M/S NATIONAL COAL DEVELOPMENT CORPORATION STAFF CO-OPERATIVE CREDIT SOCIETY LIMITED,KOLKATA vs. ITO, WD-32(2), KOLKATA, KOLKATA

The first issue involved in this appeal as raised in Grounds No. 1 & 2 relates to the disallowance of Rs.57,87,272/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee’s claim for deduction under section 80P in respect of interest income.

The assessee in the present case is a Cooperative Credit Society with its members being staff members of the National Coal Development ./2015 Assessment year: 2011-2012 Page 2 of 6 Corporation (NCDC). The return of income for the year under consideration was filed by it on 23.03.2012 declaring total income at ‘NIL’ after claiming deduction under section 80P. In the assessment completed under section 143(3) vide an order dated 31.01.2014, the claim of the assessee for deduction under section 80P in respect of interest on Fixed Deposit (General) amounting to Rs.57,87,272/- was disallowed by the Assessing Officer on the ground that the said income constituted income of the assessee chargeable to tax under the head “Income from Other Sources” and the same was not eligible for deduction under section 80P(2)(a) of the Act. For this conclusion, the Assessing Officer relied on the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Limited –vs.- ITO [188 Taxman 282 (SC). On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that a similar issue was involved in the case of the assessee for A.Y. 2006-07, 2007-08 and 2009-10 and the same was decided by the Division Bench of this Tribunal vide paragraphs no. 6 & 7 of its common order dated 02.03.2016 passed in to 1794/KOL/2012 and C.O. Nos. 5 to 7/KOL/2013 as under:- “6. As regards the common issue involved in the Cross objections of the assessee relating to assessee’s claim for deduction under section 80P(2)(a)(i) in respect of interest on bank fixed deposits (general), the ld. Counsel for the assessee has submitted that even though the same has been decided by the Tribunal in assessee’s own case for assessment year 2008-09 by relying on the decision of the Hon’ble Supreme Court in the case of Totgars’ Co-operative Sale Society Limited (supra), the Hon’ble Karnataka High Court in the decision rendered subsequently in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. –vs- ITO [2015] 55 taxmann.com 447 has distinguished the decision of the Hon’ble Supreme Court in the case of Totgars’ Co-operative Sale Society Limited (supra) on certain specific aspects and after taking into consideration this distinction pointed out by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), the Tribunal in the case of ITO-vs- The Baskara Cooperative Credit Society Ltd. decided vide its order dated 18t h November, 2015 passed in ITA ./2015 Assessment year: 2011-2012 Page 3 of 6 No.1890/Kol/2012 has restored the similar issue to the file of the AO after recording its observations in paragraph nos.11 and 12 as under: “11. We have considered the rival submissions and carefully perused the relevant material available on record. In the case of Totgar’s Cooperative Sale Society Limited (supra) cited by the ld. D.R. in support of the revenue’s case on the issue under consideration, the assessee- Society besides carrying on the business of providing credit facilities to its members was also marketing its agricultural produce. The sale proceed of such agricultural produce, which was payable to its members, in many cases, was retained by the assessee-Society and the same was invested in short-term deposits/securities. In these facts and circumstances of the case, interest income received on short-term deposits/securities was held to be chargeable to tax under the head ‘income from other sources’ by the Hon’ble Supreme Court observing that the amount invested by the assessee was a liability payable to its members, and, therefore, the interest income could not be said to be attributable to the activity mentioned in section 80P(2)(a)(i). In the case of Tumkur Merchants Souharda Credit Cooperative Limited (supra) cited by the ld. Counsel for the assessee, the amount, which was invested in Bank to earn interest, was not an amount due to any member and which was not the liability shown in their accounts. In fact, the said amount, which was in the nature of profit and gains, was not immediately required by the assessee for lending money to the members as there were no takers and the same, therefore, had been deposited in a Bank so as to earn interest. In these facts and circumstances of the case, as involved in the case of Tumkur Merchants Souharda Credit Cooperative Limited (supra), the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Limited was found to be distinguishable on facts by the Hon’ble Karnataka High Court and the interest income received by the assessee-Society on Bank deposits was held to be its business income being attributable to carrying on the business of banking eligible for deduction under section 80P(2)(a)(i) of the Act.

Keeping in view the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Limited (supra) cited by the ld. D.R. and the decision of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Limited (supra) cited by the ld. Counsel for the assessee, the question that arises in the case on hand, is whether the investment, which is made by the assessee-Society and which has fetched interest income in question, is made out of its own surplus fund, as was the case in Tumkur Merchants Souharda Credit Cooperative Limited (supra) or the same is made out of the amount payable by the assessee-Society to its members, which represent its liability as was the case in Totgar’s Cooperative Sale Society Limited. In this regard, it is observed that this aspect has not been specifically considered either by the Assessing Officer or by the ld. CIT(Appeals) in their respective orders and, therefore, there is no finding specifically given by them on this relevant aspect. In this regard, a perusal of the relevant balance-sheet of the assessee as on 31.03.2009 (copy of which at pages 67 & 68 of the paper book), shows that the total investment made by the assessee-Society was Rs.22.08 ./2015 Assessment year: 2011-2012 Page 4 of 6

crores as on 31.03.2009, whereas the Reserves & Surplus and Profit & Loss A/c. balance as on the said date were Rs.1.76 crores and 1.73 crores respectively. The major amount appearing on the liability side of the balance-sheet as on 31.03.2009 was deposit and other account aggregating to Rs.28.89 crores, which comprised of various funds and deposits. Keeping in view these facts and figures, we are of the view that the issue as to whether the relevant investment is made by the assessee out of its own surplus funds or out of the amount payable to its members, which represent its liability, requires verification in order to determine the exact head of income under which the interest on such investment is chargeable to tax in the hands of the assessee by applying the relevant case laws. We, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the relevant factual position from record and after giving the assessee proper and sufficient opportunity of being heard. Ground No. 2 of the Revenue’s appeal is accordingly treated as allowed for statistical purposes.”

As the issue involved in the year under consideration as well as all the relevant material facts are similar to that of A.Y. 2006-07, 2007-08 and 2009-10, I respectfully follow the decision of the Tribunal for the said years and restore the matter to the file of the Assessing Officer for deciding the same afresh as per the same direction as given in AY 2006- 07, 2007-08 and 2009-10. Grounds No. 1 & 2 of the assessee’s appeal are accordingly treated as allowed for statistical purposes.

Grounds No. 3 & 4 raised in this appeal of the assessee are not pressed by the ld. counsel for the assessee at the time of hearing. The same are accordingly dismissed as not pressed. ./2015 Assessment year: 2011-2012 Page 5 of 6

During the course of assessment proceedings, the assessee could not furnish the relevant details of unpaid dividend amounting to Rs.5,26,459/- shown in the balance-sheet as on 31.03.2013. The Assessing Officer, therefore, treated the said liability as bogus and added the amount of Rs.5,26,459/- to the total income of the assessee. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer holding that it was in accordance with the provisions of section 41(1) of the Act.

I have heard the arguments of both the sides and also perused the relevant material available on record. As rightly submitted by the ld. counsel for the assessee, the provision for dividend being an item of Profit & Loss Appropriation A/c, it had no implication on the computation of total income of the assessee assessable to tax as the same was never claimed as deduction and this being so, the provision of section 41(1) cannot be invoked to add the amount of unpaid dividend to the total income of the assessee on the ground that the same represented a liability not in-existence. I, therefore, delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow Ground No. 5 of the assessee’s appeal.

As regards the issue involved in Ground No. 6(a) relating to the disallowance of Rs.6,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(ia) of the Act on account of rent paid by the assessee without deduction of tax at source as required by the provisions of section 194(i), the ld. counsel for the assessee has not raised any contention on merit to dispute the same. He, however, has raised an alternative contention on this issue by referring to Ground No. 6(b) raised in the appeal of the assessee that the said ./2015 Assessment year: 2011-2012 Page 6 of 6 disallowance made under section 40(a)(ia) has resulted into enhancement of the income of the assessee, which is entitled for deduction under section 80P(2) of the Act. Since this alternative claim of the assessee is duly supported by the decision of the Division Bench of this Tribunal at Pune in the case of ITO –vs.- Karad Merchant Sah. Credit Sanstha rendered vide its order dated 28.02.2011 passed in I direct the Assessing Officer to allow deduction under section 80P(2(a) on the eligible income of the assessee as enhanced by the disallowance made under section 40(a)(ia) on account of payment of rent. Ground No. 6(b) of the assessee’s appeal is accordingly allowed.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on May 12, 2017.