ITO 1(3)(2), MUMBAI V. THE MEMON CO-OP BANK LTD, MUMBAI

ITA 7736/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8509 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 10-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHRI
• Keywords: Business income
• Section: 143(3); 56

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT / AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 7736/MUM/2010 ASSESSMENT YEAR 2004-05 ITO 1(3)(2), ROOM NO. 540/564, 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, NEW MARINE LINES, MUMBAI 400 020. VS. THE MEMON CO-OP. BANK LTD., PATEL & SONY ARCADE, 234, BELLASIS ROAD, NAGPADA, MUMBAI-400 008 PAN: AAAAT 0066 G ( '( / APPELLANT ) ( )*'( / RESPONDENT ) REVENUE BY : SHRI MOHIT JAIN ASSESSEE BY : SHRI PANKAJ R. TOPRANI + ,$ / DATE OF HEARING : 11-09-2012 -. + ,$ / DATE OF PRONOUNCEMENT : 03-10-2012 %!/ / O R D E R PER RAJENDRA, A.M. THE APPELLANT HAS FILED THIS APPEAL AGAINST THE ORD ER DT. 20-08-2010 OF THE CIT(A)-2, MUMBAI ON THE FOLLOWING GROUNDS: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW, IN DIRECTING TO TAX INTEREST RECEIVED FROM DEPOSITS OF SURPLUS FUNDS WI TH OTHER BANKS AS PROFIT AND GAINS OF BUSINESS ELIGIBLE FOR DEDUCTION U/S.8OP AGAINST I NCOME FROM OTHER SOURCES NOT ELIGIBLE FOR DEDUCTION U/S.80P HELD BY THE AO. 1.1 THE CIT(A) FURTHER ERRED IN OVERLOOKING THE DECISION OF THE SU PREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD., VS. ITO IN CIVIL APPEAL NOS.1622 TO1629 OF 2010 DTD.08.02.2010 WHEREIN IT HAS BEEN HELD THAT ASSESS EE IS NOT ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) WHERE SUCH INTEREST WAS EARNED ON SURPLUS FUNDS INVESTED IN SHORT TERM DEPOSITS. 1.2 THE CIT(A) FURTHER ERRED IN OVERLOOKING THE RE LIANCE PLACED IN THE CASE OF CIT VS. I.TA. NO. 7736/MUM/2010 THE MEMON CO-OP. BANK LTD. 2 NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LIMITED 289 I TR 6 WHICH FOLLOWED THE DECISION OF KARNATAKA CO-OP. APEX BANK 251 ITR 194 (SC) IS NOT APPLICABLE TO THE FACTS OF THE CASE SINCE IN THAT CASE, THE ASSESSEE WAS LEGALLY REQUIRED TO PLACE PART OF ITS FUNDS WITH STATE BANK OR RESERVE BANK WHEREAS IN THE PRESENT CASE, THE ASSES SEE HAS INVESTED ITS SURPLUS FUNDS WITH VARIOUS BANKS FROM WHICH IT HAS EARNED INTEREST INC OME. 2. ASSESSEE-BANK ENGAGED IN THE BUSINESS OF BANKING FI LED ITS RETURN OF INCOME ON 26. 10.2004 DECLARING TOTAL INCOME AT RS. NIL.ASSESSMEN T WAS COMPLETED U/S. 143(3) OF THE INCOME TAX ACT,1961 (ACT)BY THE ASSESSING OFFIC ER (AO) ON 31.11.2006 DETERMI -NING TOTAL INCOME AT RS. 20,90,550/-.DURING THE AS SESSMENT PROCEEDINGS, AO FOUND THAT ENTIRE INCOME WAS CLAIMED AS EXEMPT U/S. 80B ( 2)(A)(I) OF THE ACT. ON PERUSAL OF THE P&L A/C, HE FOUND THAT THE ASSESSEES INCOME IN CLUDED AN AMOUNT OF RS. 20.9 LAKHS, THAT THE SAID AMOUNT REPRESENTED INTEREST ON SHORT/FIXED DEPOSITS WITH ARAB BANGLADESH BANK LTD(ABB).HE HELD THAT THE INTEREST RECEIVED WAS INCOME BY WAY OF ACTIVITIES OTHER THAN THOSE SPECIFIED IN CLAUSE (A) (B) OF THE SECTION 80 (P)(2) OF THE ACT.HE HELD THAT INCOME DERIVED FROM SUCH ACTIVITIE S WERE TAXABLE IN ADDITION OF RS. 20.9 LAKHS WAS MADE TO THE TOTAL INCOME OF THE ASSE SSEE-BANK.ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).HE HELD THAT THE BANK WAS REQUIRED TO KEEP FUNDS AS INVESTMENT WITH ABB FOR L/C AND FOREI GN EXCHANGE FACILITIES SINCE APPELLANT ITSELF WAS NOT AN AUTHORIZED DEALER,THAT THE PURPOSE FOR WHICH THE INVESTMENT HAD BEEN KEPT WERE NO DOUBT VERY MUCH OPERATIVE BUS INESS OF BANKING, THAT INTEREST RECEIVED ON DEPOSITS KEPT FOR THE PURPOSE WOULD ALS O BEAR THE CHARACTER OF BANKING, THAT APPELLANT HAD ALSO KEPT SURPLUS FUNDS WITH VAR IOUS BANKS ON WHICH INTEREST HAD BEEN EARNED,THAT IT WAS UTILISATION OF FUNDS OF THE BANK FOR EARNING PROFIT FROM BANKING ACTIVITIES, THAT EVEN INTEREST RECEIVED IN THIS MAN NER WAS TO BE TREATED AS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS O R PROFESSION,THAT ACTIVITIES CARRIED OUT BY THE ASSESSEE-BANK WERE COVERED BY THE PROVIS IONS OF SECTION 80(P)(2) OF THE ACT,THAT DIS-ALLOWANCE OF CLAIM OF BUSINESS INCOME MADE BY THE AO WAS NOT JUSTIFIED,THAT INTEREST INCOME COULD NOT BE TAXED A S INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES,THAT IT WAS REQUIRED TO BE TAXE D AS PROFIT AND GAINS OF THE BUSINESS OR PROFESSIONS ELIGIBLE U/S. 80(P)(2) OF THE ACT.FI NALLY, HE DELETED THE ADDITION MADE BY THE AO. 3. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUBMITT ED THAT INTEREST RECEIVED FROM DEPOSIT OF SURPLUS FUND WITH OTHER BANKS WAS ELIGIB LE FOR DEDUCTION U/S. 80 (P)(2) OF THE ACT.HE RELIED UPON THE CASES OF TOTGARS CO-OPER ATIVE SALE SOCIETY LTD., (322 ITR 283),THAT FAA OVER-LOOKED THE DECISION OF NAWANSHAH AR CENTRAL CO-OPERATIVE BANK LIMITED(289ITR6),THAT FACTS OF THE CASE OF KARNATA KA STATE CO-OPERATIVE APEX BANK (251ITR194)WERE NOT APPLICABLE IN THE CASE UNDER CO NSIDERATION.AUTHORISED REPRESEN -TATIVE(AR)SUBMITTED THAT ASSESSEE-BANK WAS NOT AUT HORISED DEALER OF FOREIGN EXCHAN- GE THAT IT HAD TO PLACE CERTAIN FUNDS WITH THE ARAB BANGLADESH BANK,THAT INTEREST RECEIVED FROM THE SAID BANK WAS EXEMPT U/S.80 (B)(2 ) OF THE ACT. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.IT IS FOUND THE ASSESSEE-BANK HAD KEPT FUNDS WITH THE ABB AND IT RECEIVED INTEREST FROM THE SAID DEPOSITS.IN OUR OPINION INTEREST RECEIVED FROM ABB IS NOT ELIGBLE FOR DEDUCTION CLAIMED BY THE ASSESSE.HONBLE APEX COURT IN THE CA SE OF TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD.(SUPRA) HAS CONSIDERED THE SCOPE OF THE DEDUCTION AND HAS HELD THAT ONLY OPERATIONAL PROFIT CAN GET DEDUCTION. HONBLE COURT HAS DECIDED THE ISSUE AS UNDER : THE WORDS 'THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS' IN SECTION 80P(2) OF THE INCOME-TAX ACT, 1961,EMPHASISE THAT THE INCOME IN RESPECT OF WHICH DEDUCTION IS SOUGHT I.TA. NO. 7736/MUM/2010 THE MEMON CO-OP. BANK LTD. 3 BY A CO-OPERATIVE SOCIETY MUST CONSTITUTE THE OPERA TIONAL