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2016 (8) TMI 465 - ITAT KOLKATA

2016 (8) TMI 465 - ITAT KOLKATA - TMI - Deduction u/s.80P(2)(a)(i) - interest income earned from transactions with non-members and nominal members and interest income earned from non-SLR (Statutory Liquidity Ratio) investments - Held that:- CIT(A) was justified in allowing deduction u/s.80P(2)(a)(i) of the Act on interest income earned from transactions with non-members and nominal members and interest income earned from non-SLR (Statutory Liquidity Ratio) investments, i.e., investments made not .....

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appeals by the Revenue against 5 different orders all dated 11.3.2011 of CIT(A)-XX, Kolkata, relating to AY 1997-98 to 2001-2002. The Assessee has filed C.O.No.36 to 40/Kol/2011 challenging the correctness of the order of CIT(A)-XX, Kolkata, for AY 1996-97 to 2000-01, in so far as the said order rejecting the claim of the Assessee that initiation of reassessment proceedings u/s.147 of the Income Tax Act, 1961 (Act), by the AO for the aforesaid assessment years was invalid. Since common issues ar .....

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regulations to maintain Statutory Liquidity Ratio (SLR). The relevant provisions of Sec.80P(2)(a)(i) of the Act reads thus: Deduction in respect of income of co-operative societies. 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 as .....

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sing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities : 3. Th .....

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of section 80P was promotion of the co-operative movement. The AO estimated the interest income from transactions with non-members and nominal members on certain basis, since the bifurcation of interest income as between members and non-members was not available before the AO and held that it was not eligible for deduction u/s 80P. The AO further held that income derived from investment of banking reserve alone is banking business; and, that investment in bonds out of building and general fund .....

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held that similar interest income disputed by the AO as not eligible for deduction u/s 80P(2) (a)(i) of the Act, was eligible for such deduction. The following were the relevant observations of the ITAT in the aforesaid order: 9. On consideration of the rival submissions, we find force in the counter arguments of the Ld. A.R. factually as well as legally. The case laws cited by him are analysed hereunder ;- Mehsana District Central Co-Opt. Bank Ltd. vs. ITO [2001) 251 ITR 522 (SC) "Held, (i .....

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ot; "Held also, that the question whether income derived by the assessee co-operative bank from the investment of its' voluntary reserves other than statutory reserves is exempt u/s. 80P(2)(a)(i) depended upon whether the voluntary reserves. were utilised in the course of its ordinary banking business." CIT vs. Baroda Peoples Co-Opt. Bank Ltd. [2006] 280 ITR 282 (Guj.) "The assessee a co-operative bank earned interest from investments in (i) IDBI bonds; (ii) SBI Bonds; (iii) S .....

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#39; the Act on interest income as being attributable to the business of banking." MiIli Co-Op. Urban Bank Ltd. vs. ITO [2007] 291 ITR (AT) 163 (Hyd.) "Held, that to be eligible for exemption u/s. 80P(2)(a)(i), a co-operative bank need not deal only with its members. Exemption under the section has not been granted on, the principle of mutuality alone. As such, a separate exemption provisions is not required for receipts that satisfy the principle' of mutuality. Such receipts are n .....

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n u/s. 80P(2)(a)(i), a co- operative bank need not carry on the business of banking only with its members. Income attributable to banking activities carried on with non-members will also be entitled to special deduction under this section." As both factually as well as legally the counter arguments of the Ld. A.R. are appeared to be sound and reasonable backed by the aforesaid case laws, we do not have any hesitation to reject the grounds of the appeal. Accordingly, the grounds in appeals f .....

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allowability of deduction u/s 80P in respect of interest income from non-members and nominal members, and, that on non-SLR investment are covered by the orders of the appellate authorities in appellant's own case for different assessment years. In particular, the issues are covered by the decision of the jurisdictional ITAT. In view of the facts of the case, and, the principles laid down by the Hon'ble ITAT, it is held that the interest income arising from transactions with nonmembers a .....

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assessment order that there was non- compliance on the part of the appellant. But, even while making a best judgment assessment u/s 144, the AO does not possess absolute arbitrary authority to assess any figure he likes. Even if the circumstances of the case called for resorting to estimating the income of the appellant, such estimation cannot be a wild one, but, should be made honestly and not arbitrarily; moreover, it should have a reasonable nexus with the material available on record. While .....

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, is therefore not sustainable. In 'view of the above, the estimation made by the AO in respect of income from non-members and nominal members and that on non-SLR investment cannot be upheld. However, even otherwise, such income from nonmembers and nominal members and that on non-SLR investment is eligible for deduction u/s 80P. The grounds raised by the appellant are liable to be allowed. 6. Following the aforesaid order which was passed in relation to AY 1996-97, the CIT(A) allowed the sim .....

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to 2000-01. 8. The grounds of appeal raised by the revenue in all its appeals are identical. For the sake of ready reference, we give below the grounds raised by the Revenue in the appeal relating to AY 1996-97. 1.On the facts and in the circumstances of the case, the Ld. CIT(A) was perverse in holding that every income of the Co-operative Bank is eligible for deduction u/s. 80P (2)(a)(i). 2. That the Ld. CIT(A) erred in interpreting Sec.80P(2)(a)(i) to mean that every income earned from non-me .....

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lity, and held that the assessee could make profits from non-members and still claim the profits from such activity to be exempt from tax. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the plain meaning of the words in section 80P(2)(a)(i) in the sense that the assessee did not derive its income from extending banking or credit facilities to its members and instead derived income only from general public through commercial banking activities , and erre .....

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rodden people of the society and cannot be granted tax benefits u/s. 80P(2)(a)(i) merely on the plea that Regulatory bodies have not acted against it which would be contrary to the principle laid down in Bihari Lal Jaiswal & Ors 217 ITR 746 (SC) . 7. On the facts and in the circumstances of the case, the Ld. CITCA) has erred in not taking cognizance of the recent decision of the Hon'ble Supreme Court ,in the case of Totgars' Co-operative Sale Society Ltd-Vs- Income Tax Officer, Karna .....

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aid down by the Parliament or Legislature cannot be overlooked and tax benefits be granted, despite objection of the Revenue, on the ground that Regulatory Body has not taken action against the assessee for its violation. 9. On the facts and circumstances of the case Ld. CIT(A) has erred in not considering the fact that the legislature has not given deduction to all banks but to such co-operative banks to promote target area and group for up-liftment and in such situation, activities other than .....

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07] 291 ITR (AT) 163 (Hyd.) to the facts of the case while ignoring the recent decisions of the Hon'ble Supreme Court ,in the case of Totgars' Co-operative Sale Society Ltd-Vs- Income Tax Officer, Karnataka, [2010), 188 Taxman 282. 11. That the learned CIT(A) erred in ignoring the decisions in U.P. Co-operative Cane Union Federation Ltd. Vs. CIT 237 ITR 574 (All.) as well as Assam Co-operative Apex Marketing Society Ltd. Vs. CIT 201 ITR 332 while granting tax exemption to income earned f .....

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ned to further its statement of objects of creation as a co-operative and such diverted funds to earn income are not in consonance with the public policy and cannot be eligible to be rewarded with substantial tax benefits, and the decisions in the case of Mehsana District Co-operative Bank Limited vs ITO 251 ITR 572 and Gujarat State Co-operative Bank Limited Vs CIT ought to have been better appreciated before granting total tax exemption to entire global income of the co- operative from every s .....

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ed and decided by the Tribunal in Assessee s own case for AY 2002-03 to 2004-05. We do not see any ground to take view different from the view taken by the Tribunal. 11. Since the revenue has laid much emphasis on the decision of the Hon ble Supreme Court in the case of Totagars Co-operative Socieity 322 ITR 283 (SC), we deem it necessary to deal with those contentions also. This tribunal had an occasion to deal with similar objections in the case of another co-operative society similar to the A .....

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Deposit(RD) Account which was made by the Assessee from and out of the RD Account made by its members with the Assessee. The Revenue took the view that as per the decision rendered by the Hon ble Supreme Court in the case of Totgar s Cooperative Sale Society Ltd vs ITO 322 ITR 283 (SC) interest earned on deposits had to be regarded as income under the head Income from other sources and therefore deduction u/s 80P(2)(a)(i) of the Act ought not to have allowed to the assessee as only the whole of .....

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Society ltd. Vs ACIT in ITA NO.1693/Kol/2012 order dated 30.10.2014. In the aforesaid case the identical question as to whether interest income had to be regarded as income from business or income from other sources had come up for consideration. The Assessee in the aforesaid decision accepted loans and deposits from its members and utilized the same towards providing loans and credit facilities to its members. However excess funds were utilized in making deposits in banks and investments. The .....

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s ITO (supra). The following observations of the Hon ble Tribunal read as under :- 7.1. We further find that the issue involved is covered in favour of the assesee by catena of decisions of the Tribunal in assessee s own case. These decisions are also affirmed by the Hon ble Jurisdictional High Court in its order for A.Yr.2005-06. In this order the Hon ble Jurisdictional High Court has considered all the relevant orders and has decided the issue in favour of the assessee. We may gainfully reprod .....

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ore the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97. Then again in relation to the assessment years 2003-04 and 2004- 05 a similar point arose. The Learned Tribunal in relation to the assessment years 1998-99 to 2002-2003 by order dated 10.11.2006 in ITA Nos. 840 to 844/Kol/2006 and again by order dated 29.12.2006 in relation to assessment years 2003-04 and 2004-05 has deleted the disallowance mad .....

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Section 80P(2)(a)(i). The Tribunal has overruled the decisions rendered against the assessee in relation to assessment years 1995-96 and 1996-97 on the same issue in relation to subsequent years. It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal) that there is no change in the facts and circumstances of this case and it was held that the assessee was eligible for deduction under Section 80P(2)(a)(i) on interest on investment amounting to ₹ 1,1 .....

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3 and 2003-04 have been challenged by any of the parties before this Court. It is submitted by Mr.Bhowmick that there has been challenge of the decision in relation to assessment years 1995-96, 1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the pendency of that earlier matter is of no consequence in this m .....

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l High Court in assessee s own case. In this regard we would like to place reliance upon the decision of the Hon ble Apex Court in the case of CIT vs Excel Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to take a different view, any deviation is not permitted. 7.3. Now we come to the case laws relied upon by the ld. CIT(A). As regards the decision of the .....

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eds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same in specified securities and earned interest income. In these circumstances the Hon ble Apex Court had held that interest earned would come in category of Income from other sources taxable u/s 56 of the Act and would not qualify for deduction as business income u/s 80P(2)(a)(i). From the above it is amply evident in the present case the as .....

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ributable to banking business and this qualifying for deduction u/s 80P(2)(a)(i) of the Act. 7.5. In the background of the aforesaid discussion and precedent we hold that the issue is squarely covered in favour of the assessee by the decision of the Tribunal and the Jurisdictional High Court in assessee s own case. The decision relied upon by the ld. CIT(A) are not applicable in the facts of the case. The principle of consistency as conveyed by the Hon ble Apex Court mandates that the Revenue do .....

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ad also an occasion to examine the scope of Sec.80P(2)(a)(i) of the Act, in the light of the decision of the Hon ble Supreme Court in the case of Totagar Co-operative Society (supra) in the case of Guttigedarar Credit Co-operative Society Ltd. Vs. ITO Ward 2(2), Mysore 377 ITR 464 (Karnataka). The Assessee in that case which was a co-operative Society claimed deduction in respect of interest income it earned on deposit of surplus funds as eligible for deduction u/s.80P(2)(a)(i) of the Act. The a .....

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ions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v.CIT 113 ITR 84 (SC) (at page 93) as under:- 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the express .....

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d distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generat .....

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. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit f .....

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tive Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Co-operative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested .....

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