Income Tax Appellate Tribunal - Pune
Mahesh Nagari Sahkari Pat Sanstha ... vs Assessee on 13 May, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE: SHRI R.K. PANDA, ACCOUNTANT MEMBER
AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
ITA No. 2180/PN/2013
Assessment Year : 2010-11
Mahesh Nagari Sahkari Pat Income Tax Officer,
Sanstha Ltd., Ward - 1(2), Sangli
1008, B - Kunte Wada, Vs.
Kapad Peth, Sangli
(Appellant) (Respondent)
PAN No. AAAAM0513F
Revenue By: Shri M.M. Chate
Assessee By: Shri S.U. Deshpande
Date of hearing : 30-04-2015
Date of pronouncement : 13-05-2015
ORDER
PER VIKAS AWASTHY, JM:-
The appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals), Kolhapur dated 06-11-2013 for the assessment year 2010-11. The only issue raised by the assessee in appeal is disallowance of deduction u/s. 80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
2. The brief facts of the case as emanating from records are: The assessee is a Co-operative Credit Society. The assessee filed its return of income for the assessment year 2010-11 on 11-10-2010, declaring NIL income. The return of the assessee was processed u/s. 143(1) on 20-05-2011 declaring refund of Rs.4,940/-. In the meantime, the assessee filed revised return of income on 22-03-2011 declaring NIL income and claiming refund of Rs.44,710/-. In both the returns of 2 ITA No. 2180/PN/2013, A.Y. 2010-11 income the assessee had declared total income of Rs.1,09,49,000/-.
Both the returns of income, i.e. the original return as well as the revised return were selected for scrutiny. During the course of scrutiny assessment, the Assessing Officer observed that during the period relevant to assessment year 2010-11, the assessee has received interest of Rs.29,28,361/- from bank deposits. On the said interest income the assessee has claimed deduction u/s. 80P(2)(a)(i) of the Act. The Assessing Officer held that the interest income from deposits with non-
cooperative banks is not from credit facilities extended by assessee to its members and thus, is not a business income of the assessee. The said interest incomes does not qualify for deduction u/s. 80P and is chargeable to tax under the head "Income From Other Sources".
Aggrieved by the assessment order dated 18-12-2012, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).
The Commissioner of Income Tax (Appeals) by following the decision of Hon'ble Supreme Court of India in the case of Totgars' Co-op. Sale Society Ltd. Vs. ITO reported as 322 ITR 283 (SC), dismissed the appeal of assessee.
The assessee has now come in second appeal before the Tribunal assailing the findings of the First Appellate Authority.
3. Shri S.U. Deshpande appearing on behalf of the assessee submitted, that the authorities below have erred in coming to the conclusion that the income of Rs.29,28,361/- are not from the business activities of the assessee. The Ld. AR further submitted that the authorities below have grossly erred in following the decision of the Hon'ble Supreme Court of India in the case of Totgars' Co-op. Sale Society Ltd. Vs. ITO (supra). He contended that the issue in appeal is squarely covered by the decision of Co-ordinate Bench of the Tribunal in 3 ITA No. 2180/PN/2013, A.Y. 2010-11 ITA No. 1336/PN/2011 in the case of ITO Vs. Niphard Nagari Sahakari Patsanstha Ltd. decided on 31-07-2013. In the said case the Co-
ordinate Bench after considering the ratio laid down by the Hon'ble Supreme Court of India in the case of Totgars Co-op. Sale Society Ltd.
Vs. ITO (supra) distinguished the same and held that the assessee is eligible to claim deduction u/s. 80P(2)(a)(i) on the interest income.
4. On the other hand Shri M.M. Chate representing the Department strongly supported the impugned order. The Ld. DR contended that the Commissioner of Income Tax (Appeals) has rightly followed the judgment of the Hon'ble Supreme Court of India rendered in the case of Totgars' Co-op. Sale Society Ltd. Vs. ITO (supra). The Ld. DR reiterated the reasons cited by the Assessing Officer and the Commissioner of Income Tax (Appeals) in rejecting the claim of assessee.
5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also examined the decisions on which both the sides have placed reliance. It is an undisputed fact that the assessee is Co-operative Credit Society. It is also not disputed that the assessee has earned interest income of Rs.29,28,361/- from the deposits with nationalized bank.
We find that the issue raised in the present appeal is similar to the one adjudicated by the Co-ordinate Bench of the Tribunal in the case of ITO Vs. Niphard Nagari Sahakari Patsanstha Ltd. (supra). In the said case the Tribunal has considered the judgment of the Hon'ble Supreme Court of India rendered in the case of Totgars' Co-op. Sale Society Ltd.
Vs. ITO (supra), and has distinguished the same, on facts. The relevant extract of the order of the Co-ordinate Bench of the Tribunal in the aforesaid case is reproduced here-in-below:
4 ITA No. 2180/PN/2013, A.Y. 2010-11"11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case there is no dispute to the fact that the assessee is a cooperative society engaged in the business activity of credit cooperative society, i.e. providing credit facility to its members. According to the Revenue the income of the society on account of interest from banks other than cooperative banks, interest on mutual funds, long term and short term capital gain on sale of mutual funds etc. are not covered by the activity of providing credit facilities to its members and hence not eligible for deduction u/s.80P(2)(a)(i) of the Income Tax Act in view of the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra). We find the Ld. CIT(A) allowed the claim of the assessee on the ground that the assessee is entitled to deduction u/s.80P(2)(a)(i) on account of interest from banks other than cooperative banks, interest on mutual funds long term and short term capital gain on mutual funds etc. While doing so, he held that the decision in the case of Totagar's Cooperative Sale Society Ltd. (Supra) is not applicable to the facts of the present case since in that case the amount invested in short term deposits and securities was not out of interest bearing deposits collected from members but out of sale proceeds of agricultural produce of farmer members marketed by the society. Further, the Hon'ble Apex Court has considered only the latter part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in carrying on the business of banking is eligible for deduction.
11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s. Jafari Momin Vikas Cooperative Credit Society Ltd. (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) has observed as under :
"17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in it's applicably in the circumstances of the assessee's case.5 ITA No. 2180/PN/2013, A.Y. 2010-11
18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act.
19. The issue dealt with by the Hon'ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under:
"What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? in our view, such interest income would come in the category of 'income from other sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer..."
19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon'ble Supreme Court -
"(On page 286) 7............Before the assessing officer, it was argued by the assessee(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the 6 ITA No. 2180/PN/2013, A.Y. 2010-11 Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s)."
19.2 From the above, it emerges that -
(a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits;
(b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members;
(c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and
(d) that the surplus had arisen emphatically from marketing of agricultural produces.
19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds.
19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely:
(1) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds;
- in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members;
(2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such;
7 ITA No. 2180/PN/2013, A.Y. 2010-11- in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds;
19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source: Balance Sheet of the assessee available on record] 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly.
19.7 Before parting with, we would, with due regards, like to record that the ruling of the Hon'ble jurisdictional High Court in the case of CIT v. Manekbang Co-op Housing Society Ltd reported in (2012) 22 Taxmann.com 220(Guj) has been kept in view while deciding the issue."
11.2 We find the Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Aplappuzha Bank Ltd. Vs. ITO (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) and various other decisions has observed as under :
"5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co-operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the assessee co-operative society was to provide 8 ITA No. 2180/PN/2013, A.Y. 2010-11 credit facility to its members and market the agricultural produce.
The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totgar's Co-operative Sale Society Ltd (supra) is not applicable in respect of the co-operative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee co-operative society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income, the assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Co- operative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Co-operative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld.
6. In the result, the appeal of the revenue stands dismissed."
11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which in turn have considered the decision of the Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) we find no infirmity in the order of the Ld.CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.
9 ITA No. 2180/PN/2013, A.Y. 2010-116. The stand of the assessee right through has been that the society is not engaged in any other activity except receiving deposits from its members and providing credit facilities to its members. The assessee has made deposits with nationalized banks in order to maintain liquidity and provide ready availability of funds for repayment of deposits on redemption/maturity. These facts have not been refuted by the department. Since, the issue raised in the appeal is identical to the one already adjudicated by the Co-ordinate Bench of the Tribunal, we respectfully follow the same ratio.
Thus, we hold that the assessee is eligible to claim deduction u/s.
80P(2)(a)(i). In view of the above, the impugned order is set aside and the appeal of the assessee is allowed.
Order pronounced on Wednesday, the 13th day of May, 2015 at Pune Sd/- Sd/-
(R.K. PANDA) (VIKAS AWASTHY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, Dated: 13th May, 2015
RK/PS
Copy to
1 Assessee
2 Department
3 The CIT(A), Kolhapur
4 The CIT-I/II, Kolhapur
5 The DR, ITAT, "B" Bench, Pune.
6 Guard file.
//True Copy//
By Order
Assistant Registrar,
Income Tax Appellate Tribunal,
Pune