The Mantola Cooperative Thrift & Credit Society Ltd., New Delhi V. ITO, New Delhi

ITA 483/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7106 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 13-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 28-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K JAIN
• Keywords: Business income
• Section: 147; 148; 56; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H, NEW DELHI BEFORE SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A.NO. ASSESSMENT YEAR 483/DEL/2013 2004-05 484/DEL/2014 2005-06 485/DEL/2013 2006-07 486/DEL/2013 2007-08 2828/DEL/2015 2008-09 487/DEL.2013 2009-10 177/DEL/2014 2010-11 2829/DEL/2015 2011-12 THE MANTOLA COOPERATIVE VS. ITO, WARD 38(4), THRIFT & CREDIT SOCIETY LTD., NEW DELHI 541, MANTOLA PAHAR GANJ, NEW DELHI GIR / PAN : AAAJT1976A (APPELLANT) (RESPONDENT) APPELLANT BY :SHRI AJAY VOHRA, SR. ADV. SHRI GAURAV JAIN, ADV. SHRI SAHIL MEHTA, ADV. RESPONDENT BY : SHRI M K JAIN, SR. DR DATE OF HEARING: 21.04.2016 DATE OF PRONOUNCEMENT: 30.06.2016 ORDER PER BENCH: THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED UNDER THE DELHI CO-OPERATIVE SOCIETIES ACT, ENGAGED IN THE BUSINESS OF DEALING WITH ITS MEMBERS WHEREBY IT MOBILISES THRIFT MONEY CREDITED / MOBILIZED FROM IT S 2 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 MEMBERS AND PROVIDE CREDIT FACILITY TO THEM. FOR ASSESSMENT YEAR 2008-09, THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING GROSS TOTAL INCOME UNDER THE HEAD BUSINESS AND PROFESSION AT RS.1,44,04060 /-, AND CLAIMED DEDUCTION UNDER SECTION 80P (2)(A) (I) OF THE INCOME TAX ACT 1961 FOR THE ENTIRE INCOME THERE BY DECLARING TOTAL INCOME AT NIL. ASSESSMENT WAS COMPLETED BY THE LD. AO UNDER SECTION 143 (3) WHEREBY HE TREATED THE INTEREST ON FDR WITH BANKS A S INCOME FROM OTHER SOURCES, NOT ELIGIBLE FOR DEDUCTI ON UNDER SECTION 80P(2) (A)(I). ON AN APPEAL BEFORE LD . CIT(A), THE DEDUCTION UNDER SECTION 80P (2) (A) (I) WAS ALLOWED, WHICH WAS REVERSED BY THIS TRIBUNAL SUBSEQUENTLY. 2. AGGRIEVED BY THE ORDER OF THIS TRIBUNAL, THE ASSESSEE FILED AN APPEAL BEFORE HONBLE JURISDICTIO NAL HIGH COURT. HONBLE DELHI HIGH COURT, VIDE ORDER DA TED 27/08/2014 IN ITA NO. 569/2013, HELD VIDE PARA 11& 12, AS UNDER:- 11.AT THIS STAGE, LD. COUNSEL FOR THE APPELLANT-SE C HAS POINTED OUT THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAD DECIDED THE ISSUE IN THEIR SECTIO N 57 (3) THAT IS AVAILABILITY OF EXPENDITURE HAVING EXES WITH EARNING OF THE SAID INCOME WAS NOT EXAMINED. THIS GROUND/ARGUMENT WAS AN ALTERNATIVE. LD. COUNSEL FOR THE REVENUE SUBMITS THAT THIS QUESTION MAY BE REMITTED TO THE LD. COMMISSIONER OF INCOME TAX (APPEAL) AS HE HAD NOT DECIDED THE SAID QUESTION HAVING ALLOWED THE APPEAL IN ENTIRETY HOLDING THAT THE ENTIRE INTEREST WAS EXEMPT UNDER THIS SECTION 80P. WE APPRECIATE 3 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 THE STAND TAKEN BY THE LD. COUNSEL FOR THE REVENUE AND ACCORDINGLY THE MATTER IS REMITTED ON THE SAID ASPECT TO THE COMMISSIONER OF INCOME TAX (APPEALS) FOR DECISION. 12.SIMILARLY, WITH REGARD TO THE CLAIM OF DEDUCTION UNDER SECTION 80 P (2) (I), WE FIND THAT THERE WAS NO DISCUSSION ON FINDING BY THE COMMISSIONER OF INCOME TAX (APPEALS), THOUGH THIS GROUND/ISSUE WAS RAISED. THIS HAS HAPPENED BECAUSE THE COMMISSIONER OF INCOME TAX (APPEALS), AS NOTED ABOVE, HAD GRANTED EXEMPTION TO THE ENTIRE INCOME EARNED BY THE APPELLANT-SEC UNDER SECTION 80P(2)(I)(A). LEARNING COUNSEL FOR THE RESPONDENT- REVENUE SUBMITS THAT THIS ISSUE WOULD BE EXAMINED BY THE COMMISSIONER OF INCOME TAX (APPEAL) ON MERITS. WE TAKE THIS SAME STATEMENT ON RECORD. 