KERALA STATE COOPERATIVE EMPLOYEES PENSION BOARD,THIRUVANANTHAPURAM vs. ASSISTANT COMMISSIONER OF INCOME TAX, EXEMPTION CIRCLE, THIRUVANANTHAPURAM

Brief facts of the case are that the appellant is a statutory pension board established u/s. 80A of the Kerala State Co-operative Societies Act, 1969. It is founded for the purpose of administering the pension fund which have the sole purpose to provide annuities for employees of co-operative society in Kerala State on their Kerala State Co-op. Employees Pension Board retirement at or after a specified age or on their becoming incapacitated prior to such retirement or for the widows, children or dependents of persons who are or have been such employees on the death of those persons. The appellant was duly registered u/s. 10(23AAA) of the Income Tax Act, 1961 (the Act). No regular return of income for AY 2013-14 was filed by the appellant. In the circumstances, the ACIT (Exemptions), Thiruvananthapuram (hereinafter called "the AO") issued notice u/s. 148 of the Act on 31.03.2021 after recording the reason that income escaped assessment to tax. In response to notice u/s. 148, the appellant filed return of income on 23.04.2021 declaring Nil income. Against the said return of income, the assessment was completed by the AO vide order dated 26.03.2022 passed u/s. 147 r.w.s. 144B of the Act. While doing so, the AO brought to tax value of FD of Rs. 2,05,50.854/- made with Kerala State Co-Operative Hospital Complex and Centre for Advanced Medical Services Ltd. by holding that it is not one of the specified investments u/s. 11(5) of the Act. Accordingly, made addition of the same.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.

Being aggrieved, the appellant is in appeal before us in the present appeal.

The learned counsel for the assessee submitted before us that the appellant made fixed deposit of Rs. 1,00,000/- with Kerala State Kerala State Co-op. Employees Pension Board Co-Operative Hospital Complex and Centre for Advanced Medical Services Ltd. during 1996 in compliance of the directions of Government of Kerala. Subsequently in the year 2005 the Board has decided to convert the investment of Rs. 1 crore as share capital out of the accumulated amount of Rs. 1,75,58,358/- and the balance amount of Rs. 75,58,358/- is reinvested as fixed deposit on 01.06.2005 for a period of 3 years. This amount was accumulated to Rs. 2,05,50,854/- as on 01.06.2018. Thus, he submitted that the AO was not justified in taking the amount deposited on 01.06.2018 of Rs. 2,05,50,854/- for AY 2013-14. He further submits that even assuming for a moment that the deposit with Kerala State Co- Operative Hospital Complex and Centre for Advanced Medical Services Ltd. is in violation of the modes specified u/s. 11(5) of the Act, how the annual interest income accrued during the previous year relevant to the assessment year under consideration alone is to be disallowed, placing reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT v. KSRTC Employees Death-Cum-Retirement Benefit Fund [2014] 225 Taxman 113.

On the other hand, placing reliance on the orders of the lower authorities, the learned Sr. DR submits that no interference is called for.

We have heard the rival contentions and perused the material available on record. The issue that arises for our consideration is whether the CIT(A) was justified in confirming the action of the AO of disallowing the entire amount of investment of Rs. 2,05,50,854/- Kerala State Co-op. Employees Pension Board though the investment was in contravention to provisions of section 11(5) of the Act. Admittedly the Board has obtained necessary approval u/s. 10(23AAA) of the Act.

In the facts of the present case there was no dispute about the factum that the deposit made by the appellant with the Kerala State Co-Operative Hospital Complex and Centre for Advanced Medical Services Ltd. is in violation of the modes of investment prescribed u/s. 11(5) of the Act. However, the lower authorities were not justified in denying exemption to the extent of entire investment of Rs. 2,05,50,584/- for the reason that the entire investment of Rs. Kerala State Co-op. Employees Pension Board 2,05,50,584/- was not made during the year. Therefore the AO was justified in making addition to the extent of income generated on the investment during the year under consideration in view of the decision in the case of KSRTC Employees Death-Cum-Retirement Benefit Fund (supra).

In the result, the appeal filed by the assessee is partly allowed.