Income Tax Appellate Tribunal - Ahmedabad
The Mehlav Peoples Co-Op. Credit ... vs The Dcit, Circle-1(3),, Vadodara on 26 February, 2019
SMC -ITA No. 2089/Ahd/2017
The Mahlav Peoples Co-op Credit Society Ltd Vs. DCIT
Assessment year: 2012-13
Page 1 of 6
IN THE INCOME TAX APPELLATE TRIBUNAL
"SMC" BENCH, AHMEDABAD
[ Before Shri Pramod Kumar, Vice President ]
ITA No. 2089/Ahd/2017
Assessment Year : 2012-13
The Mehlav Peoples Co-op. Credit Society Ltd ........................Appellant
Opp. Goverdhannath Temple,
Mehlav, Tal. Petlad - 388 440
[PAN - AAAAT 2312 D]
Vs.
The Dy. Commissioner of Income-tax .......................Respondent
Circle-1(3), Vadodara
Appearances by:
Divyakant Parikh for the appellant
Apoorva Bhardwaj for the respondent
Date of concluding the hearing : 13.02.2019
Date of pronouncing the order : 26.02.2019
O R D E R
1. By way of this appeal, the assessee appellant has challenged correctness of learned CIT(A)'s order dated 27th June 2017 in the matter of assessment under section 143(3) of the Income-tax Act, 1961 for the assessment year 2012-13.
2. Grievances raised by the appellant are as follows:-
"1. The learned CIT(A)-1, Vadodara erred in law and/or on fats in treating the Interest Income of Rs.17,20,310/- (on FDR's with Banks) as Income from other sources instead of business income of the appellant.
2. The learned CIT(A)-1, Vadodara erred in law and/or on facts in not considering the interest income of Rs.17,20,310/- for allowing deduction u/s 80P(2)(a)(i) of the IT Act.
3. The learned CIT(A)-1, Vadodara erred on facts and in law in restricting the claim of the appellant that the entire income exempted u/s 80P(2)(a)(i) but he restricted to only Rs.11,60,006/-. So your Honour is requested to direct the ld. DCIT to accept the fact law that since the appellant is Co-op. Credit Society and claim of entire income u/s 80P(2)(a)(c) be allowed."
SMC -ITA No. 2089/Ahd/2017 The Mahlav Peoples Co-op Credit Society Ltd Vs. DCIT Assessment year: 2012-13 Page 2 of 6
3. Learned representatives fairly agree that the issues in appeal are covered, in principle against the assessee - subject to a statutory deduction of Rs.50,000/- being allowed to the assessee under section 80P(2)(c)(ii), by a decision of the Tribunal in the case of Dhanlaxmi Credit Co-op Society Ltd vs. ITO (ITA No.2426/Ahd/2013; order dated 24.01.2017), wherein it has been held as follows:-
"7. We have heard rival contentions and perused the material placed on record and gone through the judgment and decision quoted by ld. AR. After going through the grounds and the submissions made by ld. AR and after considering the issue in the light of ratio laid down in the judgment of Hon. Jurisdictional High Court in the case of SBI vs. CIT (supra), the grievance remains to be adjudicated is towards allowing of pro rata expenses for earning interest income of Rs.8,55,854/- earned from deposits with nationalized/scheduled banks and also allowing statutory deduction of Rs.50,000/- u/s 80P(2)(c) of the Act.
8. We observe that during the course of assessment proceedings ld. Assessing Officer denied the claim u/s 80P(2)(a)(i) of the Act and also observed that income from interest on deposit other than those held with Co- op. Society are liable to be taxed as income from other sources u/s 56 of the Act. Thereafter when the matter was carried before ld. CIT(A) assessee's appeal was partly allowed to the effect that assessee was held to be eligible for claiming deduction u/s 80P(2)(a)(i) of the Act, but interest earned from deposits with scheduled/nationalized banks was held to be taxable u/s 56 of the Act. Assessee came up in appeal before the Tribunal against the action of ld. CIT(A) denying deduction u/s 80P(2)(a)(i) of the Act on the interest of Rs.8,55,854/-.
9. Thereafter in due course of time Hon. Jurisdictional High Court in the case of SBI vs. CIT (supra) decided the issue in the case of credit co-operative society about treatment of interest income from deposits of surplus funds in bank to be taxed u/s 56 of the Act as income from other sources. Hon. Court while deciding so observed as follows :-
Held, dismissing-the appeals, (i) that the assessee had claimed deduction under section 80P and not specifically under section 80P(2)(a)(i). The assessee had also not shown any bifurcation of the income derived from providing credit facilities to its members and the interest earned by depositing surplus funds with the bank. In response to the notice under section 263, the assessee had contended that the reason for treating the interest income received from deposits as business income was that the funds of the business were kept in interest earning account with facility to withdraw the fund as and when necessary to earn interest for and on behalf of its members and that it was one of its activities as provided in section 80P(2)(a) and that the gains of business attributable to such activity were exempted from taxable income. The contention of the assessee that the Commissioner had not held that the interest derived from the deposits in the bank was income from other sources did not merit consideration for the reason SMC -ITA No. 2089/Ahd/2017 The Mahlav Peoples Co-op Credit Society Ltd Vs. DCIT Assessment year: 2012-13 Page 3 of 6 that it was for the Assessing Officer, pursuant to the order under section 263 to examine the nature of the income and tax it accordingly. Having regard to the stand adopted by the assessee in response to the notice under section 263, it could not be said that the Commissioner had travelled beyond the scope of the notice under section 263, inasmuch as, he had only dealt with the contention raised by the assessee. The Appellate Tribunal was justified in upholding the invocation of powers under section 263 of the Act by the Commissioner and that the order did not suffer from any legal infirmity.
(ii) That the assessee did not carry on any banking business and its objects did not contemplate investment of surplus funds received from its members. The business of a credit society like that of the assessee was limited to providing credit to its members and the income that was earned by providing such credit facilities to its members was deductible under section 80P(2)(a)(i). The character of interest was different from the income attributable to the business of the assessee-society providing credit facilities to its members. The interest income derived from investing surplus funds with the bank must be closely linked with the business of providing credit facilities for it to be held attributable to the business of the assessee. Therefore, the profits and gains could be said to be directly attributable to the business of providing credit facilities to its members if there was a direct and proximate connection between the profits and gains and the business of the assessee. There was no obligation on the assessee to invest its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i). There was no infirmity in the orders of the Appellate Tribunal warranting interference.
10. We further observe that during the course of hearing hefore us, ld. AR accepted that assessee is not eligible to claim deduction u/s 80P(2)(a)(i) of the Act on the interest earned on surplus deposits/investments held with Scheduled/Nationalized bank but urged for allowing deduction on pro rata expenses incurred for earning the interest income and also for allowing statutory deduction of Rs.50,000/- u/s 80P(2)(c)(ii) of the Act. Ld. AR also submitted that a total expenses incurred for the year stood at Rs.28,60,298/- and pro rata expenses for earning interest income of Rs.8,55,854/- as against total interest income of Rs.42,39,515/- will be calculated at Rs.5,77,423/-.
11. We observe that ld. AR has referred to the decision of the Co-ordinate Bench in the case of Kherava Co-op. Credit Society Ltd. vs. ITO, Ward-4, Mehsana in ITA No.2704/Ahd/2015 for Asst. Year 2012-13 wherein similar SMC -ITA No. 2089/Ahd/2017 The Mahlav Peoples Co-op Credit Society Ltd Vs. DCIT Assessment year: 2012-13 Page 4 of 6 issue of allowing pro rata expenses and allowing statutory deduction of Rs.50,000/- u/s 80P(2)©(ii) of the Act has been adjudicated by the Co- ordinate Bench by observing as under :-
10. From going through the alternate submissions made by the assessee we find that major portion of interest income is from government securities and are not in the nature of short term deposits.
Therefore, the facts of the case are clearly distinguishable from the facts discussed in the case of Totagars Co-op. Sale Society Ltd. vs. ITO (supra) and that of co-ordinate bench in the case of Jafari Momin Vikas Co-op. Credit Society Ltd. (supra) as well as in the case of Dhanalaxmi Credit Co-op. Society Ltd. vs. ITO (supra). This interest income is on investments not of short term nature except bank interest which too includes interest on Fixed Deposits. In these circumstances, we are of the view that as the assessee suo moto has given a proposition of taxing the interest and commission income on investments to be taxed u/s 56 of the Act and has also shown that proportionate expenses of Rs.3,31,828/- have been incurred to earn the above income and the same has duly been accepted by the assessing authority, so we find it justified that Assessing Officer has rightly taxed the interest income of Rs.2,16,689/- as income from other sources. However, deduction u/s 80P(2)(c) ought to have been allowed to the assessee as section 80P(2)(c) reads as under:-
Section 80P(2)(c) (c) in the case of a co- operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as 1 does not exceed,-
(i) where such co- operative society is a consumers' co-
operative society, one hundred thousand rupees; and
(ii) in any other case, fifty thousand rupees.
Explanation.- In this clause," consumers" co- operative society"
means a society for the benefit of the consumers;] From going through the above provisions it is very clear that the assessee is eligible for deduction of Rs.50,000/- u/s 80P(2)(a)(i) of the Act and the same should have been allowed by the Assessing authority.
11. Therefore, in view of our above discussion, we quash the order of ld. CIT(A) enhancing the addition and also partly allow the appeal of assessee and accordingly the addition made by Assessing Officer shall be reduced to Rs.1,68,305/- [Rs.2,16,689/- minus Rs.50,000/- deduction u/s 80P(2)(c)].
SMC -ITA No. 2089/Ahd/2017 The Mahlav Peoples Co-op Credit Society Ltd Vs. DCIT Assessment year: 2012-13 Page 5 of 6
11. Respectfully following the judgment of Hon. Jurisdictional High Court and examining the facts of the case as also in the light of decision of the Co- ordinate Bench discussed in the above paragraphs, we are of following view :-
(1) Assessee is not eligible for deduction u/s 80P(2)(a)(i) of the Act on the interest income earned from surplus deposits held with Nationalized/Scheduled banks.
(2) Assessee will be eligible to statutory deduction of Rs.50,000/- u/s 80P(2)(c)(ii) of the Act.
(3) Assessee will also be eligible to claim pro rata expenses for earning interest income of Rs.8,55,854/- assessee's claim of pro rata expenses of Rs.5,77,423/- against the interest income of Rs.8,55,854/- after due verification by the learned Assessing Officer. We, therefore, direct the Assessing Officer to verify assessee's claim of pro rata expenses by examining the record to be shown for verification by the assessee. Needless to mention proper opportunity of being heard is to be given to the assessee.
We order accordingly. The appeal of the assessee is partly allowed for statistical purposes."
4. I see no reason to take any other view of the matter than the view so taken by the Tribunal. Respectfully following the above precedent, I remit the matter to the file of the Assessing Officer for the limited purpose of allowing relief in terms of the direction set out in paragraph no. 11 of the order extracted above which will apply mutatis mutandis in the present context as well. The assessee will get relief on the same lines in this case as well.
5. In the result, the appeal is partly allowed in the terms indicated above. Pronounced in the open court today on the 26th February, 2019.
Sd/-
Pramod Kumar
(Vice President)
Ahmedabad, the 26th day of February, 2019
**bt
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Income Tax Appellate Tribunal
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