YASHOMANDIR SAHAKARI PATPETDHI LTD, MUMBAI V. ITO 22(2)(4), NAVI MUMBAI

ITA 3477/MUM/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3337 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 14-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V G GINDE
• Keywords: Business income; Question of law
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI JASON P. BOAZ ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 3477/MUM/2014 (ASSESSMENT YEAR : 2010-11) YASHOMANDIR SAHAKARI PATPEDHI LTD., 307, MAHAVIR APARTMENT, PANT NAGAR, GHATKOPAR (EAST), MUMBAI 400075 PAN:AAAAY 0015A ... APPELLANT VS. INCOME TAX OFFICER 22(2)(4) TOWER NO.6, 4 TH FLOOR, VASHI RAILWAY STN. COMPLEX, NAVI MUMBAI 400 703 .... RESPONDENT ITA NO. 3642/MUM/2014 (ASSESSMENT YEAR : 2010-11) INCOME TAX OFFICER 22(2)(4) TOWER NO.6, 4 TH FLOOR, VASHI RAILWAY STN. COMPLEX, NAVI MUMBAI 400 703 .... APPELLANT VS. YASHOMANDIR SAHAKARI PATPEDHI LTD., 307, MAHAVIR APARTMENT, PANT NAGAR, GHATKOPAR (EAST), MUMBAI 400075 PAN:AAAAY 0015A .... RESPONDENT ASSESSEE BY : SHRI V.G.GIN DE REVENUE BY : SHRI NITIN WAG HMODE DATE OF HEARING : 14/01/2016 DATE OF PRONOUNCEMENT : 20/01/2016 2 ITA NO. 3477&3642/MUM/2014 ORDER PER BENCH: THESE ARE CROSS APPEALS, ONE BY REVENUE AND THE O THER BY THE ASSESSEE, DIRECTED AGAINST THE ORDER OF THE CIT(A)- 33, MUMBAI DATED 31.3.2014 FOR THE ASSTT. YEAR 2010-11. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER :- 2.1 THE ASSESSEE A CO-OPERATIVE SOCIETY, ENGAGED I N PROVIDING CREDIT FACILITIES TO ITS MEMBERS, FILED ITS RETURN OF INCO ME FOR ASSESSMENT YEAR 2010-11 ON 13/08/2010 DECLARING NIL INCOME, AFTER C LAIMING DEDUCTION U/S.80P(A)(I) OF THE ACT. UNDER SECTION 80P(2)(A)(I ) OF THE IT ACT, 1961 (IN SHORT THE ACT) WHERE THE GROSS TOTAL INCOME OF A CO -OPERATIVE SOCIETY INCLUDES INCOME FROM CARRYING ON THE BUSINESS OF B ANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, THE SAME IS ALLOW ED AS DEDUCTION UPTO THE ASSESSMENT YEAR 2007-08. BY FINANCE ACT, 2006, W.E.F. 1/4/2007, SUB SECTION (4) WAS INSERTED IN SECTION 80P WHICH P ROVIDES AS FOLLOWS- (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K. EXPLANATION FOR THE PURPOSES OF THIS SUB-SECTION,- -(A) 'CO-OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL CREDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949) ; (B) 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DE VELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LONG-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 3 ITA NO. 3477&3642/MUM/2014 3. THE ASSESSING OFFICER (AO) WAS OF THE VIEW THAT AFT ER THE AMENDMENT INSERTED BY FINANCE ACT, 2006 W.E.F. 1/4 /2007, BY WHICH SUB SECTION (4) WAS INSERTED IN SECTION 80P OF THE ACT, THE ASSESSEE WHICH IS A CO-OPERATIVE SOCIETY CARRYING ON BANKING BUSINESS WAS NOT ENTITLED TO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER , THE ASSESSEE WAS A CO-OPERATIVE BANK AND, THEREFORE, THE DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT CANNOT B E ALLOWED. IN COMING TO THIS VIEW, THE ASSESSING OFFICER OBSERVED THAT T HE NATURE OF ACTIVITY OF THE ASSESSEE, THOUGH REGISTERED AS A CREDIT CO OPERATIVE SOCIETY, IS THAT OF A BANKING INSTITUTION, NOTWITHSTANDING