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Facts
The assessee, Punjab State Co-operative House Building Federation Ltd., filed returns for AY 2012-13 and 2013-14, claiming deductions under section 80P. The AO disallowed deductions for interest from commercial banks and employees (treating them as "income from other sources"), and reclassified long-term capital gains from shop sales as business income. The CIT(A) upheld these disallowances, citing previous ITAT orders against the assessee.
Held
The Income Tax Appellate Tribunal (ITAT) noted that the issues were covered by prior decisions of the Hon'ble High Court against the assessee. Given the assessee's application under section 158A(1) to abide by the Supreme Court's decision on similar issues for earlier assessment years, the Tribunal dismissed the appeals. It granted the assessee liberty to approach the AO to give effect to the Supreme Court's decision once it is pronounced.
Key Issues
Whether interest income from commercial banks and from employees (vehicle/housing loans) should be classified as "income from other sources" or business income eligible for section 80P deduction; and whether long-term capital gain from property sales should be reclassified as business income.
Sections Cited
80P, 143(2), 142(1), 271(1)(c), 57, 158A(1), 158
AI-generated summary — verify with the full judgment below
Order PER LALIET KUMAR, J.M: These appeals are filed by the Assessee against two separate orders issued by CIT(A)-2, Chandigarh: one dated 03/10/2016 for A.Y. 2012-13, and the other dated 27/03/2017 for A.Y. 2013-14. 2. Since the issues involved in both the above appeals are common and the appeals were heard together, therefore, the same are being disposed of by this consolidated order for the sake of convenience and brevity.
We shall take up the Assessee’s appeal in pertaining to the Assessment Year 2012-13 as the lead case for the purpose of adjudication, wherein the Assessee has raised the following grounds:
1. 2 1. That the order of the Assessing Officer as upheld by the Commissioner of Income Tax (Appeals) Chandigarh is bad in law and is beyond all the cannons of law and justice.
That the order of the Assessing Officer as upheld by the Commissioner of Income Tax (Appeals) Chandigarh holding that the income of Rs. 10,49,614/- being the amount of interest received from commercial banks as income from other sources in the facts and circumstances of the case is bad in law and needs to be set-aside.
3. That the order of the Assessing Officer as upheld by the Commissioner of Income Tax (Appeals) Chandigarh disallowing the claim of Rs. 26,26,239/ of the appellant as long term capital gain and treating the same as business income amounting to Rs. 41,10,000/- is bad in law and needs to be set aside.
That the order of the Assessing Officer as upheld by the Commissioner of Income Tax (Appeals)-2 Chandigarh disallowing Rs 39,37,774/- being the amount of gross total interest received by the appellant from its employees on the loans advanced as a condition of service as attributable to main business and treating the same as income from other sources and that too without allowing expenses u/s 57of the Act in the facts and circumstances is bad in law and need to be set-aside.
That the appellant crave leave to add, amend, delete any of the grounds of appeal
1. 1. as mentioned above, before the appeal is finally heard. It is therefore humbly prayed that the order of the Assessing Officer as upheld by the Commissioner of Income Tax (Appeals) Chandigarh may kindly be set aside and the disallowances made may be allowed in the facts and circumstances of the case.
4. The assessee, Punjab State Co-operative House Building Federation Ltd., filed its return of income for AY 2012-13 declaring taxable income of Rs.26,43,040/- after claiming deduction under Chapter VI-A, mainly section 80P, amounting to Rs.8,66,76,909. The assessee is a co-operative society engaged in providing loans to member housing societies and developing housing projects. The return disclosed income from four heads: house property, business/profession, capital gains, and other sources. The case was selected for scrutiny, and notices under sections 143(2) and 142(1) were issued. The assessee’s counsel attended and filed submissions. The assessee had shown receipts including interest from member societies and interest from banks, and had claimed the entire income including interest and other miscellaneous receipts as eligible for deduction under section 80P(2)(a)(i). The assessee also disclosed long-term capital gain from sale of shops at Pakhowal, Ludhiana, and claimed indexed cost of acquisition.
