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2015 (10) TMI 395 - ITAT BANGALORE

2015 (10) TMI 395 - ITAT BANGALORE - [2015] 44 ITR (Trib) 61 (ITAT [Bang]) - Revision u/s 263 - As per the CIT, AO had failed to examine the claim for deduction u/s.80P(2)(a)(i) - Held that:- 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 [2003 (10) TMI 21 - KARNATAKA High Court] will apply on all four squares. .....

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had made no enquiries on these vital issues at the time of assessment. Hence we are of the opinion that Ld. 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 .....

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ear 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. 03. CIT, on 16.12.2013 issued a notice to the assessee proposing to revise the assessment. As per the CIT, AO had failed to examine the claim for deduction u/s.80P(2)(a)(i) of the Act, in respect of the following amounts : Interes .....

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Act. 04. Assessee in its reply dt.23.12.2013 stated that SB account, on which interest was received was maintained with District Central Cooperative Bank, Chitradurga. As per the assessee, interest on FD was also earned from the verysame cooperative bank. Funds used for the deposit were, according to the assessee. a part of the statutory reserve fund. Vis-a-vis rent, argument of the assessee was that it was shown under the head business since many years and earning of rent was treated by the soc .....

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eposits were with cooperative societies and not with cooperative bank. He therefore set aside the assessment with a direction to assess the following income : (i) Interest on deposits .. ₹ 4,328/- (ii) Rental income .. Rs.8,32,500/- Total .. Rs.8,36,828/- 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 s .....

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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. Once the rental income is treated as attributable to the bankin .....

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CIT v. Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, Bagalkot [ITA No.5006/2013, dt.05.02.2014], would come to its aid. Reliance was also placed on the judgment of Hon ble jurisdictional High Court in the case of Venugram Multipurpose Cooperative Credit Society Ltd v. ITO [ITA No.100042 of 2014, dt.17.09.2014] in support of his contention that even a multi purpose cooperative society would also fall under the definition of primary agricultural credit cooperative society given in Karnatak .....

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and prejudicial to the interests of Revenue. 07. We have perused the orders and heard the rival contentions. There is no doubt that assessment order is very cryptic. Nothing whatsoever is mentioned with regard to the claim of the assessee for deduction u/s.80P(2)(a)(i) or 80P(2)(d) in the order. Assessee has also not been able to place on record any correspondence that might have been there between it and the AO during the course of assessment proceedings. Lack of enquiry into the aspect of the .....

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ned 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 p .....

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COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12 In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order. Appeal is allowed." 08. Vis-a-vis the rental income what we find is that in the case of Grain Merchants Cooperat .....

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g the assessment, took the view that the rental income received by the assessee in letting out the portion of the building partly occupied by it and the interest received from setting apart certain funds as reserve fund, does not come within the purview of section 80P(2)(a)(i) of the Act and as such are not deductible while computing the income of the assessee. Aggrieved by the said assessment order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals)-II (hereinafter ref .....

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pugned order affirmed the order passed by the Appellate Commissioner. 3. Sri M. V. Sesachala, learned counsel appearing for the Revenue, challenging the correctness of the orders impugned, made two submissions. Firstly, he submitted that the Tribunal as well as the Appellate Commissioner have seriously erred in law in taking the view that the interest derived out of the income from funds maintained as reserve funds is also an income derived by the assessee on account of the banking activities ca .....

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w 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 .....

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siness or a society engaged in the performance of any manufacturing operations with the aid of power, wherein the gross total income does not exceed ₹ 20,000, the amount earned by way of interest on securities on any income from certain property is chargeable under section 22 of the Act. He pointed out that clause (f) of sub-section (2) of section 80P of the Act should be understood as making an exception to clause (a)(i) of sub-section (2) of section 80P of the Act wherein it is provided .....

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) of sub- section (2) of section 80P of the Act. It is also his submission that the assessee cannot derive any assistance from clauses (k) and (l) of sub-section (1) of section 6 of the Banking Regulation Act, 1949 (hereinafter referred to as the Regulation Act ), as according to learned counsel the said provision only empowers the banking institution to carry on certain activities which are not considered as a banking business. In this connection, he referred to us the language employed in sect .....

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e contention 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 .....

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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) of section 80P of the Act are mutually exclusive and independent of each other. It is also their submission that so far as clause (a)(i) of sub-section (2) of section 80P is concerned, it is only controlled by clause (c) of sub-section (2) of section 80P of the Act. In support of their .....

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bservation made at page 819 of the judgment. They also relied upon the judgment of the hon'ble Supreme Court in the case of CIT v. Ramanathapuram District Co-operative Central Bank Ltd. [2002] 255 ITR 423 and drew our attention to pages 424 and 425 of the judgment. 5. Now, we will proceed to consider each one of the contentions advanced by Sri Sesachala. So far as the first contention is concerned, the same is covered against the Revenue by our earlier decision rendered in the case of Karnat .....

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the case of Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114, has taken the view that the income received out of reserve fund is exempted from payment of tax. In the case of Bihar State Co-operative Bank Ltd. [1960] 39 ITR 114, the hon'ble Supreme Court has observed as follows As we have pointed out above, it is a normal mode of carrying on banking business to invest moneys in a manner that they are readily available and that is just as much a part of the mode of conducting a ban .....

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al 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 t .....

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n, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company (l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company From the reading of clauses (k) and (l) of section 6 of the Regulation Act, to our mind, it appears that in addition to the business of banking set out in clause (b) of sectio .....

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nnot be treated as a banking business within the meaning of clause (b) of section 5 of the Regulation Act. But as noticed by us earlier, section 6 of the Regulation Act intends to make several businesses referred to in clauses (a) to (o) of sub-section (1) of the Act as banking business in addition to the definition of banking provided under clause (b) of section 5 of the Regulation Act. In support of our view, we derive support from the observation made by the hon'ble Supreme Court in the c .....

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the judgment, which reads as follows . it is clear that the provision of safe deposit vaults is part of the ordinary banking business of a bank this is shown by section 6(1)(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( .....

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at 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 refer to the observation made by the court at page 819 of the judgment, which reads as hereunder We may notice that the provision .....

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income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax 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 expression marketing is an expression of wide import. It involves exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial activities such as .....

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t be understood as a society which is not carrying on banking business or providing credit facilities which is included under section 80P(2)(a)(i) of the Act. So far as the assessee is concerned, as noticed by us earlier, it is not in dispute that the assessee is carrying on the business of banking. Under these circumstances, the provisions of clause (f) of the section cannot control the benefit of exemption extended to the assessee from payment of tax. In the light of the discussion made above, .....

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