M/S SOMAVAMSHA SAHASRARJUNA KSHATRIFYA CO.OP.SOCIETY LTD,BANGALORE vs. INCOME TAX OFFICER, WARD-5(3), BANGALORE

Brief facts of the case are that the assessee is a co-operative society carrying on the business of banking. During the assessment proceedings u/s 143(3) of the Income-tax Act, 1961[hereinafter referred to as 'the Act'] for the relevant assessment year, the Assessing Officer (AO) observed that the assessee has claimed deduction u/s 80P(2)(a)(i) of the Act. The AO observed that the assessee is carrying on banking activities and therefore the provisions of sec.80P(4) are attracted and the assessee is therefore not eligible for exemption u/s 80P of the Act.

Aggrieved, the assessee preferred an appeal before the CIT(A) who held that though the assessee is carrying on the business of banking, since it is a co-operative society, it is eligible for deduction u/s 80P(2)(a)(i) of the Act. For coming to this conclusion, he placed reliance upon the decision of the Tribunal in the case of M/s.Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. in dated 30/03/2012 as well as in the case of M/s.Yeshwanthpur Credit Co- operative Society Ltd. As regards the interest income earned from , 1010&1203/B/2014 Somavamsha Sahasrarjuna Kshatriya Co-op. Society Ltd., Page 3 of 7 deposits made by the assessee in banks or on Government securities, she held that it is not eligible for deduction under the said section. For this purpose, reliance was placed upon the decision of the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd., in which it was held that the income earned by the assessee by lending money to its members shall be eligible for exemption u/s 80P(2)(a)(i) of the Act. Thus holding, the CIT(A) observed that the amount of income earned by way of interest from its deposits with banks and Government securities has not been quantified in the assessment order and she accordingly set aside the issue to the file of the AO.

Against the relief given by the CIT(A) holding that the assessee is a co-operative society and not a co-operative bank, the Revenue is in appeal before us in and against the direction of the CIT(A) to the AO to quantify the interest earned from deposits with banks and Government securities, the assessee is in appeal before us in . The appeal of the assessee (ITA No.1203/Bang/2014) is filed with a delay of 464 days and the assessee has filed an application along with an affidavit for condonation of the said delay. The AO, while giving effect to the order of the CIT(A), modified the computation of income vide order dated 30/04/2013 without actually quantifying the interest earned from deposits in various banks. Against this order, the assessee filed an application u/s 154 of the Act for rectification which was dismissed by the AO and the assessee filed an appeal before the CIT(A) against the dismissal of the application u/s 154. The CIT(A) dismissed the appeal holding that the assessee is only seeking review of her appellate order dated 08/04/2013 which is not permissible.

Coming to the assessee’s appeal ( CIT(A), we find that there is a delay of 464 days in filing of the appeal and the reason given for the delay is that the assessee has been pursuing the issue with the AO in the remand proceedings and subsequently before the CIT(A) for quantification of the interest earned on securities and deposits and it is only subsequently that the present appeal is filed as an abundant caution resulting in the delay. The learned Departmental Representative, opposed the condonation of delay.

Having regard to the rival contentions and the material on record as well as in the interests of justice, we are of the opinion that the delay was caused as the assessee was pursuing the remedy before the AO and the CIT(A) in the remand proceedings and was not negligent and therefore inclined to condone the delay of 464 days. Coming to the merits of the directions of the CIT(A) and the subsequent order of the AO giving effect to the order of the CIT(A), we find that the CIT(A) had directed the AO to , 1010&1203/B/2014 Somavamsha Sahasrarjuna Kshatriya Co-op. Society Ltd., Page 5 of 7 compute interest earned on securities and deposits for disallowance. It is well settled law that only the interest earned from fixed deposits parked by the assessee with other co-operative societies or members is allowable u/s 80P(20(a)(i) of the Act and not the interest earned from the Government securities and other banks. At the time of hearing, the learned counsel for the assessee has filed the statement of interest earned during the financial year 2009-10 according to which the total interest earned on all deposits is Rs.51,33,768/- whereas interest earned on statutory/compulsory deposits is Rs.30,14,675/- and the difference between the two is Rs.21,19,093/- out of which interest received from co- operative society/bank is Rs.21,11,763/-. Thus, the assessee has worked out the interest earned from scheduled banks and Government securities which is taxable under the head ‘income from other sources’ at Rs.7,330/- . We find that none of the authorities below have actually verified these figures furnished by the assessee. In view of the same, we deem it fit and proper to remand the issue to the file of the AO with a direction to verify the details filed by the assessee and compute the disallowance of interest from Government securities and banks other than co-operative societies/banks. The assessee’s appeal is accordingly allowed for statistical purposes.

As regards the revenue’s appeal, we find that the issue is covered in favour of the assessee by the decision of the jurisdictional High Court in the case of CIT vs. M/s.Vasavi Credit Co-operative Society Ltd., in dated 27/06/2014 wherein it was held that a co-operative society carrying on banking business cannot be considered as co-operative , 1010&1203/B/2014 Somavamsha Sahasrarjuna Kshatriya Co-op. Society Ltd., Page 6 of 7 bank and hence the provisions of section 80P(4) are not applicable. Therefore, the revenue’s appeal is accordingly dismissed.

Since the original order of the CIT(A) has been set aside and the issue has been remitted to the file of the AO for verification and quantification of disallowance of interest from Government securities and banks other than co-operative societies/bank, the assessee’s appeal bearing becomes infructuous and is dismissed as such.

The assessee has filed the Stay Petition No.196/Bang/2014 in for stay of the outstanding demand of tax. As the appeal itself has been disposed of by us in para.8 above, the Stay Petition becomes infructuous and is dismissed as such.

In the result, the assessee’s appeal ( ) is allowed. The revenue’s appeal (ITA No.1144/Bang/2014) and the assessee’s appeal and the cross objection viz., ITA 1010/Bang/2014 and C.O.No.196/Bang/2013 are dismissed.