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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI CHANDRA POOJARI]
आदेश / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
This appeal by Revenue is directed against the order of the Commissioner of Income-tax (Appeals), Salem, dated 29.01.2015 for the assessment year 2010-2011.
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The crux of the ground raised by the Revenue is with regard to Commissioner of Income Tax (Appeals) ought to have considered the fact that deduction u/s.80P(2)(d) of the Income Tax Act, 1961 is allowable only on net receipts after deducting the expenses from the gross receipts of interest and that the Assessing Officer has rightly disallowed the deduction u/s.80P(2)(d) on pro- rata basis.
The facts of the case are that the assessee was engaged in banking business and trading in civil supply goods and according a report under section 44AB has been filed. The assessee in computation statement filed during the assessment proceedings has claimed an amount of �52,50,233/- has deduction u/s.80P(2)(d) of the Act. In the profit and loss account the assessee has credited �58,90,987/- under the head miscellaneous income. The assessee has claimed the following amount as deduction u/s.80P(2)(d) of the Act.
Sl.No Dividend on Shares � 1 SDCCB Ltd Salem 8,250 2 IFFCO 2,00,200 3 KRIBCO 1,00,000 4 SDCCWS Ltd, Salem 14 Total 3,08,464
Interest on Investment in SDCCB 1 FD & RD 26,88,872 2 Liquidity cover deposit 12,76,706 3 Reserve Fund 5,88,127
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4 Savings A/c.02 28,755 5 Spl. SB 3,43,413 6 Spl. Current A/c. 3,117 7 Escrow savings A/c. 3,969 8 Int. incentive 8,810 Total 49,41,769 Grand Total 52,50,233 The assessee claimed the entire amount of �52,50,233/- as deduction u/s.80P(2)(d) of the Act. According to the Assessing Officer the claim of deduction of the assessee seems to be excessive. The assessee has not furnished net income eligible for deduction inspite of opportunity given. So, the Assessing Officer derived the net income worked out as under:-
Total Available Funds �.23,95,53,103/-
Total interest bearing funds Deposits from 1. Members �17,54,01,016/- 2. Non �58,00,780/- Members Borrowings from 1. SDCCB 2. T.N. State �34,920/- Govt Total 18,12,36,716/- Proportionate of 76% Interest bearing funds to the total funds is ITA No.946/Mds/2015 :- 4 -:
3.1 Thus, out of �6,27,34,976/- invested in Salem District Central Co-operative bank 76% i.e. �4,76,78,582/- was the pro- rate investment made out of interest bearing funds.
Total interest paid = 1,48,56,731/- = 8.2% Total deposits 18,12,36,716/- Thus, the cost of the funds invested by the assessee with Salem District Central Co-opratie bank and other co-opeatie society works out to �4,76,78,582 * 8.2% = �39,09,644/-. The net income from investment with SDDCB and other co-operative societies is �52,50,233/- - �39,09,644/- = �13,50,589/-. The Assessing Officer computed the qualifying amount eligible for 80P(2)(d) deduction is �13,40,589/-. Aggrieved the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).
On appeal, the Commissioner of Income Tax (Appeals) followed the earlier order of the Tribunal Chennai Bench in the case of M/s. SL(SPL) 151 Karkudalpatty PACCS Ltd vs. ITO in dated 17.03.2014 wherein the Tribunal held that “In the lower appellate proceedings, so far as the findings of the Assessing Officer holding the assessee as a ‘bank’ u/s 80P(4) are concerned, they stand overruled in view of the decision of the 'tribunal' in ITO vs Kasipalayam Primary Agricultural Co-operative Bank Ltd 2014(2) TMI 676. However, in CIT(A)’s view, since the assessee had also advanced credit and other facilities to the ’nominal’ or ‘B’ class members, its claim is hit by 80P(2)(a)(i) of the Act. The CIT(A) observes that as assessee’s ‘nominal’/’B’ class members are not ITA No.946/Mds/2015 :- 5 -:
treated as ‘members’ in its audit record etc, it is not entitled for deduction. Thus, he has cancelled deduction of ₹3,75,420/- granted by the Assessing Officer.
Therefore, the assessee is in appeal. We have heard both parties and gone through the case file. As stated in the preceding paragraphs, the CIT(A) has proceeded to enhance the assessment(supra) only on the ground that the assessee’s credit and various other loan facilities have been allowed to be availed by ‘B’ class ‘nominal’ members whose liability is limited, at the best; to the extent of loan repayable instead of ‘A’ class members who have voting rights and dividend claim, and also that the latter members are jointly and severely liable. In this backdrop, when we peruse the relevant provisions of the State Co-operative Societies Act, 1983, governing the assessee-society, it is evident from the definition of ‘member’ u/s 2(16) that the same includes an ‘associate member’ u/s 2(6) appended therein. In other words, the ‘nominal’ members also enjoy statutory recognition as per the Act. The net result is that once the ‘nominal’ members or non-voting members are themselves included in the definition of ‘members’, they satisfy the relevant condition imposed by the legislature u/s 80P(2)(a)(i). We make it clear that we are dealing with a deduction provision to be interpreted liberally. In our considered opinion, the objections of the Revenue that the ‘members’ defined in sub-clause(i) of section 80P(2) should only include voting members would amount to a classification within classification which is beyond the purview of tax statute; unless provided specifically by the legislature. Moreover, we find that the case law of hon'ble Punjab & Haryana high court (supra) also supports the assessee’s case wherein it has been held under the very provision that for the purpose of impugned deduction, it is irrelevant so far as classification of the members in ‘A’ or ‘B’ category is concerned. We follow the same and accept contentions of the assessee’’.
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The Commissioner of Income Tax (Appeals) also placed reliance on the order of the Tribunal Chennai Bench in the case of M/s. The Salem Agricultural Producers Co-Operative Marketing Society Ltd vs. ITO, Salem in 731 & 732/Mds/2014, dated 30.06.2014, wherein the Tribunal held that ‘’We have heard both sides, perused the materials on record and gone through the orders of authorities below. The case of the assessee is that the income by way of interest and dividend earned by the assessee society are from investments made in Salem District Central Cooperative Bank, which is also admittedly, a co-operative society and are allowable deduction. The Assessing Officer has held that the assessee has made only with Salem District Central Cooperative Bank and therefore, the income from investment with the Bank is not entitled for deduction under section 80P(2)(d) of the Act. On appeal, the ld. CIT(Appeals confirmed the order passed by the ld. CIT(Appeals). We find that in the case of CIT v. Kangra Co-operative Bank Ltd. [2009] 309 ITR 106 (HP), the Hon’ble Himachal Pradesh High Court has considered section 80P(2)(d) of the Act. The interest earned by the assessee co-operative bank on fixed deposits with Himachal Pradesh State Co-operative Bank in compliance with the provisions of section 57 of the Himachal Pradesh Co-operative Societies Act, 1968, the income derived from banking business is eligible for deduction under section 80P(2)(a)(i) of the Act. Exemption is also available under section 80P(2)(d) of the Act. In the present case, the assessee is an Agricultural Producers Co-operative Marketing Society Ltd., registered under Tamilnadu Co- operative Societies Act and established for the benefit of the agricultural producers and the interest or dividend earned by the assessee will be beneficial to the members alone. Therefore, keeping in view of the decision in the case of CIT v. Kangra Cooperative Bank Ltd. (supra), we hold that the assessee is eligible for benefit under section 80P(2) (d) of the Act and also this being a beneficial section to the co-operative societies.
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In result, all the appeals filed by the assessee are allowed’’.
and allowed the deduction. Against this, the Revenue is in appeal before us.
5 None appeared on behalf of the assessee. We proceed to dispose of the case after hearing the ld. Departmental Representative. The ld. Departmental Representative submitted that the assessee has not fulfilled the conditions laid down u/s.80P(2)(d) of the Act and therefore deduction cannot be granted to the assessee, as the assessee is not a co-operative society as the assessee is engaged in banking activity and relied on Panaji Bench decision of Tribunal in the case of Shri Chandraprabhu Urban Co-operative Credit Society Ltd in & 143/Pnj/2013, dated 14.03.2014.
We have heard the ld. Departmental Representative. The argument of the ld. Departmental Representative is misconceived.
The Departmental Representative cannot raise the issue what was not considered by the Assessing Officer. The issue before the Assessing Officer was whether the gross income or net income to be considered for deduction u/s.80P(2)(d) of the Act. The Commissioner of Income Tax (Appeals) while deciding the issue followed the Co-ordinate Bench decisions (cited supra) and allowed
ITA No.946/Mds/2015 :- 8 -: the claim of the assessee. So, we are not in a position to reverse the findings of the Commissioner of Income Tax (Appeals) as the decision of Commissioner of Income Tax (Appeals) was based on the orders of Co-ordinate Bench which is binding on this Tribunal.
Accordingly, we have no hesitation in confirming the order of the Commissioner of Income Tax (Appeals).
In the result, the appeal of the Revenue in is dismissed.
Order pronounced of Friday, the 17th day of July, 2015 at Chennai.