The Ekta Co.Op. Credit Society Ltd., Mehsana V. The Income Tax Officer, Ward-3(1), Ahmedabad

ITA 3041/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6001 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 19-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR JAYANT JHAVERI
• Keywords: Business income
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I S. S. GODARA , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE EKTA CO - OP. CREDIT SOCIETY LTD, MARKET YARD, AT: KUKUWADA, TA: VIJAPUR, DISTT: MEHSANA - 382830 PAN: AAAAT4 874 A (APPELLANT) VS THE ITO, WARD - 3(1), AHMEDABAD (RESPONDENT) THE ITO, WARD - 3(1), AHMEDABAD (APPELLANT) VS THE EKTA CO - OP. CREDIT SOCIETY LTD, MARKET YARD, AT: KUKUWADA, TA: VIJAPUR, DISTT: MEHSANA - 382830 PAN: AAAAT4 8 74A (RESPONDENT) REVENUE BY : DR. JAYANT JHAVERI , SR. D . R. ASSESSEE BY: S H RI SUNIL TALATI , A.R. DATE OF HEARING : 31 - 03 - 2 017 DATE OF PRONOUNCEMENT : 05 - 05 - 2 017 I T A NO . 3041 / A HD/20 13 A SS ESSMENT YEAR 2010 - 11 ITA NO. 112 /AHD/20 14 ASSESSMENT YEAR 2010 - 11 I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 2 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS CROSS APPEAL S FOR A.Y. 2010 - 11 , AR ISE FROM THE ORDER OF THE CIT(A), GANDHINAGAR DATED 18 - 10 - 2013 IN APPEAL NO. CIT(A)/GNR/96/2012 - 13 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . ITA NO. 3041/AHD/ 2013 (ASSESSEE S APPEAL) 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - [1] THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX ERRED IN CONFIRMING THE ADDITION OF RS.13,88,824/ - CONSIDERING SUCH INTERE ST AS INTEREST RECEIVED ON FIXED DEPOSIT UNDER THE HEAD: IFOS U/S.56 OF THE INCOME - TAX ACT, 1961 AND HAS DENIED THE DEDUCTION U/S. 80 P OF THE INCOME - TAX ACT. IT IS SUBMITTED THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THAT SUCH INCOME IS NOT TAXABLE U/S.56 P AND SO THE APPELLANT SOCIETY IS ENTITLED TO HAVE THE DEDUCTION U/S.80P(2)OF THE INCOME - TAX ACT. IT IS SUBMITTED THAT THE SAME BE ALLOWED NOW. [2] WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT EVEN IF SUCH INTEREST INCOME OF RS.13,88,824/ - IS TAXABLE U/S.56, THEN, EXPENDITURE INCURRED FOR EARNING SUCH INCOME MUST BE ALLOWED AND GROSS INTEREST INCOME RECEIVED ONLY CAN BE TAXED. IT IS SUBMITTED THAT THE SAME BE ALLOWED NOW. 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. NIL WAS FILED ON 15/10/2009. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 26/08/2011 I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 3 4. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN GROSS TOTAL INCOME AT RS . 16,96,744/ - AND AFTER CLAIMING DEDUCTION UNDER CHAPTER VI - A, TO T AL INCOME OF RS. NIL WAS DECLARED. THE ASSESSING OFFICER HAS EXAMINED THE CLAIM OF THE ASSES S EE U/S. 80P(2)(A) OF THE ACT. HE REJECTED THE CLAIM OF THE ASSESSEE U/S. 80P(2) (A) BY STATI N G THAT AS PER SUB - SEC. (4) OF THE SECTION 80P INSERTED BY THE FINANCE ACT 2006 FROM ASSESSMENT YEAR 2007 - 08 DEDUCTION U/S. 80P WILL NOT BE AVAILABLE TO ANY CO - OPERATIVE BANK. 5. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAD PROVIDED PART RELIEF TO THE ASSESSEE STATING THAT INTEREST INCOME OF RS. 13,88 , 824/ - RECEIVED ON F.D. WOULD BE TAXABLE U/S. 56 AND WILL NOT QUALIFY FOR DEDUCTION U/S. 80P OF THE ACT. THE FINDING OF THE LD . CIT(A) ARE REPRODUCED AS UNDER: - 5. THE FIRST 3 GROUNDS IN APPEAL ARE INTER - RELATED AND THEREFORE, THEY ARE DISCUSSED AND DECIDED TOGETHER IN THE FOLLOWING PARAGRAPHS. I HAVE CONSIDERED THE FACTS OF THE CASE AND ALSO THE DECISION OF THE HON'BLE ITAT, 'B' BENCH, AHMEDABAD IN THE CASE OF M/S. JAFARI MOMIN VIKASH CO - OP CREDIT SOCIETY LTD VS. ITO, PATAN - 2 IN ITA NO.902/AHD/2012; RELIED UPON BY THE APPELLANT. AS PER THE DEFINITION OF BANKING AS PER SEC 5(B) OF BANKING REGULATION ACT, 'BANKING' MEANS THE ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUE, DRAFT, ORDER OR OTHERWISE. THE DEFINITION IS BASIC LAW TO BE CONSIDERED TO DECIDE WHETHER A CREDIT SOCIET Y IS A CO - OPERATIVE BANK OR NOT. ONLY, THOSE CREDIT SOCIETIES WHICH ARE ALLOWED TO TAKE DEPOSITS OF MONEY I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 4 FROM THE PUBLIC AND DO OTHER BANKING ACTIVITIES AS DEFINED IN THE SEC 5(B) OF BANKING REGULATION ACT WOULD QUALIFY TO BE A CO OPERATIVE BANK. I AGREE THAT TAKING DEPOSITS FROM PUBLIC CANNOT BE EQUIVALENT TO TAKING DEPOSITS FROM MEMBERS OF THE SOCIETY ONLY WHICH HAS GOT A MUCH RE STRICTED MEANING AND THE RELATIONSHIP BETWEEN A SOCIETY AND A PUBLIC HAS TO BE UNDERSTOOD IN A MUCH LARGER SENSE. IN THIS CONN ECTION, IT WOULD BE USEFUL TO REFER TO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT WHEREIN, THEIR LORDSHIPS OF GUJARAT HIGH COURT HAVE CONSIDERED THE ABOVE PROVISIONS OF S, 80P(2)(A)(I) IN THE CASE OF CIT VS BARODA PEOPLES CO - OP. BANK LTD 280 ITR 282 (GUJ). THEIR LORDSHIPS HAVE HELD AT PARA 28 OF SAID JUDGMENT AS UNDER: '28. SECTION 80P(2)(A )(I) OF THE ACT PERMITS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS TO CLAIM DEDUCTIO N OF THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO SUCH ACTIVITY VIZ., BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. ON A PLAIN READING, IT BECOMES APPARENT THAT THE TWO ACTIVITIES ARE DISTINCT AND SEPARATE A CTIVITIES. THE FIRST ACTIVITY VIZ., CARRYING ON THE BUSINESS OF BANKING CONNOTES A LARGER ACTIVITY THAN THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE LATTER IS RESTRICTED QUA THE MEMBERS OF THE SOCIETY WHILE THE FORMER IS WIDE ENOUGH TO T AKE WITHIN ITS SWEEP AS ITS POTENTIAL CUSTOMS, BOTH THE MEMBERS AND NON - MEMBERS.......' HOWEVER, NOT THE ENTIRE INCOME IS EXEMPTED; AND IT IS TO BE EXAMINED WHETHER THERE WAS ANY OTHER INTEREST INCOME ON THE SHORT TERM BANK DEPOSITS AND SECURITIES INCLUDE D IN THE TOTAL INCOME OF THIS SOCIETY WHICH HAS BEEN CLAIMED BY THEM AS EXEMPT. THE ISSUE WAS DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO - OP. SALE SOCIETY LTD VS ITO, KARNATAKA . IN THE AFOREMENTIONED JUDGEMENT, THE ISSUE FOR DETERMINATIO N WAS WHETHER INTEREST INCOME ON THE SHORT TERM BANK DEPOSITS AND SECURITIES WOULD BE QUALIFIED AS BUSINESS INCOME U/S. S 80P(2)(A)(I) OF THE IT ACT, 1961. THE HON'BLE SUPREME COURT HAD DECIDED THE ISSUE AS UNDER: 'AT THE OUTSET AN IMPORTANT CIRCUMSTANCE NEEDS TO BE HIGHLIGHTED. IN THE PRESENT CASE, THE INTEREST HELD NOT ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE INCOME TAX ACT IS NOT THE INTEREST RECEIVED FROM THE MEMBERS FOR PROVIDING THE CREDIT I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 5 FACILITIES TO THEM. WHAT IS SOUGHT TO BE TAXED U/S. S 36 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSE. ASSESSEE MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION BEFORE US, IS WHETHER INTEREST ON SUCH DE POSITS/SECURITIES WHICH STRICTLY SPEAKING ACCRUES TO THE MEM BERS ACCOUNT COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT. AN IMPORTANT POINT NEEDS TO BE MENTIONED. THE WORDS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS EMPHASIS THAT THE INCOME IN RESPECT OF WHICH D EDUCTION IS SOUGHT MUST CONSTITUTE THE OPERATIONAL IN COME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. IN THE PARTICULAR CASE, THE EVIDENCE SHOWS THAT THE ASSESSEE SOCIETY EARNS INTEREST ON FUNDS WHICH ARE NOT REQUIRED FOR BUSINESS PURPOSES AT THE GIVEN POINT OF TIME. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, IN OUR VIEW, SUCH INTEREST INCOME FALLS IN THE CATEGORY OF 'OTHER INCOME' WHICH HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT UNDER SECTION 56 OF THE I. T. ACT' IN THE LIGHT OF THE ABOVE, THE INTEREST INCOME IF ANY, EARNED FROM KEEPING THE SURPLUS FUND IN BANKS OR OTHER INVESTMENTS WOULD BE TAXABLE U/S 56 AND WILL NOT QUALIFY FOR DEDUCTION U/S SOP. CONSIDERING THE ABOVE FACTS, IT IS CLEAR THAT TH E APPELLANT IS NOT ALLOWED TO DO BANKING BUSINESS AS DEFINED UNDER BANKING REGULATION ACT AND THEREFORE, IS NOT A CO - OPERATIVE BANK. THEREFORE, IT IS NOT EXCLUDED FROM THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT AS IT DOES NOT FALL UNDER THE EX CEPTIONS AS PROVIDED U/S 80P(4). THE HON'BLE JURISDICTIONAL IT AT, AHMEDABAD X B' BENCH IN ITA NO.L491/AHD/2012 A.Y. 2009 - 10 IN THE CASE OF M/S. JAFARI MOMIN VIKAS CO - OP CREDIT SOCIETY LTD VS. ITO, PATAN - 2, RELIED UPON BY THE APPELLANT HAS ON IDENTICAL FA CTS HAS HELD THAT THE PROVISIONS OF SECTION 80P(4) OF THE I. T. ACT, 1961 ARE NOT APPLICABLE TO CO - OPERATIVE CREDIT SOCIETY AND CO - OPERATIVE SOCIETY IS ENTITLED DEDUCTION U/S 80P(2)(A)(I) OF THE ACT IF IT IS NOT ALLOWED TO DO BUSINESS OF BANKING. FOLLOWING THE DECISION, I DO NOT FIND ANY REASON TO I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 6 DEVIATE FROM THE DECISION RENDERED BY THE HON'BLE JURISDICTIONAL IT AT AND IT IS HELD THAT THE APPELLANT IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT CONSIDERING THE PROVISIONS OF SEC.56 O F THE IT ACT. HOWEVER, AS SUBMITTED BY THE APPELLANT THE INTEREST INCOME OF RS.13,88,824/ - RECEIVED ON FDS UNDER THE HEAD I FOS' WOULD BE TAXABLE U/S 56 AND WILL NOT QUALIFY FOR DEDUCTION U/S 80 P. 6. WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTICED THAT THE ASSESSEE WAS NOT OPERATING U/S. 5(B) OF THE BANKING REGULATION ACT AS T HE ASSESSEE WAS NOT ALLOWED TO ACCEPT DEPOSIT OF MONEY FROM THE PUBLIC AND DO OTHER BANKING ACTIVITIES AS DEFINED IN THE SECTION 5(B) OF THE BANKING REGULATION ACT. WE FORTHER N OTICED THAT T HE ASSESSEE WAS A CO - OPERATIVE SOCIETY REGISTERED UNDER REGISTRAR OF CO - OPERATIVE SOCIETY MEHSANA, MEHSANA, GUJARAT STATE ENGAGED IN TAKING DEPOSITS FROM ITS MEMBERS AND PROVIDING ADVANCES TO ITS MEMBERS WITH THE OBJECT OF PRO MOTION AND DEVEL OPMENT OF ITS MEMBERS. 