Income Tax Appellate Tribunal - Hyderabad
Sri Satavahana Grameen Bank, Hyderabad vs Department Of Income Tax on 14 August, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI CHANDRA POOJARI ACCOUNTANT MEMBER
1) ITA No.1078/Hyd/2009 : Asstt. Year 2006-07
ACIT, Range -9, Hyderabad Vs. M/s Sri Satavahana Grameen
Bank, Hyderabad.
(PAN AAAJSO 354F)
(Applicant) (Respondent)
2) CO.No.59/Hyd/2009 Asst. Year : 2006-07
M/s Sri Satavahana Grameen ACIT, Range -9, Hyderabad
Bank, Hyderabad.
(PAN AAAJSO 354F)
(Applicant) (Respondent)
Applicant by : Smt. Nivedita Biswas, DR
Respondent by : Shri T. Umakant
ORDER
Per Chandra Poojari, Accountant Member
The first appeal preferred by the Revenue and the Cross Appeal preferred by the assessee are directed against the order of the CIT(A) -VI, Hyderabad dated 14.8.2009 and pertains to the assessment year 2006-07.
2. The Revenue raised the following grounds:
1. The CIT(A) erred on facts and in law
2. The CIT(A) erred in granting relief u/s 80P for income on investments of surplus funds made by the assessee though such income is not earned from banking business.
3. The CIT(A) erred in not appreciating that an assessee can have investment as well as business activity and the income from 2 investment activity has to be treated as income under the head 'other sources'.
4. The CIT(A) erred in recording a finding that the surplus funds are deployed in banking activity though the assessee failed to furnish proof to the fact that the funds wee deployed in liquid form for use at short notice.
3. After hearing the both parties, we are of the opinion that this issue has been squarely covered by the order of the Tribunal dated 11/5/2007 (SMC) in the case of M/s Sudha Cooperative Urban Bank Limited, Suryapet in ITA No.341/Hyd/07 for the assessment year 2003- 04 wherein it was held as follows:
"I have carefully considered the submissions of the rival parties and perused the material available on record. I find that there is no dispute that the assessee is carrying on the business of banking/providing credit facilities to its members. It is also not in dispute that the assessee invested a sum of Rs.1 crore with APFSFC out of the Non-SLR funds available with the Bank at the relevant time in accordance with the guidelines issued by the RBI. I further find that such investment of 1 crore was made by the assessee in the normal course of its business to earn interest. I further find that the term 'Banking' has not been defined under the IT Act. However, it has been defined under section 5 (b) of the Banking Regulation Act which says that banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheques, draft order or otherwise'. I further find that the learned. CIT(A) after considering the provisions of section 80P(2)(2)(a)(i), section 5(b) and section 6 of the BRA and the decisions of the Hon'ble Supreme Court, High Courts and Tribunal has held vide para 12, 13 and 14 of his order as under:-
12. In this sense any bank including Cooperative Bank may accept deposits from the public not only for lending the money but also for the purpose of making investments. As such the activity of investment either in SLR or non SLR investment cannot be divorced from the business of banking. It may be pertinent to mention that the BRA has not defined the term 'Business of Banking'. But the statutory provision of section 80P of the IT Act, 1961 has used the term 'Business of Banking' which has wider connotation than the term 'Banking' used in the BRA. Under such wider expression used in the IT Statute, it may not be justified to hold that the activity of making investment in SLR or Non SLR investment should not be considered as integral part of Banking Business and thereby it may not be justified to hold that any income arising out of such investment activity of a cooperative bank has to be treated as non profit income or income from other sources.
13. 13. Similar issues decided by various Tribunals, HCs and Supreme Court on this point may be analyzed as under:
i) Bihar State Cooperative Bank Vs. CIT: Deciding similar issues about the interest earned by the bank from investment of 2 3 funds with another bank to be profit from banking business or income from other sources; the Hon'ble Supreme Court in their order dated 22.2.1960 had held as under:
"it cannot be said that the funds of the bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle - necessarily ceased to be a part of stock in trade of the bank, or that the interest arising there from did not form part of its business profits .... the High Court was in error in treating interest derived from deposits as not arising from the business of the bank and therefore not falling within the income exempted.
ii) CIT Vs. Dhansura People Cooperative Bank Ltd. While disposing the special leave petition filed by the IT Department against the judgment of Gujarat High Court in tax appeal No.304 of 2005, the Hon'ble Supreme Court had upheld the findings of the Gujarat High Court. The High Court had confirmed views of Hon'ble ITAT to the effect that deduction u/s 80P of the IT Act, 1961 on interest income earned from investment of voluntary reserves was attributable to the business banking.
iii) Mehsana District Central Cooperative Bank Vs. ITO: In this case the Hon'ble SC held that the cooperative bank was entitled to deduction u/s 80P (2) (a) (i) of the IT Act, 1961 in respect of interest earned from the funds utilized for the statutory reserves.
iv) CIT Vs. Karnataka State Cooperative Apex Bank: In this case the Hon'ble Supreme Court held that the assessee cooperative bank is required to place a part of its funds with State Bank or RBI to enable it to carry on its banking business. This being so, any income derived from the funds so placed arises from business carried out by it and the assessee has not only reasons of section 80P (2) (a) (i) to pay income tax thereon.
The placement of such funds being imperative for the purpose of carrying on the banking business the income derived there from would be income from assessee's business.
v) In the case of AP Cooperative Bank: The Hon;ble ITAT, Hyderabad while deciding this issue on 25.9.2001 has held that no distinction can be made between income earned from SLR securities and income earned from non SLR securities.
vi) In the case of Surat District Cooperative Bank: The Hon'ble Special Bench ITAT has held that interest on investment made by a cooperative bank in Government. securities/investment made by way of mandatory/minimum mandatory banking reserves as required by the relevant provisions of Banking Regulation Act/income from fixed deposits with banks/income from investment in Indira Vikas Pathra/kisan vikas pathra/other approved modes of investment of surplus funds available out of working capital including voluntarily reserves are an integral part of normal banking activities carried on by the cooperative banks and the banks are entitled to grant of deduction in respect of such income under the main provision of section 80P(2)(a)(i) of the income tax Act, 1961.
3 4vii) Farrukabad Grameen Cooperative Bank Vs. ACIT, Circle 2(1), Darrukabad reported in 2006 103 ITD 207(Agra): In this case the Hon'ble ITAT, Agra Bench has held that the provision of section 80P(2)(a)(i) of the Income Tax Act, 1961 does not make any distinction between two types of interest earned from SLR investments and non SLR investments. What has to be seen is whether the income in respect of which the deduction is claimed is attributable to the business of banking
- the activity of investment either in SLR or non SLR investment cannot be divorced from the business of banking. While investment are made by a bank in accordance with the guidelines of the RBI and the funds management is made in such a manner so as to be conducive to the profitable running of banking business then such activity has to be treated as part of incidental business of banking.
14. On a perusal of all the rulings given by the judicial authorities on the issues involved it cannot be fairly be held that the investment of Rs.1 crore by the appellant bank with the APSFC in November, 2002 out of its available surplus funds was an integral part of the business of banking carried on by the assessee. Accordingly the interest earned from such investments has to be treated as part of profit and gains of banking business. Such interest income cannot be assessed to tax as income from other sources. For such reasons the denial of the assessing officer of exemption u/s 80P(2)(a)(i) of the income tax Act, 1961 in respect of interest income of Rs.336410 is considered not sustainable under law and facts and hence the disallowance is hereby cancelled".
In the absence of any contrary material or distinguishable feature brought on record by the revenue against the finding of the learned CIT(A) and keeping in view the ratio of various decisions relied on by the learned. CIT(A) Viz. Mehsana District Central Cooperative Bank Ltd Vs. ITO (2001) 251 ITR 522 (SC), CIT Vs. Karnataka State Cooperative Apex Bank (2001) 251 ITR 194 (SC), AP Cooperative Bank Vs. Addl. CIT in ITA No.150/Hyd/98 dated 25.9.01 for assessment year 1994-95, Surat District Cooperative Bank Ltd. Vs. ITO (2003) 85 ITD 1 (Ahd. SB) and in the case of Farukhabad Gramin Bank Vs. CIT (2006) 103 ITD 207(Agra), I am of the view that the interest income earned on investment of FDR with APSFC is a part of profit and gains of banking business eligible for deduction u/s 80P(2) (a) (i) of the Act and accordingly the order passed by the learned. CIT(A) is upheld. The grounds taken by the Revenue are, therefore, rejected.
