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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ C ’
Before: SMT. P. MADHAVI DEVI & SHRI JASON P. BOAZ
O R D E R
Per Shri Jason P. Boaz, A.M. : These are cross appeals, one by the assessee and the other by revenue, directed against the order of the CIT (Appeals) – II, Bangalore dt.2.7.2013 for Assessment Year 2010-11. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is a co-operative society registered under the Co-operative Societies Act, 1959 and carries on the business of providing credit facilities to its member s. For Assessment 2 & 1361/Bang/2013 Year 2010-11, the assessee filed its return of income on 29.9.2010 declaring NIL income after claiming deduction of Rs.42,34,310 under section 80P(2)(a)(i) of the Income Tax Act, 1961 (herein after referred to as 'the Act'). The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act vide order dt.22.2.2013 wherein the income of the assessee was determined at Rs.42,34,310 as against NIL income declared, due to the Assessing Officer denying the assessee's claim for deduction under section 80P(2)(a)(i) of the Act on the ground that since the assessee is a co-operative bank, the provisions of section 80P(4) of the Act are attracted. The Assessing Officer also observed that the assessee had claimed deduction under section 80P(2)(a)(i) of the Action respect of a sum of Rs.3,90,246 which represents interest earned on fixed deposits and government bonds that was kept therein by the assessee out of surplus funds and has invoked the judgement of the Hon'ble Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., reported in 322 ITR 283. 2.2.1 Aggrieved by the order of the assessment for Assessment Year 2010-11 dt.22.2.2013, the assessee preferred an appeal before the CIT (Appeals) – II, Bangalore. The learned CIT(A) observed that the assessee is a credit co-operative society that carries on the business of providing credit facilities to its members. The learned CIT(A) held that the assessee cannot be regarded as a co-operative bank, for which alone the provisions of section 80P(4) of the Act is applicable. In coming to this conclusion, the learned CIT(A) relied on the following decisions of the various Tribunals :- i) DCIT V Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. and Dwarka Souharda Credit Sahakari Ltd. in ITA Nos.01 to 03/PNJ/2012 dt.30.3.2012.
3 & 1361/Bang/2013 ii) ACIT V BMTC Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010 dt.8.4.2011. iii) ITO V Jankalyan Nagin Sahakari Pvt. Saritha Ltd. 24 Taxman.com 127 (Pune Tribunal) dt.26.6.2011. 2.2.2 After holding that the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act, the learned CIT(A) held that the assessee is not entitled for deduction in respect of interest of Rs.3,90,246 which requires to be assessed under the head “Other Sources” following the decision of the Hon'ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra).
Aggrieved by the impugned order of the CIT (Appeals) – II, Bangalore dt.2.7.2013, both the assessee and revenue are in appeal before us in respect of the findings of the learned CIT (A) that have gone against them. These cross appeals are disposed off, hereunder :- ITA No.1361/Bang/2013 – Revenue’s appeal for Assessment Year 2010-11. 3.1 The grounds raised
by revenue in its appeal are as under :- “
1. The orders of the authorities below inso far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT (Appeals) is not justified in holding that the appellant is not entitled to the deduction under Section 80P(2)(a)(i) of the Act in respect of the sum of Rs.3,90,246 being the interest received by the appellant on government securities under the facts and in the circumstances of the appellant’s case.
3. Without prejudice to the right to seek waiver with the Hon'ble CCIT /DG, the appellant denies itself liable to be charged to interest under Section 234B of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
4 & 1361/Bang/2013 Revenue’s appeal is disposed off as under :- 4. Ground No.1 of Revenue’s appeal is general in nature and therefore no adjudication is called for thereon. 5.1 The Grounds at S.Nos.2 to 4 of Revenue’s appeal relate to the only issue for consideration, i.e. whether the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act and whether the restriction in the provisions of section 80P(4) are applicable or not in the assessee's case. The learned CIT(A) in the impugned order has held that the assessee is entitled to the deduction under section 80P(2)(a)(i) of the Act, placing reliance on various decisions of the Tribunal (supra) as it cannot be regarded as a co-operative bank. The learned CIT(A) held that the assessee merely carries on the business of providing credit facilities to its members and is thus entitled to the deduction. 5.2 At the outset of the hearings, the learned Authorised Representative brought to our attention the judgement of the Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha in ITA No.5006/2013 dt.5.2.2014. In the said judgement, their Lordships have held that the bar or restrictions under section 80P(4) of the Act applies only to a co-operative bank and not to a co-operative society that provides credit facilities to its members. The relevant observations of the Hon'ble High Court at para 8 of its order is extracted hereunder :- “8. In the assessment order, the assessing authority has clearly stated that the assessee is a co-operative society and has not obtained any banking license. The business of the assessee is to provide credit facilities to its members. Since the assessee cannot carry on any banking business, the interest on investment is taxable as income from other source. Therefore, the aforesaid facts, which is not in dispute clearly establishes that it is not a co-operative bank. In fact, the Revisional Authority also in its order has categorically 5 & 1361/Bang/2013 stated that the assessee is a co-operative society, which provides credit facilities. Section 80P of the Act deals with the deduction of income of a society. In the case of any assessee being a co-operative society, the whole of the amounts of profits and gains of business attributable to any of other activities referred to sub-section (2) of section 80P shall be deducted in computing the total income of the assessee. In other words, the said income is not taxable. It is a benefit given to the co-operative society. Section 80P(4) was introduced by Finance Act, 2006 with effect form 1.4.2007 excluding the said benefit to a co-operative bank. The said provision reads as under :- “ (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. (a) “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 ( 10 of 1949) ; (b) “primary co-operative agricultural and rural development bank” means a society having its area of operation confined to a taluk and the principal object of which is to provide for long term credit for agricultural and rural development activities.” Therefore, the intention of the legislature is clear. If a co-operative bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business i.e. the purport of this amendment. ;therefore, as the assessee is not a co-operative bank carrying on exclusively banking business and as it does not possess a license from Reserve Bank of India to carry on business, it is not a co-operative bank. It is a co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such society. Therefore, there was no error committed by the assessing authority. The said order was not prejudicial to the interest of the Revenue. The condition precedent for the commissioner to invoke the power under Section 263 is that the twin condition should be satisfied. The order should be erroneous and it should be prejudicial to the interest of the revenue.” 