Dhanori Seva Sahkari Mandali Ltd., Navsari V. The Income Tax Officer, Ward-2, Navsari

ITA 309/AHD/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1222 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-04-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 08-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D V SINGH
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA. NO. 309/AHD/6 (ASSESSMENT YEAR:2012 -13) DHANORI SEVA SAHKARI MANDALI LTD., AT & POST: DHANORI, TAL. GANDEVI, DIST. NAVSARI APPELLANT VS. THE ITO, WARD - 2, NAVSARI RESPONDENT PAN: AAAAK0870D / BY ASSESSEE : SHRI TUSHAR HEMANI, A.R. / BY REVENUE : SHRI D. V. SINGH, SR. D.R. /DATE OF HEARING : 11.04.2016 /DATE OF PRONOUNCEMENT : 08.07.2016 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2012-13, ARISES FROM ORDER OF THE CIT(A), VALSAD, DATED 04.12.2015 PASSED IN P ROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961, HEREINAFTER THE ACT. 2. THE ASSESSEES FIRST SUBSTANTIVE GROUND RAISED I N THE INSTANT APPEAL CHALLENGES ACTION OF BOTH THE LOWER AUTHORITIES DEN YING IT SECTION 80P ITA NO.309/AHD/2016 (DHANORI SEVA SAHKARI MANDALI L TD. VS. ITO) A.Y. 2012-13 - 2 - DEDUCTION ON INTEREST INCOME OF RS.2,70,168/- DERIV ED FROM ITS INVESTMENT MADE WITH NATIONALIZED BANKS. THERE IS NO DISPUTE ABOUT THE ASSESSEE BEING A CO-OPERATIVE SOCIETY. IT IS MAINLY ENGAGED IN MARK ETING OF AGRICULTURAL PRODUCE OF ITS MEMBER, SUPPLY OF AGRICULTURAL IMPLE MENTS, FERTILIZERS, PESTICIDES, SEEDS, PROVIDES ESSENTIAL COMMODITIES A ND ALIKE ACTIVITY. WHATSOEVER INCOME IS EARNED FROM THESE ACTIVITIES I S BEING CLAIMED AS SECTION 80P DEDUCTION TO THE EXTENT OF AVAILABLE PR OFIT. WE COME TO THE RELEVANT ISSUE NOW. THE ASSESSEE DEPOSITED ITS SUM S IN QUESTION IN FDRS AND SECURITY. THE ASSESSING OFFICER IN ASSESSMENT ORDE R DATED 31.12.2014 OBSERVED THAT THE SAME COULD NOT BE TREATED AS WHO HAVE BEEN DERIVED FROM THE ABOVE STATED NON TAXABLE ACTIVITIES. HE ACCORD INGLY ASSESSED THE IMPUGNED INTEREST SUM OF RS.2,70,168/- AS ITS INCOM E FROM OTHER SOURCES. THE CIT(A) CONFIRMS THE SAME. 3. WE HAVE HEARD BOTH THE PARTIES. CASE FILE PERUS ED. THE SOLE ISSUE BETWEEN THE PARTIES IS QUA TREATMENT OF ASSESSEES INTEREST INCOME FROM ITS SURPLUS FUNDS PARKED IN THE STATE BANK OF INDIA, ID BI AND SARDAR SAROBAR NARMADA NIGAM RESULTING IN INTEREST INCOME TO THE T UNE OF RS.59,969/-, 1,02,031/- & RS.1,08,148/-; RESPECTIVELY. EVEN THE CIT(A) IS FAIR IN OBSERVING THAT THE VERY ISSUE STANDS DECIDED IN ASS ESSEES FAVOUR IN A.Y. 2010-11. NO DISTINCTION IN FACTS IS POINTED OUT IN THE LOWER APPELLATE ORDER. WE FURTHER NOTICE THAT A CO-ORDINATE BENCH OF TRIBU NAL IN CASE OF THE DHANERA NAGRIK SAHKARI MANDLI LTD. VS. ACIT, ITA N O.2402/AHD/2015 DECIDED ON 05.02.2016 ADJUDICATES THIS VERY ISSUE A GAINST THE REVENUE AS UNDER: 5. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT AN IDENTICAL ISSUE WAS CON SIDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF GUTTIGEDARARA C REDIT CO-OPERATIVE SOCIETY LTD. VS. ITO REPORTED IN [2015] 60 TAXMANN.COM 215 (KARNATAKA). THE HONBLE KARNATAKA HIGH COURT HAS REVERSED THE ORDER OF THE TRIBUNAL AND HELD THAT INTEREST INCOME EARNED BY A CREDIT CO-OPERATIVE SOC IETY ON DEPOSITS OF SURPLUS FUNDS WITH SCHEDULED BANK WOULD QUALIFY FOR DEDUCTI ON U/S.80P(2)(A)(I) OF THE ITA NO.309/AHD/2016 (DHANORI SEVA SAHKARI MANDALI L TD. VS. ITO) A.Y. 2012-13 - 3 - INCOME TAX ACT. THE QUESTIONS FRAMED BY HONBLE KA RNATAKA HIGH COURT READ AS UNDER: (I) WHETHER THE TRIBUNAL FAILED IN LAW TO APPRECIA TE THAT THE INTEREST EARNED ON SHORT-TERM DEPOSITS IN BANKS WERE ONLY IN VESTMENT IN THE COURSE OF ACTIVITY OF PROVIDING CREDIT FACILITIES TO MEMBE RS AND THAT THE SAME CANNOT BE CONSIDERED AS INVESTMENT MADE FOR THE PUR POSE OF EARNING INTEREST INCOME AND CONSEQUENTLY PASSED A PERVERSE ORDER ? (II) WHETHER THE TRIBUNAL IS CORRECT IN LAW IN HOLD ING THAT THE INTEREST EARNED ON THE DEPOSITS BY THE APPELLANT/CO-OPERATIV E SOCIETY DOES NOT QUALIFY FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961 ON THE FACTS AND CIRCUMSTANCES OF THE CASE? (III) WITHOUT PREJUDICE, WHETHER THE TRIBUNAL IS JU STIFIED IN NOT HOLDING THAT IF AT ALL THE INTEREST EARNED FROM DEPOSITS WI TH SCHEDULED BANKS IS HELD TO BE NOT ATTRIBUTABLE TO THE ACTIVITY OF PROVIDING CREDIT TO MEMBERS, THEN THE WHOLE OF SUCH INCOME IS NOT LIABLE TO TAX BUT O NLY THE NET INCOME AFTER REDUCING THE EXPENDITURE INCURRED TO EARN SUCH INTE REST INCOME WOULD BE LIABLE TO TAX ON THE FACTS AND CIRCUMSTANCES OF THE CASE? THE HONBLE KARNATAKA HIGH COURT HAS RECORDED THE F OLLOWING FINDINGS WHILE DECIDING THE ABOVE QUESTIONS IN FAVOUR OF ASSESSEE: 7. FROM THE AFORESAID FACTS AND RIVAL CONTENTIONS, THE UNDISPUTED FACTS WHICH EMERGE ARE, CERTAIN SUMS OF INTEREST WERE EAR NED FROM SHORT-TERM DEPOSITS AND FROM SAVINGS BANK ACCOUNT. THE ASSESSE E IS A CO-OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS NOT CARRYING ON ANY OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE A SSESSEE BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS DEPOSITED IN TH E BANKS FOR A SHORT DURATION WHICH HAS EARNED INTEREST. THEREFORE, WHETHER THIS INTEREST IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IS THE QUESTION. 8. IN THIS REGARD, IT IS NECESSARY TO NOTICE THE RE LEVANT PROVISION OF LAW I.E., SECTION 80P(2)(A)(I): 80P DEDUCTION IN RESPECT OF INCOME OF CO- OPERATIV E SOCIETIES: (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO-OP ERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB- SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFI ED IN SUB-SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E THE FOLLOWING, NAMELY: (A) IN THE CASE OF CO-OPERATIVE SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS, OR (II) TO (VII) ** ** ** ITA NO.309/AHD/2016 (DHANORI SEVA SAHKARI MANDALI L TD. VS. ITO) A.Y. 2012-13 - 4 - THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUS INESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES.' 9. THE WORD 'ATTRIBUTABLE' USED IN THE SAID SECTION IS OF GREAT IMPORTANCE. THE APEX COURT HAD AN OCCASION TO CONSI DER THE MEANING OF THE WORD 'ATTRIBUTABLE' AS SUPPOSED TO DERIVE FROM ITS USE IN VARIOUS OTHER PROVISIONS OF THE STATUTE IN THE CASE OF CAMBAY ELE CTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 (AT PAGE 93) AS U NDER: 'AS REGARDS THE ASPECT EMERGING FROM THE EXPRESSION 'ATTRIBUTABLE TO' OCCURRING IN THE PHRASE 'PROFITS AND GAINS ATTR IBUTABLE TO THE BUSINESS OF THE SPECIFIED INDUSTRY (HERE GENERATION AND DISTRIBUTION OF ELECTRICITY) ON WHICH THE LEARNED SOLICITOR-GENE RAL RELIED, IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATURE HAS DE LIBERATELY USED THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT CANNOT BE DISPUTED THAT THE EXPRESSION 'ATTRIBUT ABLE TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERI VED FROM'. HAD THE EXPRESSION 'DERIVED FROM' BEEN USED, IT COULD H AVE WITH SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISIN G FROM THE SALE OF OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED A S PROFITS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF G ENERATION AND DISTRIBUTION OF ELECTRICITY. IN THIS CONNECTION, IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A REST RICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR- GENE RAL, IT HAS USED THE EXPRESSION 'DERIVED FROM', AS. FOR INSTANCE, IN SECTION 80J. IN OUR VIEW, SINCE THE EXPRESSION OF WIDER IMPORT, NAM ELY, 'ATTRIBUTABLE TO', HAS BEEN USED, THE LEGISLATURE I NTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY.' 10. THEREFORE, THE WORD 'ATTRIBUTABLE TO' IS CERTAI NLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM. WHENEVER THE L EGISLATURE WANTED TO GIVE A RESTRICTED MEANING, THEY HAVE USED THE EXPRE SSION DERIVED FROM'. THE EXPRESSION 'ATTRIBUTABLE TO' BEING OF WIDER IMP ORT, THE SAID EXPRESSION IS USED BY THE LEGISLATURE WHENEVER THEY INTENDED T O GATHER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS. A CO-OPERATIVE SOCIETY WHICH IS CARRYING ON THE BUSINESS OF PROVID ING CREDIT FACILITIES TO ITS MEMBERS, EARNS PROFITS AND GAINS OF BUSINESS BY PRO VIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR T HE CAPITAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO THE MEMBERS, THE SOCIETY CANNOT KEEP THE SAID AMOUNT IDLE. IF THEY DEPOSIT THIS AMOUNT IN BA NK SO AS TO EARN INTEREST, THE SAID INTEREST INCOME IS ATTRIBUTABLE TO THE PRO FITS AND GAINS OF THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS ONLY. THE SOCIETY IS NOT CARRYING ON ANY SEPARATE BUSINESS FOR EARNING SUCH INTEREST INCOME. THE INCOME SO DERIVED IS THE AMOUNT OF PROFITS AND GAIN S OF BUSINESS ATTRIBUTABLE TO THE ACTIVITY OF CARRYING ON THE BUS INESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS BY A CO- OPERATIVE SOCIETY AND IS LIABLE TO BE DEDUCTED FROM THE GROSS TOTAL INCOME UNDER SECTION 80P OF THE ACT. ITA NO.309/AHD/2016 (DHANORI SEVA SAHKARI MANDALI L TD. VS. ITO) A.Y. 2012-13 - 5 - 11. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF THE APEX COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY'S CASE (SUPRA), O N WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEALING WITH A CASE W HERE THE ASSESSEE/CO- OPERATIVE SOCIETY, APART FROM PROVIDING CREDIT FACI LITIES TO THE MEMBERS, WAS ALSO IN THE BUSINESS OF MARKETING OF AGRICULTU RAL PRODUCE GROWN BY ITS MEMBERS. THE SALE CONSIDERATION RECEIVED FROM MARKE TING AGRICULTURAL PRODUCE OF ITS MEMBERS WAS RETAINED IN MANY CASES. THE SAID RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS FROM WHOM P RODUCE WAS BOUGHT. WAS INVESTED IN A SHORT-TERM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE-S OCIERY WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABIL ITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF T HE ACT OR UNDER SECTION 80P(2)(A)(III) OF THE ACT. THEREFORE IN THE FACTS O F THE SAID CASE, THE APEX COURT HELD THE ASSESSING OFFICER WAS RIGHT IN TAXIN G THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHE R THEY MADE IT CLEAR THAT THEY ARE CONFINING THE SAID JUDGMENT TO THE FACTS O F THAT CASE. THEREFORE IT IS CLEAR, SUPREME COURT WAS NOT LAYING DOWN ANY LAW. 12. 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. IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNT. IN FAC T THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATEL Y REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO ITS MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HAD DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. THE SAID INTEREST INCOME IS ATTRIBUTABLE TO CARRYIN G ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO BE DEDUCTED I N TERMS OF SECTION 80P(1) OF THE ACT. IN FACT SIMILAR VIEW IS TAKEN BY THE AN DHRA PRADESH HIGH COURT IN THE CASE OF CIT V. ANDHRA PRADESH STATE CO-OPERA TIVE BANK LTD. [2011] 336 ITR 516/200 TAXMAN 220/12 TAXMANN.COM 66. 13. 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 SUBSTA NTIAL QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER: APPEAL IS ALLOWED. THE IMPUGNED ORDER DATED 19.9.20 14 IS SET ASIDE. PARTIES TO BEAR THEIR OWN COSTS. 6. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE KARNATAKA HIGH COURT, WE ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE ASS ESSING OFFICER TO GRANT DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME TAX ACT ON THE INTEREST INCOME EARNED BY THE ASSESSEE FROM DEPOSITS WITH SCHEDULED BANKS. S UCH INTEREST INCOME HAS BEEN REPORTED BY THE ASSESSEE AT RS.3,93,533/-. THIS AM OUNT WILL BE ELIGIBLE FOR GRANT OF DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME TAX ACT. ITA NO.309/AHD/2016 (DHANORI SEVA SAHKARI MANDALI L TD. VS. ITO) A.Y. 2012-13 - 6 - 4. WE FOLLOW THE SAME REASONING IN ABSENCE OF ANY D ISTINCTION BEING POINTED OUT ON FACTS ON LAW AT REVENUE BEHEST. THE ASSESSEES FIRST SUBSTANTIVE GROUND STANDS ACCEPTED. IT IS HELD ENT ITLED FOR SECTION 80P DEDUCTION QUA INTEREST INCOME OF RS.2,70,168/-. 5. THE ASSESSEES SECOND SUBSTANTIVE GROUND CHALLEN GES THE CIT(A)S ORDER IN NOT ADJUDICATING ITS GROUND QUA ADDITION O F RS.1,28,012/- MADE IN RESPECT OF PROFITS EARNED OUT OF TRADING ACTIVITY. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO REBUT THIS FACTUAL POSITION THAT THE LOWER APPELLATE ORDER DOES NOT DEAL WITH THE ASSESSEES SECOND SUBS TANTIVE GRIEVANCE. WE ACCORDINGLY REMIT THIS ISSUE BACK TO LD. CIT(A) FOR ADJUDICATION AS PER LAW. 6. THIS ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 08 TH DAY OF JULY, 2016. SD/- SD/- (PRAMOD KUMAR) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 08/07/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )* + ,--. . /0 / DR, ITAT, AHMEDABAD 1 + 23 / GUARD FILE. BY ORDER / . // , . /0