THE BHARAT CO-OPERATIVE THRIFT & CREDIT SOCIETY LTD., NEW DELHI V. ITO, WARD- 39(1), NEW DELHI

ITA 4104/DEL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0096 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 30-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Business income; Source of fund; TDS
• Section: 143(1); 80P

Judgement Text

1 ITA NO. 4104/DEL/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC-1 NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 4104/DEL/20 18 (A.Y 2014-15) THE BHARAT CO - OPERATIVE THRIFT & CREDIT SOCIETY LTD. 33/12, SHAKTI NAGAR, NEW DELHI PAN: AAATT9503B (APPELLANT) VS ITO WARD-39 (1) NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 12.02.2018 PASSED BY CIT(A)- 13, NEW DELHI FOR ASSESSMENT YEAR 2014-15. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN 1. HOLDING THAT ADVANCING OF LOAN TO MEMBERS OF THE SOCIETY IS NOT AT PAR WITH PROVIDING CREDIT FACILITY TO ITS MEMBERS AND THUS THE ASSESSEE WAS NOT ENTITLED TO A CLAIM OF EXEMPTION U/S 80P(2)(A)(I) O F THE INCOME TAX ACT, 1961: 2. CONFIRMING THE FOLLOWING ACTIONS OF THE ASSESSIN G OFFICER : A) IN TREATING INTEREST EARNED ON FIXED DEPOSIT AND SAVINGS ACCOUNT IN A SUM OF RS.1,70,12,018/- AND RS.1,52,187/- AS INCOME FRO M OTHER SOURCES AND NOT BUSINESS INCOME; APPELLANT BY SH. K. SAMPATH, ADV RESPONDENT BY SH. M. BARNWAL, SR. DR DATE OF HEARING 10.06.2020 DATE OF PRONOUNCEMENT 25.06.2020 2 ITA NO. 4104/DEL/2018 B) IN NOT ALLOWING EXEMPTION U/S 80P(2)(I) OF THE A CT IN A SUM OF RS. 18,53,405/- BOTH THE ABOVE ACTIONS BEING ARBITRARY, ERRONEOUS A ND UNLAWFUL MUST BE QUASHED WITH DIRECTIONS FOR APPROPRIATE RELIEF. 3. THE ASSESSEE IS A REGISTERED COOPERATIVE SOCIETY . THE BUSINESS ACTIVITIES OF THE SOCIETY ARE GIVING LOANS AND ACCEPTING DEPOS ITS FROM THE MEMBERS ONLY AND DERIVES INCOME FROM INTEREST. THE ASSESSEE FIL ED RETURN OF INCOME FOR ASSESSMENT YEAR 2014-15 ON 19/7/2014 DECLARING INCO ME NIL WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. THE ASSESSEE IN ITS RETURN OF INCOME HAS SHOWN CERTAIN INCOME AND EXPENDITURE AND CLAIMED ENTIRE PROFIT OF RS. 42,78, 591/- AS EXEMPT TO TAX AND DECLARED N IL INCOME IN ITS RETURN OF INCOME. THE INCOME EXEMPT TO TAX AS CLAIMED BY THE ASSESSEE INCLUDED INTEREST ON FIXED DEPOSITS FROM THE CATHOLIC SYRIAN BANK AMOUNTING TO RS.9,85,138/-, KARUR VYSYA BANK AMOUNTING TO RS.6, 47,03/-, YES BANK LTD. AMOUNTING TO RS.69,77,000/- AND INTEREST ON SAVING BANK ACCOUNT AT RS.1,52,187/-. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSEE WAS ASKED AS TO WHY EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT SHOULD BE ALLOWED AGAINST INCOME FROM OTHER SOURCES AND ON TH E ENTIRE PROFIT CARRIED OVER FROM PROFIT AND LOSS ACCOUNT WAS CLAIMED TO BE EXEM PT FROM TAX. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMI TTED THAT THE SOCIETY IS A THRIFT AND CREDIT SOCIETY AND IT ACCEPTS DEPOSITS F ROM MEMBERS AND ALSO PROVIDES LOANS TO MEMBERS. THE TOTAL DEPOSITS FROM THE MEMBERS ARE RS. 6,57,74,402/- ON WHICH RS.65,23,123/-WAS PAID AS IN TEREST WHICH ON AN AVERAGE WORKS OUT TO ONLY 9.86%. ON THE OTHER HAND , THE SOCIETY HAS GIVEN LOAN TO MEMBERS TO THE TUNE OF RS. 7,63,97,00,02/- AS ON 31/3/2014. THE INTEREST FROM THE FDR WITH BANK IS RS. 17,01,218/- ON WHICH TDS OF RS1,70,145/- OR DEBITED THE SOURCE OF FUNDS OF THE SOCIETY IS BORROWING FROM MEMBERS ON WHICH INTEREST IS PAID. THE TOTAL INTER EST PAID ON DEPOSITS IS RS. 64,85,123/-AGAINST THE TOTAL FUND VALUE OF RS. 10,8 3, 12,000/-. THE AVERAGE COST OF FUNDS PLACED IN FDR (RS.1,88,21,976/-) WOUL D WORK OUT TO RS. 3 ITA NO. 4104/DEL/2018 11,26,870/-. THUS, THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80P (1) FOR INTEREST EARNED FROM BANK S ON FDRS. THE ASSESSING OFFICER MADE AN ADDITION OF RS. 17,01,218/- TREATIN G THE INCOME OF THE ASSESSEE RECEIVED FROM INTEREST ON FDR AND RS. 1,52,187/- AS INTEREST FROM SAVING BANK ACCOUNT. THE ASSESSMENT WAS COMPLETED ON 28/10/20 16. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISSED THE APPEAL OF TH E ASSESSEE. 5. THE LD. AR SUBMITTED THAT THERE IS A DELAY ON 36 DAYS WHICH WAS EXPLAINED BY FILING SEPARATE APPLICATION FOR CONDON ATION OF DELAY BY THE LD. AR. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A THRIFT AND CREDIT SOCIETY LTD. REGISTERED UNDER THE COOPERATIVE ACT. IT IS INTO T HE BUSINESS OF LANDING AND ACCEPTING DEPOSITS FROM THE MEMBERS. INCOME OF THE SOCIETY IS MAINLY FROM INTEREST. DURING ASSESSMENT THE ASSESSING OFFICER EXEMPTED THE PROFIT AND LOSS ACCOUNT OF THE SOCIETY. THE ASSESSING OFFICER OBS ERVED THAT THE NET PROFIT OF RS. 42,78,591/- HAD BEEN CLAIMED AS EXEMPT BY THE S OCIETY RESULTING IN DECLARING NIL INCOME. THE NET INCOME INCLUDED FIXE D DEPOSIT INTEREST FROM THE CATHOLIC SYRIAN BANK AT RS. 9,85,138/- AND KARUR V YSYA BANK AMOUNTING TO RS.6,47,003/-. BESIDES THERE WAS INTEREST INCOME O F RS.69,077/- FROM YES BANK AND SB INTEREST WAS OF RS.1,52,187/-. DURING ASSESSMENT, THE ASSESSING OFFICER PUT THE ASSESSEE TO QUESTION AS TO WHY THE EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT SHOULD BE ALLOWED AGAINST I NCOME FROM OTHER SOURCES AND ON THE ENTIRE PROFIT CARRIED OVER FROM THE PROF IT AND LOSS ACCOUNT WAS CLAIMED TO BE EXEMPT TO TAX BY THE SOCIETY. THE AS SESSING OFFICER DISAGREED WITH THE SUBMISSIONS OF THE SOCIETY AND AFTER CITIN G THE DECISION OF HONBLE APEX COURT IN CASE OF M/S BANGALORE CLUB VS. CIT (2 013) 212 TAXMAN 566 (SC), HE BROUGHT THE GROSS INTEREST INCOME OF RS. 1 7,01,218/- AND TAX AFTER DYING THE EXEMPTION AS CLAIMED BY THE SOCIETY. THE SOCIETY WENT IN APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICER BEFORE T HE CIT(A). THE CIT(A) VIDE ORDER DATED 8/6/2018 AGREED WITH THE CONTENTIONS OF THE ASSESSING OFFICER AND 4 ITA NO. 4104/DEL/2018 DISMISSED THE APPEAL. THE LD. AR SUBMITTED THAT TH E ACTION OF THE AUTHORITIES BELOW IS MISCONCEIVED, ERRONEOUS, IMPROPER AND UNJU ST. HOWEVER, WHEN INTEREST INCOME IS COMPUTED FROM MONEY LENDING ENTI TIES, THE ASSESSMENT IS DONE UNDER OTHER SOURCES FOR THE REASON THAT IT IS THE PRESCRIBED HEAD FOR INCOMES LIKE INTEREST. THAT DOES NOT MEANS THAT THE GENERAL CONDITIONS FOR ALLOWING DEDUCTION AGAINST THE OTHER SOURCES