THE FACT THAT THE RECEIPT OF AND LENDING OF MONEY IS LIMITED TO ITS MEMBERS. THE ASSESSING OFFICER FURTHER NOTICED THAT CLAUSE (VIIA) IN SECTION 2(24) OF THE ACT WAS INSERTED BY THE FINANCE ACT, 2006 W.E.F. 1/4/2007, WHICH PRO VIDES THAT PROFITS AND GAINS OF ANY BUSINESS (INCLUDING PROVIDING OF C REDIT FACILITIES) CARRIED ON BY A COOPERATIVE SOCIETY WITH ITS MEMBERS WAS A LSO INCOME. THE ASSESSING OFFICER OBSERVED THAT THE DEDUCTION FROM GROSS TOTAL INCOME OF CERTAIN RECEIPTS IS AVAILABLE ONLY TO PRIMARY AG RICULTURAL CREDIT SOCIETIES OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS AND THAT THE BENEFIT OF SUCH DEDUCTION IS NOT AVAILABLE TO INSTITUTIONS LIKE THE ASSESSEE SOCIETY. THE ASSESSI NG OFFICER ALSO REFERRED TO PART-V, SECTION 56(B),(CCI), (CCV) AND (CCVI) OF THE BANKING REGULATION ACT, 1949 TO HOLD THAT, IF ONE OF THE TW O CONDITIONS OF THE ASSESSEE, I.E., ITS PRIMARY OBJECT SHOULD BE BANKIN G OR ITS PRINCIPAL BUSINESS MUST BE TRANSACTION IN BANKING BUSINESS, I S SUFFICIENT TO BRING THE ASSESSEE INTO THE CONCEPT OF BANKING INSTITUTIO N. THE ASSESSING OFFICER REFERRED TO THE OBJECTIVES OF THE ASSESSE E SOCIETY IN ITS BYE- LAWS, TO OBSERVE THAT THE ACTIVITIES OF THE ASSESS EE FALL WITHIN THE 4 ITA NO. 3477&3642/MUM/2014 PROVISIONS IF SECTION 56(B), 56(CCI), 56(CCV) AND 5 6(CCVI) OF PART V OF THE BANKING REGULATION ACT, 1949 AND HELD THAT BROADLY, THEY ARE IN THE NATURE OF BANKING ACTIVITY. IN THE LIGHT OF THE ABO VE OBSERVATIONS, THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT E NTITLED TO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT AND ACCORDINGLY CONCL UDED THE ASSESSMENT U/S. 143(3) VIDE ORDER DATED 28/3/2013 DETERMINING THE ASSESSEES INCOME AT RS.1,52,65,030/-. 4. AGGRIEVED, BY THE ORDER OF THE ASSESSMENT FOR ASSES SMENT YEAR 2010- 11 DATED 28/3/2013 DENYING IT THE DEDUCTION CLAIMED U/S. 80P(2)(A)(I) OF THE ACT, THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A)-33, MUMBAI. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) VIDE ORDER DATED 31/3/2014 DISPOSED OFF THE ASSESSEES APPEAL, ALLOWING IT PARTIAL RELIEF .THE LD. COMMISSIONER OF INCOME TAX(APPEALS) FOLLOWING THE DECISION OF THE GUJARAT HIGH COURT IN JAFARI MOMIN VIKAS CO OP. CREDIT SOCIETY LTD.(2004) (362 ITR 331) (GUJ.) HELD THAT T HE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT CLAIMED B Y IT IN RESPECT OF THE PROFITS OF ITS BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS. HOWEVER, WITH RESPECT TO INTEREST OF RS.5,63,180/- RECEIVED ON SECURED REDEEMABLE NON-CONVERTIBLE DEBENTURES OF MAHARASHTR A CO OP. DEVELOPMENT CORPORATION LTD. AND INTEREST OF RS.1,4 9,500/- EARNED FROM GOVERNMENT SECURITY BONDS, THE LD. COMMISSIONE R OF INCOME TAX(APPEALS) FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF TOTGARS CO OPERATIVE SALE SOCIETY LTD.( 2010)(322 ITR 283)(SC) HELD THAT THE SAME ARE NOT ENTITLED TO DEDUCTION U/ S. 80P(2) OF THE ACT AS THEY ARE NOT PART OF THE ASSESSEES BUSINESS INC OME AND ARE TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 5 ITA NO. 3477&3642/MUM/2014 5. BOTH THE REVENUE AND THE ASSESSEE ARE AGGRIEVED BY THE ORDER OF THE CIT(A)-33, MUMBAI AND HAVE PREFERRED APPEALS AGAINS T THIS ORDER BEFORE THE TRIBUNAL . REVENUES APPEAL IN ITA NO.3462/MUM/2014: 6. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING G ROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS A CO-O PERATIVE SOCIETY AND NOT A CO-OPERATIVE BANK AND THEREBY ALLOWING THE DEDUCTIO N U/S. 80P(2) OF THE I.T. ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PRINCIPAL BUSINESS OF ASSESSEE IS BANKING AND ITS SHARE CAPITAL AND RESERVES EXCEEDS RS.ONE LAKHS, HE NCE IT SQUARELY FALLS WITHIN THE DEFINITION OF CO-OPERATIVE BANK U/S. 5(C CI) OF BANKING REGULATION ACT, 1949. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. THE APPELLANT CRAVES LEAVE TO AMEND OR AFTER ANY G ROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 7. GROUNDS NO.1 AND 2: DEDUCTION U/S. 80P(2)(A)(I) O F THE ACT: 7.1 IN THESE GROUNDS, REVENUE ASSAILS THE ORDER OF TH E LD. CIT(A) AS BEING ERRONEOUS IN HOLDING THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND NOT A CO OPERATIVE BANK AND THEREBY ALLOWING T HE DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. IT WAS FURTHER CONTENDED T HAT THE ASSESSEES PRINCIPAL BUSINESS BEING BANKING, IT WOULD SQUARELY FALL WITHIN THE DEFINITION OF A CO-OPERATIVE BANK U/S. 56(CCI) OF T HE BANKING REGULATION ACT, 1949.THE LD. DEPARTMENTAL REPRESENTATIVE FOR T HE REVENUE WAS HEARD IN THE MATTER AND PLACED STRONG RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER IN DENYING THE ASSESSEE DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT, SINCE THE ASSESSEE IS A CO-OPERATIVE BANK AND ITS PRINCIPAL ACTIVITY IS BANKING. 6 ITA NO. 3477&3642/MUM/2014 7.2 PER CONTRA, THE LD. REPRESENTATIVE FOR THE ASSESSE E FOR THE ASSESSEE SUBMITTED THAT THE IMPUGNED ORDER OF THE L D. COMMISSIONER OF INCOME TAX(APPEALS), HOLDING THAT THE ASSESSEE BEIN G A CO-OPERATIVE SOCIETY IS ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) O F THE ACT IN RESPECT OF THE PROFITS OF ITS BUSINESS OF PROVIDING CREDIT FAC ILITIES TO ITS MEMBERS, IS IN ORDER AND IS SUPPORTED BY JUDICIAL PRECEDENTS LA ID DOWN BY THE VARIOUS HIGH COURTS AND TRIBUNALS. IN SUPPORT OF TH IS PROPOSITION, THE LD. AR PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOU NCEMENTS:- (I) CIT VS. JAFARI MOMIN VIKAS CO OP. CREDIT SOCIETY L TD.(2004) (362 ITR 331) (GUJ.); (II) CIT VS. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANG HA NIYAMITHA BAGALKOT [2014] 369 ITR 86 (KAR); (III) SHREE LAXMANANDA MULTIPURPOSE CO-OP. SOCIETY LTD. (2014) 34 ITR (TRIBUNAL) 472(BANG.TRIB.); 7.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON . F ROM THE MATERIAL ON RECORD, IT IS SEEN THAT THE LD. CIT(A) WHILE DISPOSING OFF THE APPEAL FOR ASSESSMENT YEAR 2007-08 IN THE CASE ON HAND, WHICH ORDER HAS BEEN FOLLOWED BY THE LD. CIT(A)IN THE IMP UGNED ORDER FOR THE ASSESSMENT YEAR 2010-11, HAS OBSERVED THAT THER E IS NO DISPUTE THAT THE ASSESSEE ACCEPTS DEPOSITS ONLY FROM ITS ME MBERS AND ADVANCES LOANS ONLY TO ITS MEMBERS AND DOES NOT HAV E ANY BANKING LICENCE. IT WAS ALSO OBSERVED THAT ALL THE DEPOSITS ON THE LIABILITY SIDE 7 ITA NO. 3477&3642/MUM/2014 OF ITS BALANCE SHEET ONLY REFLECT DEPOSITS FROM MEM BERS AND THAT IT ACCEPTS DEPOSITS ONLY FROM ITS MEMBERS AND NOT FROM THE PUBLIC AT LARGE. IN THE ABOVE FACTUAL MATRIX, THE LD. CIT(A) CAME TO THE VIEW THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND NOT A CO-OPERATIVE BANK AS HELD BY THE ASSESSING OFFICER . 