2.1 ACCORDINGLY AS PER THE DIRECTIONS OF THE HONBL E DELHI HIGH COURT THAT 2 ISSUES, WHICH WERE EARLIER NOT ADJUDICATED UPON BY THE LD. CIT (A), ARE AS UNDER: A. WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 P (2) (D) RELATING TO INCOME DERIVED FROM INVESTMENT IN OTHER CO-OPERATIVE SOCIETIES. B. THE AVAILABILITY OF DEDUCTION OF EXPENSES UNDER SECTION 57 REGARDING INCOME FROM OTHER SOURCES. 2.2 BE THAT AS IT MAY, ON THE BASIS OF THE ORDER OF THE HONBLE DELHI HIGH COURT, FOR ASSESSMENT YEAR 2008- 09, ASSESSMENTS RELATING TO OTHER ASSESSMENT YEARS WERE OPENED, UNDER SECTION 148 OF THE ACT, WHERE TH ERE HAS BEEN EITHER AN INTIMATION UNDER SECTION 143 (1) OR NO ORDER HAS BEEN PASSED. IN THE MEANWHILE THE LD. CIT (A) DECIDED THE ISSUE IN OTHER ASSESSMENT YEARS 4 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 WIDE RESPECTIVE ORDERS, THE DETAILS OF WHICH ARE AS UNDER:- ASSESSMENT YEAR DATE OF ORDER PASSED BY LD.CIT (A) 2004-05 30.11.2012 2005-06 13/11/2012 2006-07 13/11/2012 2007-08 13/11/2012 2008-09 15/02/2015 2009-10 13/11/2012 2010-11 18/10/2013 2.3 IT HAS BEEN FURTHER SUBMITTED THAT REOPENING OF THE ASSESSMENT HAS BEEN MADE UNDER SECTION 148 OF THE ACT FOR ASSESSMENT YEARS 2004-05 TO 2007-08. FO R ASSESSMENT YEAR 2008-09, THE APPEALS BEFORE US HAVE BEEN INITIATED BY THE ASSESSEE AGAINST THE CONSEQUENTIAL ORDER PASSED BY THE LD.CIT (A) ON THE DIRECTIONS OF HONBLE DELHI HIGH COURT. THE ISSUE T HAT ARISES OUT OF THESE APPEALS FROM THE ORDERS OF LD. CIT (A) FOR ASSESSMENT YEARS 2004-05 TO 2007-08 AND 2009-10 TO 2010-11 ARE COMMON EXCEPT FOR THE FIGURE S BEING DIFFERENT FOR THESE ASSESSMENT YEARS, WHICH A RE AS UNDER. FOR THE SAKE OF CONVENIENCE THE GROUNDS RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 IN ITA NO. 483/DEL/2013 HAVE BEEN REPRODUCED HEREIN BELOW. ITA NO. 483/DEL/13 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN NOT HOLDING THAT T HE REASSESSMENT ORDER DATED 30.12.2011 PASSED BY THE 5 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 ASSESSING OFFICER UNDER SECTION 147/143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT') WAS WITHOUT JURISDICTION, BAD IN LAW AND VOID AB INITIO. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN NOT HOLDING THAT T HE STATUTORY PRE-CONDITIONS PRESCRIBED UNDER SECTION 1 47 OF THE ACT FOR ASSUMPTION OF JURISDICTION BY THE AO , HAVING NOT BEEN SATISFIED, INITIATION OF REASSESSME NT AS WELL AS THE IMPUGNED REASSESSMENT ORDER WAS IMPERMISSIBLE IN LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN HOLDING THAT INTEREST IN COME OF RS.97,28,027 EARNED BY THE APPELLANT ON FUNDS DEPOSITED WITH COMMERCIAL AND CO-OPERATIVE BANKS WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE ACT. 2.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN UPHOLDING THE CONCLUSION OF THE ASSESSING OFFICER THAT (A) THE APPELLANT WAS NOT ENGAGED IN 'BUSINESS OF BANKING' AND (B) THAT THE AFORESAID INTEREST INCOME WAS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND NOT AS 'BUSINESS INCOME'. 2.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CTT(A) ERRED IN UPHOLDING DISALLOWANCE MADE BY THE AO, BY SIMPLY FOLLOWING THE APPELLATE ORDER DATED 30.11.2012 PASSED BY THIS HON'BLE TRIBUNAL FOR ASSESSMENT YEAR 2008-09, WITHOUT APPRECIATING THAT THE SAID ORDER WAS DISTINGUISHABLE ON FACTS AND IN LAW AND THAT THE DOCTRINE OF RES JUDICATA IS NOT APPLICABLE ON INCOM E TAX MATTERS. 2.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CJT(A) ERRED IN NOT DEALING WITH THE SUBMISSIONS OF THE APPELLANT THAT THE DECISION IN T HE CASE OF TOTGAR'S COOPERATIVE SALE SOCIETY: 322 ITR 6 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 383, WAS DISTINGUISHABLE ON FACTS AND THAT THE RATI O DECIDENDI OF THE SAID DECISION HAD NO APPLICATION T O THE FACTS OF THE PRESENT CASE, AS WAS HELD IN SEVER AL DECISIONS RENDERED BY DIFFERENT HIGH COURTS SUBSEQUENT TO THE DECISION IN TOTGAR'S CASE. 3. THAT, WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN FAILING TO APPRECIATE THAT THE AFORESAID INTEREST INCOME OF RS.97,28,027 CONSTITUTED OF INTEREST OF RS.63, 74,470 RECEIVED FROM COMMERCIAL BANKS AND INTEREST OF RS.33,53,557 RECEIVED FROM CO-OPERATIVE BANKS. 3.1 THAT, WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CJT(A) ERRED IN LAW IN NOT RESTRICTING DISALLOWANCE UNDER SECTION 80P TO INTEREST INCOME OF RS.63,74,470, BEING THE AMOUNT O F INTEREST RECEIVED FROM COMMERCIAL BANKS, IN VIEW OF THE PROVISIONS OF SECTION 80P(2)( D) OF THE ACT, UN DER WHICH INTEREST RECEIVED FROM COOPERATIVE BANKS WAS ADMITTEDLY ALLOWABLE. 4. THAT, WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN NOT HOLDING THAT THE INCOME OF THE APPELLANT WAS NO T LIABLE TO TAX ON THE PRINCIPLE OF MUTUALITY. 5. THAT, WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN HOLDING THAT NO DEDUCTION UNDER SECTION 57 OF THE A CT WAS ALLOWABLE ON THE GROUND THAT 'THE APPELLANT HAS NOT PINPOINTED ANY EXPENSES' IN COMPLETE DISREGARD AND IGNORANCE OF THE FACT THAT THE APPELLANT HAD FURNISHED REVISED COMPUTATION IN WHICH EXPENSES (INCLUDING INTEREST EXPENSES) WERE DULY APPORTIONED BETWEEN INCOME HELD TO BE ELIGIBLE UNDER SECTION 80 P AND BANK INTEREST INCOME OF RS.97,28,027/- HELD TO BE NOT ELIGIBLE FOR DEDUCTION UNDER THAT PROVISION. 2.4 THE GROUNDS RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 IS AGAINST THE CONSEQUENTIA L 7 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 ORDER PASSED BY THE LOWER NET CIT (A) PURSUANT TO T HE ORDER OF HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE WHICH ARE AS UNDER: ITA NO. 2828/DEL/15 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80P(2)(D) OF THE INCOME TAX ACT, 1961 ('THE ACT'), ON THE INTEREST INCOME O F RS.29,299 FROM INVESTMENTS MADE IN DELHI STATE CO-OPERATIVE BANK (' DSCB '), ON THE GROUND THAT DSCB WAS NOT A MEMBER OF THE APPELLANT SOCIETY. 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOLDING THAT SINCE DSCB IS A COOPERATIVE BANK NOT ENTITLED TO DEDUCTION UNDER SECTION 80P IN TERMS OF SECTION 80P(4) OF THE ACT THEREOF, INTEREST INCOME EARNED FROM SUCH BANK IS NOT EVEN ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT IN THE HANDS OF THE APPELLANT SOCIETY. 1.2 WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF EXPENDITURE INCURRED IN RELATION TO EARNING OF T HE AFORESAID INTEREST INCOME FROM THE CO-OPERATIVE BANKS. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN DENYING DEDUCTION OF EXPENDITURE AMOUNTING TO RS.40,88,226/- UNDER SECTION 57 OF THE ACT INCURRED BY THE APPELLANT IN RELATION TO EARNING INTEREST INCOME, ON THE GROUND THAT THERE WAS NO DIRECT CO-RELATION BETWEEN THE EXPENDITURE INCURRED AND THE INTEREST INCOME EARNED ON DEPOSITS MADE WITH BANKS BY THE APPELLANT. 2.1 THAT THE CJT(A) ERRED ON THE FACTS AND IN LAW IN NOT APPRECIATING THAT EXPENDITURE INCURRED BY THE APPELLANT HAD DIRECT NEXUS WITH EARNING OF INTEREST INCOME FROM BANKS, IN AS MUCH THAT THE INTEREST EXPENDITURE INCURRED BY THE APPELLANT 8 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 RELATED TO THE FUNDS THAT WERE SUBSEQUENTLY INVESTED IN THE BANKS AND THE INTERS INCOME WAS EARNED THEREON. 2.5 AS THE ISSUE INVOLVED IN ALL THESE ASSESSMENT YEARS ARE COMMON HAVING IDENTICAL FACTS, WE ARE INCLINED TO DISPOSE OF THESE APPEALS BY WAY OF A COMMON ORDER. 3. AT THE OUTSET LD. AR SUBMITS THAT ISSUE RELATING TO REOPENING, WHICH HAS BEEN RAISED FOR ASSESSMENT YEARS 2004-05 TO 2007-08, IS NOT PRESSED. HE FURTHE R SUBMITTED THAT GROUND NO. 2 AND GROUND NO. 4 FOR ASSESSMENT YEARS 2004-05 TO 2007-08 AND ASSESSMENT YEARS 2009-10 TO 2010-11, IS AGAINST ASSESSEE AS PE R THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 VID E ORDER DATED 27/08/2014 IN ITA NO. 569/2013 AND REPORTED IN (2014) 50 TAXMAAN.COM 278, WHEREIN HONBLE COURT HELD AS UNDER: 6. NO DOUBT, THE TERM ATTRIBUTABLE IS MUCH WIDER THAN THE TERM DERIVED FROM, BUT THE QUESTION STIL L REMAINS, WHETHER THE INTEREST INCOME EARNED FROM THE FDRS OUT OF SURPLUS FUNDS, WHICH WERE NOT TO BE MADE AVAILABLE AND GIVEN AS CREDIT TO THE MEMBERS, CAN BE TREATED AS INCOME ATTRIBUTABLE TO PROVIDING CREDIT FACILITIES TO MEMBERS. WE NEED NOT DAY DILATE ON THE SAID QUESTION AS THE ISSUE WAS CONSIDERED AND STANDS ANSWERED BY THE SUPREME COURT IN THE CASE OF TOTGARS COOPERATIVE SALE SOCIETY LTD VS.ITO (2010) 322 ITR 283/188 TAXMAN 282. IN THE SAID CASE, THE ASSESSEE A COOPERATIVE CREDIT SOCIETY, HAD PROVIDED CREDIT FACILITIES TO ITS MEMBERS AND WAS ALSO MARKETING 9 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 AGRICULTURAL PRODUCE OF ITS MEMBERS. IT HAD SURPLUS FUNDS, WHICH WERE INVESTED IN SHORT-TERM DEPOSITS AND SECURITIES, LIKE IN THE PRESENT CASE WHERE THE SURPLUS FUNDS WERE INVESTED IN FDRS FOR AN AVERAGE PERIOD OF 500 DAYS. THE SUPREME COURT EXAMINED THE ISSUE WHETHER THE INTEREST INCOME FROM THE SAID SURPLUS FUNDS WAS ELIGIBLE FOR EXEMPTION UNDER SECTION 80 P (2) (A) (I) AS INCOME ATTRIBUTABLE TO PROFIT AND GAINS OF BUSINESS. IT WA S OBSERVED THAT INTEREST RECEIPT FROM MEMBERS FOR PROVIDING CREDIT FACILITIES TO THEM WAS EXEMPT. FURTHER ANYTHING ATTRIBUTABLE TO THE SAID INCOME WOULD ALSO BE COVERED UNDER SECTION 80P. IT WAS HIGHLIGHTED THAT EXEMPTION IS PARTIAL AND NOT COMPLETE, THAT IS THE WHOLE INCOME OF THE CO- OPERATIVE SOCIETY DOES NOT GET EXEMPTION. IN THE FACTS OF THE SAID CASE, IT WAS OBSERVED THAT THE DEDUCTION BEING IN RESPECT OF CERTAIN INCOMES, THE INTEREST INCOME EARNED OUT OF SURPLUS FUND, WOULD NOT QUALIFY FOR DEDUCTION AS IT WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES 8. THE PRESENT CASE IS SURPLUS FUNDS, WHICH WERE NOT REQUIRED FOR CARRYING ON BUSINESS OF PROVIDING CREDIT FACILITIES TO MEMBERS. HALF OF THE FUNDS MOBILISED/COLLECTED FROM THE MEMBERS COULD BE USED FOR PROVIDING CREDIT TO THE MEMBERS. THE BALANCE AMOUNT HAD TO BE RETAINED AND USED FOR SPECIFIED PURPOSES, OTHER THAN PROVIDING CREDIT FACILITIES TO MEMBERS. THIS AMOUNT WAS DEPOSITED IN FDRS FOR AN AVERAGE PERIOD OF 500 DAYS. BY- LAWS OF THE APPELLATE CO-OPERATIVE SOCIETY PRESCRIBED THAT 50% OF THE AMOUNT MOBILISED/COLLECTED WOULD NOT BE GIVEN ON CREDIT TO THE MEMBERS. THESE CONSTITUTED SURPLUS FUNDS AS HAS BEEN HELD BY THE ASSESSING OFFICER AND BY THE TRIBUNAL. IT IS ON THESE FUNDS THAT THE INTEREST WA S EARNED. THE INTEREST EARNED FROM THE AFORESAID FUNDS AS HELD BY SUPREME COURT IN TOAD TOTGARS CO-OPERATIVE SALE SOCIETY LTD (SUPRA), WOULD FALL UNDER SECTION 56 AND WOULD BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 10 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 3.1 ACCORDINGLY GROUND NO. 2 AND 4 FOR ASSESSMENT YEAR 2004-05 TO ASSESSMENT YEAR 2007-08 AND ASSESSMENT YEAR 2009-10 TO ASSESSMENT YEAR 2010-11 IN THE ASSESSEES APPEAL STANDS DISMISSED. 4. THE ISSUE NOW LEFT FOR CONSIDERATION IS AS UNDER ; A) WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(D), RELATING TO THE INCOME DERIVED FROM INVESTMENT IN OTHER CO-OPERATIVE SOCIETIES? B) THE ALLOWABILITY OF DEDUCTION OF EXPENSES UNDER SECTION 57 REGARDING INCOME FROM OTHER SOURCES. 4.1 IT HAS BEEN SUBMITTED BY THE LD.AR THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BANKING EXCLUSIVELY WITH ITS MEMBERS BY WAY OF MOBILISING THRIFT MONEY FROM THEM AND PROVIDING CREDIT FACILIT Y EXCLUSIVELY TO ITS MEMBERS. THE SURPLUS / IDEAL FUN DS LYING WITH THE ASSESSEE ARE PARKED WITH VARIOUS COMMERCIAL AND COOPERATIVE BANKS THAT PROVIDE BEST RETURNS ON THE FUNDS. THE INCOME SO GENERATED ON SUCH BANK DEPOSITS FORM PART OF THE SOCIETIES BUSIN ESS PROFIT, WHICH IS AVAILABLE FOR THE BENEFIT OF THE M EMBER OF THE SOCIETY AT LARGE. THE ASSESSEE OPERATES BOT H CURRENT ACCOUNT AND SAVING BANK ACCOUNT WITH THESE COMMERCIAL AND COOPERATIVE BANKS FOR THE ACTIVITY CARRIED ON BY THE ASSESSEE. 11 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 HE SUBMITTED THAT THE ENTIRE INTEREST, EARNED ON ADVANCES MADE TO THE MEMBERS AND INTEREST FROM BANK FDRS ARE FROM INVESTMENTS WITH CO-OPERATIVE BANK/SOCIETIES, INVESTMENTS WITH COMMERCIAL BANKS, AND INTEREST PAID ON DEPOSIT TO MEMBERS. HE SUBMITT ED THAT THE ASSESSEES BUSINESS IS TWOFOLD:- (I) IT IS INTO PROMOTION OF SAVINGS BY INCULCATING SAVING HABITS AMONG ITS MEMBERS WILL STOP THIS AMOUNTS CARRYING ON BANKING BUSINESS TO NOT FOR THE GENERAL PUBLIC BUT EXCLUSIVELY FOR THE MEMBERS (II) EXTENDING CREDIT FACILITY TO THE MEMBERS. 4.2 THE LD.AR SUBMITTED THAT SECTION 80P(2)(D) PROVIDES BENEFIT OF DEDUCTION UNDER SECTION 80P FOR THOSE CO-OPERATIVE SOCIETIES, WHICH HAS SURPLUS FUN DS EVEN UNRELATED TO ITS MAIN BUSINESS ACTIVITY, WHICH ARE INVESTED WITH OTHER CO-OPERATIVE SOCIETIES. HE SUBMITTED THAT CLAUSE (D) APPLIES TO ALL CO-OPERATI VE SOCIETIES WHETHER OR NOT THEIR MAIN BUSINESSES IS BANKING AND CREDIT FACILITIES TO THE MEMBERS. HE SUBMITS THAT THE ASSESSING OFFICER HAS HIMSELF ADMI TTED THAT THE INTEREST EARNED ON DEPOSITS WITH OTHER CO- OPERATIVE SOCIETY IS ELIGIBLE FOR DEDUCTION UNDER S ECTION 80P(2)(D), HOWEVER WHILE COMPUTING THE DISALLOWANCE THE LD. AO DID NOT CONSIDER THE FACT THAT BANK INTE REST ALSO INCLUDE INTEREST EARNED ON DEPOSIT WITH OTHER CO- OPERATIVE BANKS. 12 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 4.3 HE THUS CONCLUDED BY SUBMITTING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF ENTIRE INTERE ST EARNED UNDER SECTION 80P(2)(D). 5. ON THE CONTRARY THE LD. DR RELIED UPON THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE PERUSED THE SUBMISSIONS MADE BY BOTH THE PARTIES AND THE ORDERS PASSED BY THE AUTHORITIE S BELOW. CLAUSE (D) OF SECTION 80P(2) READS AS UNDER: - (D) IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS INVESTMENT WITH ANY OTHER CO-OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME 6.1 THE ABOVE PROVISION CLEARLY MENTIONS THAT ANY INCOME OF A CO-OPERATIVE SOCIETY DERIVED FROM INVESTMENT WITH THE CO-OPERATIVE SOCIETY FORMS PART OF GROSS TOTAL INCOME AND IS AVAILABLE FOR DEDUCTION U NDER SECTION 80P(2)(D) OF THE ACT. THIS PROVISO CLEARLY ESTABLISHES THAT HE INTEREST INCOME EARNED BY A COOPERATIVE SOCIETY FORM ITS INVESTMENTS WITH ANY OTHER COOPERATIVE SOCIETY ONLY IS ENTITLED FOR EXEM PTION AND ANY INTEREST RECEIVED FROM OTHER INVESTMENTS SA Y WITH SCHEDULED BANKS OR OTHER SUCH PERSONS, CANNOT BE CLAIMED TO BE EXEMPT SINCE THE SAME CANNOT BE ATTRIBUTED TO ITS BUSINESS ACTIVITY, I.E. ITS BUSIN ESS ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. IN THE PRESENT CASE, THE ASSESSEE- SOCIETY INVESTED FU NDS NOT IMMEDIATELY REQUIRED FOR ITS BUSINESS PURPOSES AS PER ITS OWN SUBMISSION DURING THE COURSE OF 13 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 ASSESSMENT PROCEEDINGS. INTEREST ON SUCH INVESTMENT S, THEREFORE, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION PROFITS AND GAINS OF BUSINESS. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTA BLE TO THE ACTIVITY OF THE SOCIETY, NAMELY CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. WHEN THE ASSESSEE SOCIETY PROVIDES CREDIT FACILITIE S TO ITS MEMBERS AND IT EARNS INTEREST THERE FROM, IS EL IGIBLE FOR DEDUCTION U/S 80-P(2)(A)(I), WHICH HAS BEEN ALL OWED BY THE A.O. HIMSELF. 6.2 ON A PLAIN READING OF THE CLAUSE (D) SUB-SECTION (2) OF SECTION 80-P, IT CAN BE STATED THAT THE INTE NTION OF THE LEGISLATOR IS TO ENCOURAGE THE IDEA OF CO- OPERATIVE SOCIETIES TO HELP ITS OWN MEMBERS AS WELL AS OTHER SUCH CO-OPERATIVE SOCIETIES TO GROW ECONOMICALLY, THROUGH CREDIT FACILITIES NEW DELHI INVESTMENTS, ETC. THE WHOLE IDEA OF COOPERATIVE MOVEMENT IS BASED ON ECONOMIC UPLIFTMENT OF CERTAIN CORE AREAS LIKE AGRICULTURE, MILK PRODUCE COTTAGE INDUSTRIES AND SIMILARLY PLACED GROUPS, SO TO SPEAK , SO THAT THE COMBINED RESOURCES OF SUCH GROUPS ARE POOL ED IN TO STRENGTHEN THEIR ECONOMIC CONDITIONS AND HELP THEM GROW IN THE RESPECTIVE ACTIVITIES. THE UNDERL YING PRINCIPLE HEREIN IS NOT TO EARN PROFITS BY TREATING ITS ACTIVITY AS A COMMERCIAL VENTURE, BUT TO BOOST THE CAUSE OF COOPERATIVE MOVEMENT. EH INTENT AND PURPOSE OF SECTION 80P(2)(A)(I) OF THE ACT IS TO GR ANT DEDUCTION TO INCOME WHICH HAS A DIRECT AND PROXIMAT E 14 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 NEXUS TO THE ACTIVITY OF BANKING OR PROVIDING CREDI T FACILITY CARRIED ON BY A COOPERATIVE SOCIETY WITH T HE MEMBERS. IF BOTH THE TERMS BANKING BUSINESS AND PROVIDING CREDIT FACILITIES ARE READ TOGETHER, TH E INTENTION OF THE LEGISLATURE BECOMES CLEAR AND THAT IS TO PROVIDE BENEFIT OF DEDUCTION TO A COOPERATIVE SO CIETY WHICH ACTUALLY PROVIDES CREDIT / FINANCE TO ITS MEM BERS IN FURTHERANCE OF THE COOPERATIVE MOVEMENT AND NOT FOR THE PURPOSE OF PROFIT MAKING. 6.3 LD. A.R. PLACED RELIANCE ON VARIOUS JUDGMENTS O F HON'BLE HIGH COURT AND COORDINATE BENCH OF THIS TRIBUNAL, IN RESPECT OF ALLOWABILITY OF INTEREST IN COME EARNED FROM SURPLUS FUNDS INVESTED IN FDRS MADE WITH COMMERCIAL/COOPERATIVE BANK AND INTEREST EARNE D FROM INVESTMENTS MADE WITH COOPERATIVE SOCIETIES / BANKS. 7. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE JUDGMENT RELIED UPON BY T HE ASSESSEE. THE LD.AR HAS PLACED HIS RELIANCE ON THE ORDER DATED 03.05.2011 PASSED BY JURISDICTIONAL HIG H COURT IN CASE OF CIT VS. NATIONAL AGRICULTURAL CO- OPERATIVE MARKETING FEDERATION OF INDIA LTD., IN IT A NO. 839/2009 & 1037/2010. THE HONBLE HIGH COURT HELD THAT THE ASSESSEE WAS ELIGIBLE TO THE DEDUCTION U/S.80P(2) (D) IN RESPECT OF THE INTEREST EARNED FR OM INVESTMENTS MADE BY A SOCIETY IN OTHER COOPERATIVE BANKS. 15 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 7.1 IT IS PERTINENT TO NOTE THAT DURING THE CONCERN ED YEARS UNDER CONSIDERATION THE ASSESSEE HAD DEPOSITS WITH CO-OPERATIVE BANKS AND COMMERCIAL BANKS, AS PROVIDED IN THE CHART SUBMITTED BEFORE US. IT IS OBSERVED THAT THE GROSS INCOME EARNED BY THE ASSESS EE COMPRISES OF 3 COMPONENTS WHICH ARE AS UNDER: I) INTEREST INCOME EARNED FROM INVESTMENT WITH CO-OPERATIVE BANKS II) INTEREST INCOME EARNED FROM INVESTMENT WITH COMMERCIAL BANKS AND, III) INTEREST PAID ON DEPOSITS TO MEMBERS. ASSESSME NT YEAR GROSS INTERESTS INCOME EARNED (RS.) INTEREST INCOME EARNED FROM INVESTMEN TS WITH COOPERATIV E BANKS / SOCIETIES (RS.) INTEREST INCOME EARNED FROM INVESTMENT S WITH COMMERCIAL BANKS (RS.) INTEREST PAID ON DEPOSIT TO MEMBERS (RS.) 2004-05 357,52,619 33,53,557 63,78,065 232,07,117 2005-06 372,72,426 24,54,715 60,44,560 214,15,500 2006-07 376,70,091 14,30,704 67,86,403 199,15,686 2007-08 358,95,646 28,88,694 37,81,186 200,16,014 2008-09 461,96,615 1,-2,301 142,09,162 248,56,264 2009-10 505,50,726 98,175 167,65,320 288,98,915 1010-11 526,41,687 77,79,354 134,00,129 325,78,394 8. APPLYING THE LEGAL PROVISION U/S 80P TO THE GROS S TOTAL INCOME EARNED AS ENUMERATED IN THE CHART, WE HOLD THAT THE ASSESSING OFFICER WAS RIGHT IN ALLOWI NG THE DEDUCTION U/S 80P ONLY TO THE EXTENT OF INTERES T EARNED FROM MEMBERS WHO AVAILED THE CREDIT FACILITY . FURTHER FROM THE COLUMN OF INTEREST EARNED FROM 16 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 INVESTMENTS WITH CO-OPERATIVE BANKS / SOCIETIES, TH E ASSESSEE HAS NEITHER BEEN ABLE TO ESTABLISH BEFORE US NOR BEFORE THE AUTHORITIES BELOW THAT INTEREST HAS BEEN EARNED EXCLUSIVELY FROM INVESTMENT WITH OTHER COOPERATIVE BANKS. 8.1 ACCORDINGLY GROUND NO. 3 FOR ASSESSMENT YEAR 2004-05 TO 2007-08, 2009-10, 2010-11 AND GROUND NO. 1 FOR ASSESSMENT YEAR 2008-09 STANDS DISMISSED. . 9. THE NEXT ISSUE RELATES TO THE ALLOWABILITY OF DEDUCTION OF EXPENSES UNDER SECTION 57 OF THE ACT INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF INTEREST INCOME. 9.1 THE LD. AO DISALLOWED THE EXPENDITURE ON THE GROUND THAT THERE WAS NO DIRECT CORRELATION BETWEEN THE EXPENDITURE INCURRED AND THE INTEREST INCOME EARNED ON DEPOSITS MADE WITH BANKS BY THE APPELLANT . THIS DISALLOWANCE WAS CONFIRMED BY THE LD.CIT (A). 9.2 AGGRIEVED BY THE ORDER OF THE LOWER NET CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US NOW. 9.3 THE LD.AR SUBMITTED THAT ASSESSEE IS A THRIFT A ND CREDIT SOCIETY ENGAGED IN THE DUAL BUSINESS, ONE OF WHICH IS ACCEPTING DEPOSITS FROM PERSON FIXED DEPOS ITS, RECURRING DEPOSITS AND SAVING DEPOSITS AND INVESTIN G THE SAME IN INTEREST EARNING SECURITIES/DEPOSITS. T HE OTHER BUSINESS IS THAT OF PROVIDING CREDIT FACILITI ES TO ITS MEMBERS. LD. A.R. SUBMITTED THAT THE FUNDS TAKEN A S DEPOSITS FROM MEMBERS ARE USED EITHER FOR EARNING INTEREST INCOME FROM INVESTMENTS OR EARNING INTERES T 17 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 INCOME FROM CREDIT FACILITIES TO THE MEMBERS IT IS ONLY THE MEMBERS OF THE SOCIETY CAN AVAIL THE BANKING FACILITY AND/OR AVAIL CREDIT FACILITIES. HE SUBMITT ED THAT IF A MEMBER COMES FORWARD WITH THE DEPOSIT, THE SOCIETIES BOUND TO ACCEPT THE SAME AND GIVE HIM THE INTEREST, IRRESPECTIVE OF WHETHER THE FUNDS ARE REQ UIRED FOR GIVING CREDIT TO THE MEMBERS OR NOT. ACCORDINGL Y, THE INTEREST COST INCURRED BY THE ASSESSEE IS PARTL Y TOWARDS MONEY KEPT IN THE BANK FDRS AND PARTLY ATTRIBUTABLE TO PROVIDING CREDIT FACILITY TO ITS ME MBERS. HE THUS SUBMITTED THAT THE BIFURCATIONS OF INTEREST EXPENSES BETWEEN THE TWO ACTIVITIES, HAS BEEN DONE ON A RATIONAL MANNER. 10 THE LD.AR SUBMITTED THAT THE ASSESSEE IS ENTITLE D TO DEDUCTION IN RESPECT OF THE COST OF THE FUNDS BE ING INTEREST PAID ON DEPOSITS RECEIVED FROM THE MEMBERS AND PROPORTIONATE ADMINISTRATIVE AND OTHER EXPENSES ATTRIBUTABLE TO THE COST OF THE FUNDS UNDER SECTION 57 WITH RESPECT TO THE RESIDUAL INTEREST INCOME WHICH IS TAXABLE UNDER SECTION 56 OF THE ACT FOR THE REASON THAT: I) IT IS THE FUNDS MOBILISED THROUGH DEPOSITS AND CAPITAL SUBSCRIPTION, WHICH IS BEING DEPOSITED WITH BANKS/CO-OPERATIVE SOCIETIES AS TERM DEPOSITS II) AS THE INCEPTION OF RECEIVING THE FUNDS FROM THE MEMBERS IT IS KNOWN THAT PART OF THE TOTAL FUNDS WILL BE UTILISED FOR CREDIT FACILITIES AND BALANCE WOULD BE KEPT IN THE INTEREST EARNING INSTRUMENTS. THUS IT IS SUBMITTED THAT IN CASE THE INCOME FROM FD IS TREATED 18 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 AS INCOME FROM OTHER SOURCES UNDER SECTION 56, THEN ALL THE COSTS/EXPENSES RELATED TO RAISING THESE DEPOSITS ALONG WITH INTEREST EXPENSES ARE ATTRIBUTABLE PROPORTIONATELY TO THE INCOME EARNED ON THESE FIXED DEPOSITS ELIGIBLE FOR DEDUCTION UNDER THE SECTION. III) IT HAS BEEN SUBMITTED THAT THE ABOVE ANALOGY IS DRAWN AND MATERIA WITH THE INCOME COMPUTED FOR DEDUCTION UNDER SECTION 80P(2)(D) ON NET BASIS. 10.1 IT HAS BEEN SUBMITTED BY THE LD. A.R. THAT T HE INTEREST PAID HAS BEEN BIFURCATED IN THE RATIO OF DEPLOYMENT OF FUNDS IN CREDIT FACILITY TO MEMBER AN D FUNDS DEPLOYED IN FDR. HE SUBMITTED THATS TO COMPLETE THE FUND DEPLOYED IN A PARTICULAR SEGMENT, THE MONTHLY AVERAGE OUTSTANDING HAS BEEN TAKEN. HE THUS SUBMITTED THAT THE ASSESSEE ON THE SAME BASIS HAS ALLOCATED THE OVERHEAD EXPENSE AMONG THE TWO ACTIVITIES. 11. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE JUDGMENT RELIED UPON BY T HE ASSESSEE. IT IS NOT IN DISPUTE THAT THE SOURCE OF SUCH INCOME WAS DUE TO THE INVESTMENT OF SURPLUS FUNDS WHICH THE ASSESSEE DID NOT REQUIRE FOR ITS BUSINESS ACTIVITIES. IT IS LOGICAL THAT WHEN REVENUE IS PER MITTED TO ASSESS THE INTEREST INCOME U/S.56 OF THE ACT, BY TREATING THE INCOME EARNED BY WAY OF INTEREST AS INCOME FROM OTHER SOURCES, THE ASSESSEE SHOULD BE ENTITLED FOR PROPORTIONATE EXPENSES INCURRED IN 19 I.T.A.NOS.483-487/DEL/2013 I.T.A.NOS.2828,2829/DEL/2015 I.T.A.NO. 177/DEL/2014 MOBILIZING THE DEPOSITS PLACED WITH BANKS/ COOPERATIVE SOCIETIES. WHAT CAN BE TAXED IS ONLY TH E NET INCOME EARNED AFTER DEDUCTING THE EXPENDITURE ATTRIBUTABLE TO SUCH EARNING. WE ACCORDINGLY DIREC T THE LD. TPO TO ALLOW THE ALLOCATION OF EXPENSES AS PER THE METHOD OF CALCULATION ARRIVED BY THE ASSESSEE. 12 IN THE RESULT THE APPEALS FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH JUNE, 2016. SD./- SD./- (S. V. MEHROTRA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 30.06.2016 SP. COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 15/6 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER