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TMI Blog2009 (3) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Supreme Court in the case of Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522 and as the appellant is engaged in other business in addition to its business of banking. 2. That the CIT (Appeals)-Asansol, has erred in law and on facts of the case by enhancing the assessment ignoring the submission and arguments made during the course of hearing of appeal and also at the time of hearing of the show-cause notice of enhancement on the direction of the Hon'ble Income-tax Appellate Tribunal, Kolkata on the basis of appeal preferred before their honour against the earlier order of the predecessor of learned Commissioner of Income-tax (Appeals) - Asansol. 3. That the CIT (Appeals) - Asansol has grossly erred in law and on facts of the case by adjudicating that the entire income of the appellant is outside the purview of section 80P as the appellant had engaged in other business and also had business with non-members. 4. That both the lower authorities have failed to adjudicate upon the alternate contention raised by the appellant of allowing deduction under section 80P(2)(d) of the Income-tax Act, 1961 as the impugned income is from the investment of fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. out of voluntary reserve. 3.2The total interest earned out of investment made with the above two parties out of voluntary reserve was as under :- (i) From the M/s. B.C.C.B. Ltd. Rs. 86, 79,155.00 (ii) From the M/s. W.B.S.C.B. Ltd. Rs. 7,62,031.00 Total Rs. 94,41,186.00 3.3 The Assessing Officer, therefore, asked the assessee to show cause as to why interest earned on deposits made out of voluntary reserve being Rs. 94,41,190 [Rs. 86,79,155 + Rs. 7,62,031], should not be treated as income of the assessee, which is not entitled to exemption as per the provision of section 80P of the Act. The assessee was asked to bring on record evidence to show that such interest was utilized by the assessee for its ordinary banking business, that being the requirement for the impugned amount being entitled to deduction under section 80P(2)(a)( i) of the Act as per the ratio laid down by the Hon'ble Apex Court in Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522. The assessee failed to produce any evidence to show that the impugned interest was utilized by it for its ordinary banking business. The Assessing Officer after taking into account the figures provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal, the ld.CIT(A) passed the present order dated 27-3-2008, which has been challenged by the assessee in the present appeal. 7. Before the ld.CIT(A) it was submitted by the assessee that the Assessing Officer failed to understand the terminology used in Banking and thus, he had wrongly worked out the figures of voluntary reserve. The assessee worked out the voluntary reserve at Rs. 5,28,54,563. According to the assessee the above figure of voluntary reserve was worked out as per its letters dated 29-3-2006 and 31-3-2006 submitted to the Assessing Officer. The Assessing Officer totally ignored the figures and explanation given by the appellant and worked out his own figures of voluntary reserve. 8. The ld.CIT(A) went through the relevant letters and observed that in the above letters there was no clarification on the quantum of voluntary reserve. The ld.CIT(A) also observed that in reply to the query raised by the Assessing Officer as to whether the income received from investment of voluntary reserve was utilized in the normal activities of banking business, the assessee failed to submit any evidence to show that the income was in fact utilized for such purpose. On the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurred. 13. With reference to enhancement made by the ld. CIT(A), the ld. CIT(A) observed as under :- "As far as the other deductions are concerned, I find from the appellant's own submission that the appellant was providing services to members as well as non-members. It has even let out its warehouses to a fertilizer company while the provision of paddy and potato seeds was to members as well as non-members. The same applied to agricultural implements. As far as the ware-house business is concerned, it is clear from a reading of the Income-tax Act that the exemption would be available in case the facilities were used to provide the co-operative society members storage space to assist the marketing of their produce. However, the appellant's own submission confirms that the storage was given to local cultivators including members and that ware house facilities were given to clearly non-member large companies. Under the circumstances, the appellant did not meet any of the requirements to be eligible for deduction under section 80P on this account." 14.We have heard both the parties and perused the record. First, we will take up the ground No. 3, wherein the assessee is disputing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, we uphold the finding of the ld. CIT(A), that the assessee is not a co-operative bank and therefore, not entitled to any deduction under section 80P(2)(a)( i) of the Act as a bank. But as it is a primary co-operative credit society, it may be entitled to some deductions on the income earned by it from its transactions with its members. 17. Section 80P of the Act reads as under :- "80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely- (a)in the case of a co-operative society engaged in- [(i)carrying on the business of banking or providing credit facilities to its members, or (ii)a cottage industry, or (iii)the marketing of agricultural produce grown by its members, or (iv)the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v)the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was not entitled to any deduction under section 80P of the Act. Thus ground No. 3 taken by the assessee is allowed to the above extent." 19. Coming to the issue, when the assessee is required to deal only with its members for getting deduction under section 80P, and it also deals with non-members whether whole of the income attributable to such activity should go out of the ambit of section 80P, we find that the Hon'ble Apex Court in the case of CIT v. Bankipur Club Ltd. [1997] 226 ITR 97 with reference to a members' club, has held that when there are mutual as well as non-mutual activities, only activities relating to non-members would go out of the ambit of taxation. We, therefore, are of the view that only that income, which is attributable to dealing with non-members [excluding activities covered by section 80P(2)(d) & (e)] will not be entitled to deduction under section 80P of the Act. We hold accordingly. Ground No. 5 taken by the assessee is allowed to the above extent. 20. Ground Nos. 1 and 4 taken by the assessee are inter-linked. As regards ground No. 1, we have already held that the assessee is not a co-operative bank. Thus, there is no question of creatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court in the case of Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522 and as the appellant is engaged in other business in addition to its business of banking. 2. That the CIT (Appeals)-Asansol, has erred in law and on facts of the case by enhancing the assessment ignoring the submission and arguments made during the course of hearing of appeal and also at the time of hearing of the show-cause notice of enhancement on the direction of the Hon'ble Income-tax Appellate Tribunal, Kolkata on the basis of appeal preferred before their honour against the earlier order of the predecessor of learned Commissioner of Income-tax (Appeals)-Asansol. 3. That the CIT (Appeals)-Asansol has grossly erred in law and on facts of the case by adjudicating that the entire income of the appellant is outside the purview of section 80P as the appellant had engaged in other business and also had business with non-members. 4. That both the lower authorities have failed to adjudicate upon the alternate contention raised by the appellant of allowing deduction under section 80P(2)(d) of the Income-tax Act, 1961 as the impugned income is from the investment of funds wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter remanded back to the file of the Assessing Officer with the direction that the same be decided afresh in the light of our observations after giving the assessee adequate opportunity of being heard. Thus, these grounds are allowed to the above extent. 29. Ground No. 6 - In view of our decision in the appeal for the assessment year 2003-04 we direct the Assessing Officer to determine the gross total income of the assessee and the income includible in such gross total income out of the various activities carried on by the assessee. If the assessee fulfils the conditions as laid down by us in this order, then only such amounts are to be deducted under the relevant provisions of section 80P of the Act. 30. Ground No. 7 of the assessee is allowed and it is held that the ld. CIT(A) was not within his jurisdiction to issue direction to the Assessing Officer to reopen the assessments of the earlier years. 31. Ground Nos. 8 and 9 are general in nature and the same do not require any adjudication. 32. The appeal of the assessee is allowed to the extent mentioned above. 33. In the result, the appeals of the assessee for the assessment years 2003-04 and 2004-05 are allowed to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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