TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 404
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....d under section 80P(2)(c)(ii) of the Income-tax Act, 1961." Grounds of appeal in the assessee's appeal read as under : "1. Having regard to the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that the appellant is a 'co-operative society' the main activity of which is duly covered under section 80P(2)(a)(i) of the Income-tax Act, 1961, and therefore, on the 'principle of mutuality' other incomes of the appellant-society being from ancillary activity are also eligible for deduction under section 80P(2)(a)(i). 2. That on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals)-II, Nagpur, grossly erred in holding that the balance income of the appellant-society of Rs. 14,62,54,397 are not ancillary and incidental to the main activity of business of providing credit facilities to its members, and as such, profits attributable to these incomes amounting to Rs. 48,39,540 are not eligible for deduction under section 80P(2)(a)(i). 3. Whether on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals)-II, Nagpur, was right in law to ....
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....uses or flats and allot the same to the members of the society. (ii) What is true is that the main objects of the assessee-society includes providing credit facility to its members for construction of houses or plots and for repairing of houses etc. (iii) The assessee-society provides housing credit facility only providing houses is not the predominant object of the society as appears from your observation. (iv) We have not made a single transaction of loan as alleged in your abovesaid letter but we simply give credit facility to members only for acquiring residential house. (v) To say that the assessee-society does not provide credit facility to its members would be travesty of reality when one reads the accounts of the society for the last several years. To be specific, for the year under assessment, the assessee-society has earned interest of Rs. 31 crores and the balance of housing loan outstanding as on March 31, 2009 is Rs. 221 crores. The assessee-society wishes to submit that by no stretch of imagination one could come to a conclusion that the assessee-society does not provide credit facility to its members contributing a share capital of Rs. 6 crores and deposit of....
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....mission as under : 'The activities of the society are same and there is no change in activity as in past. The society also takes and execute housing scheme every year. The society provide flats to its members in scheme which shown in gala account. This scheme is implemented by taking over job of construction of flat by the society/s own finance and thereafter conveying the flats to the members by financing loan to them. There is no income as the motive is of recovering that loan from the members on the basis of no profit no loss. This is a service to members of society and not trading or business activity of the society. The object is only to provide housing facility to its needy members. The surplus in gala yojana is reserved for meeting fluctuating prices of materials and administrative expense of the gala yojana'." 4. The Assessing Officer was not satisfied. He observed and held as under : "The assessee has shown 'surplus on schemes' amounting to Rs. 3,51,47,632 under miscellaneous income in the profit and loss account. The assessee was asked to submit the details of the same. The assessee submitted details of schemes, which is as follows : Surplus on sale ....
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....and loss account : Rs. 1,66,65,292 Less :House property income considered separately : Rs. 1,69,844 Income from business : Rs. 1,14,95,448 Less: Deduction under section 80P(2)(c)(ii) : Rs. 50,000 Total income from business : Rs. 1,14,45,448 Income from house property as declared : Rs. 1,18,891 Gross total income : Rs. 1,15,64,339 Total assessed income : Rs. 1,15,64,340 5. Against the above order the assessee appealed before the learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) noted and reproduced the submissions of the assessee. After reproducing the assessee's submissions the learned Commissioner of Income-tax (Appeals) held as under : "The appellant has submitted the statement of accounts as follows: Sl. No. Nature Particulars Amount (A) Housing loan interest Amount received on long-term credit facilities given to members of the society against their house property mortgage. 17,53,94,476 (B) Loan against deposits Interest received out of the loans on FDR deposits of the members of the society. 32,71,855 (C) Staff loans and advances Recovery out of loan facility given to staff repayment is attach....
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....tion under section 80P(2)(d) is not applicable to income earned by society from co-operative bank. As the moment co-operative society becomes bank, it is out of section 80P and the word used in section 80P(2)(d) is 'co-operative society' and not 'co-operative bank'. Under the Income-tax Act they have very different connotation so much that now co-operative banks have been taken out of purview of section 80P altogether. Hence, express 'investment' made by the appellant in these banks are going out of co-operative set up and they may in turn be invested in any activity and move out of preview of co-operative society, i.e. can be used commercially by banks as they like and this money is not used for mutual benefit of members of the co-operative banks alone. Hence, the amount of interest received by appellant from investment in banks is not to be deducted in section 80P(2)(a), (d). 4.2 Now we come to determine taxability of receipt of society. How to calculate the net exemption/net taxable and as the society has not maintained the account in such a manner that one can determine the amount of net taxable/exempted income easily. The appellant has suggested two w....
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.... themselves. Thus, the principle of mutuality is broadly and correctly applicable in the case of the assessee-society as the contributors and participators are clearly identifiable in all the activities of the society. (4) It is submitted that the bye-laws of the society clearly outline the object of the society which are for the benefits of the members. The motive is service to the members and the society at large by providing housing loan and premises at reasonable costs. Consequently any surplus or profit, if earned by the society, is distributed amongst the members as dividend. The learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that all the activities carried on by the appellant-society are duly covered by the principle of mutuality and profits, if any, should not be exigible to tax under the principle of mutuality. (5) It is submitted that the Commissioner of Income-tax (Appeals) grossly erred in holding that profit amounting to Rs. 48,39,480 is not eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act 1961, as the source of income for the same amounting to Rs. 14,62,54,397 is not attributable to the activity as defined in sect....
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....sp; (a) Loan incidental charges 10,52,853 (b) Loan consolidation charges 78,148 (c) Inoperative savings account charges 1,47,460 (d) Working charges (flat transfer fee) 2,96,100 (e) Loan commitment charges 9,08,448 24,83,010 Total receipts charges 34,74,40,831 (8) It is submitted that the learned Commissioner of Income-tax (Appeals) grossly erred in holding that profits from only income of (1) interest on housing loan, (2) interest on loan against deposit, (3) interest on RRC decretal loans, and (4) interest on exigency loans are eligible for deduction under section 80P(2)(a)(i), these activities being attributable to the activity as defined in that section, and all other incomes are not ancillary to or incidental to the activity of providing credit facilities to the members, and are not eligible for deduction under section 80P(2)(a)(i). (9) That the Commissioner of Income-tax (Appeals) erred in not considering the nature of other incomes of the appellant-society, and disallowed deduction of profit on lump sum basis. These incomes are entirely related to and are comple....
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.... facility to its members and the income from interest is duly exempt. (12) It is submitted that income of Rs. 10,74,65,925 as interest on investment made in various co-operative banks is ancillary and incidental to carrying on the business of providing credit facilities to its members, and as such, exempt under the provisions of section 80P(2)(a)(i). The appellant-assessee deposited surplus funds available with it in co-operative banks and earns interest thereon. (13) It is not disputed that the appellant-society is carrying on the business of providing credit facilities to its members, and the same is established by the learned Commissioner of Income-tax (Appeals). That the provisions of section 80P(2)(a)(i) of the Act besides being applicable to business of banking also applies to the business of providing credit facility to its members. The investments of surplus funds available with the appellant are deposited in the course of business of the society. The funds in bank can be said to be ready for utilisation by the assessee in its business of providing credit facilities to its members. Therefore, the said income can be clearly said to be incidental and in proximity to the b....
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....s is ancillary and incidental to carrying on the business of providing credit facility to its member and, as such, exempt under the aforesaid provisions. It may be stated herein that the assessee deposits surplus funds available with it in banks and earns interest thereon. The nature of activity in which the assessee is involved clearly creates a situation when surplus fund is available to it which it deposits in bank and earns interest thereon. The placement of such funds being incidental and ancillary to carrying on of the business of providing credit facilities to its members by reason of section 80P(2)(a)(i), the same is exempt under the aforesaid provisions.' (17) The same ratio was also duly laid down in the cases of : (a) CIT v. Orissa State Co-operative Housing Corporation Ltd. [1976] 104 ITR 157 (Orissa) ; (b) CIT v. Iqbalpur Co-operative Cane Development Union Ltd. [2010] 230 CTR (Uttarakhand) 95; [2009] 315 ITR 441 (Uttarakhand) ; [2009] 29 DTR 259; and (c) Punjab State Co-operative Federation of Housing Building Societies Ltd. v. Asst. CIT [2010] 4 ITR (Trib) 507 (Chd) ; [2010] 134 TTJ (Chd) 12 (UO) ; [2010] 38 DTR 284. (18) With due consideration of the d....
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.... earned on such activity which is in proximity to the main business of providing credit facility to its members should be eligible for deduction under section 80P(2)(a)(i). (22) The society earns income from various sources. It cannot be said that the society has only one business, neither a solitary activity can be characterised as its only business. The entire activities as carried out by the society has to be considered so as to satisfy the qualification for deduction under section 80P(2)(a)(i). Section 80P(2)(a)(i) allows deduction to the whole amount of profits and gains of business attributable to anyone or more of such activities. The entire activity of the business as carried out by the society relates directly with the provision of credit facility to its members. (23) The provision for exemption is intended to encourage co- operative societies. Considering the benevolent cause, a liberal construction should be given to the language employed in the provision. Construing section 80P(2)(a)(i) in the manner it can be said that if the co-operative society is members that would suffice to attract the benefit of deduction under section 80P(2)(a)(i). (24) Nature of income fr....
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....ubmitted that a co-operative bank is a co-operative society, eligible to do banking business with necessary permission and licence from Reserve Bank of India to carry on banking business. As per section 56(c)(cci) of the Banking Regulation Act, 1949, 'co- operative bank' means a State Co-operative Bank, a Central Co-operative Bank and a primary Co-operative Bank ; 'a primary Co-operative Bank' means a co-operative society, other than a primary agricultural credit society. . . . It is therefore very much clear that a co-operative bank is a co- operative society, and as such, interest received from it is duly covered under the purview of section 80P. (I) That it is humbly prayed that the claim as made by the assessee for deduction of Rs. 48,39,580 under section 80P(2)(a)(i) may please be allowed." 8. Per contra the learned Departmental representative relied upon the order of the Assessing Officer and the order of the learned Commissioner of Income-tax (Appeals) to the extent he has upheld the Assessing Officer's action. 9. We have carefully considered the submissions and perused the records. We find that the assessee in this case is a co-operative society. T....
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....the fishing or allied activities ; (2) the co-operative credit societies which provide financial assistance to the society ; (3) the State Government ; (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oil seeds, fruits or vegetables raised or grown by its members to- (i) a federal co-operative society, being a society engaged in the business of supplying milk, oil seeds, fruits or vegetables, as the case may be ; or (ii) the Government or a local authority ; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oil seeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business ; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,- (i) where such co-....
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....s cannot come to the rescue of the assessee. It is settled law from the honourable Supreme Court that a mistake cannot be perpetuated. As per the facts of the case and the mandate of law it is clear that the assessee is engaged in activities of providing credit facility as well as providing housing facility. Hence the assessee's activities which relate to the provisions of section 80P(2)(a) will get hundred per cent. deduction. In this regard it is noted that the assessee's books of account have not been maintained separately so as to depict profits attributable to both the segments. In this regard both the counsel agreed that the issue can be remitted to the file of the Assessing Officer and the assessee will co-operate in arriving at the profit attributable to both the segments. Accordingly in the interest of justice the issue of arriving at profits attributable to both the segments is remitted to the Assessing Officer. The Assessing Officer shall arrive at the figure of profits after giving the assessee an opportunity of being heard. 12. Another issue on which the assessee has filed appeal is with regard to the learned Commissioner of Income-tax Appeals's direction ....
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.... the Act ? In our view, such interest income would come in the category of 'income from other sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. . .' 19.1. However, in the present case, on verification of the balance- sheet of the assessee as on March 31, 2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon'ble Supreme Court (on page 286) : ". . . Before the Assessing Officer, it was argued by the asses see(s) that it had invested the funds on short-term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman ; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. This argument was rejected by the Assessing Officer as also by the Tribunal and the High Court, hence, these civil ....