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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : KOLKATA [Before Hon’ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM] I.T.ANos.737-742/Kol/2011 Assessment Years : 1996-97 to 2001-02 A.C.I.T., Circle-56, -vs.- The West Bengal State Co-operative Kolkata Bank Ltd.Kolkata [PAN : AAAAT 7072 N] (Respondent) (Appellant) C.O.Nos.36-40/Kol/2011 (A/o I.T.A Nos. 737-741/Kol/2011 ) Assessment Years : 1996-97 to 2000-2001 The West Bengal State Co-operative -vs.- A.C.I.T., Circle-56, Bank Ltd., Kolkata Kolkata [PAN : AAAAT 7072 N] (Respondent) (Appellant) For the Department : Shri G.Mallikarjuna, CIT(DR) For the Assessee : Shri N.C.Mondal, CA Date of Hearing : 27.07.2016. Date of Pronouncement : 03.08.2016.
ORDER Per Bench
ITA No.737/Kol/2011 is an appeal by the Revenue against the order dated 10.3.2011 of CIT(A)-XX, Kolkata, relating to AY 1996-97. ITA No.738 to 742/Kol/ 2011 are appeals by the Revenue against 5 different orders all dated 11.3.2011 of CIT(A)-XX, Kolkata, relating to AY 1997-98 to 2001-2002. The Assessee has filed C.O.No.36 to 40/Kol/2011 challenging the correctness of the order of CIT(A)-XX, Kolkata, for AY 1996-97 to 2000-01, in so far as the said order rejecting the claim of the Assessee that initiation of reassessment proceedings u/s.147 of the Income Tax Act, 1961 (Act), by the AO for the aforesaid assessment years was invalid. Since common issues are involved in all these appeals, they were heard together and we deem it convenient to pass a common order.
ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 1
The only common issue involved in the appeal by the revenue is as to whether the CIT(A) was justified in allowing deduction u/s.80P(2)(a)(i) of the Act on interest income earned from transactions with non-members and nominal members and interest income earned from non-SLR (Statutory Liquidity Ratio) investments, i.e., investments made not owing to any compulsion of Reserve Bank of India regulations to maintain Statutory Liquidity Ratio (SLR). The relevant provisions of Sec.80P(2)(a)(i) of the Act reads thus:
“Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.”
(2) The sums referred to in sub-section (1) shall be the following, namely :— (a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities :”
The AO felt that deduction u/s 80P(2)(a)(i) should be restricted to income arising from transactions with members only, and, that income arising from transactions with non-members and nominal members is not eligible for such deduction. According to ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 2
the AO, nominal members cannot hold shares or become director, and also, cannot attend annual general meeting; and so, they cannot be regarded at par with the members for granting deduction u/s 80P. The AO noted that the very purpose behind introduction of section 80P was promotion of the co-operative movement. The AO estimated the interest income from transactions with non-members and nominal members on certain basis, since the bifurcation of interest income as between members and non-members was not available before the AO and held that it was not eligible for deduction u/s 80P. The AO further held that income derived from investment of banking reserve alone is banking business; and, that investment in bonds out of building and general fund cannot be considered as banking business eligible for deduction u/s 80P. By applying the rate of 8 % on such investment in bonds, the AO estimated the interest income from non-SLR investment and held that it was not eligible for deduction u/s 80P.
Aggrieved by the orders of AO, the Assessee preferred appeal before CIT(A). Before CIT(A) it was submitted that in ITA Nos. 28,29, & 30/Kol/2008, the Hon’ble ITAT ‘D ‘Bench, Kolkata by order dt. 29.02.2008 for A.Ys.2002-03 to 2004-05 the Tribunal held that similar interest income disputed by the AO as not eligible for deduction u/s 80P(2) (a)(i) of the Act, was eligible for such deduction. The following were the relevant observations of the ITAT in the aforesaid order: “9. On consideration of the rival submissions, we find force in the counter arguments of the Ld. A.R. factually as well as legally. The case laws cited by him are analysed hereunder ;- Mehsana District Central Co-Opt. Bank Ltd. vs. ITO [2001) 251 ITR 522 (SC) "Held, (i) that the assessee was entitled to deduction u/s. 8P(2)(a)(i) of the Income-tax Act, 1961, in respect of the interest earned from funds utilised for the statutory reserves. (ii) That provision of safe deposit vaults was part of the ordinary banking business of a bank as shown by section 6(1)(a) of the Banking Regulation Act, 1949, and, therefore, income derived by the assessee from the hiring out of safe deposit vaults was income from the business of banking and deductible u/s. 80P(2)(a)(i)." "Held also, that the question whether income derived by the assessee co-operative bank from the investment of its' voluntary reserves other than statutory reserves is exempt u/s.
ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 3
80P(2)(a)(i) depended upon whether the voluntary reserves. were utilised in the course of its ordinary banking business."
CIT vs. Baroda Peoples Co-Opt. Bank Ltd. [2006] 280 ITR 282 (Guj.) "The assessee a co-operative bank earned interest from investments in (i) IDBI bonds; (ii) SBI Bonds; (iii) Sardar Sarovar Narmada Bonds; and (iv) Kisan Vikas Patra. The Assessing Officer treated all the aforesaid investments as . "fixed capital" and held that the investments were not .available for nor-mal banking business. Therefore the entire income was taxable. The Special Bench of the Tribunal held that the Income was entitled to special deduction u/s. 80P. On appeal to the High Court ; Held, dismissing the appeal, that the Tribunal was right in allowing deductions u/s. 80P(2)(a)(i) of ' the Act on interest income as being attributable to the business of banking." MiIli Co-Op. Urban Bank Ltd. vs. ITO [2007] 291 ITR (AT) 163 (Hyd.) "Held, that to be eligible for exemption u/s. 80P(2)(a)(i), a co-operative bank need not deal only with its members. Exemption under the section has not been granted on, the principle of mutuality alone. As such, a separate exemption provisions is not required for receipts that satisfy the principle' of mutuality. Such receipts are not income and are outside the scope of section 4 of the Act. There was no reason why the conjunction "or" should be read as "and". Exemption is allowed to co-operative credit societies u/s. 80P(2)(a)(i). Admittedly, such societies do not carry on banking business. When two expressions are segregated by the conjunction "or", each becomes a separate entity by itself and the principle of ejusdem generis cannot be applied. Hence in order to be eligible to claim exemption u/s. 80P(2)(a)(i), a co- operative bank need not carry on the business of banking only with its members. Income attributable to banking activities carried on with non-members will also be entitled to special deduction under this section." As both factually as well as legally the counter arguments of the Ld. A.R. are appeared to be sound and reasonable backed by the aforesaid case laws, we do not have any hesitation to reject the grounds of the appeal. Accordingly, the grounds in appeals for all the three years are hereby rejected.”
The CIT(A) after considering the above submissions of the Assessee held that the Assessee was entitled to deduction u/s.80P(2)(a)(i) of the Act on the interest income in question. The following were the relevant observations of the CIT(A): “13. I have perused the assessment order and the relevant appellate orders. I have also considered the submissions of the appellant and the material on record. I find that the issues raised in this appeal regarding allowability of deduction u/s 80P in respect of interest income from non-members and nominal members, and, that on non-SLR investment are covered by the orders of the appellate authorities in appellant's own case for different assessment years. In particular, the issues are covered by the decision of the jurisdictional ITAT. In view of the facts of the case, and, the principles laid down by the Hon'ble ITAT, it is held that the interest income arising from transactions with non- members and nominal members, and, that from investment in bonds (i.e., interest income from non-SLR investment) is eligible for deduction u/s 80P. Accordingly, the ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 4
AO is directed to allow appellant's claim of deduction u/s 80P on interest income from non-members and nominal members, and, that on non-SLR investment. 14 - I have considered the submissions regarding estimation of income made by the AO and also perused the judicial pronouncements relied upon by the appellant. The AO has mentioned in the assessment order that there was non- compliance on the part of the appellant. But, even while making a best judgment assessment u/s 144, the AO does not possess absolute arbitrary authority to assess any figure he likes. Even if the circumstances of the case called for resorting to estimating the income of the appellant, such estimation cannot be a wild one, but, should be made honestly and not arbitrarily; moreover, it should have a reasonable nexus with the material available on record. While estimating the income, the AO must not act vindictively or capriciously or with a view to punish the appellant for non-compliance. For, the AO has to be guided by the rules of justice, equity and good conscience. The AO has found no defects in the accounts of the appellant. The AO has failed to bring any material or evidence on record to justify his estimation of income. The estimation made by the AO is arbitrary and without any basis; moreover, it is not supported by any material on record; and, is therefore not sustainable. In 'view of the above, the estimation made by the AO in respect of income from non-members and nominal members and that on non-SLR investment cannot be upheld. However, even otherwise, such income from non- members and nominal members and that on non-SLR investment is eligible for deduction u/s 80P. The grounds raised by the appellant are liable to be allowed.” 6. Following the aforesaid order which was passed in relation to AY 1996-97, the CIT(A) allowed the similar claim of the Assessee made in the appeals for AY 1997-98 to 2001-02.
