Asst. Commissioner of Income tax Cir. 1, Belgaum V. Shri. Bellad Urben Souhard Sah. Bank NiyamitLtd., Belgaum

ITA 322/PAN/2013

• Counselvise Citation: 32224114 RSA 2013
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-02-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 25-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT K LD
• Assessee Lawyers: S V HALBHAVI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 322 /PNJ/2013 (ASSESSMENT YEAR - 2004 - 05 ) THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 1, BELGAUM. (APPELLANT) VS. SHRI BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT, BELLAD BAGEWADI TQ. HUKKERI. DIST: - BELGAUM. PAN: AAAT4231F (RESPONDENT) A PPELLANT BY : SHRI NISHANT K, LD. DR. RESPONDE NT BY : SHRI S.V. HALBHAVI, CA . DATE OF HEARING : 27/2/2014 DATE OF PRONOUNCEMENT : 6 / 3 /2014 O R D E R PER: D.T. GARASIA THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST THE ORDER OF CIT(A) BELGAUM, DATED 14 TH AUGUST,2013 FOR THE A.Y.2004 - 05. 2. THE FOLLOWING GROUNDS ARE RAISED IN THIS APPEAL : (1) THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT THE CO - OPERATIVE BANKS INCOME FROM GOVT. SECURITIES AS INCOME FROM BANKING ACTIVITY AND ALLOWING DEDUCT ION U/S 80P(2)(A)(I) IN RESPECT OF INCOME FOR THE ASSESSMENT YEAR 2004 - 05 DERIVED FROM THE SALE OF GOVT. SECURITIES. (2) THE CIT (A) ERRED IN NOT APPRECIATING THE FACTS THAT THE PROVISIONS OF SECTION 80P(2)(A)(I) IS AVAILABLE TO A CO - OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR, PRO VI DING CREDIT FACILITIES TO ITS MEMBERS. (3) THE CIT(A) ERRED IN NOT APPRECIATING THE FAC T THAT THE ASSESSEE HAS EARNED INCOME ON SALE OF GOVT SECURITIES AND NOT INTEREST OR ANY INCOME ON GOVT SECURITIES SO AS TO RELY ON THE DECISIONS OF HONBLE SUPREME COURT CITED IN HIS ORDERS. 2 . ITA NO. 322/PNJ/2013 (A.Y. 2004 - 05 ) (4) THE LEARNED CIT (APPEA L S) ERRED IN LAW AND ON FACTS IN ALLOW ING THE CLAIM OF DEDUCTION UNDER SECTION 80P TO THE ASSESSEE IGNORING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO - OP SALES SOCIETY LTD V. ITO (SC) 322 ITR 283. (5) THE CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE PROFIT EARN ED ON SALE OF GOVERNMENT SECURITIES AMOUNTING TO RS.29,64,466 CANNOT BE TREATED AS INCOME EARNED FROM THE REGULAR ACTIVITY OF THE SOCIETY AND HENCE, THE CIT(A) OUGHT TO HAVE UPHELD THE FINDINGS OF THE ASSESSING OFFICER. 3. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA STATE CO - OPERATIVE SOCIETIES ACT AND CONDUCTING ITS BUSINESS AS A CO - OPERATIVE BANK HAVING LICENSE ISSUED BY THE RESERVE BANK OF INDIA FOR CONDUCTING BANKING BUSINESS. THE ASSESSIN G OFFICER WAS OF A VIEW AS PER PROVISIONS OF SECTION 80P(2)(A)(I), DEDUCTION IS AVAILABLE TO A CO - OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND AS PER THE BYE LAWS OF THE CO - OPERATIVE SOCIETIES, TH E CO - OPERATIVE SOCIETIES CAN ACCEPT DEPOSIT ONLY FROM ITS MEMBERS. THE AO NOTED THAT A CO - OPERATIVE SOCIETIES WILL NOT COME UNDER THE PURVIEW OF THE MEANING OF BANKS. HENCE, THE ASSESSING OFFICER CONCLUDED THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSE SSMENT AND ACCORDINGLY THE DEDUCTION U/S. 80P(2) (A) (I) WAS REJECTED. 4. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE DEDUCTION BY OBSERVING AS UNDER : 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO PERUSED THE ASSESSMENT ORDER. IT IS A N UNDISPUTED FACT THAT THE APPELLANT HAS A VALID LICENSE ISSUED BY THE RBI FOR CONDUCTING BANKING BUSINESS AND AS PER THE GUIDELINES ISSUED BY THE RBI AN URBAN CO - OPERATIVE BANK IS REQUIRED TO MAINTAI N INVESTMENT IN CERTAIN GOVERNMENT SECURITIES. THAT BEING SO, ANY INCOME DERIVED FROM FUNDS SO PLACED AROSE FROM THE BUSINESS CARRIED ON BY IT AND THE ASSESSEE HAD NOT, BY REASON OF SECTION 80P(2)(A)(I), TO PAY INCOME - TAX THEREON FOR A.Y.2004 - 05. THE PLACE MENT OF SUCH FUNDS BEING IMPERATIVE FOR PURPOSE OF CARRYING ON THE BANKING BUSINESS, THE INCOME DERIVED THEREFROM WOULD BE INCOME FROM THE ASSESSEES BUSINESS. IT COULD NOT BE ACCEPTED THAT ONLY INCOME DERIVED FROM CIRCULATING OR WORKING CAPITAL WOULD FALL WITHIN SECTION 80P(2)(A)(I). THERE IS NOTHING IN THE PHRASEOLOGY OF THAT PROVISION WHICH MAKES IT APPLICABLE ONLY TO INCOME DERIVED FROM WORKING OR CIRCULATING CAPITAL. THUS, DEDUCTION WAS ALLOWABLE IN RESPECT OF 3 . ITA NO. 322/PNJ/2013 (A.Y. 2004 - 05 ) INCOME DERIVED FROM THE FUNDS INVESTED IN GOVT. SECURITIES. THIS HAS BEEN HELD SO BY THE HONBLE SUPREME COURT AND HIGH COURTS IN A NUMBER OF CASES, SOME OF WHICH ARE AS FOLLOWS: I) SUPREME COURT OF INDIA IN (2002) TAXMAN 222 (SC) CIT VS. RAMANATHAPURAM DISTRICT CO - OP. CENTRAL BANK LTD. II) SUPR EME COURT OF INDIA IN (2007) 160 TAXMAN 48 (SC) CIT VS. NAWANSHAHAR CENTRAL CO - OPERATIVE BANK LTD. III) HIGH COURT OF HIMACHAL PRADESH IN (2010) 323 ITR 323 ITR 1 (HP) CIT VS,. H P STATE CO - OPERATIVE BANK LTD . 5.1 THE ASSESSING OFFICER HAS CLEARLY ERRED IN NOT CONSIDERING THE APPELLANT CO - OPERATIVE BANK AS A URBAN CO - OPERATIVE BANK AND ALSO BY TREATING IT ONLY AS A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING ONLY CREDIT FACILITIES. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE HONBLE SUPREME COURT, I HOLD THAT THE APPELLANT CO - OPERATIVE BANKS INCOME FROM GOVT. SECURITIES AS INCOME FROM BANKING ACTIVITY AND THEREFORE, DEDUCTION IS ALLOWABLE U/S 80P(2)(A)(I) IN RESPECT OF INCOME FOR A.Y. 2004 - 05 DERIVED FROM THE FUNDS INVESTED IN GOVT. SECURITIES . 5. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THAT THE ASSESSEE HAS A VALID LICENCE ISSUED BY THE RBI FOR CONDUCTING BANKING BUSINESS AND AS PER THE GUIDELINES ISSUED BY THE RBI AN URBAN CO - OPERATIVE BANK IS REQUIRED TO MAINTAIN INVESTMENT IN CERTAIN SECURITIES AS PER RBI GUIDELINES THAT INCOME DERIVED FROM THE FUNDS WAS SO PLACED AROSE F ROM THE BUSINESS CARRIED ON BY IT. THE PLACEMENT OF SUCH FUNDS BEING IMPERATIVE FOR PURPOSE OF CA RRYING ON THE BANKING BUSINESS, THE INCOME DERIVED THEREFROM WOULD BE INCOME FROM THE ASSESSEES BUSINESS. THE SUPREME COURT HAS CONSID ERED THIS ISSUE IN THE CASE OF CIT VS. NAWANSHAHAR CENTRAL CO - OPERATIVE BANK LTD. 160 TAXMAN 48 (SC) WHEREIN IT IS HELD A S UNDER : THE ASSESSEE CO - OPERATIVE BANK WAS REQUIRED TO PLACE A PART OF ITS FUNDS WITH THE STATE BANK OF THE RESERVE BANK OF INDIA TO ENABLE IT TO CARRY ON ITS BANKING BUSINESS. THAT BEING SO, ANY INCOME DERIVED FROM FUNDS SO PLACE AROSE FROM THE BUSINESS CARRIED ON BY IT AND THE ASSESSEE HAD NOT, BY REASON OF SECTION 80P(2)(A)(I), TO PAY INCOME - TAX THEREON. THE PLACEMENT OF SUCH FUNDS BEING IMPERATIVE FOR PURPOSE OF CARRYING ON THE BANKING BUSINESS, THE INCOME DERIVED THEREFROM WOULD BE INCOME FROM THE ASSESSEES BUSINESS. IT COULD NOT BE ACCEPTED THAT ONLY INCOME DERIVED FROM 4 . ITA NO. 322/PNJ/2013 (A.Y. 2004 - 05 ) CIRCULATING OR WORKING CAPITAL WOULD FALL WITHIN SECTION 80P(2) (A)(I). THERE IS NOTHING IN THE PHRASEOLOGY OF THAT PROVISION WHICH MAKES IT APPLICABLE ONLY TO INCOME DERIVED FROM WORKING OR C IRCULATING CAPITAL. THUS, DEDUCTION WAS ALLOWABLE IN RESPECT OF INCOME DERIVED FROM THE FUNDS PLACED WITH THE BANK OR THE RESERVE BANK. WE RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE DEPARTMENTS APPEAL. 4. IN THE RESULT, THE APPEAL FILED BY T HE DEP ARTMENT IS DISMISSED . ORDER PRON OUN CED IN THE OPEN COURT ON 6 . 3 .2014. S D / - S D / - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 6 . 3. 2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER SR. PRIVATE SECRETARY, ITAT, PANAJI, GOA