The DCIT, Circle-1, Kakinada V. The Kakinada Co-operative Town Bank Limited, Kakinada

MA 151/VIZ/2010

• Counselvise Citation: [2010] 123 COUNSELVISE.COM (IT) 5820 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 06-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Section: 56

Judgement Text

PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM B EFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER S NO. CASE NO. ASSTT YEAR APPELLANT RESPONDENT 1 M A NO. 146 /VIZ/2010 (ITA NO. 3 84 /VIZ/200 3 ) 1997 - 98 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA 2 MA NO.147/VIZ/2010 (ITA NO.385/VIZ/2003) 1998 - 99 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA 3 MA NO.148 /VIZ/2010 (ITA NO.386/VIZ/2003) 1999 - 2000 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA 4 MA NO.143/VIZ/2010 (ITA NO.196/VIZ/2007) 2002 - 03 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN B ANK LIMITED, KAKINADA 5 MA NO.144/VIZ/2010 (ITA 197/VIZ/2007) 2004 - 05 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA 6 MA NO.145/VIZ/2010 (ITA NO.396/VIZ/2007) 2005 - 06 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA 7 MA NO.149/VIZ/2010 (ITANO.392/VIZ/2006) 2003 - 04 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA 8 MA NO.150/VIZ/2010 (ITA N O.177/VIZ/2007) 2006 - 07 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA 9 MA NO.151/VIZ/2010 (ITA NO.193/VIZ/2010) 2002 - 03 DCIT CIRCLE - 1, KAKINADA M/S. KAKINADA CO - OPERATIVE TOWN BANK LIMITED, KAKINADA A PPELLANT BY : SHRI D.S. SUNDER SINGH , DR RESPONDENTS BY : SHRI G.V.N. HARI , CA ORDER PER B .R.BASKARAN, ACCOUNTANT MEMBER : - ALL THESE MISCELLANEOUS APPLICATIONS HAVE BEEN FILED AT THE INSTANCE OF THE REVENUE WITH THE PRAYER THAT THESE PETITIONS BE ADMITTED AND THE ORIGINAL ORDERS BE R ECALLED ON THE GROUND THAT THERE IS A MISTAKE APPARENT FROM RECORD IN THE SAID ORDERS . ALL THESE APPLICATIONS ARE DIRECTED AGAINST THE ORDERS PASSED BY THIS BENCH ON DIFFERENT DATES IN RESPECT OF THE ASSESSMENT YEARS 1997 - 98 TO 1999 - 2000 AND 2002 - 03 TO 20 06 - 07 . THE GROUNDS CITED BY THE REVENUE FOR THEIR PRAYER IS IDENTICAL IN ALL THESE CASES AND HENCE THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN ALL THESE CASES, THE TRIBUNAL HAS HELD THAT THE INTEREST INCOME EARNED ON INVESTMENT MADE OUT OF SURPLUS FUNDS IS ELIGIBLE FOR DEDUCTION UNDER SECTION PAGE 2 OF 5 80P(2)(2)(I) OF THE ACT, BY PLACING RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE FOLLOWING TWO CASES, A) MEHSANA DISTRICT CENTRAL CO - OP APEX BANK VS. ITO (251 ITR 522) B) CIT VS. KARNATAKA STATE COOPERATIVE APEX BANK (251 ITR 194). 3. THE MAIN SUBMISSIONS MADE IN ALL THESE PETITIONS ARE THAT: - A) IN THE TWO CASES DECIDED BY HON'BLE SUPREME COURT, WHICH WAS RELIED UPON BY THE TRIBU NAL, THE INVESTMENTS HAD BEEN MADE DUE TO A STATUTORY COMPULSION TO INVEST FUNDS IN A PARTICULAR MODE , COMPLIANCE OF WHICH WAS MANDATORY IN ORDER TO CARRY ON THE BANKING BUSINESS. HENCE THE INTEREST EARNED THEREON ASSUMES THE NATURE OF BUSINESS OR OPERATI ONAL INCOME AND HENCE IT WAS HELD TO BE ELIGIBLE FOR EXEMPTION UNDER SECTION 80P(2)(A)(IA) ACT. B) IN THE INSTANT CASE, THE CORE BANKING ACTIVITY INVOLV ES BORROWING AND LENDING MONIES. H ENCE THE INVESTMENT OF SURPLUS FUNDS IS IN THE NATURE OF NON - OPERAT IONAL ACTIVIT Y WITH THE OBJECTIVE OF EARNING INTEREST FROM SUCH FUNDS, AS DISTINGUISHED FROM NORMAL BANKING TRANSACTIONS INVOLVING BORROWINGS AND LENDING. HENCE THE INTEREST EARNED ON SUCH SOURCE HAS TO BE TREATED