I.T.O. WARD -3, Amaravati V. NAVDURGA NAGRI SAHAKARI PAT SANSTHA MARYADIT,

ITA 376/NAG/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1285 (ITAT-NAGPUR)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 03-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Business income
• Section: 56; 28

Judgement Text

1 ITA NO. 376/NAG/2016. IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER.. I.T.A. NO. 376/NAG/2016 ASSESSMENT YEAR : 2008 - 09. THE INCOME - TAX OFFICER, M/S NAVDURGA NAGRI SAHAKARI WARD - 3, AMRAVATI. VS. PAT SANSTHA MARYADIT, DHAMANGAON RAILWAYS, DIST. AMRAVATI. PAN AA EFN7159F. APPELLANT. RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHRI K.P. DEWANI. DATE OF HEARING : 24 - 11 - 2016 DATE OF PRONOUNCEMENT : 19 TH DEC., 2016 O R D E R. PER SHAMIM YAHYA , A.M. : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I , NAGPUR DATED 10 - 03 - 2016 AND PERTAINS TO ASSESSMENT YEAR 20 08 - 09. THE GROUND OF APPEAL READS AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN TREATING THE INTEREST INCOME OF RS.1,07,62,2 36/ - AS BUSINESS INCOME SINCE THE SAME IS NOT ATTRIBUTABLE TO THE ASSESSEES BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE ASSESSING OFFICERS DECISION THAT INTEREST INCOME OF RS.1,07,62,236/ - WAS CORRECTLY TAXABLE AS INCOME FROM OTHER SOURCES AS THE SAME WAS EARNED BY THE ASSESSEE ON INVESTMENT MADE IN BANK DEPOSITS OUT OF THE SURPLUS FUNDS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES. 3. ON THE FACTS AND C IRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN NOT FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN 2 ITA NO. 376/NAG/2016. THE TOTGARS CO - OPERATIVE SALES SOCIETY LTD. VS. INCOME TAX OFFICER, (2010) 322 ITR 283 (SC) WHICH IS SQUARELY APPLICABLE TO THE FACTS I N ASSESSEES CASE. 2. AT THE OUTSET IN THIS CASE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AS UNDER : A) ISSUE COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE ITAT, NAGPUR BENCH, NAGPUR. I) ITA NO. 371/NAG/2012 FOR ASSTT. YEAR 2009 - 10 VIDE ORDER DATED 27 - 05 - 2015 IN THE CASE OF CHHATTISGARH URBAN CREDIT SAHAKARI SANSTHA MARYADIT. II) ITA NO. 520 /NAG/2014 FOR ASSTT. YEAR 2010 - 11 VIDE ORDER DATED 05/05/2016 IN THE CASE OF MSEB ENGINEERING CO - OPER ATIVE CREDIT SOCIETY LTD. B) THE AFORESAID DECISION OF HONBLE ITAT IN ITA NO. 371/NAG/2012 HAS NOT BEEN CHALLENGED BY REVENUE BEFORE HONBLE HIGH COURT AND HAS ACHIEVED FINALITY. C) REVENUE HAS ALLOWED DEDUCTION AS CLAIMED IN RESPECT TO INTEREST ON SHORT TERM DEPOSIT U/S 80P(2)(A)(I) OF I.T. ACT, 1961 IN SUBSEQUENT ASSESSMENT YEARS AND SUCH ASSESSMENT HAVE ACHIEVED FINALITY. 3. PER CONTRA LEARNED D.R. RELIED UPON THE ORDER OF THE AO. 4. UPON CAREFUL CONSIDERATION, WE FIND THAT IDENTICAL ISSUE HAS BEEN DEC IDED IN FAVOUR OF THE ASSESSEE IN ITA NO. 371/NAG/2012 FOR ASSTT. YEAR 2009 - 10 VIDE ORDER DATED 27 - 05 - 2015 IN THE CASE OF CHHATTISGARH URBAN C REDIT SAHAKARI SANSTHA MARYADIT WHEREIN THE TRIBUNAL HELD AS UNDER : 11 UPON CAREFUL CONSIDERATION, WE NOTE THAT IDENTICAL ISSUE WAS THE SUBJECT MATTER OF CONSIDERATION BY ITAT, AHMEDABAD BENCH DECISION IN THE CASE OF DHANLAXMI CREDIT COOPERATIVE SOCIETY LTD. (SUPRA), IN WHICH ONE OF US, LEARNED JUDICIAL MEMBER, WAS A PARTY. THE CONCLUDING PORTION OF THE TRIBUNALS DECISION IS AS UNDER : 4. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. IT WAS EXPLAINED THAT THE CO - OPERATIVE SOCIETY IS MAINTAINING OPERATIONS FUNDS AND TO MEET ANY EVENTUALITY TOWARDS RE - PAYMENT OF DEPOSIT, THE CO - OPERATIVE SOCIETY IS MA INTAINING SOME LIQUIDATED FUNDS AS A SHORT TERM DEPOSIT WITH THE BANKS.THIS ISSUE WAS 3 ITA NO. 376/NAG/2016. T HOROUGHLY DISCUSSED BY THE ITAT B BENCH AHMEDABAD IN THE CASE OF THE INCOME TAX OFFICER VS. M/S.JAFARI MOMIN VIKAS CO - OP.CREDIT SOCIETY LTD. BEARING ITA NO.1491/AHD/2 012 (FOR A.Y. 2009 - 10) AND CO NO.138/AHD/2012 (BY ASSESSEE) ORDER DATED 31/10/2012. THE RELEVANT PORTION IS REPRODUCED BELOW: - 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION OF FACTS, AS UNDER: WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN S HORT TERM DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES? THE ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION, BEFORE US, IS WHETHER INTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT? IN OUR VIEW, SUCH INTEREST INCOME WOULD COME IN THE CATEGORY OF INCOME FROM OTHER SOURCES, HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER SECTION 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSESSING OFFICER... 19.1. HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT WAS OBSERVED THAT THE FIXED DEPOSITS MADE WERE TO MAINTAIN LIQUIDITY AND THAT THERE WAS NO SURPLUS FUNDS WITH THE ASSESSEE AS ATTRIBUTED BY THE REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HONBLE SUPREME COURT (ON PAGE 286) 7....... BEFORE THE ASSESSING OFFICER, IT WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND, CONSEQUENTLY, SUCH ACT OF IN VESTMENT CONSTITUTED A BUSINESS ACTIVITY BY A PRUDENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS LIABLE TO BE TAXED UNDER SECTION 28 AND NOT UN DER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND THE 4 ITA NO. 376/NAG/2016. HIGH COURT, HENCE, THESE CIVIL APPEALS HAVE BE EN FILED BY THE ASSESSEE(S). 19.2. FROM THE ABOVE, IT EMERGES THAT (A) THAT ASSESSEE (ISSUE BEFORE THE SUPREME COURT) HAD ADMITTED BEFORE THE AO THAT IT HAD INVESTED SURPLUS FUNDS, WHICH WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF ITS BUSINESS, I N SHORT TERM DEPOSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED ON TWO ACTIVITIES, NAMELY , (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSITS TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D) THAT THE SURPLUS HAD ARISEN EMPHATICALLY FROM MARKETING OF AGRICULTURAL PRODUCES. 19.3. IN THE PRESENT CASE UNDER CONSIDERATION, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINE SS AND THERE WERE NO SURPLUS FUNDS. 19.4. WHILE COMPARING THE STATE OF AFFAIRS OF THE PRESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COURT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAMELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUN DS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE WERE NO SURPLUS FUNDS; - - IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS ADMITTED BEFORE THE AO, OUT OF RETAINED AMOUNTS ON MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT CARRY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; 5 ITA NO. 376/NAG/2016. - IN THE CASE OF TOTGARS, THE HONBLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS; 19.5. CONSIDERING THE ABOVE FACTS, WE FIND THAT THE RE IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE NOT A CO - OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSITS FROM AND LENDS THE SAME TO ITS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD INVESTED IN SHORT - TERM DEPOSITS. FURTHERMORE, THE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AND THE BALANCE AS AT 31.3.2009 WAS RS.13,69,955/ - [SOURCE: BALANCE SHEET OF THE ASSESSEE AV AILABLE ON RECORD]. 19.6. IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO - OP. SALE SOCIETY LTD. 9SUPRA) 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.56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 5 . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO - ORDINATE BENCH, WE HEREBY HOLD THAT THE BENEFIT OF DEDUCTION U /S.80P(2)(A)(I) WAS RIGHTLY GRANTED BY LD.CIT(A), HOWEVER, HE HAS WRONGLY HELD THAT THE INTEREST INCOME IS TAXABLE U/S.56 OF THE ACT SO DO NOT FALL UNDER THE CATEGORY OF EXEMPTED INCOME U/S.80P OF THE ACT. THE ADVERSE PORTION OF THE VIEW, WHICH IS AGAINST THE ASSESSEE, OF LD.CIT(A) IS HEREBY REVERSED FOLLOWING THE DECISION OF THE TRIBUNAL CITED SUPRA, RESULTANTLY GROUND IS ALLOWED. WE FIND THAT THE RATIO OF ABOVE CASE ALSO APPLIES TO THE PRESENT CASE. AS OBSERVED IN THE ABOVE CASE LAW, IN THIS CASE ALSO THE SUBMISSIONS OF THE ASSESSEES COUNSEL IS T HAT THE ASSESSEE SOCIETY IS MAINTAINING OPERATIONAL FUNDS AND TO MEET ANY EVENTUALITY TOWARDS REPAYMENT OF DEPOSIT THE COOPERATIVE SOCIETY IS MAINTAINING SOME LIQUIDATED FUNDS AS SHORT TERM DEPOSITS WITH BANKS . HENCE ADHERING TO THE DOCTRIN STAIR DESISES, WE HOLD THAT THE ASSESSEE SHOULD BE GRANTED BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(A)(I). ACCORDINGLY, THE INTEREST ON DEPOSITS WOULD QUALIFY FOR DEDUCTION UNDER THE SAID SECTION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 6 ITA NO. 376/NAG/2016. 5. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). ACCORDINGLY WE UPHOLD THE SAME. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DEC., 2016. SD/ - SD/ - (RAM LAL NEGI) ( SHAMIM YAHYA) JUDICIAL MEMBER. ACOUNTANT MEMBER. NAGPUR, DATED: 19 TH DEC. , 2016. COPY FORWARDED TO : 1. M/S NAVDURGA NAGRI SAHAKARI PAT SANSTHA MARYADIT, DHAMANGAON RAILWAYS, DIST. AMRAVATI. 2. I.T.O., WARD - 3, AMRAVATI. 3. C.I.T. - I , NAGPUR. 4. CIT(APPEALS) - I , NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.