2015 (7) TMI 1448 - AT - Income Tax

Deduction u/s 80P (2)(d) - interest income earned from deposits with Post Office and Nationalized Banks (other than Cooperative Banks) - HELD THAT - As we examine the applicability of judgment of Hon ble Apex Court cited by Revenue rendered in the case of Totgar s Co-operative Sale Society Ltd 2010 (2) TMI 3 - SUPREME COURT noted that the assessee markets the agricultural produce to its members and had retained the sale proceeds in many cases and this retention amount payable to members from whom the produce was bought was invested in short term deposit/securities and such retention amount was liability of the assessee society and it was so shown in the balance sheet and therefore to that extent such interest income cannot be said to be attributable either to the activity mentioned in section 80P(1) or 80P(2) and therefore the same was rightly taxed under the head income from other sources u/s 56 of the Act. In the present case this is not a fact that the deposit in bank and post office is out of such amount retained from the members and shown by the assessee in the balance sheet as liability. Hence it is seen that the facts of that case are different and therefore this judgment is not applicable in the present case. As we examine the applicability of two Tribunal decisions cited by assessee Zila Ganna Utpadak Sahkari Samiti Ltd. Hardoi 2014 (11) TMI 1286 - ITAT LUCKNOW wherein followed the judgment of Co- operative Cane Development Union Ltd 1979 (2) TMI 91 - ALLAHABAD HIGH COURT and Krishak Sahkari Ganna Samiti Ltd 2002 (10) TMI 89 - ALLAHABAD HIGH COURT We find that in the present case the facts are similar to the facts in those two cases and therefore we do not find any reason to take a contrary view in the present case particularly when Learned D.R. of the Revenue could not point out any difference in facts. Hence we decline to interfere in the order of CIT(A). Ground No. 1 is rejected. Disallowance of P.F. deduction assessee had not only failed to deposit the amount recovered from its employees but also failed to deposits own contribution - CIT(A) deleted addition - HELD THAT -We find that it is held by learned CIT(A) that even the enhanced income by way of making addition u/s 36(1)(va) 2(24)(x) will be eligible for deduction u/s 80P of the Act. We do not find any infirmity in the order of CIT(A) on this issue. Accordingly this ground is also rejected.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this case are:

(a) Whether the addition of Rs. 8,04,545/- made by the Assessing Officer on account of interest income earned from deposits with Post Office and Nationalized Banks (other than Cooperative Banks) was justified, given the assessee's claim that such interest income was exclusively derived from savings bank accounts and not from long-term deposits, and whether such interest income qualifies for deduction under section 80P(2)(d) of the Income Tax Act, 1961.

(b) Whether the disallowance of Rs. 8,26,188/- on account of Provident Fund (PF) deduction was justified, considering the assessee's failure to deposit both employees' recovered amounts and its own contribution, and whether the deduction under sections 36(1)(vi) and 43B of the Income Tax Act is allowable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Legitimacy of Addition of Interest Income and Applicability of Section 80P(2)(d)

Relevant Legal Framework and Precedents:

The principal legal provision under consideration is section 80P(2)(d) of the Income Tax Act, which provides deduction for income derived from certain cooperative societies engaged in specified activities. The key precedent cited by the Revenue is the Supreme Court judgment in Totgar's Co-operative Sale Society Ltd. vs. Income Tax Officer, where the apex court held that interest income from short-term deposits and securities made out of surplus funds not immediately required for business activities constitutes income from other sources and is not eligible for deduction under section 80P.

Additionally, the assessee relied on two Tribunal decisions (Zila Ganna Utpadak Sahkari Samiti Ltd. and Roza Sahkari Ganna Samiti Limited) which followed the Allahabad High Court rulings in CIT vs. Co-operative Cane Development Union Ltd. and CIT vs. Krishak Sahkari Ganna Samiti Ltd. These decisions support the proposition that interest income derived exclusively from savings bank deposits, and not from long-term deposits made out of surplus funds, qualifies for deduction under section 80P.

Court's Interpretation and Reasoning:

The Tribunal first examined the applicability of the Supreme Court's judgment in Totgar's Co-operative Sale Society Ltd. It noted that in that case, the assessee had significant liabilities in addition to capital and own funds, and the interest income was earned on amounts retained from members, which were shown as liabilities in the balance sheet. The Supreme Court held that such interest income was not attributable to the cooperative's business activities and thus not eligible for deduction under section 80P.

