Income Tax Appellate Tribunal - Chandigarh
The Ludhiana District Co-Operative ... vs Addl. Cit, Ludhiana on 31 January, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए" , च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'A' , CHANDIGARH
ी संजय गग , याय क सद य एवं ीमती अ नपण
ू ा ग%ु ता, लेखा सद य
BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM
आयकर अपील सं./ ITA No.1467/Chd/2016
नधा रण वष / Assessment Year : 2009-10
The Ludhiana District Co-operative बनाम The Addl. CIT.,
Milk Producers Union Limited, Milk Range-VI,
Plant, Jagraon Road, Ludhiana.
Ludhiana.
थायी लेखा सं./PAN NO.AABAT1196N
अपीलाथ /Appellant यथ /Respondent
नधा रती क ओर से/Assessee by : Shri Parveen Jindal, CA
राज व क ओर से/ Revenue by : Smt.Chanderkanta, Sr.DR
सन
ु वाई क तार$ख/Date of Hearing : 18.10.2018/16/01/2019
उदघोषणा क तार$ख/Date of Pronouncement: 31.01.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member:
The present ap peal has been fi l ed by the as sessee agai nst the order of the Commi ssi oner of I ncome Ta x ( Appeal s) -4, Ludhi ana (in short 'CI T( A) ' dated 7.10.2016 passed u/s 250( 6) of the I ncome Ta x At, 1961 ( hereinafter referred to as 'Act') .
2. The sol e i ssue i n the present appeal rel ates to deni al of cl ai m of deducti on of i nterest i ncome earned by the assessee cooperati ve soci et y from ano ther cooperati ve soci ety amounti ng to Rs.49,90,022/- as per the provi si ons of secti on 80P( 2) ( d) of the Act.
2 ITA No.1467/Chd/2016
A.Y.2009-10
3. Bri efl y stated, the assessee i s a cooperati ve soci et y runni ng mi l k pl ant at Jagraon Road, Ludhi ana. During the i mpugned assessment year the assessee had earned interest i ncome amounti ng to Rs.49,90,022/- from The Pu njab State Cooperati ve Mi l k Producers Fede rati on Ltd. ( Mi l kfed) and had cl ai med deducti on of the same u/s 80P( 2) ( d) of the Act. The A.O. deni ed the same stati ng that the assess ee had not e xpl ai ned the mechani sm of transfer of funds to Mi lkfed so as to authenti cate i ts cl ai m that i t had made i nvestment i n Mi l kfed from whi ch i nterest i ncome had been earned. The A.O. therefore, hel d that the tran sfer of funds to Mi l kfed di d not qual i f y as i nvestment and, for the sai d reason the assessee was not enti tl ed to cl ai m deducti on of i nterest earned therefrom, si nce as per se cti on 80P( 2) ( d) t he i nterest deri ved from i nvestments onl y qual i fi ed for deducti on. The A.O. further hel d that even other wi se the earni ng of i ncome coul d not be att ri buted to the a cti vi ti es of the s oci et y and was not i n the n ature of i ncome deri ved from bus i ness and, therefore, al so did not qual i f y for deducti on u/s 80P( 2) ( d) of the Act. He, therefore, di sal l o wed the assessee's cl ai m of deducti on u/s 80P( 2) ( d) of the Act amounti ng to Rs.49,90,022 addi ng the same to the i ncome of the assessee.
4. The matter was carri ed i n appeal before the Ld.CI T( A) who uphel d the order of the A.O. stati ng that the assessee had pai d more i nterest to Mi l kfed than earned i nterest therefrom and i n nutshel l there fore, had not e arned any i nterest i ncome t o qual i f y for ded ucti on u/s 80P( 2 )( d) of the 3 ITA No.1467/Chd/2016 A.Y.2009-10 Act. The Ld.CI T( A) further rei terated the fi ndi ngs of the A.O. that i n the absence of the mechani sm of transfer of funds i t cannot be sai d that the i nterest i ncome had been earned from i nvestments made by the assessee. Rel evant fi ndi ngs of the CI T( A) at paras 6.2 and 6.3 of hi s order are as under:
"6.2 I have considered the observations of the A.O. as made by him in the assessment order while making impugned addition/disallowance. I have also considered written submissions filed by the assessee co-op society through its Ld. AR vide letter dated 08.06.2016 on the issue under reference. I have further considered various judicial pronouncements relied upon by the assessee co-op society as well as other material placed by it on record. On careful consideration of the assessment order, it has been noticed that the Assessing Officer has made the impugned addition in the hands of the assessee co-op society as in his opinion the interest income earned by the assessee co-op society is not derived from the investments made by it with another co-op society i.e. MILKFED but it is to be treated as income from other sources which's not qualified for deduction under section 80P(2)(d) of the Act. While making the impugned addition, the Assessing Officer also took support from the decision of the Honorable Supreme Court in the case of Totgars Co-operative Sales Society Limited Vs. Income Tax Officer reported at (2010) 322 ITR 283(SC). Another ground for making the impugned addition was that the assessee co- op society has not disclosed the mechanism for earning and paying the interest from/to MILKFED. On the other hand, the Ld. AR of the assessee co-op society has submitted that the assessee co-op society has correctly claimed the deduction under 80P(2)(d) of the Act as the interest was received from another co-operative society. To support his point of view, the Ld AR of the assessee co-op society has also upon the following judicial pronouncements:-
(i). CIT Vs. Doaba Co-op Sugar Mills Limited - 230 ITR 774 (P&H) wherein it has been stated to be held that the deduction under section 80P(2)(d) is allowable on gross receipts and not on net receipts of interest.
(ii). CIT Vs. Haryana Co-operative Sugar Mills Limited
(iii). Addl. CIT Vs. UP Co-op Fedration Ltd. (1978) 7 CTR (All.) 293
(iv). CIT Vs. Shri Amreli Shakari Kharid Vechan Sangh Limited (1991) 39 ITD 65 (Ahmedabad ITAT) Ld. AR of the assessee co-op society has further submitted that the ratio of the decision of the Honorable Supreme Court in the case of Totgars Co- operative Sales Society Limited Vs. Income Tax Officer reported at (2010) 322 ITR 283(SC) is not applicable to the 4 ITA No.1467/Chd/2016 A.Y.2009-10 facts of the case of the assessee co-op society as the facts of the case of the assessee co-operative society are different from the facts of the case of Totgars Co-operative Sales Society Limited. On careful consideration of the rival contentions, it has been noticed that the assessee co- operative has received interest of Rs.49,90,022/- from MILKFED and also paid interest to the extent of Rs.59,87,403/- to MILKFED. In nutshell, the assessee co-op society has not earned any interest income by giving surplus money to MILKFED but has paid more interest to MILKFED than earned by it. Moreover, the assessee co- operative society has not disclosed the mechanism for earning and paying- interest from/to MILKFED. In the absence of mechanism one cannot decide whether it has been earned on investments or not. Moreover, the assessee co-op society has not earned any interest income from MILKFED as the interest paid by it was more than the interest earned. As far as the judicial pronouncements relied assessee co-op society are concerned, I am of the opinion that the ratios of those decisions do not apply to the facts of the case of the assessee co-op society. In all the cases relied upon by the assessee co-op society, the interest was earned either from investments and that too from banks whereas in the case of the assessee, the interest has not been earned from any investment Moreover, in my considered opinion the assessee co-operative society has not earned any interest income which will be qualified for deduction under section 80P(2)(d) of the Act as it has paid more interest to MILKFED than earned by it from MILKFED. Under such circumstances, the action of the Assessing Officer in making an addition of Rs.49,90,002/- in this case on account of denial of deduction claimed by the assessee co- op society under section 80P(2)(d) of the Act cannot be said to be unjustified.
6.3 In view of the above stated facts and in the circumstances of the case, I am of the considered opinion that the Assessing Officer is fully justified in making an addition of Rs.49,90,002/- in this case on account of denial of deduction claimed by the assessee coop society under section 80P(2)(d) of the Act. The addition of Rs.49,90,002/- made by the Assessing Officer in this case on account of disallowance of deduction under section 80P(2)(d) of the Act is, therefore, upheld. In the result, grounds No. 3 and 4 of appeal taken by the assessee co-op society are dismissed."
5. Aggri eved by the same the assessee has come i n appeal before us rai si ng the fol l o wi ng grounds:
"1. That the Ld. CIT(A) erred in law and on facts in not considering the submissions placed before him during the course of appellate proceedings. He has also erred in not considering the decisions cited before him of various Courts/Tribunals including decisions of Jurisdictional High Court.5 ITA No.1467/Chd/2016
A.Y.2009-10
2. That the order passed by the Ld. Commissioner of Income Tax (Appeals)-4, Ludhiana is contrary to the facts and circumstances of the case.
3. That the Ld. CIT(A), therefore erred in law and on facts in confirming the additions for Rs.49,90,022/- made by the Addl. Commissioner of Income Tax, Range-VI, Ludhiana (AO) on account of disallowance of deduction u/s 80P of the Income Tax Act, 1961 for interest received by the assessee from Milkfed. In the facts and circumstances of the case, the additions made by the AO for Rs.49,90,022/- for disallowance of deduction u/s 80P for interest received from Milkfed ought to have been deleted.
4. The Ld. CIT (A) has erred in fact and in law, in not accepting the assessee's submissions that,-
a) Provisions of Sec. 80P(2)(d) of the Income Tax Act, 1961 have not been construed properly by the Ld. AO, which has resulted in erroneous order and untenable conclusion.
b) Funds/ Money transferred to Milkfed were investment of surplus funds out of the circulating capital of the assessee.
5. The appellate may be allowed to add, amend, alter or raise additional grounds of appeal."
6. Duri ng the course of heari ng before us the Ld. counsel for assessee contended that i t had been deni ed i ts cl ai m of deducti on u/s 80P( 2) ( d) of the Act for the fol l o wi ng reasons:
i ) That the mechani sm of transfer of funds had not been e xpl ai ned.
i i ) that i n any ca se, the funds tra nsferred to Mi l kfed di d not qual i f y as i nvestment.
i i i ) that i t had pai d more i nt erest to Mi l kfed than earned frorm Mi lkfed and therefore, i t had not earned any i nterest i ncome.
7. The Ld. counsel for assessee thereafter contended that al l the above contenti ons were i ncorrect. Taki ng u p the fi rst contenti on that i t had not di s cl osed the mec hani sm for earni ng i nterest from Mi l kfed, th e Ld. counsel fo r assessee poi nted out that duri ng appel l ate proceedi ngs i t had fi l ed repl y dated 8.6. 2016 wherei n u nder the head "repl y on 6 ITA No.1467/Chd/2016 A.Y.2009-10 meri ts", i t had d i scl osed the mec hani sm of transf er of funds stati ng that the assessee cooperati ve soci et y had gi ven advances to Mi l kfed as i t was arr angi ng for ra w m ateri al and other i tems on behal f of the assessee as the assessee had not separate worki ng capi tal l i mi t for thi s purpose from bank etc. and further thi s arrangement was i n l i ne wi th the byel a ws of the as sessee soci et y. I t was further e xpl ai ned that as per the pre scri bed procedure the assessee used to transfer the mone y col l ected from the sal e of i ts products i n a routi ne manner after keepi ng the funds requi red for i ts i mmedi ate use and thus in th i s wa y it earne d i nterest i ncome on the surpl us funds i nvested wi th Mi l kfed at the agreed rate of 8%. Our attenti on was dra wn to poi nt No.5 of the submi ssi ons made i n wri ti ng before us i n thi s regard as under:
"5. That The Ld. CIT (Appeals) has observed at Para-6.2 of his order that the assessee co-operative society has not disclosed the mechanism for earning interest from MILKPED. In this connection, the appellant contends that mechanism for earning interest from MILKFED was duly disclosed by the assessee in its reply dated 08 06 2016 during appellate proceedings wherein at Point-2 under the heading 'Reply on Merits' in the matter of disallowance of deduction u/s 80P(2)(d), the assessee stated as under:
"2. That one of the reason for disallowance of deduction u/s 80P(2)(d) was that AO did not consider the advances made to Milkfed as 'Investment' within the meaning of clause (d) of sub- section (2) of Sec. 80P of the I.T. Act. In this connection, the assessee contends that the said interest of Rs.49,90,022/- has been received on advances given to Milkfed as it was arranging for raw material and other items on behalf of the assessee as it (assessee) has no separate working capital limit for this purpose from banks etc. This arrangement was in line with the Bye-laws of the assessee's society and as per the instructions of the Registrar of Co-operative Societies and Milkfed being the Apex Institution of the assessee.
Further, as per the prescribed procedure, the assessee used to transfer the money collected from sale of its products in a routine manner after keeping the funds required for its 7 ITA No.1467/Chd/2016 A.Y.2009-10 immediate use and in this way the surplus funds invested out of the circulating capital also earned interest income as per the agreed terms and conditions with the Milkfed including for rate of interest (which was 8%) etc. The appellant reiterates it's above submissions as made above before the Ld. CIT(A) for the mechanism for interest received from MILKFED."
8. Ld.Counsel for the assessee further fi l ed before us copy of account of "I nterest pai d to Mi l kfed" i n i ts books to support i ts cl ai m that i t had earned i nterest from MI LKFED on advances made to i t for procuri ng goods on i ts behal f. Referri ng to the same i t was contended that i t had earned i nterest for the peri od from October 2008 to March 2008 when there was credi t bal ance of MI LKFED, whi l e for the rest of the year i t had pai d i nterest on account of there bei ng debi t bal ance of MI LKFED. The Ld. c ounsel for assessee thus contended that the mechani sm for transfer of funds had been dul y e xpl ai ned t o the authori ti es bel o w as bei ng in the n ature of advan ces gi ven to M i l kfed for arrangi ng suppl y of ra w materi al for the assessee . Thereafter the Ld . counsel for assessee contended that these advances qual i fi ed as "i nvestments" for the purpose of cl ai m of deducti on u/s 80P( 2) ( d) of the Act and rel i ed upon the fol l o wi ng case l a ws in support of i ts above contenti on poi nti ng out that i n these case l a ws i t had been hel d that even advance made for purchase of goods woul d be treated as i nvestment and that i t i ncl uded i nvestment of circul ati ng capi tal :
1) CI T, Luckno w Vs. U.P. Co-operati ve
Federati on Ltd., 176 I TR 435 ( SC) .
8 ITA No.1467/Chd/2016
A.Y.2009-10
2) CI T Vs. Har yana Co-operati ve Sugar Mi l l s
Ltd.
3) Addl .CI T Vs. UP Co-operati ve Federati on Ltd.
( 1978) 7 C TR ( Al l ) 293.
4) CI T Vs. Shri A mrel i Zi l l a Sha kari Khari d
Vehcan Sangh Ltd. ( 1991) 39 I TD 65.
9. The Ld. counsel for assessee thereafter contended that the Hon'bl e Juri sdi cti onal Hi gh Court i n the cas e of CI T Vs. Doaba Co-operati ve Sugar Mi l l s Ltd., 230 I TR 77 5,had hel d that the gross i nterest i ncome qual i fi ed for ded ucti on u/s 80P( 2) ( d) of the Act and not th e net i nterest i nco me. Copy of the order was pl aced before us. The Ld. counsel for assessee, therefore, contended that the advances made by i t to Mi l kfed qual i fi ed as i nvestment and gross i nterest i ncome earned therefrom amounti ng to Rs.49,90,022/- thus had been ri ghtl y cl ai med as deducti bl e under the provi si ons of secti on 80P( 2) ( d) of the Act and the acti on of the l o wer authori ti es i n denyi ng the same was not justi fied i n l a w and needed to be set asi de.
10. The Ld. DR, on the other hand, rel i ed upon the orders of the l o wer authori ti es.
11. After the concl usi on of the heari ng on 13-10-18, i t came to the noti ce of the Bench that the Hon'bl e Juri sdi cti onal Hi gh Court had i n the case of MI LKFED i tsel f hel d that onl y net i nterest i ncome was el i gi bl e for deducti on u/s 80P( 2) ( d) of the Act i n the fol l o wi ng t wo cases:
1. The Punjab State Cooperative Milk Producer's Federation Ltd.
Vs. Commissioner of Income Tax-II, Chandigarh and another (2016 238 Taxman 207 (P&H).
9 ITA No.1467/Chd/2016
A.Y.2009-10
2. The Punjab State Cooperative Milk Producers Federation Ltd.
Vs. Commissioner of Income-Tax and another [2011] 336 ITR 495(P&H).
And that even the Ape x court had hel d that i t was onl y the net i ncome whi ch was el i gi bl e for deducti on u/s 80P i n the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. vs. CIT (1993) 114 CTR (SC) 459 : (1993) 203 ITR 1027 (SC)
12. The appeal was therefore refi xe d for confronti n g the sai d deci si ons to the conce rned parti es a nd seeki ng cl ari fi cati on from them, on 11/01/19. On the sai d date the heari ng was adjourned to 16-01-19 on the request of Ld.Counsel for the assessee. On the sai d date when confronted wi th the sai d decisi ons, Ld.Counsel for the assessee stated that he was una ware of the sai d deci si ons and accordi ngl y sought ti me to fi l e repl y to the same. It was poi nted out to hi m that th e Hon'bl e Hi gh court had consi dered the d eci si on i n the ca se of Doaba ( sup ra) i n the sai d deci si ons whi l e hol di ng that onl y net i nterest was el i gi bl e for deducti on and i t was al so poi nted out that the deci si ons had be en rendered i n t he conte xt of MI LKFED from whi ch the assessee had earned i nterest . The Ld. Counsel for the assessee was therefore asked to fi l e repl y by the 21 s t of Januar y 2019, fai l i ng whi ch i t woul d be deemed that he had nothi ng to sa y on the matter. No repl y was received by the sai d date.
13. We have heard the ri val contenti ons and perused the orders of the authori ti es bel o w . We do not fi nd meri t i n the contenti on of th e Ld. counsel fo r assessee that the enti re i nterest i ncome earned by i t fro m Mi l kfed was e l i gibl e for 10 ITA No.1467/Chd/2016 A.Y.2009-10 deducti on u/s 80P( 2) ( d) of the Act. Undeni abl y the assessee had e xpl ai ned to the authori ti es bel o w that the i nterest i ncome had been earned on advance made to Mi l kfed whi ch arranged the ra w materi al requi red by the assessee and the mechani sm of tr ansfer of funds was al so e xpl ai n ed as the surpl us col l ecte d by it from s al e of i ts prod ucts bei ng transferred to Mi l kfed as advance for arrangi ng raw materi al for it and the surpl us remaini ng wi th Mi l kfed earning i nterest thereon. It was al so poi nted out that the sai d arrangement was as per the terms and condi ti ons agreed bet ween the t wo parti es and i n co nsonance to the byel a ws of the assessee soc i et y. The Revenu e has not contro vered the above facts before us. Therefore we hol d that th e fi ndi ngs of the Ld.CI T( A) that the assessee had fai l ed to expl ai n the mechani sm of t ransfer of fund s to MI LFED i s i ncorrect. Further we have al so gone through the deci si ons ci ted by the Ld. counsel for assessee before us, and fi nd that it has been hel d by courts t hat l oans and a dvances gi ven fo r arrangi ng purchases qual i f y as i nvestment for the purpose of secti on 80P( 2) ( d) of the Act. I n the case of CI T, Luckno w vs U.P Co- operati ve ( supra) , the Hon'bl e Ape x court hel d that amounts advanced to member cooperati ve soci eti es for enabl ing them to carr y out w ork entrusted to them by the assessee qual i fi ed as i nv estments and i n terest earned th ereon was el i gi bl e for deducti on u/s 14( 3) ( 1) ( i i ) of the Income Ta x Act,1922, whi ch i s para materi a wi th cl ause ( d) of secti on 80P of the I ncome Ta x Act,1961. The Hon'bl e Ape x Court hel d as under:
11 ITA No.1467/Chd/2016
A.Y.2009-10 "We shall now deal with the other question. Dealing with it, the High Court stated:
"The facts relating to the case for exemption in respect of the two amounts of Rs. 51,295 and Rs. 58,937 (the second amount is no more in dispute) covered by question No. (3) may be stated. We shall begin by referring to facts relating to advances made in relation to the sugar business. The assessee was appointed as one of the wholesale dealers for distribution of sugar in this State. It had, in pursuance of an agreement entered into between it and the State Government, to arrange for lifting, handling, storing and distributing to the retailers the stocks of sugar released by the Government of India. The district co-operative development federations of Deoria, Garhwal, Tehri Garhwal, Pilibhit, Etawah and Allahabad, entered into agreements with the assessee to work as agents for the wholesale distribution of sugar in their districts. A sample of the agreement entered into between the assessee and these various district cooperative development federations .....' The assessee was to make necessary investments by way of payment of price of sugar to be procured from the factories and also to pay the administrative charges incurred for the distribution of sugar. This administrative charge was, however, recouped by the agents and paid over to the assessee. The delivery of the sugar from the various factories was to be taken by the various district co-operative development federations which had entered into agreements with the assessee on behalf of the assessee as soon as the release orders were issued by the Government of India. The sugar so received was to be stored in godowns and was to remain under the custody of godown-keepers of the assessee or the bankers of the assessee. The salaries of the godownkeepers and the chowkidars appointed for safe custody of the stocks of sugar were to be paid by the agents . . .'' ''The sugar so stored was to be released to the agents as and when required by them on full payment of its price at the rate fixed by the State Government or the District Magistrate concerned. The stocks of sugar taken over by the agents was to be sold by them to retailers, and permit holders who were to be nominated by the District Magistrate or the officer authorised by him. The wholesalers' margin on the sugar sold for the period beginning September 1959, onwards with which we are concerned was Rs. 2.06 per bag. The share of the assessee and the district cooperative development federations in this amount is set out in cl. 18 of the agreement . . ."
The High Court extracted the terms and came to hold:
"It appears from a letter dt. 30th Sept., 1959, that the various district co-operative development federations were not in a position to arrange the entire finances for the business and accordingly the assessee agreed to arrange for finances of the business on certain terms and conditions. The terms and 12 ITA No.1467/Chd/2016 A.Y.2009-10 conditions on which the finances were to be arranged may be extracted: . . . . .
(5) the money invested in the business will earn interest at 6 per rent per annum . . ."
It will be seen that money which the assessee made available to the district co-operative development federations was to be utilised for the purchase of the stocks of sugar which the district co-operatives sold as agents of the assessee. In the accounting year in question, the assessee realised the the following amounts of interest from the district co-operative development federations mentioned below:
Amount Name Rs.
(i) District Co-operative Development 4,694.16 Federation Ltd., Deoria.
(ii) District Co-operative Development 15,797 60 Federation Ltd., Garhwal.
(iii) District Co-operative Development 5,557.50 Federation Ltd., Tehri Garhwal
(iv) District Co-operative Development 2,984 24 Federation Ltd., Etawah.
(v) District Co-operative Development 2,616.21 Federation Ltd., Pilibhit.
(vi) District Co-operative Development 19,645 53 Federation Ltd., Allahabad.
Total 51,295.24
8. The dispute covered by the second question to be answered is over this amount. The ITO as also the two appellate authorities, relying upon the decisions of the Bombay High Court in Sir Chinnubhai Madhavlal vs. CIT (1937) 5 ITR 210 (Bom) : TC 14R.384 and CIT vs. Bombay State Co-operative Bank Ltd. (1966) 59 ITR 31 (Bom) : TC26R.691, held that the amount on which interest had been earned under the agreement did not constitute investment and, therefore, was not covered by s. 14(3)(iii) of the Act.
9. Sec. 14(3) provides that tax shall not be payable by a co-
operative society in certain situations. Clause (i) under its six sub-clauses refers to specific classes of co-operative societies in whose cases there is total exemption. Clause (ii) exempts income in respect of profits and gains of business of co- operative societies not covered by cl. (i) up to Rs. 15,000. Clause (iii) exempts interest and dividends and income derived from investments with any other co-operative society. Clause (iv) exempts income derived from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities while cl. (v) exempts interest on securities chargeable under s. 8 or any income from property 13 ITA No.1467/Chd/2016 A.Y.2009-10 chargeable under s. 9, where the total income of the co- operative society of specific types mentioned therein does not exceed Rs. 20,000.
10. There can be no dispute on the conclusion reached by the High Court that the money provided by the assessee was by way of investment. In fact, if this money had not been made available, the business as stipulated under the scheme could not have been carried out and perhaps there would have been no business. "Investment" has not been defined in the Act. P. Ramanatha Aiyar's Law Lexicon (Reprint Edition 1987) states:
"The term 'invest' is used in a sense broad enough to cover the loaning of the money but is not restricted to that mode of 'investment' or loans made on commercial paper. The word 'invest' has been judicially defined as follows:
'To place property in business; to place so that it will be safe and yield a profit. It is also commonly understood as giving money for some other property (as) investing funds on lands and houses. 'Investment' means, in common parlance, putting out money on interest, either by way of loan, or by purchase of income producing property..."
In the facts of the present case, the money provided by the assessee was necessary to run the business and generate profits; under the agreement, interest has been earned. In the peculiar situation appearing in the case as found by the High Court, the provision of money by the assessee, the purpose for which the money was provided, the stipulation for earning of interest, were all relevant considerations to be taken into account and it becomes difficult to take a view different from that of the High Court that the funding was investment and under the agreement, interest has been earned. Admittedly, the funding was to other co-operative societies. In our opinion, therefore, the amount of Rs. 51,295 squarely came within s. 14(3)(iii) of the Act. The High Court, therefore, was right in its conclusion that no tax was payable on the said amount. We would like to point out that under s. 14(3), provision has been made to extend certain advantages to co-operative societies in order that the legislative purpose of providing incentives to the co-operative movement may be fulfilled. The High Court was right in holding that the provisions contained in s. 14(3) should be liberally construed.
11. Our answer to the second question, therefore, is that, on the facts and in the circumstances of the case and on a true and correct interpretation of the various clauses of the agreement, the sum of Rs. 51,295 received as interest on advances in the assessee's income from sugar business was exempt under s. 14(3) of the IT Act, 1922.
14. Rel yi ng on the aforesai d deci si on of the ape x court, the I TAT, i n the ca se of Amrel i Zi l a Sahkari Khari d Vehcan 14 ITA No.1467/Chd/2016 A.Y.2009-10 Sangh Ltd.( supra) hel d that i nterest recei ved by a co- operati ve soci et y from state mark eti ng federati on f rom l oans gi ven for purch ase of goods on thei r behal f w oul d come wi thi n the purvi ew of secti on 80P(2) ( d) of the Act, the funds provi ded qual i f yi ng as i nvestme nt wi th other c ooperati ve soci eti es. The rel evant fi ndi ngs of the I TAT at par a 6.4 of i ts order are as under:
"6.4. We have considered the submissions made by the learned representative's and have also gone through the relevant paras of the CIT(A)'s order and other documents to which our attention was drawn during the cross of hearing. A perusal of the printed balance sheet at page 25 there of reveals that in the interest account appearing in the ledger folio No. 254 credit in interest account was Rs. 16,40,882.95 ps. The debits in this interest account was Rs. 14,03,572.33 ps. Thus there was a net credit in interest account of only Rs. 2,37210. The details of credits in interest account aggregating to Rs. 16,40,882 placed at page 17 of the paper book reveals that the assessee received by way of interest an amount of Rs. 13,93,250 from, Gujarat State Sahakari Marketing Federation Ltd. For Loan given by the society for purchase of groundnut, groundnut seeds, (HPS) and Til, etc. The CIT(A) granted deduction under s. 80P(2)(d) on the aforesaid amount of interest of Rs. 13,93,250 received from said Marketing Federation. In our view the nature of interest income received by the assessee from Gujarat Sate Sahakari Marketing Federation Ltd. for loan given for the purchase of goods on their behalf would clearly come within the scope of, exemption provided under s. 80P(2)(d). The funds provided by the society for purchase of goods on behalf of the said Federation would be treated as investments with the other co-operative society and interest income derived therefrom will be eligible for grant of exemption under this section. This view is fully fortified by the decision of Hon'ble Supreme Court in the case of CIT vs. U.P. Co-operative Federation Ltd. (1989) 76 CTR (SC) 22:
(1989) 176 ITR 435 (SC)."
13. The Ld. DR has been unabl e to di sti ngui sh the sai d deci si ons before us. Therefore, the advances gi ven by the assessee soci et y to Mi l kfed, we hol d qual i f y as i nvestment for the purpose of secti on 80P( 2) ( d) of the Act.
14. Havi ng sai d so, we ho weve r ,do not agree wi th the contenti on of the Ld.Counsel for the assessee that the gross 15 ITA No.1467/Chd/2016 A.Y.2009-10 i nterest i ncome woul d qual i f y for deducti on u/s 8 0P( 2) ( d) of the Act, i n vi e w of the deci si on of the ape x court in Sabarkantha Zilla Kharid Vechan Sangh Ltd. vs. CIT (1993) 114 CTR (SC) 459 : (1993) 203 ITR 1027 (SC and that of the juri sdi cti onal Hi gh Court i n the case of MI LKFED i tsel f ,as poi nted out to the Ld.Couns el for the assessee ,i n pre cedi ng years wh erei n i nterest ea rned by i t from di stri ct cooperati ve soci eti es l i ke the assessee by vi rtue of the arrangement as e xpl ai ned i n the present case, was hel d to be deduct i bl e net of e xpen ses i ncurred and not gross. The Ho n'bl e Hi g h court fol l o wed the deci si on of the ape x court i n the cas e of Sabarkant ha ( supra) and f urther has al so di sti ngui shed the deci si on rendered in the case of Doaba Cooperati ve as under:
"12.The assessee is entitled to deduction under s. 80P(2)(d) of the Act after excluding the expenditure attributable to the earning of such income. The apex Court in Sabarkantha Zilla Kharid Vechan Sangh Ltd.'s case (supra), where the High Court while rejecting the claim of the assessee had held that the assessee who was engaged in the purchase of agricultural implements, seeds, live-stocks etc. was entitled to deduction under s. 81 of the Act from tax only in relation to net profit and not gross profits. It was held as under :
"The said provision, as seen therefrom, undoubtedly exempts an assessee-co-operative society, which carries on the business envisaged therein, from payment of income-tax on profits and gains of such business. But the controversy which relates to the said provision is, whether the income-tax not payable thereunder, falls to be calculated either with reference to the full amount of profits and gains of the co- operative society's business, as contended on behalf of the assessee or with reference to the net amount of profits and gains of the co-operative society's business, as otherwise computable under the provisions of the IT Act for the purpose of charging income-tax thereon, as contended on behalf of the Revenue. If the relevant provisions of the IT Act providing for charging a person including a co-operative society with income-tax on "profit and gains" of such person's business show that it is the net profits and gains, i.e., income of such business computed in accordance with the provisions of the IT Act, which is includible in such person's total income liable to charge of income-tax, it must flow therefrom, as a necessary 16 ITA No.1467/Chd/2016 A.Y.2009-10 corollary thereof, that the "profits and gains" for which exemption from income-tax is envisaged under s. 81(i)(d) of the IT Act, ought to be net profits and gains, i.e. income of business computed in accordance with the provisions of the IT Act which is includible in such person's total income for charging income-tax thereon."
13. It may be noticed that s. 80P was inserted in place of s. 81 which was simultaneously deleted by Finance (No. 2) Act, 1967, w.e.f. 1st April, 1968.
14. Further, s. 14A was inserted in the Act by Finance Act, 2001 w.e.f. 1st April, 1962. The said section provides that any expenses incurred by the assessee for earning income which does not form part of total income under the Act, shall not be an allowable expenditure. The apex Court in Walfort Share & Stock Brokers's case (supra), defining the scope of s. 14A of the Act, incorporated retrospectively from 1st April, 1962, had laid down as under :
"The insertion of s. 14A with retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001 dt. 22nd Nov., 2001). In other words, s. 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of s. 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of s. 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of s. 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of s. 14A. In s. 14A, the first phrase is 'for the purposes of computing the total income under this Chapter' which makes it clear that various heads of income as prescribed under Chapter IV would fall within s. 14A. The next phrase is, 'in relation to income which does not form part of total income under the Act'. It means that if an 17 ITA No.1467/Chd/2016 A.Y.2009-10 income does not form part of total income, then the related expenditure is outside the ambit of the applicability of s. 14A. Further, s. 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Secs. 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Secs. 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in ss. 15 to 59 are now to be allowed only with reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in ss. 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non- taxable has, in principle, been now widened under s. 14A. Reading s. 14 in juxtaposition with ss. 15 to 59, it is clear that the words "expenditure incurred" in s. 14A refers to expenditure on rent, taxes, salaries, interest, etc. in respect of which allowances are provided for (see ss. 30 to 37)."
15. Adverting to the judgments relied upon by the learned counsel for the assessee, the same do not advance its case. Suffice it to notice that the Doaba Co-operative Sugar Mills case (supra) was a case prior to insertion of s. 14A by Finance Act, 2001 retrospectively from 1st April, 1962 and would, thus, be of no assistance to the assessee. Further, this Court in King Export's case (supra), on consideration of facts involved therein had concluded that there was no expenditure which had been incurred by the assessee for earning the income and the same did not form part of total income. That is not the situation in the present case.
16. In view of the above, the substantial questions of law are answered against the assessee and in favour of the Revenue."
15. I n vi e w of the same we have no hesi tati on i n appl yi ng he sai d case l a ws to the facts of the present case and thereby uphol d the order of the Ld.CI T( A) hol di ng that the net i nterest i nco me qual i fi ed for deducti on u/s 8 0P( 2) ( d) of the Act.
16. I n vi e w of the above facts and the posi ti on of l a w i n thi s regard, we hol d that the advances gi ven by the assessee cooperati ve soci et y to Mi l kfed qual i fi es as i nvestment for the purpose of deducti on u/s 80P( 2) ( d) of the Act and the net 18 ITA No.1467/Chd/2016 A.Y.2009-10 i nterest i ncome earned therefrom i s el i gi bl e for deducti on under the sai d secti on. Si nce i n the facts of t he present case no net i nter est i ncome was e arned by the ass essee, the assessee, we hol d, was not enti tl ed to any cl ai m o f deducti on u/s 80P( 2) ( d) of the Act. The ord er of the CI T( A) uphol di ng the deni al of cl a i m of deducti on u/s 80P( 2) ( d) of the Act of Rs.49,90,022/- i s, therefore, uphel d I n vi e w of the above, the grounds rai sed by the ass essee are di smi ssed.
1 7. I n t h e r es u l t , t h e a p p e a l of t h e a ss e s s e e i s d i s m i s se d .
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
संजय गग अ नपण
ू ा ग%ु ता
(SANJAY GARG ) (ANNAPURNA GUPTA)
याय क सद य/ Judicial Member लेखा सद य/ Accountant Member
)दनांक /Dated: 31 January, 2019
*रती*
आदे श क त*ल+प अ,े+षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु-त/ CIT
4. आयकर आयु-त (अपील)/ The CIT(A)
5. +वभागीय त न0ध, आयकर अपील$य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File
आदे शानस
ु ार/ By order,
सहायक पंजीकार/ Assistant Registrar