Karnataka High Court
M/S The Totgars Co-Op Sale Society Ltd vs The Income Tax Officer Ward-1 on 30 September, 2008
Bench: V.G Sabhahit, S.N.Satyanarayana
IN THE HIGH COURT OF KARNATAKA
CIRCUIT BENC8 AT DHARWEB
DATED THIS THE 3o+H DAY OF SEPTEMBER E063 T.
PRESENT '
THE HGN'BLE ME.JU3TLcE~v,G-SAEfiEE:T"E}.'
AND__ E__
. V?nL _1A ;
" cmm€§fé vkbv THE HON'BLE MR.JUsT:cE s}sATTAEEEE3EEE*
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&&_&S}fbq{ ITE NO:l5;?/ZQQS .
Ar/V,»«""¥~ ----- -- '-~..: 3;: "HF, »
/,fif M/S THE TOTGARS CO~0PERATIVE_$ALEpSQCIETY LTD
*" Qfimsrd) NEW MARKET YARD. sTEsE=581g4o2; ¢ 5
REPRESENTED ET ITS GENERAE"M3usAEE
ERAEESE"HE¢pE; AGES EEGUT 33 YRS. s/0 SHRIDHAR
HEGnE,._~' *.w_'ET«_*¢ -- ... APPELLANT
(By Sriyuth "RRGHURAMAN a CHYTHANYA --advs.)
AND :
-~._ THE TSCQME TAX QEEICER
"_WARE*€1 T
' ,s:Rs:_+;5E1.492 _ ... RESPONDENT
'= {By 3:: E39 SESHACHALA -- ADV.)
"THI'S I.T.A. FILED U/S. 260A OF THE INCOME:
». TAx"ACT, 1961 ARISING OUT or ORDER DT. 9.11.2004
, "PASSED IN TTA NO. 1463/naaizoes FOR THE
,AS"'S_ESSM£NT TEAR 1994--95 PRAYING THAT THIS HOWBLE
W_COURT MAY BE 9LEASED TO A)FoRMULATE THE
%SUBSTANTIAL QUESTIONS 0? LAW STATED THEREIN
<B)ALLoE THE APPEAL AND SET ASIDE THE ORDER OF THE
INCOME TAX APPELLATE TRIBUNAL BEARING' ITA NO.
1460/BANG/2003 DT. 9.11.2004 EOE THE ASSESSMENT
TEAR 199¢--95 ETC.
THIS ITA COMING ON FOR HEARING THIS DAY,
$833851? 3., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal is filed by the aseeesee being aggrieved by the order paseefl hy the Income Tax Appellate Tribunal, Banoalorel§enohe*_ 'A' in ITA No.14s3/Bang/éooeie'a§«t;e+;1'V._é';l1'io,;'2VQ:§4 wherein the Appellate Tribfinel by allowing thev appeal of the Revenue ahas held "that income received. by 'the _aeseesee" frog; infeetment in security and bank aep5§:tsz¢¢a;a not qualify for' exen§tiQnl,unoer_.Section 80P(2)(a)(i) of the Income Tax Rot; I§6l (hereinafter referred to "as 'the 'Ect') and accordingly; has set l'.§eide the order passed by the ?irst Appellate ".Ruthotity§»' Commissioner of Income Tax (fippealeil Hubli dated 26.9.2003 and restored 'wl=T'othe.erder passed by the Assessing Officer.
2. The essential facts of this case leading up to the filing of this appeal are as follows :-
KM?
