Income Tax Appellate Tribunal - Kolkata
M/S National Coal Development ... vs Ito, Wd-32(2), Kolkata, Kolkata on 18 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH : KOLKATA
[Before Hon'ble Sri N.V.Vasudevan, JM & Shri J.Sudhakar Reddy, AM]
I.T.A No. 1249/Kol/2015
Assessment Year : 2012-13
M/s. National Coal Development Corporation -vs.- I.T.O., Ward-32(2)
Staff Cooperative Credit Society Ltd. Kolkata Kolkata
[PAN : AAALN 0409 N]
(Appellant) (Respondent)
For the Appellant : Shri Subash Agarwal, Advocate
For the Respondent : Shri Sallong Yaden, Addl. CIT
Date of Hearing : 14.08.2017.
Date of Pronouncement : 18.08.2017.
ORDER
Per N.V.Vasudevan, JM
This is an appeal by the Assessee against the order dated 23.07.2015 of C.I.T(A)-9, Kolkata relating to A.Y.2012-13.
2. Grounds raised by the assessee in this appeal reads as follows :-
" 1.For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the action of the A.O. in holding that the interest income earned by the assessee-credit society amounting to Rs. 40,76,664/- on account of fixed deposits does not qualify for deduction· u/s.80P.
2. For that the Ld. CIT(A) ought to have considered that the judgment in the case of Totgars Co - operative Sale Society Ltd. vs. ITO 322 ITR 283 (SC) is not applicable to the facts of the assessee's case.
3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) ought to have allowed the proportionate deduction in respect of interest paid / payable to the members out of the interest income.
4. For that the Ld. CIT(A) has erred in not adjudicating ground no. (vi) raised in the memorandum of appeal.
5. For that the Ld. CIT(A) has erred in not giving any finding/direction to the A.O. in respect of ground nos. (i) (vi) and (vii).2 ITA No.1249/Kol/2015
M/s. National Coal Development Corpn. Staff Coop.Credit Society Ltd.
A.Y.2012-13
6. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal."
3. The Assessee is a Co-operative Credit Society. The assessee derived the following interest income :-
(i)Interest on Fixed Deposit Rs.40,76,664/-
(ii) Interest on Reserve Fund Rs. 3,66,436/-
(iii)Interest on Bad Debt Fund Rs. 2,62,408/-
(iv) Interest on MSS (Net) Rs.20,33,844/-
Total Rs.67,39,352/-
4. The Assessee claimed deduction u/s 80P(2)(a) (i) of the Income Tax Act, 1961 (Act) on the aforesaid interest income. Under this sub-section, the profits and gains of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is exempt. What is exempt is the business income attributable to the activities of banking or providing credit facilities to the members which is included in the gross total income of the society. In order to earn deduction contemplated under this sub-clause, a co-operative society must prove that it has engaged itself in carrying on the business of banking or providing credit facilities to its members and that the profits and gains sought to be exempted are earned or made in the business carried on by it, otherwise not. The crux of the matter is that the deduction sought to be provided is undoubtedly in respect of profits and gains of the business carried on by the society. The business of the assessee must have a direct or proximate connection with or nexus to the earnings in question so as to avail deduction under this clause.
5. The AO disallowed the claim of the assessee on the ground that the interest income were not operation income and were liable to be assessed as income from other sources. In other words, the AO came to the conclusion that the interest income in question cannot said to be profits and gains attributable to the business of banking or providing 2 3 ITA No.1249/Kol/2015 M/s. National Coal Development Corpn. Staff Coop.Credit Society Ltd.
A.Y.2012-13 credit facilities to the members. In coming to the aforesaid conclusion the AO placed reliance on the decision of the Hon'ble Supreme Court in the case of Totgars' Co- operative Sale Society vs I.T.O. [2010] 188 Taxman 282 (SC). The AO also disallowed the claim of the assessee for deduction of a sum of Rs.1,50,000/- in arriving at income from business being provision of ex-gratia on the ground that it was a contingent liability. Similarly the AO also disallowed a sum of Rs.6,00,000/- while computing income from business on the guest house rent paid by the assessee by invoking the provision of section 40(a)(i) of the Act. i.e. for the reasons that the assessee had not deducted tax at source while making payment of rent.
6. Aggrieved by the aforesaid additions made by the AO the assessee preferred appeal before CIT(A). The CIT(A) confirmed the order of AO in so far as it relates to the interest income of Rs.40,76,664/- being interest on fixed deposit. In so far as disallowance of Rs.1,50,000/- being provision for ex-gratia and disallowance of Rs.6,00,000/- u/s 40(a)(ia) of the Act the CIT(A) did not render any decision though the assessee has adjudicated the additions made by the AO. In this regard ground no.6 and 7 of the grounds of appeal were filed by the assessee before CIT(A).
7. Aggrieved by the order of CIT(A) the assessee has filed the present appeal before the Tribunal.
8. At the time of hearing both the parties agreed that similar treatment of interest income as income from other sources in assessee's own case for A.Y.2006-07, 2007-08 and 2009-10 came up for consideration before the Tribunal and this tribunal in ITA Nos. 1792 to 1794/Kol/2012 by its order dated 02.03.2016 set aside the issue to the AO for fresh consideration. The following were the relevant observations of the tribunal :-
" 6. As regards the common issue involved in the Cross objections of the assessee relating to assessee's claim for deduction under section 80P(2)(a)(i) in respect of interest on bank fixed deposits (general), the Id. Counsel for the assessee has submitted that even though the same has been decided by the Tribunal in assessee's own case for assessment year 2008-09 by relying on the decision of the Hon'ble Supreme Court in the case of Totgars' Co-operative Sale 'Society Limited (supra), the Hon'ble Karnataka High Court in the decision rendered subsequently in the 3 4 ITA No.1249/Kol/2015 M/s. National Coal Development Corpn. Staff Coop.Credit Society Ltd.
A.Y.2012-13 case of Tumkur Merchants Souharda Credit Cooperative Ltd. -vs- ITO [2015] 55 taxmann.com 447 has distinguished the decision of the Hon'ble Supreme Court in the case of Totgars' Co-operative Sale Society Limited (supra) on certain specific aspects and after taking into consideration this distinction pointed out by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), the Tribunal in the case of ITO-vs- The Baskara Cooperative Credit Society Ltd. decided vide its order dated 18th November, 2015 passed in ITA No.1890/Ko1/2012 has restored the similar issue to the file of the AO after recording its observations in paragraph nos. 11 and 12 as under :
11. We have considered the. rival submissions and carefully perused the relevant .material available on record. In the case of Totgar's Cooperative . SaleSociety .Ltmited (supra) cited by the Id. D.R. in support of the .revenue's case .on the issue under consideration, the . assessee Society besides carrying on the business of providing credit facilities to its members was also marketing its agricultural produce. The sale proceed of such agricultural produce, which was payable to its members, in many cases-was retained by the assessee-Society and the same was invested-in short-term deposits/securities. In these facts and circumstances of the case, interest income received on short-term deposits/securities was held to be chargeable to tax under the head 'income from other sources' by the Hon 'ble Supreme Court observing that the amount invested by the assessee was a liability payable to its members, and, therefore, the interest income could not be said to be attributable to the activity mentioned in section 80P(2) (a) (i). In the case of Tumkur Merchants Souharda Credit Cooperative Limited (supra) cited by the Id.
Counsel for the assessee, the amount, which was invested in Bank to earn interest, was not an amount due to any member and which was not the liability shown in their accounts. In fact, the said amount, which was in the nature of profit and gains, was not immediately required by the assessee for lending money to the members as there were no takers and the same, therefore, had been deposited in a Bank so as to earn interest. In' these facts and circumstances of the case, as involved in the case of Tumkur Merchants Souharda Credit Cooperative Limited (supra), the decision of the Hon 'ble Supreme Court in the case of Totgar's Cooperative Sale Society Limited was found to be distinguishable on facts by the Hon 'ble Karnataka High Court and the interest income received by the assessee- Society on Bank deposits was held to be its business income being attributable to carrying on the business of banking eligible for deduction under section 80P(2)(a)(i) of the Act.
12. Keeping in view the decision of the Hon 'ble Supreme Court in the case of Totgar's Cooperative Sale Society Limited (supra) cited by the Id. D.R. and the decision of the Hon 'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Limited (supra) cited by the Id. Counsel for the 4 5 ITA No.1249/Kol/2015 M/s. National Coal Development Corpn. Staff Coop.Credit Society Ltd.
A.Y.2012-13 assessee, the question that arises in the case on hand, is whether the investment, which is made by the assessee-Society and which has fetched interest income in question, is made out of its own surplus fund, as was the case in Tumkur Merchants Souharda Credit Cooperative Limited (supra) or the same is made out of the amount payable by the assessee-Society to its members, which represent its liability as was the case in Totgar's Cooperative Sale Society Limited. In this regard, it is observed that this aspect has not been specifically considered either by' the Assessing Officer or by or by the ld. CIT(Appeals) in their respective orders and, therefore, there is no finding specifically given by them on this relevant aspect. In this regard, a perusal of the relevant balance-sheet of the assessee as on 31.03.2009 (copy of which at pages 67 & 68 of . the paper book), shows that. the total investment made by the assessee- Society was Rs.22.08 crores as on 31.03.2009, whereas' the Reserves & Surplus and Profit & Loss Alc. balance as on the said date were Rs.1.76 crores and 1.73 crores respectively. The major amount appearing on the liability side of the balance-sheet as on 31.03.2009 was deposit and other account aggregating to Rs.28.89 crores, which comprised of various funds and deposits. Keeping in view these facts and figures, we are of the view that the issue as to whether the . relevant investment is made by the assessee out of its own surplus funds or out of the amount payable to its members, which represent its liability, requires verification in order to determine the exact head of income under which the interest on such investment is chargeable to tax in the hands of the assessee by applying the relevant case laws. We, therefore, set aside the' impugned order of the Id. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the relevant factual position from record and after giving the assessee proper and sufficient opportunity of being heard. Ground No. 2 of the Revenue's appeal is accordingly treated as allowed for statistical purposes. "
7. Relying on the decision of the Tribunal in the case of Baksara Cooperative Credit Society Ltd. (supra), the Id. Counsel for the assessee has contended that the similar issue involved in the case of the assessee for all the three years under consideration may also be restored to the file of the AO and since the Id. DR has not raised any objection in this regard, we set aside the impugned orders of the Id. CII(A) on this issue and restore this matter to the file of the AO for deciding the same afresh as per the same direction as given in the case of Baksara Cooperative Credit Society Ltd. (supra). The Cross objections filed by the assessee thus are treated as allowed for statistical purposes."
9. Respectfully following the decision in assessee's own case we remand the issue for a decision afresh for AO as was done in A.Y. 2006-07, 2007-08 and 2009-10. Thus grounds No.1 to 3 are treated as allowed for statistical purposes.
5 6 ITA No.1249/Kol/2015M/s. National Coal Development Corpn. Staff Coop.Credit Society Ltd.
A.Y.2012-13
10. As far as grounds no. 4 and 5 are concerned these grounds relate to the disallowance of rent u/s 40(a)(ia) of the Act and disallowance for provision for ex- gratia. These issues though were raised in the grounds of appeal before CIT(A), have not been adjudicated by CIT(A). Therefore we are of the view that it would be just and proper to remand the issues to the AO to consider these disallowances also afresh in the light of the specific submission of the assessee that if the disallowance are sustained then the same will come to enhance the income of the assessee and on such enhanced income should be treated as attributable to the business of the banking or providing credit facilities to the members and deduction u/s 80P(2)(i)(a) should be allowed on such enhanced income also. Thus the appeal of the assessee is treated as allowed for statistical purposes.
11. In the result the appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the Court on 18.08.2017.
Sd/- Sd/-
[J.Sudhakar Reddy] [ N.V.Vasudevan ]
Accountant Member Judicial Member
Dated : 18.08.2017.
[RG PS]
Copy of the order forwarded to:
1. M/s. National Coal Development Corporation Staff Co-operative Credit Society Ltd., Thapar House, 25, Brabourn Road, 5th Floor, Kolkata-700001.
2. I.T.O., Ward-32(2), Kolkata.
3. C.I.T.(A)-9, Kolkata 4. C.I.T.-11, Kolkata.
5.CIT(DR), Kolkata Benches, Kolkata.
True copy By Order Senior Private Secretary Head of office/ D.D.O., ITAT , Kolkata Benches 6 7 ITA No.1249/Kol/2015 M/s. National Coal Development Corpn. Staff Coop.Credit Society Ltd.
A.Y.2012-13 7