ORISSA STATE CO-OPERATIVE HANDICRAFTS CORPORATION LTD.,BHUBANESWAR vs. DCIT, CIRCLE-4(1), BHUBANESWAR

This is an appeal filed by the assessee against the order of CIT(A)—

2, Bhubaneswar, dated 30.11.2016, for the assessment year 2012-13.

the ld CIT(A) erred in not allowing deduction u/s. 80P of the Act on the

following income of the assessee:

i) Interest on fixed with Bank of Baroda : Rs.7,05,927/- ii) Interest on S.B.A/c. with BOB : Rs.2,70,706/- iii) Interest on F.D. with OSCB : Rs.8,03,082/- Rs: 17,79,725/-

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authorities and materials available on record. The brief facts of the case

are that the Assessing Officer observed that the assessee has created

certain reserve funds from year to year and parked its surplus income in

the form of fixed deposits in different banks resulting in substantial interest

income. Since the funds created by such retention was not required

immediately for business purposes, it was invested in specified securities.

Therefore, such interest income is actually to be considered as income from

other sources instead of income from business as treated by the assessee

in its books of account. He observed that the income which is attributable

to any of the specified activities u/s.80P(2) is eligible for deduction. In the

instant case, the assessee society invested funds not immediately required

for business purposes and, therefore, interest on such investments, cannot

fall within the meaning of the expression “profit and gains of business” and

cannot be attributable to the activities of the society. The Hon’ble apex

Court in the case of Totgars Co-operative Sales Society Ltd vs ITO, 322 itr

283 has held that the interest income earned by the co-operatives from the

fund created by retention which is not required immediately for business

purposes fell under the head “income from other sources” is taxable under

section 56 of the I.T.Act, 1961. Therefore, the Assessing officer disallowed

deduction u/s. 80P of the assessee of interest income of Rs.7,14,513/-

which was enhanced in appeal by the CIT(A) to Rs.17,79,725/-.

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earned rental income during the year under appeal by letting out of shops

and office premises. He observed that as per section 80P(2)(e) the whole

of the income derived by co-operative society from the letting of godowns

or warehouses for storage, processing or facilitating the marketing of

commodities is deductible The term godown and ware houses is very

important and Hon’ble Gujarat High Court in the case of CIT vs. Ahmedabad

Maskati Cloth Dealers Co-operative Warehouse Society Ltd., (1986) 162

ITR 142 held that there must be a godown or warehouse which should be

let out for the purpose as specified in the clause (e) to section 80P(2) of

the Income tax Act, 1961. If the godown or warehouse is let out for the

purpose of other than storage, processing or facilitating the marketing

commodities, the income derived there from by a co-operative society

would not be deductible u/s. 80P. Later, the Hon’ble Supreme Court in the

case of Udaipur Sahakari Upbhokta Thok Bhandar Ltd vs CIT, 182 Taxman

287 (SC) has held that deduction is available in respect of income derived

from the letting out of godowns and warehouses only where the purpose of

letting is storage, processing or facilitating marketing of commodities. He

observed that in the case of the assessee the rental income earned from

letting out shops and office premises and, therefore, is not eligible for

deduction u/s. 80P(2) of the Act and hence, disallowed deduction of

Rs.15,52,966/-, which was enhanced in appeal by the CIT(A) to

Rs.17,79,725/-.

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by enhancing the disallowance under the head interest income and rental

income by relying on the following judicial decisions:

i) Punjab State Co-operative Milk Producers Federation ltd vs CIT, (2012 20 TAXMANN.COM 834 (P&H) ii) Mantola Co-operative Thrift & Credit Society Ltd vs CIT, (2014) 50 taxmann.com 278 (Delhi) iii) State Bank of India vs CIT, (2016) 72 taxmann.com 64 (Guj) iv) Bihar Rajya Sahkari Bhoomi Vikas Co-operative Bank Ltd vs CIT, (2010) 186 taxmann 54 (Pat) v) Kottayam Co-operative Land Mortgage bank Ltd vs CIT, 40 TAXMAN 259(Ker) vi) Sindhi Sahiti Multipurpose & Transport Co-operative Society Ltd vs CIT, 214 ITR 232 (MP) 6. Ld A.R. reiterated the submissions made before the lower authorities.

He could not point out any specific error in the order of the CIT(A). He

submitted that Special Leave Petition has been granted by the Hon’ble

Supreme Court against the order of Hon’ble P&H High Court in the case of

Punjab State Co-operative Federation of House Building Society ltd vs CIT,

(2016) 76 taxmann.com 99 (SC), wherein, it was held that interest earned

by co-operative society by investing surplus funds in short term deposit or

interest earned by giving loans to employees for housing and conveyance

would not be entitled to section 80P(2)(a) . Further, he submitted that

Special Leave Petition has been granted against the decision of Hon’ble

Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society

Ltd vs CIT (2016) 70 taxmann.com 296 (SC), wherein, it was held that the

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co-operative society engaged in providing credit facilities to its members,

deposited surplus funds in fixed deposits and earned interest thereon, said

interest would be assessable as “income from other sources” and, thus, not

eligible for deduction under section 80P(2)(a)(i) of the Act. Thus, the

assessee by own submission admits that the decision of above Hon’ble High

Courts are against the assessee and there is no decision of Hon’ble

Supreme Court reversing the same.

6.1 He also relied on the decision of Hon’ble Delhi High Court in the case

of Snam Progetti S.P.A. vs ACIT (1981) 132 ITR 70 (DEL)), wherein, it was

held that if the interest income was derived from ‘business activity’ then

the mere fact that it is taxed under a different section will make no

difference. The approach to the problem has, therefore, to be disassociated

from the section under which the tax is imposed on the form of income.

6.2 In the case of the assessee, it is not in dispute that interest income

is earned from fixed deposit with bank and not from any business activity.

Hence, the said decision is not applicable to the facts of the assessee’s case.

6.3 He further relied on the decision of Hon’ble A.P. High Court in the

case of CIT vs. A.P. Industrial Infrastructure Corporation Ltd, 175 ITR 361

(AP), wherein, it was held that receiving and disbursing funds including the

government funds, pending disbursement of such funds was placed in bank

deposits and interest thereon was held to be business income. In the case

of the assessee, it is not in dispute that the assessee has not received any

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funds for disbursement from Government which was kept in the bank in the

interval between receipt and disbursement. Therefore, this decision is not

applicable to the facts of the assessee’s case.

6.4 The Ld A.R. further relied on the decision of Hon’ble Calcutta High

Court in the case of CIT vs Tirupati Woollen Mills Ltd., 193 ITR 252 (Cal)

wherein it was held that the Tribunal had found that the interest arose from

utilization of commercial asset. The funds utilized in making fixed deposit

with banks were business funds lying temporarily surplus with the

assessee. It was therefore assessable as business income and revenue

expenditure could be deducted from it. In the case of the assessee, it is

not the case of the assessee that interest income was earned out of

utilization of business funds lying temporarily surplus with the assessee.

Therefore, this case is not applicable to the facts of the assessee’s case.

6.5 For the reason given above, I find no good reason to interfere with

the order of the CIT(A), which is hereby confirmed and grounds of appeal

of the assessee are dismissed.

the CIT(A) erred in confirming the addition of Rs.12,33,626/- made by the

Assessing Officer u/s.2(24)(x) of the I.T.Act, 1961.

assessee has not deposited the employee’s contribution to PF by the due

date as stipulated under the relevant Act. As per the assessment order, the

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Assessing Officer in his order stated that the employee’s contribution to PF

have been deposited as under:

Head Office Month EPF share of the Due date of Actual date of No of days employees deposits deposited/credited delayed April,2011 96,063 15.05.2011 25.05.2011 10 days May, 2011 90,605 15.06.2011 22.06.2011 07 days June, 2011 1,00,329 15.07.2011 22.07.2011 07 days July, 2011 98,313 15.08.2011 24.08.2011 09 days August,2011 97,592 15.09.2011 24.09.2011 09 days Sept., 2011 97,751 15.10.2011 25.10.2011 10 days Oct., 2011 1,17,935 15.11.2011 26.11.2011 11 days Nov., 2011 1,18,954 15.12.2011 23.12.2011 08 days Jan, 2012 1,18,058 15.02.2012 22.02.2012 07 days Feb., 2012 1,14,050 15.03.2012 27.03.2012 12 days March, 2012 1,09,650 15.04.2012 10.05.2012 25 days. Total 11,65,300

Branch Office Month EPF share of the Due date of Actual date of No. of day employer deposit deposit delayed April, 2011 5,535 15.5.2011 30.5.2011 15 May, 2011 5743 15.6.2011 30.6.2011 15 June, 2011 5455 15.7.2011 3.8.2011 19 July, 2011 5728 15.8.2011 24.8.2011 09 August, 11 5728 15.9.2011 22.9.2011 07 Sept, 11 5702 15.10.2011 27.10.2011 12 Oct, 11 6887 15.11.2011 30.11.11 15 Nov, 11 6887 15.12.2011 12.1.2012 28 Jan 2012 6887 15.2.2012 2.3.2012 16 Feb 2012 6887 15.3.2012 26.3.2012 11 March,12 6887 15.4.2012 7.6.2012 53

Therefore, he disallowed deduction for the same.

Officer of Rs.12,33,626/- being employee’s contribution to PF u/s.2(24)(x)

r.w.s. 36(1)(va) on the ground that the employee’s contribution was not

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deposited within the due date prescribed under the relevant Act but was

deposited before filing the return of income u/s.139(1) of the Act.

contribution was deposited before the due date prescribed u/s.139(1) of

the I.T.Act, 1961 and, therefore, the deduction should be allowed.

authorities and materials available on record. A perusal of assessment

order, it is revealed that the employee’s contribution to Provident Fund has

been deposited by the assessee before the due date prescribed u/s.139(1)

of the Act. I find that the Hon’ble Bombay High Court in the case of CIT

Vs. Ghatge Patil Transports Ltd., (2014), 368 ITR 749 has held that

employees contribution to PF and ESI is allowable if the same is deposited

before the due date of filing of return of income u/s.2(24)(x) r.w.s.

36(1)(va) and 43B of the Act. The Hon’ble Delhi High Court in CIT Vs. AIMIL

Limited [2010] 321 ITR 508 (DEL) has held that the employees’

contribution towards EPF and ESI etc. deposited after the due date but

before the time allowed for filing the return u/s.139(1) will not call for any

disallowance u/s.36(1)(va). Therefore, I set aside the orders of lower

authorities and delete the disallowance of employees contribution to PF of

Rs12,33,626/- and allow this ground of appeal of the assessee.

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SR.PRIVATE SECRETARY ITAT, Cuttack