6.1 IN VIEW OF THE ABOVE FACTS AND THE DETAILED FINDINGS PROVIDED BY THE LD. CIT(A) IN HIS FINDINGS AS SUPRA WE CONSIDERED THAT THE ASSESSEE IS NOT A CO - OPERATIVE BANK U/S. 80P(4) OF THE ACT. 6.2 WE HAVE ALSO NOTICED THAT THE ASSES SEE CLAIMED DEDUCTION U/S 80P(2)(I) ON THE INTEREST INCOME OF RS. 13,88,824/ - RECEIVED ON FIXED DEPOSIT. WE FIND THAT LD. CIT(A) HELD THAT THIS INTEREST INCOME EARNED FROM KEEPING THE SURPLUS FUNDS IN BANKS OR OTHER INVESTMENT WOULD BE TAXABLE AND WILL NOT QUALIFY FOR DEDUCTION U/S. 80P OF T HE ACT. I N T HIS I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 7 CONNECTION, WE HAVE PERUSED THE JUDICIAL PRONOUNCEMENT OF THE HON BLE SUPREME COURT IN THE CASES OF TOTGOR S CO - OPERATIVE SOCIETY LTD. VS. ITO KARNATAKA (2010) 188 TAXMAN 282 IN WHICH IT WAS HELD THAT INTEREST INCOME EARNED ON INVES TING IN SHORT TERM DEPOSITS W OULD FALL IN THE CATEGORY OF OTHER INCOME TO BE TAXED U/S. 56 OF THE I.T. ACT. THIS JUDI CIAL PRONOUNC EMENT HAS ALREADY BEEN ELABORATED BY THE LD. CIT(A) IN HIS FINDINGS AS SUPRA IN THIS ORDER. THEREFORE, WE FIND NO MERIT IN THE CONTENTIONS OF THE LD. COUNSEL FOR CONSIDERING THE INTEREST INCOME AS FIXED DEPOSIT AS BUSINESS INCOME. WE FIND THAT IT IS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF ABOVE REFERRED JUDICIAL PRONOUNCE MENT WHEREIN IT WAS HELD THAT INVESTING SURPLUS FUNDS IN SHORT TERM DEPOSITS WOULD FALL UNDER THE HEAD INCOME FROM OTHER SOURCES TAXABLE U/S. 56 OF THE ACT AND IT CANNOT BE ATTRIBUTABLE TO THE ACTIVITIES OF TH E SOCIETY , THEREFORE , THE INTEREST AS FIXED DEPOSIT RE C E I VED WOULD NOT QUALIFY FOR DEDUCTION U/S. 80P(2)(5)(A)(I) OF THE ACT. WE ALSO DO NOT FIND ANY MERIT IN THE GROUND OF THE ASSESSEE TO ALLOW EXPENDITURE OUT OF INTEREST INCOME FROM FIXE D DEPOSIT AS AFTER PERUSAL OF PAPER BOOK , AND ORDER OF THE LOWER AUTHORITIES WE FIND THAT THE A SSESSEE HAS NOT SUBSTANTIATED THAT THERE WAS ANY PARTICULAR EXPENDITURE INCURRED ON EARNING INTEREST INCOME FROM THE FIXED DEPOSIT KEPT WITH THE BANK AS ELABORATED ABOVE IN T HIS ORDER. ACCORDINGLY, THE APPEAL OF THE ASSSESSEE IS DISMISSED. ITA NO. 112/AHD/2014 (REVENUE S APPEAL) I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 8 7. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE ASSESSEE'S CLA IM OF DEDUCTION U/S.80P(2)(A)(I) OF THE IT ACT. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.65,88,090/ - MADE BY THE AO U/S.80P(2)(A)(I) APPLYING THE PROVISION OF SECTION 80P(4) OF THE ACT AND DIRECTING THE AO T O TAX THE INTEREST INCOME OF RS. 13,88,824/ - RECEIVED ON FIXED DEPOSITS UNDER THE HEAD 'IFOS 1 U/S.56 OF THE ACT. 8. THE ISSUE IN THE GROUND OF APPEAL OF THE REVENU E IS INTERCONNECTED TO THE ISSUE IN THE APPEAL OF THE ASSESSEE WHICH WE HAVE ALREADY DECID ED , THEREFORE, NO SEPARATE ADJUDICATION IS REQUIRED. LOOKING TO THE FACTS/FINDINGS OF THE LD. CIT(A) AS SUPRA IN THIS ORDER , THE APPEAL OF THE REVENUE IS DISMISSED . 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE AND THE APPEAL OF THE REVENUE BOTH ARE DISMI SSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 05 - 05 - 201 7 SD/ - SD/ - ( S.S. GODARA ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 05 /05 /2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE I.T.A NO S . 3041 /AHD/2013 & 112 /AHD/20 14 A. Y. 2010 - 11 PAGE NO THE EKTA CO - OP. CREDIT SOCIETY LTD. VS. ITO 9 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,