5.3 Respectfully following the aforesaid judgement of the Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra), we hold that the 6 & 1361/Bang/2013 assessee is eligible for deduction under section 80P(2)(a)(i) of the Act and consequently uphold the order of the learned CIT(A) on this issue. We, therefore, dismiss grounds 2 to 4 raised by revenue. 6. In the result, revenue’s appeal for Assessment Year 2010-11 is dismissed. Assessee's appeal for A.Y.2010-11. 7. The grounds raised in the assessee's appeal are as under :- “1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT (Appeals) is not justified in holding that the appellant is not entitled to the deduction under Section 80P(2)(a)(i) of the Act in respect of the sum of Rs.3,90,246 being the interest received by the appellant on government securities under the facts and in the circumstances of the appellant’s case.
3. Without prejudice to the right to seek waiver with the Hon'ble CCIT / DG, the appellant denies itself liable to be charged to interest under Section 234B of the Act which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
8. Ground Nos.1 and 4 of the assessee's appeal are general in nature and not being urged before us, are dismissed as infructuous.
9. In Ground No.3, the assessee denies itself liable to be charged interest under section 234B of the Act. The charging of interest is consequential and mandatory and charging of the same has been upheld by the Hon'ble Apex Court in the case of Anjum H Ghaswala reported in 252 ITR
1. We, therefore, uphold the action of the Assessing Officer in charging the said interest.
7 & 1361/Bang/2013 The Assessing Officer is, however, directed to recompute the interest chargeable under section 234B of the Act, if any, while giving effect to this order. 10.1 Ground No.2 is the only ground of appeal for our consideration and relates to the exemption claimed under section 80P(2)(a)(i) of the Act in respect of interest income of Rs.3,90,246 derived by the assessee from investments in fixed deposits and Govt. Securities out of its surplus funds. In the impugned order, the learned CIT(A) held that the assessee is not entitled to the said deduction in respect of the interest income in the light of the judgement of the Hon'ble Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., reported in 322 ITR 283 as the said income has to be taxed under the head “Other Sources”. In the course of hearing, the learned Authorised Representative placed before the bench the decision of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd., in ITA No.307 of 2014 dt.28.10.2014. In this judgement their Lordships have held as under at paras 6 to 10 thereof :-
6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs.1,77,305 represents the interest earned form short term deposits and from savings bank account. The assessee is a co-operative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i) : “ 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 deduced, 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 co-operative society engaged in – (i) carrying on the business of banking or providing credit facilities toits members, or 8 & 1361/Bang/2013 (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or more of such activities.”
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. Vs. CIT, Gujarat-II reported in ITR Vol. 113 (1978) Page 842 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 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.”
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 issued 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, they cannot keep the aid 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 9 & 1361/Bang/2013 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.
In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., 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 judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
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 the 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 III, Hyderabad Vs. Andhra Pradesh State Co-operative Bank Ltd., reported in (2011) 200 Taxman 220/12. 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. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order. Appeal is allowed.”
6.2 Respectfully following the decision of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra), we hold that the learned CIT(A) was not correct in refusing to allow the assessee the deduction claimed u/s.80P(2)(a)(i) in 10 & 1361/Bang/2013 respect of interest income of Rs.3,90,266 earned by the assessee. The judgment of the Hon'ble Apex Court in the case of Totgar Co-operative Sale Society Ltd. (supra) relied on by the learned CIT(A) has been considered and distinguished by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Sourdha Credit Co-operative Ltd. (supra). We find the facts in the case on hand are similar to the facts of the aforesaid case decided by the Hon'ble High Court of Karnataka, since in both cases the assessee was a credit co-operative society and had invested in fixed deposits and Govt. Securities form out of the surplus funds of business. Applying the ratio of the judgement of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra), we hold that the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act in respect of the interest income earned on fixed deposit and government securities as well, as it forms part of the business income earned by the assessee and the same is not to be taxed under the head “ Other Sources.” In this view of the matter, the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act in respect of interest of Rs.3,90,246 earned from investments in fixed deposits and government securities out of surplus funds from business is allowed. Consequently, Ground No.2 of the assessee's appeal is allowed.
11 & 1361/Bang/2013 7. In the result, the assessee's appeal for Assessment Year 2010-11 is allowed. To sum up, the assessee's appeal for Assessment Year 2010-11 is allowed and revenue’s cross appeal is dismissed. Order pronounced in the open court on 6th Feb., 2015. Sd/- Sd/- (P. MADHAVI DEVI) (JASON P BOAZ) Judicial Member Accountant Member *Reddy gp Copy to :