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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
This appeal is filed by the assessee and this is directed against the order of ld. CIT (A) -7, Bangalore dated 28.11.2017 for Assessment Year 2014-15.
The grounds raised
by the assessee are as under. “1. On the facts and in the circumstances of the case, the learned CIT (Appeals) ought to have accepted the explanation offered by the Appellant and allowed the exemption under Section 80P (2) (a) (i) of the Act in respect of the interest on the deposits earned in the course of the activity of the Appellant-Society and the income was attributable to the said activity.
2. The learned CIT (Appeals) ought to have appreciated that the Supreme Court judgment in the case of Totgar's Co-operative Sale Society Ltd (2010) 188 Taxman 282 was distinguishable.
3. The learned CIT (Appeals) ought to have followed the jurisdictional High Court judgment in the case of Guttigedarara Credit Co- operative Society Ltd vs. ITO (2015) 377 ITR 464 (Karn) and also in the case of Yamakaninardi Co-operative Credit Society vs. cit (2014) 45 Taxmann.com 297 (Karn) and ought to have allowed the deduction as claimed by the Appellant.
4. The learned CIT (Appeals) ought to have appreciated that the investments in deposits were as per the statutory requirement and it was not out of surplus and consequently the judgment of the Karnataka High Court in the case of Totgar's Co-operative Sale Society Ltd vs. ITO (2010) 322 ITR 272 (Karn) was again not applicable and accordingly the interest as claimed was eligible for exemption under Section 80P (2) (a) (i) of the Act.
5. Without prejudice, the disallowance as confirmed by the learned CIT (Appeals) is arbitrary, excessive, unreasonable and liable to be reduced substantially.
6. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
It was submitted by ld. AR of assessee that in the present case, the issue in dispute is squarely covered in favour of the assessee by the 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. He submitted that the AO has followed a judgment of Hon’ble Apex Court rendered in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO as reported in 322 ITR 283 (SC). He pointed out that in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra), Hon'ble Karnataka High Court has duly considered this judgment of Hon’ble Apex Court rendered in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO (supra) and even after that, the issue in dispute was decided by Hon'ble Karnataka High Court in favour of the assessee. As against this, the ld. DR of revenue supported the orders of authorities below. He also submitted that as per a recent judgment of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society as reported in 395 ITR 611 (Karn), Hon'ble Karnataka High Court has decided the issue in favour of the revenue and against the assessee and therefore, this later judgment should be followed because this judgment is a later judgment dated 16.06.2017.
I have considered the rival submissions. I find that the judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra) is judgment dated 28.10.2014 whereas the judgment of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society (supra) is a judgment dated 16.06.2017. In the first judgment, the issue in dispute was decided by Hon'ble Karnataka High Court in favour of the assessee whereas in the later judgment, the issue in dispute was decided in favour of the revenue. Hence I have to first see and decide as to whether there is any contradiction in these two judgments of Hon'ble Karnataka High Court. When I do so, I find that in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra), it is noted by Hon'ble Karnataka High Court in Para 10 of that judgment that the amount which was invested in banks to earn interest was not an amount due to any member and it was not liability and it was not shown as liability in the accounts of the assessee and it is also noted in the same Para i.e. Para 10 that in fact, the amount was in the nature of profits and gains and it was not immediately required by the assessee for lending money to the members, as there were no takers and therefore, the assessee has deposited the money in a bank to earn interest. Under these facts, it was held by Hon'ble Karnataka High Court that the said interest income is attributable to carrying on the business of banking and therefore, it is liable to be deducted in terms of Section 80P (1) of the Act.
Now I examine the facts and basis of judgment of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society (supra). In this case, it is noted by Hon'ble Karnataka High Court that the assessee is engaged in the business of marketing the agricultural produce of its members and it retains the sale proceeds in many cases. It is this 'retained amount' which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities and such an amount, which was retained by the assessee-society and it was a liability and it was shown in the balance-sheet on the liability-side. After noting these facts, it was held by Hon'ble Karnataka High Court to that to that extent, such interest
income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a)(iii) of the Act. Hence it is seen that there is no contradiction in these two judgments of Hon'ble Karnataka High Court. The conclusion is different because the facts are different. In the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra), it was noticed that the money deposited in bank was not liability of the assessee and it was assessee’s own money whereas in the case of PCIT and Another Vs. Totagars Co-operative Sale Society (supra), it was noted that the amount which was invested was not the own money of the assessee but was liability of the assessee. Hence I find that there is no contradiction in these two judgments and the conclusion is different because the facts are different. Hence the facts of the present case are to be examined with the facts of these two judgments and if it is found that the facts of the present case are similar to the facts in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra), then issue should be decided in favour of the assessee. If the facts of the present case are similar to the facts in the case of PCIT and Another Vs. Totagars Co-operative Sale Society (supra) then the issue should be decided against the assessee.
On a specific query from the bench, it was submitted by ld. AR of assessee that necessary facts on this aspect are not readily available and there is no finding of any of the authorities below on this aspect. Under these facts, I feel it proper to restore the matter back to the file of AO for fresh decision after examining this aspect of the facts of the present case in the light of these two judgments and in the light of above observations. Hence I set aside the order of CIT (A) and restore the matter back to the file of AO for fresh decision in the light of above discussion after providing adequate opportunity of being heard to assessee.
In the result, the appeal filed by the assessee stands allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.