In the result, the appeal stands dismissed.
4. In view of the order of the Tribunal, we are inclined to hold that income earned from investments of surplus funds made by the assessee is attributable to the business of banking and is entitled to deduction u/s 80P (2)(a)(1) of the Income Tax Act, 1961 and 4 5 accordingly, we uphold the order of the CIT(A) on this issue. Hence, the appeal of the Revenue is dismissed.
5. Now coming to the Cross Appeal of the assessee, the assessee raised the following grounds:
1. The Appellate order passed by the CIT(A) is so far as confirming the order of assessing officer restricting the TDS credit to the assessee only for part of the year relating to assessment year 2006-07 is contrary to law, unjust and unsustainable.
2. The Appellate Authority ought to have considered that the banks/financial institutions usually deduct tax only at the time of payment of interest and remit the same to the Govt. in the same assessment year in which the deduction is made.
6. The learned Authorized Representative submitted that the assessee was received interest on short and long term investments after deducting TDS on the date of payment on such interest for either half yearly/yearly. In such a scenario deduction and deposit to the credit of Central Govt. are falling on the date of payment of interest which period may fall in two different assessment years. Basing on the accounting standards, the bank is taking accrued interest at the year end and reversing the same at the beginning of the succeeding year. It is a well settled law that tax credit is to be granted in the assessment year in which date of deduction of the tax at source fall not in the assessment year in which income is declared on accrual basis. He relied on the order of the Delhi Tribunal in the case of Ashoka Holdings Ltd. Vs. ITO in IT Appeal No.2175(Delhi) of 1982 decided on July 11, 1983 held that the credit for tax deduction at source was to be allowed A in the assessment year in which the date deduction of tax at A source falls and not in the assessment in which the income Act declared on accrual basis.".
5 67. The Departmental Representative submitted that Section 199 of the Act which applicable to the fact of the present case and the same was applied by the CIT(A) as such, the same may be confirmed and he relied on the order of the CIT(A).
8. We have heard both the parties and perused the material on record. As per Section 199 of the IT Act stipulates as follows:
i) The assessee should produce the certificate for the amount of tax deducted at source.
ii) It should show that income subjected to tax deducted at source is disclosed in the return of the assessment year as 'assessable'. Both the conditions are to be satisfied. It is, therefore, clear that the assessee will not be entitled to have benefit or credit for the amount though mentioned in the certificate for the assessment year if the income relatable to the amount is not shown and is not assessable in that assessment year. If instead of the entire income referable to the amount of tax deducted, only a portion of income is found assessable the benefit has to be allowed only on the portion shown. If the balance income, on account of the system of accounting followed by the assessee or for some other reason is found to be assessable in future, then the credit for the balance tax deducted at source can be allowed only in future when the income is assessable. The Central Board of Direct Taxes Circular No.5 of 2001dated 2nd March, 2001, also supports the view that where tax is deducted from the amount which is liable to be assessed and spread over more than one financial year, credit shall be allowed on pro rata basis and in the same proportion in which such income is offered for taxation in different assessment years.
9. As per the above provisions of section 199, the assessee is entitled for a credit for TDS to the extent of income offered by the 6 7 assessee and balance mentioned in the certificate is to be allowed in the year in which such income is disclosed or otherwise is found to be assessed as income of the assessee. In view of this, we do not find any infirmity in the order of the CIT(A) and the same is confirmed.
10. In the result, the appeal of the Revenue as well as Cross Appeal of the assessee are dismissed.
Order pronounced in the open Court : 29.1.2010.
Sd/- Sd/- (N.R.S. GANESAN) (CANDRA POOJARI) Judicial Member Accountant Member Dated the 29th January, 2010. Copy forwarded to: 1. The ACIT, Range 9, Hyderabad.
2. M/s Sri Satavahana Grameen Bank, RRB, 9-27/1, Lalitha Nagar, Dilsukhnagar, Hyderabad
3. CIT(A)-VI, Hyderabad.
4. CIT, Hyderabad
5. The D.R., ITAT, Hyderabad.
Np 7