In contrast, the Tribunal observed that in the present case, the deposits in banks and post office were not out of amounts retained from members and shown as liabilities. Hence, the factual matrix differed materially from the Totgar's case, rendering the Supreme Court's ruling inapplicable.

The Tribunal then considered the two Tribunal decisions cited by the assessee, which followed Allahabad High Court precedents. It found the facts of the present case closely analogous to those cases, where interest income from savings bank accounts was held to be eligible for deduction under section 80P.

Key Evidence and Findings:

The primary factual distinction hinged on the nature of the deposits generating the interest income. The Revenue contended that the interest arose from long-term deposits made from surplus funds, which do not qualify for deduction. The assessee maintained that the interest income was exclusively from savings bank accounts.

The Tribunal found no evidence from the Revenue to demonstrate that the deposits were long-term or that the interest income was from amounts retained from members. The Revenue also failed to show any material factual difference from the Tribunal precedents relied upon by the assessee.

Application of Law to Facts:

The Tribunal applied the legal principles established in the precedents to the facts of the case, concluding that since the interest income was not from long-term deposits or retained members' amounts, it qualified for deduction under section 80P(2)(d). The Supreme Court judgment in Totgar's case was distinguished on factual grounds.

Treatment of Competing Arguments:

The Tribunal carefully considered the Revenue's reliance on the Supreme Court judgment but found the factual matrix inapposite. It also gave due weight to the Tribunal and High Court precedents cited by the assessee and found no basis to deviate from those rulings.

Conclusions:

The Tribunal upheld the deletion of the addition of Rs. 8,04,545/-, holding that the interest income was eligible for deduction under section 80P(2)(d). The Revenue's ground challenging this deletion was rejected.

Issue (b): Disallowance of Provident Fund Deduction

Relevant Legal Framework:

Sections 36(1)(vi) and 43B of the Income Tax Act govern the deductibility of contributions to Provident Fund. Section 36(1)(vi) allows deduction for contributions to provident funds, subject to actual payment, while section 43B mandates that certain expenses, including PF contributions, are allowable only on actual payment.

Court's Interpretation and Reasoning:

The Tribunal noted that the learned Commissioner of Income Tax (Appeals) had held that even the enhanced income by way of additions under sections 36(1)(va) and 2(24)(x) would be eligible for deduction under section 80P. The Tribunal found no infirmity in this reasoning.

Key Evidence and Findings:

The Revenue contended that the assessee had failed to deposit both the employees' recovered amounts and its own contribution to the PF, thus disqualifying the deduction. The assessee maintained that the deduction was allowable.

Application of Law to Facts:

The Tribunal accepted the CIT(A)'s finding that the deduction was allowable despite the Revenue's contentions, presumably on the basis that the PF contributions had been made or that the conditions for deduction under the relevant sections were satisfied.

Treatment of Competing Arguments:

The Tribunal did not find any compelling reason to interfere with the CIT(A)'s order, effectively siding with the assessee's submissions over the Revenue's objections.

Conclusions:

The Tribunal rejected the Revenue's ground regarding disallowance of PF deduction.

3. SIGNIFICANT HOLDINGS

"In the present case, this is not a fact that the deposit in bank and post office is out of such amount retained from the members and shown by the assessee in the balance sheet as liability. Hence, it is seen that the facts of that case are different and therefore, this judgment is not applicable in the present case."

"We find that in the present case, the facts are similar to the facts in those two cases and therefore, we do not find any reason to take a contrary view in the present case particularly when Learned D.R. of the Revenue could not point out any difference in facts."

"Even the enhanced income by way of making addition u/s 36(1)(va) & 2(24)(x) will be eligible for deduction u/s 80P of the Act. We do not find any infirmity in the order of CIT(A) on this issue."

The Tribunal established the core principle that interest income earned from savings bank accounts by cooperative societies, not arising from amounts retained from members and shown as liabilities, qualifies for deduction under section 80P(2)(d). It also reaffirmed that Provident Fund contributions are deductible under sections 36(1)(vi) and 43B, subject to actual payment, and that the CIT(A)'s findings on these issues are to be respected absent any material infirmity.

The final determinations were that both grounds raised by the Revenue were rejected and the appeal was dismissed.