2017 (6) TMI 72 - AT - Income Tax

Treatment to the income of Assessee co-operative Bank as income from other sources instead of income from business - Held that - Undoubtedly, this society has been registered under the Gujarat Society Act. Appellant has filed a copy of Resolution No.NSB/12/2005/M.97/Ch, passed by the Gujarat Government, Agriculture and Co-operative Department. Investments are stated at the cost of acquisition. ₹ 1 crore was invested with interest @12.5%, with a premium of ₹ 4.25 lacs. This amount was received and credited to account with Axis bank on its maturity. However, the premium amount is shown in the balance sheet as other current asset, and not expended out in the profit and loss account. It has been held in case of Jafari Momin Vikas Co-op Credit Society Ltd. vs. CIT. 2012 (6) TMI 838 - ITAT AHMEDABAD , in matter, Co-operative Credit Society purely functioning as society without bank is entitled to exemption as provided above in the Act.Since the society duly registered and functioning as credit societies be allowed exemption u/s.80(P)(2)(a)(i) of the Act. We allow the set off brought forward business loss of earlier years against income. See Morvi Mercantile Bank Limited. (In Liquidation) Versus Commissioner Of Income-Tax, Gujarat 1975 (8) TMI 31 - GUJARAT High Court - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of income as "income from other sources" instead of "income from business."
2. Allowance of set off brought forward business loss of earlier years against current income.
3. Eligibility for deduction under Section 80(P)(2)(a)(i) of the Income Tax Act, 1961.

Detailed Analysis:

1. Classification of Income:
The primary issue was whether the interest income of ?36,76,825/- should be classified as "income from other sources" or "income from business." The assessee, a co-operative bank under liquidation, earned this interest from fixed deposits with other banks. The Commissioner of Income Tax (Appeals) treated this income as "income from other sources" because the assessee was not engaged in any business activities during the relevant assessment year. The banking license had been cancelled by the Reserve Bank of India, and the bank was under liquidation, thus not carrying out any banking operations. The Tribunal upheld this classification, citing that the income derived was not from any business activity but from interest on deposits, aligning with the precedent set in the case of Morvi Mercantile Bank Ltd. vs. Commissioner of Income Tax.

2. Set Off Brought Forward Business Loss:
The second issue was whether the assessee could set off the brought forward business loss of earlier years against the current income of ?36,76,825/-. The Commissioner of Income Tax (Appeals) had denied this set off, asserting that since the income was classified under "income from other sources," it did not qualify for set off against business losses as per Section 72(1) of the Income Tax Act. However, the Tribunal allowed the set off, recognizing that the assessee's activities, although limited due to liquidation, were still part of the ongoing process of managing and recovering the bank's assets, which should be considered in the broader context of its business operations.

3. Deduction Under Section 80(P)(2)(a)(i):
The third issue concerned the eligibility for deduction under Section 80(P)(2)(a)(i) of the Income Tax Act, 1961. The assessee argued that as a co-operative society, it should be allowed this deduction. The Tribunal noted that the assessee was still functioning as a credit society, albeit under liquidation, and thus should be entitled to the exemption provided under this section. The Tribunal referred to the case of Jafari Momin Vikas Co-op Credit Society Ltd. vs. CIT, which supported the view that a co-operative credit society, even if not functioning as a bank, is entitled to such exemptions.

Conclusion:
The Tribunal concluded by allowing the appeal filed by the assessee. It upheld the classification of the income as "income from other sources," permitted the set off of brought forward business losses, and granted the deduction under Section 80(P)(2)(a)(i) of the Income Tax Act. This comprehensive judgment recognized the unique circumstances of the assessee's liquidation status while ensuring adherence to the relevant legal provisions and precedents.