CIT, CHANDIGARH vs. M/S PB. STATE COOPERATIVE HOUSING, CHD.

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ITA/643/2010HC Punjab & HaryanaPHHC01093599201010 May 2011Bench: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the interest income from commercial banks, in the form of fixed deposits and savings bank accounts, was not attributable to the business activity of providing credit facilities to members. The Court relied on the Supreme Court judgment in The Totgars Cooperative Sale Society Ltd. v. I.T.O. (2010 (35) DTR 25). This judgment held that interest on bank deposits or Government securities derived by a Cooperative Society could not be attributed to the Society's activities of providing facilities to its members and was taxable under Section 56 as income from other sources. The High Court noted that the ITAT's order was passed prior to the Supreme Court's judgment and thus did not have the benefit of the law laid down therein. Consequently, the contrary view of the Tribunal could not be sustained. The question was decided in favour of the revenue. The appeal was allowed.

What were the facts?

The assessee, M/s Punjab State Cooperative Federation of Housing Building Societies Ltd., is a Cooperative Federation. For the assessment year 2006-07, it claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, in respect of interest income. The Assessing Officer and the CIT(A) disallowed this claim. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's plea, holding that the interest income was incidental to the assessee's business of providing credit facilities to its members. The revenue (Commissioner of Income Tax-II, Chandigarh) appealed this order to the High Court of Punjab and Haryana. The High Court heard the revenue's counsel, while no one appeared for the respondent-assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the order of the Hon'ble Tribunal is perverse in holding that interest income from commercial banks, being attributable to the business activity of the assessee, qualifies for deduction u/s 80P(2)(a)(i) of the Act, ignoring the facts that the direct source of income is not the loans advanced to the members of the Society and it is only the interest income from commercial banks in the form of fixed deposits and saving banks accounts? Assessee's contention: The ITAT upheld the assessee's plea for exemption, holding that interest income was incidental to the business of providing credit facilities to its members. Revenue's contention: The revenue argued that interest received from commercial banks was not covered by Section 80P(2)(a)(i) as it had nothing to do with interest income on loans advanced to members. The revenue relied on the Supreme Court judgment in The Totgars Cooperative Sale Society Ltd. v. I.T.O., which held that interest on bank deposits or Government securities derived by a Cooperative Society could not be attributed to the activities of the Society of providing various facilities to its members and was taxable under Section 56 as income from other sources.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 260A,Section 56

AI-generated summary — verify with the full judgment below

ITA No. 643 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 643 of 2010 Date of Decision: 10.5.2011 Commissioner of Income Tax-II, Chandigarh ....Appellant. Versus M/s Punjab State Cooperative Federation of Housing Building Societies Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel, for the appellant. None for the respondent. ADARSH KUMAR GOEL, ACJ. 1. This appeal has been preferred by the revenue under Section 260A of the Act, 1961 (in short “the Act”) against the order dated 29.1.2010 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B” (hereinafter referred to as “the Tribunal”) in ITA No. 996/Chandi/2009, for the assessment year 2006-07, claiming following substantial question of law:- “Whether on the facts and in the circumstances of the case and in law the order of the Hon'ble Tribunal is perverse in holding that interest income from commercial banks, being attributable to the business

ITA No. 643 of 2010 -2- activity of the assessee, qualifies for deduction u/s 80P(2)(a)(i) of the Act, ignoring the facts that direct source of income is not the loans advanced to the members of the Society and it is only the interest income from commercial banks in the forms of fixed deposits and saving banks accounts?” 2. The assessee is a Cooperative Federation and claimed exemption under Section 80P(2)(a)(i) of the Act in respect of interest income. The Assessing Officer disallowed the claim which was upheld by the CIT(A). On further appeal, the Tribunal upheld the plea of the assessee for exemption holding that interest income was incidental to the business of the assessee of providing credit facilities to its members. 3. We have heard learned counsel for the revenue. None appears for the assessee despite service. 4. Plea on behalf of the revenue is that interest received by the assessee from commercial banks was not covered by Section 80P (2)(a)(i). It has nothing to do with the interest income on the loan advanced to the members. Reliance has been placed on the judgment of the Hon'ble Supreme Court in The Totgars Cooperative Sale Society Ltd. v. I.T.O., 2010 (35) DTR 25 holding that interest on bank deposits or Government securities derived by a Cooperative Society could not be attributed to the activities of the Society of providing various facilities to its members and was taxable under Section 56 being income from other sources. It appears that since the judgment of the Tribunal is prior to the judgment of the Hon'ble Supreme Court

ITA No. 643 of 2010 -3- relied upon on behalf of the revenue, the Tribunal did not have advantage of the law laid down therein. The matter is, thus, covered in favour of revenue by the judgment of Hon'ble Supreme Court. Contrary view of the Tribunal cannot be sustained. 5. In view of above, following the judgment of the Hon'ble Supreme Court in The Totgars Cooperative Sale Society Ltd. case (supra), we decide the question in favour of the revenue. The appeal is allowed. (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE May 10, 2011 (AJAY KUMAR MITTAL) gbs JUDGE

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