SRI KANYAKAPARAMESWARI CO-OPERATIVE BANK LIMITED vs. THE JOINT COMMISSIONER OF INCOME-TAX

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF JULY 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.791 OF 2017 BETWEEN: SRI. KANYAKAPARAMESWARI CO-OPERATIVE BANK LIMITED REP. BY ITS GENERAL MANAGER IN-CHARGE SRI. K.N. NAGARAJ K.R. CIRCLE, MYSURU-570001 PAN:AACAS 1220 M. ... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL FOR SRI. ANNAMALAI S, ADV.,) AND: THE JOINT COMMISSIONER OF INCOME-TAX, RANGE-1 INCOME TAX BUILDING #21/16, AAYKAR BHAVAN RESIDENCY ROAD, NAZARBAD MYSURU-570010. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 09.06.2017 PASSED IN ITA NO.1599/BANG/2014 FOR THE ASSESSMENT YEAR 2010- 11, PRAYING TO:

2 (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT. (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS THEREIN TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU 'B' BENCH IN ITA NO.1599/BANG/2014 DATED 09.06.2017 FOR THE ASSESSMENT YEAR 2010-11 (VIDE ANNEXURE-A) & ETC. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee against the order dated 09.06.2017 passed by Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The subject matter of the appeal pertains to the Assessment year 2010-11. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(i) Whether the Tribunal was justified in law in not allowing deduction of Rs.6,30,553/- under section 36(1)(viii) of the Act being profits derived from eligible

3 business on the facts and circumstances of the case. (ii) Whether the Tribunal was justified in law in not deleting the income of Rs.1,89,01,179/- being alleged accrued interest income on non-performing assets on the facts and circumstances of the case. (iii) Whether the Tribunal was justified in law in not following the binding decision of the Jurisdictional high court in the case of the Canfin Homes Ltd 347 ITR 382 and Siddeshwar Co-Operative Bank Ltd 388 ITR 588 on the facts and circumstances of the case. (iv) Whether the Tribunal was justified in law in adjudicating certain issues which were not before it and not adjudicating certain grounds which were urged and noticed in the body of its order on the facts and circumstances of the case". 2. Facts leading to filing of this appeal briefly stated are that the assessee is a co-operative bank

4 registered under the provisions of Karnataka Co- operative Societies Act, 1959 and is engaged in the business of banking. The assessee filed its return of income for the Assessment Year 2010-11 and declared a total income of Rs.2,11,18,930/-. The case of the assessee was selected for scrutiny and notices were issued to the assessee. The Assessing Officer by an order dated 28.03.2013 determined the total income of the assessee as Rs.4,32,65,905/-. 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 30.10.2015 partly allowed the appeal. The assessee thereupon filed an appeal before the tribunal. The tribunal by an order dated 09.06.2017 dismissed the appeal preferred by the assessee. In the aforesaid factual background, this appeal has been filed. 4. Learned Senior counsel for the assessee submitted that the tribunal erred in holding that

5 assessee is not entitled to deduction under section 36(1)(viii) of the Act. It is further submitted that assessee is a specified entity as provided in sub Clause (iv) of Clause (a) to Explanation to Section 36(1)(viii) and development of housing in India is an eligible business by virtue of sub Clause c of Clause (b) to Explanation to Section 36(1)(viii) of the Act. It is also urged that Section 36(1)(viii) is a beneficial provision and has to be liberally construed. It is also submitted that assessee being a co-operative bank is entitled to deduction of 20% of the profits arising out of long term finance, which is provided for development of housing in India. It is also submitted that interest pertaining to Non-Performing Assets (NPA) cannot be recognized as income till it is actually received. It is contended that the tribunal erred in adjudicating the issues, which were not before it and not adjudicating certain grounds, which were urged. It is pointed out that grounds No.16 to 20 in the memo of appeal have not been adjudicated by the

6 tribunal, which has resulted in severe prejudice to the assessee. In support of aforesaid submissions, reliance has been placed on decisions in 'BAJAJ TEMPO LTD. VS. CIT', (1992) 196 ITR 188 (SC), 'CIT VS. CANFIN HOMES LTD', (2012) 347 ITR 382 (KAR), 'CIT VS. VASISTH CHAY VYAPAR LTD', (2011) 330 ITR 440 and 'CIT VS. VASISTH CHAY VYAPAR LTD', (2019) 410 ITR 244 (SC). 5. On the other hand, learned counsel for the revenue submitted that since, the assessee has not provided long term finance to the development of housing, therefore, the assessee has rightly not been held eligible to deduction under Section 36(1)(viii) of the Act. It is further submitted that the order passed by the tribunal does not call for any interference. 6. We have considered the submissions made on both sides and have perused the record. The assessee is a specified entity as provided in sub clause

7 (iv) of clause (a) to Explanation to Section 36(1)(viii) of the Act and development of housing in India is an eligible business by virtue of sub clause c of clause (b) to Explanation to Section 36(1)(viii) of the Act. It is pertinent to note that in view of Section 36(1)(viii) of the Act, Explanation (b) (ii), eligible business in respect of specified entity. Specified Entity means a business of providing long term finance for construction of purchase of houses in India for residential purpose. Thus, in case of an assessee the assessee is required to fulfill the condition of having engaged in the business of providing long term finance for construction or purchase of houses in India for residential purpose. The aforesaid aspect of the matter has not been examined by the tribunal while dealing with the claim of the assessee for deduction under Section 36(1)(viii) of the Act. 7. The assessee had classified certain advances as Non Performing Asset in accordance with the directives issued by the Reserve Bank of India. The

8 income by way of interest in respect of the said account is not recognized as income till it is actually accrued to the assessee. The tribunal while deciding the aforesaid issue failed to take into account the law laid down by this court in Canfin Homes Ltd supra, which is binding on it. The tribunal has also not dealt with the grounds raised by the assessee in memo of appeal in ground Nos.16 to 20. For the aforementioned reasons, the order passed by the tribunal cannot be sustained in the eye of law, the same is quashed. It is made clear that the tribunal shall decide the claim of the assessee with regard to deduction under Section 36(1)(viii) of the Act afresh. The matter is remitted to the tribunal to decide the appeal afresh. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss