Income Tax Appellate Tribunal - Chandigarh
A.C.I.T. vs H.P. State Co-Op. Agriculture And Rural ... on 15 December, 2005
Equivalent citations: [2006]100ITD479(CHD), (2006)104TTJ(CHD)864
ORDER
M.A. Bakshi, Vice President
1. Appeal of the Revenue for assessment year 2001-02 is directed against the order dated 4.8.2004 of the CIT(A), Shimla.
2. The only effective ground of appeal raised by the Revenue is as under:
On the facts and circumstances of the case, the ld. CIT(A) has not right in allowing the deduction Under Section 80(P)(2)(a)(i) by treating the misc. income/vehicle loan, staff HBA/Staff warm clothing loan/overdue interest, interest received on NPA and Security fee, as income incidental to the banking business as the income under these heads is not directly derived from banking business and will not be allowable deduction Under Section 80(P)(2)(a)(i).
3. We have heard the parties and perused the records. The relevant facts briefly stated are that the assessee is a cooperative society registered under the Co-operative Societies Act. The society is engaged in lending moneys to its members and had claimed exemption Under Section 80P(2)(a)(i) of the Income-tax Act, 1961. The AO while making the assessment Under Section 143(3), categorized the income of the assessee under two heads. The interest income received from the members on loans advanced to them has been considered as income eligible for exemption. The income received from staff on account of interest-on vehicle loans, staff house building advances and staff warm clothing loans has not been treated as income of the assessee from the business of banking or providing credit facilities to its members. Similarly, the overdue interest received from members and interest received on non-performing assets, security fees from members has also not been treated as interest on loans from members. The income earned by the assessee under the head 'miscellaneous income and vehicle hire charges' has also not been considered to be the income of the assessee incidental to the business of banking or providing credit facilities to its members.
4. The CIT(A) relying upon the decision of the Tribunal in the case of Haryana State Cooperative Land Development Bank held that interest earned from employees had arisen from business of banking and no distinction could be made between giving of loans to the staff members and advancing loans to the borrowers.
5. On careful consideration of the rival contentions, we find that the issue is squarely covered by the decision of the jurisdictional High Court of Punjab & Haryana in the case of CIT v. Haryana State Co-operative Land Development Bank 254 ITR 107 (P & H). Respectfully following the aforementioned decision of the Punjab & Haryana High Court, we uphold the decision of the CIT(A) and dismiss the ground of appeal raised by the revenue in regard to the interest received from staff on account of vehicle loans, staff HBA and staff warm clothing loans.
6. In regard to the interest received on account of nonperforming assets and security fee, the CIT(A) has pointed out that assessee had divided interest received from members into two categories - first category is the interest received from members regularly and the other category is interest not received regularly as per instalments. The second category of interest is transferred to overdue interest. The CIT(A) has held that there is no difference between both the type of interests received from members. The CIT(A) has accepted the contention on behalf of the assessee that the guidelines of NABARD have been followed by the assessee for carrying on its money-lending business. Therefore, the income derived by the assessee in respect of non-performing assets is nothing but the interest on account of allowing credit facilities to its members.
7. In regard to security fee and admission fee, it was brought to the notice of the CIT(A) that assessee has been receiving preliminary charges from its members for the scrutiny of documents received from its members. The AO has treated the said income as not falling within the category of interest on loans to members. The CIT(A) has held that the security fee and admission fee are received from the members at the time of advancing loans in the course of banking business. Deduction Under Section 80P(2)(a)(i) has accordingly been held to be permissible to the assessee.
8. The ld. D.R. contended that the assessee is not entitled to deduction in respect of the specified incomes other than the income derived from providing credit facilities to its members. The decision of the CIT(A) is accordingly stated to be contrary to the provisions of the Act. The ld. Counsel for the assessee, on the other hand, sought to support the order of the CIT(A).
9. We have given our careful consideration to the rival contentions. In our considered view, there is no infirmity in the order of the CIT(A). Section 80P grants deduction to the assessee in respect of specified incomes of co-operative societies. Section 80P(2)(a)(i) reads as under:
(a) in the case of a co-operative society engaged in -
(i) carrying on the business of banking or providing credit facilities to its members, or....
(ii) to (vi) ...
the whole of the amount of profits and gains of business attributable to any one or more of such activities.
It is evident from a plain language of Section 80P(2)(a)(i) that deduction is permissible to the assessee in respect of profits and gains attributable to the business of banking or providing credit facilities to its members. In the present case, the co-operative society is engaged in the business of providing credit facilities to its members. Therefore, any income, which is attributable to the aforementioned business of the assessee, will fall within the category of income eligible for deduction Under Section 80P(2)(a)(i). It may be pertinent to mention that the Legislature has consciously used the words 'profits and gains of business attributable to any one or more of such activities'. There is a distinction between the words 'attributable to' and 'derived from'. Whereas the words 'derived from' have been interpreted by the Hon'ble Supreme Court in the case of CIT v. Sterling Foods 237 ITR 579 (SC), to be the income having direct nexus between the profits and gains and the particular activity, in the case of Vellore Electric Corporation Ltd. v. CIT 227 ITR 557 (SC) at page 560, their Lordships of the Hon'ble Supreme Court had the occasion to interpret the expression "attributable to" used in Section 80-I of the Income-tax Act, 1961. It was held, "Profits and gains can be said to be attributable to the priority industry Under Section 80-I if there is a direct and proximate connection between the profits and gains and the business of the priority industry." In that case, their Lordships held, "Under sub-paragraph 2) of Paragraph IV of the Sixth Schedule to the Electricity (Supply) Act the licensee is obliged to invest the sums appropriated to the contingencies reserve in securities authorized under the Indian Trusts Act, 1882. The requirement to create the contingencies reserve is a part of the obligation of the electricity company as a licensee to carry on its business of generating electricity and it is also part of the obligation of the electricity company as licensee that the sums appropriated to the contingencies reserve are invested in securities authorized under the Indian Trusts Act, 1882. Referring to its own decision in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC), their Lordships further held, "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. This would mean that it is not necessary that the income should have been earned from the actual conduct of the business of generation and distribution of electricity. What is required, is that the activity from which the income was earned must have a direct and proximate connection with the priority industry of generation and distribution of electricity. The creation of the contingencies reserve an the investment of the sums appropriated to the said reserve in securities auhorised under the Indian Trusts Act, 1882, being a condition statutorily incorporated in the licence granted to the assessee under the Electicity (Supply) Act, was incidental to the carrying on of the business of generation and distribution of electricity by the electricity company.
11. It is evident from the decision of Supreme Court in the case of Vellore Electric Corpration Ltd. v. CIT (supra) that if the income earned by a co-operative society is incidental to the carrying on of its business of banking or providing credit facilities to its members, it will qualify for deduction Under Section 80P(2)()(i). Considering the fact that the Legislature has consciously used the words 'attributable to' in contrast to the words 'derived from', we find that the nature of income referred to in the ground of appeal raised by the revenue is incidental to the business of the assessee of providing credit facilities to its members. Advancing loans to the employees is incidental to the carrying on of the business of the assessee of advancing credit facilities to its members. Similarly, interest on NPA is nothing but interest received from members though not regularly. It has been pointed out earlier that the assessee has reflected interest from members under two categories - one is interest regularly received from members and another category is of interest from defaulting members who are not regular in repayments. The latter type of interest is shown as interest on non-performing assets, Scrutiny fee also received from member in connection with loans to be advanced to them and, therefore, is incidental to the business of the assessee of providing credit facilities to the members.
12. Taking the totality of facts and circumstances of this case into consideration, we find no infirmity in the order of the CIT(A). The same is accordingly upheld and the appeal of the revenue dismissed.
13. In the result, the appeal of the revenue is dismissed.