Income Tax Appellate Tribunal - Mumbai
Maharashtra State Co-Operative Land ... vs Income-Tax Officer on 9 March, 1992
Equivalent citations: [1992]41ITD491(MUM)
ORDER
G.K. Israni, Judicial Member
1. These appeals by the assessee are directed against the consolidated order of the Commissioner dated 30-3-1988 passed under Section 263 of the Income-tax Act, 1961 in relation to the assessment years 1983-84 and 1984-85.
2. After having noticed the assessment orders, the Commissioner formed a prima facie opinion to the effect that while computing the total income of the assessee the Income-tax Officer had wrongly allowed deduction under Section 80P of the Income-tax Act in respect of its dividend income. He thereupon initiated proceedings under Section 263 of the Act and, after having heard the assessee, passed the impugned order and directed the Income-tax Officer to make a fresh assessment withdrawing the deduction under Section 80P in respect of the dividend derived by the assessee from its investments with persons other than Co-operative Societies.
3. The assessee is a Co-operative Society established under the provisions of the Maharashtra Co-operative Societies Act. As its very name suggests, the assessee is engaged in the business of raising funds and advancing them by way of long-term loans for the purpose of land development in the State of Maharashtra. The assessee's income during the two years under consideration included, inter alia, dividend derived from the shareholding in the Agricultural Research Development Corporation (ARDC for short), which is a Government Corporation. It was statutorily necessary for the assessee to purchase ARDC's shares because 90 per cent of the assessee's business was refinanced by that Corporation. In response to the notice under Section 263, the assessee submitted before the Commissioner that all these investments in the ARDC and also in the NABARD, Central Warehousing Corporation and Industrial Finance Corporation were treated as investments of the assessee bank. Such income was, therefore, exempt under Section 8OP(2)(a)(i) of the Act. This contention of the assessee did not find favour with the Commissioner, who came to the conclusion that the income from these investments in shares of various companies would fall for consideration only under Section 80P(2)(d), which was a special provision dealing with this source of income. It would make no difference to the issue that the investments indirectly help the carrying on of business of banking by the assessee. Since the dividends were not from investments with any co-operative society they would not qualify for exemption under Clause (d) of Sub-section (2) of Section 80P. Since the dividends fell under Clause (d) of Sub-section (2) of Section 80P those could not be considered under Clause (a_)(i') On the basis of this view, the Commissioner felt that the Income-tax Officer had allowed the deduction without proper verification of the facts or without application of mind to the relevant provisions of law. He accordingly set aside the assessment order insofar as it related to the grant of exemption under Section 80P in respect of the aforesaid dividend income for the two years and directed the Income-tax Officer to make a fresh assessment withdrawing the deduction.
4. Assailing the impugned order, the learned counsel for the assessee, at the very outset, conceded that this part of the assessee's income was not derived from investments with Co-operative Society (or societies) and, therefore, Clause (d) of Sub-section (2) of section SOP did not come into play. He, however, contended that Clause (d) and Clause (a) of Sub-section (2) of Section 80P were not mutually exclusive. The learned counsel submitted that the exemption was available to the assessee under Clause (a)(0 of Sub-section (2) and, therefore, the Commissioner clearly erred in passing the impugned order. According to the learned counsel, the assessee, a cooperative society, was engaged in carrying on the business of banking. The dividend income derived by the assessee from the aforesaid investments was attributable to its business of banking. Because of the statutory requirements of various laws or with a view to maintain liquidity ratio and/or to assure return on idle funds, the assessee had to make investments in institutions other than co-operative societies. The income arising from such investments was attributable to the business of banking carried on by the assessee. Such income, was, therefore, entitled to deduction under Section 80P of the Act. Support on this point was sought from the decisions mentioned hereunder:
1. U.P. Co-operative Bank Ltd. v. CIT [1966] 61 ITR 563 (All.),
2. CIT v. Madurai District Central Co-operative Bank Ltd. [1984] 148 ITR196 (Mad.),
3. Madras Co-operative Central Land Mortgage Bank Ltd. v. CIT [1968] 67 ITR 89 (SC),
4. Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC).
5. We have considered the facts and circumstances of the case and made a thorough study of the aforesaid decisions and the provisions of Section 80P and find no hesitation in agreeing with the learned counsel for the assessee that the impugned order of the Commissioner is totally misconceived and liable to be quashed. The assessee, a co-operative society, is engaged in carrying on the business, which is essentially and in pith and substances business of banking. It accepts deposits and otherwise raises funds and lends long-term loans to agriculturists for the development of their lands. This part of the activity of the assessee thus clearly constitutes carrying on the business of banking. Now, under the provisions of the Banking Regulations Act or similar other laws, every banking company has to maintain a specified liquidity ratio or is statutorily required to invest in specified or approved securities or shares. This is done with a view to ensure the required liquidity on the part of the institutions carrying on the business of banking. In other cases, such institutions feel advised to invest in the shares of companies or other institutions with a view to ensure return on the surplus funds lying idle with them. In such circumstances, that part of the activity of such institutions cannot be held to be other than banking activity. The provisions of Sub-clause (0 of Clause (a) of Sub-section (2) of Section 80P would, therefore, clearly be applicable to the profits and gains attributable to the carrying on of such activity. If any case-law support is needed on the point, the same is available in the aforesaid judgments relied upon by the learned counsel for the assessee.
6. A closer study of the impugned order of the Commissioner would show that the Commissioner has not disputed the assessee's contention that it is engaged in the business of banking or that its income from the aforesaid activities constitutes profits and gains of business attributable to banking activity. It appears that the reason which has persuaded the Commissioner to pass the impugned order was the view taken by him that since the dividends were not from co-operative societies they would not qualify for exemption under Clause (d) of Sub-section (2) of Section 80P and in the case of such dividends exemption under Sub-clause (i) of Clause (a) of that section would not be available. The relevant part of the Commissioner's order, in which he has taken this view, reads as under:
In my view the income from the investment in shares of various companies will fall for consideration under Section 80P(2)(d) as this is a special provision dealing with this source. It will make no difference to the issue that the investments indirectly held carrying on the business of the assessee. Since the dividends are not from the cooperative society, those will not qualify for exemption under that provision. As dividends fell under Clause (d) they cannot be considered under Clause (a)(0- It is well settled that action under Section 263 can be taken where deduction has been allowed or relief granted without proper verification of the facts or without application of mind to the relevant provisions of law.
7. With regard to the above aspect of the matter it was urged by the learned counsel for the assessee that Clauses (d), and (a) are not mutually exclusive and in case an assessee is entitled to a deduction under Clause (a) the same could not be denied to him on the ground that the income in relation to which the deduction was claimed was also of the nature referred to in Clause (d) of that sub-section, but that exemption was not available to him under the other clause. The fact that the Commissioner has taken this view is indicated by his observation to the effect that "as there is a special provision dealing with this source it would make no difference to the issue that the investments indirectly held carrying on the business of the assessee". We are afraid, we are not in a position to subscribe to this view of the Commissioner. Firstly the Clauses (a) and (d) of Sub-section (2) of Section 80P are not mutually exclusive. Secondly since they are a piece of beneficial legislation, they will have to be interpreted in a manner as to substantially advance the object and policy under lying this part of the enactment.
8. Looking to the facts and circumstances of the case and the position of law as discussed above, we hold that the Commissioner was not justified in the present case in proceeding under Section 263 and passing the impugned order. That order is thus liable to be quashed. We, therefore, allow these appeals and vacate the impugned order of the Commissioner and restore the assessment orders passed for the two assessment years under appeal. The appeals are allowed accordingly.