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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-29, Mumbai, dated 25.09.2013 which in itself arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 31.12.2012. The revenue assailing the order of the CIT(A) had raised before us the following grounds of appeal:
1. On the f acts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that interest and dividend income earned From surplus fund parked in short term deposits with co-operative banks and nationalized banks P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op. was entitled to claim exemption deduction under section 80P(2)(1) of the I.T. Act in respect of such income.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that such income attributable to the activity of banking thus would be eligible for deduction under section 80P of the I.T. Act 1961, such income could riot be said to attributable to the activities of the society, therefore would not fall within the meaning of the expression 'profit and gains of business'.
3. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.
4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
Briefly stated, the facts of the case are that the assessee which is a co- operative society engaged in the business of providing credit facilities to its members had e-filed its return of income for A.Y. 2010-11 on 09.10.2010, declaring total income of Rs. nil. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2).
During the course of the assessment proceedings, it was observed by the A.O that the assessee which had declared net profit of Rs.1,35,51,336/- had claimed hundred percent deduction in respect of such profits under Sec.80P of the Act. It was noticed by the A.O that the assessee had received interest of Rs.65,88,008/- on investments in fixed deposits with banks. It was observed by the A.O that the assessee had also made fixed deposits with Bank of Maharashtra and Dena Bank. The entire interest income on fixed deposits was shown by the assessee under the head “business income” and deduction under Sec. 80P(2)(a)(i) of the Act was claimed by the assessee. The assessee on being called upon to furnish an explanation as to why the interest earned on fixed deposits may not be assessed under the head “Income from other sources”, placed on record the bifurcated details of the interest income as was credited in the income and expenditure account for the year under consideration, as herein below:
Sr. Name of Bank Interest Accrued/ No. Received 1. Bank of Maharashtra Rs.16,00,522/- P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op.
2. Dena Bank Rs.14,27,236/- 3. Mumbai District Central Co- Rs.32,60,150/- operative Bank Ltd. TOTAL Rs.65,88,008/- It was further submitted by the assessee that the aforesaid investments were not made out of surplus funds, but to meet the requirements of its business. It was claimed by the assessee that the purpose of maintaining the aforesaid fixed deposits was imperative for smooth functioning of the co- operative credit societies especially to cover any contingencies such as sudden spurt in demand for loans, repayment of deposits of members on demand amongst others. It was thus submitted by the assessee that the earning of interest on fixed deposits with bank was incidental to its business of acceptance of deposits and provision of credit facilities from/to its members. As such, it was submitted that the said interest income was to be treated as business income and assessed to tax under the head profit and gains from business. The assessee in order to drive home his aforesaid contention that parking of the amount with the banks as fixed deposits was well in order, submitted that the laws governing Co-operative Credit Societies laid down that 23% of deposits of the society were to be kept in fixed deposits with nationalized banks. The assessee further submitted before the A.O the reasons for parking of the funds as short term deposits with the nationalized banks, viz. Bank of Maharashtra and Dena Bank.
It was submitted by the assessee that being a co-operative society it had sought deduction of the interest earned on fixed deposits with the nationalized banks under Sec.80P(2)(a)(i) of the Act, as the whole of such amount was attributable to its activities of providing credit facilities to its members. Still further, it was submitted by the assessee that the interest and dividend income earned from the Mumbai District Co-operative Bank Ltd was also eligible for deduction under Sec. 80P(2)(d) of the Act. The assessee in order to fortify its claim that the interest income earned on investments in fixed deposits was its business income, submitted that the Bye-law No. F.1.8.22 of the society laid down that the investments of the P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op. funds of the society were to be made in accordance with the provisions of MCS Act, 1960. It was the claim of the assessee that investment of funds was the main activity of the society to maintain liquidity as well as to optimize yield on the funds of the society. Still further, it was submitted that the interest income earned in the course of the business activity would not change its character even if the A.O assessed the same as income from other sources, as its entitlement towards claim of deduction under Sec. 80P(2)(a)(i) of the Act could not be denied.
The A.O after deliberating on the contentions of the assessee, was however not persuaded to subscribe to the same. It was observed by the A.O that from a perusal of the balance sheet of the assessee society it could safely be gathered that the interest income on the short term fixed deposits made by the assessee out of surplus funds was rightly assessed under the head „Income from other sources‟. The A.O in support of his aforesaid observation relied on the judgment of the Hon‟ble Supreme Court in the case of the Totgars Co-operative Sales Society Ltd. Vs. ITO (2010) 322 ITR 283 (SC). It was observed by the A.O that the Hon‟ble Apex Court had held that where a co-operative society which was engaged in providing credit facilities to its members and marketing their agricultural produce, had earned interest income by investing its surplus funds in short term deposits in the government securities, the same would fall within the sweep of “Income from other sources” and would be chargeable to tax under Sec. 56 of the Act. The A.O observed that the Hon‟ble Supreme Court had concluded that as such interest income earned by a Co-operative society cannot be attributed to the activities of the society, hence the interest income earned therefrom would not qualify for deduction under Sec. 80P(2)(a)(i). The A.O in support of his aforesaid view took support of the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Common Effluent Treatment Plant (Thane, Belapur) Association (2010) 328 ITR 362 (Bom). The High Court in the aforementioned case had observed that the interest income earned by an assessee co-operative society on money invested in fixed deposits of bank would not possess same character of mutuality as surplus fund derived by P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op. the assessee from contributions of its members, and would be exigible to tax as income from other sources. The A.O on the basis of his aforesaid observations subjected the interest income of Rs.65,88,008/- earned by the assessee co-operative society to tax under the head “Income from other sources”. However, out of the above interest income of Rs.65,88,008/-, as the assessee had earned interest of Rs.32,60,150/- on the fixed deposits with Mumbai district Central Co-operative Bank Ltd., thus, the A.O allowed the claim of deduction under Sec. 80P(2)(d) of Rs.32,60,150/- to the assessee and brought the balance interest income of Rs.33,27,858/- earned by the assessee on the deposits held with the nationalized banks to tax. The A.O also brought the dividend income of Rs.85,855/- earned by the assessee on the investments in shares of co-operative bank to tax under the head “income from other sources”, but observing that the dividend income was earned on the shares of a co-operative bank, allowed a deduction of Rs.85,855/- under Sec.80P(2)(d) of the Act.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee in the backdrop of the facts of the case observed ,that a bare perusal of Sec.80P (2)(a)(i) revealed that in the case of a co-operative society carrying on the business of banking or providing credit facilities to its members, whole of the profits or gains attributable to such activities were eligible for deduction. It was specifically observed by the CIT(A), that the deduction contemplated under the aforesaid statutory provision, viz. 80P(2)(a)(i) was available to the society in respect of the profit and gains “attributable to” specified activities of the co-operative society. The CIT(A) deliberating on the scope and gamut of the term “attributable to” as defined by the Hon‟ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd Vs. CIT (1978) 113 ITR 84 (SC) observed that the said term was much wider in impact than the expression „derived from‟. It was further observed by the CIT(A) that the legislature in all its wisdom had used the words „attributable to‟ in Sec. 80P, in conjunction with the phrase „any one or more of such activities‟ which thus revealed that the word „attributable‟ was much wider P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op. in impact than „derived‟. The CIT(A) was thus of the view that the term „attributable‟ covered receipts from other activities related to the business of banking of the co-operative society. The CIT(A) on the basis of his aforesaid deliberations concluded that the use of the word „attributable‟ by the legislature in Sec.80P(2)(a)(i) would mean that in the course of banking activity, if the society received any income which was the outcome of the business of banking of such society, such an income was to be construed as the profits and gains of the business and therefore be eligible for deduction under Sec. 80P(2)(a)(i) of the Act. The CIT(A) observed that as the Hon‟ble Supreme Court in the case of Totagars Co-operative Society Vs. ITO (2010) 322 ITR 283 (SC) was dealing with the proposition that where the interest income had accrued on funds invested in the banks which were not immediately required by the assessee for its business and were invested in securities and short term deposits with the others banks, such interest earned on the deposits would fall within the category of „Income from other sources‟ taxable under Sec. 56 and would not be eligible for deduction under Sec. 80P(2)(a)(i). The CIT(A) on the basis of his aforesaid observations concluded that the judgment of the Hon‟ble Apex Court in the case of Totagars Co-operative Society (supra), being distinguishable on facts, would not be applicable to the case of the assessee before him. It was further observed by the CIT(A) that unlike the case of the assessee before him, the Totagars Society was not a society engaged in the business of banking, but was a credit society providing credit facilities to its members and helping them in marketing their agricultural produce. It was thus observed by the CIT(A) that Totagars Society was not in the business of banking, as was the case of assessee before him. The CIT(A) was thus of the view that the Hon‟ble Apex Court in its aforesaid case had not considered the cases of the co-operative societies which were carrying on banking activities. The CIT(A) concluded that in the case of the assessee society before him, lending as well as making of deposits with the other banks was an integral part of the banking activity carried on by the assessee, from which the interest income was earned by it. The CIT(A) on the basis of his aforesaid observations P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op. concluded that the interest income earned on such deposits with other banks, being directly attributable to the activity of banking of the assessee co-operative society and represented the profits and gains from its banking business activities, hence the same was eligible for deduction under Sec. 80P(2)(a)(i) of the Act. The CIT(A) thus deleted the addition of Rs.65,88,008/- made by the A.O as the income of the assessee from other sources.
We find that despite the fact that the assessee respondent was duly intimated as regards the date of hearing of the appeal, however he had neither put up an appearance, nor any application seeking an adjournment has been filed before us. We thus, are constrained to proceed as per Rule 25 of the appellate Rule, 1963 and dispose off the appeal after hearing the revenue appellant and perusing the orders of the lower authorities. The ld. Departmental Representative at the very outset of the hearing of the appeal fairly conceded that the issue involved in the present appeal was squarely covered by the order of a coordinate bench of the Tribunal in the assessee‟s own case, viz. ITO-20(2)(i) Vs. Mumbai Sales Tax Staff Cooperative Credit Society Ltd, Mumbai (ITA No. 344/Mum/2016, A.Y 2012-13) dated 05.07.2017 (copy placed on record).
We have heard the ld. Departmental representative, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present case has been sought to adjudicate as to whether the CIT(A) is right in law and facts of the case in concluding that the interest and dividend income earned by the assessee co-operative society on the short term deposits with co-operative banks and nationalized banks, was eligible for claim of deduction under Sec.80P of the Act, or not. As observed by us hereinabove, the assessee is a co-operative society engaged in the business of providing credit facilities to its members. We have perused the order of the coordinate bench of the Tribunal, viz. ITAT “H” Mumbai in the assessee‟s own case for A.Y 2012-13 in dated 05.07.2017 and are persuaded to be in agreement with the claim of the ld. A.R that the issue under consideration before us in the present appeal is P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op. squarely covered by the said order of the Tribunal. The Tribunal in the aforementioned order passed in the assessees own case for AY. 2012-13, viz. ITO-20(2)(1) Vs. The Mumbai Sales Tax Staff Co-op Credit Society Ltd (ITA No. 344/Mum/2016; dated 05.07.2017), had held as under:
“5. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 5.1 to 5.3 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 5.3 of its order and the same is reproduced below-.- “5.3 From the facts of the instant case, it is quite clear that the appellant has limited himself to his own members. The appellant has not provided banking facilities either to the general public at large or even to the members of the society. Even the bye laws of the appellant does not provide for banking activities. Therefore facts of this case are not identical with any of the case laws relied upon by the AO. On the other hand the facts of instant case are almost similar to the decisions of the ITAT Nagpur & Panaji Benches in the cases of (i) ACIT Vs. Buldana Urban Coop Credit Soc. Ltd
32. Taxman
69. ITAT Nagpur and (II) DCIT Vs. Jayalaxnmi Mahila Vividodeshagala Souharda Sahakart, Ltd. by ITA T Panaji Bench
23. Taxman 313 where the activities of the assessee were limited to the members of a specific group and the area of operations was also limited to the acceptance of deposits of members and providing credit facilities to only members, which have been held as not falling under banking activities as defined in the Banking Regulation Act. I also find persuasive value in the opinion of the RBI issued vide letter dated 1st Feb 2012 whereby the RBI states that where a banking license has not been issued to the cooperative credit society, the same cannot be considered as an Urban Cooperative Bank under the Banking Regulation Act 1949. Therefore respectfully following the aforesaid decisions of ITAT Nagpur & Panaji, the appellant cannot be held as a cooperative bank, hence deduction claimed u/s 80P(2)(a)(i) cannot be denied to it I find that the A.O in the present AY has nowhere led any facts to show that banking facilities such as cheque books, drafts have been provided. Neither is it the case of the A.O that facilities have been provided to members of the general public without restricting on/v to its own members. On facts therefore the A.O has not demonstrated as to how the appellant qualifies to be a bank. In the circumstances, I hold that the appellant is a cooperative society and not a cooperative P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op. bank and is therefore eligible for deduction u/s 80P(2)(a)(i). A.O is accordingly directed to allow the deduction claimed by the appellant. Grounds 1, 2 are allowed in favour of the appellant.” No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT(A). Since the Ld. CIT(A) while deciding these grounds have relied upon the orders passed by the different benches of Hon’ble ITAT in identical circumstances, therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT(A) are judicious and are well reasoned. Resultantly, these grounds raised by the revenue stands dismissed.
7. We have given a thoughtful consideration to the observations of the Tribunal and finding no reason to take a different view, therefore, respectfully follow the same. We thus, in terms of our aforesaid observations, finding no infirmity in the order of the CIT(A), uphold the same.
8. The appeal filed by the revenue is dismissed. Order pronounced in the open court on 31.05.2018 Sd/- Sd/- (R.C SHARMA) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER भुंफई Mumbai; ददनांक 31.05.2018 Ps. Rohit P a g e | ITO-17(1)(3) Vs. The Bombay Sales Tax Staff Co-op.