M/S The A.P. Mahesh Co-Operatvie Urban ... vs Assessee

The A.P. Mahesh Vs. The Asstt. Commissioner Cooperative Urban Bank Ltd of Income Tax, Circle 2(3) Hyderabad Hyderabad PAN: AABAT 4652 K (Appellant) (Respondent)

Assessee by: Shri B.Satyanarayana Murty, Department by: Shri Bandy Ramakrishna, (DR)

Date of Hearing: 29/12/2014 Date of Pronouncement: 09 /01/2015

ORDER

Per Asha Vijayaraghavan, J.M.

The appeal filed by the assessee is directed against the order of the CIT (A)-III Hyderabad dated 29.04.2014 for the A.Y 2009-10.

2. Brief facts of the case are that the assessee bank made a contribution of Rs.9,93,176/- to Cooperative Education Fund maintained by the National Cooperative Union of India, New Delhi during the year relevant to the A.Y 2009-10 and claimed it as a deduction in its return for that year. This claim was disallowed by the AO on the ground that this is not an allowable deduction u/s 37. The assessee bank filed appeal before the CIT (A) and raised the following ground:

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"8. The ld AO erred in disallowing the claim for deduction of Rs.9,93,176/- being contribution to cooperative education fund - National Cooperative Union of India".

3. As this matter was covered by the appellate order of the CIT (A) relating to A.Y 2010-11, copy of the same was filed before the CIT (A) at the time of hearing. The A.R. at the time of hearing of the appeal for the A.Y 2009-10 did not press for the Ground Nos. 6 and 7 relating to donations u/s 80G. The CIT (A) did not adjudicate on the ground No.8 relating to contribution to cooperative education fund on the ground that it was not pressed at the time of hearing. A petition u/s 154 was filed on 6.5.2014 requesting the CIT (A) to adjudicate on ground No.8 as the CIT (A) did not consider it in the appellate order dated 29.4.2014. The assessee filed appeal before the Tribunal raising the following grounds:

"1. The grounds of the lower authorities in so far as it is against the appellant company are contrary to the facts of the case and provisions of law.

2. The lower authorities are not justified in disallowing the claim for deduction of Rs.9,93,176/- being the contribution to cooperative education fund - National Cooperative Union of India.

3. The lower authorities should have appreciated that this contribution is a mandatory one as provided in Multi State Cooperative Societies Act, 2002 which governs the appellate bank.

For these and other grounds that may be urged at the time of hearing, it is submitted that the order of the lower

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authorities be set aside or modified as may be deemed fit".

4. However, in the appeal filed before the Tribunal, no specific ground was raised on this issue relating to the observation made by the CIT (A). Therefore, the assessee bank has raised the following additional ground for adjudication by the ITAT.

Additional Ground:

"The Hon'ble CIT is not justified in not giving a finding on the contention of the appellant bank that the contribution of Rs.9,93,176/- to cooperative education fund is an allowable deduction. The Hon'ble CIT should have appreciated that the appellant bank had argued on this point at the time of hearing of the appeal and filed a copy of the appellate order for the A.Y 2010-11 covering this issue. The Hon'ble CIT (A) is not justified in holding that the appellant bank did not press this ground"

5. We have heard both the parties. The issue is covered by the decision of the Tribunal in ITA No.1580/Hyd/2013 for A.Y 2010- 11 wherein it has been held as follows:

"33...............

Be that as it may, in view of the direct decision of the Supreme Court in Associated Power Co. Ltd.'s case (supra) and Vellore India Co. Ltd.'s case (supra) making out a distinction between reserve fund created for the benefit of consumers and reserve fund to be used for the assessee's own income to meet any contingencies occurring in future cannot be excluded from the computation of total income either on principle of diversion of income by overriding title or on the principle of income not forming part of the real income or as the part of deductible expenses under s. 37; the decision in M.P. High Court cannot be considered as an authority laying down the proposition in respect of reserve fund

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created by cooperative societies for its own purposes as the law laid down correctly and is impliedly overruled.

34. The other decisions referred to and relied on by the learned counsel for the Revenue in Pandavapura Sahakara Sakkare Karkhane Ltd. (supra), Hiranyakeshi Sahakara Sakkare Karkhane (supra) all from Karnataka High Court proceed on the principle laid in the Poona Electric Supply's case, without noticing the aforesaid distinction as noticed by the apex Court in Associated Power Supply's case and Vellore India Co. Ltd.'s case (supra). For the reason stated above while considering decision of M.P. High Court in Keshkal Co-operative Societies' case, we express our inability to agree with the aforesaid decision also.

35. Lastly, reliance was placed on a Bench decision of this Court in CIT vs. Kotputli Rural Electric Co-operative Society Ltd. (2002) 175 CTR (Raj) 282 : (2002) 255 ITR 563 (Raj). Firstly, it was not a case relating to reserve fund to be created under co-operative society. Hence, the question of examining the reserve fund in the light of provisions of the co-operative society was not before the Court. Secondly, it was a case of creating a contingency 30 reserve fund at 1.5 per cent under cl. VI of Sch. VI to the Electric Supply Act. Relying on the decision in Keshkal Cooperative Marketing Society Ltd.'s case (supra) and decision of Madras High Court in Vellore India Co. Ltd. (supra) reserve fund was held as deductible while computing the income of the assessee- co-operative society. With utmost respect, we notice that the learned counsel appearing for the parties did not bring to the notice of the Court that decision of the Madras High Court in Vellore India Co. Ltd.'s case had since been reversed by the Supreme Court in Vellore India Co. Ltd. referred to above and directly governed the controversy before the Court. The decision rests on an overruled decision and contrary to the Supreme Court decision on the same issue. Keshkal Co-operative Marketing Society Ltd.'s case (supra), the other case referred which had followed the Poona Electric Supply Co. Ltd.'s case (supra) was also demonstrably contrary to the principle enunciated by the Supreme Court in the two

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cases referred to above by us. The Supreme Court drew the distinction obvious in Poona Electric Supply case that there is no parity between the contingency reserve for the benefit of the society itself and the consumer benefit reserve fund, which was intended to be returned to the consumers, the latter never becomes part of the companies business assets. Since the aforesaid decision of this Court is founded on a reversed judgment of the Madras High Court and decision of the other High Court founded on the judgment of the Supreme Court which has been distinguished on the very same principle which has been applied by the Poona Electric Supply Co. Ltd.'s case (supra), the judgment must be deemed to have been rendered per incuriam and not a binding precedent.

36. As a result of aforesaid discussion, we allow this appeal and hold that the amount of reserve fund (sic net profit) transferred to the net profit (sic-reserve fund) under s. 62 of the Co-operative Societies Act, 1965 r/w r. 68 of the Co-operative Rules, 1966 is not allowable as deduction in computing the taxable income of the society on any of the grounds raised by the assessee. The judgment of the Tribunal is set aside and that of the AO is restored."

13.1. Thus, respectfully following the principles laid down by the above Judgment, we are of the opinion that the amount contributed by assessee to the National Cooperative Union, New Delhi is appropriation from the net profits. There is a right to receive the income independent of accrual and receipt of income by the assessee before third party could lay claim to any part of it. Since income reached assessee before it reached to a third party, there is no diversion. As already stated, there is no payment in the year of losses. Therefore, payment under section 63(1)(b) is only an appropriation of profit. Moreover, this amount paid during the year is also not out of the profits of this year but profits of earlier year. Therefore, on that count also amount cannot be allowed as deduction during the year. For these reasons, we uphold the order of the authorities and reject assessee's grounds on the issue.

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14. In the result, appeal of the assessee is dismissed".

6. Respectfully following the above decision in the assessee's own case, we dismiss the grounds of appeal and the additional ground raised by the assessee.

7. In the result appeal filed by the assessee is dismissed.

Order pronounced in the Open Court on 9th January, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 9th January, 2015.

Vnodan/sps Copy to:

1. The A.P. Mahesh Cooperative Urban Bank Ltd, 5-3-989 Sherza Estate, Nizam Shahi Road, Osmangunj, Hyderabad 500095

2. The Asstt. Commissioner of Income Tax, Circle 2(3) 8th Floor, IT Towers, AC Guards, Masab Tank, Hyderabad 500004

3. The CIT(A) -III Hyderabad

4. The CITHyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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