Nishpaksh Co-operative T & C Society Ltd, New Delhi V. ITO WARD - 49(5), New Delhi

ITA 7137/DEL/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7691 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 28-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘SMC’ NEW DELHI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No.7137/Del/2019 Assessment Year: 2015-16 Nishpaksh Co-operative T & C Society Ltd., Wz-43D/1, Possangipur, Janakpuri, New Delhi Vs. ITO, Ward-49(5), New Delhi PAN :AAAAN7431M (Appellant) (Respondent) ORDER This is an appeal by the assessee against the order dated 27.06.2019 of learned Commissioner of Income Tax (Appeals)-17, New Delhi, for the assessment year 2015-16. 2. Grounds raised by the assessee are as under: 1 That the Honorable CIT(A)-XVII has erred in law and on facts in sustaining an addition of Rs. 15,49,897.00 made by AO on untenable and illegal grounds and hence the addition as such may be deleted. 2 That the Honorable CIT(A)-XVII has erred in law and on facts in sustaining the treatment of interest income on FDR of Rs. 14,99,913.00 and saving bank account of Rs. 49,984.00 as income from other source instead of income from business on Appellant by Sh. Manoj Kumar, CA Respondent by Sh. Om Prakash, Sr.DR Date of hearing 22.12.2021 Date of pronouncement 28.02.2022 2 ITA No.7137/Del/2019 AY: 2015-16 illegal and untenable grounds. Hence, the direction should be given to treat as business income. 3 That the the Honorable CIT(A)-XVII has erred in law and on facts in sustaining the disallowing of deduction under 80P(2)(a)(i) of Rs. 15.49.897.00 on illegal and untenable grounds. Hence, the deduction of Rs. 15.49897.00 may be allowed. 4 Without prejudice to the above grounds, the Honorable CIT(A)-XVII has erred in law and on facts in not allowing expenses directly linked to the interest earned on FDR and saving account by the appellant. Hence, the deduction of same may be allowed. 3. Ground No. 1, being a general ground, does not require adjudication. 4. In Ground no. 2, the assessee has challenged the assessment of interest income earned on FDRs and saving bank account as income from other sources instead of business income. 5. Briefly the facts are, the assessee is a registered co-operative credit society. In the assessment year under dispute, the assessee filed its return of income on 29.03.2016 declaring nil income after claiming deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). In course of assessment proceeding, the Assessing Officer, on verifying the financial statement of the assessee noticed that the interest income earned on FDRs and saving bank accounts held in different banks amounting to Rs.14,99,913/- and Rs.49,984/- 3 ITA No.7137/Del/2019 AY: 2015-16 respectively, have been shown as income under the head ‘income from business and profession’. Noticing this, the Assessing Officer called upon the assessee to explain, why such income should not be assessed under the head ‘income from other sources’, as, it is not related to the business activity of the assessee. Further, he directed the assessee to justify its claim of deduction under section 80P(2)(a)(i) of the Act. After examining assessee’s submission, the Assessing Officer observed that the object of the assessee as per bye-laws is to create funds to be lent to different members for necessary purpose and to undertake thrift and credit business. He held, the banks, wherein, assessee has invested in FDRs and saving bank accounts and earned interest income thereon, are not members of the assessee society. Further, he observed, providing loans and advances to banks and earning interest on the same is not part of business activity of the assessee. Thus, he held that the interest income earned by the assessee cannot be treated as ‘income from business or profession’ but has to be assessed under the head ‘income from other sources’. Further, referring to the provision contained under section 80P(2)(d) of the Act, he observed, deduction under section 80P(2)(a)(i) would be available to the assessee only if the interest 4 ITA No.7137/Del/2019 AY: 2015-16 or dividend income is derived from other co-operative society and not from any bank. Thus, he held that the assessee would also not be eligible for claiming deduction under section 80P(2)(a)(i) of the Act. While coming to such conclusion, he relied upon the decision of the Hon’ble Supreme Court in case of Totgars’ Co- operative Sale Society Ltd., 322 ITR 283 (SC) and Kherva Co- operative Credit Society Vs. ITO (citation not provided). Thus, ultimately, he assessed the interest income under the head ‘income from other sources’ and consequently disallowed assessee’s claim of deduction under section 80P(2)(a)(i) of the Act. Though, the assessee challenged the aforesaid decision of the Assessing Officer before learned Commissioner (Appeals), however, it was unsuccessful. 6. Learned counsel for the assessee submitted that the main object of the assessee is to undertake thrift and credit business. He submitted, in course of such business, assessee borrows money on payment of interest and at the same time lends money on receiving interest. He submitted, at times, if a part or whole of interest bearing fund is not utilized for giving loan to its member, then as per its object, to maximize the utility of resources such funds are temporarily parked with the banks in the form of fixed 5 ITA No.7137/Del/2019 AY: 2015-16 deposit and savings bank accounts and interest is earned on it. He submitted, such interest received merges with other funds of the society and used in its business activity of lending to the members. Therefore, the interest earned on FDRs and savings bank accounts cannot be considered in isolation of its business activity. Thus, he submitted, the interest income earned has to be assessed under the head ‘income from business or profession’. He submitted, the decision relied upon by the departmental authorities are factually distinguishable, hence, inapplicable to assessee’s case. Thus, he submitted, interest income should be assessed as business income and assessee’s claim of deduction under section 80P(2) should be allowed. Without prejudice, he submitted, since the investments made in FDRs and savings bank accounts are out of funds taken on interest paid to member and there are another administrative expenses incurred on it, proportionate expenses should be allowed under section 57(iii) of the Act. In support of his contention, learned counsel relied on the following decision: 1. National Co-operative Development Corporation Vs. CIT, Civil Appeal Nos. 5105-5107 of 2009, dated 11.09.2020 (Supreme Court). 6 ITA No.7137/Del/2019 AY: 2015-16 2. Kherava Co-operative Credit Society Ltd. Vs. ITO, ITA No. 2704/Ahd./2015., dated 11.02.2016. 7. The learned Departmental Representative strongly relied upon the observations of departmental authorities. 8. I have considered rival submissions and perused the materials on record. The dispute in the present appeal is within a narrow compass. Firstly, whether the interest income earned on FDRs and saving bank accounts is assessable as income from business or profession and, secondly, whether the assessee is eligible to claim deduction under section 80P(2)(i)(a) of the Act. Undoubtedly, the assessee is engaged in the business of providing credit facilities/lending funds to its members. This factual position has not been disputed by the departmental authorities. It is the contention of the assessee from the initial stages that in course of its business of borrowing funds for lending to its members, the assessee has to pay interest and receive interest. Therefore, the unutilized borrowed funds which cannot be immediately lent to the members are temporarily parked in savings bank accounts or FDRs for earning interest income which ultimately merges with all its funds utilized for lending purpose. In my view, the aforesaid contention of the assessee merits 7 ITA No.7137/Del/2019 AY: 2015-16 consideration. When it is an accepted position that assessee is lending to its members for which it borrows funds, it has to be held that the unutilized borrowed funds temporarily parked as investments in FDRs and savings bank accounts has to be considered to be in the process of its business activity. More so, when the interest income earned merges with its funds utilized for lending to member. In case of National Co-operative Development Corporation (Supra), the Hon’ble Supreme Court while considering a similar nature of dispute has held that when fund not immediately required for utilization is invested for a short period so that the fund does not lie idle and the income generation from such investment is necessarily interlinked to the business of the assessee, would thus fall under the head of ‘profit and gains from business or profession. In my considered opinion, the aforesaid decision of the Hon’ble Apex Court settles the issue in favour of the assessee. Therefore, I hold that the interest income earned by the assessee has to be assessed under the head business income. 9. Insofar as, assessee’s claim of deduction under section 80P(2)(a)(i), it needs to be factually verified wherefrom the assessee has earned the interest income. If the interest earned is 8 ITA No.7137/Del/2019 AY: 2015-16 from fixed deposits and savings bank accounts held in other cooperative banks, then the assessee would be eligible to claim deduction under section 80P(2)(a)(i) of the Act, as, cooperative banks are primarily cooperative societies. Therefore, after verifying the source of interest income, the Assessing Officer may allow assessee’s claim of deduction under section 80P(2)(a)(i) of the Act. In view of my decision in ground nos. 2 and 3, ground no. 4 has become infructuous. 9. Ground no. 5, being of general ground, does not require adjudication. 10. In the result, the appeal is partly allowed, as indicated above. Order pronounced in the open court on 28 th February, 2022 Sd/- (SAKTIJIT DEY) JUDICIAL MEMBER Dated: 28 th February, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi