Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the word ‘investment’ in s. 80P(2)(d) of the IT Act includes call deposits made by the assessee co-operative society in the Rohtak Central Co- operative Bank Ltd., Rohtak, out of its surplus funds ?

High Court Of Punjab & Haryana

CIT vs. Haryana Co-Operative Sugar Mills Ltd.

Section 80P(2)(d)

Asst. Year 1974-75, 1975-76

Gokal Chand Mital & S.S. Sodhi, JJ.

IT Ref. Nos. 4 & 5 of 1982

28th February, 1989

Counsel Appeared

Ashok Bhan with Ajay Mittal, for the Revenue : D.K. Gupta, for the Assessee

GOKAL CHAND MITAL, J.:

The assessee is the Haryana Co-operative Sugar Mills Ltd., Rohtak. It deposited its surplus funds lying in its cash credit account with the Rohtak Central Co-operative Bank Ltd. in call deposits with the same co-operative bank for a period of three months and during the accounting period relevant to the asst. yrs. 1974-75 and 1975-76 received interest on the short-term call deposits. In the assessment proceedings for both the years, it claimed deduction of the amount of interest received against short-term call deposits in view of s. 80P(2)(d) of the IT Act, 1961 (for short” the Act”).

The ITO and the first appellate authority did not give the relief but, on further appeal to the Tribunal, Delhi, relief was granted, after recording a finding that short-term call deposits amounted to investment by a co-operative society with another co- operative society and the income by way of interest derived therefrom was deductible under the aforesaid provision.

At the instance of the Revenue, the following two questions have been referred for opinion :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the word ‘investment’ in s. 80P(2)(d) of the IT Act includes call deposits made by the assessee co-operative society in the Rohtak Central Co- operative Bank Ltd., Rohtak, out of its surplus funds ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income of Rs. 49,461 in 1974-75 assessment year and of Rs. 1,36,438 in 1975-76 assessment year qualified for deduction under s. 80P(2)(d) of the Act ?”

4. In Nawn Estates (P) Ltd. vs. CIT (1977) 106 ITR 45 (SC), the Supreme Court had occasion to deal with a similar provision under the Indian IT Act, 1922, and came to the conclusion that the term “investment” is not a term of art and resort should be had not to its technical meaning but to its popular meaning. Keeping the aforesaid dictum of law in view, we proceed to consider the facts of the case, and the underlying object of the provision under consideration. Sec. 80P has been enacted to provide for deduction in respect of the income of the co- operative society and while computing the income of a co- operative society, the sum specified in sub-s. (2) of s. 80P has to be deducted while computing its total income. Several items are contained in sub-s. (2) and cl. (d) of s. 80P, with which we are concerned, has reference to investment by one co-operative society with another and in the interest or dividend earned therefrom as a whole is to be excluded from the income of the recipient society. In this sense, the word “investment” assumes importance. The assessee- society had a cash credit account with the co- operative bank and the amount which was not needed was taken out from that account and was put in a short-term call deposit which is in the nature of a fixed deposit for a period of three months, renewable from time to time.It is true that the amount could be withdrawn even before the three months by encashing the short-term deposit, as is possible in the case of long-term fixed deposit receipts also. The difference is, the moment you want to withdraw the amount before the expiry of the term of the deposit, lesser interest is payable. Nevertheless, the amount

deposited, whether by way of long-term or short-term would be an investment within the meaning of cl. (d) to s. 80P(2) of the Act.

5. For carrying on the business of a co-operative society, whether it is banking society or otherwise, the matter is governed by the Co-operative Societies Act, 1961, r/w the Rules framed thereunder. For making call deposit and short-term deposit, there is a provision in the Rules and in compliance with that provision, the board of directors has to approve the action of making investment by way of call deposit and short-term deposit. At this stage, we consider it appropriate to reproduce the finding recorded by the Tribunal which will have a bearing on the decision of the matter : “It cannot be disputed that call deposits are a particular type of fixed deposits known as short-term deposits and that it represents a species of property which yields interest income. Sec. 44D of the Punjab Co- operative Societies Act, 1961, authorises a co-operative society to invest or deposit its funds with any bank carrying on the business of banking approved for this purpose by the Registrar. Rule 37 of the Punjab Co-operative Societies Rules indicates the manner in which a cooperative society may invest its funds. A copy of the resolution of the board of directors of the appellant society on October 12, 1972, approved the action of the board in opening of call deposit and current accounts with the Rohtak Central Co-operative Bank Ltd. and authorised the general manager and chief accounts officer of the appellant society to operate on these accounts. In view of the decision of the Supreme Court in Nawn Estates (P) Ltd. (supra), it is not necessary for us to consider the other decisions referred to above and relied on by the assessee’s learned counsel. We would respectfully follow this decision of the Supreme Court and hold that the interest income in question qualifies for deduction under s. 80P(2)(d) of the IT Act. Accordingly, we direct the ITO to allow the said deduction in respect of the amount of Rs. 49,461 in respect of the asst. yr. 1974-75 and Rs. 1,36,438 in respect of the asst. yr. 1975-76.” On a consideration of the matter, we endorse the aforesaid view of the Tribunal.

On behalf of the Revenue, reliance was placed on Addl. CIT vs. Ahmedabad District Co-operative Bank Ltd. (1975) 101 ITR 733 (Guj), a decision of the Gujarat High Court for the proposition that the deposits of thetype under consideration are not investments. The facts of the reported case were that a co- operative banking society earned income on the investment made in Government securities and municipal debentures, in accordance with the instructions issued by the CBDT. The question arose whether the co-operative bank was entitled to deduction of interest received from Government properties and municipal debentures. In view of the circular, relief was granted to the co-operative bank by allowing deduction of interest from the total income both by the Tribunal and the High Court on reference. It is true that a finding was recorded in that case that Government securities and municipal debentures amounted to stock-in-trade and not in the nature of investments. This finding was recorded in view of the circular and the peculiar facts of the case, and the matter was not under consideration under s. 80P(2)(d) of the Act. In any event, that decision does not go against the assessee because the relief was granted to the assessee in that case also.

For the reasons recorded above, we answer both the questions in favour of the assessee, in the affirmative and hold that the Tribunal was right in coming to the conclusion that short-term call deposits were investments within the meaning of s. 80P(2)(d) of the Act and qualified for deduction under that provision for both the years in question. The parties are left to bear their own costs.

[Citation :180 ITR 631]

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