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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘B’, LUCKNOW
Before: SHRI A. D. JAIN & SHRI T. S. KAPOOR
I.T.A. No.285, 474, 525, 536 & 540/Lkw/2015 1
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH ‘B’, LUCKNOW
BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.285/Lkw/2015 Assessment Year:2011-12
Income Tax Officer, Vs. M/s Sahkari Ganna Vikas Samiti Ward-II, Ltd., Palia Kalan, Lakhimpur Kheri. Lakhimpur Kheri PAN:AADTS7551B (Appellant) (Respondent)
I.T.A. No.474/Lkw/2015 Assessment Year:2012-13
Income Tax Officer-3(5), Vs. M/s Sahkari Ganna Vikas Samiti Lakhimpur Kheri. Ltd., Palia Kalan, Lakhimpur Kheri PAN:AADTS7551B (Appellant) (Respondent)
I.T.A. No.525/Lkw/2015 Assessment Year:2009-10
Income Tax Officer-3(5), Vs. M/s Sahkari Ganna Vikas Samiti Lakhimpur Kheri. Ltd., Palia Kalan, Lakhimpur Kheri PAN:AADTS7551B (Appellant) (Respondent)
I.T.A. No.536/Lkw/2015 Assessment Year:2012-13
Income Tax Officer-3(4), Vs. M/s Co-Operative Cane Lakhimpur Kheri. Development Union Ltd., Bheera, Distt. Lakhimpur Kheri. PAN:AAATC5045R (Appellant) (Respondent)
I.T.A. No.285, 474, 525, 536 & 540/Lkw/2015 2
I.T.A. No.540/Lkw/2015 Assessment Year:2012-13
Income Tax Officer-3(4), Vs. M/s Kheri Pilibhit Sahkari Ganna Lakhimpur Kheri. Vikas Samiti Ltd., Sampurna Nagar, Lakhimpur Kheri. PAN:AAFFK3080K (Appellant) (Respondent)
Appellant by Shri Harish Gidwani, D.R. Respondent by Shri K. R. Rastogi, C. A. Shri Shubham Rastogi, C.A. Date of hearing 31/08/2022 Date of pronouncement 01/09/2022
O R D E R PER T. S. KAPOOR, A.M.
These appeals have been filed by the Revenue against the separate orders of learned CIT(A) dated 20/02/2015 in I.T.A. No.285, dated 06/04/2015 in I.T.A. No.474 and dated 07/05/2015 in I.T.A. Nos. 525, 536 & 540.
These appeals were earlier disposed of by separate orders of the Tribunal dated 23/06/2015, 04/12/2016, 04/12/2016, 03/03/2016 and 14/01/2016 respectively wherein the appeals filed by the Revenue were dismissed. Against the orders of the Tribunal, the Revenue preferred appeals before Hon'ble Allahabad High Court and Hon'ble Allahabad High Court vide order dated 06/12/2016 in all appeals as separate orders, reversed the orders passed by the Tribunal and allowed the appeals of the Revenue. The assessees preferred appeals before Hon'ble Supreme Court
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and filed certain additional documents and Hon'ble Supreme Court set aside the issue to the Tribunal for fresh adjudication.
Learned counsel for the assessee submitted that earlier the Department had filed appeals on two issues relating to deduction u/s 80P(2) of the Act and relating to deposit of provident fund. However, against the orders of the Tribunal, the Revenue took before Hon'ble High Court the issue of deduction u/s 80P of the Act only. Learned counsel for the assessee, in view of the order of Hon'ble Supreme Court, submitted that the Hon'ble Tribunal has to decide the issue afresh after ignoring the order already passed by the Tribunal and Hon'ble Allahabad High Court.
Explaining the facts of the cases, Learned counsel for the assessee submitted that the assessees are cooperative societies engaged in procurement of cane for the sugar mills and ensuring the payments to farmers by sugar mills and further these societies are engaged in providing better quality of seeds, fertilizers, agriculture equipments etc. to farmers. It was submitted that against the order of Hon'ble Allahabad High Court, the assessee, before Hon'ble Supreme Court, argued that the objects contained in the bye laws of the societies (being not for profit) are for the welfare of cane growers as a whole and further it was submitted that Hon'ble High Court had erred in interpreting that the appellant assessees are covered by the orders of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Limited which in fact was a sales society as per its objects and was selling agricultural products to its members. Learned counsel for the assessee submitted that as additional documents, the bye laws of the assessee were furnished before Hon'ble Supreme Court and it was also submitted before Hon'ble Supreme Court that the surplus amount generated from the activities of the societies was deposited with Co-operative Banks
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and Nationalized Banks approved by cane societies as per clause 59 of U.P. Co-operative Societies Act and these surplus funds, generated in the course of carrying the activities, was invested in accordance with section 58 of the Co-operative Societies Act (disposal of net profit). Learned counsel for the assessee submitted that section 58 of U.P. Co-operative Societies Act stipulates that after incurring the expenditure, the net profit is to be disposed of by setting aside an amount not less then 25% as reserve fund and further not less than such amount as may be prescribed, shall be credited to a Co-operative Education Fund to be established in the manner prescribed and further an amount that may be prescribed shall be credited to the Research & Development Fund and further an amount not exceeding 25% shall be transferred to a fund called the Equity Redemption Fund. It was submitted that these statutory requirements were fulfilled by the assessees and the amounts were kept as fixed deposit in various nationalized banks and co-operative banks and which resulted in the earning of interest and such interest is attributable to the business of the assessee and therefore, was eligible for deduction u/s 80P(2) of the Act. Learned counsel for the assessee in this respect relied on the judgment of Hon'ble Allahabad High Court in the case of CIT vs. Krishak Sahkari Ganna Samiti Ltd. [2002] 258 ITR 594 (Alld), a copy of which is placed at pages 107 to 115 of the paper book. Learned counsel for the assessee, reading from the findings of such order, submitted that Hon'ble High Court has clearly held that the expression ‘attributable to’ is much wider than the expression ‘derived from’ and it covers receipt from sources other than the actual conduct of the business of the assessee and held that where a co- operative society invested profits in accordance with statutory requirement for carrying on the business of sugarcane, the interest earned thereon would be attributable to the carrying on of the business. It was submitted that this judgment of Hon'ble Allahabad High Court was not cited before
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Hon'ble High Court whereby the Hon'ble High Court had reversed the findings of the Tribunal after relying on the judgment of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Limited vs. Pr. CIT 322 ITR 283. It was submitted that the facts and circumstances of the present cases are distinguishable from the facts and circumstances of the case of Totgars Co-operative Sale Society Limited as that society was engaged in the sale of products to its members and that society after selling the products to its members had not distributed the proceeds to members and rather it kept the same in bank deposit and therefore, Hon'ble Supreme Court rightly held that interest earned on such funds is not eligible for deduction u/s 80P(2) of the Act. Learned counsel for the assessee further submitted that in the cases before us, the assessees had parked the funds in nationalized and Co-operative banks due to statutory requirement of U.P. Co-operative Societies Act and therefore, the earning of such interest income was attributable to the business of the assessee and hence is eligible for deduction u/s 80P(2) of the Act. Learned counsel for the assessee also filed a copy of the judgment of I.T.A.T. Raipur Bench in the case of Gramin Sewa Sahakari Samiti Maryadit vs. Income Tax Officer [2022] 138 taxmann.com 476 (Raipur-Trib.) where vide order dated 23/02/2022, the Tribunal has held the interest earned by the assessee as eligible for deduction u/s 80P(2) of the Act and therefore, it was prayed that the deduction disallowed by the Assessing Officer was rightly allowed by learned CIT(A) which may be upheld.
Learned D. R., on the other hand, invited our attention to the order of the Assessing Officer and submitted that the Assessing Officer has clearly held that the deduction u/s 80P(2)(d) of the Act is not available to the assessee and he read the provisions of section 80P(2)(d) and therefore, it
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was prayed that the order passed by learned CIT(A) be reversed and that of the Assessing Officer be restored.
Learned counsel for the assessee, in his rejoinder, submitted that the assessee never asked for the claim u/s 80P(2)(d) of the Act and rather the assessees’ claim is based on the provisions of section 80P(2)(a) of the Act.
We have heard the rival parties and have gone through the material placed on record. Similar grounds have been taken in these appeals by the Revenue and the Tribunal had dismissed the appeals of the Revenue and on appeals before Hon'ble Allahabad, the orders of the Tribunal were reversed and Hon'ble High Court decided the issue in favour of the Revenue after relying on the judgment of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Limited (supra). The assessee filed appeals before Hon'ble Supreme Court and Hon'ble Supreme Court set aside the order of Hon'ble Allahabad High Court by holding as under:
“Having heard learned counsel for the parties, we are inclined to remit the matters to the Income Tax Appellate Tribunal to decide afresh the appeals relating to the assessment years in question. We have passed the order in view of lack of clarity on facts and the exemption clause under sub-section 2 to Section 80P of the Income Tax Act, 1961 relied upon by the assessee, and considered by authorities and the Tribunal.
Learned senior counsel appearing for the appellants has submitted that they would like to place on record additional documents, including the statutory rules, which may have bearing on the nature of income, and entitlement to exemption under Section 80P.
We permit the appellants to file the said documents, including the statutory rules, within a period of four weeks from today. The respondent i.e. Revenue would be entitled to file additional
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documents and also place written reply on record within a period of eight weeks from the date a copy of the documents is furnished.
Accordingly, we would set aside the impugned order passed by the High Court and the Tribunal with the request that the Tribunal would decide the issue of exemption under Section 80P on merits and in accordance with law without being influenced and being bound by the earlier orders passed by them and the High Court. We would clarify that the above direction would not entitle either the Revenue or the assessee to reopen the closed cases where assessments have become final.
The Trial Court/Tribunal would try to dispose of the appeals expeditiously and preferably within a period of eight months from the date of first hearing. The party would appear before the Tribunal on 10th January, 2022 when date of hearing would be fixed.
With the aforementioned directions, the civil appeals are disposed of.
All the pending applications are disposed of.”
7.1 Now the parties are again before us. We find that assessees had earned interest from fixed deposits from bank and co-operative societies. Hon'ble Supreme Court, after acceptance of additional documents had set aside the issue before this Tribunal for readjudication. We find that the arguments of the assessees are that the assessees had placed the funds in the form of fixed deposits with nationalized banks and Co-operative banks in view of the specific requirements of U.P. Co-operative Societies Act. We find that section 58 of the U.P. Co-operative Societies Act requires the net profit to be distributed as under:
“(a) An amount not less than twenty five percent shall be transferred to a fund called the reserved fund: (b) Not less than such amount as may be prescribed, shall be credited to a Co-operative Education fund to be established in the manner prescribed, and this shall be applicable to such co- operative societies also which incur loss in the year,
I.T.A. No.285, 474, 525, 536 & 540/Lkw/2015 8
[Provided that the provisions of this clause shall not apply to a Primary Agriculture Credit Co-operative Society, a Central Co- operative Bank or the Apex Bank.',]
(c) An amount that may be prescribed shall be credited to the research and development fund created in the Apex Society of the concerned class of Co-operative societies and which shall be maintained for the purpose of Research and development in the prescribed manner.
(d) an amount not exceeding twenty percent as may be prescribed shall be transferred to a fund called the Equity Redemption Fund to be established and utilized in the manner prescribed by such co-operative society which has the subscription of the State Government in its share capitals.”
7.2 Hon'ble Allahabad High Court in the case of CIT vs. Krishak Sahkari Ganna Samiti Ltd. [2002] 258 ITR 594 (Alld) has held that the investment by co-operative society in the form of Government securities, equivalent to 25% of its profit, was the requirement of keeping the same as statutory reserve therefore, has held that such earning of interest was attributable to the activity carried on by the assessee. The relevant findings of Hon'ble Allahabad High Court are reproduced below:
“Clause (c) of Section 80-P(2) exempts income of cooperative societies to the extent mentioned in that section if the profits or gains are 'attributable' to the activity in which the cooperative society is engaged. The findings are that under statutory provisions the cooperative society is bound to invest 25% of its profits in Government securities. The assessee complied with this provision. In the process, it earned interest on these investments. The question is whether such profits or gains are attributable to the activity of supplying sugarcane carried on by the assessee. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 1TR 84 the Supreme Court held that the expression 'attributable to' suggests that the Legislature intended to cover receipts from sources other than the actual conduct of the business of the assessee. The investment of the
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statutory percentage of its profits in Government securities was a condition of the carrying on the business. The profits or gains from such investments were connected with or incidental to the carrying on of the actual business. They were, in our opinion, rightly held by the Tribunal to be attributable to the activity carried on by the assessee within the "meaning of clause (c) aforesaid. We therefore, answer the question referred to us in the affirmative in favour of the assessee and against the Department.
Following the aforementioned ratio laid down by the Division Bench which we consider binding on us, we too answer the question referred to us in the affirmative in favour of the assessee cooperative society and against the Revenue.”
7.3 Further we find that the assessee has relied on a judgment of Raipur Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit vs. Income Tax Officer [2022] 138 taxmann.com 476 (Raipur-Trib.) wherein the Tribunal has held that the interest earned by the assessee from deposit with co-operative bank and nationalized bank was eligible for deduction u/s 80P(2)(a) of the Act.
7.4 The above two judgments respectively by Hon'ble High Court and Tribunal hold that the interest earned by a Co-operative Society on deposits, which are statutorily required to be kept in the form of bank deposits or Government securities, are attributable to the business of an assessee.
7.4 Here in the present cases, we do not find the figures regarding the interest which the assessees may have earned on fixed deposits attributable to the making of statutory reserves. We further find that bye laws of the assessee has to be gone through which, though are available in the paper book, but require examination by the Assessing Officer as these were filed before Hon'ble Supreme Court as additional evidences. Therefore, we deem it appropriate to remit the issue of deduction u/s 80P for readjudication by
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the Assessing Officer, who, in the light of judgment of Hon'ble Supreme Court and keeping in view the judgments relied on by the assessee and keeping in view the additional documents, as filed before Hon'ble Supreme Court, will adjudicate the issue afresh. Needless to say that the assessees will be provided sufficient opportunity of being heard.
In view of the above, ground No. 1 taken by the Revenue in all the appeals is allowed for statistical purposes.
(Order pronounced in the open court on 01/09/2022)
Sd/. Sd/. ( A. D. JAIN ) ( T. S. KAPOOR ) Vice President Accountant Member
Dated:01/09/2022 *Singh
Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Assistant Registrar