ITO, Hyderabad V. South Central Railway Employees Credit Co-Op Society Ltd., Secunderabad

ITA 469/HYD/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6614 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 26-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Keywords: Business income
• Section: 143(3); 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.469/H/2010 ASSESSMENT YEAR :2006-07 THE ITO WARD 10(4), HYDERABAD VS SOUTH CENTRAL RAILWAY EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., SECUNDERABAD. (PAN AABAS 9059 D) APPELLANT RESPONDENT APPELLANT BY : SHRI B.V. PRASAD REDDY RESPONDENT BY : MOHD AFZAL ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) V I, HYDERABAD DATED 8.1.2010 AND PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 2. THE ASSESSEE ITSELF HAS OFFERED THE INCOME EARN ED FROM LETTING THE PROPERTY UNDER HEAD INCOME FROM HOUSE PROPERTY. SO THE CIT(A) IS NOT CORRECT IN TREATING THE HOUSE PROPERTY INCOME AS BUSINESS INCOME AND ALLOWING DEDUCTION U/S 80P(2)(A)(I) 3. THE CIT(A) IS NOT CORRECT IN ALLOWING THE ASSES SEES CLAIM BASED ON THE RATIOS LAID DOWN BY THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. MADURAI DISTRICT CENTRAL COOPERATIVE BANK LTD. 42 CTR 27(MA D.) BECAUSE THE INCOME EARNED IN THE CASE IS INTEREST O N SECURITIES AND GOVT SUBSIDY. WHERE AS IN THE PRESE NT CASE THE INCOME EARNED IS FROM HOUSE PROPERTY. AS THE INCOMES IN THESE TWO CASES ARE NOT ANALOGOUS, THE ITA NO.469/H/2010 THE SOUTH CENTRAL RAILWAY EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., SECUNDERABAD 2 CIT(A) IS NOT CORRECT IN FOLLOWING THIS CASE LAW TO ALLOW THE ASSESSEES APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COOPERATIVE SOCIETY REGISTERED UNDER THE MULTI STATE COOPERATIVE SOCIETIES ACT, 2002 AND DOING THE BUSIN ESS OF EXTENDING CREDIT FACILITIES TO ITS MEMBERS. FOR THE ASSESSMENT YEAR 2006-07 THE ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING NIL INCOME AFTER CLAIMIN G DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT, 1961. TH E ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT U/S 143(3) BY DENYING THE DEDUCTION CLAIMED BY THE ASSESSEE BEING THE RENTAL AND MISCELLANEOUS INCOME U/S 80P (2)(A)(I) OF THE ACT. 4. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. AGAINST THIS THE REVENUE IS IN AP PEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE PROVISIONS OF SECTION 80P (1) (2) (A) (I) READS AS FOLLOWS: DEDUCTION IN RESPECT OF INCOME OF COOPERATIVE SOCIETIES: S.80P(1): WHERE, IN THE CASE OF AN ASSESSEE BEING A COOPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDE S ANY INCOME REFERRED TO IN SUB SECTION (2), THERE SH ALL BE DEDUCTED, IN ACCORDANCE WITH THE SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN S UB SECTION (2), IN COMPUTING TOTAL INCOME OF THE ASSES SEE. ITA NO.469/H/2010 THE SOUTH CENTRAL RAILWAY EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., SECUNDERABAD 3 S.80P(2): THE SUMS REFERRED TO IN SUB SECTION (1) SHALL BE THE FOLLOWING, NAMELY: (A) IN CASE OF A COOPERATIVE SOCIETY ENGAGED IN:- (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS (II)......... (III)......... (IV)......... (V).......... (VI).......... (VII)........ 6. THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US IS THAT T HE RENTAL INCOME AND THE MISCELLANEOUS INCOME ARE ATTRIBUTABLE TO THE ACTIVITY OF THE ASSESSEES BUSI NESS BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND AS S UCH, IT IS ALLOWABLE DEDUCTION U/S 80P (1)(2)(A)(I) OF THE ACT. FURTHER, HE SUBMITTED THAT IN EARLIER YEAR AND ALSO IN THE SUBSEQUENT YEAR, THE ASSESSING OFFICER HAS ALLOWED THE DEDUCTION ON THE ABOVE INCOME CONSIDERING THEM AS BUSINESS INCOME. ACCORDING TO THE LEARNED AUTHORI ZED REPRESENTATIVE, LETTING THE PROPERTY IS BUSINESS OF THE ASSESSEE AND THAT INCOME HAS TO BE TREATED AS BUSIN ESS INCOME OF THE ASSESSEE THEREBY THE ASSESSEE IS ENTI TLED FOR DEDUCTION U/S 80P (1)(2)(A)(I). REGARDING MISCELLANEOUS INCOME, HE SUBMITTED THAT IT IS NOTHI NG BUT REVERSAL OF PROVISIONS OF RESERVES CREDITED IN EARLIER YEARS AND IT IS BUSINESS INCOME. HE RELIED ON THE JUDGEMENT IN THE CASE OF RADHASOAMI SATSANG VS. CI T (193 ITR 321) (SC) WHEREIN HELD THAT STRICTLY SPEA KING, ITA NO.469/H/2010 THE SOUTH CENTRAL RAILWAY EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., SECUNDERABAD 4 RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDIN GS. THOUGH, EACH ASSESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWIN G YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORD ER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITI ON TO BE CHANGED IN A SUBSEQUENT YEAR. 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE ORDER OF THE ASSES SING OFFICER. THE ASSESSEE HEREIN IS A COOPERATIVE SOCI ETY REGISTERED UNDER THE MULTIPLE STATE COOPERATIVE SOC IETIES ACT, 2002 AND IT HAS BEEN CONSTITUTED WITH THE OBJE CT OF EXTENDING CREDIT FACILITIES TO ITS MEMBERS. THE OB JECTS OF THE ASSESSEE ARE NOT THAT OF LETTING OUT SHOPS OWNE D BY THE ASSESSEE. THEREFORE, THE INCOME DERIVED FROM S UCH LETTING CANNOT BE CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE. THE INCOME DERIVED BY THE ASSESSEE FROM LETTING OF PROPERTIES WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE CHARACTER OF THA T INCOME IS NOT ALTERED BECAUSE IT IS RECEIVED BY A COOPERATIVE SOCIETY FORMED WITH THE OBJECT OF EXTEN DING CREDIT FACILITIES TO ITS MEMBERS. IN THE CASE OF K ARNANI PROPERTIES LTD. VS.CIT (82 ITR (547) (SC) HELD THAT RENT DERIVED FROM LETTING OF THE PROPERTY WOULD BE ASSES SABLE AS INCOME FROM PROPERTY. THE INCOME DERIVED FROM LETTING THE PROPERTY WOULD NOT BY ITSELF TURN INTO A ITA NO.469/H/2010 THE SOUTH CENTRAL RAILWAY EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., SECUNDERABAD 5 BUSINESS DEAL AND IT FALLS UNDER SPECIFIC HEAD INC OME FROM PROPERTY THOUGH THE MAIN OBJECT OF THE ASSESS EE IS EXTENDING CREDIT FACILITIES TO THE MEMBERS AND IT C ANNOT BE TREATED AS INCOME FROM BUSINESS INCOME BUT IT IS TO BE TREATED AS INCOME FROM PROPERTY ONLY. IN THE PRESENT CASE, THE ASSESSEE HAS EXPLOITED THE PROPER TY AS OWNER BY LETTING THE SAME AND REALISING THE INCOME BY WAY OF RENT. IT IS NOW WELL SETTLED THAT EVERY AS SET, WHICH IS ONCE USED AS BUSINESS ASSET OR WHICH IS CA PABLE OF BEING SO USED, CANNOT BE REGARDED AS A COMMERCIA L ASSET. IN ORDER THAT ASSET MAY BE REGARDED AS A COMMERCIAL ASSET, IT MUST BE THE ASSET OF A RUNNING BUSINESS. IN THE CASE OF THE ASSESSEE, THE PROPERT Y IN QUESTION WAS EXPLOITED AS A HOUSE PROPERTY BY LETTI NG OUT TO TENANT. THEREFORE IT IS OBVIOUS THAT THE AS SESSEE DID NOT EVER CARRY ON ANY BUSINESS IN THE PROPERTY LET OUT BY IT. IN SUCH A SITUATION, IT CANNOT BE HELD THAT PROPERTY WAS HELD BY THE ASSESSEE AS A COMMERCIAL ASSET. IF THAT BE SO, THE QUESTION OF COMMERCIAL EXPLOITATION OF T HE PROPERTY IN QUESTION DOES NOT ARISE AT AL. F ROM TH E FACTS IT IS CRYSTAL CLEAR THAT THE ASSESSEE WAS DEALT WIT H THE PROPERTY IN LETTING IT OUT ON RENTAL BASIS. THEREF ORE, THE CIT(A) NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE L ET OUT ITS PROPERTY TO EARN BUSINESS INCOME AND AS SUCH, I N OUR OPINION, THE INCOME CANNOT BE ASSESSED AS BUSINESS INCOME AND IT IS TO BE ASSED AS INCOME FROM HOUSE PROPERTY ONLY. THE OTHER PLEA, OF THE ASSESSEE IS THAT CONSISTENCY HAS TO BE FOLLOWED, AS IN EARLIER AND SUBSEQUENT YEAR, THE RENTAL INCOME FROM PROPERTY WA S ITA NO.469/H/2010 THE SOUTH CENTRAL RAILWAY EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., SECUNDERABAD 6 CONSIDERED AS INCOME FROM BUSINESS AND THE SAME HAS TO BE FOLLOWED IN THIS ASSESSMENT YEAR ALSO. IN OUR O PINION, THIS ARGUMENT OF THE ASSESSEE IS DEVOID OF MERIT. WE HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDERS O F THE EARLIER ASSESSMENT YEARS AND ALSO JUDGEMENT CIT ED BY THE ASSESSEE. THERE IS NO DISCUSSION OF WHATSOEV ER REGARDING THE RENTAL INCOME IN THE ASSESSMENT ORDER S OF THOSE ASSESSMENT YEARS. THE ASSESSING OFFICER HAS JUST ACCEPTED THE RETURN FILED BY THE ASSESSEE AND COMPL ETED THE ASSESSMENTS. FURTHER AS SEEN FROM THE JUDGEMENT CITED SUPRA, IT WAS CLEARLY OBSERVED BY THEIR LORDS HIP IN THAT JUDGEMENT THAT THE DECISION IS CONFINED TO THE FACT OF THAT CASE AND MAY NOT BE TREATED AS AN AUTHORITY ON ASPECTS WHICH HAVE BEEN DECIDED FOR GENERAL APPLICA TION. HENCE, WE CANNOT UPHOLD THIS ARGUMENT OF THE ASSESSEES COUNSEL. REGARDING MISCELLANEOUS INCOME , THE NATURE OF MISCELLANEOUS INCOME HAS TO BE EXAMIN ED BY THE ASSESSING OFFICER AND IS TO BE DECIDED UPON AFRESH IN ACCORDANCE WITH LAW AS THE ASSESSING OFFICER HAS NO OCCASION TO GO THROUGH THE NATURE OF THIS INCOME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10.6.2011 SD/- G.C. GUPTA SD/- CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED 10 TH JUNE, 2011 ITA NO.469/H/2010 THE SOUTH CENTRAL RAILWAY EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., SECUNDERABAD 7 COPY FORWARDED TO: 1. THE ITO WARD 10(4), HYDERABAD 2. THE SOUTH CENTRAL RAILWAY EMPLOYEES COOPERATIVE CREDIT SOCIETY, 10-3-194, HIMMAT NAGAR, REGIMENTAL BAZAR, SECUNDERABAD 3. THE CIT(A) VI, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/