2020 (11) TMI 173 - AT - Income Tax

Assessment of trust - Contribution received towards co-operative education fund - income of the assessee - statutory requirement by misunderstanding the meaning of the words objects and activities - HELD THAT - In this case, the assessee is acting as an independent trustee for that donation received from various societies as per the provisions of Section 57A r.w.s. 57(2A) of Karnataka Societies Act, 1959 and it cannot be considered for taxing the same. However, we observe that the assessee should have actually kept the said donation in separate account and any amount spent against that donation should have been debited to the separate account without bringing the same into income and expenditure account - incoming and outgoing need not be reflected in the income and expenditure account of the assessee and this donation to be taken out of the income and expenditure account - relevant expenditure spent out of the donation go out from the expenses side in the income and expenditure account. The expenses expended out of this donation will be deducted from the said donation by not charging the same into Income Expenditure Account. Therefore we direct the Assessing Officer to redo the assessment accordingly. Being so, in our opinion, the said contribution is received by the assessee cannot be treated as income of the assessee. This ground of the appeal of the assessee is partly allowed. Denial of exemption u/s 10(23C)(iiiab) - Whether assessee satisfying the twin conditions i.e. existing solely for educational purposes and not for profit and substantially financed by the Government ?- HELD THAT - Following the Tribunal order in assessee's own case for A.Ys. 2006-07 2005-06 we set aside the order of CIT (Appeals) on this issue and restore the order of Assessing Officer in this regard. This ground of appeal is dismissed. Disallowing deduction claimed u/s 80P(2)(d) - interest earned from savings bank account kept with the co-operative banks on the ground of investments are made in co-operative societies - HELD THAT - To avail deduction Under Section 80P(2)(d)(i) of the Act, if the assessee carries on business of the banking or providing credit facilities to its members and it must have income of interest or dividend on investment with other co-operative societies may or may not engage in banking providing credit facilities to its members and the head under which the income is assessable is not material for the claim of deduction under the said Section. The society having surplus funds which are invested in savings bank account and the income is included total, the assessee is entitled for deduction Under Section 80P(2)(d) of the Act. Being so, we direct the Assessing Officer to grant the deduction Under Section 80P(2)(d) of the Act. Even the deposits in S.B Account is also an investment by the assessee and the assessee has deposited surplus funds in S.B. Account so as to meet its urgent needs and it cannot be said that the assessee is not entitled to deduction under Section 80P(2)(d) of the Act. Appeals of the assessee are partly allowed.

Summary

Issues Involved:
1. Treatment of contributions received towards the co-operative education fund as income.
2. Denial of exemption under Section 10(23C)(iiiab) of the Income Tax Act.
3. Disallowing deduction claimed under Section 80P(2)(d) of the Income Tax Act on interest earned from savings bank accounts kept with co-operative banks.

Detailed Analysis:

1. Treatment of Contributions Received Towards the Co-operative Education Fund as Income:
The primary issue revolves around whether the contributions received by the assessee towards the co-operative education fund should be treated as income. The assessee, a federation for co-operative societies, argued that these contributions, mandated by the Karnataka Co-operative Societies Act, 1959, were collected for a specific statutory purpose and should not be considered as income. The assessee claimed that they had no control over these funds, which were to be utilized as directed by an Advisory Board for educational purposes.

The Tribunal noted that under Section 57(2A) and 57A of the Karnataka Co-operative Societies Act, 1959, every co-operative society must contribute 2% of its net profits to the co-operative education fund, which is to be administered by the Karnataka State Co-operative Federation Ltd. The fund must be utilized for promoting the co-operative movement, providing education, and training as prescribed by the Advisory Board, with no expenditure allowed without its approval.

The Tribunal agreed with the assessee's argument, referencing several judgments, including CIT Vs. Sitaldas Tirathdas and CIT Vs. Karnataka Urban Infrastructure Development and Finance Corporation, which established that funds received for a specific purpose and used as directed by a statute should not be treated as income. The Tribunal directed the Assessing Officer to redo the assessment, excluding these contributions from the assessee's income.

2. Denial of Exemption Under Section 10(23C)(iiiab) of the Income Tax Act:
The assessee also contested the denial of exemption under Section 10(23C)(iiiab), which applies to educational institutions existing solely for educational purposes and not for profit, and which are substantially financed by the government. The Tribunal referred to its earlier decision in the assessee's own case, where it was established that the assessee met the criteria for this exemption.

The Tribunal reiterated that the assessee, a State Co-operative Federation, was engaged in educational activities, including training employees of co-operative societies and promoting the co-operative movement. The Tribunal found that the assessee's activities aligned with the requirements of Section 10(23C)(iiiab) and thus, the exemption should be granted. Consequently, the Tribunal set aside the CIT (Appeals) order on this issue and restored the Assessing Officer's order, allowing the exemption.

3. Disallowing Deduction Claimed Under Section 80P(2)(d) of the Income Tax Act:
The final issue concerned the disallowance of deductions claimed under Section 80P(2)(d) on interest earned from savings bank accounts kept with co-operative banks. The lower authorities had disallowed the deduction, arguing that it only applied to interest received from co-operative societies, not savings bank accounts.

The Tribunal referenced decisions from the Karnataka High Court, including Guttigedarara Credit Co-operative Society Limited Vs. ITO and CIT Vs. Totagars Co-operative Sales Society Ltd., which supported the assessee's claim. The Tribunal clarified that Section 80P(2)(d) allows for deductions on income by way of interest or dividends derived from investments with other co-operative societies, without specifying the type of account.

The Tribunal concluded that the interest earned from savings bank accounts with co-operative banks qualifies for the deduction under Section 80P(2)(d), as these accounts are also considered investments. The Tribunal directed the Assessing Officer to grant the deduction, allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the assessee's appeals in part, directing the Assessing Officer to exclude the contributions towards the co-operative education fund from income, grant the exemption under Section 10(23C)(iiiab), and allow the deduction under Section 80P(2)(d) for interest earned from savings bank accounts with co-operative banks.