K.628 Keeranatham Primary Agricultural Cooperative Credit Society Ltd. v. The Income-tax Officer, Non Corp Ward-2(5), Coimbatore
[Citation -2020-LL-0303-53]

Citation 2020-LL-0303-53
Appellant Name K.628 Keeranatham Primary Agricultural Cooperative Credit Society Ltd.
Respondent Name The Income-tax Officer, Non Corp Ward-2(5), Coimbatore
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 03/03/2020
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags interest on securities • taxability of interest • income from business • netting of interest • application of mind • statutory reserve • chargeable to tax • interest received • business income • credit facility • question of law • interest income • interest paid • surplus funds • sale of goods
Bot Summary: Since the issue arising out of impugned assessment dated 17.12.2019 for AY 2012-13 in terms of the Income Tax Act, 1961 has been considered and decided by me in a batch of writ petitions filed by several Primary Agricultural Co-operative Societies, in K.2058, Saravanmpatti Primary Agricultural Co-operative Credit Society Ltd., Vs. The Income Tax Officer and both learned counsel concur on the position that the aforesaid order is directly applicable to the present case, the said order is applied in the present case as well. One of the issues that arose for consideration was the eligibility to exemption claimed on the interest income received by the petitioner from deposits/investment of funds in banks. The petitioners sought to distinguish the judgment in the case of Totgars on the grounds that Totgars was a Society engaged in sales, whereas, the petitioner was a Primary Agricultural Cooperative Credit Society. One of the petitioners before me has specifically raised before the Assessing Authority the argument that the Tamil Nadu Co-operative Societies Act, 1983 mandates Co- operative Societies to place a portion of their funds as a statutory reserve with a District Co-operative Bank. Though all petitioners have not replied identically to the notices issued by the officer, the above replies are illustrative of the stands adopted by the petitioners at the time of assessment and crystallize the arguments of the petitioners to the effect that the investments in question do not comprise surplus funds that the investments constitute a statutory reserve as mandated by the TNCS Act the interest generated therefrom was eligible for deduction in the light of Nawanshahar at worst the interest received should be netted with interest paid. If the affidavits of the petitioners are looked upon as mechanical and filed in haste and without application of mind, equally so are the impugned orders of assessment that simply rely on Totgars without discussing the arguments put forth by the petitioners. The petitioners will be heard specifically on the question of classification of interest generated by investments made for the purpose of statutory reserve and the judgments of the Supreme Court in Nawanshahar and Totgars' as well as other relevant case law shall be taken into account by the Assessing Officer in framing assessments by way of speaking and detailed orders.


Writ Petition No.5552 of 2020 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 03.03.2020 CORAM HONOURABLE DR. JUSTICE ANITA SUMANTH Writ Petition No.5552 of 2020 and WMP. Nos.6500 & 6502 of 2020 K.628, Keeranatham Primary Agricultrual Cooperative Credit Society Ltd., Rep. by its Secretary, V.Soundararajna. Petitioner Vs Income Tax Officer, Non Corp Watd - 2 (5), CBE, No.63, Race Course Road, Coimbatore - 641 018. Respondent PETITIONs filed under Article 226 of Constitution of India praying for issuance of Writ of Certiorari, calling for entire records relating to impugned order passed by respondent in No.Nil, dated 17.12.2019 and quash same. For Petitioner Mrs.R.Hemalatha, for C.Prakasam For Respondent : Mr.A.P.Srinivas, Senior Standing Counsel ORDER Mr.A.P.Srinivas, learned Senior Standing Counsel accepts notice for respondent. 2. By consent expressed by both learned counsel, Writ Petition is finally disposed even at stage of admission. 3. Since issue arising out of impugned assessment dated 17.12.2019 for AY 2012-13 in terms of Income Tax Act, 1961 ('Act') has been considered and decided by me in batch of writ petitions filed by several Primary Agricultural Co-operative Societies, in K.2058, Saravanmpatti Primary Agricultural Co-operative Credit Society Ltd., Vs. Income Tax Officer (W.P.Nos.17 of 2020 etc. batch dated 31.01.2020) and both learned counsel concur on position that aforesaid order is directly applicable to present case, said order is applied in present case as well. Relevant portions of order in aforesaid batch of Writ Petitions are extracted below: '3. petitioners responded to queries raised by Officer. One of issues that arose for consideration was eligibility to exemption claimed on interest income received by petitioner from deposits/investment of funds in banks. Such income, according to Officer, was ineligible for deduction under Section 80P, since it did not form part of operational income of petitioner/assessee and was liable to be taxed in terms of Section 56 of I.T. Act. Officer relied on judgment of Supreme Court in case of Totgars' Cooperative Sale Society Limited V. ITO, Karnataka (322 ITR 283). 