INCOME WOULD APPLY TO SUCH A SITUATION ALSO. WHEN IT IS BUSINESS INCOME THOUGH IT IS AN ASSESSED UNDER OTHER SOURCES, THE PRINCIPALS APPLICABLE TO THE ASS ESSMENT OF BUSINESS INCOME WOULD APPLY. THE ASSESSING OFFICER AGREED THAT SOC IETY IS INTO FINANCE BUSINESS AND SECURITY DEPOSITS FROM MEMBERS AND LENDS LOANS TO MEMBERS. INCOME IN THAT PROCESS IS SHOWN IN THE PROFIT AND LOSS ACCOUN T. THUS, THE INVIOLABLE PRINCIPAL OF MUTUALITY THOSE DEALINGS ARE INVOLVED IN THE PRESENT WORKING OF THE SOCIETY. THE LD. AR FURTHER SUBMITTED THAT THE S ITUATION HAS TO BE LOOKED IN THE WAY THAT WHATEVER SURPLUS IS GENERATED IS TAX F REE IN TERMS OF THE PRINCIPALS OF MUTUALITY AS HELD BY THE APEX COURT IN BANGLORE CLUB LTD. ADMITTEDLY THERE IS THE DECISION OF THE APEX COURT IN THE CASE OF M/ S BANAGALORE CLUB VS. CIT BEFORE INVOKING THAT DECISION IT WAS IMPERATIVE TO HAVE NOTICE THAT BANGALORE CLUB WAS NOT A THRIFT AND CREDIT SOCIETY LTD. WHIC H WAS INTO A BUSINESS OF MONEY LENDING. THE AGENDA OF M/S BANGALORE CLUB WA S HELD OF A CLUB WHICH ADMITTEDLY WAS TOTALLY DIFFERENT THAN THE PRESENT A SSESSEE. THE CLUB DID NOT ACCEPT TO DO MONEY LENDING BUSINESS. ITS AGENDA WA S THUS TOTALLY DIFFERENT FROM THAT OF THRIFT AND CREDIT SOCIETY LTD. THE SO URCES OF INCOME IN BOTH THE CASES THAT IS THE ASSESSEES AND BANGALORE CLUB BEI NG DIFFERENT. THE CITATION DOES NOT COME TO THE AID OF THE DEPARTMENT. THERE IS ALSO BASIC PRINCIPAL OF TAX THAT IN THE ASSESSMENT OF A THRIFT AND CREDIT SOCIE TY LTD. WHATEVER INTEREST IS EARN FROM A COOPERATIVE BANK, IS COMPLETELY EXEMPT OF TAX U/S 80P(2)(1) OF THE ACT. BEING A BENEFIT PROVIDED UNDER THE LAW, THE A SSESSING OFFICER WRONGLY DENIED EXEMPTION WITH REGARD TO THE INTEREST EARNE D FROM A COOPERATIVE BANK. AS TO THE EARNING OF INTEREST FROM YES BANK AND CAT HOLIC SYRIAN BANK PRINCIPAL OF PROPORTIONATE ALLOCATIONS HAS BEEN EVOLVED BY TH E TRIBUNAL. THIS DONE IN TERMS OF THE ORDER IN CASE OF THE MANTOLA THRIFT AN D CREDIT SOCIETY LTD.. THIS 5 ITA NO. 4104/DEL/2018 ORDER OF THE TRIBUNAL WAS THE SUBJECT MATTER OF FUR THER APPEAL BEFORE THE HONBLE DELHI HIGH COURT. THE REVENUES APPEAL FIL ED IN THIS REGARD WAS DISMISSED WITH THE OBSERVATIONS. ON THE BASIC POIN T AS TO WHETHER THE ASSESSMENT OF INTEREST INCOME IN THE CASE OF A THRI FT AND CREDIT SOCIETY LTD. HAS TO BE DONE IN THE SAME MANNER AS IS DONE FOR TH E ORTHODOX INCOME UNDER OTHER SOURCES. THUS, THE LD. AR PLEADED THAT THE A PPEAL OF THE ASSESSEE BE ALLOWED. 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE DELAY OF 36 DAYS IN FILING THE APPEAL I S CONDONED AS THE REASON GIVEN BY THE DELAY IS GENUINE. NOW WE TAKE UP THE A PPEAL. THE ASSESSEE IS A REGISTERED CO-OPERATIVE SOCIETY AND THE BUSINESS AC TIVITIES OF THE SOCIETY IS GIVING OF LOANS AND ACCEPTING DEPOSITS FROM THE MEM BERS ONLY AND DERIVES INCOME FROM INTEREST ETC. THE FUNCTIONING OF THE AS SESSEE SOCIETY IS NOT DISPUTED AND THE ASSESSING OFFICER HAS NOT COME TO THE CONCLUSION IN THE ASSESSMENT ORDER THAT THE ASSESSEE SOCIETY WAS GIVI NG LOANS OR ACCEPTING DEPOSITS FROM THE PERSONS OTHER THAN MEMBERS. IT CA N BE