4.1 The AO held that all income must first be classified under the proper heads before considering deductions. Based on judicial precedents, he treated interest from commercial banks as “income from other sources,” rejecting the assessee’s claim that it formed part of business income eligible for deduction under section 80P. He also held that interest received from employees on vehicle and house- 3 building loans was not attributable to the co-operative business and that employees were not members for section 80P purposes; therefore, this amount was also taxable, not deductible. Further, the AO rejected the claim of long-term capital gain on sale of shops, concluding that the activity formed part of business, and determined income from that project as business profit without indexation. After reworking income head-wise, disallowing deductions on non-member and bank interest, and reclassifying project income, the AO computed taxable income at Rs.91,14,190/- and initiated penalty proceedings u/s 271(1)(c) for concealment and furnishing inaccurate particulars.
5. Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the assessment made by the Assessing Officer on all disputed issues. After considering the grounds of appeal, written submissions and referring to earlier appellate orders, the Ld. CIT(A) held that the treatment of interest earned from commercial banks as “income from other sources” was correct, noting that the Chandigarh Bench of the ITAT had already decided this issue against the assessee in its own case for AY 2011-12. Since the assessee accepted that the matter stood covered by the ITAT, the appellate authority refused the claim of deduction under section 80P(2)(a)(i) on this interest and dismissed the corresponding grounds. Similarly, the Ld. CIT(A) confirmed the disallowance of deduction on interest earned from loans advanced to employees for vehicles and housing, observing that the ITAT, in the assessee’s own case for the immediately preceding year, had held that such income was not attributable to the core business of providing credit to member societies and was therefore not eligible for section 80P benefits. Turning to the capital gains issue, the Ld. CIT(A) found that the assessee had failed to justify its long- term capital gain computation on sale of shops and noted that this controversy was also covered against the assessee by earlier ITAT orders in AYs 2009-10 and 2011-12. Against the order of the Tribunal for the A.Y. 2009-10 the assessee preferrerd the appeal before the Hon’ble High Court. The Hon’ble High Court after considering the merits of the case had dismissed the appeal of the assessee and now the assessee is before the Hon’ble Supreme Court against the issues which were adjudicated by the Tribunal against the assessee.
6. Following these judicial precedents, the Ld. CIT(A) upheld the treatment of Rs. 41,10,000 as business income rather than capital gain.
4 7. Having found every ground covered by binding decisions against the assessee, the Ld. CIT(A) dismissed the appeal in full.
Against the order of the Ld. CIT(A) the assessee preferred in appeal before the Tribunal.
The assessee has filed an application under section 158A(1) of the Act, mentioning therein that the assessee will abide by the decision of the Hon’ble Supreme Court that is pending with respect to A.Y. 2006-07, 2009-10, 2010-11 and 2011-12. It was submitted that the matter is pending for adjudication before the Hon’ble Supreme Court and the assessee shall abide by the outcome of the decision of the Hon’ble Supreme Court.
Per contra, the Ld. DR had filed the report from the AO dt. 19/12/2018 which are to the following effect: Sub: Appeal filed by the assessee in the case of Punjab State Federation of Co- operative House Building Societies Ltd. in ITA No. 1308/Chd./2016 and 797/Chd./2017 for the A.Ys. 2012-13 and 2013-14 - Regarding - Kindly refer to your office letter No. 951 dated 19.12.2018 on the subject cited above. In this regard, it is submitted that on perusal of relevant records it is seen that no report was found pending with this office on this issue. As no letter from the O/o the CIT(DR) calling for report found placed in the relevant records. However, as per the directions of the Hon'ble ITAT and your above referred letter the same is prepared which is as under: As per copy of SLP for the A.Ys. 2006-07 and 2010-11, placed on records it is seen that the assessee has taken the following question(s) of law before the Hon'ble Supreme Court for the A.Ys. 2006-07 and 2010-11:-
For the A.Y.2006-07 For the A.Y.2010-11 a. Whether in the facts and in the a. Whether the Hon'ble High Court was in error in circumstances of the case the orders passed "by upholding the order of the ITAT to the effect that the the Hon'ble High Court for the States of Punjab & income received by a Cooperative Society from Haryana are legally sustainable? investments of its business funds with banks other than cooperative banks is income from other b. Whether on the facts and in the sources and not income from business' more so circumstances in the case the High when the business of the Petitioner Cooperative Court is right in law in holding that the income Society is to earn interest on the loans advanced derived by appellant cooperative society from to its members and thereby the interest on the banks on its investments in the form of fixed deposits is attributable to the main business of the deposits/deposits as interest under the head appellant and hence business income entitle to income from other sources and not as business deduction u/s 80P(2)(a)(i) of the Income Tax Act, income? 1961? c. Whether on the facts and in the b. Whether the Hon'ble High Court was in error circumstances of the case the High Court is right in upholding the order of the ITAT to the effect that in law in deciding the question of law in favour of the expenses of 1% of income are only attributable to the revenue and setting aside the the earning of interest income under the provision of order of the Income Tax Appellate Tribunal that Section 57(iii) of the Income Tax Act, 1961? too in the absence of the respondent? c. Whether the Hon'ble High Court was in error d. Whether on the facts and in the in upholding the order of the ITAT upholding the order circumstances in the case the High Court has of the Assessing Officer and reversing the order of the correctly applied the judgment of this Hon'ble Commissioner of Income Tax (Appeals) Chandigarh Court in the case of The Totgars Cooperative Sale with regard to the interest income of Rs. 27,19,241/- Society Ltd. Vs. CIT 2010 (3) SCC 223 in the received by the appellant as interest on the loans present case? advanced to its employees for the purposes of purchase of housing and conveyance as a condition e. Whether in the facts and circumstances precedent of their service rules more so when it has of the case the decision of the Hon'ble ITAT been treated as business income in the earlier years? following the judgment of this Court in the case of Commissioner of Income Tax Vs. Karnataka d. Whether the Hon'ble High Court was in error State Cooperative Apex Bank, 2001 (7) SCC 654 in upholding the order of the ITAT to the effect of holding the interest income from the banks as upholding the order of the Assessing Officer and business income is the correct law and this reversing the order of the Commissioner of Income judgment of the High Court has not laid down Tax (Appeals), Chandigarh and also not following its the correct law? own earlier decision is perverse more so when the earlier order of the-Tribunal was a reasoned order f. Whether on the facts and in the and has not been even distinguished? circumstances in the case the High Court has erred in law in holding that the issue is covered, e. Whether the Hon'ble High Court was in error by the decision of the judgment of this Hon'ble in upholding the order of the ITAT to the effect that Court in applying the judgment of this court in the the income by way of interest on loans advanced to case of The Totgars Cooperative Sale its employees and the deposits held with schedule Society Ltd. Vs. CIT 2010 (3) SCC 223? banks was chargeable to tax u/s 56 under the head income from other sources without allowing any g. Whether on the facts and in the deduction in respect of cost of circumstances in the case the decision of this funds and proportionate administrative and Hon'ble Court in the case of Commissioner of other expenses under section 57(iii) of the Income Tax Income Tax Vs. Karnataka State Cooperative Act, 1961? Apex Bank, 2001 (7) SCC 654 and not the decision of this court in the case of The Totgars f. Whether the Hon'ble High Court was in error Cooperative Sale Society Ltd. Vs. CIT 2010 (3) in upholding the order of the ITAT to the effect that SCC 223 is applicable in the present case where the Questions of Law raised in the present case are the appellant is engaged in providing credit the same as decided by this Hon'ble Court in the facilities to its members within the meaning of case of Totgars' Cooperative Sales Society Ltd. Vs. section 80P(2)(a)(i) of the Income Tax Act? ITO, 322 ITR Page 283: 2010(3) SCC 223 although the facts of the present case and that of the decided h. Whether in the facts and in the case are distinguishable? circumstances of the case the judgment of this court in the case of The Totgars Cooperative Sale Society Ltd. Vs. CIT 2010 (3) SCC 223 is not applicable to the facts of the present case? i. Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal has laid the correct law and applied the judgments of this Hon'ble Court including full bench of this court and the Hon'ble High Court has erred in the application of the judgment of this Court in the present case which is distinguishable and not applicable to the present facts and circumstances of the case. More so when this court has not considered or even referred to the judgment of the full bench of this court in the subsequent judgment in the case of The Totgars Cooperative Sale Society Ltd. Vs. CIT 2010 (3) SCC 223?
Further, it is also submitted that the assessee has taken the following grounds before the Hon'ble ITAT for the A.Ys. in question (i.e. 2012-13 and 2013-14):
For the A.Y. 2012-13 For the A.Y. 2013-14
That the order of the Assessing Officer as 1. That the order of the Assessing upheld by the Commissioner of Income Tax Officer as upheld by the Commissioner of Income Tax (Appeals) Chandigarh is bad in law and is (Appeals) Chandigarh is bad in law and is beyond all beyond all the cannons of law and justice. the cannons of law and justice.
2. That the order of the Assessing Officer as upheld by the Commissioner of Income Tax 2. That the order of the Assessing (Appeals) Chandigarh holding that the income Officer as upheld by the Commissioner of Income of Rs. 10,49,614/- being the amount of interest Tax (Appeals) Chandigarh holding that the income received from commercial banks as income from of Rs. 12,20,834/- being the amount of interest other sources in the facts and circumstances of received from commercial banks as income from the case is bad in law and needs to be set-aside. other sources in the facts and circumstances of the 3. That the order of the Assessing Officer as case is bad in law and needs to be set-aside. upheld by the Commissioner of Income Tax That the order of the Assessing Officer as upheld 3. (Appeals) Chandigarh disallowing the claim of Rs. by the Commissioner of Income Tax (Appeals) 26,26,239/- of the appellant as long term capital Chandigarh disallowing the claim of Rs. 14,95,610/- of gain and treating the same as business income the appellant as long term capital gain and treating amounting to Rs.41,10,000/- is bad in law the same as business income amounting to Rs. and needs to be set aside. 17,10,305/- is bad in law and needs to be set aside. 4. That the order of the Assessing Officer as That the order of the Assessing Officer as upheld 4. upheld by the Commissioner of Income Tax by the Commissioner of Income Tax (Appeals)-2 (Appeals)-2 Chandigarh disallowing Chandigarh disallowing Rs 51,58,142/- being the Rs.39,37,774/- being the amount of gross total amount of gross total interest received by the interest received by the appellant from its appellant from its employees on the loans advanced employees on the loans advanced as a as a condition of service as attributable to main condition of service as attributable to main business and treating the same as income from other business and treating the same as income from sources and that too without allowing expenses u/s other sources and that too without allowing 57 of the Act in the facts and circumstances is bad in expenses u/s 57 of the Act in the facts and law and need to be set-aside. circumstances is bad in law and need to be set- aside. That the appellant crave leave to add, amend, 5. 5. That the appellant crave leave to add, delete any of the grounds of appeal as mentioned amend, delete any of the grounds of appeal as above, before the appeal is finally heard. mentioned above, before the appeal is finally heard.
As per Form No. 8 dated 11.07.2017 for the A.Y. 2012-13 and 20.07.2017 for the A.Y. 2013-14, the assessee made declaration u/s 158A(1) claiming that identical question(s) of law are pending before the Hon'ble High Court. However, in the first para of the Form the assessee is claiming that the identical question(s) of law are pending before the Hon'ble Apex Court.
In view of this it appears that there are technical errors in the declaration given by the assessee u/s 158A(1) of the Act. It is also submitted that all the issue raised before the Hon'ble ITAT in A.Y. 2012-13 and 2013-14 are not found in the pending SLP for A.Y. 2006- 07 and 2010-11 before the Hon'ble Apex Court. In view of the above facts the application filed by the assessee for the A.Y. 2012-13 65 2013-14 u/s 158A(1) may not be accepted as such due to technical error as well as deviation of grounds/Qucstion(s) of Law before the Hon'ble ITAT and Hon'ble Apex Court.
We have heard the rival contention and perused the material available on the record. Since the issue is already covered by the decision of the Hon’ble High Court against the assessee, we respectfully follow the decision of the Hon’ble High Court and dismiss all the appeals filed by the assessee. Since we have dismissed the appeal of the assessee following the decision of the Hon’ble High Court, hence, we deem it appropriate to give the liberty to the assessee to approach to the AO as and when the order / judgment is passed by the Hon’ble Supreme Court, with the 7 request to give effect to the decision of the Hon’ble Supreme Court in the in the assessment years now decided by us following the spirit of Section 158 of the Act.
12. With the above said liberty the appeal of the assessee is dismissed.
Both the parties fairly submitted that the facts and circumstances of the other appeal, i.e., are exactly identical to those in and that similar contentions raised therein may be considered. Therefore, our findings and directions given in shall apply mutatis mutandis to the other appeal as well. Accordingly, the same is dismissed.
In the result, both the above appeals of the Assessee are dismissed.