7.3.2 AT THE TIME OF HEARING, IT WAS BROUGHT TO THE NOT ICE OF THE BENCH THAT THIS VERY ISSUE WAS FOR CONSIDERATION B EFORE THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. JAFARI MO MIN VIKAS CO OP. CREDIT SOCIETY LTD.(2004) (362 ITR 331) (GUJ.).IN T HIS CASE, THE QUESTION, OF LAW BEFORE THE HONBLE COURT WAS :- WHETHER THE HONBLE TRIBUNAL IS CORRECT IN ALLOWIN G THE DEDUCTION U/S.80P(2)9A)(I) TO THE ASSESSEES SOCIETY EVENTHOU GH THE SAME IS COVERED U/S.80P(4) READ WITH SECTION 2(24)(VIIA) BEING INCO ME FROM PROVIDING CREDIT FACILITIES CARRIED ON BY A CO-OPERATIVE SOCIETY WIT H ITS MEMBER? THE HONBLE COURT HELD AS UNDER :- '(4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, (A) 'CO-OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL C REDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949) ; (B) 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DE VELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LONG-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES.' 4. AS PER SECTION 80P(4), THE PROVISIONS OF SECTION 80P WOULD NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHER THAN PRIMAR Y AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVE LOPMENT BANK. AS PER THE EXPLANATION, THE TERMS 'CO-OPERATIVE BANK' AND 'PRI MARY AGRICULTURAL CREDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIG NED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949. 8 ITA NO. 3477&3642/MUM/2014 5. THE ASSESSING OFFICER HELD THAT BY VIRTUE OF SEC TION 80P(4), THE RESPONDENT- ASSESSEE WOULD NOT BE ENTITLED TO THE BENEFITS OF D EDUCTION UNDER SECTION 80P. THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL REVERSED THE DECISION OF THE ASSESSING OFFICER ON THE PREMISE THAT THE RESPONDEN T- ASSESSEE NOT BEING A BANK, EXCLUSION PROVIDED IN SUB-SECTION (4) OF SECT ION 80P WOULD NOT APPLY. THIS, IRRESPECTIVE OF THE FACT THAT THE RESPONDENT WOULD NOT FALL WITHIN THE EXPRESSION 'PRIMARY AGRICULTURAL CREDIT SOCIETY'. 6. HAD THIS BEEN THE PLAIN STATUTORY PROVISIONS UND ER CONSIDERATION IN ISOLATION, IN OUR OPINION, THE QUESTION OF LAW COULD BE STATED TO HAVE ARISEN. WHEN, AS CONTENDED BY THE ASSESSEE, BY VIRTUE OF SUB-SECTION (4) ONLY CO- OPERATIVE BANKS OTHER THAN THOSE MENTIONED THEREIN WERE MEANT TO BE EXCLUDED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80P, A QUESTION WOULD AR ISE WHY THEN THE LEGISLATURE SPECIFIED PRIMARY AGRICULTURAL CREDIT S OCIETIES ALONG WITH PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS FOR EXCLUSION FROM SUCH EXCLUSION AND, IN OTHER WORDS, CONTINUED TO HOLD SU CH ENTITY AS ELIGIBLE FOR DEDUCTION. HOWEVER, THE ISSUE HAS BEEN CONSIDERABLY SIMPLIFIED BY VIRTUE OF THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 133 OF 2 007, DATED MAY 9, 2007. CIRCULAR PROVIDES AS UNDER : 'SUBJECT : CLARIFICATION REGARDING ADMISSIBILITY OF DEDUCTION UNDER SECTION 80P OF THE INCOME-TAX ACT, 1961. 1. PLEASE REFER TO YOUR LETTER NO. DCUS/30688/2007, DATED MARCH 28, 2007, ADDRESSED TO THE CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES, ON THE ABOVE GIVEN SUBJECT. 