IT : Terms 'exempt income' and 'deduction from income' are two different propositions and, therefore, where assessee's income was not exempt under section 10 rather same was eligible for deduction under section 80P, assessee's case was not hit by provisions of section 14A
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[2011] 16 taxmann.com 10 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'D'
Assistant Commissioner of Income-tax
v.
Kribhco*
R.P. TOLANI, JUDICIAL MEMBER
AND K.D. RANJAN, ACCOUNTANT MEMBER
IT APPEAL NO. 4827 (DELHI) OF 2009
[ASSESSMENT YEAR 2006-07]
APRIL 8, 2010
Section 14A, read with sections 10 and 80P, of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income - Assessment year 2006-07 - Assessee-society earned interest income on deposits with co-operative banks - Said income was not exempt under section 10, however, assessee was entitled to claim deduction for same under section 80P - According to Assessing Officer, income in question being non-taxable, section 14A was applicable to assessee's case - Whether terms 'exempt income' and 'deduction from income' are two different propositions and, thus, a deduction from income will not amount to an exemption from income - Held, yes - Whether, therefore, in view of fact that receipts of assessee were not exempt and includible in income, merely because deduction under section 80P was provided, it could not be assumed to be hit by section 14A - Held, yes [In favour of assessee]
FACTS
The assessee-society earned dividend and interest from co-operative banks. According to assessee the dividend so received was taxable receipt. The assessee further submitted that it had claimed deduction under section 80P and not under section 10 which deals with exempt income. The Assessing Officer rejected the assessee's explanations. According to the Assessing Officer it did not make any difference as to whether the income was exempt or deductible, the same being non-taxable, section 14A was applicable. On appeal, the Commissioner(Appeals) holding that section 14A was not applicable to assessee's case, deleted the addition made by the Assessing Officer.
On revenue's appeal :
HELD
The income was derived by the assessee from co-operative banks and the same was not exempt under section 10. Deduction, if any, was to be given by the statute under section 80P which pertains to deduction of income. The terms 'exempt income' and 'deduction from income' are two different propositions and a deduction from income will not amount to an exemption from income. Since the receipts of the assessee were not exempt and includible in income merely because deduction under section 80P was provided, it could not be assumed to be hit by section 14A. Therefore, the order of the Commissioner(Appeals) was to be upheld.
CASES REFERRED TO
V.C Nannapaneni v. Asstt. CIT [2005] 94 ITD 309 (Hyd.)(para 5).
Smt. Kavita Bhatnagar for the Appellant. K.S.V.S Manian and K.V.S.R Krishna for the Respondent.
ORDER
R.P. Tolani, Judicial Member - This is the Revenue's appeal filed against the order of the Commissioner of Income-tax (Appeals)XXIII, New Delhi, dated October 12, 2008 for the assessment year 2006-07.
2. The following effective grounds are raised :
1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law and on the facts in deleting the addition of Rs. 2,40,30,424 made by the Assessing Officer by invoking rule 8D read with section 14A of the Income-tax Act, 1961.
2. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law and on the facts in directing the Assessing Officer to allow the insurance premium amounting to Rs. 2,40,92,736 under the head "Sankat Haran Bima Yojana" created for the welfare of farmers which is not directly related to the sale or consumption of fertilisers. Further, the insured are not the members of the assessee.
3. The learned Departmental representative relied on the order of the Assessing Officer.
4. Learned counsel for the assessee, on the other hand, contends in respect of ground No. 1 that the amount of Rs. 2,40,30,424 disallowed under section 14A of the Income-tax Act was without any basis. The assessee has earned the following income :
(i) Dividend of Rs. 2,00,006 from NAFED and Karnataka State Co-operative Apex Bank Ltd. ; and
(ii) Interest of Rs. 10,20,75,013 on deposits with other co-operative banks.
5. The dividend mentioned above is not from dividend of a company as stipulated by section 10(34) read with section 115-O of the Income-tax Act. The same is receipt from co-operative banks and is taxable receipt. The deduction has been claimed by the assessee under section 80P under Chapter VI-A and not under section 10 which deals with exempt income. The Assessing Officer erroneously held that it does not make a difference whether the income is exempt or deductible. The same being non-taxable, section 14A was not applicable. The Commissioner of Income-tax (Appeals) rightly considered the issue and deleted the same. Reliance was placed on the decision of the Hyderabad Bench of the Income-tax Appellate Tribunal in the case of V. C. Nannapaneni v. Asst. CIT [2005] 94 ITD 309 (Hyd.), for this proposition. Learned counsel for the assessee contends that the issue is covered in favour of the assessee by the decision of the Income-tax Appellate Tribunal, Delhi Bench-A in the assessee's own case in I. T. A. No. 1767/Del/2009 for the assessment year 2004-05. The relevant observations of the Bench are reproduced hereunder :
"8. We have duly considered the contention and gone through the record carefully. The main reason assigned by the Assessing Officer while disallowing the claim of the assessee is that purchasers of the urea are neither primary members of the assessee nor the insurance cover promotes sales of urea. Thus it cannot be said expenses were incurred for promoting the sales. In his opinion the assessee has just formulated a plan by which it has extended undue benefit to the sister concern in whom it is holding equity at 20 per cent. voting rights. On perusal of the Commissioner of Income-tax's order, we find that the learned first appellate authority has gone through the sample copy of the agreement and recorded a finding that the trustee is IFFCO-Tokyo General Insurance Co. The persons insured have been defined as all farmers or persons who purchased brand of KRIBHCO Fertilisers. Point No. 5 of the agreement manifests that insurance cover is provided to the extent of Rs. 4,000 for each and every purchase of KRIBHCO fertilizer bag of 50 kg by any farmer. Point No. 6 provides that cash receipt or the debit note issued by farmers' service centers of KRIBHCO or co-operative societies shall be the sole evidence of insurance. It is a personal accident insurance scheme for the welfare of the farmers on purchase of KRIBHCO bag sewa kendras. On the basis of the evidence the learned Commissioner of Income-tax (Appeals) has held that the qualifying ground for availing of insurance cover is that farmer should have purchased KRIBHCO fertiliser. Thus there is a direct nexus between the premium paid and the sales of the assessee society."
6. We have heard the rival contentions. Apropos ground No. 1, it has not been disputed that income was derived by the assessee from co-operative banks and interest on deposits with the co-operative bank and the same are not exempt under section 10 and are includible in its income. Deduction, if any, is given by the statute under section 80P which pertains to deduction of income. The terms "exempt income" and "deduction from income" are two different propositions and a deduction from income will not amount to an exemption from income. Since both the above receipts of the assessee were not exempt and includible in income merely because deduction under section 80P is provided, it cannot be assumed to be hit by section 14A. In view thereof, we uphold the order of the Commissioner of Income-tax (Appeals) on the issue and this ground of the Revenue's appeal is dismissed.
7. Apropos ground No. 2, we find that similar claim of the assessee in respect of "Sankat Haran Bima Yojana" is covered by the Income-tax Appellate Tribunal's decision dated July 24, 2009 in the assessee's own case for the assessment year 2004-05, mentioned supra. Respectfully following the same, the Commissioner of Income-tax (Appeals)'s order on this issue is confirmed. This ground of appeal of the Revenue is also dismissed.
8. In the result, the appeal of the Revenue is dismissed.
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