Aggrieved by the orders of the CIT(A), the revenue has preferred appeals before the Tribunal. The Assessee challenged the validity of initiation of reassessment proceedings u/s.147 of the Act for AY 1996-97 to 2000-01. The same was rejected by the CIT(A). Aggrieved by the order of the CIT(A) in rejecting the claim of the Assessee, the Assessee has filed Cross-objections in the appeals filed by the Revenue for AY 1996-97 to 2000-01.
The grounds of appeal raised by the revenue in all its appeals are identical. For the sake of ready reference, we give below the grounds raised by the Revenue in the appeal relating to AY 1996-97. “1.On the facts and in the circumstances of the case, the Ld. CIT(A) was perverse in holding that every income of the Co-operative Bank is eligible for deduction u/s. 80P (2)(a)(i).
ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 5
That the Ld. CIT(A) erred in interpreting Sec.80P(2)(a)(i) to mean that every income earned from non-members of the Co-operative Bank is eligible for deduction u/s. 80P.
That the learned CITCA) was perverse in the sense that the principle of mutuality cannot be extended to non-members of the society.
That the learned CIT(A) erred in understanding the provisions of mutuality, and extending it to the general public who are not members of the co-operative. While no one can make profit from oneself on the principle of mutuality, the learned CIT(A) failed to appreciate the basic concept of mutuality, and held that the assessee could make profits from non-members and still claim the profits from such activity to be exempt from tax.
On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the plain meaning of the words in section 80P(2)(a)(i) in the sense that the assessee did not derive its income from extending banking or credit facilities to its members and instead derived income only from general public through commercial banking activities , and erred in allowing deduction u/s. 80P(2)(a)(i).
On the facts and in the circumstances of the case, the Ld. CITCA) has erred in not taking cognizance of the fact that the assessee having been created under the West Bengal Co-operative Societies Act, 1973 , has violated the aims and objectives of the Act and the bye-laws of the assessee co-operative society by diverting its fund from the area core activities i.e. mutual benefits of the members of the society involved in the amelioration of the downtrodden people of the society and cannot be granted tax benefits u/s. 80P(2)(a)(i) merely on the plea that Regulatory bodies have not acted against it which would be contrary to the principle laid down in Bihari Lal Jaiswal & Ors 217 ITR 746 (SC) .
On the facts and in the circumstances of the case, the Ld. CITCA) has erred in not taking cognizance of the recent decision of the Hon'ble Supreme Court ,in the case of Totgars' Co-operative Sale Society Ltd-Vs- Income Tax Officer, Karnataka, in which Hon'ble Supreme Court clearly accepted the department view that income, which is attributable to any of the specified activities in Section 80P(2) of the Act, would be eligible for deduction. Income arising from investment of surplus fund or any other activity which does not come under the core activity of the society is not eligible for such deduction.
On the facts and circumstances of the case the Ld. CIT(A) has erred in not considering the prim issue that public policy laid down by the Parliament or Legislature cannot be overlooked and tax benefits be granted, despite objection of the Revenue, on the ground that Regulatory Body has not taken action against the assessee for its violation.
