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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
ORDER Per Prashant Maharishi, AM:
This appeal is directed against the order of the CIT (A) Muzaffarnagar dated 23rd 01. June, 2011 against allowing deduction u/s 80P on (a) Income Tax refund of Rs. 16,162/- (b) addition of miscellaneous income of Rs. 33,431/- . The revenue is further also aggrieved by that order deleting addition on account of contribution of employees’ and employer’s towards provident fund and interest thereon.
Brief facts of the case are that assessee is a Co-operative society registered as Cane Co-operative societies and is engaged in activities of marketing of sugarcane grown by its members and also providing credit facilities for purchase of seeds, fertilizers etc. The society is undisputedly eligible for deduction u/s 80P of the Act. For the impugned assessment year, assessee filed its return of income on 31st 03. October 2007 declaring nil income claiming exemption u/s 80P. In proceedings u/s 143(3) AO held that interest on TDS amounting to Rs. 16,162/- and miscellaneous income of Rs. 33,431 are wrongly claimed as exempt by assessee u/s 80P. AO reduced the eligible income by these two items of income. Further 2 Co-operative Cane Development A Y 2007-08 during the year assessee has received Rs. 11,79,842/- as contribution from its employees and the assessee has also contributed Rs. 5,10,634/- towards employees provident fund scheme. On the payment of such contribution further interest of Rs. 1,24,563/- was also paid. Ld. AO disallowed Rs. 11,79,852/- being employees’ contribution towards unrecognised provident fund, Rs. 1,24,563/- interest on unrecognised PF and Rs. 5,10,634/- employer’s contribution is also added to the total income along with interest thereon of Rs. 1,24,563/- applying the provisions of section 43B of the Act. Against this assessee preferred appeal before CIT(A) who in turn allowed the appeal of the assessee holding that interest on income tax of Rs. 16,162/- and miscellaneous income of Rs. 33,431/- are eligible for deduction u/s 80P and that Employee’s contribution of provident fund of Rs 11,79,842/-, Rs 5,10,634/- employer’s contribution and interest there on of Rs 1,24,653/- is not disallowable u/s 43B as the amount is paid to recognised fund which is governed by UP Co-operative Union Federation employees’ PF Trust Fund Rules, 1979. He further held that even if the addition is made the total income, so increased income after disallowance would also be eligible for deduction u/s 80 P of the Act. Against this revenue has preferred this appeal.
The ground no. 1 is on account of interest on income tax refund of Rs 16,162/- and its eligibility for deduction u/s 80P. Before us, Ld. DR relied on the order of AO stating that interest on Income Tax cannot be considered as income eligible for deduction u/s 80P. Against this AR of the appellant submitted that the issue is covered in favour of the assessee by the decision of Hon’ble Punjab and Haryana High Court in case of CIT vs. Haryana State Co-operative Apex Bank Ltd. (322 ITR 404). He further relied on the decision of Special bench of ITAT in case of Maharashtra State Co-operative Ltd. vs. ACIT (129 TTJ 521) (SB)(Mum).
We have carefully considered the submission of the rival parties on the issue whether the interest on Income Tax is eligible for deduction u/s 80P. Now this issue has been decided by Honourable Punjab and Haryana High Court in CIT vs. Haryana State Co-operative Apex Bank Ltd. 322 ITR 404 that it could not be held that the interest on refund of income-tax paid in excess was not attributable 3 Co-operative Cane Development A Y 2007-08 to the income derived from the business of banking within the meaning of section 80P (2) (a) (i). Once the income tax paid was derived from the business income then interest income would partake of the character of the principal amount because the interest paid to the assessee-respondent was compensation on account of deprivation of the use of money. As the assessee is also engaged in activity of credit facility to its members the ratio laid down clearly applies to the facts of this case as in that case over and above banking business assessee was engaged in credit facility to its members. Therefore respectfully following the decision of Punjab and Haryana High Court, We hold that income arising out of interest on Income Tax refund of Rs. 16,162/- assessee is eligible for deduction u/s 80P. We confirm the order of Ld. CIT (A). Ground no. 1 of the appeal is dismissed.
Second ground of appeal
relates to the miscellaneous income earned by the assessee of Rs. 33,431/- comprising of refund of excess salary to employees of Rs. 22,135/-, amount received from cane development council as contribution of Rs. 10,100/- and other income of Rs. 1196/- totalling to Rs. 33,431 whether eligible for deduction u/s 80P. Before us, the ld. DR submitted that these incomes are not attributable to the business of co-operative societies and therefore they are not eligible for deduction u/s 80P. Before us ld. AR submitted that these income’s are definitely attributable to the activities prescribed u/s 80P (2) of the Act and therefore same are eligible for deduction u/s 80P.
07. We have carefully considered the rival contentions. The refund of excess salary to employees relates to excess salary paid to one employee subsequently it was realised that instead of payment of Rs. 17,891/- due to that employee an amount of Rs. 40,026/- has been mistakenly paid to him and therefore there is a reversal of salary expenditure to the extent of Rs. 22,135/-. Regarding refund of 10,100/- is the cost of sharing of rent and legal expenses of Rs. 20,200/- out of which 50% is to be borne by Cane Development council and therefore the amount of Rs. 10,100/- is related to rent and legal expenses. The miscellaneous income of Rs. 1,196/- is also earned by the assessee out of its activities. In view of the nature of these incomes, such as salary and legal fees and rent as small 4 Co-operative Cane Development A Y 2007-08 amount of miscellaneous income which are attributable to the activities of the assessee. We hold that these incomes are attributable to the business of assessee and are therefore, eligible for deduction u/s 80P of the Act. We confirm the order of CIT (A) on this count and dismiss ground no. 2 of the appeal.
8. Ground no. 3 of the appeal is against deletion of the addition u/s 43B of Rs. 11,79,842/- and Rs. 5,10,634/- on account of contribution of employees’ and employer’s towards unrecognised provident fund and interest payment thereon of Rs. 1,24,563/-. Before us ld. DR admitted that this issue is covered in favour of the assessee by the order of Delhi tribunal in case of dated 12th April, 2013. Ld. AR also relied on the order of the Hon’ble ITAT Delhi in case of ITA no. 304/Del/2011 wherein para no. 8 of the decision identical addition has been deleted.
9. We have carefully considered the rival submission. AO has made the addition holding that the contribution has been made to unrecognised fund and therefore same is not eligible for deduction. We have also perused the decision of co- ordinate bench in ITA no. 304/ Del/2011 dated 12th April, 2013 wherein deleting the identical issue Hon’ble ITAT has held as under :-
“We have heard the rival contentions in light of the material produced and precedent relied upon. We find that the contribution to PF to permanent staff in this case goes to UP Cane Federation Trust, Lucknow which is a recognized trust headed by Cane Commissioner, UP Government. It is constituted under the UP Cooperative Societies Act, 1965 and controlled by Cooperative Cane Union Federation and Employees PF Trust Funds Rules, 1979 through a Board of Trustees. Thus, we agree with the Ld. Commissioner of Income Tax (A) that it is a special case of its own as the assessee has a separate regulation of their own for administration of PF concerned and thus provisions of section 43B of Act are not applicable. In this regard, we also draw support from the order of this Tribunal in (A.Y. 2007-08) in the case of Addl. C.I.T., vs. M/s Ramraj Cooperative Cane Development Union Ltd., the Tribunal vide its order dated 6.1.2002 has noted that in this case the PF to permanent seasonal staff was governed by the State Government Rules. The trust created for the purpose is duly registered under the I.T. Act. By the Rules itself, the assessee was permitted to convert such contributions into members deposits and pay the stipulated interest thereon. Such interest payments having been made as per the State Government Rules are not covered u/s 43B.
5 Co-operative Cane Development A Y 2007-08 10. We are of the view that the facts of that case and the case of the assessee are identical and further both the parties also have agreed that the issue is covered by this order, therefore respectfully following the decision of Co-ordinate bench, we confirm the order of ld. CIT (A) in deleting the addition made u/s 43B of Rs. 11,79,842/- and Rs. 5,10,634/- on account of contribution of employees’ and employer’s towards provident fund respectively and interest payment thereon of Rs. 1,24,563/-. Ground no. 3 of the appeal of revenue is dismissed.
In the result, appeal of the revenue is dismissed.
(Order Pronounced in the Court on 09/10/2015)