TMI Blog2008 (9) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... and notice issued u/s 148 of the act was valid. - 1568 of 2005 - - - Dated:- 30-9-2008 - V. G. SABHAHIT and S. N. SATYANARAYANA JJ. Raghuraman and Chythanya for the appellant. M.V. Seshachala for the respondent. JUDGMENT The judgment of the Court was delivered by 1. V. G. SABHAHIT J. - This appeal is filed by the assessee being aggrieved by the order passed by the Income-tax Appellate Tribunal, Bangalore Bench "A" in I. T A. No. 1460/Bang/2003 dated November 9,2004, wherein the Appellate Tribunal by allowing the appeal of the Revenue has held that income received by the assessee from investment in security and bank deposits would not qualify for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and accordingly, has set aside the order passed by the first appellate authority - Commissioner of Income-tax (Appeals), Hubli, dated September 26, 2003 restored the order passed by the Assessing Officer. 2. The essential facts of this case leading up to the filing of this appeal as follows: 3. The assessee is a co-operative society registered under the Co-operative Societies Act. The assessee filed return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and interest on bonds and securities, deduction under section 80P(1)(iii) of the Act, However, interest accrued and securities, the Additional Commissioner of Income-tax held that interest on bank deposits other than co-operative banks and interest on securities and bonds, income is assessable as income from other sources for which deduction under section 80(P)(1)(iii) would be admissible. Further, there was no deduction for expenditure that the entire income would be assessable as income. 5. After hearing the representative of the assessee and considering the contention, the Assessing Officer by his order dated January 20,2003 held that the following directions given in section 144A of the Act that income from deposit (other than co-operative banks) and income from bonds and securities is assessable as income from other sources and the said income is assessable without deductions for interest expenditure and no deduction under section 80P(2)(a)(i) of the Act is allowable and further there shall be no deduction of interest expenditure. 6. Being aggrieved by the said order of the Assessing Officer order, the assessee preferred an appeal before the first appellate authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that arise for determination in this appeal are: "(i) Whether the finding of the Income-tax Appellate Tribunal that interest received by the assessee from securities and deposits in bank is not attributable to the amount of profits and gains of the business and therefore, does not qualify for exemption under section 80P(2)(a)(i) of the Act and as assessed under section 56 of the Act is contrary to law and calls for interference in this appeal? (ii) Whether the finding of the Income-tax Appellate Tribunal that proceedings for reopening of assessing order under section 147 of the Act was proper and notice issued under section 148 of the Act was valid, is contrary to law and calls for interference in this appeal?" And we answer points Nos. 1 and 2 by holding that the finding of the Tribunal is justified and does not call for interference in this appeal. 12. The learned counsel appearing for the appellant submitted that the Assessee is a co-operative society registered under the Co-operative Societies Act. Out of the profits earned by the assessee, certain investments have been made in securities like Kisan Vikas Patra and other bonds and also deposits in banks. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional Commissioner of Income-tax required under section 151 of the Act has not been obtained and, therefore, the notice issued is without jurisdiction and, therefore, the order passed by the assessing authority confirmed by the Income-tax Appellate Tribunal is liable to be set aside. 14. In response to the arguments of the learned counsel for the appellant the learned counsel for the respondent submitted that the decisions of this court in CIT v. Producin Pvt. Ltd . [2007]290 JTR 598 has been set aside by the hon'ble Supreme Court in Civil Appeal No. 1332 of 2006 (CIT v. Producin Pvt. Ltd. [2010] 322 ITR 270) and therefore, the observations made in the said judgment are not helpful to the appellants in the said case The learned counsel further submitted that it has been observed in the said judgment while setting aside the judgment passed by this court that where investment is of surplus, the interest is received from the investment made of surplus funds as contended by the Revenue, the same is not attributable to profits, gains and income from business and only where the interest received from security' and deposits is attributable to the business profits and gains o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income has to be computed in accordance with the provisions of section 14 of the Act which lays down for the purpose of computation of income of an assessee has to be classified under six heads: A. Salaries. B. Interest on securities. C. Income from house property. D. Profits and gains of business or profession E. Capital gains. F. Income from other sources. 18. By an amendment made in 1988 "interest on securities" has been made chargeable to tax as business income when such interest forms pat of business profits and in all other cases under section 56(2)(id) of the Act as income under each of the above six heads will have to be made independently and separately. There are specific rules of deduction and allowance under each head. No deduction or adjustment on account of any expenditure can be made except as provided by the Act. 19. In the present case, it is not disputed that the assessee is not doing any banking business and therefore, the various decisions relied upon by the learned counsel for the appellant-assessee wherein the assessee was doing business of banking is not helpful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not claim to be a banking company though a vague reference is made by the learned counsel for the appellant and that reference is made by the learned counsel with reference to rule 28 of the Karnataka Co operative Societies Rules, 1960. "28 Maintenance of fluid resources. - Every co-operative society accepting deposits and granting cash credits should maintain fluid resources in such form and according to such standards as may be fixed by the Registrar, from time to time, by general or special order." 21. It is clear from the perusal of the said rule that every co-operative society accepting deposits and granting cash credits should maintain fluid resources in such form and according to such standard as may be fixed by the Registrar, from time to time, by general or special order. 22. The abovesaid contention has not been taken before the assessing authority or the Income-tax Appellate Tribunal and no material whatever is produced to show that the appellant-society is authorised to accept deposits and the perusal of the said provision would show that the issuance of fluid resources has to be done where the society is doing banking business, i.e., accepting deposits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs in the assessment year 1991-92 and has increased to rupees twelve crores ten lakhs up to the assessment year 1999-2000 and, therefore, capital and reserve not only cover the investment in banks, bonds, securities and other assets but they were nearly 50 per cent. of such funds and what was invested is the surplus funds has been available for investment therefore, they are considered as own funds for investment and, therefore, the income by way of interest arising on deposits on banks securities is a source of income apart from marketing activity of the asses see and since earning of interest is not a business activity of the assessee is assessable to income from other sources and moreover the source of investment in bank deposits, securities and bonds are attributable to own funds. There has been no charge by way of interest explained and accordingly, for the aforesaid reasons, we hold that the finding of the Income-tax Appellate Tribunal is justified and does not call for interference in this appeal and accordingly we answer substantial question No. 1. 25. Substantial question No. 2. 26. It was contended by the assessee that initiation of the proceedings by issuing no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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