ITO WARD- 1(3), Nagpur V. MSEB ENGINEERS CO-OPERATIVE CREDIT SOCIETY LTD., Nagpur

ITA 520/NAG/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2225 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D RAVI KUMAR
• Keywords: Business income
• Section: 56; 28

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH: NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 5 20 /NAG/20 1 4 ASSESSMENT YEAR: 20 10 - 11 INCOME TAX OFFICER WARD 1(3) , ROOM NO.5 , 5 TH FLOOR, MECL BL DG., SEMINARY HILLS, NAGPUR - 06 VS. MSEB ENGINEERS CO - OP CREDIT SOCIETY LTD., SHREEMAN COMPLEX, WARDHA RD, DHANTOLI, LOKMAT SQUARE,NAGPUR - 12 PAN : - AA AAM0418K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI D. RAVIKUMAR , DR RESPONDENT BY SHRI MAHAVIR ATAL , AR DATE OF HEARING: 2 7 - 0 4 - 201 6 DATE OF PRONOUNCEMENT: - 05 / 05 /2016 O R D E R PER SHAMIM YAHYA , A .M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT (APPEALS) DATED 18 .0 8 .201 4 AND PERTAINS TO ASSESSMENT YEAR 2010 - 11 . THE GROUND S O F APPEAL RE ADS AS UNDER : - 1. WHETHER O N THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE LEARNED CIT(A PPEALS ) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.41,4 2, 867 / - MADE BY THE ASSESSING OFFICE BEING INTEREST INCOME EARNED BY THE ASSESSEE ON INVESTMENT OF SURPLUS FUNDS AS INCOME FROM OTHER SOURCES U/S.56 OF THE IT ACT,1961, NOT DEDUCTIBLE U/S.80P (2) (A)(I) OF THE I.T. ACT ? 2. WHETHER O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) HAS RIGHTLY RELIED UPON THE DECISION OF HONBLE ITAT IN THE CASE OF M/S. GOPALKRISHNA URBAN CREDIT CO - OP SOCIETY MARYADIT, NAGPUR, ITA NO.68/NAG/2012/2008 - 09 DATED 01.02.2013 AS THE SAID DECISION IS ON A ENTIRELY DIFFERENT ISSUE AND THE ISSUE RELATING TO EXEMPTION U/S. 80P(2)(A)(I) ON INTEREST EARNED ON INVE STMENT OF SURPLUS FUND BY THE SOCIETY ON BANK FDRS WAS NOT AN ISSUE IN THE SAID CASE ? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE HAS EARNED INTEREST INCOME ON INVESTME NTS OUT OF SURPLUS FUNDS WHICH WERE NOT REQUIRED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS AND THAT THE RATIO OF THE DECISION OF HONBLE S.C. IN TORGARS COOPERATIVE SALES SOCIETY LTD. VS. ITO, 322 ITR 283 (SC) WAS SQUARELY APPLICABLE TO THE FACTS O F THE CASE ? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE EMPLOYEES ARE NOT THE MEMBERS OF THE ASSESSEE SOCIETY AND AS SUCH THE INTEREST INCOME OF RS.76,125/ - ON LOANS AD VANCED TO SUCH EMPLOYEES WAS NOT DEDUCTIBLE U/S.80(2)(A)(I) OF THE I.T. ACT, 1961? 2 ITA NO. 520 /NAG/201 4 2. APROPOS GROUND NO. 1 TO 3 - TREATMENT OF INTEREST INCOME EARNED BY THE ASSESSEE ON ACCOUNT OF INVESTMENT IN BANK FDRS. UPON HEARING BOTH THE COUNSEL AND PERUSING THE RECO RDS, WE FIND THAT THE ABOVE ISSUE S IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS ITAT, REFERRED BY THE LD. CIT(A) IN HIS APPELLATE ORDER. THE DISTINCTION MENTIONED IN THE GROUNDS OF APPEAL IS NOT AT ALL SUSTAINABLE. WE FURTHER FIND THAT THIS TRIBUNAL AGAIN IN THE CASE OF CHATTISGARH URBAN SAHAKARI SANSTHA MARYADIT VS. ITO IN ITA NO. 371/NAG/2012 VIDE ORDER DATED 27.05.2015 HAS ADJUDICATED SIMILAR ISSUE AS UNDER: - 11 UPON CAREFUL CONSIDERATION, WE NOTE THAT IDENTICAL ISSUE WAS THE SUBJECT MATT ER OF CONSIDERATION BY ITAT, AHMEDABAD BENCH DECISION IN THE CASE OF DHANLAXMI CREDIT COOPERATIVE SOCIETY LTD. (SUPRA), IN WHICH ONE OF US, LEARNED JUDICIAL MEMBER, WAS A PARTY. THE CONCLUDING PORTION OF THE TRIBUNALS DECISION IS AS UNDER: 4. WITH THI S BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. IT WAS EXPLAINED THAT THE CO - OPERATIVE SOCIETY IS MAINTAINING OPERATIONS FUNDS AND TO MEET ANY EVENTUALITY TOWARDS RE - PAYMENT OF DEPOSIT, THE CO - OPERATIVE SOCIETY IS MAINTAINING SOME LIQUIDATED FUNDS A S A SHORT TERM DEPOSIT WITH THE BANKS. THIS ISSUE WAS THOROUGHLY DISCUSSED BY THE ITAT B BENCH AHMEDABAD IN THE CASE OF THE INCOME TAX OFFICER VS. M/S.JAFARI MOMIN VIKAS CO - OP.CREDIT SOCIETY LTD. BEARING ITA NO.1491/AHD/2012 (FOR A.Y. 2009 - 10) AND CO NO. 138/AHD/2012 (BY ASS ESSEE) ORDER DATED 31/10/2012. T HE RELEVANT PORTION IS REPRODUCED BELOW: - 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION OF FACTS, AS UNDER: WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES? THE ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCE EDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUEST ION, BEFORE US, IS WHETHER INTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT? IN OUR VIEW, SUCH INTEREST INCOME WOULD COME IN THE CATEGORY OF INCO ME FROM OTHER SOURCES, HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER SECTION 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSESSING OFFICER... 19.1. HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT WAS OBSERVED THAT THE FIXED DEPOSITS MADE WERE TO MAINTAIN LIQUIDITY AND THAT THERE WAS NO SURPLUS FUNDS WITH THE ASSESSEE AS ATTRIBUTED BY THE REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HONBLE SUPREME COURT (ON PAGE 286) 7....... BEFORE T HE ASSESSING OFFICER, IT WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND, CONSEQUENTLY, SUCH ACT OF INVESTMENT CONSTITUTED A BUSINESS ACTIVITY BY A PRUD ENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS LIABLE TO BE TAXED UNDER 3 ITA NO. 520 /NAG/201 4 SECTION 28 AND NOT UNDER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS REJECTED BY T HE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND THE HIGH COURT, HENCE, THESE CIVIL APPEALS HAVE BEEN FILED BY THE ASSESSEE(S). 19.2. FROM THE ABOVE, IT EMERGES THAT (A) THAT ASSESSEE (ISSUE BEFORE THE SUPREME COURT) HAD ADMITTED BEFORE THE AO THAT I T HAD INVESTED SURPLUS FUNDS, WHICH WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF ITS BUSINESS, IN SHORT TERM DEPOSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT AS SESSEE CARRIED ON TWO ACTIVITIES, NAMELY , (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSITS TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D)THAT THE SURPLUS HAD ARISEN EMPHATICALLY FROM MARKETING OF AGRICULTURAL PRODUCES. 19.3. IN THE PRESENT CASE UNDER CONSIDERATION, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THERE WERE NO SURPLUS FUNDS. 19.4. WHILE COMPARING THE STATE OF AFFAIRS OF THE PRESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COURT ), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAMELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE WERE NO SURPLUS FUNDS; - - IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS ADMITTED B EFORE THE AO, OUT OF RETAINED AMOUNTS ON MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT CARRY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONA L FUNDS. THE ONLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; - IN THE CASE OF TOTGARS, THE HONBLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS; 19. 5. CONSIDERING THE ABOVE FACTS, WE FIND THAT THERE IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE NOT A CO - OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSITS FROM AND LENDS THE SAME TO ITS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD INVESTED IN SHORTTERM DEPOSITS. FURTHERMORE, THE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DE NA BANK AND THE BALANCE AS AT 31.3.2009 WAS RS.13,69,955/ - [SOURCE: BALANCE SHEET OF THE ASSESSEE AVAILABLE ON RECORD]. 4 ITA NO. 520 /NAG/201 4 19.6. IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COU RT IN THE CASE OF TOTGARS CO - OP. SALE SOCIETY LTD. 9SUPRA) CANNOT IN ANY WAY COME TO THE RESCUE OF EITHER THE LD.CIT(A) OR THE REVENUE. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN COMING TO A CONCLUSI ON THAT THE SUM OF RS.9,40,639/ - WAS TO BE TAXED U/S.56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 5. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO - ORDINATE BENCH, WE HEREBY HOLD THAT THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) WAS RIGHTLY GRANTED BY LD.CIT(A), HOWEVER, HE HAS WRONGLY HELD THAT THE INTEREST INCOME IS TAXABLE U/S.56 OF THE ACT SO DO NOT FALL UNDER THE CATEGORY OF EXEMPTED INCOME U/S.80P OF THE ACT. THE ADVERSE PORTION OF THE VIEW, WHICH IS AGAINST THE ASSESSEE, OF LD.CIT(A) IS HEREBY R EVERSED FOLLOWING THE DECISION OF THE TRIBUNAL CITED SUPRA, RESULTANTLY GROUND IS ALLOWED. 8. WE FIND THAT THE RATIO OF ABOVE CASE ALSO APPLIES TO THE PRESENT CASE. AS OBSERVED IN THE ABOVE CASE LAW, IN THIS CASE ALSO THE SUBMISSIONS OF THE ASSESSEES COUNSEL IS THAT THE ASSESSEE SOCIETY IS MAINTAINING OPERATIONAL FUNDS AND TO MEET ANY EVENTUALITY TOWARDS REPAYMENT OF DEPOSIT THE COOPERATIVE SOCIETY IS MAINTAINING SOME LIQUIDATED FUNDS AS SHORT TERM DEPOSITS WITH BANKS. HENCE ADHERING TO THE DOCTRIN STA IR DESISES, WE HOLD THAT THE ASSESSEE SHOULD BE GRANTED BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(A)(I). ACCORDINGLY, THE INTEREST ON DEPOSITS WOULD QUALIFY FOR DEDUCTION UNDER THE SAID SECTION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 3. WE FURTHER FIND THAT BATCH OF SIMILAR APPEALS DECIDED BY THE ITAT IN FAVOUR OF THE ASSESSEE HAS ALSO BEEN CONSIDERED BY THE JURISDICTIONAL HIGH COURT. THE HONBLE JURISDICTIONAL H IGH COURT HAS DULY AFFIR MED OF THIS TRIBUNAL. ACCORDINGLY , IN THE BACKGROUND AFORESAID DISCUSSION, W E DO NOT INFIRMITY IN THE ORDER OF LD. CIT(A). IN THE RESULT, TH ESE ISSUES DECIDED IN FAVOUR OF THE ASSESSEE. 4. APROPOS GROUND NO.4 - UPON HEARING BOTH THE COUNSEL AND PERUSING TH E REC ORDS, WE FIND THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, CHA NDIGARH BENCH IN THE CASE OF H.P. STATE AGRICULTURAL & RURAL DEVELOPMENT BANK LTD. , 100 ITD 0479. THE ITAT HAS REPRODUCED AS UNDER: - IT IS EVIDENT FROM THE DE CISION OF SUPREME COURT IN THE CASE OF VELLORE ELECTRIC CORPN. LTD. (SUPRA) THAT IF THE INCOME EARNED BY A CO - OPERATIVE SOCIETY IS INCIDENTAL TO THE CARRYING ON OF ITS BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IT WILL QUALITY FOR D EDUCTION UNDER SECTION 80P(P)(A)(I). CONSIDERING THE FACT THAT THE LEGISLATURE HAS CONSCIOUSLY USED THE WORDS ATTRIBUTABLE TO IN CONTRAST TO THE WORDS DERIVED FROM, WE FIND THAT THE NATURE OF INCOME REFERRED TO IN THE GROUND OF APPEAL RAISED BY THE RE VENUE IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. ADVANCING LOANS TO THE EMPLOYEES IS INCIDENTAL TO THE CARRYING ON OF THE BUSINESS OF THE ASSESSEE OF ADVANCING CREDIT FACILITIES TO ITS MEMBERS. SIMILARLY, I NTEREST ON NPA IS NOTHING BUT INTEREST RECEIVED FROM MEMBERS THOUGH NOT REGULARLY. IT HAS BEEN POINTED OUT EARLIER THAT THE ASSESSEE HAS REFLECTED INTEREST FROM MEMBERS UNDER TWO CATEGORIES ONE IS INTEREST 5 ITA NO. 520 /NAG/201 4 REGULARLY RECEIVED FROM MEMBERS AND ANOTHER CATEGO RY IS OF INTEREST FROM DEFAULTING MEMBERS WHO ARE NOT REGULAR IN REPAYMENTS. THE LATTER TYPE OF INTEREST IS SHOWN AS INTEREST ON NON - PERFORMING ASSETS. SCRUTINY FEE ALSO RECEIVED FROM MEMBER IN CONNECTION WITH LOANS TO BE ADVANCED TO THEM AND, THEREFORE, I S INCIDENTAL TO THE BUSINESS OF THE ASSESSEE OF PROVIDING CREDIT FACILITIES TO THE MEMBERS. 5. FROM THE ABOVE, WE FIND THAT IT HAS BEEN HELD THAT ADVANCING LOANS TO EMPLOYEES IS INCIDENTAL TO THE CARRYING ON OF THE BUSINESS OF THE ASSESSEE OF ADVANCING CRE DIT FACILITIES TO ITS MEMBERS. IN THE SAID CIRCUMSTANCES, THERE IS NO REASON TO DISALLOW THE DEDUCTION OF SECTION 80P(P)(A)(I) BY HOLDING THAT INTEREST IN COME ON LOAN TO EMPLOYEES DOES NOT ARISE FROM BANKING BUSINESS. HENCE, RESPECTFULLY FOLLOWING THE PREC EDENTS AS ABOVE. WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE . 13. I N THE RESULT , T HIS APPEAL STANDS DISMISSED. ORDER PRONOU NCED IN THE OPEN COURT ON THIS 5 TH DAY OF MAY , 2016 SD/ - SD/ - (MUKUL K. SHR AWAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER NAGPUR, DATED: - 05 / 05 /2016 MANGESH B ODKHE/ PS COPY FORWARDED TO : 1. MSEB ENGINEERS CO - OP CREDIT SOCIETY LTD. SHREEMAN COMPLEX, WARDHA ROAD, DHANTOLI, LOKMAT SQUARE, NAGPUR - 12 2. RESPONDENT 3. C.I.T., CONCERNED 4. CIT ( APPEALS) - I, NAGPUR. 5. D.R., ITAT , NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR