ACIT, Kannur V. Kannur District CO-OP Bank Ltd., Kannur

ITA 795/COCH/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4431 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 20-04-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 30-06-2008
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: R RAJASEKHARANCA
• Keywords: Business income; Source of fund
• Section: 251; 264

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN. BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T.A.NOS.793, 794 & 795/COCH/2008 ASSESSMENT YEARS:2000-01,2001-02 & 2002-03 THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), KANNUR. VS. THE KANNUR DIST.CO-OP.BANK LTD., KANNUR-670 001. PAN AABFT6295R (APPELLANT) (RESPONDENT) APPELLANT BY SHRI T.J. VINCENT, JR. D.R. RESPONDENT BY SRI R. RAJASEKHARAN,CA O R D E R PER N.VIJAYAKUMARAN, JM: THESE THREE APPEALS ARE BY THE DEPARTMENT FOR THE CONSECUTIVE ASSESSMENT YEARS 2000-01, 2001-02 AND 2002-03. TH ESE APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE CIT(APPEALS)III , KOCHI DATED 28- 03-2008 AND ARISE OUT OF THE ASSESSMENTS COMPLETED U/S.143(3) OF THE INCOME-TAX ACT,1961. SINCE THE ISSUE BEING COMMON , FOR THE PURPOSE OF DISCUSSION, WE ARE TAKING THE APPEAL IN ITA NO.7 93/COCH/2008 FOR THE ASSESSMENT YEAR 2000-01. 2. BY WAY OF GROUNDS OF APPEAL, THE DEPARTMENT IS C ONTENDING THAT THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE CLAIM O F ASSESSEE THAT ITA NOS.793,794 & 795/COCH/2008 2 INCOME FROM INVESTMENTS OUT OF SURPLUS FUNDS WAS PA RT OF BANKING INCOME AND HENCE ELIGIBLE FOR DEDUCTION U/S.80P(2)( A)(I) OF THE I.T.ACT. SHRI T.J. VINCENT, LD. D.R. FURTHER SUBMITTED THAT LD. CIT(APPEALS) OUGHT TO HAVE LOOKED INTO THE FACT THAT THE DECISIO N CITED BY THE ASSESSEE DEALS WITH INCOME DERIVED FROM COMPULSORY DEPOSITS, STATUTORY RESERVES WHICH ARE PART AND PARCEL OF BAN KING BUSINESS. THE LD. D.R. FURTHER SUBMITTED THAT THE HONBLE SUPREME COURT DISTINGUISHED THE TWO SOURCES OF INCOME EARNED FROM UTILIZATION OF THE STATUTORY RESERVES AND VOLUNTARY RESERVES OTHER THA N THE STATUTORY RESERVES HAVE TO BE VIEWED SEPARATELY. THEREFORE, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MEHSANA DISTRICT CENTRAL CO- OPERATIVE BANK LTD VS. ITO (2001) 251 ITR 522 IS CLEARLY DISTINGUISHABLE. THE LD. D.R. RELIED ON THE DECIS ION OF THE HONBLE APEX COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (2010)322 ITR 283 AND SUBMITTED THAT THE INVESTMENT OF SURPLUS ON HAND NOT IMMEDIATELY REQUIRED IN SHORT TERM DEPO SITS AND SECURITIES AND INTEREST ON SUCH DEPOSITS ARE NOT BUSINESS INCO ME BUT INCOME FROM OTHER SOURCES, IS THE ARGUMENT OF THE LD. D.R. THEREFORE, THE LD. DR DISTINGUISHED THE ORDER OF THE TRIBUNAL DATED 26 -03-2008 FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05, IN THE ASSESS EES OWN CASE, IN VIEW OF THE RECENT DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (20 10) 322 ITR 283. ITA NOS.793,794 & 795/COCH/2008 3 3. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD VS. ITO (200 1) 251 ITR 522 IS THE DECISION OF THE LARGER BENCH AND IS DIRECTLY AP PLICABLE TO THE FACTS OF THE PRESENT CASE. THE LD. COUNSEL FOR THE ASSES SEE FURTHER SUBMITTED THAT THE CASE LAW RELIED UPON BY THE LD. D.R. IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (20 10) 322 ITR 283 WAS NOT A BANKING COMPANY INVOLVING ANY BANKING BUS INESS BUT WAS ENGAGED IN EXTENDING CREDIT FACILITIES TO ITS MEMBE RS AND ALSO MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS. IN THIS CASE, THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN BANKI NG BUSINESS ACTIVITIES. IT IS FURTHER SUBMITTED BY THE LD. CO UNSEL THAT THE INVESTMENTS MADE UNDER REFERENCE WAS IN THE COURSE OF ASSESSEES BANKING BUSINESS, WHICH WAS UPHELD BY THE TRIBUNAL THROUGH ITS ORDER DATED 26-03-2008 FOR THE ASSESSMENT YEARS 2003-04 A ND 2004-05, IN ITA NOS.631 & 632/COCH/2006. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF CIT VS. RAMANATHAPURAM DISTRICT CO-OPERATIVE CENTRA L BANK LTD. (2002) 255 ITR 423 WHEREIN THE DECISION OF THE MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD VS. ITO (2001) 251 IT R 522 WAS ALSO CONSIDERED AND THE HONBLE SUPREME COURT HELD THAT THAT INTEREST ON SECURITIES IS THE BUSINESS INCOME OF THE ASSESSEE A ND ENTITLED FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THEREFORE, THE ISSUE ITA NOS.793,794 & 795/COCH/2008 4 IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. FU RTHER, TRIBUNAL ALSO IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 HAS HELD IN FAVOUR OF THE ASSESSEE, WHICH T HE LD. COUNSEL RELIED HEAVILY THAT THE SECURITIES HELD BY THE ASSE SSEE BANK ARE IN THE NATURE OF STOCK-IN-TRADE. AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NEDUNGADI BANK LTD. (2003) 264 ITR 545(KER.) AND A PERUSAL OF THE REASONS GIVEN BY THE LD. CI T(APPEALS) AND THE CASE LAWS ON THE ISSUE, THE TRIBUNAL WAS OF THE VIEW THAT THE FIRST APPELLATE AUTHORITY HAS RIGHTLY HELD THAT THE INCOME FROM SECURITIES OF KSEB AND KSIFB FORM PART AND PARCEL O F BUSINESS INCOME OF THE ASSESSEE BANK AND QUALIFY FOR DEDUCTION U/S. 80P(2)(I). THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE IS ENGA GED IN BANKING BUSINESS BUT INVESTMENTS IN THE NATURE REFERRED TO ARE MADE IN THE COURSE OF ITS BUSINESS AND NOT AMOUNTING TO UTILIZA TION OF SURPLUS FUNDS BUT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (2010) 322 ITR 283, THE ASSESSEE WAS NOT ENGAGED IN BANKING BUSINESS. HENCE, THE HONBLE SUPREME COURT HELD TH AT INVESTMENT OF SURPLUS FUNDS AMOUNTED TO NON-BANKING ACTIVITY. T HE LD. COUNSEL THEREFORE FINALLY CONCLUDED THAT ON THE FACTS OF TH E PRESENT CASE, THE BUSINESS IS ENTIRELY DIFFERENT FROM TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (2010) 322 ITR 283 . IT IS ALSO PERTINENT TO NOTE THAT IN TOTGARS CO-OPERATIVE SALE SOCIETYS CASE, THE DECISIONS WHICH ARE APPLICABLE TO THE BANKS I.E. MEHSANA DISTRICT CENTRAL CO-OPERATIVE ITA NOS.793,794 & 795/COCH/2008 5 BANK LTD VS. ITO (2001) 251 ITR 522 AND CIT VS. RAM ANATHAPURAM DISTRICT CO-OPERATIVE CENTRAL BANK LTD. (2002) 255 ITR 423 WERE NOT BROUGHT TO THE ATTENTION OF THE HONBLE APEX COURT, NOR REFERRED BY THE HONBLE APEX COURT, AS THE FACTS OF THESE DECISIONS WERE NOT APPLICABLE TO THE SAID CASE. THE LD. COUNSEL, THEREFORE, BY RELYING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 2003-04 AND 2004-05 AND BY DISTINGUISHING THE DECISION RELI ED BY THE LD. JR. D.R. IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (2010) 322 ITR 283 AND FURTHER RELYING ON THE DECISIONS OF THE HONBL E SUPREME COURT IN THE CASES OF MEHSANA DISTRICT CENT RAL CO-OPERATIVE BANK LTD VS. ITO (2001) 251 ITR 522 AND CIT VS. RAM ANATHAPURAM DISTRICT CO-OPERATIVE CENTRAL BANK LTD. (2002) 255 ITR 423 WAS OF THE VIEW THAT THE SECURITIES HELD BY THE ASSESSEE BANK ARE IN THE NATURE OF STOCK IN TRADE AS THE ASSESSEE IS ENGAGED IN BANKI NG BUSINESS. THUS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT FINDINGS OF THE LD. CIT(APPEALS) REQUIRES TO BE CONFIRMED BY DISMISSING THE APPEALS OF THE REVENUE, IS THE ARGUMENT OF THE LEARNED COUNSEL. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRECEDENCE. THE A RGUMENT OF THE LD. COUNSEL IS QUITE CONVINCING AND THE ATTEMPT MADE BY THE LD. DR SO AS TO DEVIATE FROM THE EARLIER FINDINGS BY RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. ITA NOS.793,794 & 795/COCH/2008 6 VS. ITO (2010) 322 ITR 283 IS CLEARLY DISTINGUISHABLE IN VIEW OF THE FACT THAT THE ASSESSEE IS A DISTRICT CO-OPERATIVE B ANK AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD. CITED SUPRA , WHICH IS THE L ARGER BENCH DECISION IS APPLICABLE, ALONGWITH THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF RAMANATHAPURAM DISTRICT CO-OPERATIVE CE NTRAL BANK LTD. FURTHER, THE TRIBUNAL HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 VIDE ITS O RDER DATED 26- 03-20208, WE DONT FIND ANY JUSTIFICATION TO DEVIAT E FROM THE EARLIER ORDER OF THE TRIBUNAL. HENCE, ALL THE THREE APPE ALS OF THE DEPARTMENT ARE LIABLE TO BE DISMISSED AND ACCORDINGLY DISMISSE D. 5. IN THE RESULT, REVENUES APPEALS ARE DISMISSED. SD/- SD/- (SANJAY ARORA) (N.VIJAYAKUMARAN) ACCOUNTANT MEMBER JUDICIAL MEMBER ERNAKULAM, DATED THE 21 ST APRIL, 2010. PM. COPY FORWARDED TO: 1. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2( 1), KANNUR. 2. THE KANNUR DIST.CO-OP.BANK LTD., KANNUR-670 001 . 3. CIT., KANNUR. 4. CIT(A)-III,KOCHI. 5. D.R.