SHRI SHIVAJI MAHARAJ CO-OP CREDIT SOCIETY,BIJAPUR vs. INCOME-TAX OFFICER, WARD-1, BIJAPUR
What did the Tribunal hold?
The Tribunal found merit in the submissions of the assessee's authorized representative. It noted that the CIT(A) had relied on the Karnataka High Court's decision in PCIT vs. Totagars Co-operative Sale Society Ltd. (supra) without a proper examination and comparison of the facts of the present case with that precedent. The Tribunal highlighted the distinction made in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra), where the decision favoured the assessee because the deposited funds were out of the assessee's own funds, unlike in the Totagars case where the funds were out of liability. Therefore, the Tribunal concluded that the issue should be remanded to the CIT(A) for a fresh adjudication. The CIT(A) is directed to examine and compare the facts of the present case with those in the Totagars and Tumkur Merchants cases. If the facts align with Totagars, the issue should be decided against the assessee; if they align with Tumkur Merchants, it should be decided in favour of the assessee. The CIT(A) is to provide adequate opportunity of being heard to both parties. No specific amount in dispute was recorded.
What were the facts?
The assessee, M/s. Shri Shivaji Maharaj Co-op Credit Society Ltd., filed four appeals before the Income Tax Appellate Tribunal (ITAT) challenging orders from the Commissioner of Income Tax (Appeals) - Belagavi. These appeals pertain to Assessment Years 2009-10 and 2011-12 to 2013-14. The core dispute revolves around the eligibility of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, for income derived from investments. The assessee contended that this income, earned by providing financial services to its members and from mandatory or surplus fund investments, should be treated as business income and be eligible for deduction. The Assessing Officer (AO) and the CIT(A) had treated income from investments as 'Income from Other Sources', disallowing the deduction.
What were the issues?
1. Whether the income derived from investments by the assessee, a co-operative society providing services only to its members, is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, as business income, or if it should be treated as income from other sources. Assessee's contentions: - The society provides services only to its enrolled members as per its bye-laws, approved by the Registrar of Cooperative Societies under the Karnataka Cooperative Societies Act, 1979. - The society does not hold a license from the Reserve Bank of India for carrying on banking business. - Investments are made either as required by the Karnataka State Cooperative Societies Act, 1979, or to park surplus funds until invested in business, thus such income is attributable to the business of carrying on financial services to members. - The CIT(A) erred by segregating income from investments as income from other sources and not treating it as business income eligible for deduction under Section 80P(2)(a)(i). - The CIT(A) merely followed the judgment in PCIT vs. Totagars Co-operative Sale Society Ltd. (395 ITR 611 (Karn)) without comparing the facts of the present case. - The judgment in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (230 Taxman 309) is applicable, where similar issues were decided in favour of the assessee because the deposited funds were out of the assessee's own funds, not liabilities. - The matter should be restored to the CIT(A) for a fresh decision after examining and comparing the facts of the present case with the cited judgments. Revenue's contentions: - The Id. DR supported the order of the CIT(A).
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R Per Shri A.K. Garodia, Accountant Member All these four appeals are filed by the assessee which are directed against four separate orders of ld. CIT(A)-Belagavi all dated 05.12.2017 for Assessment Years 2009-10 & 201112 to 2013-14. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.
2. The grounds raised
by the assessee are as under. (Assessment Year: 2009-10) “1. Order Passed by ITO-I-Bijapur is against the spirit of law and he should have considered the fact that assessee is providing services only to members, enrolled as per Bye-Law of Society, which is invariably approved by Registrar of Cooperative Societies under the Karnataka Cooperative Societies Act, 1979 and that Society does not hold license from Reserve Bank of India as carrying on business of banking and accordingly should have allowed deduction u/s 80P(2)(a)(i) as claimed by assessee.
2. CIT-Appeals, Belgaum should have considered only the matters to 706/Bang/2018 Page 2 of 5 appealed before him and should not have segregated the Income from Investments as Income from Other Sources, since Investments are done either as required under Karnataka State Cooperative Societies Act, 1979 without which business cannot be run or to park extra funds of society till those get invested in business, thus such income being attributable to business of carrying on financial services to members of society. CIT-A, Belgaum should have treated this Interest Income being Income from business and should have allowed the entire income of assessee as deduction u/s 80P(2)(a)(i) as claimed by assessee.
3. Assessee craves for his right to add/alter any of the grounds of appeal during the course of hearing.” (Assessment Year: 2011-12) “1. Order Passed by ITO-I-Bijapur is against the spirit of law and he should have considered the fact that assessee is providing services only to members, enrolled as per Bye-Law of Society, which is invariably approved by Registrar of Cooperative Societies under the Karnataka Cooperative Societies Act, 1979 and that Society does not hold license from Reserve Bank of India as carrying on business of banking and accordingly should have allowed deduction u/s 80P(2)(a)(i) as claimed by assessee.
2. CIT-Appeals, Belgaum should have considered only the matters appealed before him and should not have segregated the Income from Investments as Income from Other Sources, since Investments are done either as required under Karnataka State Cooperative Societies Act, 1979 without which business cannot be run or to park extra funds of society till those get invested in business, thus such income being attributable to business of carrying on financial services to members of society. CIT-A, Belgaum should have treated this Interest Income being Income from business and should have allowed the entire income of assessee as deduction u/s 80P(2)(a)(i) as claimed by assessee.
3. Assessee craves for his right to add/alter any of the grounds of appeal during the course of hearing.” (Assessment Year: 2012-13) “1. Order Passed by ITO-I-Bijapur is against the spirit of law and he should have considered the fact that assessee is providing services only to members, enrolled as per Bye-Law of Society, which is invariably approved by Registrar of Cooperative Societies under the Karnataka Cooperative Societies Act, 1979 and that Society does not hold license from Reserve Bank of India as carrying on business of banking and accordingly should have allowed deduction u/s 80P(2)(a)(i) as claimed by assessee.
CIT-Appeals, Belgaum should have considered only the matters appealed before him and should not have segregated the Income from Investments as Income from Other Sources, since Investments are done either as required under Karnataka State Cooperative Societies Act, 1979 without which business cannot be run or to park extra funds of society till those get invested in business, thus such income being attributable to business of carrying on financial services to members of society. CIT-A, Belgaum should have treated this Interest Income being Income from business and should have allowed the entire income of assessee as deduction u/s 80P(2)(a)(i) as claimed by assessee.
Assessee craves for his right to add/alter any of the grounds of appeal
during the course of hearing.” (Assessment Year: 2013-14) “1. Order Passed by ITO-I-Bijapur is against the spirit of law and he should have considered the fact that assessee is providing services only to members. enrolled as per Bye-Law of Society, which is invariably approved by Registrar of Cooperative Societies under the Karnataka Cooperative Societies Act, 1979 and that Society does not hold license from Reserve Bank of India as carrying on business of banking and accordingly should have allowed deduction u/s 80P(2)(a)(i) as claimed by assessee.
2. Further AO erred in concluding that Interest earned on Investments is a separate activity and as such interest on investments is income from Other Sources and so deduction for the same under section 80P(2)(a)(i) is not allowable. He should have appreciated the fact that Investments are done either as required under Karnataka State Cooperative Societies Act, 1979 without which business cannot be run or to park extra funds of society till those get invested in business, thus such income being attributable to business of carrying on financial services to members of society.
3. CIT-Appeals, Belgaum should have considered only the matters appealed before him and should not have segregated the Income from Investments as Income from Other Sources, since Investments are done either as required under Karnataka State Cooperative Societies Act, 1979 without which business cannot be run or to park extra funds of society till those get invested in business, thus such income being attributable to business of carrying on financial services to members of society. CIT-A, Belgaum should have treated this Interest Income being Income from business and should have allowed the entire income of assessee as deduction u/s 80P(2)(a)(i) as claimed by assessee.
4. Assessee craves for his right to add / alter any of the grounds of appeal during the course of hearing.”
3. It was submitted by ld. AR of assessee that the issue was decided by CIT(A) by simply following the judgement of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. as reported in 395 ITR 611 (Karn) without examining and comparing the facts of the present case and that case. He also submitted that on the same issue, there is another judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO as reported in 230 Taxman 309 and as per the assessee, this judgment is applicable in the present case and as per this judgment, similar issue was decided in favour of the assessee. He submitted that in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. (supra), it was found that the amount deposited in bank was out of liability of the assessee and not assessee’s own funds and therefore, the issue was decided against the assessee. But in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra), it was found that the amount deposited in bank was out of assessee’s own funds and not out of liability of the assessee and therefore, the matter was decided in favour of the assessee. He submitted that in the facts of present case, the issue should be restored back to the file of CIT (A) for fresh decision after examining and comparing the facts of the present case with the facts in those two cases. The ld. DR of revenue supported the order of CIT(A).
4. I have considered the rival submissions and I find force in the submissions of ld. AR of assessee. I find that as per Para 10.2 of his order, ld. CIT (A) has simply noted that during the present year, the assessee has derived income from BDCC Bank, Co-operative Banks and Scheduled Banks by way of interest / dividend on FDs/investments and he has simply followed the judgement of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. (supra) without examining and comparing the facts of the present case and the facts of that case. I have noted that in the case of PCIT and Another Vs. Totagars Co- operative Sale Society Ltd. (supra), the facts were that the amount in to 706/Bang/2018 Page 5 of 5 question deposited in bank was out of liability and not out of assessee’s own funds. In a similar case i.e. in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra), the matter was decided in favour of the assessee because of difference in facts. In that case, it was found that the money deposited in bank was out of assessee’s own funds and not out of liability of the assessee. Hence, in my considered opinion, the issue should go back to the file of CIT(A) for fresh decision after examining and comparing the facts of the present case with the facts in these two cases and if it is found that the facts of the present case are in line with the facts in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. (supra) then the issue should be decided against the assessee and if it is found that the facts of present case are in line with the facts in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra) then the issue should be decided in favour of the assessee. Therefore, I set aside the order of CIT (A) in all the four years and restore the matter back to his file for fresh decision in the light of above discussion after providing adequate opportunity of being heard to both sides.
In the result, all the four appeals filed by the assessee are allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.
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