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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Date of hearing : 18.12.2018 Date of Pronouncement : 04.01.2019 O R D E R Per N V Vasudevan, Vice President
This is an appeal by the assessee against the order dated 3/2/2017 of CIT(Appeals), Gulbarga, relating to assessment year 2012-13.
The assessee which is a co-operative society has challenged the action of the Revenue authorities in not allowing deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act on a sum of Rs.12,17,900/- which was interest income derived from deposit of surplus funds in fixed deposits in State Bank of India Bellary. The deduction calmed by the assessee was not allowed by the Revenue authorities for the reason that the income which was claimed as deduction was interest income which was earned by the assessee on deposits and in view of the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd., 83 taxmann.com 140 interest income had to be regarded as ‘income from other sources’. Since interest income was not income derived from the business of co-operative society, the deduction claimed by the assessee cannot be allowed.
3. On appeal by the assessee, the CIT(A) confirmed the action of the AO.
4. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal raising the following grounds of appeal:-
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case.
2. The appellant denies itself liable to be assessed on total income of Rs.12,17,900/- as against the returned income of Rs. Nil under the facts and circumstances of the case.
The authorities below are not justified in law in denying the deduction claimed by the appellant for a sum of Rs.12,17,900/- under section 80P(2)(a)(i) of the Act under the facts and circumstances of the case.
The authorities below erred in not appreciating the fact that interest earned from fixed deposits made in other banks, is attributable to carrying on the business of banking and therefore the appellant is eligible for deduction under section 80P(2)(a)(i) of the Act under the facts of the case.
Reliance is placed on the decision of the Jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO, reported in 230 Taxman 309.
5. The authorities below ought to have appreciated the fact that the deduction under section 80P(2)(a)(i) is applicable to the appellant bank, whether such funds constituted the operational income of the appellant or not under the facts of the case. Reliance is placed on the decision of the Supreme Court in the case of CIT vs. Karnataka State Cooperative Apex Bank, reported in 251 ITR 194.
6. The authorities below failed to appreciate that if the surplus funds not required immediately for business activity by the appellant bank are invested in Fixed Deposits, then the interest on such deposits is eligible for deduction under section 80P of the Act. Reliance is placed on the decision of the Jurisdictional Tribunal in the appellant's own case for the assessment year 2013-14 in dated 27.02.2017.
7. The authorities below ought to have appreciated that the appellant is a Primary Co-operative Agricultural and Rural Development Bank as per section 80P(4) of the Act and therefore the ratio of the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Limited do not apply to the appellant under the facts and circumstances of the case.
8. The appellant denies itself liable to be levied to interest under section 234B of the Act and further the computation of interest was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case.
Without prejudice, the interest under section 234B is not leviable and ought to have been waived on the facts of the case.
The appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity.”
We have heard the rival submissions. The learned AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. Vs. ITO 230 taxman 309 (Karn) wherein the Hon’ble Karnataka High Court considered the decision of the Hon’ble Apex Court in the case of The Totgar’s Co- operative Sales Society (supra) and held that interest income in respect of temporary parking of own surplus funds not immediately required is eligible for deduction u/s.80P(2)(a)(i) of the Act. The learned 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 judgment relied by the learned DR. The facts of the case before the Hon’ble Karnataka High Court in the decision cited by the learned DR 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 AY 1991-92 to 1999-2000. The nature of interest income for all the AYs 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 Co-operative 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 co- operative 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 Tumkur 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 judgments 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 Tumkur Merchants Souharda Co-operative Ltd. (supra).
The AO will afford opportunity of being heard to the Assessee and filing appropriate evidence, if desired, by the Assessee to substantiate its case, before deciding the issue.
In the result, appeal by the assessee is treated as allowed for statistical purpose.
Pronounced in the open court on this 04th day of January, 2019.