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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
ORDER Per N.V.Vasudevan, JM This is an appeal by the Revenue against the order dated 29.09.2016 of C.I.T.(A)-10, Kolkata relating to A.Y.2013-14.
The grounds of appeal
raised by the revenue read as follows :- “(i)That on the facts & in the circumstances of the case, the Ld, CIT(A) had erred in law in deleting the addition of Rs. 6,07,21,269/-. made on account of Income from Investment under the head Income from other sources. (ii). That on the facts & in the circumstances of the case, the Ld. CIT(A) had erred in law in deletion of addition of Rs.5,11,980/- made on account of Income from Holiday Home. (iii). That on the facts & in the circumstances of the case, the Ld. CIT(A) had erred in law in treating the interest income of Rs. 6,07,21,269/-.received from the Bank deposits by the assessee other than co-operative society is eligible for deduction under section 80P(2)(a)(i) read with section 80P(2)( d) of the 1. T.Act, 1961 ignoring the decision of the Hon'ble Supreme Court in Totgar Co-operative Sales Society Ltd. iv) That on the facts & in the circumstances of the case, the Ld. CIT(A) failed to appreciate the fact that the assessee is registered under the West Bengal Co- operative Society Act and is not governed or - registered under the Banking
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 Regulation Act. Therefore interest of Rs. 6,07,21,269/-.earned by the assessee from investment in banks other than co-operative society does not qualify for deduction under section· 80P(2)(a)(i) read with section 80P(2)(d) of the I.T.Act and the said interest is actually income from other source 'taxable under section 56 of the Income Tax Act, 1961.
(v) That the Ld.CIT(A) had erred in law and in facts in allowing the deduction under section 80P(2)(a)(i) of the Act on income of Rs. 5,11,980/- on account of Holiday Home by failing to appreciate the fact that running holiday home and earning income thereon was not attributable to the normal business activity of the society.”
3. As far as ground no.1 is concerned, the facts are that the Assessee is a Co- operative Society, registered under the West Bengal Co-operative Society Act and is engaged in the business of providing credit facilities to its members and accepts deposits and makes loan & advances from and to its members. During the course of scrutiny assessment proceeding, the AO found from the profit and loss account of the assessee for the relevant previous year that it had received total interest income on its investment made with different Banks amounting to Rs. 7,79,55,152/- and claimed the said amount as deduction under section 80P (2)(a)(i) of the Income Tax Act, 1961 (Act) by declaring it under the head profit and gain from business. The details of break-up of such income as per materials on record were as below: Sl.No. Investment/deposit made Amount of. interest (Rs. ) 1. On current a/c ( flexi) with Indian Bank 61,62,535/- 2. On Fixed deposit with West Bengal State Co-operative 1,60,05,441/- Bank 3. On Fixed deposit with Union Bank of India 4,76,72,202/- 4. On Fixed deposit with Central Bank of India 47,49,7901- 5. On saving deposit with Nationalized Bank 3,40,5401- 6. On recurring deposit with West Bengal State Co-operative 12,28,442/- Bank 7. On recurring deposit with Union Bank Of India 17,96,202/- Total: 7,79,55,152/- , 2
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 It was observed that the interest liability of the society during the year was Rs. 7 .19 crore (approx.) and the total income of the society was Rs. 10.48crore (approx) including interest income from investment in Banks of Rs .7.79crore (approx). Hence the AO concluded that the society had surplus fund available with it which was not immediately required for its business of providing credit 'facilities and the society was in a position to park the surplus fund in Investment. The society kept this fund and surplus fund of earlier years as investment with Union Bank of India, Central Bank of India ( both nationalized bank ) and West-Bengal Co-operative Bank and earned total interest income on this investment amounting to Rs.7,79,55,152/-. Out of this, interest income of Rs. 1,72,33,883/- was received from investment in West Bengal Co- operative Bank, which is a registered co-operative society. The remaining interest income of Rs. 6,07,21,269/-was received from investment in nationalized banks. According to the AO, as, this interest income was received on the investment made by the assessee out of the fund not immediately required for its business, the interest income generated on such investment cannot be said as profit or gain from business. The interest income received from investment cannot even be termed as profit or gain attributable to the business activity of the assessee, as the business of the 'assessee was to provide credit facilities to its members and to earn interest thereon. Hence the total interest received of Rs. 7,79,55,152/- by the assessee on its investment was treated as “Income from other source" by the AO and he assessed the said income under section, 56 of the Income Tax Act, 1961 and he held that such income does not qualify for deduction U/S 80P2(a)(i) of the Act. However, as per section 80P(2)( d) of the Act, any income by way of interest or dividend derived by the co-operative society from its investment with any other. co-operative society will be allowed as deduction. Since the West Bengal Co-operative Bank was a registered co-operative society, the AO held that interest income derived by way of investment in West Bengal Cooperative Bank would qualify for deduction u/s 80P(2)( d) of the Act. Therefore, interest income amounting to Rs.1,72,33,883/- received from West Bengal Co-operative Bank was allowed as 3
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 deduction u/s 80P(2)(d) of the Act. The remaining interest income of Rs.6,07,21,269/- received by way of investment in nationalized banks was not allowed as deduction either U/S 80P(2)(a)(i) or U/S 80P(2)(d) of the Act. Hence the said amount of Rs.6,07,21,269/- was treated as Income from Other Source under section 56 of the Act and was added to the total income of the assessee for the year under consideration.
4. Being aggrieved, the assessee filed an appeal before Ld. CIT (A)-10, Kolkata. The Ld. CIT (A)-10, Kolkata vide his order dated 29.09.2016 in appeal no. 222/CIT(A)-10/Wd.35(3)115-16/Kol allowed the appeal of the assessee and decided the issue in favour of the assessee. The Ld. CIT (A)-10, Kolkata while deciding the issue in favour of the assessee relied upon the following judicial pronouncements:-
1.South Eastern Railway Employees Co-operative Credit Society Limited vs. ACIT (2014) (41 CCH 0218) passed by Hon'ble ITAT, "C" Bench Kolkata in ITA No- 1693/Kol/2012. The said order has been challenged by the department before the Hon'ble High Court at Calcutta which is pending. 2.Bihar Raj a Sahkari Bhoomi Vikash Co-operative Bank Ltd vs CIT passed by Hon'ble ITAT. 3.Tumukur Merchants Souharda Credit Co-operative Society Ltd by Hon'ble High Court of Karnataka in of 2014 dated 28.10.2014.
It was observed by the Ld.CIT(A) that there are a catena of judgments wherein the case of Totgars Co-operative Sale Society Ltd. ,(supra) has been clearly distinguished on facts, and it has been held that the interest earned by assessees, such as the one at hand, namely a Credit Co-operative Society that carries on business of providing credit facilities to its members and earned interest by deposits made in nationalized banks, would be eligible for the deduction envisaged under Section 80P (2)(a) (1) of the Act.
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 6. Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal.
The ld. DR submitted that the Ld. CIT (A) failed to appreciate the fact that the assessee is registered under the 'West Bengal Co-operative Society Act' with the objects primarily, to accept deposits from its members and to provide credit facilities to them. The assessee is a co-operative society and is not governed or registered under 'The Banking Regulation Act', neither, it is accepting from public. As a result of this fact, the deposits made by the assessee in nationalised banks and interest earned thereon is not eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 and the same is required to be treated as income from the other sources. The Society is engaged in the business of providing credit facilities to its members and accepts deposits and makes loan & advances from and to its members. Investment in different banks and financial institutions and earning interest income from them is not the business activity of the society. In the present case, interest income ought to have been held not eligible for deduction under section 80P2(a)(i) of the Act as it is not the interest received from the members for providing credit facilities to them. The present case is of surplus of funds, which were not required for carrying on business of providing credit facilities to members. He submitted that the Ld.CIT(A) has decided the issue in favour of the assessee on the basis of judicial decisions without considering the facts of the case and without adjudicating the clear -cut provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act which are applicable in the case of the assessee. He relied on the decision in the case of Totgar's Co-operative Sale Society Ltd vs Income Tax Officer [2010]188 Taxman 282 (SC), wherein it was held that interest earned on investment of funds not required immediately for business purpose, could not fall within the meaning of expression "Profit and Gains of business". Such interest could not be said to be attributable to the activities of the society, namely carrying on the business of providing credit facilities to its members. Therefore interest earned on such fund would come 5
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 under the category of Income from Other Sources' taxable under section 56 of the Income Tax Act, 1961 and the same would not qualify for deduction as business income under section 80P(2)(a)(i) of the Act.
The ld. Counsel for the assessee brought to our notice the decision of ITAT in assessee’s own case in for A.Y.2012-13 order dated 18.10.2017 wherein on identical facts the Tribunal after considering the decision of Hon’ble Supreme Court in the case of Totgars Co-operative Society (supra) has held that interest earned on deposits with Books is also eligible for deduction u/s 80P(2)(a)(i) of the Act.
We have given a very careful consideration to the rival submissions. This Tribunal in assessee’s own case in AS.Y.2012-13 dealt with identical issue as to whether the assessee would be entitled to deduction u/s 80P(a)(2)(i) of the Act on interest earned on deposits with bank. The Tribunal held as follows :- “8. We have heard the rival contentions and perused the materials on record. At the outset, we find that the Hon’ble Tribunal of Kolkata Benches In has decided the identical issue in favour of the assessee after distinguishing the facts of Totagars Cooperative Sale Society Ltd. reported in 188 Taxman 282. The relevant extract of the order is reproduced below :
After hearing the rival contentions, I find that similar issue has been adjudicated by the Jurisdictional High Court in the case of Commissioner of Income Tax-X, Kolkata vs. South Eastern Railway Employees Co-operative Credit Society in ITAT No. 135 OF 2010 judgment dt. 22.07.2010. The question before the Hon'ble Court was as follows:
"i) Whether on the facts and circumstances of the case, the interest earned by the assessee to the tune of Rs.1,18,07,645/- out of Its investment in banks is not the activity that arose from the activity of providing loan and credit facilities to its members as the society is not engaged in the business of banking and is therefore not qualifying for deduction u/s.80P(2a)(a)(i) of the Act, the learned Tribunal is correct in law in holding that interest earned on such investment is within the purview of section 80P of the Act 7"
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 The Hon'ble Court held as follows:- "It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal) that there is no change in the facts and circumstances of this case and it was held that the assessee was eligible for deduction under Section 80P(2 )(a )(i) on interest on investment amounting to Rs. 1;18,07,645/- in this assessment 'year also. Since the Tribunal found that this decision of the Tribunal was followed by CIT (A) there is no reason to take a different view.
Under these circumstances, we feel that when the Commissioner of Income Tax (A) as well as the Tribunal has followed the earlier unchallenged decision no question of law is involved in this matter. Nothing has been produced before us to show subsequent decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties before this Court. " Following this the appeal of the Revenue had been dismissed.
3.1. The ITAT 'C' Bench, Kolkata, in the case of S.E.,S.E.C & E.Co.Railways Employees' Co-operative Credit Society Ltd., Kolkata vs. A.C.I.T., Circle-28, Kolkata in for Assessment Year 2008-09, order dt. 30/10/2014 at para 7.2 to 7.5 held as follows:
"7.2. Considering the above we find that this issue is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in assessee's own case. In this regard we would like to place reliance upon the. decision of the Hon 'ble Apex Court in the case of CIT vs Excel Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to take a different view, any deviation is not permitted.
7.3. Now we come to the case laws relied upon by the Id. CIT(A). As regards the decision of the Hon 'ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra) we find that the said decision is not applicable in the facts of the case. We find that the Hon'ble Apex Court in the said decision in para 11 has itself mentioned that "We are confining the judgment to the facts of the present case." The facts of the case were that assessee's business was to provide credit facilities to its members and to market their agricultural produce. In many cases assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same In specified securities and earned interest income. In these circumstances the Hon’ble Apex Court had held that interest earned would come in category of 'Income from other sources' taxable u/s 56 of 7
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 the Act and would not qualify for deduction as business income u/s BOP(2)(a)(i). From the above it is amply evident in the present case the assessee has not retained any amount due to its members and instead of paying the same had invested the same and earned interest. Thus this case law is not applicable on the facts of the present case.
7.4. As regards the decision of Hon'ble Patna High Court in the case of Bihar Rajya Sahkari Bhoomi Bikash Co-op. Bank Ltd. (supra) the same is also not applicable to the facts of the present case. In that case the question was the treatment of interest earned on provident fund and rental income as attributable to banking business 'and this qualifying for deduction u/s BOP(2)(a)(i) of the Act.
7.5. In the background of the aforesaid discussion and precedent we hold that the issue is squarely covered in favour of the assessee by the decision of the Tribunal and the Jurisdictional High Court in assessee's own case. The decision relied upon by the Id. CIT(A) are not applicable in the facts of the case. The principle of consistency as conveyed by the Hon'ble Apex Court mandates that the Revenue does not take a different stand. Accordingly we set aside the orders of the authorities below and decide the issue in favour of the assessee.
In view of the above discussion, respectfully following the binding judgment of the jurisdictional High Court, we direct the Ld. AO to allow deduction u/s 80N the Act, to the assessee on the interest income of Rs.17,85,173/-.”
Respectfully following the same we direct the AO to allow the deduction as claimed by the assesee u/s 80P(2)(a)(i) of the Act.
Respectfully following the decision of the Tribunal in assessee’s own case rendered on identical facts, we are of the view that the order of the CIT(A) on this issue has to be upheld. Ground No.1 raised by the revenue is accordingly dismissed.
As far as ground no.2 raised by the revenue is concerned, the ld. Counsel for the assessee agreed that identical issue was decided against the assessee by the ITA^T in A.Y.2012-13 in order dated 18.10.2017. The following were the relevant observations of ITAT in the aforesaid order on the issue raised by the revenue in ground no.2 in this appeal. 8
Kolkata Reserve Bank Employees Co-op. Credit Society Ltd. A.Yr.2013-14 “13. We have heard the rival contentions and perused the material available on record. In the instant case the assessee has earned income for Rs.5,11,100/- on the maintenance of holiday homes exclusively for the members. The AO was of the view that the impugned activity is not eligible for deduction under the provision of section 80P(2)(a)(i) of the Act. However the ld. CIT(A) reversed the order of the AO. 13.1 Now the question before us arise for our adjudication whether the assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act on the income earned from holiday homes in the given facts and circumstances. At this juncture we would like to reproduce the provision of section 80P(2)(a)(i) which reads as follows :- 80P(2) The sums referred to in sub-section (1) shall be the following namely :- (a) In the case of a co-operative society engaged in- (i)Carrying on the business of banking or providing credit facilities to its members
From the above provision, it is clear that the deduction is available to the assessee from the business of banking or providing credit facilities the members. The issue before us is with regard to the income earned by the assessee from the running and maintenance of holiday homes for the members. Thus, in our considered view the same cannot be allowed as deduction under the provisions of section 80P(2)(a)(i) of the Act. Thus, the ground of appeal of Revenue is allowed.”
12. Respectfully following the order of the tribunal, we allow ground no.2 raised by the revenue.
In the result, appeal by the revenue is partly allowed.
Order pronounced in the Court on 01.03.2018.