M/s. Malnad Areca Marketing Co-operative Society Ltd, Shivamogga V. Assistant Commissioner of Income Tax, Circle-1, Shivamogga

ITA 49/BANG/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9920 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 05-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Assessee Lawyers: RAKESH U R
• Keywords: Business income; Opportunity of being heard; Source of fund
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, VICE PRE SIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.49/BANG/2018 ASSESSMENT YEAR : 2012-13 M/S MALNAD ARECA MARKETING CO-OPERATIVE SOCIETY LTD., APMC YARD, SHIVAMOGGA. PAN AAAJM 0788P. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, SHIVAMOGGA. APPLICANT RESPONDENT APPELLANT BY : SHRI RAKESH U.R, C.A RESPONDENT BY : SMT. SRI NANDINI DAS, ADDL. CIT DATE OF HEARING : 26.11.2018 DATE OF PRONOUNCEMENT : 07.12.2018 O R D E R PER SHRI N.V VASUDEVAN, VICE PRESIDENT : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 20.6.2017 OF CIT(A), DAVANGERE RELATING TO AY 12-13 . ITA NO. 49/B/18 2 2. THE ONLY ISSUE FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN DENYING T HE BENEFIT OF DEDUCTION ON INTEREST INCOME OF RS.1,49,51,464 RECE IVED ON DEPOSITS WITH CO-OPERATIVE BANKS U/S.80P(2)(D) OF THE INCOME TAX ACT, 1961 (ACT) AND DEDUCTION ON INTEREST INCOME OF RS.46,74, 662/- BEING INTEREST ON DEPOSITS OTHER THAN CO-OPERATIVE BANKS, U/S.80P(2)(A)(I) OF THE ACT. 3. THE AO DENIED THE BENEFIT OF DEDUCTION AS CLAIME D BY THE ASSESSEE FOR THE REASON THAT PRINCIPLE OF MUTUALITY WAS NOT SATISFIED IN AS MUCH AS THERE WAS NO IDENTITY BETWEEN THE CONTR IBUTORS AND PARTICIPANTS OF SURPLUS GENERATED. THE AO IN THIS REGARD REFERRED TO DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/ S.BANGALORE CLUB VS. CIT CIVIL APPEAL NO.124 OF 2007. 4. ON APPEAL BY THE ASSESSEE, THE THE CIT(A) WAS OF THE VIEW THAT INTEREST INCOME EARNED BY MAKING INVESTMENT OF SURPLUS FUNDS HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SO URCES AND NOT INCOME FROM BUSINESS AND SINCE INTEREST INCOME IS N OT ASSESSED AS BUSINESS INCOME, THE CLAIM FOR DEDUCTION CANNOT BE ALLOWED. IN COMING TO THE ABOVE CONCLUSION, THE CIT(A) RELIED O N THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF THE TOGAR S CO-OPERATIVE SALES SOCIETY LTD. VS. ITO 322 ITR 283(SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT THE BENEFIT OF DEDUCTION U/ S.80P(2)(A)(I) OF THE ACT IS ONLY ON INCOME WHICH IS ASSESSABLE UNDER THE HEAD INCOME ITA NO. 49/B/18 3 FROM BUSINESS. INTEREST EARNED ON INVESTMENT OF SU RPLUS FUNDS NOT IMMEDIATELY REQUIRED IN SHORT TERM DEPOSITS AND SEC URITIES BY A CO- OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ME MBERS OR MARKETING AGRICULTURAL PRODUCE TO MEMBERS IS NOT BUSINESS INC OME BUT INCOME FROM OTHER SOURCES AND THE SOCIETY IS NOT ENTITLED TO SPECIAL DEDUCTION. THE CIT(A) ALSO RELIED ON A SUBSEQUENT DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF PCIT VS. TOTGAR S CO-OPERATIVE SALE SOCIETY LTD. 395 ITR 611 (KARN.) IN WHICH THE PROPOSITION LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF THE TO GARS CO- OPERATIVE SALES SOCIETY LTD. (SUPRA) WAS REITERATED . 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. THE SUM AND SUBSTANCE OF THE GROUNDS OF APPEAL AND THE REVISED GROUNDS OF APPEAL FILED BY THE ASSE SSEE IS THAT IT IS ENTITLED TO THE BENEFIT OF DEDUCTION ON INTEREST IN COME OF RS.1,49,51,464 RECEIVED ON DEPOSITS WITH CO-OPERATI VE BANKS U/S.80P(2)(D) OF THE ACT AND DEDUCTION ON INTEREST INCOME OF RS.46,74,662/- BEING INTEREST ON DEPOSITS OTHER THA N CO-OPERATIVE BANKS, U/S.80P(2)(A)(I) OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNED AR RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CRED CO-OPERATIVE SOCIETY LTD. VS. ITO 230 TAXMAN 309 (KARN) WHEREIN THE HONBLE KARNATAKA HIGH COURT CONSIDERED THE DECISION OF THE HONBLE APEX COURT I N THE CASE OF THE ITA NO. 49/B/18 4 TOTGARS CO-OPERATIVE SALES SOCIETY (SUPRA) AND HEL D THAT INTEREST INCOME IN RESPECT OF TEMPORARY PARKIONG OF OWN SURP LUS FUNDS NOT IMMEDIATELY REQUIRED IS ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. THE LEARNED DR RELIED ON A SUBSEQUENT DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF PCIT VS. TOTGAR S CO-OPERATIVE SALE SOCIETY LTD. 395 ITR 611 (KARN.). 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT RELI ED BY THE LEARNED DR. THE FACTS OF THE CASE BEFORE THE HONB LE KARNATAKA HIGH COURT IN THE DECISION CITED BY THE LEARNED DR WAS T HAT THE HONBLE COURT WAS CONSIDERING A CASE RELATING TO ASSESSMENT YEARS 2007-2008 TO 2011- 2012. IN CASE DECIDED BY THE HONBLE SUPRE ME COURT IN THE CASE OF THE VERY SAME ASSESSEE, THE ASSESSMENT YEAR S INVOLVED WAS AY 1991-92 TO 1999-2000. THE NATURE OF INTEREST IN COME FOR ALL THE AYS WAS IDENTICAL. THE BONE OF CONTENTION OF THE A SSESSEE IN AY 2007-08 TO 2011-12 WAS THAT THE DEDUCTION UNDER SEC TION 80P(2) OF THE ACT IS CLAIMED BY THE RESPONDENT ASSESSEE UNDER SECTION 80P(2)(D) OF THE ACT AND NOT UNDER SECTION 80P(2)(A) OF THE A CT WHICH WAS THE CLAIM IN AY 1991-92 TO 1999-2000. THE REASON GIVEN BY THE ASSESSEE WAS THAT IN AY 2007-08 TO 2011-12 INVESTMENTS AND D EPOSITS AFTER THE SUPREME COURT'S DECISION AGAINST THE ASSESSEE TOTGA R'S CO-OPERATIVE SALE SOCIETY LTD. (SUPRA), WERE SHIFTED FROM SCHEDU LE BANKS TO CO- OPERATIVE BANK. U/S.80P(2)(D) OF THE ACT, INCOME B Y WAY OF INTEREST OR DIVIDENDS DERIVED BY A CO-OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OPERATIVE SOCIETY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SUCH INTEREST OR DIVIDEND INCOME. THE CLA IM OF THE ASSESSEE ITA NO. 49/B/18 5 WAS THAT CO-OPERATIVE BANK IS ESSENTIALLY A CO-OPER ATIVE SOCIETY AND THEREFORE DEDUCTION HAS TO BE ALLOWED UNDER CLAUSE (D) OF SEC.80P(2) OF THE ACT. THE HONBLE KARNATAKA HIGH COURT FOLLOW ED THE DECISION OF THE SUPREME COURT IN THE TOTGARS CO-OPERATIVE SA LES SOCIETY LTD. (SUPRA) AND HELD THAT INTEREST EARNED FROM SCHEDULE BANK OR CO- OPERATIVE BANK IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE THE PROVISIONS OF SEC.80P(2)(D)OF THE ACT WAS NOT APPLICABLE TO SUCH INTEREST INCOME. IT IS THUS CLE AR THAT THE SOURCE OF FUNDS OUT OF WHICH INVESTMENTS WERE MADE REMAINED T HE SAME IN AY 2007-08 TO 2011-12 AND IN AY 1991-92 TO 1999-2000 D ECIDED BY THE HONBLE SUPREME COURT. THEREFORE WHETHER THE SOURCE OF FUNDS WERE ASSESSEES OWN FUNDS OR OUT OF LIABILITY WAS NOT SU BJECT MATTER OF THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE DECISION CITED BY THE LEARNED DR. TO THIS EXTENT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMUKUR MERCHANTS SOUHARD A CO-OPERATIVE LTD. (SUPRA) STILL HOLDS GOOD. HENCE, ON THIS ASPE CT, THE ISSUE SHOULD BE RESTORED BACK TO THE AO FOR A FRESH DECISION AFT ER EXAMING THE FACTS IN THE LIGHT OF THESE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY L TD. (SUPRA) AND OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F TUMUKUR MERCHNTS SOUHARDA CO-OPERATIVE LTD. (SUPRA). WE AL SO MAKE IT CLEAR THAT THE EXAMINATION OF CLAIM FOR DEDUCTION IN RESP ECT OF INTEREST INCOME OF RS.1,49,51,464 RECEIVED ON DEPOSITS WITH CO-OPERATIVE BANKS AND DEDUCTION ON INTEREST INCOME OF RS.46,74, 662/- BEING INTEREST ON DEPOSITS OTHER THAN CO-OPERATIVE BANKS, WILL BE MADE ONLY ITA NO. 49/B/18 6 U/S.80P(2)(A)(I) OF THE ACT AND IN SO FAR AS DEDUCT ION U/S.80P(2)(D) OF THE ACT IS CONCERNED, THE SAME BECOMES NOT ALLOWABL E IN VIEW OF THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF PCI T VS. TOTGARS CO- OPERATIVE SALE SOCIETY LTD. 395 ITR 611 (KARN.). 8. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND FILING APPROPRIATE EVIDENCE, IF DESIRED, BY THE ASSESSEE TO SUBSTANTIATE ITS CASE, BEFORE DECIDING THE ISSUE.BE FORE DECIDING THE ISSUE. 9. IN THE RESULT, APPEAL BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DECEMBER, 2018 . SD/- SD/- (JASON P BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 7/12/2018 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGI STRAR, ITAT, BANGALORE ITA NO. 49/B/18 7 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S ... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT.. 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..