4. petitioners were put to notice of proposal to bring to tax interest receipts under head 'other sources'. petitioners sought to distinguish judgment in case of Totgars (supra) on grounds that Totgars was Society engaged in sales, whereas, petitioner was Primary Agricultural Cooperative Credit Society. That apart, funds that were deposited giving rise to interest income did not constitute surplus, but mandatory statutory reserve. 5. Reliance was placed on judgment of Supreme Court in Commissioner of Income Tax, Jalandhar V. Nawanshahar Central Cooperative Bank Limited ((2007) 15 SCC 611) wherein Bench has observed that deposit effected was in nature of statutory reserve. According to petitioners, such statutory reserve would not fall within ambit of surplus funds and judgment in case of Totgars (supra) was inapplicable to their cases. 6. In addition, petitioner also stated that total amount invested, Rs.15,51,18,027/- in case of K.2058 Saravanampatti Primary Agricultural Cooperative Credit Society Limited, petitioner in W.P.No.17 of 2020, (whose facts are taken to be illustrative of facts in other Writ Petitions as well on basis of submissions of both learned counsel to effect that facts and legalities in all writ petitions are similar excepting for figures involved), comprised significantly of external borrowings. In this case, sum of Rs.12,57,23,490/- had been borrowed from Coimbatore District Central Cooperative Bank. It is not elaborated as to why this borrowal was effected. Perhaps, it was mandate of statutory reserve that compelled petitioner to effect borrowing to maintain such reserve. 7. It was also contention of petitioners before Assessing Officer that if at all interest earned was to be brought to tax, then, alternatively, interest paid on loan should be deducted from interest received or in other words, there should be netting of interest paid and received and only resultant figure be brought to tax. 8. Assessing Authority however rejected submissions cursorily stating in single line that statutory reserve can also be considered as surplus funds of assessee . judgement of Supreme Court in case of Nawanshahar (supra) has not been considered or discussed and neither has plea of petitioner for netting of interest paid and earned. 9. In Nawanshahar (supra), Supreme Court considered question of whether investments made by banking concern are part of business of banking. conclusion was that income arising from investments would be attributable to business of bank and fall under head 'profits and gains of business', deductible under Section 80P(2)(a)(i) of I.T. Act. earlier view in Bihar Coop. BankLtd. V. CIT ((1960) 39 ITR 114, CIT V. Karnataka State Coop. Apex Bank ((2001) 7 SCC 654) and CIT V. Ramanathapuram Distt. Coop.Central Bank Ltd. ((2009) 17 SCC 620) was followed. 10. At paragraph 4 of short judgment, Bench has stated that principle in those cases would cover situation where Co-operative Bank carrying on business of banking is statutorily required to place part of its funds in approved securities. 11. distinction I note, at first blush, is that this judgment has been rendered in case of Co-operative Bank, whereas, petitioners before me are Co-operative Societies. Supreme Court in Citizen Co- operative Society Limited V. Assistant Commissioner of Income-Tax, Circle -9 (1), Hyderabad (397 ITR 1) has noted distinction between Co-operative Bank that would be governed by provisions of Banking Regulation Act, 1949, where its operations would include engagement of members of general public, and co-operative Society, whose operations would be confined to its members. 12. This is distinction between two kinds of co-operative societies as set out under Section 80P(2)(a)(i), that is, those carrying on business of banking and those providing credit facilities to its members. However, common mandate in both cases, though arising under different enactments, is for such entity to place part of its funds in/with specific facilities/entities. 13. One of petitioners before me (Kalikkanaickenpalayam Primary Agricultural Cooperative Credit Society Ltd.in W.P.No.29 of 2020) has specifically raised before Assessing Authority argument that Tamil Nadu Co-operative Societies Act, 1983 (in short 'TNCS Act') mandates Co- operative Societies to place portion of their funds as statutory reserve with District Co-operative Bank. argument appears to be that statutory reserve forms part of and is essential feature of operations and any interest generated therefrom would be operational income entitled to deduction under Section 80P of I.T.Act. 14. respondent officer has relied on more recent judgment of Supreme Court in Totgars' (supra), where Bench was concerned with surplus funds which assessee had invested in short term deposits with banks and Government facilities. question referred for decision was as follows: 'Whether, on facts and in circumstances of case, Tribunal was right in law in holding that income by way of interest on deposits held with scheduled banks, bonds and other securities was chargeable to tax under section 56 under head `Income from other sources' without allowing any deduction in respect of cost of funds and proportionate administrative and other expenses under section 57?' 15. Thus issue before Court in Totgars (supra) was on classification of interest generated by deposits held with scheduled banks, bonds and other securities without providing for deduction in respect of cost of funds and proportionate administrative and other expenses under Section 57. question of interest generated from deposits made by reason of statutory mandate was raised and finds reference in narration of petitioners' submissions, Court has, at para 8 of report (ITR) stated that 'At outset, important circumstance needs to be highlighted. In present case, interest held not eligible for deduction under Section 80P(2)(a)(i) of Act is not interest received from members for providing credit facilities to them. What is sought to be taxed under Section 56 of Act is interest income arising on surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with tax treatment of such amount. Since fund created by such retention was not required immediately for business purposes, it was invested in specified securities. question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to members' account, could be taxed as business income under Section 28 of Act? In our view, such interest income would come in category of "Income from other sources",....' 16. revenue has filed counters in few writ petitions objecting to maintainability of writs sought and again relying on judgement of Supreme Court in case of Totgars (supra). Additionally, Mr.Jayapratap points out that issue in regard to classification and taxability of interest income has not been specifically raised in affidavit filed in support of Writ Petitions. Upon perusal, affidavits appear to be cut and paste exercise from Writ Petitions filed by other Co-operative Societies challenging orders of assessment rejecting claims for exemption on ground of mutuality. Though there is one general ground raised in regard to availability/entitlement to deduction under Section 80P itself, 'The respondent failed to consider that cooperative societies are entitled to seeking deduction u/s.80(P) of Income Tax Act, but same was not considered by respondent , all other grounds revolve only around aspect of mutuality and are entirely irrelevant to issue arising from present impugned order. No specific ground has been raised on classification of interest income and whether same would fall within ambit of income from business or other sources. 17. However, petitioners have responded to show cause notice issued by officer raising this issue and their response has been extracted in orders of assessment, as follows: W.P.No.17 of 2020: 'The Supreme Court judgment in Togars Cooperative Sale Society Ltd no applicable to our society as above society is sale society and ours is Primary Agricultural Co-operative Credit Society. former is dealing sale of goods and ours is dealing in credit facility extended to members. Also, as per section 80P2a, profits and gains attributable to business of society and word attributable is having elaborate meaning as derived in Commissioner of Income-tax vs. Nawanshahar Central Co-operative bank Ltd. Civil Appeal Nos.2499, 2500 of 2005 8th April 2005. So, funds deposited is not surplus fund as decided in Totgars Co-operative Sale Society Ltd., but statutory reserve maintained as decided in Commissioner of Income tax Vs. Nanshahar Central Cooperative Bank Ltd. amount in investments is Rs.15,51,18,027/- out of this Rs.12,57,23,490/0 was borrowed from Coimbatore District Central Co-operative Bank. if interest earned is taxed interest paid to such loans are deducted form interest on other sources. So, kindly drop proceeding by taxing interest income and accept returned income' W.P.No.29 of 2020: Received you show cause notice and noted contents. In this regard we wish to submit following for your consideration. Supreme Court judgement in Totgars Cooperative Sale Society Ltd., not applicable to our society as above society is sale society and ours is Primary Agricultural Cooperative Credit Society. former is dealing sale of goods and ours is dealing in credit facility extended to members. Major difference in both former is dealing sale of something and ours is dealing in money, when money involved in bank or credit society, definitely reserve must be maintained for easy liquidation purpose in case of emergency. Also, as per section 80P2A, profits and gains attributable to business of society and word attributable is having elaborate meaning as derived in COMMISSIONER OF INCOME TAX vs. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD Civil Appeal Nos.2499 2500 of 2005 8th April, 2005, 2007 208 CTR SC 438:2007 289 ITR 6 SC:2007 160 TAXMAN 48 Also it is to be noted that every Cooperative Society is to be maintained statutory reserve of 25 percent of total deposits including savings bank account and current account balances with District Central Cooperative banks to provide proper liquidity to societies. So, funds deposited is not surplus fund as decided in Totgars Cooperative Sale Society Ltd., but statutory reserve maintained as decided in COMMISSIONER OF INCOME TAX vs. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD. following cases are also to be considered by Honorable Supreme Court of India in case of interest received on deposits etc., Supreme Court of India Commissioner Of Income-Tax vs Ramanathapuram Distt. Co-Op. ... on 30 October, 2001 Equivalent citations: 2002 255 ITR 423 SC Bench: S Bharucha, Y Sabharwal, B Kumar ORDER 1. High Court has answered against Revenue, following question : "Whether, on facts and in circumstances of case, Appellate Tribunal was correct in law in holding that interest on securities, subsidies received from Government and dividend business income of assesse entitled to deduction under Section 80P(2)(a)(i) of Income-tax Act, 1961 ?" 2. very question was considered by this court in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 and conclusion was reiterated in Mehsana District Central Co-operative Bank Ltd. v. ITO . 3. It is now contended on behalf of Revenue that decision of this court in United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 was not considered. 4. We do not think that it is open to Revenue to urge, through different counsel, same thing again and again. We are satisfied that answer to question has been correctly given in decisions aforementioned and in order under appeal. 5. civil appeals are dismissed with costs. Also jurisdictional Madras High Court also looking into Totgars case and allowed interest received is allowed under section 80P in case of Madras High Court Commissioner Of Income Tax vs M/S. Veerakeralam Primary ... on 5 July, 2016 IN HIGH COURT OF JUDICATURE AT MADRAS Dated: 05.07.2016 CORAM : HONOURABLE MR. JUSTICE S.MANIKUMAR and HONOURABLE MR. JUSTICE D.KRISHNAKUMAR Tax Case Appeal Nos.735, 755 of 2014 and 460 of 2015 Commissioner of Income Tax, 63, Race Course Road Coimbatore. .. Appellant in all above appeals Vs M/s. Veerakeralam Primary Agricultural Co-operative Credit Society No.17, Peria Thottam Colony Veerakeralam Coimbatore 641 007. So, on basis of above kindly drop proceedings by taxing interest income and accept returned income. 18. Though all petitioners have not replied identically to notices issued by officer, above replies are illustrative of stands adopted by petitioners at time of assessment and crystallize arguments of petitioners to effect that (i) investments in question do not comprise surplus funds (ii) that investments constitute statutory reserve as mandated by TNCS Act (iii) interest generated therefrom was eligible for deduction in light of Nawanshahar (supra) (iv) at worst interest received should be netted with interest paid. These arguments ought to have been at least, considered, by Assessing Authority in deciding issue but have unfortunately been brushed aside despite being noted in order itself. 19. In my considered view, this amounts to fatal flaw as it renders impugned order entirely non-speaking and passed without application of mind. If affidavits of petitioners are looked upon as mechanical and filed in haste and without application of mind, equally so are impugned orders of assessment that simply rely on Totgars (supra) without discussing arguments put forth by petitioners. For this reason arguments of revenue based on lack of pleadings in affidavit is rejected. I am of considered view that in case such as present, petitioners should not suffer for lacunae in drafting particularly when stand of petitioners is very clear from materials on record. Thus, to balance convenience of both parties and in interests of justice, this issue is set aside for denovo and fresh examination and conclusion by respondent. 20. I make it clear that I have expressed no opinion on merits of matter and all that is stated above is only to crystallize arguments of both sides, as available on record. officers are at liberty to decide and conclude issue on merits in any manner as they may think fit, but only after proper discussion. order of assessment passed by quasi judicial officer that decides important question of law, raises significant demand and has far reaching consequences has to speak for itself and take into account, and meet, arguments raised by assessee. Mere reliance on judgement without reference to facts involved in both cases, those in case relied upon and those in case of assessee in question, would not justify conclusion arrived at. 21. For these reasons, assessments impugned in W.P.Nos.17, 20, 22, 23, 26, 29, 1150, 1155 and 1161 of 2020 are set aside and matter is remanded to file of Assessing Officer for de novo consideration. petitioners are directed to appear before their respective Assessing Officer on 14.02.2020 at 10.30 a.m. without expecting any further notice in this regard. petitioners will be heard specifically on question of classification of interest generated by investments made for purpose of statutory reserve and judgments of Supreme Court in Nawanshahar and Totgars' (supra) as well as other relevant case law shall be taken into account by Assessing Officer in framing assessments by way of speaking and detailed orders. This exercise shall be completed within period of six (6) weeks from date of conclusion of personal hearing ' 3. In light of aforesaid, impugned order which relates to this issue is set aside. petitioner is permitted to appear before Assessing Officer on Friday 20th of March, 2020 at 10.30. a.m. without expecting any further notice in this regard. My direction as set out in paragraph No.21 extracted above will apply equally in this case as well . 4. Writ Petition is allowed in aforesaid terms. No costs. Connected Miscellaneous Petitions are closed. 03.03.2020 Index : Yes/No Speaking Order/Non speaking Order rkp To Income Tax Officer, Non Corp Watd - 2 (5), CBE, No.63, Race Course Road, Coimbatore-641018. Dr.ANITA SUMANTH, J. rkp Writ Petition No.5552 of 2020 and WMP. Nos.6500 & 6502 of 2020 03.03.2020 K.628 Keeranatham Primary Agricultural Cooperative Credit Society Ltd. v. Income-tax Officer, Non Corp Ward-2(5), Coimbatore
Report Error