ITO, Bagalkot V. Shree Siddeshwar Souhardha Sahakari Niyamit, Bagalkot

ITA 503/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90024 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law
• Section: 56

Judgement Text

ITA.503/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER I.T.A NO.503/BANG/2015 (ASSESSMENT YEAR : 2011-12) INCOME TAX OFFICER, WARD 1, BAGALKOT .. APPELLANT V. SHREE SIDDESHWAR SOUHARDHA SAHAKARI NIYAMIT, NEAR BUS STAND, BELAGI, DISTRICT BAGALKOT .. RESP ONDENT PAN : AACAS9345R ASSESSEE BY :NONE REVENUE BY : SHRI. SUNIL KUMAR AGARWAL, JCIT HEARD ON : 22.07.2015 PRONOUNCED ON : 24 .07.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY REVENUE, IT IS AGGRIEVED T HAT CIT (A) ALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT), RELYING ON THE DECISION OF HO NBLE HIGH COURT OF KARNATAKA IN CIT V. SRI BILURU GURUBASAVA PATTIN SAHAKARI SAN GH NIYAMIT, BAGALKOT [ITA NO.5006/2013, DT.05.02.2014]. 02. FACTS APROPOS ARE THAT ASSESSEE, A COOPERATIVE SOCIETY HAD FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR IN WHICH IT HAD CLAIMED DEDUCTION OF ITA.503/BANG/2015 PAGE - 2 RS.54,55,427/-, U/S.80P(2)(A)(I) OF THE ACT. THE A SSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE FELL WITHIN THE DEFINITIO N OF A COOPERATIVE BANK GIVEN IN CLAUSE (CCV) OF SECTION 5 OF THE BANKING REGULA TIONS ACT, 1949. THEREFORE, ACCORDING TO HIM, SUB-SECTION (4) OF SECTION 80P ST OOD ATTRACTED. THE SAID SUB- SECTION SPECIFICALLY STATED THAT THE PROVISIONS OF SECTION 80P WOULD NOT APPLY TO A COOPERATIVE BANK. THOUGH THE ASSESSEE ARGUED THA T IT HAD TRANSACTIONS ONLY WITH ITS MEMBERS AND NOT PUBLIC, THIS CONTENTION WA S NOT ACCEPTED. ACCORDING TO THE ASSESSING OFFICER EVEN A SECTION OF THE PUBL IC 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 B ANKING BUSINESS AND ITS PAID- UP SHARE CAPITAL EXCEEDED RS.1 LAKH. ITS BYE LAWS D ID NOT HAVE A CLAUSE PERMITTING ADMISSION OF ANY OTHER COOPERATIVE SOCIE TY AS A MEMBER. HE THEREFORE HELD IT TO BE A COOPERATIVE BANK. ACCORD ING TO THE ASSESSING OFFICER, ASSESSEE WAS NOT ELIGIBLE FOR A DEDUCTION U/S.80P(2 )(I) OF THE ACT. 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 DEPOSITS FROM ME MBERS. WHEN THERE WERE NO IMMEDIATE NEED OF THE FUNDS FOR LOAN DISBURSEMEN TS, INSTEAD OF KEEPING THE FUNDS IDLE, ASSESSEE HAD PLACED IT WITH THE BANKS A S DEPOSITS. AS PER ASSESSEE, IT WAS BOUND TO PAY INTEREST TO THE MEMBERS. SUBMISSI ON OF ASSESSEE WAS THAT ACCEPTANCE OF DEPOSITS FROM ITS MEMBERS, CLOSURE OF SUCH DEPOSITS AND REPAYMENTS WERE REGULAR AND ROUTINE FEATURE OF ITS BUSINESS. AS PER ASSESSEE, ITA.503/BANG/2015 PAGE - 3 UNLESS THE FUNDS WHICH WERE REMAINING WITH IT WERE PLACED IN BANKS, IT WOULD NOT HAVE BEEN POSSIBLE FOR IT TO PAY THE INTEREST D UE TO ITS MEMBERS. 04. CIT (A) WAS IMPRESSED BY THE CONTENTIONS RAISED BY ASSESSEE AND RELYING ON THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN CIT V. SRI BILURU GURUBASAVA PATTIN SAHAKARI SANGH NIYAMIT, BAGALKOT (SUPRA), HELD THAT ASSESSEE WAS ENTITLED TO EXEMPTION U/S.80P(2)(A)(I) OF THE A CT. 05. LD. DR STRONGLY ASSAILING THE ORDER OF THE CIT (A) SUBMITTED THAT SOURCE OF THE INTEREST WAS DEPOSITS IN THE BANK. ACCORDIN G TO HIM, ONLY THE IMMEDIATE SOURCE WAS REQUIRED TO BE SEEN AND NOT THE REMOTE S OURCE. HONBLE APEX COURT WAS CLEAR IN THIS ASPECT IN THE DECISION OF TOTGAR S COOPERATIVE SALE SOCIETY LTD., (SUPRA). HERE IN THE CASE OF ASSESSEE, ONLY A VERY SMALL AMOUNT WAS LENT BY IT TO ITS MEMBERS. IT WAS NOT SIMILAR TO A SOCI ETY 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. NOBODY APPEARED ON BEHALF OF THE ASSESSEE. 07. WE HAVE PERUSED THE ORDERS AND HEARD THE LD. DR THERE IS NO DISPUTE THAT ONE OF THE MAIN OBJECT OF ASSESSEE SOCIETY WAS PROVIDING CREDIT FACILITY TO ITS MEMBERS. AO HIMSELF HAS MENTIONED THAT THIS WAS TH E PRIMARY OBJECT FOR WHICH ASSESSEE WAS INCORPORATED. NODOUBT, OUT OF SUBSTAN TIAL SUM RECEIVED AS DEPOSITS FROM THE MEMBERS, ONLY SMALL PORTION WERE GIVEN BY ASSESSEE AS LOANS TO ITS MEMBERS. MAJOR PART OF THE FUNDS WERE PARKE D IN FDS. HOWEVER, IT IS AN ITA.503/BANG/2015 PAGE - 4 ADMITTED POSITION THAT ASSESSEE WAS BOUND TO GIVE I NTEREST TO ITS MEMBERS ON THE DEPOSITS RECEIVED BY IT FROM THEM. THEREFORE, WHEN THERE WERE NO TAKERS FOR THE MONEY, WHICH ASSESSEE AS A PART OF ITS OBJECTS WANT ED TO LEND, THE ONLY AVAILABLE CHOICE FOR ASSESSEE, IN ORDER NOT TO KEEP THE FUNDS IDLE, WAS TO PLACE IT IN BANKS FOR EARNING INTEREST. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD (I TA.307 OF 2014, DT.28.10.2014), WHICH WAS ALSO IN RELATION TO A COO PERATIVE SOCIETY HAVING AS ITS OBJECT, BUSINESS OF PROVIDING BUSINESS CREDITS TO I TS MEMBERS, HELD AS UNDER AT PARAS 3 TO 10 OF THE JUDGEMENT DT.28.10.2014 : '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 NATIONALIZED BANK OUT OF THE AMOUNTS WHICH WAS USED BY THE ASSESSEE FOR PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE THE SAID INTEREST AMOU NT IS ATTRIBUTABLE TO THE CREDIT FACILITIES PROVIDED BY THE ASSESSEEAND F ORMS PART OF PROFITS AND GAINS OF BUSINESS AND THEREFORE HE SUBMITS THE APPELLATE AUTHORITIES WERE NOT JUSTIFIED IN DENYING THE SAID BENEFIT IN T ERMS OF SUB-SEC.(2) OF SECTION 80P OF THE ACT. IN SUPPORT OF HIS CONTENTIO NS, HE RELIED ON SEVERAL JUDGMENTS AND POINTED OUT THAT THE APEX COU RT IN THE AFORESAID JUDGMENT HAS NOT LAID DOWN 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 CASE 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, ITA.503/BANG/2015 PAGE - 5 IT IS NECESSARY TO NOTICE THE RELEVANT PROVISION OF LAW IE., SECTION 80P(2)(A)(I): DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOC IETIES: 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 AN D SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN S UB- 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 CAMB AY 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 THE EXPRESSION DERIVED FROM. HAD THE EXPRESS ION DERIVED FROM BEEN USED, IT COULD HAVE WITH SOME F ORCE BEEN ITA.503/BANG/2015 PAGE - 6 CONTENDED THAT A BALANCING CHARGE ARISING FROM THE SALE OF OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED AS PROFI TS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF G ENERATION 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 SOLI CITOR GENERAL, IT HAS USED THE EXPRESSION DERIVED FROM, AS, FOR INS TANCE, IN SECTION 80J. IN OUR VIEW, SINCE THE EXPRESSION OF WIDER IMP ORT, NAMELY, ATTRIBUTABLE TO, HAS BEEN USED, THE LEGISLATURE I NTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION 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 ON THE BUSINE SS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, EARNS PROFITS AND GAINS OF BUSINESS BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPITAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO THE MEMBERS, THEY CANNOT KEEP THE SAID AMOUNT IDLE. IF THEY DEPOSIT THIS AMOUNT IN BANK SO AS TO EARN INTEREST, THE SAID INT EREST 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 WITH A CAS E WHERE THE SOCIETY, APART FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS ALSO IN THE BUSINESS OF MARKETING OF AGRICULTURAL PRODUC E 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 ITA.503/BANG/2015 PAGE - 7 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.' 08. WE ARE OF THE OPINION THAT IN VIEW OF THE JUDGE MENT OF HONBLE JURISDICTIONAL HIGH COURT REPRODUCED ABOVE, WHERE I N AT PARA 10, IT HAS BEEN CLEARLY MENTIONED THAT THE MONEY MEANT FOR LENDING, REMAINING SURPLUS, THERE BEING NO TAKERS, IF DEPOSITED IN BANKS FOR EARNING INTEREST, SUCH INTEREST INCOME WOULD BE ATTRIBUTABLE TO THE BUSINESS OF BANKING CA RRIED OUT BY THE ASSESSEE. WE ARE OF THE OPINION THAT THE FACTS OF THE CASE HERE FIT PERFECTLY WELL WITH THE FACTS IN THE JUDGMENT MENTIONED ABOVE. WE, THEREFORE, HO LD THAT ASSESSEE WAS ELIGIBLE FOR CLAIMING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT, ON THE INTEREST EARNED ITA.503/BANG/2015 PAGE - 8 ON THE FDS PLACED BY IT WITH BANKS, THIS BEING A PA RT OF ITS BUSINESS INCOME. WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDE R OF THE CIT (A). 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF JULY, 2015. SD/- SD/- (VIJAYPAL RAO) (ABRAH AM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER