M/S M.P. STATE COOPERATIVE HOUSING FEDERATION SOCIETY,BHOPAL vs. THE ACIT 1(1), BHOPAL

आदेश /O R D E R

PER SHRI O.P. MEENA, ACCOUNTANT MEMBER

These are cross-appeals filed by the Revenue and the assessee

against the order of ld. Commissioner of Income tax (Appeals)-I,

Bhopal [hereinafter referred to as the CIT (A)] dated 29.7.2016. This

appeal pertains to Assessment Year 2013-14 as against appeal

decided in respect of assessment order dated 18.1.2016 passed u/s.

143(3) of the Income Tax Act, 1961(hereinafter referred to as "the

Act) by the ACIT 1(1), Bhopal [hereinafter referred to as the AO].

read as under :-

“1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.1,15,29,031/- rightly made by the A.O. to the income of the assessee as it is not eligible for deduction u/s 80P of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition by ignoring the fact that income not attributable to business activities of the 2

society are notn eligible for deduction u/s 80P of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition by ignoring the ruling of Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) wherein while interpreting the p[rovisions of section 80P of the Income tax Act, 1961, the Hon'ble Court has observed that the interest earned out of invested funds cannot fall within the meaning of the expression profit and gains of business and hence not eligible for deduction u/s 80P of the Income Tax Act.” In ITA No. 1051/Ind/2016 grounds of appeal taken by the assessee

read as under :-

“1. The ld. CIT has erred in maintaining the disallowance of Rs.47,339/- being depreciation on land and building. 2. Even if the addition is maintained, the exempted income would increase and the deduction u/s 80P(2)(a) will increase thereby there will be no addition in the total income. 3. The addition of Rs. 47,339/- may please be deleted by allowing deduction u/s 80P(2)(a).”

1.1 Succinctly, the facts, as culled out from the orders of lower

authorities, are that the assessee is a cooperative society registered

under the M.P. Cooperative Societies Act, 1960. The assessee filed

the return of income on 4.12.2013 declaring total income at

Rs.41,90,000/-. The prime activity of the assessee is to provide

credit facilities in the form of housing loans to its members. During

the year, under consideration, the assessee has shown total income

of Rs.41,90,000/- which includes income from housing property at

Rs.28,39,437/- and income from business or profession of

Rs.6,71,09,727/-. The assessee has claimed deduction of

Rs.6,57,59,166/- u/s 80P of the Act. However, the Assessing

Officer made the addition on account of interest amounting to

Rs.1,11,93,299/- from IDBI Bank, Bank of Baroda, PNB Bank and

interest of Rs.3,35,732/- from savings bank account totaling to

Rs.1,15,29,031/- by holding that this interest is not covered by

section 80P(2)(a)(i) of the Act.

1.2 Being aggrieved with the addition made by the Assessing

Officer, the assessee preferred first appeal before the learned CIT(A).

The learned CIT(A), after considering the submissions of the

assessee in the wake of the facts of the case, held that this issue is

squarely covered by various decisions of the Tribunal in favour of

the assessee wherein it was categorically held that “the interest

earned on deposits with bank FDRs and saving bank accounts is an

integral part of business activity of providing credit facilities to its

members and, therefore, covered u/s 80P(2)(a)(i) of the Act”. The

learned CIT(A), therefore, following the decision of the Tribunal

dated 16.5.2008 in ITA No. 41/Ind/2007, allowed the claim of the

assessee.

1.3 Against the above order of the learned CIT(A), the Revenue

has filed the present appeal before the Tribunal. Before us, the

learned DR while refuting the order of the learned CIT(A), strongly

supported the order of the Assessing Officer. The learned DR

submitted that since the interest income earned by the assessee

from fixed deposits is income from commercialised banks which are

not members of the assessee society, therefore, deduction under

section 80P(2)(a)(i) of the Act is not allowable. He further submitted

that the learned CIT(A) has allowed the claim of the assessee on the

basis of various orders of the Tribunal against which the Revenue

has filed appeal u/s 260A of the Act before the Hon'ble High Court

of Madhya Pradesh. He, therefore, submitted that since the matter

is sub-judice before the Hon'ble High Court, the learned CIT(A) was

not justified in allowing the claim of the assessee and as such his

order deserves to be set aside.

1.4 On the other hand, the learned counsel for the assessee

strongly supported the order of the learned CIT(A) on the ground

that since the Tribunal has decided the issue in favour of the 5

assessee, the learned CIT(A) was very much justified in deleting the

addition. He, therefore, prayed that the order of the learned CIT(A)

deserves to be maintained.

1.5 We have carefully considered the rival submissions of the

parties in the wake of the facts of the case. So far as the decision of

the Hon'ble Supreme Court in the case of Totgars Cooperative Sale

Society Ltd.(supra) as relied upon by the revenue is concerned, we

find that on similar facts, Incometax Appellate Tribunal ‘B’ Bench

Mumbai, in ITA No. 3489/Mum/2010 in the case of ITO vs. Malad

Sahkari Bank Ltd. Malad, Mumbai, had anoccasion to consider the

judgment of the Hon'ble SupremeCourt in the case of Totgars

Cooperative Sale Society Ltd. (supra) and vide its order dated

30.9.2011 it was observed as under :-

Karnataka in Civil Appeal No.1622 of 2010 (arising out of SLP (C) No.7572 of 2009) decided on 8.2.2010.” 2. Facts in brief are that during the course of assessment proceedings, the Assessing officer completed the assessment under section 143(3), inter alia, observing that the income received on fixed deposits amounting to Rs.13,43,280 from banks other than co-operative bank are not eligible for benefit of section 80P(2) of the Income tax Act. The assessee carriedthe matter in appeal before the CIT(A). The CIT(A) following the decision of the ITAT in assessee’s own case for the assessment year 2003-04, held that the assessee isentitled to deduction u/s.80P on interest income received by it from banks other than co-operative bank. The Assessing officer is not satisfied and is in appealbefore us. 3. While learned Departmental Representative fairlyaccepts that the issue is covered in favour of the assessee by order of the cooperative Bench of this Tribunal as also an unreported judgment of Hon’ble Bombay High Court in the case of ITO vs. The Mahanagar Cooperative Bank ltd., dated 28.7.2011 in ITA No.123 of 2010 , he places his reliance of Hon’ble Supreme Court’s judgment in the case of The Totgars Cooperative Sale Society ltd, 229 CTR 209(SC). When it was pointed out to him that Hon’ble Bombay High Court in the case of The Mahanagar Cooperative Bank ltd., has duly considered the said judgment of Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society ltd (supra), he had nothing to say except to reiterate that what has been held by Hon’ble Supreme Court in the case of The Mahanagar Cooperative Bank ltd.(supra) applies equally in thecase of The Mahanagar Cooperative Bank ltd(supra). 4. We find that the issue is squarely covered in favour of the assessee by Hon’ble Bombay High court’s judgment in the case

of The Mahanagar Cooperative Bank ltd (supra) as also coordinate Bench of this Tribunal in assessee;’s own case (supra). As regards reliance placed by learned Departmental Representative in the case of Totgars Cooperative Sale Society ltd(supra), we have noted that Their Lordships of Hon’ble Bombay High Court have distinguished the said judgment by, inter alia,observing as follows: “In our opinion, there is no merit in the above contention because in the case of Totgars Cooperative Sale Society ltd(supra),the Apex Court in para 11 of its judgment has held that the decisionsrelating to the cooperative banks are distinguishable from the cases relating to the cooperative sale society. Moreover, the Apex court in the case of Nawanshahar Central cooperative bank (supra) has held that the investments made by the cooperative banks with a view to earn interest constitute banking business. As the income arising from investments are attributable to the business of banking assessable under the head “profits and gains of business”, deductible u/s.80P(2)(a)(i) of Income tax Act, 1961 would be allowable to the assessee. Thus, the decision of the Apex Court in the case of Togar’s cooperative sale society Ltd (supra) would not be applicable to the facts of the present case.” 5. In this view of the matter and respectfully following the esteemed views of Hon’ble Jurisdictional High Court in the case of The Mahanaghar Cooperative Bank ltd (supra) and also the decision of the coordinateBench in assessee’s own case (supra), we uphold the conclusions arrived at by the CIT(A) and decline to interfere. 6. In the result, appeal is dismissed.”

1.5.1 In the case of Totgar's cooperative sale society Ltd (supra), it

had surplus funds which the assessee invested in short-term

deposits with the Banks and in Government securities. On such

investments, interests accrued to the assessee. The Assessee

provided credit facilities to its members and also marketed the

agricultural produce of its members while in the present case the

assessee did not invest the surplus funds in short term deposits

with the banks and in Government securities and as such no

interest was earned on that account but the assessee earned

interest income from fixed deposits and saving bank account. As

such, the facts of the present case are clearly distinguishable from

the facts of the case obtained in the case of Totgars Cooperative

Sale Society Limited (supra). We, therefore, hold that the decision of

the Hon'ble Supreme Court in the case of Totgars Cooperative Sale

Society Ltd. (supra) is not applicable to the present case.

1.5.2 We further find that the identical issue has also been

decided by Income Tax Appellate Tribunal, Indore Bench of the

Tribunal for the assessment years 2003-04, 2006-07 and 2007-08

in the case of the assessee itself. While deciding the appeal of the 9 assessee for the assessment year 2006-07 the Tribunal vide its

order dated 21.2.2012 in ITA No. 315/Ind/2011 has held as

under :-

1.5.3 Following the above order of the Tribunal as also the order of

the ‘B’ Bench of the ITAT, Mumbai in the case of ITO vs. Malad

Sahakari Bank Ltd., Malad, Mumbai (supra), we hold that the

assessee was eligible for deduction under section 80-P(2)(a)(i) of the

Act on the interest income from fixed deposits with the Banks and

interest from Savings bank Account. We, therefore, confirm the

order of the learned CIT(A) and dismiss the grounds of appeal of the

Revenue.

depreciation of Rs. 47,339/- on land and building, we find that

such ground was not taken before the learned CIT(A). However, the

CIT(A) reproduced the submissions of the assessee in his appellate

order. In view of these facts, we dismiss this ground of appeal due

to small quantum and facts of the case. However, this finding will

not preclude the assessee to raise such ground for another years,

where quantum is high. Accordingly, this ground of appeal is

dismissed.

3. In the result, the appeal of the revenue and the appeal of the assessee fail and are dismissed. 4. Order pronounced in open Court on 27th March, 2016.

Sd sd (सी.एम.गग�) (ओ.पी.मीना) �याियक सद�य लेखा सद�य (C.M.GARG) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 27th March , 2017