The Chitradurga City Multi Purpose Co-Op Society, Chitradurga V. CIT, Davangere

ITA 302/BANG/2014

• Counselvise Citation: 30221114 RSA 2014
• Duration Of Justice: 1 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DINESH P
• Keywords: Business income; Question of law
• Section: 6; 2

Judgement Text

ITA.302/BANG/2014 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.302/BANG/2014 (ASSESSMENT YEAR : 2010-11) THE CHITRADURGA CITY MULTI PURPOSE CO-OP SOCIETY, VASAVI CIRCLE, D C OFFICE ROAD, CHITRADURGA 577 501 ..APPELLANT PAN : AAABT2628R V. INCOME-TAX OFFICER, WARD 1, CHITRADURGA ..RESPONDENT ASSESSEE BY : SHRI. DINESH P, ADVOCATE REVENUE BY : SHRI. ANURAG SAHAY, CIT - III HEARD ON : 20.08.2015 PRONOUNCED ON : 04.09.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, IT ASSAILS AN OR DER DT.31.12.2013 PASSED U/S.263 OF THE INCOME-TAX ACT, 1961 (THE ACT IN S HORT) BY THE CIT, DAVANGERE, FOR THE ASSESSMENT YEAR 2010-11. 02. FACTS APROPOS ARE THAT ASSESSEE A COOPERATIVE S OCIETY HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING NIL INCO ME. ASSESSEE HAD CLAIMED ITA.302/BANG/2014 PAGE - 2 DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. ASSESSMENT WAS COMPLETED ON 23.11.2012, U/S.143(3) OF THE ACT. 03. CIT, ON 16.12.2013 ISSUED A NOTICE TO THE ASSES SEE PROPOSING TO REVISE THE ASSESSMENT. AS PER THE CIT, AO HAD FAILED TO EXAMI NE THE CLAIM FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT, IN RESPECT OF THE FOLL OWING AMOUNTS : INTEREST ON BANK DEPOSIT RS.72 INTEREST ON DEPOSIT RS.4,328 RENT FROM BUILDING RS.7,24,000 RENT ON LAND RS.1,58,500 TOTAL TAXABLE INCOME RS.8,86,900 AS PER THE CIT IN VIEW OF THE JUDGMENT OF HONBLE A PEX COURT IN THE CASE OF TOTGARS COOPERATIVE SALE SOCIETY LTD [322 ITR 285], INTEREST EARNED ON SURPLUS FUNDS INVESTED IN SHORT-TERM DEPOSITS, SECURITIES A ND OTHER INCOME WHICH WAS NOT IN THE NATURE OF BUSINESS INCOME HAD TO BE BROU GHT TO TAX AND WOULD NOT BE ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. 04. ASSESSEE IN ITS REPLY DT.23.12.2013 STATED THAT SB ACCOUNT, ON WHICH INTEREST WAS RECEIVED WAS MAINTAINED WITH DISTRICT CENTRAL COOPERATIVE BANK, CHITRADURGA. AS PER THE ASSESSEE, INTEREST ON FD W AS ALSO EARNED FROM THE VERYSAME COOPERATIVE BANK. FUNDS USED FOR THE DEPO SIT WERE, ACCORDING TO THE ASSESSEE. A PART OF THE STATUTORY RESERVE FUND. VI S-A-VIS RENT, ARGUMENT OF THE ASSESSEE WAS THAT IT WAS SHOWN UNDER THE HEAD BUSI NESS SINCE MANY YEARS AND ITA.302/BANG/2014 PAGE - 3 EARNING OF RENT WAS TREATED BY THE SOCIETY AS A PAR T OF ITS BUSINESS ONLY. AS PER THE ASSESSEE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF TOTGARS COOPERATIVE SALE SOCIETY LTD (SUPRA) WOULD NOT APPL Y ON FACTS. HOWEVER, CIT WAS NOT IMPRESSED. ACCORDING TO HIM, WHAT COULD BE MAXIMUM CLAIMED FOR DEDUCTION AGAINST THE RENTAL INCOME WAS AT THE MOST RS.50,000/- AS STIPULATED U/S.80P(2)(C) OF THE ACT. VIS-A-VIS INTEREST ON DE POSIT, CIT NOTED THAT DEDUCTION FOR SUCH INTEREST PROVIDED U/S.80P(2)(D) OF THE ACT WOULD APPLY ONLY IF THE DEPOSITS WERE WITH COOPERATIVE SOCIETIES AND NOT WI TH COOPERATIVE BANK. HE THEREFORE SET ASIDE THE ASSESSMENT WITH A DIRECTION TO ASSESS THE FOLLOWING INCOME : (I) INTEREST ON DEPOSITS .. RS. 4,328/- (II) RENTAL INCOME .. RS.8,32,500/- TOTAL .. RS.8,36,828/- 05. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DER OF CIT SUBMITTED THAT INTEREST EARNED ON DEPOSITS WITH A COOPERATIVE BANK WAS ALSO ELIGIBLE FOR DEDUCTION U/S.80P(2)(D). AS PER THE LD. AR, A COOP ERATIVE BANK WAS ALSO A COOPERATIVE SOCIETY AND THEREFORE ELIGIBLE FOR CLAI MING THE BENEFIT OF THE SAID SECTION. RELIANCE WAS PLACED ON THE DECISION OF CO ORDINATE BENCH IN THE CASE OF MENASI SEEMEYA GROUP GRAMAGALA SEVA SAHAKARI SANGHA NIYAMITHA V. CIT [ITA NOS.609 & 610/BANG/2014, DT.06.02.2015]. VIS -A-VIS THE RENTAL INCOME, LD. AR SUBMITTED THAT HONBLE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT V. THE GRAIN MERCHANTS CO-OPERATIVE BANK LTD [(2004) 2 67 ITR 742], HAD HELD THAT INCOME RECEIVED FROM LETTING OUT OF PREMISES W AS A PART OF THE INCOME FROM ITA.302/BANG/2014 PAGE - 4 THE BUSINESS OF BANKING. AS PER THE LD. AR, BANKIN G BUSINESS AS PER CLAUSE ((B) OF SECTION 6 OF THE BANKING REGULATION ACT, 1949, T OOK INTO ITS AMBIT VARIOUS TYPES OF BUSINESS REFERRED IN CLAUSE (A) TO (O) OF SUB-SECTION (1) OF SECTION 6, AS WELL. ACCORDING TO HIM, CLAUSE (B) COVERS RENTAL IN COME. THUS ACCORDING TO HIM ASSESSEE WAS JUSTIFIED IN TREATING RENTAL FROM BUIL DING AS A PART OF ITS BUSINESS INCOME. ONCE THE RENTAL INCOME IS TREATED AS ATTRI BUTABLE TO THE BANKING BUSINESS, SUCH AMOUNTS HAVE TO BE CONSIDERED AS PRO FITS AND GAINS OF BUSINESS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES. HENCE ACCORDING TO HIM, DEDUCTION U/S.80P(2)(A)(I) WAS AVAILABLE ON SUCH SUM ALSO. LD. AR SUBMITTED THAT ASSESSEE WAS NOT HIT B Y THE LIMITATION SET OUT U/S.80P(4) OF THE ACT BECAUSE IT WAS NOT A COOPERAT IVE BANK AS RECOGNISED BY RBI AND THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HONBLE HIGH COURT OF KARNATAKA IN CIT V. SRI BILUR U GURUBASAVA PATTIN SAHAKARI SANGH NIYAMIT, BAGALKOT [ITA NO.5006/2013, DT.05.02.2014], WOULD COME TO ITS AID. RELIANCE WAS ALSO PLACED ON THE J UDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF VENUGRAM M ULTIPURPOSE COOPERATIVE CREDIT SOCIETY LTD V. ITO [ITA NO.100042 OF 2014, D T.17.09.2014] IN SUPPORT OF HIS CONTENTION THAT EVEN A MULTI PURPOSE COOPERATIV E SOCIETY WOULD ALSO FALL UNDER THE DEFINITION OF PRIMARY AGRICULTURAL CREDIT COOPERATIVE SOCIETY GIVEN IN KARNATAKA COOPERATIVE SOCIETIES ACT, 1959. THUS AC CORDING TO HIM, CIT FELL IN ERROR IN CONSTRUING THE ORDER OF AO, AS ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF REVENUE. ITA.302/BANG/2014 PAGE - 5 06. PER CONTRA, LD. DR SUBMITTED THAT THE ISSUES BR OUGHT OUT BY THE CIT WERE NEVER EXAMINED BY THE AO. AO HAD PASSED A CRYPTIC ORDER. THERE WAS NO EXAMINATION OF THE ISSUES BY THE AO. NO ENQUIRY INT O THE ASPECTS WHICH CALLED FOR SERIOUS APPLICATION OF MIND WAS THERE. AS PER THE LD. DR, THIS BY ITSELF WOULD RENDER THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 07. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DOUBT THAT ASSESSMENT ORDER IS VERY CRYPTIC. NOTHI NG WHATSOEVER IS MENTIONED WITH REGARD TO THE CLAIM OF THE ASSESSEE FOR DEDUCT ION U/S.80P(2)(A)(I) OR 80P(2)(D) IN THE ORDER. ASSESSEE HAS ALSO NOT BEEN ABLE TO PLACE ON RECORD ANY CORRESPONDENCE THAT MIGHT HAVE BEEN THERE BETWEEN I T AND THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. LACK OF ENQUIRY INTO THE ASPECT OF THE CLAIM MADE BY ASSESSEE FOR DEDUCTION U/S.80P(2)(A)(I) IS THEREFORE GLARING ON RECORD. HOWEVER, WHAT WE FIND IS THAT ASSESSEE HAD CLAIMED DEDUCTION U/S.80P(2)(A)(I) OF THE ACT FOR INTEREST ON BANK DEPOSIT AND ALSO FO R RENTAL FROM BUILDING. VIS-A- VIS INTEREST FROM BANK DEPOSITS, CLAIM OF THE ASSES SEE IS THAT SUCH DEPOSITS WERE OUT OF FUNDS KEPT AS STATUTORY RESERVES. HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIV E LTD, (SUPRA) HAD HELD THAT INTEREST EARNED ON SHORT-TERM DEPOSITS OUT OF FUNDS WHICH WERE NOT DUE TO ITS MEMBERS WOULD NOT BE HIT BY THE RESTRICTIONS PLACED BY HONBLE APEX COURT IN TOTGARS COOPERATIVE SALE SOCIETY LTD (SUPRA). RELE VANT PARA 10 OF THE JUDGMENT DT.20.09.2014 IS REPRODUCED HEREUNDER : 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 W AS NOT THE LIABILITY. ITA.302/BANG/2014 PAGE - 6 IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMME DIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS, AS T HERE WERE NO TAKERS. THEREFORE THEY HAD 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 COMMISSIONER OF I NCOME- TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., REPORTED IN (2011) 200 TAXMA N 220/12 IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID A MOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER. APPEAL IS ALLOWED.' 08. VIS-A-VIS THE RENTAL INCOME WHAT WE FIND IS THA T IN THE CASE OF GRAIN MERCHANTS COOPERATIVE BANK LTD (SUPRA), AN ISSUE HA D AROSE AS TO WHETHER INCOME RECEIVED FROM LETTING OUT OF PREMISES COULD BE DEEMED AS INCOME FROM BUSINESS OF BANKING. THEIR LORDSHIPS AFTER ASSIMIL ATING THE FACTS HELD AS UNDER FROM PARA 2 TO 10 OF THE JUDGMENT : 2. THE RESPONDENT IS THE GRAIN MERCHANTS CO-OPERAT IVE BANK (HEREINAFTER REFERRED TO AS THE ASSESSEE), ENGAGE D IN BANKING ACTIVITY. THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT YE ARS 1989-90, 1990-91 AND 1991-92. THE ASSESSING OFFICER, WHILE COMPLETIN G THE ASSESSMENT, TOOK THE VIEW THAT THE RENTAL INCOME RECEIVED BY TH E ASSESSEE IN LETTING OUT THE PORTION OF THE BUILDING PARTLY OCCUPIED BY IT AND THE INTEREST RECEIVED FROM SETTING APART CERTAIN FUNDS AS RESERV E FUND, DOES NOT COME WITHIN THE PURVIEW OF SECTION 80P(2)(A)(I) OF THE ACT AND AS SUCH ARE NOT DEDUCTIBLE WHILE COMPUTING THE INCOME OF TH E ASSESSEE. AGGRIEVED BY THE SAID ASSESSMENT ORDER, THE ASSESSE E PREFERRED AN APPEAL TO THE COMMISSIONER OF INCOME-TAX (APPEALS)- II (HEREINAFTER REFERRED TO AS THE APPELLATE COMMISSIONER). THE A PPELLATE COMMISSIONER, BY MEANS OF HIS ORDER DATED MARCH 16, 1993, ALLOWED THE APPEALS ACCEPTING THE CONTENTION OF THE ASSESSE E THAT THE RENTAL INCOME RECEIVED BY IT AS WELL AS THE INTEREST RECEI VED ON RESERVE FUND ARE EXEMPTED FROM PAYMENT OF TAX UNDER SECTION 80P( 2)(A)(I) OF THE ACT. ITA.302/BANG/2014 PAGE - 7 AGGRIEVED BY THE SAID ORDER OF THE APPELLATE COMMIS SIONER, THE REVENUE TOOK UP THE MATTER IN APPEAL TO THE TRIBUNA L. THE TRIBUNAL, AS NOTICED BY US EARLIER, IN THE IMPUGNED ORDER AFFIRM ED THE ORDER PASSED BY THE APPELLATE COMMISSIONER. 3. SRI M. V. SESACHALA, LEARNED COUNSEL APPEARING F OR THE REVENUE, CHALLENGING THE CORRECTNESS OF THE ORDERS IMPUGNED, MADE TWO SUBMISSIONS. FIRSTLY, HE SUBMITTED THAT THE TRIBUNA L AS WELL AS THE APPELLATE COMMISSIONER HAVE SERIOUSLY ERRED IN LAW IN TAKING THE VIEW THAT THE INTEREST DERIVED OUT OF THE INCOME FROM FU NDS MAINTAINED AS RESERVE FUNDS IS ALSO AN INCOME DERIVED BY THE ASSE SSEE ON ACCOUNT OF THE BANKING ACTIVITIES CARRIED ON BY THE ASSESSEE A ND AS SUCH THE SAME IS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT WHILE COMPUTING THE INCOME OF THE ASSESSEE. ELABORATING THIS SUBMISSION , LEARNED COUNSEL POINTED OUT THAT THE TRIBUNAL AS WELL AS THE APPELL ATE COMMISSIONER HAVE FAILED TO CONSIDER THAT THE FUNDS MAINTAINED A S RESERVE FUNDS HAVE NOT BEEN UTILISED BY THE ASSESSEE FOR ITS BUSINESS ACTIVITIES. SECONDLY, HE SUBMITTED THAT THE TRIBUNAL AS WELL AS THE APPELLAT E COMMISSIONER HAVE ALSO SERIOUSLY ERRED IN LAW IN TAKING THE VIEW THAT THE RENTAL INCOME RECEIVED BY THE ASSESSEE IS AN INCOME RECEIVED BY I T IN CARRYING ON THE BUSINESS OF BANKING AND AS SUCH IS ENTITLED FOR EXE MPTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. IT IS ALSO HIS SUBMISSION THAT THE LETTING OUT OF PREMISES BY THE ASSESSEE AND RECEIVING RENT OUT OF IT CANNOT BE CONSIDERED AS CARRYING ON THE BUSINESS OF BANKING A CTIVITY OR PROVIDING CREDIT FACILITIES BY THE ASSESSEE TO ITS MEMBERS ; AND HENCE THE INCOME RECEIVED BY THE ASSESSEE BY WAY OF RENT IN RESPECT OF THE PREMISES LET OUT MUST BE TREATED AS AN INCOME WHICH IS LIABLE FO R PAYMENT OF TAX UNDER SECTION 22 OF THE ACT. IN SUPPORT OF THIS SUB MISSION, HE REFERRED TO US CLAUSES (A) TO (F) OF SUB-SECTION (2) OF SECTION 80P OF THE ACT. IT IS ALSO POINTED OUT BY HIM THAT CLAUSE (F) OF SUB-SECT ION (2) OF SECTION 80P OF THE ACT CLEARLY SPELLS OUT THAT IN THE CASE OF A CO-OPERATIVE SOCIETY, NOT BEING A HOUSING SOCIETY OR AN URBAN CONSUMERS S OCIETY OR A SOCIETY CARRYING ON TRANSPORT BUSINESS OR A SOCIETY ENGAGED IN THE PERFORMANCE OF ANY MANUFACTURING OPERATIONS WITH THE AID OF POW ER, WHEREIN THE GROSS TOTAL INCOME DOES NOT EXCEED RS. 20,000, THE AMOUNT EARNED BY WAY OF INTEREST ON SECURITIES ON ANY INCOME FROM CE RTAIN PROPERTY IS CHARGEABLE UNDER SECTION 22 OF THE ACT. HE POINTED OUT THAT CLAUSE (F) OF SUB-SECTION (2) OF SECTION 80P OF THE ACT SHOULD BE UNDERSTOOD AS MAKING AN EXCEPTION TO CLAUSE (A)(I) OF SUB-SECTION (2) OF SECTION 80P OF THE ACT WHEREIN IT IS PROVIDED THAT IF A CO-OPERATI VE SOCIETY CARRYING ON BANKING BUSINESS RECEIVES INCOME FROM HOUSE PROPERT Y, SUCH AN INCOME IS LIABLE TO BE TAXED UNDER SECTION 22 OF THE ACT. IT IS HIS SUBMISSION THAT WHEN PARLIAMENT HAD MADE A DISTINCTION BETWEEN THE INCOME RECEIVED FROM BANKING BUSINESS AND THE INCOME RECEIVED FROM NON-BANKING BUSINESS BY WAY OF RENTAL INCOME ON ACCOUNT OF LETT ING OUT OF PREMISES ITA.302/BANG/2014 PAGE - 8 BELONGING TO THE ASSESSEE, IT IS NOT PERMISSIBLE FO R THE ASSESSEE TO CLAIM EXEMPTION RELYING UPON CLAUSE (A)(I) OF SUB- SECTIO N (2) OF SECTION 80P OF THE ACT. IT IS ALSO HIS SUBMISSION THAT THE ASSE SSEE CANNOT DERIVE ANY ASSISTANCE FROM CLAUSES (K) AND (L) OF SUB-SECTION (1) OF SECTION 6 OF THE BANKING REGULATION ACT, 1949 (HEREINAFTER REFERRED TO AS THE REGULATION ACT), AS ACCORDING TO LEARNED COUNSEL T HE SAID PROVISION ONLY EMPOWERS THE BANKING INSTITUTION TO CARRY ON C ERTAIN ACTIVITIES WHICH ARE NOT CONSIDERED AS A BANKING BUSINESS. IN THIS CONNECTION, HE REFERRED TO US THE LANGUAGE EMPLOYED IN SECTION 6 O F THE REGULATION ACT WHEREIN IT IS REFERRED THAT IN ADDITION TO THE BUSI NESS OF BANKING, A BANKING COMPANY MAY ENGAGE IN ANY OF THE BUSINESSES REFERRED TO IN THE SAID SECTION. 4. HOWEVER, SRI K. R. PRASAD, LEARNED SENIOR COUNSE L APPEARING FOR THE ASSESSEE IN THIS APPEAL, AND SRI G. SARANGA N, LEARNED SENIOR COUNSEL APPEARING FOR ASSESSEE IN OTHER CONNECTED M ATTERS, STRONGLY SUPPORTED THE IMPUGNED ORDERS. SO FAR AS THE FIRST CONTENTION OF SRI SESACHALA IS CONCERNED, THEY POINTED OUT THAT THE C ONTENTION URGED BY SRI SESACHALA IS COVERED AGAINST THE REVENUE BY OUR EARLIER DECISION RENDERED IN THE CASE OF ITO V. KARNATAKA CENTRAL CO -OPERATIVE BANK LTD. [2004] 266 ITR 635 MADE IN I. T. A. NO. 183 OF 2003 DISPOSED OF ON AUGUST 7, 2003. THEREFORE, THEY POINTED OUT THAT FOR THE VERY REASON ASSIGNED BY US IN THE SAID DECISION, THE FIRST CONT ENTION URGED BY SRI SESACHALA IS REQUIRED TO BE HELD AGAINST THE REVENU E. FURTHER, SRI PRASAD ALSO RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GUJARAT STATE CO-OPERATIVE BANK LTD. V. CIT [2001] 251 ITR 522 . WITH REGARD TO THE SECOND CONTENTION OF SRI SESAC HALA, THEY POINTED OUT THAT IN VIEW OF CLAUSES (K) AND (L) OF SUB-SECTION (1) OF SECTION 6 OF THE REGULATION ACT, 1949, WHICH PROVID ES THAT THE ACQUISITION, CONSTRUCTION OF A BUILDING AND LEASING OF BUILDING BELONGING TO A BANKING COMPANY AS A BANKING BUSINES S, THE INCOME RECEIVED BY THE ASSESSEE BY WAY OF RENT IN RESPECT OF PREMISES LET OUT BY IT MUST BE TREATED AS AN INCOME RECEIVED BY THE ASS ESSEE BY WAY OF PROFIT AND GAINS AND THE BUSINESS ATTRIBUTABLE TO T HE BANKING ACTIVITIES OF THE ASSESSEE. IT IS THEIR FURTHER SUBMISSION THA T CLAUSES (A) TO (F) OF SUB-SECTION (2) OF SECTION 80P OF THE ACT ARE MUTUA LLY EXCLUSIVE AND INDEPENDENT OF EACH OTHER. IT IS ALSO THEIR SUBMISS ION THAT SO FAR AS CLAUSE (A)(I) OF SUB-SECTION (2) OF SECTION 80P IS CONCERNED, IT IS ONLY CONTROLLED BY CLAUSE (C) OF SUB-SECTION (2) OF SECT ION 80P OF THE ACT. IN SUPPORT OF THEIR SUBMISSION THAT CLAUSE (L) OF SUB- SECTION (1) OF SECTION 6 OF THE REGULATION ACT MUST BE UNDERSTOOD AS BANKING BUSINESS, THEY REFERRED TO US THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GUJARAT STATE CO-OPERATIVE BANK LTD. V. CIT [2001] 251 ITR 522 AND REFERRED TO US THE OBSERVATION MADE AT PAGE 524 OF THE JUDGMENT ; AND THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CA SE OF KERALA STATE ITA.302/BANG/2014 PAGE - 9 CO-OPERATIVE MARKETING FEDERATION LTD. V. CIT [1998 ] 231 ITR 814 AND REFERRED TO US THE OBSERVATION MADE AT PAGE 819 OF THE JUDGMENT. THEY ALSO RELIED UPON THE JUDGMENT OF THE HON'BLE S UPREME COURT IN THE CASE OF CIT V. RAMANATHAPURAM DISTRICT CO-OPERATIVE CENTRAL BANK LTD. [2002] 255 ITR 423 AND DREW OUR ATTENTION TO PAGES 424 AND 425 OF THE JUDGMENT. 5. NOW, WE WILL PROCEED TO CONSIDER EACH ONE OF THE CONTENTIONS ADVANCED BY SRI SESACHALA. SO FAR AS THE FIRST CONT ENTION IS CONCERNED, THE SAME IS COVERED AGAINST THE REVENUE BY OUR EARL IER DECISION RENDERED IN THE CASE OF KARNATAKA CENTRAL CO-OPERAT IVE BANK LTD. [2004] 266 ITR 635 . IN THE SAID DECISION, WE HAVE TAKEN THE VIEW THAT THE INCOME RECEIVED OUT OF THE RESERVE FUND IS EXEM PTED FROM PAYMENT OF TAX. THE SAID DECISION WAS RENDERED BY US FOLLOW ING THE DECISION OF THIS COURT RENDERED IN THE CASE OF CIT V. SRI RAM S AHAKARI BANK LTD. [2004] 266 ITR 632 , MADE IN I. T. A. NO. 137 OF 2002 DISPOSED OF ON SEPTEMBER 5, 2002, WHEREIN THE DIVISION BENCH OF TH IS COURT FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF BIHAR STATE CO-OPERATIVE BANK LTD. V. CIT [1960] 39 ITR 114 , HAS TAKEN THE VIEW THAT THE INCOME RECEIVED OUT OF RESERVE FUND IS EXE MPTED FROM PAYMENT OF TAX. IN THE CASE OF BIHAR STATE CO-OPERATIVE BAN K LTD. [1960] 39 ITR 114 , THE HON'BLE SUPREME COURT HAS OBSERVED AS FOLLOWS : AS WE HAVE POINTED OUT ABOVE, IT IS A NORMAL MODE OF CARRYING ON BANKING BUSINESS TO INVEST MONEYS IN A MANNER THAT THEY ARE READILY AVAILABLE AND THAT IS JUST AS MUCH A PART OF THE MO DE OF CONDUCTING A BANK'S BUSINESS AS RECEIVING DEPOSITS OR LENDING MO NEYS OR DISCOUNTING HUNDIES OR ISSUING DEMAND DRAFTS. THAT IS HOW THE C IRCULATING CAPITAL IS EMPLOYED AND THAT IS THE NORMAL COURSE OF BUSINESS OF A BANK. THE MONEYS LAID OUT, IN THE FORM OF DEPOSITS AS IN THE INSTANT CASE WOULD NOT CEASE TO BE A PART OF THE CIRCULATING CAPITAL OF TH E APPELLANT NOR WOULD THEY CEASE TO FORM PART OF ITS BANKING BUSINESS. TH E RETURNS FLOWING FROM THEM WOULD FORM PART OF ITS PROFITS FROM ITS B USINESS. IN A COMMERCIAL SENSE THE DIRECTORS OF THE COMPANY OWE I T TO THE BANK TO MAKE INVEST MENTS WHICH EARN THEM INTEREST INSTEAD OF LETTING MONEYS LIE IDLE. IT CANNOT BE SAID THAT THE FUNDS OF THE B ANK WHICH WERE NOT LENT TO BORRORWERS BUT WERE LAID OUT IN THE FORM OF DEPO SITS IN ANOTHER BANK TO ADD TO THE PROFIT INSTEAD OF LYING IDLE NECESSAR ILY CEASED TO BE A PART OF THE STOCK-INTRADE OF THE BANK, OR THAT THE INTER EST ARISING THEREFROM DID NOT FORM PART OF ITS BUSINESS PROFITS. THEREFORE, THERE IS NO MERIT IN THE FIRST CONTENTIO N ADVANCED BY SRI SESACHALA. IN THE LIGHT OF THE ABOVE DISCUSSION, WE FIND IT UNNECESSARY TO REFER TO THE DECISION OF GUJARAT STATE CO-OPERAT IVE BANK LTD. [2001] 251 ITR 522 (SC) RELIED UPON BY SRI PRASAD. ITA.302/BANG/2014 PAGE - 10 TO EXAMINE THE CORRECTNESS OF THE SECOND CONTENTION OF SRI SESACHALA, IT IS USEFUL TO REFER TO CLAUSES (K) AND (L) OF SUB-SE CTION (1) OF SECTION 6 OF THE REGULATION ACT, WHICH READS AS HEREUNDER : 6. FORMS OF BUSINESS IN WHICH BANKING COMPANIES MA Y ENGAGE. . . . (K) THE ACQUISITION, CONSTRUCTION, MAINTENANCE AND ALTERATION OF ANY BUILDING OR WORKS NECESSARY OR CONVENIENT FOR THE P URPOSES OF THE COMPANY ; (L) SELLING, IMPROVING, MANAGING, DEVELOPING, EXCHA NGING, LEASING, MORTGAGING, DISPOSING OF OR TURNING INTO ACCOUNT OR OTHERWISE DEALING WITH ALL OR ANY PART OF THE PROPERTY AND RIGHTS OF THE COMPANY ; FROM THE READING OF CLAUSES (K) AND (L) OF SECTION 6 OF THE REGULATION ACT, TO OUR MIND, IT APPEARS THAT IN ADDITION TO TH E BUSINESS OF BANKING SET OUT IN CLAUSE (B) OF SECTION 5 OF THE REGULATIO N ACT, ACQUISITION, CONSTRUCTION, MAINTENANCE AND ALTERATION OF ANY BUI LDING OR WORKS NECESSARY OR CONVENIENT FOR THE PURPOSE OF THE BANK ING COMPANY AND ALSO SELLING/IMPROVING OR LEASING OR OTHERWISE DEAL ING WITH ALL OR ANY PART OF THE PROPERTY AND RIGHTS OF THE COMPANY, ALS O SHOULD BE TREATED AS A BANKING BUSINESS. NO DOUBT, IT IS TRUE, AS CONTENDED BY SRI SESACHALA THAT THE BUSINESSES REFERRED TO IN CLAUSES (A) TO (O) OF SUB-SECTION (1 ) OF SECTION 6 OF THE REGULATION ACT CANNOT BE TREATED AS A BANKING BUSIN ESS WITHIN THE MEANING OF CLAUSE (B) OF SECTION 5 OF THE REGULATIO N ACT. BUT AS NOTICED BY US EARLIER, SECTION 6 OF THE REGULATION ACT INTE NDS TO MAKE SEVERAL BUSINESSES REFERRED TO IN CLAUSES (A) TO (O) OF SUB -SECTION (1) OF THE ACT AS BANKING BUSINESS IN ADDITION TO THE DEFINITION OF BANKING PROVIDED UNDER CLAUSE (B) OF SECTION 5 OF THE REGUL ATION ACT. IN SUPPORT OF OUR VIEW, WE DERIVE SUPPORT FROM THE OBSERVATION MADE BY THE HON'BLE SUPREME COURT IN THE CASE OF GUJARAT STATE CO-OPERATIVE BANK LTD. [2001] 251 ITR 522 . IN THE SAID DECISION, WHILE CONSIDERING THE QUESTION WHETHER LOCKER RENT RECEIVED BY THE BANKIN G COMPANY IS NOT DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT, T HE HON'BLE SUPREME COURT HAS TAKEN THE VIEW THAT THE SAFE-DEPOSIT VAUL T IS PART OF THE ORDINARY BANKING BUSINESS OF THE BANK IN TERMS OF S ECTION 6(1)(A) OF THE REGULATION ACT. IT IS USEFUL TO REFER TO THE OBSERV ATION MADE BY THE HON'BLE SUPREME COURT AT PAGE 524 OF THE JUDGMENT, WHICH READS AS FOLLOWS : . . . IT IS CLEAR THAT THE PROVISION OF SAFE DEPO SIT VAULTS IS PART OF THE ORDINARY BANKING BUSINESS OF A BANK ; THIS IS SHOWN BY SECTION 6(1)(A) OF THE BANKING REGULATION ACT, 1949. THEREFORE, THE INCOME DERIVED BY THE ASSESSEE FROM THE HIRING OUT OF SAFE DEPOSIT VA ULTS IS INCOME FROM ITA.302/BANG/2014 PAGE - 11 THE BUSINESS OF BANKING AND, THEREFORE, DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE INCOME-TAX ACT, 1961. CLAUSE 6(1)(A) IS ONE OF THE ITEMS OF BUSINESSES RE FERRED TO IN SECTION 6(1) OF THE REGULATION ACT. FURTHER, IN THE CASE OF KERALA STATE CO- OPERATIVE MARKETING FEDERATION LTD. [1998] 231 ITR 814 , THE HON'BLE SUPREME COURT HAS OBSERVED THAT WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTICULAR CATEGORY OF INCOME OF A CO-O PERATIVE SOCIETY IS EXEMPT FROM TAX, WHAT HAS TO BE CONSIDERED IS, AS T O WHETHER THE INCOME FALLS WITHIN ONE OF THE SEVERAL HEADS OF EXEMPTION AND IF IT FALLS WITHIN ANY ONE OF THE HEADS OF EXEMPTION, IT WOULD BE FREE FROM TAXES NOTWITHSTANDING THAT THE CONDITIONS OF ANOTHER HEAD OF EXEMPTION ARE NOT SATISFIED AND SUCH INCOME IS NOT FREE FROM TAX UNDER THAT HEAD OF EXEMPTION. THE HON'BLE SUPREME COURT HAS OBSERVED T HAT THE CORRECT WAY OF READING THE DIFFERENT HEADS OF EXEMPTION ENU MERATED IN THE SECTION WOULD BE TO TREAT EACH AS A SEPARATE AND DI STINCT HEAD OF EXEMPTION. IN THIS CONNECTION, IT IS USEFUL TO REFE R TO THE OBSERVATION MADE BY THE COURT AT PAGE 819 OF THE JUDGMENT, WHIC H READS AS HEREUNDER : WE MAY NOTICE THAT THE PROVISION IS INTRODUCED WIT H A VIEW TO ENCOURAGING AND PROMOTING THE GROWTH OF THE CO-OPER ATIVE SECTOR IN THE ECONOMIC LIFE OF THE COUNTRY AND IN PURSUANCE OF TH E DECLARED POLICY OF THE GOVERNMENT, THE CORRECT WAY OF READING THE DIFF ERENT HEADS OF EXEMPTION ENUMERATED IN THE SECTION WOULD BE TO TRE AT EACH AS A SEPARATE AND DISTINCT HEAD OF EXEMPTION. WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTICULAR CATEGORY OF AN INCOME OF A COOPERATIVE SOCIETY IS EXEMPT FROM TAX WHAT HAS TO BE SEEN IS W HETHER THE INCOME FELL WITHIN ANY OF THE SEVERAL HEADS OF EXEMPTION. IF IT FELL WITHIN ANY ONE HEAD OF EXEMPTION, IT WOULD BE FREE FROM TAX NO TWITHSTANDING THAT THE CONDITIONS OF ANOTHER HEAD OF EXEMPTION ARE NOT SATISFIED AND SUCH INCOME IS NOT FREE FROM TAX UNDER THAT HEAD OF EXEM PTION. THE EXPRESSION MARKETING IS AN EXPRESSION OF WIDE IMP ORT. IT INVOLVES EXCHANGE FUNCTIONS SUCH AS BUYING AND SELLING, PHYS ICAL FUNCTIONS SUCH AS STORAGE, TRANSPORTATION, PROCESSING AND OTHER CO MMERCIAL ACTIVITIES SUCH AS STANDARDISATION, FINANCING, MARKETING INTEL LIGENCE, ETC. SUCH ACTIVITIES CAN BE CARRIED ON BY AN APEX SOCIETY RAT HER THAN A PRIMARY SOCIETY. IN OUR VIEW, THE PROVISIONS CONTAINED IN CLAUSE (F) OF SUB-SECTION (2) OF SECTION 80P OF THE ACT STRONGLY RELIED UPON BY SRI SESACHALA, ARE OF NO ASSISTANCE TO HIM.THE SAID CLAUSE PROVIDES THAT THE INCOME DERIVED BY THE HOUSING SOCIETY IS CHARGEABLE UNDER SECTION 22 OF THE INCOME-TAX ACT. THE HOUSING SOCIETY REFERRED TO IN CLAUSE (F) OF THE SAID SECTION MUST BE UNDERSTOOD AS A SOCIETY WHICH IS NOT CARRYI NG ON BANKING BUSINESS OR PROVIDING CREDIT FACILITIES WHICH IS IN CLUDED UNDER SECTION ITA.302/BANG/2014 PAGE - 12 80P(2)(A)(I) OF THE ACT. SO FAR AS THE ASSESSEE IS CONCERNED, AS NOTICED BY US EARLIER, IT IS NOT IN DISPUTE THAT THE ASSESS EE IS CARRYING ON THE BUSINESS OF BANKING. UNDER THESE CIRCUMSTANCES, THE PROVISIONS OF CLAUSE (F) OF THE SECTION CANNOT CONTROL THE BENEFI T OF EXEMPTION EXTENDED TO THE ASSESSEE FROM PAYMENT OF TAX. IN TH E LIGHT OF THE DISCUSSION MADE ABOVE, THE SECOND CONTENTION ADVANC ED BY SRI SESACHALA IS ALSO LIABLE TO BE REJECTED. ACCORDINGL Y IT IS REJECTED. 09. NO DOUBT FOR A. YS. 1989-90 AND 1991-92 FOR WHI CH THE ABOVE JUDGMENT WAS RENDERED, SUB-SECTION 4 OF SECTION 80P WAS NOT IN THE STATUTE BOOK. SUB- SECTION 4 OF SECTION 80P WHICH DISABLES A COOPERATI VE BANK FROM CLAIMING THE BENEFIT U/S.80P(2)(A)(I) CAME INTO THE STATUTE THRO UGH FINANCE ACT 2006 W.E.F.2007. NEVERTHELESS THE ISSUE AS TO WHETHER I NCOME FROM LETTING OUT OF PREMISES COULD BE CONSIDERED AS INCOME FROM BUSINES S OF BANKING HAS BEEN DEALT WITH BY THEIR LORDSHIPS IN THE CASE OF GRAIN MERCHA NTS COOPERATIVE SOCIETY (SUPRA) RELEVANT PARAS OF WHICH WE HAVE REPRODUCED ABOVE. 10. THUS IN SO FAR AS CONSTRUING THE MEANING OF THE WORDS CARRYING ON THE BUSINESS OF BANKING BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IS CONCERNED, JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE O F GRAIN MERCHANTS COOPERATIVE SOCIETY MENTIONED SUPRA WILL APPLY ON A LL FOUR SQUARES. IF THAT BE SO, ASSESSEE HAS A GOOD CASE THAT ITS PROPERTY INCO ME COULD ONLY BE CONSTRUED AS PROFITS AND GAINS ATTRIBUTABLE TO THE BUSINESS OF B ANKING. IF THAT BE SO SUCH AMOUNTS WOULD ALSO BE ELIGIBLE FOR CLAIM OF DEDUCTI ON U/S.80P(2)(A)(I) OF THE ACT. THE CIT HAD DIRECTED THE AO TO MAKE THE DISAL LOWANCES MENTIONED AT PARA FOUR ABOVE, WITHOUT GIVING HIM ANY ROOM FOR TAKING THE SUBMISSIONS AND ITA.302/BANG/2014 PAGE - 13 PLEADING OF THE ASSESSEE INTO CONSIDERATION WHICH I N OUR OPINION WAS NOT PROPER. AT THE SAME TIME IT IS ALSO TRUE THAT AO HAD MADE N O ENQUIRIES ON THESE VITAL ISSUES AT THE TIME OF ASSESSMENT. HENCE WE ARE OF THE OPINION THAT LD. CIT (A) WAS JUSTIFIED IN CONSIDERING THE ASSESSMENT ORDER A S ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HOWEVER IN THE CIRCUMSTA NCES OF THE CASE, DIRECTION OF THE CIT TO ASSESS THE INCOMES MENTIONED AT PARA FOU R ABOVE IS NOT CORRECT. THEREFORE, WHILE UPHOLDING THE ORDER OF CIT U/S.26 3 OF THE ACT, WE MODIFY IT AND DIRECT THE AO TO DO THE ASSESSMENT AFRESH IN AC CORDANCE WITH LAW, UNTRAMMELLED BY THE OBSERVATION OF THE CIT ON MERIT S REGARD. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH DAY OF SE PTEMBER, 2015. SD/- SD/- (N. V. VASUDEVAN) (ABRAHAM P GEO RGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR