INTEREST INCOME OF RS.16,14,579/-. IT CLAIMED DEDUCTION OF THIS AMOUN T UNDER SECTION 80P(2) OF THE ACT. 5. IN THE BACKGROUND OF THE ABOVE FACTS, THE HONBL E COURT HAS OBSERVED THAT DEDUCTION UNDER SECTION 80P(2) IS NOT AVAILABLE. FINDING RECORDED IN PARA-13 AND 14 OF THE JUDGMENT IS WORTH TO NOTE. IT READS AS UNDER: 13. IN THE OPINION OF THIS COURT, IN CASE OF A SOC IETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS, INCOME FROM INVESTMENTS MADE IN BANKS DOES NOT FALL IN ANY OF T HE CATEGORIES MENTIONED UNDER SECTION 80P(2)(A) OF THE ACT. IN TH E CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY (SUPRA), AS RIGHT LY SUBMITTED BY THE LEARNED COUNSEL FOR THE RESPONDENT, THE COURT W AS DEALING WITH TWO KINDS OF ACTIVITIES: INTEREST INCOME EARNED FRO M THE AMOUNT RETAINED FROM THE AMOUNT PAYABLE TO THE MEMBERS FRO M WHOM PRODUCE WAS BOUGHT AND WHICH WAS INVESTED IN SHORT- TERM DEPOSITS/SECURITIES; AND THE INTEREST DERIVED FROM THE SURPLUS FUNDS THAT THE ASSESSEE THEREIN INVESTED IN SHORT-T ERM DEPOSITS WITH THE GOVERNMENT SECURITIES. THIS IS FURTHER CLE AR WHEN ONE PERUSES THE DECISION OF THE KARNATAKA HIGH COURT FR OM WHICH THE MATTER TRAVELLED TO THE SUPREME COURT WHEREIN IT WA S THE CASE OF THE ASSESSEE THAT IT WAS CARRYING ON THE BUSINESS O F PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE, THE APPELLANT- SOCIETY BEING AN ASSESSEE ENGAGED IN PROVIDING CRED IT FACILITIES TO ITS MEMBERS, THE INTEREST RECEIVED ON DEPOSITS IN B USINESS AND SECURITIES IS ATTRIBUTABLE TO THE BUSINESS OF THE A SSESSEE AS ITS JOB IS TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS AND MARKETING THE AGRICULTURAL PRODUCTS OF ITS MEMBERS. THIS COURT IS , THEREFORE, OF THE VIEW THAT THE ABOVE DECISION IS NOT RESTRICTED ONLY TO THE INVESTMENTS MADE BY THE ASSESSEE THEREIN FROM THE R ETAINED ITA NO.2710/AHD/2015 4 AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS BUT ALSO IN RESPECT OF FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSE S. THE SUPREME COURT HAS HELD THAT INTEREST ON SUCH INVEST MENTS, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION PROFITS AND GAINS OF BUSINESS AND THAT SUCH INTEREST INCOME CANNOT BE S AID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAME LY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS. T HE COURT HAS HELD THAT WHEN THE ASSESSEE SOCIETY PROVIDES CREDIT FACILITIES TO ITS MEMBERS, IT EARNS INTEREST INCOME. THE INTEREST WHI CH ACCRUES ON FUNDS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES AND WHICH HAS BEEN INVESTED IN SPECIFIED S ECURITIES AS INVESTMENT ARE INELIGIBLE FOR DEDUCTION UNDER SEC TION 80P(2)(A)(I) OF THE ACT. FOR THE ABOVE REASONS, THI S COURT RESPECTFULLY DOES NOT AGREE WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN TUMKUR MERCHANTS SOUHARDA CREDIT COOP ERATIVE LTD. V. INCOME TAX OFFICER WARD-V, TUMKUR (SUPRA) THAT T HE DECISION OF THE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE S OCIETY (SUPRA) IS RESTRICTED TO THE SALE CONSIDERATION REC EIVED FROM MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WHICH WAS RETAINED IN MANY CASES AND INVESTED IN SHORT TERM DEPOSIT/SE CURITY AND THAT THE SAID DECISION WAS CONFINED TO THE FACTS OF THE SAID CASE AND DID NOT LAY DOWN ANY LAW. 14. THUS, IN THE LIGHT OF THE PRINCIPLES ENUNCIATED BY THE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY (SUPRA), IN CASE OF A SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO I TS MEMBERS, INCOME FROM INVESTMENTS MADE IN BANKS DOES NOT FALL WITHIN ANY OF THE CATEGORIES MENTIONED IN SECTION 80P(2)(A) OF THE ACT. HOWEVER, SECTION 80P(2)(D) OF THE ACT SPECIFICALLY EXEMPTS INTEREST EARNED FROM FUNDS INVESTED IN CO-OPERATIVE SOCIETIES. THEREFORE, TO THE EXTENT OF THE INTEREST EARNED FRO M INVESTMENTS MADE BY IT WITH ANY CO-OPERATIVE SOCIETY, A CO-OPER ATIVE SOCIETY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SUCH INCOME U NDER SECTION 80P(2)(D) OF THE ACT. HOWEVER, INTEREST EARNED FROM INVESTMENTS MADE IN ANY BANK, NOT BEING A CO-OPERATIVE SOCIETY, IS NOT DEDUCTIBLE UNDER SECTION 80P(2)(D) OF THE ACT. 6. THE LD.COUNSEL FOR THE ASSESSEE COULD NOT DISPUT E THE FACT THAT THE ISSUE IN DISPUTE IS COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT. HE ALTERNATIVELY CONTENDED THAT THE MATTER BE RESTORED TO THE FILE OF THE AO WITH DIRECTION THAT ONLY NET INTERES T INCOME EARNED BY THE ASSESSEE FROM FDRS. WITH NATIONALIZED BANKS SHOULD BE EXCLUDED FROM ITA NO.2710/AHD/2015 5 THE CLAIM OF DEDUCTION UNDER SECTION 80P(2) OF THE ACT. WE FIND FORCE IN THIS CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE , BECAUSE, ONLY NET AMOUNT IS ALWAYS TAXABLE FOR THE PURPOSE OF INCOME TAX. IF ASSESSEE HAS INCURRED ANY EXPENDITURE, WHICH IS ATTRIBUTABLE TO THE EARNING OF INTEREST INCOME, THEN, THE AO SHALL EXAMINE THAT AS PECT AND EXCLUDE THE INTEREST EXPENDITURE IF ANY INCURRED BY THE ASSESSE E FOR EARNING THIS INTEREST FROM BANK. IN OTHER WORDS, THE ONLY NET I NTEREST INCOME IS TO BE EXCLUDED FROM THE CLAIM OF DEDUCTION UNDER SECTI ON 80P(2) OF THE ACT. APPEAL OF THE ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 10 TH APRIL, 2017. SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER