Income Tax Officer Ward-6(3)(2), Bangalore V. M/s Pavagada Souharda Multipurpose Co-operative Limited , Bangalore

ITA 34/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7569 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H L SOUMYA
• Keywords: Question of law
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.34/BANG/2017 ASSESSMENT YEAR : 2012-13 THE INCOME TAX OFFICER, WARD 6(3)(2), BENGALURU. VS. M/S. PAVAGADA SOUHARDA MULTIPURPOSE CO-OP. LTD., NO.2729, 14 TH CROSS, E-BLOCK, KODIGEHALLI GATE, SAHAKARNAGAR, BENGALURU 560 092. PAN: AAAAT 7737L APPELLANT RESPONDENT APPELLANT BY : SMT. H.L. SOUMYA, ADDL. CIT(DR) RESPONDENT BY : SHRI MADHUKAR G. HEGDE, CA DATE OF HEARING : 19.09.2017 DATE OF PRONOUNCEMENT : 22.09.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE CIT (APPEALS) IS OPPOSED TO LA W AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEDUCT ION U/S 80P(2)(A)(I) MADE BY THE AO, WITHOUT APPRECIATING T HE FACT THAT THE ASSESSEE SOCIETY WAS CARRYING ON BANKING B USINESS, BY FULFILLING ALL THE CONDITIONS LAID DOWN IN SECTI ON 5(CCI) OF ITA NO.34/BANG/2017 PAGE 2 OF 6 THE BANKING REGULATION ACT, 1949 REFERRED TO IN EXP LANATION TO SUB-SECTION (4) OF SECTION 80P, THEREBY QUALIFYI NG IT AS A PRIMARY CO-OPERATIVE BANK. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN PLACING RELIANCE UPON THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF SHRI BILURU GURBASAPPA PATTINA SAHAKARI SANGHA NIYAMITHA WITHOU T APPRECIATING THE FACT THAT THE SLP FILED BY THE DEP ARTMENT BEFORE THE HON'BLE APEX COURT IS STILL PENDING JUDG MENT. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A), IN SO FAR AS IT RELATES TO THE ABOVE GROUND S MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 2. THE BRIEF FACTS BORNE OUT FROM THE RECORD ARE T HAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS DEPOSITED THE SURPLUS FUNDS IN THE BANK AND INTEREST OUT OF THE S URPLUS FUNDS INVESTED AMOUNTING TO RS.1,90,05,335 WAS CLAIMED AS EXEMPTIO N U/S. 80P(2)(A)(I). THE AO IN VIEW OF THE AMENDED PROVISIONS OF SECTION 80P(4) OF THE ACT HELD THAT SOCIETIES CARRYING ON THE BUSINESS OF BANKING ARE NOT ENTITLED TO CLAIM DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. 3. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) ALL OWED THE APPEAL OF THE ASSESSEE FOLLOWING THE JUDGMENT OF HON'BLE JURI SDICTIONAL HIGH COURT IN THE CASE OF SHRI BILURU GURUBASAPPA PATTINA SAHAKARI SANGHA NI YAMITA (369 ITR 86) . ITA NO.34/BANG/2017 PAGE 3 OF 6 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR PLACED RELIANCE ON THE ASSESSMENT ORDER WITH THE SUBMISSIO N THAT A SLP HAS BEEN FILED AGAINST THE JUDGMENT OF HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF SHRI BILURU GURUBASAPPA PATTINA SAHAKARI SANGHA NI YAMITA (SUPRA) . 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED U NDER THE KARNATAKA CO- OPERATIVE SOCIETIES ACT, 1959 AND CARRYING ON BUSI NESS OF CREDIT CO- OPERATIVE SOCIETY. THE SURPLUS FUNDS ARE DEPOSITED IN BANK AND INTEREST EARNED IS CLAIMED AS EXEMPT U/S. 80P. THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS NOW COVERED BY THE JUD GMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. V. ITO IN ITA NO.307 OF 2014 DATE D 28.10.2014 WHEREIN THE HONBLE HIGH COURT ALLOWED THE CLAIM AFTER CONS IDERING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY, 322 ITR 272 (SC) . 6. WE HAVE CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F THE TOTGARS CO- OPERATIVE SALE SOCIETY (SUPRA) , IT WAS HELD THAT THE SAID INTEREST INCOME IS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT ITA NO.34/BANG/2017 PAGE 4 OF 6 FACILITIES AND THEREFORE ASSESSEE IS ENTITLED TO TH E DEDUCTION. THE RELEVANT PARAGRAPHS OF THE JUDGMENT OF THE HONBLE HIGH COUR T IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 8. THEREFORE, THE WORD ATTRIBUTABLE TO IS CERTAI NLY WIDER IN IMPORT THAN THE EXPRESSION DERIVED FROM. WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING, TH EY HAVE USED THE EXPRESSION DERIVED FROM. THE EXPRESSION ATTR IBUTABLE TO BEING OF WIDER IMPORT, THE SAID EXPRESSION IS USED BY THE LEGISLATURE WHENEVER THEY INTENDED TO GATHER RECEIP TS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS. A COOPERATIVE SOCIETY WHICH IS CARRYING ON THE BUSINE SS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, EARNS P ROFITS AND GAINS OF BUSINESS BY PROVIDING CREDIT FACILITIES TO ITS M EMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPITAL, IF NOT I MMEDIATELY REQUIRED TO BE LENT TO THE MEMBERS, THEY CANNOT KEE P THE SAID AMOUNT IDLE. IF THEY DEPOSIT THIS AMOUNT IN BANK SO AS TO EARN INTEREST, THE SAID INTEREST INCOME IS ATTRIBUTABLE TO THE PROFITS AND GAINS OF THE BUSINESS OF PROVIDING CREDIT FACILITIE S TO ITS MEMBERS ONLY. THE SOCIETY IS NOT CARRYING ON ANY SEPARATE B USINESS FOR EARNING SUCH INTEREST INCOME. THE INCOME SO DERIVED IS THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABL E TO THE ACTIVITY OF CARRYING ON THE BUSINESS 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 SECTI ON 80P OF THE ACT. 9. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF THE APEX COURT IN THE CASE OF M/S. TOTGARS CO-OPERATIVE SALE SOCIETY LTD., ON WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEALING WITH A CASE WHERE THE ASSESSEE-COOPERATIVE SOCIETY, APAR T FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS ALS O IN THE BUSINESS OF MARKETING OF AGRICULTURAL 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 M EMBERS FROM WHOM PRODUCE WAS BOUGHT, WAS INVESTED IN A SHORT-TE RM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE-SOCIETY WAS A LIABILITY AND IT WAS SHOWN I N THE BALANCE SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXT ENT, SUCH INTEREST ITA NO.34/BANG/2017 PAGE 5 OF 6 INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR UND ER 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 TAXING THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHER THEY MADE IT CLEAR THAT THEY ARE CONFINING THE SAID JUDGMENT TO THE FACTS OF THAT CASE. THEREFORE IT IS CLEAR, SUPREME COURT WAS NOT LAYING DOWN ANY LAW. 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVE STED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBERS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILIT Y IN THEIR ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFI TS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LE NDING MONEY TO THE MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HAD DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTERES T. THE SAID INTEREST INCOME IS ATTRIBUTABLE TO CARRYING 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 ANDHRA PRADESH HIGH COURT IN THE CASE OF COMMISSION ER OF INCOME-TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., REPORTED IN (2011) 200 TAXMAN 220/12. IN THAT VIEW OF THE MATTER, THE ORD ER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCOR DINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW I S ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. HEN CE, WE PASS THE FOLLOWING ORDER: APPEAL IS ALLOWED. THE IMPUGNED ORDER IS HEREBY SET ASIDE. PARTIES TO BEAR THEIR OWN COST. 7. RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. (SUPRA) , WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AN D FIND NO INFIRMITY ITA NO.34/BANG/2017 PAGE 6 OF 6 IN THE ORDER OF CIT(APPEALS) ALLOWING THE BENEFIT O F DEDUCTION U/S. 80P TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF SEPTEMBER, 2017. SD/- SD/- ( A. K. GARODIA ) ( SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 22 ND SEPTEMBER, 2017. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.