Karavali Crdit Co-op Society Limited , Udupi V. Income Tax Officer Ward-2, Udupi

ITA 706/BANG/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5003 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 09-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P.V PRADEEP KUMAR
• Assessee Lawyers: MAHESH R UPPIN
• Keywords: Opportunity of being heard; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.706/BANG/2019 ASSESSMENT YEAR : 2016-17 KARAVALI CREDIT CO-OP. SOCIETY LTD., 2-14K-1, ZEEZA KRIPA COMPLEX, KALLLLIANPURA, SANTHEKATTE, UDUPI-576 105. PAN AACAK 5792 Q VS. THE INCOME TAX OFFICER, WARD-2, UDUPI. APPELLANT RESPONDENT ITA NO.764/BANG/2019 ASSESSMENT YEAR : 2016-17 KAMALAKSHI VIVIDHODDESHA SAHAKARA SANGHA LTD., KRISHNAPURA MUTT BUILDING, UDUPI-576 101. PAN AACAK 7829 E VS. THE INCOME TAX OFFICER, WARD-1 & TPS, UDUPI. APPELLANT RESPONDENT ITA NO.941/BANG/2019 ASSESSMENT YEAR : 2015-16 ITA NO.706, 764 & 941/BANG/2019 PAGE 2 OF 9 MANGALA CREDIT CO-OP. SOCIETY LTD., H.O.: DEVADIGA SAMAJA BHAVANA BUILDING, MANNAGUDDA, GANDHINAGAR, MANGALURU-575 004. PAN: AACAM 8375 P VS. THE INCOME TAX OFFICER, WARD-1(3), MANGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI MAHESH R UPPIN, ADVOCATE RESPONDENT BY : DR. P.V PRADEEP KUMAR, ADDL. CIT (DR) DATE OF HEARING : 20.08.2019 DATE OF PRONOUNCEMENT : 21.08.2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THESE ARE THREE APPEALS BY THREE DIFFERENT CO-OPERA TIVE SOCIETIES AGAINST THE ORDER DATED 15.3.2019, 22.3.2 019 AND 12.3.2019 OF CIT(A)-MANAGALURU RELATING TO AY 2016- 17, 2016-17 & 2015-16 RESPECTIVELY. 2. SINCE SOME COMMON ISSUES ARE INVOLVED IN THESE THREE APPEALS, WE HEARD THESE APPEALS TOGETHER AND DEEM IT CONVENI ENT TO PASS A COMMON ORDER. 3. THE FIRST COMMON ISSUE FOR CONSIDERATION IN ALL THE THREE APPEALS IS WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED I N REJECTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80P(2)(A)(I ) OF THE INCOME TAX ACT, 1961 (ACT). THE QUANTUM OF DEDUCTION CLAI MED BY THE EACH ITA NO.706, 764 & 941/BANG/2019 PAGE 3 OF 9 OF THE ASSESSEE IS A SUM OF RS.30,89,462/- BY THE A SSESSEE IN ITA NO.706/BANG/2019, RS.33,58,900/- BY THE ASSESSEE IN ITA NO.764/BANG/2019 AND A SUM OF RS.47,52,224/- BY THE ASSESSEE IN ITA NO.941/BANG/2019. 4. THE SECOND ISSUE FOR CONSIDERATION IN ITA NO.76 0/BANG/2019 IS AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIE D IN DENYING THE BENEFIT OF DEDUCTION U/S.80P(2)(D) OF THE ACT IN RE SPECT OF INTEREST INCOME OF RS.10,36,996/- WHICH IS COMPRISED OF THE FOLLOWING INTEREST INCOMES VIZ., (I) INTEREST RECEIVED FROM SCDCC BANK RS.9,52,170 (II) ICIC BANK RS.57,940 (III) VIJAYA BANK RS.12,230 (IV) SYNDICATE BANK RS.14,564 THE ORDER IMPUGNED IN THIS APPEAL ARISES OUT OF AN ORDER DATED 22.1.2019 PASSED U/S.154 OF THE ACT. 5. AS FAR AS THE FIRST COMMON ISSUE IS CONCERNED, THE FACTS ARE THAT ALL THE ASSESSEES IN THESE APPEALS ARE CO-OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA STATE CO-OPERATIVE SOCI ETIES ACT. THE ASSESSEES CLAIM FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT WAS DENIED BY THE AO ON ON THE BASIS OF THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD., C IVIL APPEAL NO.10245 OF 2017 WHEREIN IT WAS HELD THAT PRINCIPLE OF MUTUALITY HAS TO BE SATISFIED BEFORE DEDUCTION OF INCOME DERI VED BY A CO- OPERATIVE SOCIETY FROM THE BUSINESS OF PROVIDING CR EDIT FACILITIES TO ITA NO.706, 764 & 941/BANG/2019 PAGE 4 OF 9 ITS MEMBERS CAN BE ALLOWED U/S.80P(2)(A)(I) OF THE ACT. ACCORDING TO THE AO, THE PRINCIPLE OF MUTUALITY WAS NOT SATISFIE D IN THE CASE OF THE ASSESSEES AND, THEREFORE, THE DEDUCTION CLAIMED U/S 80P(2)(A)(I) CANNOT BE ALLOWED. ACCORDING TO THE AO THE ASSESSE E WAS PROVIDING CREDIT FACILITIES TO NOMINAL MEMBERS AND SUCH NOMIN AL MEMBERS DID NOT HAVE RIGHT TO VOTE AND THEREFORE THE PRINCI PLE OF MUTUALITY VIZ., IDENTITY OF THE CONTRIBUTORS AND RECIPIENTS O F THE PROFIT BEING IN THE HANDS OF THE ONE AND SAME PERSONS WAS ABSENT. HE THEREFORE DENIED THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE OR DER OF THE AO. HENCE, THESE APPEALS BY THE ASSESSEE BEFORE THE TRI BUNAL. 6. AT THE TIME OF HEARING THE PARTIES AGREED THAT IDENTICAL ISSUE WAS CONSIDERED BY A CO-ORDINATE BENCH OF ITAT BANGALORE IN THE CASE OF M/S.HEMMADI FISHERMENS PRIMARY CO-OPERATIVE SOCIET Y LTD. VS. THE ITO, WARD-2, UDUPI IN ITA NO.774/BANG/2019 (A Y 2016-17) ORDER DATED 28.6.2019 AND IT WAS HELD THEREIN THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO-OPERATIVE SOCIETY LTD., WAS RENDERED IN THE CONTEXT OF CO-OP ERATIVE SOCIETIES ACT AS PREVALENT IN A DIFFERENT STATE AND NOT THE S TATE OF KARNATAKA AND THE ISSUE NEEDS TO BE ADJUDICATED HAVING REGARD TO THE PROVISIONS OF THE KARNATAKA STATE CO-OPERATIVE SOCI ETIES ACT. THE ISSUE WAS REMANDED FOR FRESH CONSIDERATION IN THE LIGHT OF THE LAW APPLICABLE TO CO-OPERATIVE SOCIETIES IN THE STATE O F KARNATAKA. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, WE DEEM IT FIT AND PROPER TO RESTORE THE ISSUE TO THE AO FOR FRESH CONSIDERAT ION IN THE LIGHT OF THE OBSERVATIONS MADE IN THE CASE OF M/S.HEMMADI FI SHERMENS PRIMARY CO-OPERATIVE SOCIETY LTD. (SUPRA). ITA NO.706, 764 & 941/BANG/2019 PAGE 5 OF 9 7. AS FAR AS THE SECOND ISSUE IS CONCERNED, THE AO DENIED THE BENEFIT OF DEDUCTION U/S.80-P(2)(D) OF THE ACT TO T HE ASSESSEE ON THE GROUND THAT THE INCOME WHICH WAS CLAIMED AS DEDUCTI ON WAS INTEREST INCOME WHICH WAS EARNED BY THE ASSESSEE ON DEPOSITS AND IN VIEW OF THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF PCIT VS. TOTGARS CO-OPERATIVE SALE SOCIETY LTD., 83 TAXMANN.COM 140 INTEREST INCOME HAD TO BE REGARDED AS INCOME F ROM OTHER SOURCES. SINCE INTEREST INCOME WAS NOT INCOME DER IVED FROM THE BUSINESS OF CO-OPERATIVE SOCIETY, THE DEDUCTION CLA IMED BY THE ASSESEE CANNOT BE ALLOWED. THE CIT(A) ALSO UPHELD T HE CONCLUSION OF THE AO THAT THE INCOME EARNED ON FDS IN THE FORM O F INTEREST WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S AND HE UPHELD ACTION OF THE AO IN APPLYING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALES SOCIETY LTD., (SUPRA). 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMI SSIONS. THE LEARNED AR RELIED ON THE DECISION OF THE HONBLE KA RNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CRE D CO- OPERATIVE SOCIETY LTD. VS. ITO 230 TAXMAN 309 (KARN ) WHEREIN THE HONBLE KARNATAKA HIGH COURT CONSIDERED THE DECISIO N OF THE HONBLE APEX COURT IN THE CASE OF THE TOTGARS CO-O PERATIVE SALES SOCIETY (SUPRA) AND HELD THAT INTEREST INCOME IN RE SPECT OF TEMPORARY PARKIONG OF OWN SURPLUS FUNDS NOT IMMEDIA TELY REQUIRED IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE A CT. THE LEARNED DR RELIED ON A SUBSEQUENT DECISION OF THE HONBLE KARN ATAKA HIGH COURT IN THE CASE OF PCIT VS. TOTGARS CO-OPERATIVE SALE SOCIETY LTD. 395 ITR 611 (KARN.). ITA NO.706, 764 & 941/BANG/2019 PAGE 6 OF 9 9. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT REL IED 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 THAT THE HONBLE COURT WAS CONSIDERING A CASE RELATING TO AS SESSMENT YEARS 2007-2008 TO 2011- 2012. IN CASE DECIDED BY THE HON BLE SUPREME COURT IN THE CASE OF THE VERY SAME ASSESSEE, THE AS SESSMENT YEARS INVOLVED WAS AY 1991-92 TO 1999-2000. THE NATURE O F INTEREST INCOME FOR ALL THE AYS WAS IDENTICAL. THE BONE OF CONTENTION OF THE ASSESSEE IN AY 2007-08 TO 2011-12 WAS THAT THE DEDU CTION UNDER SECTION 80P(2) OF THE ACT IS CLAIMED BY THE RESPOND ENT ASSESSEE UNDER SECTION 80P(2)(D) OF THE ACT AND NOT UNDER SE CTION 80P(2)(A) OF THE ACT WHICH WAS THE CLAIM IN AY 1991-92 TO 199 9-2000. THE REASON GIVEN BY THE ASSESSEE WAS THAT IN AY 2007-08 TO 2011-12 INVESTMENTS AND DEPOSITS AFTER THE SUPREME COURT'S DECISION AGAINST THE ASSESSEE TOTGAR'S CO-OPERATIVE SALE SOC IETY LTD. (SUPRA), WERE SHIFTED FROM SCHEDULE BANKS TO CO-OPERATIVE BA NK. U/S.80P(2)(D) OF THE ACT, INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY A CO-OPERATIVE SOCIETY FROM ITS INVESTME NTS WITH ANY OTHER CO-OPERATIVE SOCIETY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SUCH INTEREST OR DIVIDEND INCOME. THE CLAIM OF THE ASSESSEE WAS THAT CO-OPERATIVE BANK IS ESSENTIALLY A CO-OPERATIV E 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 CLEAR THAT THE ITA NO.706, 764 & 941/BANG/2019 PAGE 7 OF 9 SOURCE OF FUNDS OUT OF WHICH INVESTMENTS WERE MADE REMAINED THE SAME IN AY 2007-08 TO 2011-12 AND IN AY 1991-92 TO 1999-2000 DECIDED BY THE HONBLE SUPREME COURT. THEREFORE WHE THER THE SOURCE OF FUNDS WERE ASSESSEES OWN FUNDS OR OUT OF LIABILITY WAS NOT SUBJECT MATTER OF THE DECISION OF THE HONBLE K ARNATAKA 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 SOUHARDA CO-OPERATIVE LTD. (SUPRA ) STILL HOLDS GOOD. HENCE, ON THIS ASPECT, THE ISSUE SHOULD BE R ESTORED BACK TO THE AO FOR A FRESH DECISION AFTER EXAMING THE FACTS IN THE LIGHT OF THESE JUDGMENT OF THE HONBLE APEX COURT RENDERED I N THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LTD. (SUPRA) AND OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMUKU R MERCHNTS SOUHARDA CO-OPERATIVE LTD. (SUPRA). WE ALSO MAKE I T CLEAR THAT THE EXAMINATION OF CLAIM FOR DEDUCTION IN RESPECT OF IN TEREST INCOME OF RS.1,49,51,464 RECEIVED ON DEPOSITS WITH CO-OPERATI VE BANKS AND DEDUCTION ON INTEREST INCOME OF RS.46,74,662/- BEIN G INTEREST ON DEPOSITS OTHER THAN CO-OPERATIVE BANKS, WILL BE MAD E ONLY 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.). 10. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD T O THE ASSESSEE AND FILING APPROPRIATE EVIDENCE, IF DESIRED, BY THE ASSESSEE TO SUBSTANTIATE ITS CASE, BEFORE DECIDING THE ISSUE.BE FORE DECIDING THE ISSUE. ITA NO.706, 764 & 941/BANG/2019 PAGE 8 OF 9 11. IN THE RESULT, THE APPEALS ARE TREATED AS ALL OWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2019. SD/- SD/- ( JASON P BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 21 ST AUGUST, 2019. / VMS / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGIST RAR, ITAT, BANGALORE. ITA NO.706, 764 & 941/BANG/2019 PAGE 9 OF 9 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 .. DICTATION NOTE ENCLOSED . 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 REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER .