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TMI Blog2015 (10) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) was justified in considering the assessment order as erroneous and prejudicial to the interests of Revenue. However in the circumstances of the case, direction of the CIT to assess the incomes mentioned at para four above is not correct. Therefore, while upholding the order of CIT u/s.263 of the Act, we modify it and direct the AO to do the assessment afresh in accordance with law, untrammelled by the observation of the CIT on merits regard. - Decided partly in favour of assessee for statistical purpose. - I.T.A No.302/Bang/2014 - - - Dated:- 4-9-2015 - ACCOUNTANT MEMBER For The Assessee Shri. Dinesh P, Advocate For The Revenue Shri. Anurag Sahay, CIT III ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : In this appeal filed by assessee, it assails an order dt.31.12.2013 passed u/s.263 of the Income-tax Act, 1961 ( the Act in short) by the CIT, Davangere, for the assessment year 2010-11. 02. Facts apropos are that assessee a cooperative society had filed its return for the impugned assessment year declaring nil income. Assessee had claimed deduction u/s.80P(2)(a)(i) of the Act. Assessment was completed on 23.11.2012, u/s.143(3) of the Act. 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,828/- 05. Now before us, Ld. AR strongly assailing the order of CIT submitted that interest earned on deposits with a cooperative bank was also eligible for deduction u/s.80P(2)(d). As per the Ld. AR, a cooperative bank was also a cooperative society and therefore eligible for claiming the benefit of the said section. Reliance was placed on the decision of coordinate bench in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sangha Niyamitha V. CIT [ITA Nos.609 610/Bang/2014, dt.06.02.2015]. Vis-a-vis the rental income, Ld. AR submitted that Hon ble jurisdictional High Court in the case of CIT v. The Grain Merchants Co-operative Bank Ltd [(2004) 267 ITR 742], had held that income received from letting out of premises was a part of the income from the business of banking. As per the Ld. AR, banking business as per clause ((b) of Section 6 of the Banking Regulation Act, 1949, took into its ambit various types of business referred in clause (a) to (o) of sub-section (1) of section 6, as well. According to him, clause (b) covers rental income. Thus according to him assessee was justified in treating rental from building as a part of its business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of funds kept as statutory reserves. Hon ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd, (supra) had held that interest earned on short-term deposits out of funds which were not due to its members would not be hit by the restrictions placed by Hon ble Apex Court in Totgars Cooperative Sale Society Ltd (supra). Relevant para 10 of the judgment dt.20.09.2014 is reproduced hereunder 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOMETAX III, HYDERABAD vs. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is also an income derived by the assessee on account of the banking activities carried on by the assessee and as such the same is deductible under section 80P(2)(a)(i) of the Act while computing the income of the assessee. Elaborating this submission, learned counsel pointed out that the Tribunal as well as the Appellate Commissioner have failed to consider that the funds maintained as reserve funds have not been utilised by the assessee for its business activities. Secondly, he submitted that the Tribunal as well as the Appellate Commissioner have also seriously erred in law in taking the view that the rental income received by the assessee is an income received by it in carrying on the business of banking and as such is entitled for exemption under section 80P(2)(a)(i) of the Act. It is also his submission that the letting out of premises by the assessee and receiving rent out of it cannot be considered as carrying on the business of banking activity or providing credit facilities by the assessee to its members and hence the income received by the assessee by way of rent in respect of the premises let out must be treated as an income which is liable for payment of tax under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged by Sri Sesachala is covered against the Revenue by our earlier decision rendered in the case of ITO v. Karnataka Central Co-operative Bank Ltd. [2004] 266 ITR 635 made in I. T. A. No. 183 of 2003 disposed of on August 7, 2003. Therefore, they pointed out that for the very reason assigned by us in the said decision, the first contention urged by Sri Sesachala is required to be held against the Revenue. Further, Sri Prasad also relied upon the decision of the hon'ble Supreme Court in the case of Gujarat State Co-operative Bank Ltd. v. CIT [2001] 251 ITR 522. With regard to the second contention of Sri Sesachala, they pointed out that in view of clauses (k) and (l) of sub-section (1) of section 6 of the Regulation Act, 1949, which provides that the acquisition, construction of a building and leasing of building belonging to a banking company as a banking business, the income received by the assessee by way of rent in respect of premises let out by it must be treated as an income received by the assessee by way of profit and gains and the business attributable to the banking activities of the assessee. It is their further submission that clauses (a) to (f) of sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That is how the circulating capital is employed and that is the normal course of business of a bank. The moneys laid out, in the form of deposits as in the instant case would not cease to be a part of the circulating capital of the appellant nor would they cease to form part of its banking business. The returns flowing from them would form part of its profits from its business. In a commercial sense the directors of the company owe it to the bank to make invest ments which earn them interest instead of letting moneys lie idle. It cannot be said that the funds of the bank which were not lent to borrorwers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-intrade of the bank, or that the interest arising therefrom did not form part of its business profits. Therefore, there is no merit in the first contention advanced by Sri Sesachala. In the light of the above discussion, we find it unnecessary to refer to the decision of Gujarat State Co-operative Bank Ltd. [2001] 251 ITR 522 (SC) relied upon by Sri Prasad. To examine the correctness of the second contention of Sri Sesachala, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of the Banking Regulation Act, 1949. Therefore, the income derived by the assessee from the hiring out of safe deposit vaults is income from the business of banking and, therefore, deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961. Clause 6(1)(a) is one of the items of businesses referred to in section 6(1) of the Regulation Act. Further, in the case of Kerala State Cooperative Marketing Federation Ltd. [1998] 231 ITR 814, the hon'ble Supreme Court has observed that whenever a question arises as to whether any particular category of income of a co-operative society is exempt from tax, what has to be considered is, as to whether the income falls within one of the several heads of exemption and if it falls within any one of the heads of exemption, it would be free from taxes notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption. The hon'ble Supreme Court has observed that the correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. In this connection, it is useful to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 4 of section 80P which disables a cooperative bank from claiming the benefit u/s.80P(2)(a)(i) came into the statute through Finance Act 2006 w.e.f.2007. Nevertheless the issue as to whether income from letting out of premises could be considered as income from business of banking has been dealt with by their Lordships in the case of Grain Merchants Cooperative Society (supra) relevant paras of which we have reproduced above. 10. Thus in so far as construing the meaning of the words carrying on the business of banking by providing credit facilities to its members, is concerned, judgment of jurisdictional High Court in the case of Grain Merchants Cooperative Society mentioned supra will apply on all four squares. If that be so, assessee has a good case that its property income could only be construed as profits and gains attributable to the business of banking. If that be so such amounts would also be eligible for claim of deduction u/s.80P(2)(a)(i) of the Act. The CIT had directed the AO to make the disallowances mentioned at para four above, without giving him any room for taking the submissions and pleading of the assessee into consideration which in our opinion was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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