On the facts and circumstances of the case Ld. CIT(A) has erred in not considering the fact that the legislature has not given deduction to all banks but to such co-operative banks to promote target area and group for up-liftment and in such situation, activities other than such activities not be given the benefits of deduction unless the income is in conformity with the aims and objectives of the West Bengal Co-operative Societies Act , 1973 and bye-laws of the society itself. ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 6
That the learned CIT(A) erred in routinely applying the decisions in the cases of Mehsana District Central Co-operative Bank Ltd. Vs ITO (2001) 251 ITR 522 (SC); CIT vs. Baroda Peoples Co-operative Bank Limited [2006} 280 ITR 282 (Guj.) and Milli Co- operative Urban Bank Ltd. Vs. ITO [2007] 291 ITR (AT) 163 (Hyd.) to the facts of the case while ignoring the recent decisions of the Hon'ble Supreme Court ,in the case of Totgars' Co-operative Sale Society Ltd-Vs- Income Tax Officer, Karnataka, [2010), 188 Taxman 282. 11. That the learned CIT(A) erred in ignoring the decisions in U.P. Co-operative Cane Union Federation Ltd. Vs. CIT 237 ITR 574 (All.) as well as Assam Co-operative Apex Marketing Society Ltd. Vs. CIT 201 ITR 332 while granting tax exemption to income earned from non-members. 12. That the learned CIT(A) failed to notice that the assessee co-operative bank is functioning on purely commercial basis and accorded tax exemption to the co-operative bank functioning on commercial basis whereas no such exemption is available to commercial banks. 13. That the learned CIT(A) erred in failing to understand the import of law that income earned from voluntary and wilful diversion of funds (beyond meeting the CRR and SLR and reserve requirements) is not income earned to further its statement of objects of creation as a co-operative and such diverted funds to earn income are not in consonance with the public policy and cannot be eligible to be rewarded with substantial tax benefits, and the decisions in the case of Mehsana District Co-operative Bank Limited vs ITO 251 ITR 572 and Gujarat State Co-operative Bank Limited Vs CIT ought to have been better appreciated before granting total tax exemption to entire global income of the co- operative from every source.”
We have heard the submissions of the learned DR, who reiterated the stand of the revenue as reflected in the grounds of appeal filed by the Revenue. The learned counsel for the Assessee relied on the decision of the Tribunal rendered by the Tribunal on identical issue in the case of the Assessee for AY 2002-03 to 2004-05. 10. We have given a very careful consideration to the rival submissions. As we have already seen, similar issue raised by the revenue in its appeals had been considered and decided by the Tribunal in Assessee’s own case for AY 2002-03 to 2004-05. We do not see any ground to take view different from the view taken by the Tribunal. 11. Since the revenue has laid much emphasis on the decision of the Hon’ble Supreme Court in the case of Totagars Co-operative Socieity 322 ITR 283 (SC), we deem it necessary to deal with those contentions also. This tribunal had an occasion to deal with similar objections in the case of another co-operative society similar to the Assessee in the present appeals. In ITA No.07/Kol/2014 for Assessment Year : 2009- ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 7
10 in the case of Rupnarayanpur Samabay Krishiunnayan Samity Ltd. Vs.A.C.I.T., Circle-1, Hooghly, the Assessee was an is an agricultural credit society duly registered under the West Bengal Cooperative Societies Act, 1983. In the course of proceedings before CIT(A), the CIT(A) noticed that the assessee had claimed deduction u/s 80P(2(a) (i) of the Act on interest income arising from Savings Bank A/C. and Recurring Deposit(RD) Account which was made by the Assessee from and out of the RD Account made by its members with the Assessee. The Revenue took the view that as per the decision rendered by the Hon’ble Supreme Court in the case of Totgar’s Co- operative Sale Society Ltd vs ITO 322 ITR 283 (SC) interest earned on deposits had to be regarded as income under the head ‘Income from other sources’ and therefore deduction u/s 80P(2)(a)(i) of the Act ought not to have allowed to the assessee as only the whole of the amount of profits and gains of business attributable to carrying on the business of banking or providing credit facilities to its members is allowed as deduction under the said provision. On further appeal by the Assessee before the Tribunal, the Tribunal held as follows: “6. At the time of hearing of this appeal the ld. Counsel for the assessee filed before me a copy of the decision rendered by ITAT, Kolkata Bench in the case of S.E., S.E.C. & E.Co. Railways Employees’Co-operative Credit Society ltd. Vs ACIT in ITA NO.1693/Kol/2012 order dated 30.10.2014. In the aforesaid case the identical question as to whether interest income had to be regarded as income from business or income from other sources had come up for consideration. The Assessee in the aforesaid decision accepted loans and deposits from its members and utilized the same towards providing loans and credit facilities to its members. However excess funds were utilized in making deposits in banks and investments. The Tribunal relying upon the decision rendered by the Hon’ble Calcutta High Court in the case of CIT vs South Eastern railway Employees Co-operative Credit Society in G.A.No.1838 of 2010 dated 22.07.2010 came to the conclusion that interest income has to be regarded as income from business of banking and is entitled for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal had also distinguished the decision rendered by the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd vs ITO (supra). The following observations of the Hon’ble Tribunal read as under :- “7.1. We further find that the issue involved is covered in favour of the assesee by catena of decisions of the Tribunal in assessee’s own case. These decisions are also affirmed by the Hon’ble Jurisdictional High Court in its order for A.Yr.2005-06. In this order the Hon’ble Jurisdictional High Court has considered all the relevant orders and has decided the issue in favour of ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 8
the assessee. We may gainfully reproduce the operative order of the Jurisdictional High Court which is as under :-
“We have gone through the impugned judgment and order of the Learned Tribunal. It appears that the point involved .is whether interest earned out of the investment earned by the assessee cooperative can be treated to be the income arising out of business activity or from other sources in order to apply the provision of Section 80P(2)(a)(i) of the I.T.Act. It is an undisputed factual position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97. Then again in relation to the assessment years 2003-04 and 2004- 05 a similar point arose. The Learned Tribunal in relation to the assessment years 1998-99 to 2002-2003 by order dated 10.11.2006 in ITA Nos. 840 to 844/Kol/2006 and again by order dated 29.12.2006 in relation to assessment years 2003-04 and 2004-05 has deleted the disallowance made in those assessment years and it was held that the interest earned by the assessee cooperative society from its short term and fixed deposits with the bans and other institutions were disallowed on the ground that this income was not business profit of the assessee society but was income from other sources. The Ld.Tribunal has also held that income from investment in banks and other financial institutions is the business income of the assessee society and it is eligible to get deduction under Section 80P(2)(a)(i). The Tribunal has overruled the decisions rendered against the assessee in relation to assessment years 1995-96 and 1996-97 on the same issue in relation to subsequent years. It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal) that there is no change in the facts and circumstances of this case and it was held that the assessee was eligible for deduction under Section 80P(2)(a)(i) on interest on investment amounting to Rs.1,18,07,645/- in this assessment year also. Since the Tribunal found that this decision of the Tribunal was followed by CIT(A) there is no reason to take a different view. Under these circumstances, we feel that when the Commissioner of Income Tax (A) as well as the Tribunal has followed the earlier unchallenged decision no question of law is involved in this matter. Nothing has been produced before us to show subsequent decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties before this Court. It is submitted by Mr.Bhowmick that there has been challenge of the decision in relation to assessment years 1995-96, ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 9
1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the pendency of that earlier matter is of no consequence in this matter. Had there been a challenge of the decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and also 2003-04 to 2004-05 the matter would have been different. The revenue did not take any step whatsoever. Therefore, we presume the revenue has accepted the subsequent view of the Tribunal and the same now hold the field right now.”
7.2. Considering the above we find that this issue is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in assessee’s own case. In this regard we would like to place reliance upon the decision of the Hon’ble Apex Court in the case of CIT vs Excel Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to take a different view, any deviation is not permitted.
7.3. Now we come to the case laws relied upon by the ld. CIT(A). As regards the decision of the Hon’ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra) we find that the said decision is not applicable in the facts of the case. We find that the Hon’ble Apex Court in the said decision in para 11 has itself mentioned that “We are confining the judgment to the facts of the present case.”. The facts of the case were that assessee’s business was to provide credit facilities to its members and to market their agricultural produce. In many cases assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same in specified securities and earned interest income. In these circumstances the Hon’ble Apex Court had held that interest earned would come in category of ‘Income from other sources’ taxable u/s 56 of the Act and would not qualify for deduction as business income u/s 80P(2)(a)(i). From the above it is amply evident in the present case the assessee has not retained any amount due to its members and instead of paying the same had invested the same and earned interest. Thus this case law is not applicable on the facts of the present case.
7.4. As regards the decision of Hon’ble Patna High Court in the case of Bihar Rajya Sahkari Bhoomi Bikash Co-op.Bank Ltd. (supra) the same is also not applicable to the facts of the present case. In that case the question was the treatment of interest earned on provident fund and rental income as attributable to banking business and this qualifying for deduction u/s 80P(2)(a)(i) of the Act. ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 10
7.5. In the background of the aforesaid discussion and precedent we hold that the issue is squarely covered in favour of the assessee by the decision of the Tribunal and the Jurisdictional High Court in assessee’s own case. The decision relied upon by the ld. CIT(A) are not applicable in the facts of the case. The principle of consistency as conveyed by the Hon’ble Apex Court mandates that the Revenue does not take a different stand. Accordingly we set aside the orders of the authorities below and decide the issue in faovur of the assessee.”
6.1. Respectfully following the above decision and taking down the fact that interest income in the present case is identical to the interest income received by the assessee in the decision referred to above. I hold that the assessee is entitled to deduction u/s 80P(2)(a)(i) of the Act in respect of the interest income.”
The Hon’ble Karnataka High Court had also an occasion to examine the scope of Sec.80P(2)(a)(i) of the Act, in the light of the decision of the Hon’ble Supreme Court in the case of Totagar Co-operative Society (supra) in the case of Guttigedarar Credit Co-operative Society Ltd. Vs. ITO Ward 2(2), Mysore 377 ITR 464 (Karnataka). The Assessee in that case which was a co-operative Society claimed deduction in respect of interest income it earned on deposit of surplus funds as eligible for deduction u/s.80P(2)(a)(i) of the Act. The appellate authorities under the Act held that assessee is liable to income tax in view of the judgment of the Apex Court in the case of Totgars Co-operative Sale Society Ltd. v. ITO 377 ITR 283 (Karn.). On appeal by the Assessee, the Hon’ble Karnataka High Court held:
“9. The word 'attributable' used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v.CIT 113 ITR 84 (SC) (at page 93) as under:— 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old ITA Nos.737-742/K/2011& CO.36-40/K/2011-The W.B.State Copt.Bank Ltd. A.Y.1996-97 to 2001-02 11
machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.' 10. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Co-operative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said
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judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. 336 ITR 516(AP). 13. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law…..” 13. In view of the aforesaid judicial pronouncements, we are of the view that the objections raised by the revenue in the grounds of appeal before us, cannot be sustained. Respectfully following the precedent available on the issue, we confirm the orders of the CIT(A). 14. As far as the cross-objections of the Assessee are concerned, since we have upheld the order of the CIT(A) on merits, we do not think it necessary to deal with the challenge to the validity of initiation of reassessment proceedings u/s.147 of the Act for AY 1996-97 to 2000-01 raised by the Assessee in the Cross-objections filed for those years. The cross-objections are therefore dismissed as not calling for any adjudication. 15. In the result, the appeals as well as the cross-objections are dismissed. Order pronounced in the Court on 03.08.2016.
Sd/- Sd/- [Dr.Arjun Lal Saini] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 03.08.2016. [RG PS]
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Copy of the order forwarded to:
The West Bengal State Co-operative Bank Ltd., 24A, Waterloo Street, Kolkata- 700069. 2. A.C.I.T., Circle-56, Kolkata. 3. CIT(A)-XX, Kolkata. 4. CIT-XXI, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.