The assesses is a CowoperatiyenoSociety registered under the Coeoperativet 3ocietiesW_ Act. The assesee filed" returns nforfl {he T assessnent years 1991-92 yea, 1999g2cau.Vf»§ne return of the incomé.f§; the.asgesénéht year 199¢~95 was filed on 31;§;i9$4 oisclosing the income of na.2,1é;o1ja$@]{:ana§; the head of 'income free business' ans claining exemption for the sage snag: seggién 8OP(2)(a){i} of the Act ,andrfitne*@totelD income return was 'nil'. The [return inf» insane was processed under Section, l43ii§{a}Qfof the Act on 31.7.1995 aceepting 'the_ return, statement of income, tjauditvxenort under Section 44AB of the flat, ionrinteorttaoing P & 1; a/c and balance sheet were filed along with the return of income. 't*I'Vi*:.4e Business carried on by the assesee was Kmarketing of agricultural produce of the t"""members of the society. The business activity other than marketing of the agricultural produce resulted in net loss. The assessment \n_§ was rewopened with issue of notice Vunfier Section 148 of the Act dated 3;:5;§0Qi{'The*; assessee filed letter ""dated--Lc?,§t2QD1i requesting to treat _thei¥return titled 'unflerr Section 139(1) of theifict as the return in response to the notiee ghee; Section 148 of the Act. However; it fixed return on 9.8.2001 disclosing lthe iineo$et1ascL§eclared in the original" return e§iIe§t;en~ 31.8.1994. After giving the aéeeegag efiiopnortunity of hearing before htheriaeeeeenenth Officer and assesses apDeare6g"tfi¥§ufihV; advocate and chartered accountant name ~submitted that the assessee ';inveetédfeifunds which were not required 'ifimediatety for the business purposes for a short term instead of keeping the funds idle '.f~and,therefore, it was not a source of income as an ordinary investor and therefore, such .mdepoeits were not an investment but an activity' as a prudent businessman. It 'was also pleaded that if the assessee's submission W is not accepted and such interest is to be assessed without giving deduction, gender Section 80? of the Act, then the lifitereét income from bank deposits should eeqcomputed. * after allowance of proportionate intereet paid on members deposits. "
A reference'..4_.i;--as Section 14433. of the Act to the AdditionaiQCemmissioner of Inceme fax} Rengeei Hubli} seeking directions abofit 'the laeeesementi of interest income and the Adel} CIT_after notifying the aseeesee and heeringu the» representative of the aseeesee ' hehi by order dated 33.9.2002 that interest *incoeé5 {gem debtors was entitled to be eaemfited. However, interest on bank deposits 2"» ether than Cowoperative Banks and interest on ]bonde and securities, interest earned from Co"
H operative banks and deposit was entitled to deduction under Section 80P{l)(iii) of the Act. However, carried interest on bank \tx, deposits other than co--opertive banksa and interest from bonds and securities) jthe Additional Commissioner of Income! ?ax"ihgig'- that interest on bank deposits other than co- operative banks and interest on securities and, bonds, income is assesable 'as »income from other sources Tfor /ehichirdeduction under Section 809(1) (iii1)A admissible. Further there was np dednetion for explanation that the»enti§e_income_Qouid be assessable as income.= _. After hearing tine representative <3f the "*'assessee,and considering the contention, the 'E. Assessment f Officer by its order dated 2Qi1i2dQ3 held that the following directions i*xgiveniin Section 144A of the Act that income iaffrom deposit (other than Co--operative banks) _ and income from bonds and securities is assessable as income from: other sources and the said income is assessable without \9M.-E deductions for interest expenditure tend, no deduction under section 80P(2)(ej{i) for "the g Act is allowable and further there seal; be_no i deduction of interest expenditure.f¢t"° Being aggrieved by the eaid order of the Asessment Offioer}f"tfie7 ,eseee$e preferred appeal befere the fiirstgfipgéilate Authority- the Comieeioner*§of.iInoome Tax (Appeals) Hubli;*ane tee-first appellate authority by ordery "i ':iiWadmr*[iin appeal mo.214/215/2;s;2;#/213A/26/218/He;/c:T:A;/HeL/ s.fl Cxfiigf/02»03"»em=03/04 allowed the appeal 'e¢eepting the contentions of the aseessee that the7 inoofie received from deposits and 'r seonrities is attributable to profit gains of Viidjeesessee and therefore, entitled to exemption ti fitdér Section 80P(2)(a)(i) of the Act and set 'Vi aside the order passed by the Assessing Authority. Being aggrieved by the order passed by the first appellate authority, \3§ Revenue preferred appeal in ETA NO.1463/Bang/2003. The assessee has also filed cross objections being aggrieved» bfj the finding given by the First Appellate Antnority *_ regarding validity of the notice issoed finder i Section 148 of the _Act;iVThe ,:n¢cme "Taxi Appellate Tribunal bjiV"i'e»;order ."3.ivl.2004 allowed the appeal filed bfvthe fieeenue and dismissed the cross objedtione oy-holding that the ""Ass§5sieg-"*ofii¢é:"° was justified in reooening the asseeement under Section 147 of the Act and gfioper notice was issued under Seetion, 145' of' the Act and consequently, '=esessnent:<nnder Section 143(3) read with ls§eti§sI:é4 A of the Act is valid and fruther held that income from securities and deposits l"_in§ business does not qualify for exemption eunder Section 80P(2)(a)(i) of the Act as the said income is not attributable to gains and profits of the assesse as assessee is not doing any tanking business and further held B» that the first appellate TribunaJ_Deesf hat justified in relying upon the :deeieiohsV wherein the assessee was a cQ%operative"baek' and since the assessee ewae_ not _doinq "efiyp banking business, the:finc¢me_:re¢éigéa frofi deposits in banks whxfeifi in xéggecfi of the surplus funds ape, waei net fattributable to profits age gains 5; pusieess aed accordingly, held thatfi tfie =s;@e,faia snot qualify for exemptiopfiqeaeer "$eetiéhftéOP(2)(a)(i) of the Act Qafid 'aee5%difigiyg. set aside the order passed iby"vtee2e§iret Appellate Tribunal and restered_ the Worder passed by' the Assessing A hffi xhéeihg aggrieved by the order of the it tfiificome Tax {Appellate Tribunal, the assessee teas preferred this appeal.
3. The appeal was admitted on 15.6.2605. \,,§-
the appellant and the learnedraeeoueeelil 10
4. We have heard the learned ceuneei for appearing for the respondentfrefieneeré
5. Having regane "to the°teoetentions urged, the subetantiai_QueetiQns of law that arise for determination inrtnis appeal are :~
i) Whetheri the 5findine} ct the income tax :"e§pei1ete Triefinal that interest received zby. the" eseeeeee from securities and _,defiG9its in bank is not attributable to namci.iri't""Vof profits and gains of the i'pTbeeines$ and wherefore, does not qualify fort:'1..V_-zercemption under Section 8OP(2Ha)(i) jcf the Act and as assessed under Section tin 56 of the Act is contrary' to law" and
ii) calls for interference in this appeal? Whether the finding of the income tax appellate tribunal that the x5? ' 11 kg QVV Bflgwr peeessisn proceedings X/reo§esing%'-of¥, assessing order under Seotion_ié7 of thefg Act was proper and notice issued under Section 148 of Mthe Bots was; véiia, is contrary sto iiswf 'and "calls for interference is this appeal ?
6. ¢fi§Lgbgfieflseigrsefistential questions of law ease some so sossideration before this Court is Ema 4563905 2565 arising out of the same c§mson,§ss§¢s§t passed by the the Income Tax .Appeliete1 Tribunal, Bangalore Bench 'A3 ""._ dated" 9,;l.2駧& which is impugned in the ".$preseht"sp§eal and this appeal pertains to the sssessmenti year 1994~1995 and wherefore, on foliofing the reasons assigned in ITA iflr15é8/2005, we answer the substantial questions '~_:V_of law against the appellant and in favour of the Revenue.
[gs Accordingly, we pass the followifiQ é%der The appeal is dismisééd{', T Sm V. Iudgé