Chanasma Becharaji Taluka Ni, Patan V. Income Tax Officer, Patan

ITA 3095/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8614 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: TALATI
• Keywords: Business income; Question of law
• Section: 143(3); 6; 56; 263; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO. 3095/AHD/2014 ( / ASSESSMENT YEAR : 2011-12) CHANASMA BECHARAJI TALUKA NI PRATHMIK SHALANA SHIKSHAKO NI DHIRNAR SAHAKARI MANDALI LTD. OP.DENA BANK, NAVO SUTHARVAS, CHANASMA, PATAN # VS. INCOME TAX OFFICER, WARD -1 PATAN. $ # % & # PAN/GIR NO. : AAAAC 0431 E ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI S.H. TALATI, C.A. ($'*) / RESPONDENT BY : SHRI PRASOON KABRA, SR. D.R. + ,*-. / DATE OF HEARING 21/08/2017 /012*-. / DATE OF PRONOUNCEMENT 30/08/2017 3# O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINAGAR, AH MEDABAD, DATED 20/08/2014, IN THE MATTER OF ASSESSMENT UNDER SECTI ON 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER), FOR THE ASSESSMENT YEAR (AY) 2011-12, ON THE FOLLOWING GROUNDS: I. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN ENHANCING THE APPEAL BY TREATING THE ENTIRE INTEREST INCOME R ECEIVED BY ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 2 - APPELLANT OF RS.9,12,915/- BEING INTEREST RECEIVED FROM NATIONALIZED BANKS. IT IS SUBMITTED THAT ONLY INTEREST INCOME AMOUNTING RS.1,58,750/- OUT OF TOTAL INTEREST INCOME AMOUNTING RS.9,12,915/- IS EARNED BY APPELLANT FROM SARDAR SAROVAR NIGAM LIMITED WHICH I S NOT ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT, WHICH T HE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE INSPIT E OF WRITTEN EXPLANATIONS MADE BY YOUR APPELLANT VIDE SUBMISSION MADE DURING APPELLATE PROCEEDINGS. II. WITHOUT PREJUDICE TO ABOVE THE COMMISSIONER OF INCO ME TAX (APPEALS) HAS ALSO ERRED IN DIRECTING THE AO TO TAX THE WHOLE INTEREST INCOME RECEIVED BY THE APPELLANT U/S. 56 O F THE ACT WITHOUT APPRECIATING THE FACT THAT EXPENDITURE INCURRED FOR EARNING SUCH INCOME MUST BE ALLOWED U/S. 57 OF THE ACT AND PRO-R ATA INTEREST INCOME RECEIVED FROM FIXED DEPOSIT OF SARDAR SAROVA R NIGAM LIMITED ONLY CAN BE TAXED. IT IS SUBMITTED THAT THE SAME BE ALLOWED NOW. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE APPELLANT HAD FILED RETURN OF INCOME ON 28/09 /2011 DECLARING TOTAL INCOME AT RS.83,420/- AFTER CLAIMING DEDUCTIO N OF RS.12,83,084/- U/S.80P(2)(A)(I) OF THE ACT. THE RETURN WAS PROCESS ED U/S.143(1) OF THE ACT. THE AO ON VERIFICATION OF THE ACCOUNTS AND DET AILS SUBMITTED BY THE APPELLANT NOTICED THAT APPELLANT IS A CO-OPERATIVE SOCIETY SET UP BY PRIMARY SCHOOL TEACHERS OF TALUKA FOR THE PURPOSE O F PROVIDING FINANCIAL SERVICES BY GIVING LOAN AND ACCEPTING DEPOSITS FROM ITS MEMBERS. THE SOCIETY HAS CLAIMED DEDUCTION OF RS.12,83,084/- U/S .80P(2)(A)(I) OF THE ACT. THE AO AFTER CONSIDERING THE REPLY MADE BEFORE HIM BY THE APPELLANT HELD THAT APPELLANT IS A PRIMARY CREDIT SOCIETY AND NOT A ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 3 - PRIMARY AGRICULTURE CREDIT SOCIETY. HENCE DEDUCTION U/S.80P OF THE ACT IS NOT ALLOWABLE AND ACCORDINGLY THE CLAIM MADE AS DED UCTION U/S.80P(2)(A)(I) OF THE ACT OF RS.12,83,084/- IS DI SALLOWED AND ADDED TO THE TOTAL INCOME FOR THE YEAR UNDER APPEAL. 