M/S The Totgars Co-Operative Sale ... vs The Income Tax Officer on 30 September, 2008

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Karnataka High Court

M/S The Totgars Co-Operative Sale ... vs The Income Tax Officer on 30 September, 2008

Bench: V.G Sabhahit, S.N.Satyanarayana

 

was re~opened with issue of notice under
Section 148 of the Act dated 31.5.20i}1_:§~.._ The

assessee filed letter dated ";f?;$t2OQl

requesting to treat the return ~fi1ed*_underH

Section 139(1) of the §Act» as _the- returni in .5

response to the notice under Section 148 of
the Act. However, it filed return on 9.8.2001
disclosing the rincome *as "declared in the

original ,returnuifileda on =2v;9.1991.i After

giving the eesessee an opportunity of hearing

beforo_ither Assessment Officer and aseessee

vfappearedi""th£ough advocate and chartered

«"xaccountént and submitted that the aseessee

"inveeted> funds which were not required

imﬁedietely for the business purposes for a

x'Vshort term instead of keeping the funds idle

and therefore, it was not a source of income

as an ordinary investor and therefore, such

deposits were not an investment but an

\3.;.5'~



 

and incmme from bonds and S€Cufiti€S is
assesaable as imcowﬁ frag: other saaﬁnes and

the said incsme 15 a$sessab3ea V%iihout

deductioﬁs for intérest expemﬁituﬁe aﬁdu $0

daductian, under sectiéh '8GPf2y{a{f1é_ bf «the  

Act ia allawable and further there Sh 1: be no

deéuctiom sf interest éKpend§iuré. 
Being aggﬁiaved by ﬁha_sai£ drder.Qf the
Asaasment. Officé:, "Vth@_ fa3sesse preferred

appeal béf¢:e{tﬁe5Eifst.Appeilate Authority-

tha_-Ceﬁﬁigéidmér 'of Encame Tax gﬂppeals

'1

Hubii,- aﬁd "ﬁne afirsﬁ. appe;1ate authority' by

gerder "u_V in appeal

 '. "35$;2543215/216x21?/2?;213A;26/218x59;/0:?{Aéz

V7_RB$}Q2»§3"& G3~Q4 ailewed the appeai accepting

'Vthé"dOntemtions 0f the asseasee that the

,uiﬁC@me received from depo$its and Sacurities

"is attributable ix) profit gains €35 asseaaae

and therefsze, eatitled EX3 exemption under
Bastian 8Q?{2}(a}{i} of the Act and set a$ide

the orﬁez gagged by tha ﬁssessing Ruthoriiy.

\$Wﬁ



 

T;:; Q ' T *a Lhv ori : Qaws-1"Hv{¢h
Ba rgT afgxleved Ly' V m Ge f Q @d_ "W 3 e

(D

firsﬁ ap@@lla€e authority, R ve%ué7gm@férfedg

appea: in ETR E0.1é60fBang£2QQ3§ ?§ajass¢:see'

has "3330 filed Cf0SS ' ﬁbﬁeciibns A"b%iﬁQ

aggrieved E5! the findihg <g£venVtg?':hew.?irstv

Appellate Authorgty regafdiag validity of the

netice issued un&ap.Se¢ti§hflé8 oi tha 9st.

The Inconw "?ax ;A§§c113t§_ ?r;bQmal by Qrde:

dated 9,:;,2¢Q§'vg2:QweaTL:ne. a§p&al filed by

the ReVé§Qé_aﬁﬁ'di3ﬁi$seé the cross ebjections
by" holding-Vt5&:",%he" Assessing Qffiser was

jusiifiaﬁ  1n_ r;3§éniﬁg tha asaessment undar

"g Sadtianwlé? of'ihe "" Act and proper ncticg was

7_'isSu¢d_¥ﬁ@der Sectian 348 O

cgﬁsaqaéatly, asessmant under Section 143i3;

P1';
M

he Rat and

'L

read with Section 144 A 0f the ACE is valid

"  and;fruthe: held thai incame from securities

and égpesits in business daas not qualify ﬁor

exemgtion under Sectisn 8OP§2}{a§{i} of thé
Act as the said incame is neﬁ aiiributabie ta

'

gaing and profitg of the agsesae as asaegsea

\r/3



 

Z0

é. We hava heard the Eearned counsel for

appellant and the laazned Wceﬁasel

appearing for the res§©nd@nt--rev€nuef 

5. Having regard tQ_ Eﬂﬁﬂwcénténtiomsu

urged, the sub$tan:ia2 qﬁasiiehéhof law zﬁat

arise fa: determimatiéh in this appeai axe :-2L

1} Whethe: thaw fimﬁiag'"Q£~ the inccma tax

?

v"é§§e3iaﬁé"Tfiﬁunalwﬁhat interast received

 by, iheKVa$aé33ae from saCu:'ties and

'e§ositS]i§ bank ig not attributable to

,th$ am$§n%"of profits and gains of the

 *_Vbu$S:mess and whe:e§0r@, daeg not qualify

4'

z E

gm.

fa: éxemption under Section %@??E§{a

~ cf the Act and .&3 a$$essed undar Saction

55 of the ﬁat is c0nt:aryT to law' and

cails for interferenca in this appaal?

\h,/>



 

12

11) whether the finding of the ,ineene;_eax

appellate tribunal that. p;ooeedinQ$itfot*_

reopening of aseessing*n or@ero_l§nder:~

Section 14? of 'the Annex wee _ee¢§ee" end
notice issued uneer SeCtion7l§g of tne
Act was v§lid,f ietngeﬁttartt tot law' and
calls for intetiétenQeiih1this appeal ?
And we eneeee eeinee l and :Tey holding that
the eiaeine of ﬁne eeinenai is justified and

does not call fortintefference in this appeal.

4; The leérnéo counsel appearing for the

éﬁpellant Veubmitted that assessee that the

'=neppelléntle. is a cowoperative Society

iotegieteteﬁ under the co--operative societies

Act, 1 Out of the profits earned by' the

i _A§sessee, certain investments have been made

lgin security like Kisan Vikas Pathra and other

bonds and also deposits in banks. The

assessee is carrying on business of providing

'3-

\¢/



12

cradit facilities to hia members and
wﬁezefara, the appellant saciety béimg an

assessge engaged, in providing _~ é§édii

4'.

facilitias ta his Hwmbarg, that iﬁﬁé:é3; 

iecaived an degegiﬁs Vﬂia BﬁSi§esé ".an&"

Securities is attributablé tb»ihé,bgéiﬁeS33ﬁf

the assessee as its jQbVis"to prdV:§e_c:e:it 

facilities ta his membérsr and *ma§kéting of
agricultural produéﬁﬁfhy its mémbers.

35. Th§glé&:neda§Qunsel submitted that the
word  Sat:ribut3b§6f" is widar than th@ ward

degived fr0m"énd when the income 5 aeived from

 '.sécaﬁ€t9V. and de@Qs'ts is considered in

Av relétieﬁ ft@ the Qbjects of ihe a3se$5ee

$cciet3ﬂ and the bu$in@ss run by it, it is

V" clear that the iﬁterest received on security

 fa&&5 depagita in Eank is attributabla to

ﬁxwfiis and Gains of business and wﬁezefora,

.113' M,

th@ Camhissianar of Incame Tax baa rightly

- 1:

held that the said income quail

\}~%¢

ies for

5".



13

exémptisn under Sectien 8$?{2} "énd7_ :h@

?z:bumaE. was not justified in ré§e:sih§"fthé 

said finding and in restoxiaq the QfderVp3s$§d 

by the Assessing Office:L 7Iﬁ'sup@@:t Qf his

contention, the lesrnéé c5un3e;~ §aé""ﬁeii@ﬁ

upan. numberT of gﬁecﬁsiéﬁs u§nd ﬁih- pérticuiar
the cieciaion o:f"£'IT, KARI'€}3&TAE~'J4,
W as \ gs»?/.€'5'.y',9R<?'jf_*'T;3'<':';::;}5   299 HR 598
W;«:e1:e:n§_ this Court has
held, iﬁ$§még;g@§iﬁéd'%xQﬁ short term deposits
madé  by €ﬁ¢:'¢é$és$&é is attributabla to
profiﬁs and gééﬁ%&df hmwiness and cannot be

tréated aé"income farm wther Sources. Ha has

A'a;sQ :eiied upon the decisions of the Hon'ble

'.SQwrémé«CQﬁﬁt in CIT wvs ~ Karnataka Stata Cow
§ ,. _

oﬁéraﬁivé Apax Bank repertaj in 251 ETR 194

*§S£} ﬁnd atber decisisns wharein the asse$see

'Iwaé deimg banking ﬁusiness. The learned

"Counsel furtﬁe: submitteﬁ that in gespect of

the assessment years prior to praceeding 6

years frgm the date of service unée: Seation

\©M_,x



" Incéma Tax required under Secticn 151 of tué

14

148 of the Rat in View of the said ﬁctige is

illegal as the notice has mat ﬁéeﬁp issued

after obtaining parmission oﬁEwth§_'€©mpaténtt~

Authority and the parmiésiom oi téé G§mp@tént*

Authmrity to fE"Q§$ﬁ tht' cast: ﬁtﬁrubéén
obtained Subsequent t@t3;¢5:2§§t5t@ overcome
the p§ovisi©ns'%§~An§n§@ént Act wﬁttﬁ baa some
inte effaqt on ;}6,é§Qﬂ7@§a§;£ng opaning of

assessmehtjih &espéct"Qf"1$'years precaeﬁing

noticé, j ?hé"l§a£n@i'c§unSel smbmittad that

th§ matefial"QﬁE:eccrd wouié shew that as on

the 'data "of; issuing at the notice, tha

Vapﬁrsvaitufromv ﬁdditional Commisisoner of

"%ctW§asgﬁét baem Qbtained and wherefore, the
ﬁstice".i3su@d is without jurisdictisn and
Aowhefefore, the cadet passed by the Assessing

"A§th0:ity' cenfirmed byt the Encoma fax

Appellate Tribunal is liable ta be set aside.

\v*"""



 

15

6. EH. respenee to the erqumeetea ef the

 

learned eeensei fer the appellant; thefgwa'

counsel for the respondent eueﬁitted=tha:'éhé;

decieiens oi this Coerﬁ ia SET t"$$ 4fER§B&CE *"

{P} LTD. repezi

{I}

d ea FER' 59,8' has ;>.e'e::

set aside by' the ﬁenfeie Supreme Court in

(GIT, Karnetake ~

Civii RppeeivﬁéL§332fﬁ§%§x
vs M Mfe-P:©dgeLee§$§yeﬁee§§ﬁ§E and wherefore,
the geé§§§§§i§bs3§§ee jg ﬁhe said judgment is
neﬁm heiﬁfg§  ﬁeﬁ tee: aeeellants in the said
ease; e§ﬁeﬁleeeeeﬁ'eeunsel furthe: submitted

thaﬁ ;t has eeeﬁ observed in the said judgment

Vfwﬁiie eettingj aside the judgment passed by

". th;s-- Court that where inveetmeet :5 ef

xV_sQr6iueg" the interest is received frem. the

"ieveeﬁment made ef surplus funds ee contended

'v by the revenue, the eeme is not attributable

"ﬁe profits, geine and income Exam business and

only where the interest received item security
and deposits ie attributable to the bueinese

pzefite end, gains ef the aeeeeee, the same

\>»'* »



 

16

would qualify for exemption under rsestion

80P(2)(i)(a) of the Act.

7. The learned counsel ferther"suhmitted

that what is investaﬁ%,byl then assessee :5
security and funds is"g5§ in respect of the
statutory deposits.'hats»'i"ass_es-s_e.e"_~__is not doing
any banking hus£nes$¥an§&w§%§ Qﬁl invested is
the surﬁlesvfenossavailahie with the assesses
whioh =isaln§thingo:tol:do with the object of
provieing, érééiti facilities to members or

marketing agrlomltural produce of the members

' lei the assesses and wherefore, said income is

tenet letttrlbutale to the business of the

asrzevsseve and does not qualify for exemption

Alunder Section 8OP(2}(i)(a) and wherefore, the

lnorser passed by the Income Tax Appellate

" Tribunal restoring the assessment order is

justfied and does not call for interference in

this appeal.

V}



E?

8. We have given anxioua coﬁsideratiah to
the contentions of the iearned »_C0unsel

agpearing for the partiﬁs in the lidhi @f the

primcipleg iaid down ix} the dééisbﬁé relied

upon by the leaxned couhseﬁéfér_tEe ?%;tié$. 

9. It has ta be statadxétathé'©uﬁ3eiy£hat_.

many of the dECiSiQﬁS'¥fé}i€ﬁHvQ§QD gby _€he
learned counsel for ﬁhe,appél;3nt pertaina to
the casas wherein {the ,és$e3see was a co

...5

dpe:ati€Gf$sn%,"wRdmittediy, the assessee ;n
théV§r§$égﬁ;ca$§ is mat a C0--ope:ativ@ bank

.

.jand 5t m2 moi dsing aﬁy banking business and 'M. even awcarding to the asse$$ee, the activitie U') ". of the ééseggee wculd fall within the ambit cf

2) Séciion 8@?(2}{a){i} and {iii} 0% the Rat.

"9C:iQn 809 : Sedaction in zespect of fof c0~Qpe:ative sacieities. {1} %here, in the case of an asseggee being a cameperativé aociety, the grags total incgme \3x3 18 includga any incsme referrred t@ win 5ub~ s@CtiQn{2}, theta shgii be gﬁed:ét€5;~ in accordance with and subject td":§a'§:Qvisi¢nS_ of this seciion, thei5umsfs@e¢ified5¢5f3ub4 section {2} in coﬁputing the EQtﬁE%gﬁcome.of the assessae.

{2} The sumsW;%fe:r¢d 333 im sub--3action {1} no' shall be :he faliswingpnaﬁeiy"

13 C§:ryiﬁgVvgﬁH_Ehe businass of' bankiﬁg or it@is ta ita §-._.a ',§rQVidinq_ mdrédi: faci membefé, Gr iii? ﬁhé marketing of agricuiturai produce by 'iﬁg members or :vk --«~ 21 by' the assessee deing banking busiaasg by making deposits in REE in which case"al$o the interest earned from ihe said deﬁeéi 1 attributable to the business ﬂf"Q§ﬁKiHgV&ﬂ§Wiﬁ; the prgsent case it is cl@3: f:@m'thé,gE:usai.= cf the material on"record;that*thévas3ésse% is aiaiming benefit sf Sacigon SQ? of the Act on the graced thai, it ;:s"CaA"SQciety zeﬂisierea under the Coa@§eraﬁiye'SQciéties Rat and the :heKS@cie:§ is to ar:ang@ for the

4."

1. objeqtfc éa2e.of*a§ﬁicuEﬁu:32 produce of the m@mb@r8 to the best'aﬁ?a§ﬁ3gé and ta advance i0&nS to tha 4fmemb@:3.§ﬁ tﬁe security of thei: praduce, raw The assessee has aism othax 7 .$§jec&S=which age not rel@vant for diﬁcuasion ha§iﬁ§ regard to tha pravisioms of Seciiom 8Q? $5 the act and the cogtentiam of tha a$s@ssee befGre Ehe Rasessmeni Qfficer was that income raceived frsm the deposits in banks and Sacuritieg is attriuutable to the business of advancing leans ta memberg an aecurity of the \_/ax/9».

27 to be set aside by réstorinq the ®fdé: pasSed by the Rssesﬁing Officar.

15. It is also Ciéaﬁ f:0m"ﬁh§.péfus3l 0f the material on :é&§;d that th¢®aé§Q3i resé§V§ and eﬁhez fqnds V§eid,"hy .ﬁﬁe~~a§ses3e@ was Rupees sevenvd§Sre ﬁ§ﬁég§ ﬁ§G_lak&s in the AY 1993-92 &nQ ii "E%3 7i§g§éa§é@ to Tw-nty' six or-r:u2:e__. we mi 1§99-»2€:soG an¢_ ig%§é§§§§ﬁ: int b%nk ﬁeposits, bonda, éécu:i:ié3% and ;::h¢:- &3Sets was rupees ¥our cr0res*a§d five iakhs in the RY 199§~9Z and E35, indseased to Rupees twelve crerés ten 'u_'lakhs_§p:0 A" 1999-2086 and wherefore, capital * aad7zeger?e not an}? cave: the investment in "bamk$;"bonds, securities and other assetg but ,_théy are ne&rEy[5S% of such funds amd what was V"ihvast§d is the surplu$ funds hag been available for invéstment whergfaze, they are sonaidared ae own fundg for investment and wherefore, the incomé by way of interest _§cai1 fd:_ iniaiferénce in thi$ appeal ans arising on deposits on banks secuziﬁies is a sourca of income apart irom markeﬁiﬁg aQiivity of the asseasee and since eaymiﬁg cf intézesi is not 3 business acziviiy oi ihé-aéseaaee iS« asseable is income_ fidﬁ 'otheg g§%u%a%s hand moreovér the 3©u:ééL of in§§g§m§§: in bank depeaits, '%§;ur§t§§g_ D\3g§ 'Hﬂbonds are attributgble tQ ¢wﬁ $%mdsDi§§%er@ has bee§ no changef ﬁﬁ ﬁ§yw'$fT:i5Eag%5t expiainad and accaﬁdiﬁglyj' ﬁsh Lhe }af0resaid reasons, we hgld' tﬁat,"the_"fi3ding of the Income T X Appé§laté'TrimQﬁai is justifieé and does not 1 'v, acccrﬁingly; we answer aubstaniiai question

18. Substantial Questien N0.2 It. was contanded by' the asseasee thaz initiation sf ﬁhe pzocéedings by i3$uing nwtice under ﬁaction léﬁ <35 tha ﬁat vmthcut @btaining' pri@z° apgroval Ofv Cemmissianar of \5'u'< .

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Karnataka High Court

M/S The Totgars Co-Operative Sale ... vs The Income Tax Officer on 30 September, 2008

Bench: V.G Sabhahit, S.N.Satyanarayana