PUNJAB STATE COOPERATIVE FEDERATION OF HOUSE BUILDING vs. COMMISSIONER OF INCOME TAX-II AND ANR,

PDF · subscribers
ITA/158/2016HC Punjab & HaryanaPHHC01110344201607 December 20165 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that questions (i) and (vi) were general and did not require consideration. Question (vii) was a reservation for amendment. Questions (ii) and (iii) were decided against the appellant, as they were covered by a previous judgment of the same Court in ITA-17-2016. Regarding question (iv), concerning Section 43B disallowance and its impact on Section 80P(2)(a)(i) deduction, the Court found no substantial question of law. The CIT(A) had directed the Assessing Officer to restrict the disallowance of interest payable under Section 43B on a proportionate basis only in respect of income not eligible for deduction under Section 80P(2)(a)(i). The Tribunal noted that the taxable income was mainly from capital gains, and it was not possible to ascertain the money borrowed for acquiring capital assets. The Court found the order of remand in this regard could not be faulted. For question (v), the Court upheld the ITAT's decision that income from the sale of properties constructed by the appellant was business income, not long-term capital gain. The Court reasoned that the appellant's objects included building housing complexes and selling units, and all authorities found as a question of fact that expenses were claimed for these projects, leading to the conclusion that they constituted business assets. The appeal was dismissed as it did not raise a substantial question of law.

What were the facts?

This appeal by the assessee, The Punjab State Cooperative Federation of House Building Societies Ltd., Chandigarh, is against the order of the Income Tax Appellate Tribunal (ITAT). The ITAT had dismissed the assessee's appeal against the order of the Commissioner of Income Tax (Appeals), which had partly allowed the assessee's appeal against the assessment order. The assessment year in question is 2009-2010. The dispute involves several issues concerning the classification of income, allowability of deductions, and treatment of expenses. The assessee is a cooperative federation whose objects include granting loans for house construction and building housing complexes for sale.

What were the issues?

The Tribunal had to decide several substantial questions of law raised by the appellant: 1. Whether the orders passed by the authorities below are legally sustainable. 2. Whether interest earned from banks other than cooperative banks on its bank accounts should be treated as income from other sources attributable to business income, thereby disallowing deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. 3. Whether expenses of 1% of income attributable to earning interest income are allowable under Section 57(iii) of the Income Tax Act, 1961. 4. Whether the ITAT erred in upholding the CIT(A)'s direction to the Assessing Officer to allow proportionately the disallowance made under Section 43B, considering it enhances business income and affects the deduction under Section 80P(2)(a)(i). 5. Whether the ITAT erred in upholding the CIT(A)'s order holding income from the sale of old properties as business income instead of long-term capital gain, thus disallowing deductions under Section 48 and special tax rates. Assessee's Contentions: The assessee argued that interest from banks should be considered business income eligible for deduction under Section 80P(2)(a)(i). They also contended that expenses related to earning interest should be deductible under Section 57(iii). Furthermore, they argued that disallowances under Section 43B should not negatively impact their Section 80P(2)(a)(i) deduction and that profits from property sales should be treated as long-term capital gains. Revenue's Contentions: The revenue's contentions are not explicitly detailed in the judgment, but their stance is reflected in the orders of the lower authorities which the ITAT upheld.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 57(iii),Section 43B,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-158-2016 (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 against the order of the Commissioner of Income Tax (Appeals) which in turn had only partly allowed the appellant’s appeal against the assessment order. The matter pertains to the assessment year 2009-2010. 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 P-1), (Annexure P-2) and (Annexure P-3) 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 Amodh Sharma 2016.12.09 14:52 I attest to the accuracy and authenticity of this document chandigarh ITA-158-2016 (O&M) 2 income earned from banks other than cooperative banks as interest on its bank accounts as 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 is correct in law in upholding the expenses of 1% of income attributable to the earning of interest income under the provision of Section 57(iii) of the Income Tax Act, 1961? (iv) Whether in the facts and circumstances of the case the learned Income Tax Appellate Tribunal has

grossly erred in upholding the order of the Commissioner of Income Tax (Appeals) directing the Assessing Officer to allow proportionately the disallowance made u/s 43B more so when such disallowance is made while computing the business income and as per the under the said provisions of law such disallowance would enhance the business income of the appellant and thereby computing the deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961? (v) 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 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 as long term capital gain and thereby disallowing the necessary deductions u/s 48 and applying special rate of tax thereof? (vi) Whether in the facts and in the circumstances of the case the learned Amodh Sharma 2016.12.09 14:52 chandigarh

ITA-158-2016 (O&M) 3 Income Tax Appellate Tribunal upholding the order of the CIT(A) on various issues is legally sustainable in law, the same being based on mere presumptions and surmises? (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), (vi) and (vii) are only general in nature and do not require consideration.

4.

Questions (ii) and (iii) are 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. Questions (ii) and (iii) are, therefore, decided against the appellant.

5.

Re: question (iv) The Assessing Officer had disallowed certain expenses claimed by the appellant to be business expenses. The Assessing Officer, therefore, disallowed a sum of about ` 6.86 crores under Section 43B of the Income Tax Act, 1961 (in short the Act). The CIT (Appeals) granted partial relief in the following manner:- “4.3 I have considered the submission of Ld. Counsel. In the case of the appellant, the entire interest payable does not pertain to incomes, eligible for deduction u/s 80P(2)(a)(i) of the Act. Hence, if the disallowance of interest payable is made u/s 43B, the appellant will be eligible for deduction u/s 80P(2)(a)(i) of the Act only in respect of the interest, which pertains to the income eligible for deduction under this section. As it Amodh Sharma 2016.12.09 14:52 chandigarh

ITA-158-2016 (O&M) 4 will not be possible to separately work out the amount of interest payable u/s 43B in respect of the income eligible for deduction u/s 80P(2)(a)(i) and incomes not so eligible; the Assessing Officer is directed to restrict the disallowance of interest payable u/s 43B of the Act on proportionate basis only in respect of income, which is not eligible for deduction u/s 80P(2)(a)(i) of the Act. Ground of appeal No. 4 is partly allowed.”

6.

The Tribunal noted that the taxable income of about ` 94 lacs was mainly from capital gain, but that there were no facts available to ascertain how much money was borrowed for the purpose of acquiring the capital assets. It is, therefore, not possible to separately work out the amount of interest payable under Section 43B of the Act in respect of the income eligible for deduction under Section 80P(2)(a)(i) and income not so eligible. It is not that the authorities have refused the appellant the proportionate benefit of a deduction under Section 80P(2)(a)(i). What is done is that the Assessing Officer has been directed to restrict the disallowance of interest payable under Section 43B on a proportionate basis. The deduction is only to the extent specified in sub section (2) thereof.

7.

The learned counsel appearing on behalf of the appellant states that the Assessing Officer has not computed the same correctly. In that event, it is for the appellant to challenge the same separately.

8.

The order of remand in this regard cannot be faulted. It does not raise a substantial question of law.

9.

Re: Question (v) Amodh Sharma 2016.12.09 14:52 chandigarh

ITA-158-2016 (O&M) 5 The CIT (Appeals) and the Tribunal rightly upheld the assessment order for more than one reason. The appellant’s objects, inter alia, are to grant loans to its members for constructing houses as well as to build housing complexes and to sell the units therein. All the authorities under the Act have found as a question of fact that the appellant had claimed expenses in respect of these projects which were later sold. The conclusion, therefore, that they constitute business assets cannot be said to be perverse or absurd. The Tribunal, therefore, rightly came to the conclusion that the appellant being in the business of construction and sale of properties income from selling the houses that were constructed must be treated to be income from business and profession.

10.

The appeal, therefore, does not raise a substantial question of law.

11.

The appeal is accordingly 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 chandigarh

More judgments on Section 80P(2)(a)(i)

All 2,347 judgments and leading authorities on Section 80P(2)(a)(i) →

Recent GST High Court judgments

Search GST case law →