INCOME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. THE INTEREST INCOME A RISING TO A CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO I TS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS, ON THE SURPLUS,WHICH IS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, FROM INVESTMENT IN SHORT-TERM DEPOSITS AN D SECURITIES,HAS TO BE TAXED AS INCOME FROM OTHER SOURCES UNDER SECTION 56 OF THE INCOME-T AX ACT,1961.SUCH INTEREST CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY , VIZ.,CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF AG RICULTURAL PRODUCE OF ITS MEMBERS. INTEREST INCOME OF SUCH SOCIETY FROM AMOUNTS RETAINED BY IT CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OR S ECTION 80P(2)(A)(III) OF THE ACT. 4.1. IN OUR OPINION INTEREST RECEIVED BY THE ASSESSEE-BA NK FROM DEPOSIT KEPT WITH OTHER BANKS HAS TO BE CHARGED UNDER THE HEAD INCOME FROM OTHER SOURCES AND SAME IS NOT ENTITLED FOR DEDUCTION UNDER PROVISIONS OF CHAPTER VI-A.DEDUCTION,EXEMPTIONS AND REBATES HAVE BEEN INCLUDED IN THE ACT FOR SPECIFIC PURPOSES. SECTIONS DEALING WITH THEM HAVE BEEN INTRODUCED TO GIVE IMPETUS TO PARTIC ULAR ACTIVITY.IN OUR OPINION CONCESSIONS OF CHAPTER III AND VIA CAN BE GIVEN WHE N ALL THE CONDITIONS,ENUMERATED IN RESPECTIVE SECTIONS,ARE FULFILLED.PURPOSE OF INC ORPORATING SEC.80P(2) IN THE ACT IS TO ENCOURAGE COOPERATIVE MOVEMENT. INCOME ARISING OF O PERATIONAL INCOME IS ELIGIBLE FOR DEDUCTION U/S.80P(2) OF THE ACT,AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD.(SUPRA). AS FAR AS INTEREST RECEIVED FROM THE ABB IS CONCERN ED IT IS CLEAR THAT SAME WAS RECEIVED BY THE ASSESSEE FROM THE DEPOSITS LYING WI TH THE ABB.ASSESSEE DID NOT HAD FOREX-FACILITIES AND FOR AVAILING THE SAME IT HAD T O PLACE CERTAIN FUNDS WITH THE ABB. INTEREST RECEIVED FROM SUCH DEPOSITS WAS PART OF TH E BUSINESS OF THE ASSESSEE,HENCE, ALLOWABLE. 4.2. WE FIND THAT WHILE MAKING THE ADDITION OF RS.20.9 L AKHS AO HAS NOT BIFURCATED THE INTEREST AMOUNT IN TO TWO CATEGORIES I.E. A)INTERES T RECEIVED FROM THE ABB B)INTEREST RECEIVED FROM OTHER BANKS.IN THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR T HIS LIMITED PURPOSE.ASSESSEE IS DIRECTED TO PROVIDE DETAILS OF INTEREST RECEIVED BY IT DURING THE AYUNDER CONSIDERATION TO THE AO.AO SHOULD PASS ORDER AFTER VERIFICATION A ND AFTER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. PARTLY REVERSING THE ORDERS OF THE FAA GROUND NO.1 IS DECIDED IN FAVOUR OF THE AO IN PART. AS A RESULT,APPEAL FILED BY THE AO STANDS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD OCTOBER, 2012. SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& / ACCOUNTANT MEMBER MUMBAI, 0% DATE: 3 RD OCTOBER, 2012 I.TA. NO. 7736/MUM/2010 THE MEMON CO-OP. BANK LTD. 4 TNMM %!/ %!/ %!/ %!/ + ++ + ),1 ),1 ),1 ),1 2!1., 2!1., 2!1., 2!1., / COPY OF THE ORDER FORWARDED TO : 1. APP ELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE *1, ), //TRUE COPY// %!/ %!/ %!/ %!/ / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI