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Income Tax Appellate Tribunal, BANGALORE BENCHES “ A ” BENCH: BANGALORE
Before: SHRI A.K. GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
PER SHRI PAVAN KUMAR GADALE, JM :
The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals), Belgavi passed under Section 143(3) and 250 of the Income Tax Act, 1961 ('the Act').
At the time of hearing, it was submitted that there is a delay of two days in filing the appeal and a condonation petition was filed along with Affidavit. On examination of the petition, we found that there is a reasonable cause for the delay. The learned Departmental Representative has no serious objection for condonation of delay. Accordingly, the delay is condoned and appeal is heard.
The assessee has raised the following grounds of appeal :
4. The Brief facts of the case are that the assessee is a co-operative society engaged in providing credit facilities to its members and filed Return of Income for the Assessment Year 2015-16 on 11.09.2015 with gross total income of Rs.72,78,233 and after claiming deduction under Chapter VI A, the total income is NIL. Subsequently, the case was selected for scrutiny under CASS and Notice under Section 143(2) of the Act was issued. In compliance, the learned Authorised Representative of the assessee and AR of society appeared from time to time and submitted the details. The assessee is a primary agriculture co-operative society and under the provisions of Section 80P(2)(ai) of the Act and deduction is allowed whereas the society is carrying on credit facility to its members. The Assessing Officer found that the main objects of the society was to accept the deposits and provide credit facilities to its shareholders and members. Whereas the Assessing Officer found that the assessee has interest income from investments made in Bagalkot District Central Co-operative Bank and other societies where the interest income claimed as deductible under Section 80P(2)(ai) and 80P(2)(D) of the Act in respect of interest earned from Savings Bank Account and investments. Hence the total interest earned by the assessee assessed to Rs.21,74,764 including interest from S.B. Account of Axis Bank and KVB Bank. It was submitted that the interest income is attributable to the main activity of the assessee society as held by the jurisdictional High Court of Karnataka in Tumkur Merchant Vs. ITO 377 ITR 464 whereas the Assessing Officer found that the Hon'ble High Court of Karnataka, Dharwad Bench in the case of CIT Vs. Totgars Co-operative Society, Sirsi has not accepted this claim and the Hon'ble Apex Court judgment in the case of Totgars Co-operative Sales Society (supra). The Assessing Officer considering the later judgment has restricted the deduction under Section 80P(2) and assessed the total income. Aggrieved by the order, the assessee has filed an appeal with the CIT(Appeals) whereas the CIT(Appeals) considering the submissions and interest Rs.6,87,487 was treated as income from other sources and denied deduction under Section80P(2)(ai) of the Act. Aggrieved by the CIT (Appeals) order, the assessee filed appeal to the Tribunal. The learned Authorised Representative made submissions relying on the judicial decisions and the ld. DR relied on CIT (Appeals) order.
5. We heard the rival submissions and perused material on record. The only disputed issue is in respect of restriction of deduction u/s 80P(2)(a)(i) in respect of interest income earned whereas the AO has denied the claim of the assessee that the interest income earned with investment of surplus funds. Hence has to be assessed under ‘income from other sources’ and not under ‘business’. We found that this issue was considered by the co-ordinate bench in the case of The Jayanagar Co-operative Society Ltd. where Tribunal observed at paras.4 & 5 as under:
4. The issues that arise for consideration in this appeal by the assessee are as to whether the Revenue authorities were justified in holding that the assessee was not entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short ‘the Act’) on interest income earned and under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions. The Assessing Officer (AO) denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head “Income from Other Sources and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon’ble Supreme Court in the case of The Totgar’s Co-operative Sales Society Ltd., Vs. ITO 322 ITR 283 (SC) wherein the Hon’ble Supreme Court held that the benefit of deduction under section 80P(2)(a)(i) of the Act is only on income which is assessable under the head “Income from Business”. Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co- operative Society providing credit facilities to members or marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to special deduction.
While learned AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co- operative Ltd., 230 taxman 309 (Karn), the DR relied on a subsequent decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd., 395 ITR 611 (Karn.). We have carefully gone through the said judgment. The facts of the case before the Hon’ble Karnataka High Court was that the Hon’ble Court was considering a case relating to Assessment Years 2007-08 to 2011- 12. In case decided by the Hon’ble Supreme Court in the case of the very same assessee, the Assessment Years involved was Assessment Years 1991-92 to 1999-2000. The nature of interest income for all the Assessment Years was identical. The bone of contention of the Assessee in AY 2007-08 to 2011-12 was that the deduction under Section 80P(2) of the Act is claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act which was the claim in AY 1991-92 to 1999- 2000. The reason given by the Assessee was that in AY 2007-08 to 2011-12 investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), were shifted from Schedule Banks to Cooperative Bank. U/s.80P(2)(d) of the Act, income by way of interest or dividends derived by a Co- operative Society from its investments with any other Co-operative Society is entitled to deduction of the whole of such interest or dividend income. The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. The Hon'ble Karnataka High Court followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991- 92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra).” We found that the facts of the present case are similar to the decision rendered by the co-ordinate bench, in respect of chargeability of interest income under income from other sources or business income. We follow the judicial precedence and restore the disputed issue to the file of the AO for fresh decision in light of the judicial decisions of Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society and Hon’ble Karnataka High Court decision of Tumkur Merchants C- operative Society as discussed in the above case and assessee should be provided adequate opportunity of hearing and shall co-operate in submitting the documents and allow grounds of appeal
of the assessee for statistical purposes.