SHIKSHA COOPERATIVE THRIFT & CREDIT SOCIETY,ALWAR vs. DEPUTY COMMISSIONER OF INCOME TAX, ALWAR

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ITA 240/JPR/2018Status: DisposedITAT Jaipur16 October 2018AY 2012-138 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided the issues as follows: 1. Regarding the validity of reassessment proceedings under Section 147, the assessee did not press this ground. Therefore, the Tribunal dismissed this ground as not pressed. 2. Regarding the deduction under Section 80P(2)(a)(i) for interest income from banks, the Tribunal, following its own earlier decision for Assessment Year 2014-15, allowed the claim. The Tribunal noted that an identical issue was decided by the Tribunal in the assessee's own case for AY 2014-15, which in turn relied on the Karnataka High Court's decision in Guttigedarara Credit Co-operative Society Ltd. vs. ITO. The reasoning was that the term 'attributable to' in Section 80P(2)(a)(i) is wider than 'derived from'. The interest income earned from the savings bank account, used for day-to-day activities of providing credit facilities, was considered attributable to the business of banking or providing credit facilities. The Tribunal distinguished the Supreme Court's decision in Totgars Co-operative Sale Society's case, stating that in that case, the deposited amount was a liability to the members, unlike the present case where the interest was on the society's own funds. The Tribunal set aside the orders of the authorities below on this issue and allowed the deduction.

What were the facts?

The assessee, Shiksha Cooperative Thrift & Credit Society, filed an appeal against the order of the CIT(A), Alwar, for Assessment Year 2012-13. The Assessing Officer (AO) had disallowed the deduction claimed under Section 80P(2)(a)(i) of the Income Tax Act, 1961, in respect of interest received from banks. The assessee contended that this interest was earned from its savings bank account, which was maintained for its day-to-day activities of providing credit facilities to its members. The assessee also raised a ground regarding the validity of the reassessment proceedings initiated under Section 147, but this ground was not pressed. The appeal primarily concerned the disallowance of interest income deduction.

What were the issues?

1. Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid? (Mixed question of law and fact) 2. Whether the interest income of Rs. 1,35,241/- received from banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961? (Question of law) Assessee's contentions: - Regarding issue 1: The assessee did not press this ground, implying it accepted the validity of reassessment proceedings. - Regarding issue 2: The interest was received from a savings bank account, which was maintained for the society's primary business of providing credit facilities to its members. The issue is covered by the Tribunal's own decision for AY 2014-15. Revenue's contentions: - The revenue relied upon the orders of the authorities below, which had disallowed the deduction.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 147,Section 56

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR

Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM

For Appellant: Shri P.C. Parwal (CA)
For Respondent: Shri J.C. Kulhari (JCIT)
Hearing: 15.10.2018Pronounced: 16/10/2018

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 22nd January

2018 of ld. CIT (A), Alwar for the assessment year 2012-13. The assessee has

raised the following grounds :-

“ 1. The ld. CIT (A) has erred on facts and in law in upholding the validity of the order passed by AO u/s 147 of the IT Act, 1961.

2.

The ld. CIT (A) has erred on facts and in law in confirming the action of in not allowing the deduction in respect of interest receipt of Rs. 1,35,241/- from banks u/s 80P(2)(a)(i) of the IT Act, 1961.

3.

The assessee craves to amend, alter and modify any of the grounds of appeal.

4.

Necessary cost be allowed to the assessee.”

2 ITA No. 240/JP/2018 Shiksha Cooperative Thrift & Credit Society, Alwar.

2.

The assessee is a cooperative society and registered with Registrar of

Cooperative Societies. The AO noted that the assessee has received interest from

bank and accordingly disallowed the claim under section 80P(2)(a)(i) of the IT Act in

respect of the interest from the bank. The ld. A/R of the assessee has submitted

that the issue of disallowance of deduction under section 80P(2)(a)(i) is covered by

the decision of this Tribunal in assessee’s own case for the A.Y. 2014-15. Thus he

has submitted that since the issue on merit is covered, therefore, ground no. 1

regarding validity of reopening of the assessment is not pressed. Accordingly

ground no. 1 of the assessee’s appeal is dismissed being not pressed.

Ground No. 2 is regarding disallowance of deduction under section

80P(2)(a)(i) in respect of interest received from the bank.

3.

The ld. A/R of the assessee has submitted that the interest in question was

received from the savings bank account and, therefore, it was an interest on the

amount which was kept by the assessee in the savings bank. The issue is covered by the decision of the Tribunal dated 16th July, 2018 in assessee’s own case for the

assessment year 2014-15.

4.

On the other hand, the ld. D/R has relied upon the orders of the authorities

below.

5.

Having considered the rival submissions as well as the relevant material on

record, at the outset, we note that an identical issue has been considered by the

Tribunal in assessee’s own case for the assessment year 2014-15 vide order dated 16th July, 2018 in ITA No. 425/JP/2018 in para 3 as under :-

3 ITA No. 240/JP/2018 Shiksha Cooperative Thrift & Credit Society, Alwar.

“3. We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. At the outset, we note that an identical issue was considered and decided by this Bench of the Tribunal in assessee’s own case for the assessment years 2013-14 and 2014-15 vide order dated 21st May, 2018 in ITA Nos. 957 & 958/JP/2017. The relevant finding of the Tribunal in para 4 are as under :-

“4. Having considered the rival submissions as well as relevant material on record, we note that the assessee has earned the interest from savings bank account which is maintained by the assessee with the scheduled banks for the purpose of its day to day activity of providing credit facilities to its members and keeping its funds with the bank. The Hon’ble Karnataka High Court in the case of Guttigedarara Credit Co- operative Society Ltd. vs. ITO (supra) while considering an identical issue has observed and held in para 7 to 12 as under :-

“7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short- term deposits and from savings bank account. The assessee is a Co- operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. 8. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i):— "80P Deduction in respect of income of co- operative societies:— (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:

4 ITA No. 240/JP/2018 Shiksha Cooperative Thrift & Credit Society, Alwar.

(a) in the case of co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to (vii) ** ** ** the whole of the amount of profits and gains of business attributable to any one or more of such activities." 9. The word 'attributable' used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (at page 93) as under:— 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.' 10. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is

5 ITA No. 240/JP/2018 Shiksha Cooperative Thrift & Credit Society, Alwar.

attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Co-operative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220/12 taxmann.com 66.”

Thus it is clear that the Hon’ble High Court has analyzed the provisions of section 80P(2) and particularly the term ‘attributable’ used in the section and held that the word ‘attributable to’ is certainly wider in import than the expression

6 ITA No. 240/JP/2018 Shiksha Cooperative Thrift & Credit Society, Alwar.

‘derived from’. Thus on the identical fact, the Hon’ble High Court has held that the decision of Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. vs. ITO (supra) is not applicable in the facts of the present case as in the said case before the Hon’ble Supreme Court the amount deposited with bank did not belong to the society but it was a liability of the society to be paid to the members against the sale of agricultural produce. Thus the sale consideration received by the society to be paid to the members was kept with the bank and earned interest and according the Hon’ble Supreme Court held that such an amount was retained by the society was a liability and it was shown in the Balance Sheet on the liability side. Therefore, on the specific facts of the said case the interest income was held to be non attributable either to the activities mentioned in section 80P(2)(a)(i) or under section 80P(2)(a)(iii) of the Act. In the case in hand, the interest income received by the assessee is on its own funds and not on the funds which is a liability towards the members. Further, this interest income is earned from the savings bank which is maintained for day to day activity of the assessee society for providing credit facilities to its members. Therefore, following the order of the Hon’ble Karnataka High Court in the case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO (supra), we hold that the said interest income earned by the assessee from savings bank account is eligible for deduction under section 80P(2)(a)(i) of the Act.”

Accordingly, following the earlier order of this Tribunal, we set aside the orders of the authorities below, qua this issue and allow the claim of the assessee.”

7 ITA No. 240/JP/2018 Shiksha Cooperative Thrift & Credit Society, Alwar.

Accordingly following the earlier order of this Tribunal, we allow the claim of

deduction under section 80P(2)(a)(i) of the Act.

6.

In the result, appeal of the assessee is partly allowed.

Order is pronounced in the open court on 16/10/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 16/10/2018. Das/

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

1.

The Appellant- Shiksha Cooperative Thrift & Credit Society, Alwar. 2. The Respondent – The DCIT, Circle-1, Alwar. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur 6. Guard File (ITA No. 240/JP/2018) vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

8 ITA No. 240/JP/2018 Shiksha Cooperative Thrift & Credit Society, Alwar.

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