AS NON - OPERATIONAL INCOME, AS THERE IS NO MANDATORY REQUIREMENT TO MAKE SUCH INVESTMENTS AS NOTICED BY THE HON'BLE SUPREME COURT IN THE ABOVE CITED TWO CASES. HENCE THE TWO DECISION S , WHICH WERE RELIED UPON BY THE TRIBUNAL, ARE NOT APPLICABLE TO THE FACTS OF THE CASE, WHICH HAS RESULTED IN A MIS TAKE APPARENT FROM RECORD. C) T HE HON'BLE SUPREME COURT IN THE CASE OF THE TOTGARS CO - OPERATIVE SALE SOCIETY VS. ITO (322 ITR 283) HAS HELD THAT THE INTEREST INCOME EARNED ON UTILIZATION OF ITS SURPLUS FUNDS, NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPO SES, IN SHORT TERM SECURITIES AND DEPOSITS HAS NECESSARILY TO BE TAXED AS INCOME FROM OTHER SOURCES UNDER SECTION 56 OF THE ACT. D) IT IS A SETTLED POSITION OF LAW, AS HELD BY THE HON'BLE SUPREME COURT IN A NUMBER OF CASES INCLUDING THE RECENT CASE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. SAURASHTRA KUTCH STOCK EXCHANGE LTD. (2008) (305 ITR 227) THAT A JUDICIAL DECISION, WHICH IS EXPECTED TO BE FOLLOWED BY THE SUBORDIN A TE COURTS, ACTS RETROSPECTIVELY ON THE PRINCIPLE THAT THE COURTS DO NOT MAKE LAW, THEY ONLY DISCOVER OR FIND THE CORRECT LAW AND OVERRULING OF A PREVIOUS DECISION IS A DECLARATION THAT THE SUPPOSED RULE NEVER WAS LAW. ACCORDINGLY, THE LATEST DECISION WOULD HAVE TO OPERATE RETROSPECTIVELY BY CLARIFYING THE LEGAL POSITION WHICH WAS EARL IER NOT CORRECTLY UNDERSTOOD. AT THE TIME OF HEARING, THE LEARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE SUBMISSIONS STATED ABOVE. PAGE 3 OF 5 4. ON THE CONTRARY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF THE TOTGA R S COOPERATIVE SALE SOCIETY, (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE FOR THE REASON THAT THE ASSESSEE THEREIN WAS NOT A BANKING COMPANY . T HE HON'BLE APEX COURT, IN PARA 11 OF ITS ORDER HAS CATEGORICALLY HELD THAT THE RE IS NO MERIT IN RELYING ON THE DECISIONS RELATED TO THE CO - OPERATIVE BANKS, SINCE THE ASSESSEE THEREIN WAS NOT A BANKING COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE STATED THAT THE APPEAL IN THE ABOVE CITED CASE HAS EMANATED FROM THE DECISION OF HON' BLE KARNATAKA HIGH COURT REPORTED IN (2010) (322 ITR 272) . THE HON'BLE KARNATAKA HIGH COURT HAS CATEGORICALLY HELD THAT THE ASSESSEE M/S THE TOT GARS CO - OPERATIVE SALE SOCIETY L TD, IS NOT A CO - OPERATIVE BANK AND THE DECISIONS RENDERED IN THE HANDS OF CO - OP ERATIVE BANKS COULD NOT BE RELIED UPON BY THE ASSESSEE . 5. WE HAVE HEARD THE PARTIES AND ALSO PERUSED THE PETITIONS CAREFULLY. THE DEPARTMENT HAS MAINLY PLACED ITS RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF THE TOTGARS COOPERA TIVE SALE SOCIETY, (SUPRA). IT WAS AN ADMITTED FACT THAT THE ASSESSEE IN THAT CASE WAS NOT A CO - OPERATIVE BANK. THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS THAT THE DECISION RENDERED IN THAT CASE IS STILL APPLICABLE TO THE ASSESSEE HERE IN, SINCE THE INTEREST INCOME EARNED FROM THE INVESTMENT MADE OUT OF SURPLUS FUNDS CANNOT BE CONSIDERED AS INCOME FROM BANKING BUSINESS. 6. THERE CANNOT BE ANY DISPUTE THAT THE BUSINESS OF BANKING INVOLVES COLLECTION OF MONEY BY WAY OF DEPOSITS AND LE NDING OF MONEY BY WAY OF LOANS. HENCE, THE STOCK IN TRADE OR THE CIRCULATING ASSET IN THE BANKING BUSINESS IS MONEY ONLY . HENCE, IT CANNOT BE DENIED THAT A BANK, IN ORDER TO MEET THE UNFOR ESEEN DEMAND FROM THE BORROWERS WHICH MAY ARISE AT ANY POINT OF TIME, IS REQUIRED TO KEEP CERTAIN AMOUNT OF MONEY IN ITS HANDS. T HE QUESTION IS WHETHER THE MONEY SO KEPT CAN BE TERMED AS SURPLUS FUNDS AS DISTINGUISHED FROM BUSINESS FUNDS . ANY ANSWER GIVEN TO THE SAID QUESTION WOULD BE A DEBATABLE ANSWER ONLY . PAGE 4 OF 5 7. IT IS PERTINENT TO REFER TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SOLAPUR NAGARI AUDYOGIC SAHAKARI BANK LTD. (2010) (328 ITR 292), WHERE IN THE HIGH COURT HAS EXPLAINED THE CONCEPT OF INTEREST INCOME EARNED FROM THE SUR PLUS FUNDS VIS - - VIS 80P OF THE ACT. THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW: IT WAS CONTENDED THAT WHERE THE CO - OPERATIVE BANKS WITHDRAW SURPLUS AMOUNT FROM THE CIRCULATING OR WORKING CAPITAL AND KEEP THEM IN VOLUNTARY RESERVES, THEN IT WOULD MEAN THAT THESE SURPLUS AMOUNTS ARE NOT IMMEDIATELY NEEDED FOR THE BANKING BUSINESS. IN SUCH A CASE, IT IS CONTENDED THAT INVESTING THE SURPLUS AMOUNTS IN THE VOLUNTARY RESERVES IN KVP/IVP FOR A LONG PERIOD OF FIVE YEARS CANNOT BE SAID TO BE DURING THE COURSE OF BANKING BUSINESS. THERE IS NO MERIT IN THE ABOVE ARGUMENT, BECAUSE, THE VERY SAME ARGUMENT ADVANCED BY THE REVENUE IN THE CASE OF KARNATAKA STATE CO - OPERATIVE APEX BANK (2001)(251 ITR 194 (SC) HAS BEEN REJECTED BY THE APEX COURT BY HOLDING THAT THERE IS NOTHING IN THE PHRASEOLOGY OF SECTION 80P(2)(A)(I) WHICH MAKES IT APPLICABLE ONLY TO INCOME DERIVED FROM WORKING OR CIRCULATING CAPITAL. THEREFORE, IN ALL THESE CASES, WHERE THE SURPLUS FUNDS NOT IMMEDIATELY REQUIRED FOR DAY TO DAY BANKING WERE KEPT IN VOLUNTARY RESERVES AND INVESTED IN KVP/IVP, THE INTEREST INCOME RECEIVED FROM KVP/IVP WOULD BE INCOME FROM BANKING BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. IN THE RESULT, THERE BEING NO DISPUTE THAT THE FUNDS IN THE VOLUNTAR Y RESERVES WHICH WERE UTILIZED FOR INVESTMENT IN KVP/IVP BY THE CO - OPERATIVE BANKS WERE THE FUNDS GENERATED FROM THE BANKING BUSINESS, WE HOLD THAT IN ALL THESE CASES THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE INTEREST INCOME RECEIVED BY THE CO - OPERATI VE BANKS FROM THE INVESTMENTS IN KVP/IVP MADE OUT OF THE FUNDS IN THE VOLUNTARY RESERVES WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. 8 . THUS IT IS SEEN THAT THE DECISION OF HON'BLE SUPREME COURT RELIED UPON BY THE DEPARTMENT IS RENDERED IN RESPECT OF A CO - OPERATIVE SOCIETY WHICH IS NOT ENGAGED IN BANKING BUSINESS. FURTHER IT IS ALSO SEEN THAT THE BOMBAY HIGH COURT HAS EXPRESSED THE VIEW THAT THE INTEREST INCOME EARNED ON INVESTMENTS MADE OUT OF FUNDS GENERATED FROM THE BANKING BUSINESS IS ELIGIBLE FOR DEDUCTION UNDER PAGE 5 OF 5 SECTION 80P OF THE ACT. HENCE THE VIEW OF THE DEPARTMENT WITH REGARD TO THE IMPUGNED INTEREST INCOME CANNOT BE TREATED AS THE ONLY POSSIBLE VIEW . IN VIEW OF THE FOREGOING DISCUSSIONS, THE VIEW OF THE TRIBUNAL IN ALL THESE CASES CANNOT BE TAKEN AS A MISTAKE APPARENT FROM RECORD. 9 . THEREFORE, WE DO NOT FIND ANY ERROR APPARENT FROM RECORD IN THE ORDER OF THE TRIBUNAL. ACCORDINGLY, THE MISCELLANEOUS APPLICATION S OF THE REVENUE ARE REJECTED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 12.11.2010. SD/ - SD/ - (SUNIL KUMAR YADAV) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM DATE: 12 TH NOVEMBER, 2010 COPY TO 1. THE DCIT, CIRCLE - 1, KAKINADA 2. THE KAKINADA CO - OPERATIVE TOWN BANK LIMITED, 11 - 3 - 6, VETERINARY HOSPITAL STREET, RAMARAO PET, KAKINADA, EAST GODAVARI DISTRICT. 3. THE COMMISSIONER OF INCOME - T AX (APPEALS), VISAKHAPATNAM 4 . THE C OMMISSIONER OF INCOME TAX , VISAKHAPATNAM 5 . THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., VISAKHAPATNAM 6 . GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM