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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI AMARJIT SINGH
ORDER PER OM PRAKASH KANT, AM These cross-appeals by the Revenue and assessee for assessment year 2013-14 and 2014-15 and the appeal of the Revenue for assessment year Vishal Junnar Sahakari Patpedhi Maryadit 3 1288/M/2021 & Ors. 2015-16, have been preferred against a common order dated 17/10/2019 passed by the Ld. Commissioner of Income-Tax (Appeals)-32, Mumbai [in short the ‘Ld. CIT(A)’]. As identical issues permeating from same set of facts and circumstances are involved in these appeals, therefore same were heard together and dispose off by way of this consolidated order for convenience and avoid reputation of facts.
2. First of all, we take up appeals of the Revenue and assessee for assessment year 2013-14 for adjudication. The grounds raised
by the Revenue in its appeal are reproduced as under: Assessment Year: 2013-14
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred ingranting relief by deleting the addition made by the Assessing Officer.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has failed to appreciate the fact that the deduction allowable earlier u/s. 80P of the Act, in the case of Co-operative societies engaged in the banking has been withdrawn w.e.f. 2007-08 by section 80P(4) except in the case of primary Agricultural Credit Society or a primary Co-operative Agricultural and Rural Development Bank.
3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred innot considering the fact that the Hon'ble Supreme Court has granted leave against High Court's order where it has been held that assessee co-operative society could not be regarded as Co-operative Bank on mere fact that an insignificant proportion of revenue was coming from Vishal Junnar Sahakari Patpedhi Maryadit 4 1288/M/2021 & Ors. non-members, and thus, was entitled for deduction under section 80P (2) (a)(i). ITA No. 1288/MUM/2021 Assessment Year: 2013-14 2.1 The grounds raised by the assessee in its appeal are reproduced as under:
1(a) The Ld. CIT(A) has erred in confirming the addition of ₹2,23,320/- made by the Assessing Officer for Interest Credited for FY 2012-13 on the amount paid to the LIC Staff Gratuity Scheme Fund –Irrecoverable Fund – without considering all relevant facts and circumstances of the case. (b) he has failed to consider all relevant facts that such interest income is not earned by the appellant society nor assessable in its hands. (c) The appellant society cannot be held liable for the delay on the part of Income Tax Dept. in grant of approval to such group gratuity fund as held in number of decided cases.
Briefly stated facts of the case that the assessee is a cooperative society engaged in providing credit facility to its members utilizing the funds made available by the members by way of deposits. For the year under consideration, the assessee filed return of income on 26/09/2013 declaring ‘Nil’ income. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income Tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment order dated 04.03.2016 completed under section 143(3) of the Act, the AO disallowed Vishal Junnar Sahakari Patpedhi Maryadit 5 1288/M/2021 & Ors. claim of deduction under section 80P(2) of the Act amounting to ₹6,18,21,035/- and also made addition on account interest from LIC amounting to ₹2,23,320/- credited to the ‘Staff Gratuity fund’. On further appeal, the Ld. CIT(A) deleted the disallowance of deduction under section 80 P(2) of the Act, however sustained the addition for interest on ‘Gratuity fund’. Aggrieved with the finding of the Ld. CIT(A), both the Revenue and assessee are before us by way of raising respective grounds.
At the outset, the Ld. counsel of the assessee referred to application for condonation of the delay of 477 days in filing the appeal. He also referred to the affidavit filed in this regard by the Managing Director of the society. The Ld. counsel of the assessee submitted that impugned order passed by the CIT(Appeals) dated 17/10/2019 was received by the assessee on 20/01/2020, and therefore appeal was due to be filed on or before 19/03/2020, however this appeal has been filed on 09/07/2021 i.e. after a delay of 477 days. The Ld. counsel submitted that initially the assessee was advised by the tax advisor for pursuing alternative remedy by way of rectification on the issue of addition of ₹2,23,320/-, however in view of the appeal filed by the Revenue on the issue of deduction under section 80P(2) of the Act, the assessee was advised to file separate appeal on the issue.
Vishal Junnar Sahakari Patpedhi Maryadit 6 1288/M/2021 & Ors. Meanwhile due to restraints and constraint imposed under Covid pandemic, delay occurred in filing the appeal. The Ld. counsel submitted that in view of the decision of the Hon’ble Supreme Court in Miscellaneous Petition No. 665/2021 and order of the CBDT extending period of limitation for filing appeal, the substantial period of delay is covered by the order of the Hon’ble Supreme Court. He submitted that delay of the remaining period might be condoned as no prejudice would be caused to the respondent if the delay is condoned and matter is finally disposed on merit. The Ld. DR on the other hand, did not seriously object for condonation of delay.
We have heard rival submission of the parties on the issue of condonation of delay. It is undisputed that there is a delay in filing of the appeal. We note that Hon’ble Supreme Court vide order dated 27/04/2021 in Miscellaneous Application No. 665/2021 has extended the period of limitation as prescribed under any general or special laws in respect of all judicial and quasi-judicial proceeding. There is also no dispute that under section 253(5) of the Act, the Tribunal may admit an appeal filed beyond the period of limitation where it is satisfied that there exists a sufficient cause on the part of the appellant for not presenting the appeal within the prescribed time. In the case of Collector, land acquisition Anantnag &Anr Vs. Mst. Katiji and Vishal Junnar Sahakari Patpedhi Maryadit 7 1288/M/2021 & Ors. others (1987) 2SCC 107, the Hon’ble Supreme Court has held that the expression “sufficient cause” employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner to sub serve the end of the justice that being the life purpose of the existence of institution of the courts. It is further held by the Hon’ble Supreme Court that such a liberal approach is adopted on one of the principal that refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. Another principle laid down by the Hon’ble Supreme Court is that when ‘substantial justice’ and ‘technical consideration’ are pitted against each other, the cause of substantial justice deserves to be preferred, for the reason that other side cannot claim to have vested rights in injustice being done because of a non-deliberate delay. It is also held by the Hon’ble Supreme Court that there is no presumption that delays is occasioned deliberately or on account of culpable negligence or on account of mala-fides. A litigant does not stand to benefit by resorting to delay and in fact, he runs a serious risk.
Vishal Junnar Sahakari Patpedhi Maryadit 8 1288/M/2021 & Ors. 5.1 In the instant case before us, applying the same principles, we find that there is no culpable negligence or malafide on the part of the assessee in causing delay in filing of the present appeal and it does not stand to benefit by resorting to such delay. Further, the restraint imposed due to the Covid pandemic has also contributed to the delay in filing the appeal. Therefore, in the factual metrics of the present case, we find that there exists sufficient and reasonable cause for condoning the delay.
5.2 In the light of the aforesaid discussion, in exercise of powers under section 253(5) of the Act, we hereby condone the delay in filing the present appeal and the appeal is admitted for adjudication on merit.
5.3 In the grounds raised by the Revenue, the issue involved is of disallowance under section 80P(2) of the Act , which has been deleted by the Ld. CIT(A).
5.4 Brief facts qua the issue in dispute are that on the basis of paid-up capital and nature of business of banking, the AO has treated the assessee as a deemed “cooperative bank”. According to the AO in view of amendment to section 80P of the Act with effect from 01/04/2007, a subsection (4) has been introduced, which has laid down that provision of section 80P will not apply Vishal Junnar Sahakari Patpedhi Maryadit 9 1288/M/2021 & Ors. to any cooperative bank other than the Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank.
5.5 The Ld.AO has further referred to a new clause (viia) inserted in the definition of the income under section 2(24) of the Act with effect from 01/04/2007 and according to which income includes the profit and gains of any business of banking (including providing credit facilities) carried on by a cooperative society with its members. The leather AO also referred to para 22.3 of CBDT circular No. 14 dated 28/12/2006 wherein it is mentioned that profit and gains of banking business including providing credit facilities carried on by a cooperative society with its members shall be included in the definition of the income. The AO further made following factual observations:
8. Coming to the background facts of the case, it is seen that the assessee has,on its own, obtained an audit report under Section 44AB of the I. T. Act and hasenclosed it voluntarily with its Return of income furnished u/s.139(1) of the I. T.Act. The Tax Audit Report u/s.44AB presupposes existence of a business whereinthe turnover or the total receipts exceeds Rupees One Crore. Further, as regardsthe nature of business, the Auditors have mentioned it as Financial Service Sector-Others" against Column No.8(a) of the said Audit Report in Form No.3CD. All theselend support to the position that there exists a business, and that business isbanking business concerning the members of the assessee.
Vishal Junnar Sahakari Patpedhi Maryadit 10 1288/M/2021 & Ors. 8.1 Further, on perusal of the Balance Sheet it is seen that the major item onthe liability side is a figure of Rs. 278.04 crores reflected against the head"Deposits". On the asset side, the major item is Rs. 219.81 crores shown againstthe head "Members Loans"From these, it is crystal clear that the assessee on theone hand accepts deposits from the members for which interest is paid to them.On the other hand, it advances loans out of these deposits etc. to the needymembers from whom interest is received at a higher rate. These are the silentfeatures of a business activity and that business is nothing but "banking business' 8.2. Yet another aspect of the case is that the Balance Sheet as on 31.03.2013, ofthe assessee reveals Members dividend payable relating to F.Y 2009-10, 2010-11 and 2011-12 totalling to ₹1.11 crores. The declaration of dividend is an attributeof a business wherein profit has been derived almost every year, out of which therewas declaration of dividend, part of which is appearing in balance sheet asunclaimed in last few years. This is also a characteristic of the business activity.
8.3 From the Balance Sheet of the assessee as on 31.03.2013, it is further seenthat a reserve has been created for 'Bad and Doubtful debts' of Rs. 15.65 crores.The credit balance in that reserve was also Rs. 13.07 crores for the immediatelypreceding financial year. This is another feature of a business carried on by theassessee.
8.4 From the above, it is abundantly clear that what the assessee carried on, isnothing else than the banking business. To hold that it is banking business, oneneed not necessarily carry on a full-fledged banking business with a license fromthe concerned authorities. That is, it is not essential to satisfy each and everyrequirement of a bank engaged in banking business.
9. From the Balance Sheet of the assessee, it is seen that Authorised ShareCapital is Rs. 20 cores and the Received share capital stands at Rs. Vishal Junnar Sahakari Patpedhi Maryadit 11 1288/M/2021 & Ors. 11.97 crores ason 31.03.2013. Further, the Reserve Fund of the assessee shows a credit balanceof Rs. 27.23 cores as on 31.03.2013.In this background, it needs to be seenwhether the assessee is a banking institution engaged in banking activity. For this,a reference may be made to the relevant provisions of the Banking Regulation Act,1949. According to Section 5(ccii), 5(cv) and 5(ccvi) of Banking Regulation Act,where principal business of a primary credit society is the transaction of bankingbusiness and its paid up capital and reserves attained the level of Rs.1 lakh, thatprimary credit society automatically becomes a primary co-operative bank.Further, its banking business activity is carried on in the city/suburb of Mumbai.
Over and above all these, as per the Banking Regulation Act, 1949, there arethreebasictests for judging whether a given cooperativecreditsociety/patpedhi is a cooperative bank or not.
Firstly, the primary object or principal business transacted should bebanking business. Secondly, the paid up share capital and reserve should beRs. One lakh or more. Thirdly, by laws of the co-operative society do notpermit admission of any other co-operative society as a member. If theseconditions are fulfilled, the cooperative credit society will be regarded tobe primary co- operative bank. In the present case, all the three conditionsare satisfied and the assessee is to be regarded as a primary cooperativebank.
10.1 Regarding the first two clause the case satisfies the condition that its paidup capital and reserves are more than Rs 1 lakh, in that the only business of theassessee is banking business though in a limited scale. As far as the 3rd condition isconcerned, the assessee in its letter dated 27.01.2016 has explained that its byelaws do not restrict admission of other co- operative society as a member.”
Vishal Junnar Sahakari Patpedhi Maryadit 12 1288/M/2021 & Ors. 5.6 The AO distinguished the decision of the Hon’ble Bombay High Court in the case of Quepem Urban cooperative credit Society Ltd versus ACIT (supra) on the ground that in said case there was an amendment to the by laws of the society w.e.f. 12/01/2001 to permit a society to be admitted to the membership of the society. The Ld. AO on the other hand for holding the assessee as a cooperative bank relied on the decision of the Tribunal Hyderabad Bench in the case of Citizen cooperative society Ltd versus additional Commissioner of income-tax (supra) and decision of the Tribunal (Panji Bench) in the case of RenukaCooperative Credit Society Ltd Vs ITO(supra). Accordingly, he disallowed the claim of deduction of the assessee amounting to ₹6,18, 81,035/.
The Ld. CIT(A) after relying on the decision of the Hon’ble Bombay High Court in the case of Quepem Urban cooperative credit Society Ltd vs ACIT(supra) deleted the disallowance observing as under:
“4.3.1 1 find that the appellant is a co-operative credit society registeredunder Maharashtra State Co-operative Society Act 1960. The provision of section 80P(4) debars a cooperative bank. The Byelaws of the society inter alia provide as under: The society's main objective/ purpose is to maintain depositor's welfare & to promote social and financial development among the members & achievement of the said Vishal Junnar Sahakari Patpedhi Maryadit 13 1288/M/2021 & Ors. development by principle of cooperation for himself and others with the help of each other. The objective includes accepting deposits from members and utilize it for disbursement of loan or make investment of it. To borrow/raise loans, to provide safe deposit vault and ancillary services etc. The society can raise funds by way of share capital, funds, subscriptions, deposits, loans, donations, subsidy & financial grants, refinance and any other sources with the permission of the honorable registrar. Ordinary membership is open to the person who is competent to make a contract under the Indian Contract Act 1872, the person who is owner of a proprietary concern, the partnership Firm registered under the Indian Partnership Act,1932, the Company registered under the Companies Act, Cooperative Society registered or deemed to be registered under the Maharashtra Cooperative Societies Act, Trust registered under the Trust Act. A person can be admitted asnominal member as per the provision of Maharashtra Cooperative Societies Act, 1960 and nominal member deposit will not be accepted by the society.
4.3.2 Explanation below section 80P(4) provides that "Co-operative Bank"and "Primary Agricultural Credit Society" shall have the meaningsrespectively assigned to them in part V of the Banking Regulation Act, 1949.The AO has held the appellant society.to be a primary cooperative bank asper section 56(cv) of the Banking Regulation Act. As per the said section,Primary co-operative bank means a co-operative society, other than a primaryagriculture credit society-
the primary object or principal business of which is the transactionbanking business; Vishal Junnar Sahakari Patpedhi Maryadit 14 1288/M/2021 & Ors. 2. the paid up share capital and reserves of which are less than one lakh ofrupees; and 3. the bye-laws of which do not permit admission of any other co- operativesociety as a member.
As per Section 5 (b) of the Banking Regulation Act "banking" means theaccepting, for the purpose of lending or investment, of deposits of money fromthe public, repayable on demand or otherwise, and withdrawable by cheque,draft, order or otherwise.
I find that the appellant society is not doing any "banking business" as definedin section 5(b) of the Banking Regulation Act 1949 as the society acceptsdeposits of money only from the members and does not provide withdrawal bycheque, draft etc. The society bye laws do not restrict admission of other co-operative society as a member. Further, it is also observed that the appellantsociety does not have Reserve Bank of India license to do the banking business.Therefore, the AO is not correct in holding the appellant society as a primaryCooperative bank and in denying the exemption u/s80P2(a) (i) of the Act, byinvoking section 80P(4). Reliance is placed in this regard on the decision ofHon"ble Bombay High court in the case of Quepem Urban Co operative CreditSociety Ltd Vs. ACIT dated 17.04.2015, (2015] 58 taxman.com 113 (Bombay).Similar view has been taken by ITAT Mumbai in the following cases: i. ITO 26(3)(2), Mumbai vs. Shree Dutta Prasad SahakariPatsansatha Ltd.Mumbai (ITA No. 6857/MUM/2016 vide order dated 15.06.2018). ii. ITO 15(3) (4) vs. M/s. Mazgaon Dock Employees Credit Society Ltd., (ITANo. 5285/Mum/2013 vide order dated 12.01.2015).
Further, reliance is also placed upon the judgment of the Hon 'ble Gujarat HighCourt in the case of CIT v. JafariMominVikas Co-op. Credit Society Ltd. (362ITR 331), the facts of which are similar. The assessee in this case was a Vishal Junnar Sahakari Patpedhi Maryadit 15 1288/M/2021 & Ors. co-operative credit society and claimed benefit of deduction u/s. 80P of the Act.The Assessing Officer, however, rejected the claim as, according to him, byvirtue of S. 80P/4) of the Act the assessee was not entitled to such deduction.Since the order of the Assessing Officer was reversed in first appeal, which wasconcurred with in the second appeal, the revenue carried the matter to the Hon’ble High Court raising the following question:
Whether the Hon’ble Tribunal is correct in allowing the deduction under section80P(2)(a)(i) to assessee's society even though the same is covered under section 80P(4)read with section 2(24)(via) being income from providing credit facilities carried on by a co-operative society with its member?
The Hon'ble Court, after considering the Circular No. 133 of 2007 dated09.05.2007 issued by the CBDT, held as under:
Had this been the plain statutory provisions under consideration in Isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by theassessee, by virtue of sub-section (4) only co-operative banks other than thosementioned therein were meant to be excluded for the purpose of deduction under section80P, a question would arise why then the Legislature specified primary agriculturalcredit societies for exclusion from such exclusion and, in other words, continued to holdsuch entity as eligible for deduction. However, the issue has been considerablysimplified by virtue of the Central Board of Direct Taxes Circular No. 133 of 2007, datedMay 9, 2007. Circular provides as under:
Vishal Junnar Sahakari Patpedhi Maryadit 16 1288/M/2021 & Ors. "Subject: Clarification regarding admissibility of deduction under section 80P of theIncome-tax Act, 1961
1. Please refer to your letter No. DCUS/30688/2007, dated March 28, 2007, addressedto the Chairman, Central Board of Direct Taxes, on the above given subject.
In this regard, I have been directed to state that sub-section (4) of section 80Pprovides that deduction under the said section shall not be allowable to any co-operativebank other than a primary agricultural credit society or a primary co- operativeagricultural and rural development bank. For the purpose of thesaid sub-section, co-operative bank shall have the meaning assigned to it in Part V of the Banking RegulationAct, 1949. 3. In Part V of the Banking Regulation Act, 'co-operative bank' means a State co-operative bank, a Central cooperative bank and a primary co-operative bank. 4. 4. Thus, if the Deihi Co-op. Urban Thrift and Credit Society Lid, does not fall within the meaning of 'co-operative bank' as defined in Part V of the Banking Regulation Act, 1949,sub- section (4) of section 80P will not apply in this case. 5. 5. This is issued with approval of the Chairman, Central Board of Direct TaxesFrom the above clarification, it can be gathered that sub-section (4) of section 80P willnot apply to an assessee which is not a co-operative bank. in the case clarified by theCentral Board of Direct Taxes, the Delhi Co-op. Urban Thrift and Credit Society Ltd. wasunder consideration. The circular clarified that the said entity not being a co- operativebank, section 80P(4) of the Act would not apply to it. In view of such clarification, wecannot entertain the Revenue's contention that section 80P(4) would exclude not Vishal Junnar Sahakari Patpedhi Maryadit 17 1288/M/2021 & Ors. only theco-operative banks other than those fulfilling the description contained therein but alsocredit societies, which are not cooperative banks. In the present case, the respondent-assessee is admittedly not a credit co-operative bank but a credit co-operative society.The exclusion clause of sub-section (4) of section 80P, therefore, would not apply. in theresult, the tax appeals are dismissed."
4.3.3 The A has relied on the inclusive definition of income u/s.2(24)(viia),inserted by Finance Act 2006, w.e.f. 01.04.2007, to hold that providing ofcredit facilities to members is also to be considered as profits and gains ofbusiness of banking. This interpretation of section 2(24) (via) is not found to becorrect in law and in the facts of the case since the said clause defines thescope of " profits and gains of any business of banking (including providingcredit facilities to its members)"carried on by a cooperative society. Thisprovision will be applicable to a cooperative society engaged in the business ofbanking, like a cooperative bank and will not apply to a cooperative creditsociety like the appellant, which is not engaged in the business of banking.This provision, introduced we.f. 01.04.2007, along with section 80P(4), istherefore to preclude a cooperative bank, engaged in business of banking toclaim that the income from providing credit facilities to its members should beexcluded from the scope of business of banking and also from the provisions ofsection 80P(4) of the Act, which denies deduction u/s 80P to the cooperativebanks, other than a primary agricultural credit society or a primary cooperativeagricultural and rural development bank.
4.3.4 In view of above discussion, I am of the considered opinion that the A.O. is not correct in holding the appellant society as a Co-operative Bank and noteligible for deduction u/s. 80P(2) in view of the provisions of sections 80P(4)and 2(24) (via) of the Act. The AO is directed to allow deduction u/s.80P2(a)G)of the Act in respect of the income from carrying on the Vishal Junnar Sahakari Patpedhi Maryadit 18 1288/M/2021 & Ors. business of providingcredit facilities to its members amounting to Rs.618,13,035/-, as reflected inthe statement of income for A.Y 2013-14. The appellant has also submitted that it has net commission income fromMSEB bills collection and LIC commission as income from other sourcesamounting to Rs.67,833/- on which it is eligible for deduction u/s. 80P(2)(c)amounting to Rs. 50,000/-. This will prima facie give rise to a taxable incomeof Rs. 17,833/-. From the computation/ statement of income for A.Y 2013-14, itis observed that the appellant has disclosed income from MSEB commissionand LIC commission aggregating to Rs. 445,833/- and deduction of ₹378,000/- on account of MSEB counter salary and LIC commission expenses.Since, this aspect was not considered by the A.O in the assessmentproceedings, the AO is directed to verify the claim of expenses of Rs.378,000/-and allow deduction u/s. 80P(2) (c) of the Act to the extent of Rs.50,000/- andre-compute the total income accordingly. Ground no. 1 is partly allowed.” 6.1 In the case of Quepem Urban Cooperative credit society (supra) also the deduction claimed was in respect of income from providing credit facilities carried on by a cooperative society to its members and the cooperative society was held by the AO as in the nature of a cooperative bank, to which deduction under section 80P(2) of the Act was denied . The facts of the instant case before us are identical to the facts of the case law relied upon by the Ld. CIT(A). Thus, we find that Ld. CIT(A) has allowed relief to the assessee following a binding precedent of the Hon’ble jurisdictional High Court. Before us the Ld. counsel of the assessee furnished copy of bye-laws of society which Vishal Junnar Sahakari Patpedhi Maryadit 19 1288/M/2021 & Ors. were filed before lower authorities and submitted that by laws clause No. D1.1 of the membership does not restrict /deny the membership to any other cooperative society as a member. He also referred to new Model bye-laws clause No. 10E as per the 97th amendment of the Constitution, 2013 which specifically permits admission of cooperative societies as a member. The ld. DR appearing on behalf of the revenue could not controvert above factual finding and submitted that matter is being litigated in view of the fact that SLP filed by the revenue against above decision of the Hon’ble High Court is pending before the Hon’ble Supreme Court. As operation of the decision of Hon’ble High court has not been stayed, this being a binding precedent , we do not find any error or infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The grounds of the appeal of the Revenue accordingly dismissed.
In the grounds raised by the assessee, the issue in dispute involved is whether the interest credited of ₹2,23,320/-to the staff gratuity scheme fund is liable to be taxed in the hands of the assessee.
The facts qua the issue in dispute are that AO observed that staff gratuity fund set up by the assessee was not recognized by the Commissioner of Income-tax, and therefore he added the interest of ₹2,23,320/- given by the Vishal Junnar Sahakari Patpedhi Maryadit 20 1288/M/2021 & Ors. Life Insurance Corporation of India (LIC) to the staff gratuity fund as income of the assessee. The Ld. CIT(A) observed that staff gratuity fund has not been granted recognition by the Commissioner of Income-tax and the fund amount remained in the balance sheet of the assessee, and therefore he justified the action of the AO of bringing the interest income in hand of the assessee.
Before us the Ld. counsel of the assessee submitted that interest of ₹2,23,320/- for the year under consideration credited by the LIC to the group gratuity fund scheme was assessable in the hands of irrevocable trust created for the staff gratuity fund namely “Trustees Vishal Junnar Sahakari Patpedhi Maryadit employees group gratuity scheme (PAN No. AAJAT9779K)”. Further, regarding the issue of the recognition of the said staff gratuity fund by the Commissioner of income-tax, the Ld.counsel submitted that assessee had duly filed application before the concerned Commissioner of Income-Tax. He has enclosed copy of reminder dated 08/07/2021, 16/11/2021, 09/02/2022 sent to the concerned AO. The Ld. counsel also relied on the decision in the case of CIT Vs Jaipur Thar Gramin Bank (2017) 81 taxman.com 126 (Rajasthan) wherein it is held that the AO cannot disallow assessee’s claim for deduction under section 36(1)(v) of the Act merely because the application for approval was pending before the Commissioner of Income Tax.
Vishal Junnar Sahakari Patpedhi Maryadit 21 1288/M/2021 & Ors. 10. On the other hand, the Ld. DR relied on the order of the lower authorities.
We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute in the instant case is the interest credited in the account of Group gratuity fund. The case law relied upon by the assessee is on the issue of allowability of deduction for sum paid to recognized gratuity fund and therefore ratio of the said decision cannot be applied on the issue of taxability of interest credited to gratuity fund. Before us, the assessee is claiming that the employee group gratuity fund is a separate entity having separate permanent account number (PAN) and interest credited in the account of said entity, should assessed in hand of said entity and not in the hand of the assessee. But the Ld. CIT(A) has held that funds is not separate and fund’s accounts, are part of the assessee’s financial i.e. Balance sheet. In absence of any documentary evidence available on record or submitted by the parties to substantiate that said fund is a separate entity for the purpose of taxation, we feel appropriate to restore the issue in dispute to the file of the AO for deciding after verification of accounts of staff gratuity funds whether the said fund is a separate entity or part of the Vishal Junnar Sahakari Patpedhi Maryadit 22 1288/M/2021 & Ors. assessee, and then adjudicate in accordance with law. The grounds of the appeal of the assessee are accordingly allowed for statistical purpose.
11.1 The grounds raised by the Revenue and the assessee in their appeal for assessment year 2014-15 are identical to grounds raised in cross appeals of the revenue and assessee for assessment year 2013-14 and therefore following our finding in assessment year 2013-14, the grounds are adjudicated mutatis mutandis.
The grounds raised by the revenue in appeal for assessment year 2015- 16 are identical to grounds raised by the revenue in appeal for assessment year 2013-14, therefore following our finding in assessment year 2013-14, the grounds of appeal are decided mutatis mutandis.
In result, the appeals of the revenue for AY 2013-14; 2014-15 and 2015- 16 are dismissed, whereas appeals of the assessee for AY 2013-14 and 2014- 15 are allowed for statistical purpose.