2. IN THIS REGARD, I HAVE BEEN DIRECTED TO STATE TH AT SUB-SECTION(4) OF SECTION 80P PROVIDES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE ALLOWABLE TO ANY CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRI CUL TURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK. FOR THE PURPOSE OF THE SAID SUB-SECTION, CO-OPER ATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART V OF THE BANKING REGULATION ACT, 1949. 3. IN PART V OF THE BANKING REGULATION ACT, 'CO-OPE RATIVE BANK' MEANS A STATE CO-OPERATIVE BANK, A CENTRAL CO-OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. 4. THUS, IF THE DELHI CO-OP. URBAN THRIFT AND CREDI T SOCIETY LTD. DOES NOT FALL WITHIN THE MEANING OF 'CO-OPERATIVE BANK' AS DEFINE D IN PART V OF THE BANKING REGULATION ACT, 1949, SUB-SECTION (4) OF SECTION 80 P WILL NOT APPLY IN THIS CASE. 5. THIS IS ISSUED WITH THE APPROVAL OF THE CHAIRMAN , CENTRAL BOARD OF DIRECT TAXES.' 7. FROM THE ABOVE CLARIFICATION, IT CAN BE GATHERED THAT SUB-SECTION (4) OF SECTION 80P WILL NOT APPLY TO AN ASSESSEE WHICH IS NOT A CO-OPERATIVE BANK. IN 9 ITA NO. 3477&3642/MUM/2014 THE CASE CLARIFIED BY THE CENTRAL BOARD OF DIRECT T AXES, THE DELHI CO-OP. URBAN THRIFT AND CREDIT SOCIETY LTD. WAS UNDER CONSIDERAT ION. THE CIRCULAR CLARIFIED THAT THE SAID ENTITY NOT BEING A CO-OPERATIVE BANK, SECTION 80P(4) OF THE ACT WOULD NOT APPLY TO IT. IN VIEW OF SUCH CLARIFICATIO N, WE CANNOT ENTERTAIN THE REVENUE'S CONTENTION THAT SECTION 80P(4) WOULD EXCL UDE NOT ONLY THE CO- OPERATIVE BANKS OTHER THAN THOSE FULFILLING THE DES CRIPTION CONTAINED THEREIN BUT ALSO CREDIT SOCIETIES, WHICH ARE NOT CO-OPERATIVE B ANKS. IN THE PRESENT CASE, THE RESPONDENT-ASSESSEE IS ADMITTEDLY NOT A CREDIT CO- OPERATIVE BANK BUT A CREDIT CO-OPERATIVE SOCIETY. THE EXCLUSION CLAUSE OF SUB-S ECTION(4) OF SECTION 80P, THEREFORE, WOULD NOT APPLY. IN THE RESULT, THE TAX APPEALS ARE DISMISSED. THE ABOVE FINDING HAS BEEN FOLLOWED BY A BENCH OF T HE ITAT, BANGALORE IN SHREE LAXMANANDA MULTIPURPOSE CO-OP. SOCIETY LTD . (2014) 34 ITR (TRIBUNAL) 472(BANG.TRIB.). SIMILAR VIEW HAS ALSO B EEN HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SRI BI LURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA BAGALKOT , [2014] 369 ITR 86 (KAR). RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. JAFARI MOMIN VIKAS CO OP. CRED IT SOCIETY LTD.(2004) (362 ITR 331) (GUJ.), WE UPHOLD THE FINDING OF THE LD.CIT(A) THAT THE ASSESSEE IS A CREDIT CO-OPERATIVE SOCIETY WITH NO B ANKING LICENCE , ACCEPTING DEPOSITS AND ADVANCING LOANS ONLY TO ITS MEMBERS, AND IS, THEREFORE, ENTITLED TO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. WE FIND THERE IS NO MERIT IN THE GROUNDS OF APPEAL RAISED B Y THE REVENUE AND ACCORDINGLY DISMISS GROUNDS RAISED AT SL. NO.1 AND 2. 8. THE GROUND AT SL.NO.3 AND 4 BEING GENERAL IN NATUR E, NO ADJUDICATION IS CALLED FOR THEREON. 9. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT YE AR 2010-11 IS DISMISSED. 10 ITA NO. 3477&3642/MUM/2014 ASSESSEES APPEAL IN ITA NO.3477/MUM/2014 10. IN THIS APPEAL FOR ASSESSMENT YEAR 2010-11, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, AND ALSO ILL LAW, THE LEARNED CIT(A) ERRED IN TREATING INTEREST OF RS.1,4 9,500/ - RECEIVED BY THE APPELLANT ON GOVT. SECURITIES INCOME FROM OTHER SO URCES, AND, THEREFORE, ALSO ERRED IN NOT ALLOWING DEDUCTION U/S.8OP(2)(A)(I FO R THE SAME. YOUR APPELLANT, THEREFORE, PRAYS THAT THE SAID INTEREST BE ASSESSED AS BUSINESS INCOME, AND DEDUCTION U/S. 8OP(2)(A)(I) BE ALLOWED FOR THE SAME . 2. WITHOUT PREJUDICE, THE APPELLANT FURTHER SUBMITS THAT IF DEDUCTION U/S.80P(2) IS NOT TO BE ALLOWED FOR THE INTEREST R EFERRED TO IN GROUND NO.1 ABOVE, AND IS TO BE TAXED, THEN THE SAME SHOULD BE ASSESSED NET OF INTEREST COST INCURRED BY THE APPELLANT. YOUR APPELLANT, THE REFORE, PRAYS ACCORDINGLY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND ALSO IN LAW, THE LEARNED CIT(A) ERRED IN TREATING INTEREST OF RS.5,6 3,180/- RECEIVED ON SECURED REDEEMABLE NON-CONVERTIBLE DEBENTURES ISSUED BY MAH ARASHTRA CO- OPERATIVE DEVELOPMENT CORPORATION LTD. AS INCOME FR OM OTHER SOURCES, AND, THEREFORE, ERRED IN NOT ALLOWING DEDUCTION U/S.8OP( 2)(A)(I) FOR THE SAME. YOUR APPELLANT, THEREFORE, PRAYS THAT THE SAID INTEREST BE ASSESSED AS BUSINESS INCOME, AND DEDUCTION U/S. 8OP(2)(A)(I) BE ALLOWED FOR THE SAME. 4. WITHOUT PREJUDICE, THE APPELLANT FURTHER SUBMITS THAT IF DEDUCTION U/S.8OP(2) IS NOT TO BE ALLOWED FOR THE INTEREST R EFERRED TO IN GROUND NO.3 ABOVE, AND IS TO BE TAXED, THEN THE SAME SHOULD BE ASSESSED NET OF INTEREST COST INCURRED BY THE APPELLANT. YOUR APPELLANT, THE REFORE, PRAYS ACCORDINGLY. 5. YOUR APPELLANT CRAVES LEAVE TO ALTER, MODIFY, AM END OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL, OR TO ADD ONE OR MORE NEW GROUND(S), AT OR BEFORE THE HEARING OF THIS APPEAL, AS MAY BE NECESSARY. 11.1.1 IN GROUNDS AT SL NO.1 & 3 THE ASSESSEE CONTENDS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE INTEREST OF RS .1,49,500/- RECEIVED BY IT FROM GOVERNMENT SECURITY BONDS AND RS.5,63,180/- RECEIVED ON SECURED REDEEMABLE NON-CONVERTIBLE DEBENTURES OF M AHARASHTRA CO-OP DEVELOPMENT CORPORATION LTD. IS NOT ENTITLED TO DED UCTION UNDER 11 ITA NO. 3477&3642/MUM/2014 SECTION 80P(2)(A)(I) OF THE ACT, AS IT IS NOT GENER ATED FROM THE ASSESSEES BUSINESS AND IS THEREFORE, TO BE ASSESSED UNDER TH E HEAD INCOME FROM OTHER SOURCES. IN COMING TO THIS FINDING, THE LD. CIT(A) HAD PLACED RELIANCE ON THE DECISION OF THE CASE OF M/S.TOTGARS CO-OP SALE SOCIETY LTD. (2010) (229 CTR (SC) 209). 11.1.2 THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE DECISION IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD.,(SUPRA) HAD BEEN RENDERED IN A DIFFERENT CONTEXT AND, THEREFORE, THE CIT(A)S RELIANCE THERE ON WAS NOT JUSTIFIED. THE LD. REPRESENTATIVE FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE TO THE DECI SION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANT S SOUHARDA CREDIT CO-OP. LTD., (2015) (230 TAXMAN 309), SUBMITTING TH AT THE HONBLE KARNATAKA HIGH COURT HAS DISCUSSED AND CONSIDERED T HE DECISION OF THE HONBLE APEX COURT (SUPRA) AT PARA-9 OF THEIR ORDE R AND HELD THAT THE FINDING THEREIN HAS BEEN RENDERED IN THE FACTS OF T HAT CASE AND THAT THEREFORE, THE HONBLE APEX COURT WAS NOT LAYING LYING DOWN ANY LAW. IT IS SUBMITTED THAT THE HONBLE KARNATAKA HIGH CO URT OBSERVED THAT THE PROVISIONS OF SECTION 80P(2)(A)(I) OF THE ACT PROVI DES FOR DEDUCTION OF THE WHOLE PROFITS AND GAINS OF BUSINESS ATTRIBUTABL E TO THE ACTIVITY CARRIED ON BY THE ASSESSEE AND, THEREFORE, FOLLOWIN G DECISION RENDERED BY THE HONBLE APEX COURT IN THE CASE OF CAMBAY EL ECTRIC SUPPLY INDUSTRIAL COMPANY LTD.(1978) (113 ITR 84), HELD TH AT THE INTEREST EARNED BY THE FROM DEPOSITS KEPT IN BANKS IN ATTRIB UTABLE TO THE PROFITS AND GAINS OF BUSINESS OF PROVIDING CREDIT FACILITIE S TO ITS MEMBERS. THE LD. REPRESENTATIVE FOR THE ASSESSEE IN SUPPORT OF T HIS PROPOSITION ALSO PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THE ITAT, 12 ITA NO. 3477&3642/MUM/2014 MUMBAI IN THE CASE OF JAOLI TALUKA SAHAKARI PATPE DHI MARYADIT V. ITO IN ITA NO.6627/MUM/2014 DATED 10/08/2015 WHICH FOLL OWED THE AFORESAID DECISION OF THE HONBLE KARNATAKA HIGH CO URT (SUPRA) ON THIS ISSUE. 11.2 PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIV E VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) ON THIS ISSUE . 11.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED. TAKING INTO CONSIDERATION THE FA CTUAL MATRIX AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE DECISION RENDERED BY THE HONBLE KARNATAKA HIGH COU RT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP LTD.(2015) ( 230 TAXMAN 309) (KAR) SQUARELY APPLIES TO THE FACTS OF THE CASE ON HAND. IN THIS CITED CASE, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT ON THE INTEREST EARNED FROM SURPLUS FUNDS DEPOS ITED WITH BANKS TO EARN INTEREST AS BEING ATTRIBUTABLE TO ITS BUSINES S OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IN THE CASE ON HAND ALS O, THE SURPLUS FUNDS OF THE ASSESSEES BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS, WHICH WERE NOT DUE TO THE MEMBERS WAS INVESTED IN C ENTRAL GOVT. BONDS SPECIFIED UNDER SECTION 70 OF THE MSC ACT AND IN 11% SECURED REDEEMABLE NON-CONVERTIBLE BONDS ISSUED BY MAHARAS HTRA CO-OP DEVELOPMENT CORPN. LTD. AS PER CIRCULAR DATED 22/ 11/2002 ISSUED BY THE CO-OPERATIVE COMMISSIONER AND REGISTRAR, MAHAR ASHTRA STATE. THESE SURPLUS FUNDS ARE ATTRIBUTABLE TO THE ASS ESSEES BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND, THE REFORE, THE RESULTANT INTEREST INCOME INVESTED IN SPECIFIED GOVERNMENT S ECURITIES AND BONDS 13 ITA NO. 3477&3642/MUM/2014 WOULD ALSO, IN OUR VIEW, CONSTITUTE BUSINESS INCOM E. IN THIS REGARD, IT WOULD BE RELEVANT TO EXTRACT HEREUNDER, THE OBSERV ATIONS OF THE HONBLE KARNATAKA HIGH COURT IN ITS ORDER (SUPRA) AT PARAS 8 TO 10 THEREOF. 8. 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 EXPRESSION ' DERIVED FROM'. THE EXPRESSION 'ATTRIBUTABLE TO' BEING OF WIDER IM PORT, THE SAID EXPRESSION IS USED BY THE LEGISLATURE WHENEVER THEY INTENDED TO GATHER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BU SINESS. A COOPERATIVE SOCIETY WHICH IS CARRYING ON THE BUSINESS OF PRO VIDING CREDIT FACILITIES TO ITS MEMBERS, EARNS PROFITS AND GAINS OF BUSIN ESS BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPITAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO TH E MEMBERS, THEY CANNOT KEEP THE SAID AMOUNT IDLE. IF THEY DEPOSIT T HIS AMOUNT IN BANK SO AS TO EARN INTEREST, THE SAID INTEREST INCOME IS A TTRIBUTABLE 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 BUSI NESS FOR EARNING SUCH INTEREST INCOME. THE INCOME SO DERIVED IS THE AMOUNT OF PRO FITS AND GAINS OF BUSINESS ATTRIBUTABLE TO THE ACTIVITY OF CARRY ING 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 U NDER SECTION 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, APART FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS ALSO IN THE BUSINESS OF MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS. THE SALE CONSIDERATION RECEIVED FROM MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WAS RETAINED IN MANY CASES. THE SAID RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS FROM WHOM PRODUCE WAS BOUGHT, WAS INVESTED IN A SHORT-TERM DEPOSIT/S ECURITY. SUCH AN AMOUNT WHICHWAS RETAINED BY THE ASSESSEE - SOCIETY WA S A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE A TTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE A CT OR UNDER SECTION 80P(2)(A)(III) OF THE ACT. THEREFORE IN THE FACTS OF THE SAID CASE, THE APEX COURT HELD THE ASSESSING OFFICER WAS RI GHT IN TAXING THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF T HE ACT. FURTHER THEY MADE 14 ITA NO. 3477&3642/MUM/2014 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 INVES TED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBE RS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR A CCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS , WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY T O THE 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 ATTRI BUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO B E DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT. IN FACT SIMILAR VIEW I S TAKEN BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. ANDHR A PRADESH STATE CO- OPERATIVE BANK LTD., [2011] 200 TAXMAN 220/12 T AXMANN.COM66. IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORE SAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SE T ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER. 11.3.2 RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO- OPERATIVE LTD. (SUPRA), WE SET ASIDE THE ORDER OF T HE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO GRANT THE ASSESSEE DEDUCTION UNDER SECTION 80 P OF THE ACT ON THIS ISSUE. CONSEQUENTLY , GROUNDS RAISED AT S.NO.1 AND 3 OF THE ASSESSEES APPEAL ARE ALLOWED. 12. IN VIEW OF OUR FINDING, IN RESPECT OF GROUNDS A T S.NOS. 1 AND 3 OF THE ASSESSEES APPEAL(SUPRA), THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80P OF THE ACT IN RESPECT OF INTEREST EARNED, WE DO NOT DEEM IT NECESSARY AT THIS JUNCTURE TO ADJUDICATE TH E ALTERNATIVE GROUNDS RAISED AT S.NO.2 AND 4 OF THIS APPEAL. 13. IN THE RESULT, THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2010-11 IS ALLOWED AS INDICATED ABOVE. 15 ITA NO. 3477&3642/MUM/2014 14. TO SUM UP, REVENUES APPEAL FOR ASSESSMENT YEAR 2010-11 IS DISMISSED AND THE ASSESSEES CROSS APPEAL IS ALLO WED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 20/01/2016 SD/- SD/- (RAM LAL NEGI) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED ..../01/2015 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI