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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri P.M. Jagtap
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-XIX, Kolkata dated 07.04.2014 and the solitary issue involved therein relates to the disallowance of assessee’s claim for deduction under section 80P in respect of interest income earned on Fixed Deposits (General).
The assessee in the present case is a Credit Cooperative Society, which is engaged in the business of providing loans to the staff members of the National Coal Development Corporation. The return of income for the year under consideration was filed by it on 01.04.2011 declaring total income at ‘nil’ after claiming deduction under section 80P in respect of its entire income. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has claimed deduction under section 80P, inter alia, on the interest received on Fixed Deposits ./2014 Assessment year: 2010-2011 Page 2 of 5 (General) amounting to Rs.37,33,299/-. According to him, the said interest was assessable to tax in the hands of the assessee under the head “income from other sources” and, therefore, the deduction under section 80P was not allowable in respect of the said income. In this regard, the explanation offered by the assessee that the investment in Fixed Deposits was made for the purpose of its business in order to maintain the liquid assets, was not found acceptable by the Assessing Officer. He held that making investment in Fixed Deposits with Banks was not the business activity of the assessee and since such investment was made by the assessee out of surplus funds, the interest received thereon was assessable to tax under the head “income from other sources”. Accordingly, the claim of the assessee for deduction under section 80P in respect of the interest received on Fixed Deposits (General) was disallowed by the Assessing Officer.
On appeal, the ld. CIT(Appeals) upheld the action of the Assessing Officer on this issue by observing that the interest earned by the assessee on Fixed Deposits made with Banks out of its own surplus funds was chargeable to tax under the head “income from other sources” and the same, therefore, was not eligible for deduction under section 80P. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue was involved in assessee’s own case for A.Ys. 2006-07, 2007-08 and 2009-10 and vide its order dated 02.03.2016 passed in & Others, the same was decided by the Tribunal as per Paragraphs No. 6 & 7 of its order, which read 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 ./2014 Assessment year: 2010-2011 Page 3 of 5
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 18th November, 2015 passed in 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.
./2014 Assessment year: 2010-2011 Page 4 of 5
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 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.” 7. Relying on the decision of the Tribunal in the case of Baksara Cooperative Credit Society Ltd. (supra), the ld. Counsel for the assessee has contended that the similar issue involved in the case of the assessee for all the three years under consideration may also be restored to the file of the AO and since the ld. DR has not raised any objection in this regard, we set aside the impugned orders of the ld. CIT(A) on this issue and restore this matter to the file of the AO for deciding the same afresh as per the same direction as given in ./2014 Assessment year: 2010-2011 Page 5 of 5
the case of Baksara Cooperative Credit Society Ltd.(supra). The Cross objections filed by the assessee thus are treated as allowed for statistical purposes”.
As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Ys. 2006-07, 2007-08 and 2009-10, I respectfully follow the decision of the Tribunal dated 02.03.2016 for the said years and restore this issue to the file of the Assessing Officer for deciding the same as per the same directions as given for A.Ys. 2006-07, 2007-08 and 2009-10.