SHIVA CREDIT CO-OPERATIVE SOCIETY LTD,HONNALI vs. INCOME TAX OFFICER WARD-2, SHIMOGA

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ITA 2187/BANG/2017Status: DisposedITAT Bangalore11 January 2018AY 2011-124 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal restored the matter to the CIT(A) for fresh adjudication. This was to examine factual aspects in light of judgments from the Karnataka High Court and the Supreme Court regarding the nature of income and whether credit facilities were extended to outsiders.

What were the facts?

The assessee, a co-operative society, challenged the taxability of interest income earned from investments in a co-operative bank. The lower authorities held that a co-operative bank is not a co-operative society and the interest was not co-operative income.

What were the issues?

Whether interest income from investments in a co-operative bank is taxable for a co-operative society, and whether the principles laid down in specific High Court and Supreme Court judgments apply to the assessee's facts.

Which sections of the Income-tax Act were involved?

Section 80P(2)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, “SMC-B” BENCH : BANGALORE

Before: SHRI ARUN KUMAR GARODIA

For Appellant: Dr. S. Krishnaswamy, CA
For Respondent: Dr. G. Manojkumar, Addl. CIT (DR)
Hearing: 10.01.2018Pronounced: 11.01.2018

O R D E R Per Shri A.K. Garodia, Accountant Member All these three appeals are filed by the assessee which are directed against three separate orders of CIT(A), Davangere dated 29.06.2017 for Assessment Year 2009-10, dated 29.06.2017 for Assessment Year 2011-12 and dated 03.07.2017 for Assessment Year 2012-13. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

2.

In all the three appeals, the grounds raised

by the assessee are identical except difference in amounts. Hence I reproduce the grounds for Assessment Year 2009-10 in ITA No. 2186/Bang/2017. The grounds raised by the assessee are as under. “1. The Order of the learned ITO and CIT (A) is against law and facts.

2. Rs.1,82,303/- (Interest income from DDCC Bank) i. The learned ITO and CIT (A) erred in bringing to tax the interest income received from investment in a cooperative bank on the to 2188/Bang/2017 Page 2 of 4 ground that a 'co-operative bank' is not a co-operative society, and further that such interest was not co-operative income. ii. The learned ITO and CIT (A) wrongly applied the decision of the Supreme Court in Totagara Co-operative Sale Society Ltd V ITO (2010) 188 Taxmann and the CIT (A) the decision of Karnataka High Court in Principal Commissioner of Income-Tax and another v. Totagars cooperative sale society [2017] 395 itr 611 (karn) as these two decisions were dealing with a case of co- operative society indulging in non-cooperative business also which was not the case in the instant case. iii. The learned ITO and CIA (A) ought to have appreciated that the appellants' activities are restricted and confined to co- operative activities i.e. transactions with members and hence the interest from investment of such surplus relating to co-operative income was equally exempt under the main provisions of Sec. 80P(2). iv. The learned CIT(A) erred in not appreciating the ratio decidendi of the Karnataka High Court decision Pr.Commissioner of Income Tax V Totagara's Co-operative Society (2017) 395 ITR 611 (Kar) which laid down; "It is the character and nature of income which determines its taxability or exemption from taxability" In the instant case the deposits represented surplus of cooperative activity income and not any non-co-operative business income as was the case in Totagar's which had multiple business activities.”

3.

At the very outset, it was submitted by ld. AR of assessee that the issue involved in these appeals is 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 in of 2014 dated 28.10.2014. He also pointed out that this judgement is reported in (2015) 55 taxmann.com 447(Kar) and he also filed a copy of this judgement. At this juncture, the bench pointed out that as per Para no. 10 of this judgement of Hon'ble Karnataka High Court, various factual aspects are to be examined as to whether the amounts invested by the assessee in banks was liability of the assessee or it was own funds of the assessee. As per this para of this judgement of Hon'ble Karnataka High Court, it is also required to be seen as to whether the funds invested by the assessee in bank were not immediately required by the assessee for lending money to the members, as there were no to 2188/Bang/2017 Page 3 of 4 takers. In reply, learned AR of the assessee submitted that these facts are not readily available and the matter may be restored to AO or CIT (A) to decide afresh in the light of this judgment after considering relevant facts which will be brought on record by the assessee. The bench also pointed out that as per a recent judgment of Hon’ble Apex Court rendered in the case of The Citizen Co- operative Society Ltd., Hyderabad v. ACIT in Civil Appeal No. 10245 of 2017 dated 08.08.2017, the matter was restored back to the file of AO to verify whether credit facilities were given by the assessee cooperative bank to outsiders also. The bench pointed out that the matter may be restored back to the file of CIT (A) for fresh decision in the light of this judgement of Hon'ble Karnataka High Court cited by ld. AR of assessee and also in the light of this judgment of Hon’ble Apex Court rendered in the case of The Citizen Co- operative Society Ltd., Hyderabad v. ACIT (supra) after examining the facts of the present case in the light of these two judgements. In reply, both sides agreed to this proposition. Hence I set aside the order of CIT (A) in all the three years and restore the entire matter back to his file for fresh decision in the light of these two judgments noted above of Hon'ble Karnataka High Court and Hon’ble Apex Court after ascertaining the necessary facts of the present case.

4.

The CIT (A) should pass necessary order as per law as per above discussion after providing reasonable opportunity of being heard to both sides. In view of this decision, I do not make any comment on the merit of the case because the issue is restored back to the file of CIT(A) for fresh decision.

5.

In the result, all the three appeals filed by the assessee are allowed for statistical purposes in the terms indicated above.

Order pronounced in the open court on the date mentioned on the caption page.

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