SEEN THAT SEC. 80P(2)(A)(I) PROVIDES TWO TYPES OF ACTIVITIES IN WH ICH THE CO-OPERATIVE SOCIETY MUST BE ENGAGED TO BE ELIGIBLE FOR DEDUCTION UNDER SUB-CLAUSE (I). THESE TWO ACTIVITIES ARE NOT ALTERNATE ONES BECAUSE THE SECTI ON ALLOWS DEDUCTION TO THE CO- OPERATIVE SOCIETY ON THE WHOLE OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES. THIS PRE- SUPPO SES THAT ELIGIBLE CO-OPERATIVE SOCIETY CAN CARRY ON EITHER ONE OF THESE TWO BUSINE SSES OR CAN CARRY BOTH THESE BUSINESSES FOR THE MEMBERS. IF THE ASSESSEE CO-OPER ATIVE SOCIETY CARRIES ON ONE OR BOTH OF THE ACTIVITIES, IT WILL BE ELIGIBLE FOR DEDUCTION. THESE TWO ACTIVITIES ARE (A) CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUS INESS OF BANKING FACILITIES TO ITS MEMBERS OR (B) CO-OPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS. BOTH THE ACTIVITIES CAN BE CARRIED ON BY THE CO-OPERATIVE SOCIETY FOR ITS MEMBERS. IF A CO-OPERATIVE SOCIETY IS ENGAG ED IN CARRYING ON THESE 6 ITA NO. 4104/DEL/2018 ACTIVITIES/FACILITIES FOR THE PERSONS OTHER THAN IT S MEMBERS, THE CO-OPERATIVE SOCIETY WILL NOT BE ELIGIBLE FOR DEDUCTION U/S 80P( 2)(A)(I) ON THE INCOME WHICH IT DERIVES FROM CARRYING ON THE ACTIVITIES NOT RELATIN G TO ITS MEMBERS. THEREFORE, WHERE A CO-OPERATIVE SOCIETY IS ENGAGED IN CARRYING ON BUSINESS OF GIVING LOANS AND ACCEPTING DEPOSITS FROM ITS MEMBERS, THE INCOME WHICH RELATES TO THE BUSINESS OF THESE FACILITIES TO ITS MEMBERS OR PROV IDING CREDIT FACILITIES TO ITS MEMBERS WILL BE ELIGIBLE FOR DEDUCTION U/S 80P(2)(A )(I). THERE IS NO PROHIBITION U/S 80P NOT TO ALLOW DEDUCTION TO SUCH CO-OPERATIVE SOCIETIES IN RESPECT OF THESE FACILITIES PROVIDED TO ITS MEMBERS. THE PROVI SIONS OF SEC. 80P(2)(A)(I) ARE APPLICABLE TO A CO-OPERATIVE SOCIETY WHICH IS ENGAG ED IN CARRYING ON BANKING BUSINESS FACILITIES TO ITS MEMBERS IF IT IS NOT A C O-OPERATIVE BANK. THE RATIO LAID DOWN IN THE JUDGMENT OF THE HON BLE SUPREME COURT IN CASE OF TOTAGARS CO- OPERATIVE SALE SOCIETY LTD. VS. ITO (2010) 322 ITR 283(SC) CANNOT APPLY IN PRESENT CASE AS THE FACTS ARE DIFFERENT IN THAT CAS E. THUS, THE CIT(A) WRONGLY APPLIED THE RATIO IN PRESENT CASE. THEREFORE, INTER EST ON SAVING BANK ACCOUNT OF THE MEMBERS IS BUSINESS INCOME AND CANNOT BE TERMED AS INCOME FROM OTHER SOURCES AS IT HAS DIRECT NEXUS OF THIS INCOME WITH THE ACTIVITY OF BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS WHO ARE BANKS. HENCE, THE CIT(A) WAS NOT CORRECT IN HOLDING THAT THE SAID INTEREST IS IN COME FROM OTHER SOURCES. SECTION 80P(2)(I)(A) IS VERY MUCH APPLICABLE TO THE PRESENT ASSESSEE SOCIETY. THUS, APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE, 2020 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 25/06/2020 R. NAHEED * 7 ITA NO. 4104/DEL/2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 12.06.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12.06.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 26 .06.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 26. 06.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26 .06.2020 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK