ITO, Bangalore V. The BEML Employees Co-Op Society Ltd., Bangalore

ITA 435/BANG/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9430 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law
• Section: 56

Judgement Text

IT.435/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.435/BANG/2016 (ASSESSMENT YEAR : 2007-08) INCOME-TAX OFFICER, WARD -4(2)(2), BENGALURU .. APPELLANT V. THE BEML EMPLOYEES CO-OP SOCIETY LTD, M/S. BEML, BANGALORE COMPLEX, NEW THIPPASANDRA, BENGALURU 560 075 .. RESPONDENT PAN : AAALT0689E ASSESSEE BY : SHRI. G. VENKATESH, ADVOCATE REVENUE BY : SHRI. BIPIN C. N, JCIT HEARD ON : 13.07.2016 PRONOUNCED ON : 26 .08.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY REVENUE, ITS GRIEVANCE IS THAT CIT (A) ALLOWED THE ASSESSEE DEDUCTION CLAIMED BY IT U/S.80P(2)(A)( I) OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT), TAKING A VIEW THAT ASSES SEE WAS A COOPERATIVE SOCIETY CARRYING ON BANKING BUSINESS. IT.435/BANG/2016 PAGE - 2 02. FACTS APROPOS ARE THAT ASSESSEE, A COOPERATIVE SOCIETY HAD FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR IN WH ICH IT HAD CLAIMED DEDUCTION OF RS.34,69,117/-, U/S.80P(2)(A)(I) OF TH E ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE FELL W ITHIN THE DEFINITION OF A COOPERATIVE BANK GIVEN IN CLAUSE (CCV) OF SECTION 5 OF THE BANKING REGULATIONS ACT, 1949. THEREFORE, ACCORDING TO HIM , SUB-SECTION (4) OF SECTION 80P STOOD ATTRACTED. THE SAID SUB-SECTION SPECIFICALLY STATED THAT THE PROVISIONS OF SECTION 80P WOULD NOT APPLY TO A COOPERATIVE BANK. THOUGH THE ASSESSEE ARGUED THAT IT HAD TRANSACTIONS ONLY WITH ITS MEMBERS AND NOT PUBLIC, THIS CONTENTION WAS NOT ACCEPTED. ACCORDING TO THE ASSESSING OFFICER EVEN A SECTION OF THE PUBLIC WAS GOOD ENOUGH TO BE CONSIDERED AS 'SERVICE TO THE PUBLIC'. FURTHER, AS PER THE ASSESSING OFFICER, THE PRIMARY OBJECT OF THE ASSESSEE WAS TRANSACTING IN BANKING BUSINESS AND ITS PAID-UP SHARE CAPITAL EXCEEDED RS.1 LAKH. ITS B YE LAWS DID NOT HAVE A CLAUSE PERMITTING ADMISSION OF ANY OTHER COOPERATIV E SOCIETY AS A MEMBER. HE THEREFORE HELD IT TO BE A COOPERATIVE BANK. ACC ORDING TO THE ASSESSING OFFICER, ASSESSEE WAS NOT ELIGIBLE FOR A DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. IT.435/BANG/2016 PAGE - 3 03. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE CIT (A). ARGUMENT OF ASSESSEE WAS THAT THE AMOUNTS WHICH WERE PLACED IN DEPOSITS WERE HAVING DIRECT NEXUS WITH THE AMOUNTS RECEIVED AS DE POSITS FROM MEMBERS. WHEN THERE WERE NO IMMEDIATE NEED OF THE FUNDS FOR LOAN DISBURSEMENTS, INSTEAD OF KEEPING THE FUNDS IDLE, ASSESSEE HAD PLA CED IT WITH THE BANKS AS DEPOSITS. AS PER ASSESSEE, IT WAS BOUND TO PAY INT EREST TO THE MEMBERS. SUBMISSION OF ASSESSEE WAS THAT ACCEPTANCE OF DEPOS ITS FROM ITS MEMBERS, CLOSURE OF SUCH DEPOSITS AND REPAYMENTS WERE REGULA R AND ROUTINE FEATURE OF ITS BUSINESS. AS PER ASSESSEE, UNLESS THE FUNDS WH ICH WERE REMAINING WITH IT WERE PLACED IN BANKS, IT WOULD NOT HAVE BEEN POS SIBLE FOR IT TO PAY THE INTEREST DUE TO ITS MEMBERS. 04. CIT (A) WAS IMPRESSED BY THE CONTENTIONS RAISED BY ASSESSEE AND RELYING ON THE JUDGMENT OF HONBLE HIGH COURT OF KA RNATAKA IN CIT V. SRI BILURU GURUBASAVA PATTIN SAHAKARI SANGH NIYAMIT, BA GALKOT (SUPRA), HELD THAT ASSESSEE WAS ENTITLED TO EXEMPTION U/S.80P(2)( A)(I) OF THE ACT. 05. LD. DR STRONGLY ASSAILING THE ORDER OF THE CIT (A) SUBMITTED THAT SOURCE OF THE INTEREST WAS DEPOSITS IN THE BANK. A CCORDING TO HIM, ONLY THE IMMEDIATE SOURCE WAS REQUIRED TO BE SEEN AND NOT TH E REMOTE SOURCE. HONBLE APEX COURT HAD CLEARLY LAID DOWN THIS PRINC IPLE IN THE DECISION OF IT.435/BANG/2016 PAGE - 4 TOTGARS COOPERATIVE SALE SOCIETY LTD., V. ITO [322 ITR 283]. HERE IN THE CASE OF ASSESSEE, ONLY A VERY SMALL AMOUNT WAS LENT BY IT TO ITS MEMBERS. IT WAS NOT SIMILAR TO A SOCIETY WHICH WAS CARRYING ON CREDIT BUSINESS. THEREFORE ACCORDING TO HIM, CLAIM FOR DEDUCTION U/S .80P(2)(A)(I) OF THE ACT, ON SUCH INTEREST WAS UNJUSTIFIED. 06. PER CONTRA, LD. AR SUPPORTED THE ORDER OF LOWER AUTHORITIES. 07. I HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THERE IS NO DISPUTE THAT ONE OF THE MAIN OBJECT OF ASSESSEE SOCIETY WAS PROVIDING CREDIT FACILITY TO ITS MEMBERS. AO HIMSELF HAS MEN TIONED THAT THIS WAS THE PRIMARY OBJECT FOR WHICH ASSESSEE WAS INCORPORATED. NODOUBT, OUT OF SUBSTANTIAL SUM RECEIVED AS DEPOSITS FROM THE MEMBE RS, ONLY SMALL PORTION WERE GIVEN BY ASSESSEE AS LOANS TO ITS MEMBERS. MA JOR PART OF THE FUNDS WERE PARKED IN FDS. HOWEVER, IT IS AN ADMITTED POS ITION THAT ASSESSEE WAS BOUND TO GIVE INTEREST TO ITS MEMBERS ON THE DEPOSI TS RECEIVED BY IT FROM THEM. THEREFORE, WHEN THERE WERE NO TAKERS FOR THE MONEY, WHICH ASSESSEE AS A PART OF ITS OBJECTS WANTED TO LEND, THE ONLY A VAILABLE CHOICE FOR ASSESSEE, IN ORDER NOT TO KEEP THE FUNDS IDLE, WAS TO PLACE IT IN BANKS FOR EARNING INTEREST. HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT V. TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD (I TA.307 OF 2014, IT.435/BANG/2016 PAGE - 5 DT.28.10.2014), WHICH WAS ALSO IN RELATION TO A COO PERATIVE SOCIETY HAVING AS ITS OBJECT, BUSINESS OF PROVIDING BUSINESS CREDI TS TO ITS MEMBERS, HELD AS UNDER AT PARAS 3 TO 10 OF THE JUDGEMENT DT.28.10.20 14 : '4. THE LEARNED COUNSEL FOR THE ASSESSEE ASSA ILING THE IMPUGNED ORDER CONTENDED, THE INTEREST ACCRUED IN A SUM OF R S.1,77,305/- IS FROM THE DEPOSITS MADE BY THE ASSESSEE IN A NATIONA LIZED BANK OUT OF THE AMOUNTS WHICH WAS USED BY THE ASSESSEE FOR PROV IDING CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE THE SAID IN TEREST AMOUNT IS ATTRIBUTABLE TO THE CREDIT FACILITIES PROVIDED BY T HE ASSESSEEAND FORMS PART OF PROFITS AND GAINS OF BUSINESS AND THEREFORE HE SUBMITS THE APPELLATE AUTHORITIES WERE NOT JUSTIFIED IN DENYING THE SAID BENEFIT IN TERMS OF SUB-SEC.(2) OF SECTION 80P OF THE ACT. IN SUPPORT OF HIS CONTENTIONS, HE RELIED ON SEVERAL JUDGMENTS AND POI NTED OUT THAT THE APEX COURT IN THE AFORESAID JUDGMENT HAS NOT LAID D OWN ANY LAW. 5. PER CONTRA, LEARNED COUNSEL FOR THE REVENUE STRO NGLY RELIED ON THE SAID JUDGMENT OF THE SUPREME COURT AND SUBMITTED, T HE CASE IS COVERED BY THAT JUDGMENT OF THE APEX COURT AND NO C ASE FOR INTERFERENCE IS MADE OUT. 6. FROM THE AFORESAID FACTS AND RIVAL CONTENTIONS, THE UNDISPUTED FACTS WHICH EMERGES IS, THE SUM OF RS. 1,77,305/- REPRESE NTS THE INTEREST EARNED FROM SHORT-TERM DEPOSITS AND FROM SAVINGS BA NK ACCOUNT. THE ASSESSEE IS A COOPERATIVE SOCIETY PROVIDING CRE DIT FACILITIES TO ITS MEMBERS. IT IS NOT CARRYING ON ANY OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE ASSESSEE BY PROVIDING CREDIT FACILITI ES TO ITS MEMBERS IS DEPOSITED IN THE BANKS FOR A SHORT DURATION WHICH H AS EARNED INTEREST. THEREFORE, WHETHER THIS INTEREST IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IS THE QUESTION. IN THIS REGARD, IT IS NECESSARY TO NOTICE THE RELEVANT PROV ISION OF LAW IE., SECTION 80P(2)(A)(I): DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOC IETIES: IT.435/BANG/2016 PAGE - 6 80P (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A C O-OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB- SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB- SECTION (2) , IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E THE FOLLOWING, NAMELY: (A) IN THE CASE OF CO-OPERATIVE SOCIETY ENGAGED IN (I) )CARRYING ON THE BUSINESS OF BANKING OR PROVIDI NG CREDIT FACILITIES TO ITS MEMBERS, OR (II) XXX (III) XXX (IV) XXX (V) XXX (VI) XXX (VII) XXX THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUS INESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES. 7. THE WORD ATTRIBUTABLE USED IN THE SAID SECTION IS OF GREAT IMPORTANCE. THE APEX COURT HAD AN OCCASION TO CONSI DER THE MEANING OF THE WORD ATTRIBUTABLE AS SUPPOSED TO DERIVE FR OM ITS USE IN VARIOUS OTHER PROVISIONS OF THE STATUTE IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX, GUJARAT-LL REPORTED IN ITR VOL. 113 (1978) PAGE 842 AT PAGE 93 AS UNDER: AS REGARDS THE ASPECT EMERGING FROM THE EXPRESSION ATTRIBUTABLE TO OCCURRING IN THE PHRASE PROFITS AND GAINS ATTRIBUTABLE TO THE BUSINESS OF THE SPECIFIED INDUS TRY HERE GENERATION AND DISTRIBUTION OF ELECTRICITY ON WHICH THE LEARNED SOLICITOR-GENERAL RELIED, IT WILL BE PERTINENT TO O BSERVE THAT THE LEGISLATURE HAS DELIBERATELY USED THE EXPRESSION A TTRIBUTABLE TO AND NOT THE EXPRESSION DERIVED FROM. I T CANNOT BE DISPUTED THAT THE EXPRESSION ATTRIBUTABLE TO IS CERTAINLY WIDER IN IMPORT THAN IT.435/BANG/2016 PAGE - 7 THE EXPRESSION DERIVED FROM. HAD THE EXPRESSION DERIVED FROM BEEN USED, IT COULD HAVE WITH SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISING FROM THE SALE OF OL D MACHINERY AND BUILDINGS CANNOT BE REGARDED AS PROFITS AND GAI NS DERIVED FROM THE CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. I N THIS CONNECTION, IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR GENERAL, IT HAS USED THE EXPRESSION DERIVED FROM, AS, FOR INSTANCE, IN SEC TION 80J. IN OUR VIEW, SINCE THE EXPRESSION OF WIDER IMPORT, NAMELY, ATTRIBUTABLE TO, HAS BEEN USED, THE LEGISLATURE INTENDED TO COVER RE CEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GE NERATION AND DISTRIBUTION OF ELECTRICITY. 8. THEREFORE, THE WORD ATTRIBUTABLE TO IS CERTAIN LY WIDER IN IMPORT THAN THE EXPRESSION DERIVED FROM. WHENEVER THE LE GISLATURE WANTED TO GIVE A RESTRICTED MEANING, THEY HAVE USED THE EX PRESSION DERIVED FROM. THE EXPRESSION ATTRIBUTABLE TO BEING OF WI DER IMPORT, THE SAID EXPRESSION IS USED BY THE LEGISLATURE WHENEVER THEY INTENDED TO GATHER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS. A COOPERATIVE SOCIETY WHICH IS CARRYING O N THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, EARNS P ROFITS AND GAINS OF BUSINESS BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPITAL, IF NOT IMMEDIATEL Y REQUIRED TO BE LENT TO THE MEMBERS, THEY CANNOT KEEP THE SAID AMOUNT ID LE. IF THEY DEPOSIT THIS AMOUNT IN BANK SO AS TO EARN INTEREST, THE SAI D INTEREST INCOME IS ATTRIBUTABLE TO THE PROFITS AND GAINS OF THE BUSINE SS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS ONLY. THE SOCIETY IS NOT CARRYING ON ANY SEPARATE BUSINESS FOR EARNING SUCH INTEREST INCOME. THE INCOME SO DERIVED IS THE AMOUNT OF PROFITS AND GAINS OF BUSIN ESS ATTRIBUTABLE 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 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 W ITH A CASE WHERE THE SOCIETY, APART FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS IT.435/BANG/2016 PAGE - 8 ALSO IN THE BUSINESS OF MARKETING OF AGRICULTURAL P RODUCE 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 MEMBERS FROM WHOM P RODUCE WAS BOUGHT, WAS INVESTED IN A SHORT-TERM DEPOSIT/SECURI TY. SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE - SOCIETY WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITY SIDE. T HEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY M ENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR UNDER SECTION 80 P(2)(A)(III) OF THE ACT. THEREFORE IN THE FACTS OF THE SAID CASE, THE A PEX COURT HELD THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHER THEY MAD E IT CLEAR THAT THEY ARE CONFINING THE SAID JUDGMENT TO THE FACTS OF THA T 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 MEMBERS. IT W AS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMME DIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS, AS T HERE WERE NO TAKERS. THEREFORE THEY HAD DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. THE SAID INTEREST INCOME IS ATTRIBUTABLE 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 IS TAKEN BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF COMMISSIONER OF I NCOME- TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., REPORTED IN (2011) 200 TAXMA N 220/12 IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID A MOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER. APPEAL IS ALLOWED.' IT.435/BANG/2016 PAGE - 9 08. I AM OF THE OPINION THAT IN VIEW OF THE JUDGEME NT OF HONBLE JURISDICTIONAL HIGH COURT REPRODUCED ABOVE, WHERE I N AT PARA 10, IT HAS BEEN CLEARLY MENTIONED THAT THE MONEY MEANT FOR LEN DING, REMAINING SURPLUS, THERE BEING NO TAKERS, IF DEPOSITED IN BAN KS FOR EARNING INTEREST, SUCH INTEREST INCOME WOULD BE ATTRIBUTABLE TO THE B USINESS OF BANKING CARRIED OUT BY THE ASSESSEE. I AM OF THE OPINION T HAT THE FACTS OF THE CASE HERE FIT PERFECTLY WELL WITH THE FACTS IN THE JUDGM ENT MENTIONED ABOVE. I, THEREFORE, HOLD THAT ASSESSEE WAS ELIGIBLE FOR CLAI MING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. I DO NOT FIND IT NECE SSARY TO INTERFERE WITH THE ORDER OF THE CIT (A). 09. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH DAY OF AUGUST, 2016. SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE