9911796707
TMI Blog2017 (5) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2)(a) will get hundred per cent. deduction. In this regard it is noted that the assessee's books of account have not been maintained separately so as to depict profits attributable to both the segments. In this regard both the counsel agreed that the issue can be remitted to the file of the Assessing Officer and the assessee will co-operate in arriving at the profit attributable to both the segments. Accordingly in the interest of justice the issue of arriving at profits attributable to both the segments is remitted to the Assessing Officer. The Assessing Officer shall arrive at the figure of profits after giving the assessee an opportunity of being heard. See Chhattisgad Urban Credit Sahakari Sanstha Maryadit v. ITO [2015 (5) TMI 1088 - ITAT NAGPUR] Another issue on which the assessee has filed appeal is with regard to the learned Commissioner of Income-tax Appeals's direction that the assessee would not be eligible for deduction on interest income as it is not co-operative bank. - I. T. A. Nos. 224 and 232/Nag/2012 - - - Dated:- 9-1-2017 - Shamim Yahya (Accountant Member) And Ram Lal Negi (Judicial Member) For the Department : A. R. Ninawe For the Assessee : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0P(2)(a)(i) of the Income-tax Act, 1961 for ₹ 48,39,580 be deleted. 2. Brief facts of the case are as under : In this case the Assessing Officer noticed that the assessee has claimed deduction under section 80P(2)(a)(i) for ₹ 1,14,95,448. That as per the rules of co-operative housing societies are formed to provide residential houses to its members. That they purchase land, develop it and construct houses or flats and allot the same to the members. That the society also provides loans to its members to construct/purchase flats or houses. Therefore, it is not eligible for deduction under section 80P(2)(a)(i). That co-operative housing societies are eligible for deduction of ₹ 50,000 on its income under section 80P(2)(c)(ii) under the category of other societies. That the assessee was, therefore, asked vide letter dated December 8, 2011, to show cause why the deduction claimed under section 80P(2)(a)(i) amounting to ₹ 1,14,95,448 should not be disallowed and added back to the total income of the assessee. 3. The assessee submitted as under : We submit that we have provided credit facility direct to the members, for whom we have not constructed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd for decades of the coming into force of the Income-tax Act, 1961. (vi) The co-operative housing society established with several objects and it is established when the society is engaged in any of the activities falling under section 80P(2)(a) that would suffice to enable the society to claim the benefit of deduction. The words 'providing credit facilities to its members' in section means providing by way of giving credit facility for acquiring house and not selling goods on credit. The co-operative housing society does not carry any trading activity but only providing credit facility to all its members to have their own house even by giving mortgage and therefore, there is absolute identity of contributors and participants which results in following principles of mutuality. Our activity is duly covered under section 80P(2)(a)(i) and therefore it should be allowed considering principles of mutuality. (vii) The entire benefit of receiving interest goes to the members who deposit money with us, so all the members are getting benefit from each other. So the principle of mutuality is fully satisfied in all cases. It is only credit facility for acquiring house only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,27,21,194 Thus the assessee housing society has net income of ₹ 3,51,88,430 on housing scheme during the year and the net profit shown during the year as per profit and loss account is ₹ 1,16,65,292 Some of the main objects of the society as per bye-laws are- (a) To acquire land by purchase or otherwise for erecting dwelling thereon for the society or its members. (b) To layout land to suit the requirements of members and to prepare plans and estimates for construction of buildings thereon. (c) To build or cause to be built houses for use of the members. (d) To advance loans to members for construction of house, acquiring houses or plots, repairing houses or making such suitable modifications or accretions thereto as may be necessary or convenient, redemption of debt incurred on mortgage of house or in connection with house or sinking wells on land adjoining the house or to meet exigencies of members. (e) To hold, sell, mortgage, lease out on hire or on hire purchase system, give on lease or otherwise dispose of land, house sites, buildings and other property moveable or immoveable and to open safe deposit l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) Housing loan interest Amount received on long-term credit facilities given to members of the society against their house property mortgage. 17,53,94,476 (B) Loan against deposits Interest received out of the loans on FDR deposits of the members of the society. 32,71,855 (C) Staff loans and advances Recovery out of loan facility given to staff repayment is attached to salary. 1,44,221 (D) RRC and decretal loan account Recovery of credit facilities given to members against, RRC- Recovery Revenue Certificates duly obtained from co-operative court for recovery of outstanding amount against mortgaged property of members. 2,12,25,491 (E) Excegency loans Credit facility given to members on long-term basis against mortgage of property for other than housing purpose. 11,24,768 (F) Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;co-operative bank'. Under the Income-tax Act they have very different connotation so much that now co-operative banks have been taken out of purview of section 80P altogether. Hence, express 'investment' made by the appellant in these banks are going out of co-operative set up and they may in turn be invested in any activity and move out of preview of co-operative society, i.e. can be used commercially by banks as they like and this money is not used for mutual benefit of members of the co-operative banks alone. Hence, the amount of interest received by appellant from investment in banks is not to be deducted in section 80P(2)(a), (d). 4.2 Now we come to determine taxability of receipt of society. How to calculate the net exemption/net taxable and as the society has not maintained the account in such a manner that one can determine the amount of net taxable/exempted income easily. The appellant has suggested two ways in its submission ; one is on investment basis and other is on gross receipt basis. I think the gross receipt basis would serve a better purpose because what is to be calculated is that proportion of income, which is attributable to business of givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities of the society. (4) It is submitted that the bye-laws of the society clearly outline the object of the society which are for the benefits of the members. The motive is service to the members and the society at large by providing housing loan and premises at reasonable costs. Consequently any surplus or profit, if earned by the society, is distributed amongst the members as dividend. The learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that all the activities carried on by the appellant-society are duly covered by the principle of mutuality and profits, if any, should not be exigible to tax under the principle of mutuality. (5) It is submitted that the Commissioner of Income-tax (Appeals) grossly erred in holding that profit amounting to ₹ 48,39,480 is not eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act 1961, as the source of income for the same amounting to ₹ 14,62,54,397 is not attributable to the activity as defined in section 80P(2)(a)(i) i.e. 'business of providing credit facility to its members'. That the main activity of the society is to provide long-term housing loan to its members w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,44,221 (d) Interest RRC and decretal loans 2,12,25,491 (e) Interest on exegency loans 11,24,768 (f) Interest on investments 10,74,65,925 (g) Interest on loan given to owners of tenanted branch premises 1,25,864 30,87,52,650 (2) Miscellaneous receipts : (a) Income from house property 1,69,844 (b) Locker rent received 1,06,385 (c) Surplus from housing schemes 3,51,88,430 (d) Other receipts 7,07,839 3,61,72,498 (3) Share transfer fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to owners of tenanted branch premises 1,25,864 10,77,36,010 (2) Miscellaneous receipts : (a) Locker rent received 1,06,385 (b) Surplus from housing schemes 3,51,88,430 (c) Other receipts 7,07,839 3,60,02,654 (3) Share transfer fees 32,722 (4) Other receipts (a) Loan incidental charges 10,52,853 (b) Loan consolidation charges 78,148 (c) Inoperative savings account charges 1,47,460 (d) Working charges (flat transfer fee) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity to its members. The investments of surplus funds available with the appellant are deposited in the course of business of the society. The funds in bank can be said to be ready for utilisation by the assessee in its business of providing credit facilities to its members. Therefore, the said income can be clearly said to be incidental and in proximity to the business of the assessee. (14) That the investments are made in various co-operative banks and are also in accordance with the provisions of the Maharashtra State Co-operative Societies Act, 1960. (15) It is submitted that the issue regarding interest earned from deposits with banks to be part of business income of an assessee eligible for deduction under section 80P(2)(a)(i) is well settled by the Hon ble apex court. In case of CIT v. Karnataka State Co-operative Apex Bank [2001] 169 CTR (SC) 486; [2001] 251 ITR 194 (SC) ; [2001] 118 Taxman 321 (SC) larger Bench of the Hon ble Supreme Court was pleased to hold that (headnote) : 'Interest arising from the investment made, in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a co-operative society engaged in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [1976] 104 ITR 157 (Orissa) ; (b) CIT v. Iqbalpur Co-operative Cane Development Union Ltd. [2010] 230 CTR (Uttarakhand) 95; [2009] 315 ITR 441 (Uttarakhand) ; [2009] 29 DTR 259; and (c) Punjab State Co-operative Federation of Housing Building Societies Ltd. v. Asst. CIT [2010] 4 ITR (Trib) 507 (Chd) ; [2010] 134 TTJ (Chd) 12 (UO) ; [2010] 38 DTR 284. (18) With due consideration of the decisions of the Hon ble apex court and also various High Courts and Tribunal, it is well established that interest earned from bank deposits are income in proximity with and incidental to the business of providing credit facility to its members and is eligible for deduction under section 80P(2)(a)(i). (19) It is submitted that other receipts in the nature of : (1) Other receipts (forms sale etc.) ₹ 7,07,839 ; (2) Loan incidental charges ₹ 10,52,853 ; (3) Loan consolidation charges ₹ 78,148 ; (4) Loan commitment charges ₹ 9,08,448 ; (5) Working charges (flat transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(a)(i). Section 80P(2)(a)(i) allows deduction to the whole amount of profits and gains of business attributable to anyone or more of such activities. The entire activity of the business as carried out by the society relates directly with the provision of credit facility to its members. (23) The provision for exemption is intended to