2.2 AGGRIEVED WITH THE DISALLOWANCE OF RS.12,83,084 /- CLAIMED U/S.80P(2)(A)(I) OF THE ACT. 3. APPELLANT PREFERRED FIRST STATUTORY APPEAL BEFOR E THE FIRST APPELLATE AUTHORITY, HOWEVER, LEARNED CIT(A) WAS NOT CONVINCE D WITH THE ASSESSEES SUBMISSION BUT WAS OF THE OPINION THAT A O SHOULD HAVE BEEN ADDED ENTIRE INTEREST INCOME. ACCORDINGLY, ISSUED N OTICE OF ENHANCEMENT AND HELD AS UNDER: FROM THE FACTS OF THE CASE IN THE ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE APPELLANT, IT IS SEEN THAT APPELLANT HA S EARNED INTEREST INCOME FROM NATIONALIZED BANK AT RS.9,12,915/-. THE APPELLANT HAS ALSO EARNED INTEREST INCOME ON FIXED DEPOSITS WITH SSNL OF RS.1,58,750/-. THUS, THE TOTAL INCOME EARNED FROM NATIONALIZED BAN KS AND SSNL COMES TO RS.10,71,665/-. HOWEVER, THE AO HAS ONLY CONSIDE RED NET OPERATIONAL INCOME I.E. FDR INTEREST ASSESSABLE U/S.56 OF THE A CT AT RS.1,46,158/- AS NOT ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. THEREFORE, VIDE ORDER SHEET ENTRY DATED 19/8/2014, THE AR OF THE AP PELLANT WAS SHOW CAUSED AS TO WHY THE ENTIRE INTEREST EARNED FROM NA TIONALIZED BANKS SHOULD NOT BE TAXED U/S.56 OF THE ACT AND INTEREST INCOME SHOULD NOT BE ENHANCED BY RS.9,12,915/- (RS.10,71,665/- LESS 1,58 ,750/-). IN REPLY, TO THE SPECIFIC QUERY MADE BY THE UNDERSIGNED, THE AR OF THE APPELLANT STATED THAT ITS CASE IS COVERED WITH THE JURISDICTI ONAL HIGH COURT DECISION IN THE CASE OF JAFARI MOMIN VIKAS CO-OP. C REDIT SOCIETY LTD IN TAX APPEAL N0.442, 443 & 863 OF 2013 DATED 15/01/20 14. FURTHER, IT IS STATED BY THE AR OF THE APPELLANT ON ORDER SHEET DA TED 19/08/2014 THAT THERE IS NO INTEREST INCOME IN THE YEAR UNDER APPEA L FROM NATIONALIZED BANK. ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 4 - THE ISSUE HAS BEEN DECIDED BY THE HON'BLE SUPREME C OURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD VS ITO, KARNATAKA-( 2010) 188 TAXMAN 0282 THE AFOREMENTIONED JUDGMENT, THE ISSUE FOR DETERMINATION WAS WHETHER INTEREST INCOME ON THE SH ORT TERM BANK DEPOSITS AND SECURITIES WOULD BE QUALIFIED AS BUSIN ESS INCOME U/S.80P(2)(A)(I) OF THE I.T. ACT, 1961. THE HON'BLE SUPREME COURT HAD DECIDED THE ISSUE AS UNDER: 'AT THE OUTSET AN IMPORTANT CIRCUMSTANCE NEEDS TO B E 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 FACILITIE S TO THEM. WHAT IS SOUGHT TO BE TAXED U/S. 36 OF THE ACT IS TH E INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TER M DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSIN ESS PURPOSE. ASSESSEE MARKETS THE PRODUCE OF ITS MEMBERS WHOSE S ALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE , WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SI NCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIAT ELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SEC URITIES. THE QUESTION BEFORE US IS WHETHER INTEREST ON SUCH DEPO SITS/SECURITIES WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS ACCO UNT COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE AC T. AN IMPORTANT POINT NEEDS TO BE MENTIONED. THE WORDS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS EMPH ASIS THAT THE INCOME IN RESPECT OF WHICH DEDUCTION IS SOUGHT MUST CONSTITUTE THE OPERATIONAL INCOME AND NOT THE OTHER INCOME WHI CH ACCRUES TO THE SOCIETY. IN THE PARTICULAR CASE, THE EVIDENC E SHOWS THAT THE ASSESSEE SOCIETY EARNS INTEREST ON FUNDS WHICH ARE NOT REQUIRED FOR BUSINESS PURPOSES AT THE GIVEN POINT OF TIME. T HEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, IN OUR VI EW, SUCH INTEREST INCOME FALLS IN THE CATEGORY OF 'OTHER INC OME' WHICH HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT UNDER SECTION 56 OF THE I.T. ACT' IT IS TO BE NOTED THAT THE HON'BLE JURISDICTIONAL T RIBUNAL IN THE CASE RELIED UPON BY THE APPELLANT (JAFARI MOMIN VIK AS CO-OP. CREDIT SOCIETY LTD) FOR A.Y.2009-10 HAS DECIDED THE ABOVE ISSUE IN FAVOR OF APPELLANT WITH THE FOLLOWING FINDINGS: ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 5 - 'IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE AR E OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HON 'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY (S UPRA) CANNOT IN ANY WAY COME TO THE RESCUE OF EITHER THE LD. CIT (A) OR THE REVENUE. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN COMING TO A CONCLUSION THAT THE SUM OF RS.9,40,639/- WAS TO BE TAXED U/S.5 6 OF THE ACT. IT IS ORDERED ACCORDINGLY. THE ABOVE FINDING OF THE HONBLE TRIBUNAL IS DISTIN GUISHABLE TO THE FACT THAT ON THE SAME ISSUE THE HONBLE HIGH CO URT OF GUJARAT WHILE DECIDING THE APPEAL OF THE APPELLANT ON SAME IS SIL ENT ON THE ISSUE OF TAXABILITY OF INTEREST INCOME U/S 56 OF THE ACT. CONSIDERING THE ABOVE FACTS, THE RATIO OF THE DECIS ION OF HON'BLE SUPREME COURT IS IN FAVOUR OF DEPARTMENT. THE ISSUE BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SO CIETY LTD VS ITO, KARNATAKA WAS WHETHER INTEREST INCOME ON THE BANK D EPOSITS AND SECURITIES WOULD QUALIFY AS BUSINESS INCOME U/S. S 80P(2)(A)(I) OF THE IT ACT, 1961. THE HON'BLE SUPREME COURT HAD DECIDED TH E ISSUE AS UNDER: 'AT THE OUTSET AN IMPORTANT CIRCUMSTANCE NEEDS TO B E 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 FACILITIE S TO THEM. WHAT IS SOUGHT TO BE TAXED U/S.36 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOS ITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSIN ESS PURPOSE. ASSESSEE MARKETS THE PRODUCE OF ITS MEMBERS WHOSE S ALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE , WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SI NCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIAT ELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SEC URITIES. THE QUESTION BEFORE US IS WHETHER INTEREST ON SUCH DEPO SITS/SECURITIES WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS ACCO UNT COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE AC T. AN IMPORTANT POINT NEEDS TO BE MENTIONED. THE WORDS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS EMPH ASIS THAT THE ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 6 - INCOME IN RESPECT OF WHICH DEDUCTION IS SOUGHT MUST CONSTITUTE THE OPERATIONAL INCOME AND NOT THE OTHER INCOME WHI CH ACCRUES TO THE SOCIETY. IN THE PARTICULAR CASE, THE EVIDENC E SHOWS THAT THE ASSESSEE SOCIETY EARNS INTEREST ON FUNDS WHICH ARE NOT REQUIRED FOR BUSINESS PURPOSES AT THE GIVEN POINT OF TIME. T HEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, IN OUR VI EW, SUCH INTEREST INCOME FALLS IN THE CATEGORY OF 'OTHER INC OME' WHICH HAS BEEN LIGHTLY TAXED BY THE DEPARTMENT UNDER SECTION 56 OF THE I.T. ACT' FROM THE ABOVE, I FIND THAT THE HON'BLE SUPREME COU RT IS VERY CLEAR IN THE ABOVE LAND MARK JUDGMENT IN THE CASE O F CO-OPERATIVE SOCIETIES AS TO WHETHER THE SURPLUS FUNDS OF MEMBER S WHICH WAS INVESTED IN SPECIFIED SECURITIES AND DEPOSITS IN THE NATIONA LIZED BANKS WAS REQUIRED TO BE TAXED U/S.28 OF THE ACT. THE HON'BLE HIGH COURT OF GUJARAT IS SILENT IN ITS ORDER DATED 15/01/2014 IN THE CASE OF JAFARI MOMIN (SUPRA) ON THE DECISION OF HON'BLE ITAT, AS R EGARDS THE TAXABILITY OF INTEREST INCOME U/S.56 OF THE ACT. TA KING INTO CONSIDERATION, THE RATIO OF THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS (SUPRA), THE DECISION OF HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF JAFARI MOMIN (SUPRA) IN ITA NO.L491/AHD/2012 DATED 4/9/201 2 IS DISTINGUISHABLE. THIS CLEARLY INDICATES THAT APPELL ANT HAS RECEIVED THE INTEREST INCOME FROM NATIONALIZED BANKS WHICH DEFIN ITELY FALLS UNDER THE PURVIEW OF SECTION 56 IN VIEW OF HON'BLE SUPREME CO URT DECISION OF TOTGARS (SUPRA). THE AO HAS CALCULATED THE TAXABLE INTEREST INCOME U/S.56 ON PRO-RATA BASIS. CONSIDERING THE FACTS AND FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS(SUPRA). THIS ISSUE DISCUSSED WITH THE AR OF THE APPELLANT O N ORDER-SHEET DATED 19/8/2014 AND IN VIEW OF THE ABOVE, THE ENTIRE INTE REST INCOME RECEIVED BY THE APPELLANT FROM NATIONALIZED BANK & SSNL OF R S.10,71,665/- IS REQUIRED TO BE TAXED. THE APPELLANT HAS ALSO NOT SU BMITTED ANYTHING FURTHER ON THE ISSUE. THEREFORE, I AM OF THE FIRM V IEW THAT THE TOTAL INTEREST INCOME RECEIVED OF RS.10,71,665/- FROM NAT IONALIZED BANKS & SSNL IS REQUIRED TO BE TAXED U/S.56 OF THE ACT. THE AO DIRECTED TO TAX THE INTEREST INCOME EARNED BY THE APPELLANT AT RS.1 0,71,665/- ACCORDINGLY. THE RELEVANT GROUND OF APPEAL IS REJEC TED AND INTEREST INCOME OF THE APPELLANT IS ENHANCED BY RS.9,12,915/ -. ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 7 - 4. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. LEARNED AR FILED A JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA [2015] 58 TAXMANN.COM 35 (KARNATAKA) IN THE CASE OF TOTGARS CO- OPERATIVE SALE SOCIETY LTD. VS. INCOME TAX OFFICER, WARD -1, SIRSI _ : IN THIS CASE ASSESSEE WAS A CO-OPERATIVE SOCIETY DO ING BUSINESS OF MARKETING AGRICULTURAL PRODUCE AND WAS ALSO PROVIDI NG CREDIT FACILITIES TO ITS MEMBERS. IT CLAIMED THE BENEFIT OF DEDUCTION U/ S.80P(2)(A)(I) IN RESPECT OF THE INTEREST EARNED ON DEPOSITS KEPT WIT H SCHEDULED BANKS, INDIRA VIKAS PATRA, NATIONAL SAVINGS CERTIFICATES E TC. ASSESSING OFFICER REJECTED ASSESSEES CLAIM AND BROUGHT INTEREST INCO ME TO TAX UNDER SECTION 56 AS INCOME FROM OTHER SOURCES. THE TRIBUNAL CONF IRMED ORDER OF THE ASSESSING OFFICER. THE ASSESSEE FILED INSTANT APPEA L SEEKING A DIRECTION TO PASS FRESH ORDER BY GIVING PERMISSIBLE DEDUCTIONS U NDER SECTION 57. WHETHER ON FACTS, ONLY NET INTEREST INCOME, I.E. IN TEREST INCOME REDUCED BY ADMINISTRATIVE EXPENSES AND OTHER PROPORTIONATE EXPENSES TO EARN SAID INCOME HAD TO BE BROUGHT TO TAX UNDER SECTION 56 AN D IT WAS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. IT IS FURTHER HELD BY THE HONBLE HIGH COURT OF KAR NATAKA, RELEVANT PARA IS REPRODUCED HEREUNDER: 12. IT IS NO DOUBT TRUE THAT THE APPELLANT DID INI TIALLY CLAIM DEDUCTION UNDER SECTION 80P(2). UPON THE PRONOUNCEMENT OF THE ORDER BY THE APEX COURT, IN THESE APPEALS REFERRED TO SUPRA, THE INCOME EARNED ON THE INTEREST IS DECLARED AS 'OTHER INCOME' FALLING UNDER SECTION 56 OF THE INCOME TAX ACT. THEN THE NEXT IMMEDIATE QUESTION TH AT FOLLOWS IS AS TO WHETHER THE ENTIRE FUND I.E., IN DEPOSIT WITH THE B ANK IS TAXABLE OR THE ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 8 - PROPORTIONATE EXPENDITURE INCURRED BY THE APPELLANT REQUIRES DEDUCTION. IT IS LOGICAL THAT WHEN THE REVENUE IS PERMITTED TO ASSESS AND RECOVER TAXES FROM ASSESSEE UNDER SECTION 56 BY TREATING TH E INCOME EARNED BY INTEREST AS INCOME FROM 'OTHER SOURCES', THE APPELL ANT SHALL BE ENTITLED FOR PROPORTIONATE EXPENDITURE COST INCURRED IN MOBI LIZING THE DEPOSIT PLACED IN THE BANK/S. WHAT CAN BE TAXED IS ONLY THE NET INCOME WHICH THE APPELLANT EARNS AFTER DEDUCTING COST AND EXPEND ITURE INCURRED AND ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE. 13. ACCORDINGLY, WE ANSWER THE QUESTION OF LAW AND HOLD THAT THE TRIBUNAL WAS NOT RIGHT IN COMING TO THE CONCLUSION THAT THE INTEREST EARNED BY THE APPELLANT IS AN INCOME FROM OTHER SOU RCES WITHOUT ALLOWING DEDUCTION IN RESPECT OF THE PROPORTIONATE COSTS, ADMINISTRATIVE EXPENSES INCURRED IN RESPECT OF SUCH DEPOSITS 4.2 ON THE OTHER HAND LEARNED DR CITED A JUDGMENT O F GUJARAT HIGH COURT [2016] 389 ITR 578 (GUJ), STATE BANK OF INDIA VS. COMMISSIONER OF INCOME TAX , IN THIS CASE, HONBLE HIGH COURT HAS OBSERVED THAT: THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 8 0P AND NOT SPECIFICALLY UNDER SECTION 80P(2)(A)(I). THE ASSESS EE HAD ALSO NOT SHOWN ANY BIFURCATION OF THE INCOME DERIVED FROM PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS AND THE INTEREST EARNED BY DEPOSITING S URPLUS FUNDS WITH THE BANK. IN RESPONSE TO THE NOTICE UNDER SECTION 263, THE ASSESSEE HAD CONTENDED THAT THE REASON FOR TREATING THE INTEREST INCOME RECEIVED FROM DEPOSITS AS BUSINESS INCOME WAS THAT THE FUNDS OF T HE BUSINESS WERE KEPT IN INTEREST EARNING ACCOUNT WITH FACILITY TO WITHDR AW THE FUND AS AND WHEN NECESSARY TO EARN INTEREST FOR AND ON BEHALF O F ITS MEMBERS AND THAT IT WAS ONE OF ITS ACTIVITIES AS PROVIDED IN SE CTION 80P(2)(A) AND THAT THE GAINS OF BUSINESS ATTRIBUTABLE TO SUCH ACTIVITY WERE EXEMPTED FROM TAXABLE INCOME. THE CONTENTION OF THE ASSESSEE THAT THE COMMISSIONER HAD NOT HELD THAT THE INTEREST DERIVED FROM THE DEP OSITS IN THE BANK WAS INCOME FROM OTHER SOURCES DID NOT MERIT CONSIDERATI ON FOR THE REASON THAT IT WAS FOR THE ASSESSING OFFICER, PURSUANT TO THE ORDER UNDER SECTION 263 TO EXAMINE THE NATURE OF THE INCOME AND TAX IT ACCORDINGLY. HAVING REGARD TO THE STAND ADOPTED BY THE ASSESSEE IN RESP ONSE TO THE NOTICE UNDER SECTION 263, IT COULD NOT BE SAID THAT THE CO MMISSIONER HAD ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 9 - TRAVELLED BEYOND THE SCOPE OF THE NOTICE UNDER SECT ION 263, INASMUCH AS, HE HAD ONLY DEALT WITH THE CONTENTION RAISED BY THE ASSESSEE. THE APPELLATE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE I NVOCATION OF POWERS UNDER SECTION 263 OF THE ACT BY THE COMMISSIONER AN D THAT THE ORDER DID NOT SUFFER FROM ANY LEGAL INFIRMITY. THE ASSESSEE DID NOT CARRY ON ANY BANKING BUSINESS AND ITS OBJECTS DID NOT CONTEMPLATE INVESTMENT OF SURPLUS FUNDS RECEIVE D FROM ITS MEMBERS. THE BUSINESS OF A CREDIT SOCIETY LIKE THAT OF THE A SSESSEE WAS LIMITED TO PROVIDING CREDIT TO ITS MEMBERS AND THE INCOME THAT WAS EARNED BY PROVIDING SUCH CREDIT FACILITIES TO ITS MEMBERS WAS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I). THE CHARACTER OF INTEREST WAS DIFFERENT FROM THE INCOME ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE -SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCO ME DERIVED FROM INVESTING SURPLUS FUNDS WITH THE BANK MUST BE CLOSE LY LINKED WITH THE BUSINESS OF PROVIDING CREDIT FACILITIES FOR IT TO B E HELD ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE. THEREFORE, THE PROFITS AN D GAINS COULD BE SAID TO BE DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF PROV IDING CREDIT FACILITIES TO ITS MEMBERS IF THERE WAS A DIRECT AND PROXIMATE CON NECTION BETWEEN THE PROFITS AND GAINS AND THE BUSINESS OF THE ASSESSEE. THERE WAS NO OBLIGATION ON THE ASSESSEE TO INVEST ITS SURPLUS FU NDS WITH THE BANK. INVESTING SURPLUS FUNDS IN A BANK WAS NO PART OF TH E BUSINESS OF THE ASSESSEE PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND HENCE IT COULD NOT BE SAID THAT THE INTEREST DERIVED FROM DEPOSITING I TS SURPLUS FUNDS WITH THE BANK WAS PROFITS AND GAINS OF BUSINESS ATTRIBUT ABLE TO THE ACTIVITIES OF THE ASSESSEE. IT WAS ONLY THE INTEREST INCOME DE RIVED FROM THE CREDIT PROVIDED TO ITS MEMBERS WHICH WAS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) AND THE INTEREST INCOME DERIVED BY DEP OSITING THE SURPLUS FUNDS WITH THE BANK NOT BEING ATTRIBUTABLE TO THE B USINESS CARRIED ON BY THE ASSESSEE COULD NOT BE DEDUCTED UNDER SECTION 80 P(2)(A)(I). THERE WAS NO INFIRMITY IN THE ORDERS OF THE APPELLATE TRI BUNAL WARRANTING INTERFERENCE AND THE ASSESSEES APPEAL WAS DISMISSE D BY THE HONBLE HIGH COURT. 5. CONSIDERING THE BINDING DECISIONS OF THE HONBLE HIGH COURT IN THE CASE OF SBI (SUPRA) THE INTEREST INCOME EARNED ON SURPLUS FUND AS DEALT BY THE CIT(A) (SUPRA) IS HEREBY UPHELD TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO. 3095/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2011-12 - 10 - HOWEVER, WE FIND THAT THE HONBLE HIGH COURT IS SI LENT ON THE ISSUE OF ALLOWABILITY OF PROPORTIONATE EXPENSES FRO M THE INTEREST INCOME, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DO WN BY THE KARNATAKA HIGH COURT (SUPRA) WE DIRECT THE AO TO CONSIDER THE SAME AFRESH IN THE LIGHT OF THE DECISION OF HONBLE HIGH COURT OF KARN ATAKA (SUPRA). 6. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 30/08/2017 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30/08/2017 PRITI YADAV, SR.PS !'#$ %$' # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)-GANDHINAGAR, AHMEDABAD. 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. & / BY ORDER, (9-- //TRUE COPY// '/ () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION ..24/08/2017 (DICTATION-PAD 4 PAGES ATTACHED AT THE END OF THIS APPEAL- FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28/08/2017