PUNJAB STATE COOPERATIVE FEDERATION OF HOUSE BUILDING SOCIETIES LTD vs. COMMISSIONER OF INCOME TAX-II CHANDIGARH

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ITA/40/2016HC Punjab & HaryanaPHHC01110611201607 December 2016Author: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE AVNEESH JHINGAN4 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court decided the appeal based on previous judgments. For question (ii), the Court held against the appellant, relying on its own prior judgment in ITA-17-2016. For question (iii), the Court also ruled against the appellant, citing its judgment in ITA-638-2009. Similarly, for question (vi), the Court found against the appellant, referencing its decision in ITA-158-2016. Regarding questions (iv) and (v), the Court noted that the appellant had not claimed deduction under Section 57, arguing instead that the interest income should be treated as business income. To meet the ends of justice, the Court permitted the appellant to raise this contention before the Tribunal for questions (iv) and (v). The appeal on these specific questions was remitted to the Tribunal for consideration, with the Tribunal having the discretion to decide the issue itself or remit it further. The appeal concerning other questions was dismissed.

What were the facts?

This appeal concerns the assessment year 2011-2012 and arises from an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had dismissed the appellant-assessee's appeal and partly allowed the revenue's appeal. The appellant is The Punjab State Cooperative Federation of House Building Societies Ltd., Chandigarh, and the respondents are the Commissioner of Income Tax-II, Chandigarh, and another. The appellant is challenging the ITAT's decision on several substantial questions of law.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the ITAT's orders were legally sustainable. 2. Whether interest earned from banks other than cooperative banks on its bank accounts, treated as income from other sources, was attributable to business income, thereby disallowing deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. 3. Whether the ITAT erred in upholding the Assessing Officer's order and reversing the CIT(A)'s order, treating gross interest income of Rs. 15,11,996/- received on loans advanced to employees for housing and conveyance as income from other sources, despite previous ITAT orders treating it as business income. 4. Whether the ITAT erred in passing the order without distinguishing a co-equal bench's earlier order, which treated similar gross interest income as business income. 5. Whether interest on deposits held with scheduled banks was chargeable to tax under Section 56 as 'income from other sources' without allowing deductions for cost of funds and proportionate expenses under Section 57. 6. Whether the ITAT erred in upholding the Assessing Officer's and CIT(A)'s orders, treating income as business income instead of long-term capital gain on the sale of old properties, thereby disallowing deductions under Section 48 and special tax rates. Assessee's contentions: The assessee argued that interest on loans to employees for housing and conveyance should be treated as business income, as it was a condition precedent of its service rules and had been treated as such for 25 years. They also argued that income from sale of old properties should be treated as long-term capital gain. For issue (v), the assessee contended that if the interest income from scheduled banks was treated as income from other sources, deductions under Section 57 should be allowed. Revenue's contentions: The revenue's arguments are not explicitly detailed in the provided text, but their position is reflected in the ITAT's decision which partly allowed their appeal and upheld the Assessing Officer's orders on certain points.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 56,Section 57,Section 48

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA-40-2016 (O&M) Date of decision:- 07.12.2016 The Punjab State Cooperative Federation of House Building Societies Ltd. Chandigarh. ...Appellant Versus Commissioner of Income Tax-II, Chandigarh and another ...Respondents CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, CHIEF JUSTICE HON’BLE MR. JUSTICE DEEPAK SIBAL Present:- Mr. M.R. Sharma, Advocate, for the appellant. Ms. Urvashi Dhugga, Advocate, for the respondents. * * * * S.J. VAZIFDAR, C.J. (ORAL) This is an appeal against the order of the Income Tax Appellate Tribunal dismissing the appellant/assessee’s appeal and partly allowing the respondents/revenues’ appeal. The matter pertains to the assessment year 2011-2012. 2. According to the appellant, the following substantial questions of law arise in this appeal:- “(i) Whether in the facts and circumstances of the case the orders (Annexure A-1), (Annexure A-3) and partly (Annexure A-2) are legally sustainable? (ii) Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal is right in law in holding that the gross total income earned from banks other than cooperative banks as interest on its bank accounts as Amodh Sharma 2016.12.09 14:52 I attest to the accuracy and authenticity of this document chandigarh ITA-40-2016 (O&M) 2 income from other sources being attributable to its business income and thereby not allowing deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961? (iii) Whether in the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal has

grossly erred in upholding the order of the Assessing officer and reversing the order of the Commissioner of Income Tax (Appeals), Chandigarh treating gross interest income of Rs. 15,11,996/- received by the appellant as interest on the loans advanced to its employees for housing and conveyance as a condition precedent of its service rules more so when the earlier order of the Tribunal was a reasoned order based on various judgements of the Supreme Court of India and has not been even distinguished while passing the order appealed against? (iv) Whether in the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal has grossly erred in passing the order appealed against without distinguishing the earlier order of its co-equal bench dated 21.03.2009 with regard to the gross interest income of Rs. 15,11,996/- as income from other sources instead of business income received by the appellant as interest on the loans advanced to its employees for housing and conveyance as a condition precedent of its service rules more so when it has been treated as business income in the earlier 25 years? (v) Whether in the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income by way of interest on deposits held with scheduled banks was chargeable to tax u/s 56 under Amodh Sharma 2016.12.09 14:52 I attest to the accuracy and authenticity of this document chandigarh

ITA-40-2016 (O&M) 3 the head ‘income from other sources’ without allowing any deduction in respect of cost of funds and proportionate administrative and other expenses u/s 57? (vi) Whether in the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal grossly erred in upholding the order of the Assessing Officer and also the order of the Commissioner of Income Tax (Appeals) holding income as business income instead of income from long term capital gain as claimed by the appellant being the income as profits on the sale of old properties and thereby disallowing the necessary deductions u/s 48 and levy of tax at special rate of tax thereof? (vii) That the appellant assessee craves leave to alter, amend, delete or add to any of the above substantial questions of law during the pendency of the present appeal.”

3.

Questions (i) and (vii) are only general in nature and do not require consideration.

4.

Question (ii) is admittedly covered against the appellant in view of the judgement of a Division Bench of this Court dated 10.05.2016 in ITA-17-2016 titled as The Punjab State Cooperative Federation of House Building Societies Ltd., Chandigarh Vs Commissioner of Income Tax-II, Chandigarh and another. Question (ii) is, therefore, decided against the appellant.

5.

Question (iii) is covered against the appellant by virtue of our order and judgement dated 11.11.2016 in ITA-638-2009 titled as The Commissioner of Income Tax-I, Chandigarh Vs M/s Punjab State Cooperative Agricultural Development Bank Ltd., Chandigarh. Amodh Sharma 2016.12.09 14:52 I attest to the accuracy and authenticity of this document chandigarh

ITA-40-2016 (O&M) 4

6.

Question (vi) is covered against the appellant by virtue of our order and judgement passed today in ITA-158-2016 Tax-II, Chandigarh and another.

7.

Re: Questions (iv) and (v) The appellant does not appear to have claimed the deduction under Section 57 of the Income Tax Act (in short the Act) in view of the contention before the authorities that the gross interest income ought to be considered as business income. It was treated by the authorities as income from other sources. The ends of justice would be met by permitting the appellant to raise this contention before the Tribunal. It is only for this limited purpose that the appeal on this question is remitted to the Tribunal. It is open to the Tribunal to consider the issue itself or to remit it further.

8.

The appeal is accordingly disposed of so far as question (v) is concerned.

9.

The appeal as regards the other questions is dismissed. (S.J. VAZIFDAR) CHIEF JUSTICE (DEEPAK SIBAL) JUDGE 07.12.2016 Amodh Whether speaking/reasoned Yes/No Whether reportable Yes/No Amodh Sharma 2016.12.09 14:52 I attest to the accuracy and authenticity of this document chandigarh

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