encourage co- operative societies. Considering the benevolent cause, a liberal construction should be given to the language employed in the provision. Construing section 80P(2)(a)(i) in the manner it can be said that if the co-operative society is members that would suffice to attract the benefit of deduction under section 80P(2)(a)(i). (24) Nature of income from various activities of the society cannot be segregated for taxation purpose. The entire profit as earned and declared by the society is attributable to the activity of providing credit facility to its members. House property income was duly offered for taxation. (25) That the words 'attributable to' used in the provision of section 80P(2)(a)(i) has to be given a wider term. By use of the term, the Legislature intended to cover receipts from sources other than the actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al credit society. . . . It is therefore very much clear that a co-operative bank is a co- operative society, and as such, interest received from it is duly covered under the purview of section 80P. (I) That it is humbly prayed that the claim as made by the assessee for deduction of ₹ 48,39,580 under section 80P(2)(a)(i) may please be allowed. 8. Per contra the learned Departmental representative relied upon the order of the Assessing Officer and the order of the learned Commissioner of Income-tax (Appeals) to the extent he has upheld the Assessing Officer's action. 9. We have carefully considered the submissions and perused the records. We find that the assessee in this case is a co-operative society. The assessee is engaged in the activities of carrying on the business of banking or providing credit facilities to its members as well as it is engaged in activities of a housing society. The Assessing Officer has held the society to be a housing society and hence he has denied the deduction under section 80P(2)(a)(i). The Assessing Officer has allowed only deduction under section 80P(2)(c)(ii). The learned Commissioner of Income-tax (Appeals) has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milk, oil seeds, fruits or vegetables, as the case may be ; or (ii) the Government or a local authority ; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oil seeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business ; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,- (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees ; and (ii) in any other case fifty thousand rupees. Explanation.-In this clause, 'consumers' co-operative society' means a society for the benefit of the consumers ; (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 80P(2)(a) will get hundred per cent. deduction. In this regard it is noted that the assessee's books of account have not been maintained separately so as to depict profits attributable to both the segments. In this regard both the counsel agreed that the issue can be remitted to the file of the Assessing Officer and the assessee will co-operate in arriving at the profit attributable to both the segments. Accordingly in the interest of justice the issue of arriving at profits attributable to both the segments is remitted to the Assessing Officer. The Assessing Officer shall arrive at the figure of profits after giving the assessee an opportunity of being heard. 12. Another issue on which the assessee has filed appeal is with regard to the learned Commissioner of Income-tax Appeals's direction that the assessee would not be eligible for deduction on interest income as it is not co-operative bank. 13. We find that this issue is covered in favour of the assessee by the decision of this Tribunal in I. T. A. No. 371/Nag/2012 for the assessment year 2009-10 vide order dated May 27, 2015, in the case of Chhattisgad Urban Credit Sahakari Sanstha Maryadit v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon ble Supreme Court (on page 286) : . . . Before the Assessing Officer, it was argued by the asses see(s) that it had invested the funds on short-term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman ; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. This argument was rejected by the Assessing Officer as also by the Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s). 19.2. From the above, it emerges that- (a) that the assessee (issue before the Supreme Court) had admitted before the Assessing Officer that it had invested surplus funds, which were not immediately required for the purpose of its business, in short-term deposits ; (b) that the surplus f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above facts, we are of the firm view that the learned Commissioner of Income-tax (Appeals) was not justified in coming to a conclusion that the sum of ₹ 9,40,639 was to be taxed under section 56 of the Act. It is ordered accordingly. 5. Respectfully following the above decision of the co-ordinate Bench, we hereby hold that the benefit of deduction under section 80P(2)(a)(i) was rightly granted by the learned Commissioner of Income-tax (Appeals), however, he has wrongly held that the interest income is taxable under section 56 of the Act so do not fall under the category of exempted income under section 80P of the Act. The adverse portion of the view, which is against the assessee, of the learned Commissioner of Income-tax (Appeals) is hereby reversed following the decision of the Tribunal cited supra, resultantly ground is allowed.' We find that the ratio of above case also applies to the present case. As observed in the above case law, in this case also the submissions of the assessee's counsel is that the assessee-society is maintaining operational funds and to meet any eventuality towards repayment of deposit the co-operative society is maintaining so ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
