TMI Blog2010 (2) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 56 of the Act. - To say that the source of income is not relevant for deciding the applicability of Section 80P of the Act would not be correct - 1622 - 1629 OF 2010 (Arising out of S.L.P. (C) No.7572 of 2009) - - - Dated:- 8-2-2010 - S.H. KAPADIA, and Aftab Alam JJ. J U D G M E N T S.H. KAPADIA, J. Heard learned counsel on both sides. 2. Leave granted. 3. Assessee(s) is a cooperative credit society. During the relevant assessment years in question, it had surplus funds which the assessee(s) invested in short-term deposits with the Banks and in Government securities. On such investments, interests accrued to the assessee(s). Assessee(s) provides credit facilities to its members and also markets the agricultural produce of its members. The substantial question of law which arises in this batch of civil appeals is - Whether such interest income would qualify for deduction as business income under Section 80P(2)(a)(i) of the Income Tax Act, 1961? 4. According to the impugned judgement, which affirms the decision of the Income Tax Appellate Tribunal [`Tribunal', for short], such interest income would fall under the Head "Income from other sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995-96 156,948,290.00 46,898,160.00 107,201,490.00 4,189,923.00 158,289,580.00 1996-97 180,468,526.00 53,274,684.00 125,289,995.00 3,568,644.00 182,133,326.00 1997-98 211,686,266.00 52,510,175.00 142,529,130.00 46,694,814.00 241,734,125.00 1998-99 253,295,055.00 66,074,107.00 175,757,230.00 17,342,956.00 259,174,281.00 1999-00 269,520,510.00 124,571,325.00 209,202,203.00 25,199,555.00 358,973,088.00 7. The Assessing Officer held, on the facts and circumstances of these cases, that the interest income which the assessee(s) had disclosed under the Head "Income from business' was liable to be taxed under the Head "Income from other sources". In this connection, the Assessing Officer held that the assessee-Society had invested the surplus funds as, and by way of, investment by an ordinary investor, hence, interest on such investment has got to be taxed under the Head "Income from other sources". Before the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment that such interest income is held to be covered by Section 56 of the Act under the head "Income from other sources", even then the assessee-Society was entitled to the benefit of Section 80P(2)(a)(i) of the Act. In this connection, learned counsel for the assessee(s) submitted, placing reliance on numerous judgements, that the source or head of income was irrelevant for deciding the question as to whether a given item is eligible for deduction under Section 80P of the Act. According to the assessee(s), once interest income accrues on specified investments, particularly when a local enactment makes it statutorily incumbent on the society to invest in specified investments, the interest income is automatically eligible for deduction irrespective of the source or head under which such income would fall. In this connection, learned counsel for the assessee(s) submitted that one needs to compare the language of Section 80P(2)(a)(i) and (iii) of the Act with Explanation (baa) to Section 80HHC, the language used in Section 80HHD(3) and the words used in Section 80HHE(5) of the Act. In this connection, it was urged that there is a wide contrast in the language between Section 80P(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or [v] the processing, 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." 10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or in Section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under Section 56 of the Act. 11. An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by Section 56 of the Act, even then, the assessee-Society is entitled to the benefit of Section 80P(2)(a)(i) of the Act in respect of such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the re-opening of assessment under Section 148 of the Act. 13. In this connection, it was urged on behalf of the assessee(s) that, for the relevant assessment years in question, the Assessing Officer was required to obtain prior approval of the Joint Commissioner of Income Tax before issuance of notice under Section 148 of the Act. According to the assessee(s), the proposal for re-opening was made on 31st May, 2001, it was not sent through fax to the office of the Additional Commissioner of Income Tax, Panaji, and the fax report indicates the time of 5.18 p.m., which establishes the fact that service of notice on 31st May, 2001, on the assessee(s) was done prior to the sending of fax for approval. According to the assessee(s), the approval was given by the Additional Commissioner of Income Tax on 8th June, 2001. The notice under Section 148 of the Act was served on 31st May, 2001, i.e., prior to the approval of the Additional Commissioner of Income Tax. In the circumstances, it was urged that the notice under Section 148 of the Act was invalid and consequential re-assessment under Section 147 read with Section 144A of the Act was bad in law. We find no merit in this argument. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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