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TMI Blog2014 (2) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in law and in facts in not allowing the alternative plea of the appellant to allow setting off of expenditure incurred to earn the bank interest income as provided u/s 57 of the Act." 3. First ground relates to addition of Rs. 13,58,980/- being the disallowance of claim made by assessee u/s. 80(P)(2)(a)(i) of the Act. 4. The facts leading to this disallowance by AO have been summarized by the Ld. CIT(A) as under:- "7. As per the AO, during the course of assessment proceedings, on perusal of profit and loss account, it is observed that the appellant had received interest income of Rs. 53,73,809/- as under: Interest on members loan : Rs. 31,16,44/- Interest on saving bank : Rs. 737/- Interest on call deposits : Rs. 12,35,592/- Interest on Narmada Bond : Rs. 6,39,236/ Interest from Bank FD : Rs. 3,81,803/- Total Rs. 53,73,809/- 8. As per the AO, as can be seen from the above that the appellant had received Interest income of Rs. 31,l6,440/- on loans advanced to its members. As per the AO, as per provision of section 80P(2)(a)(i) of the IT Act in the case of the co-operative society engaged in carrying on the business of banking or providing credit facilities to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cited by the appellant, it may be mentioned here that the facts of the decision quoted by the appellant are not similar to that of facts of the appellant's case and therefore, the appellant would not get any help from the decision relied upon by it. As per the AO, further, so far as the alter-native claim for deduction of expenses and interest payment is concerned the same is also not acceptable since the said expenditure, has already been included in the total interest paid which has already been debited by appellant to arrive at net profit as per profit and loss account and therefore, no further expenditure required to be given for earning such Income. As per the A.O. after excluding the interest income and other income of Rs. 22,81,357/- as discussed in para 4.6 of assessment order the total income of the appellant was worked out at negative figures and therefore, no deduction u/s 80P(2)(a)(i) of the Act was allowed. The total income of the appellant was assessed at Rs. 13,58,977/-." 5. Ld. CIT(A) after taking into consideration the submission of the assessee which has been reproduced by him in para 4 of his order has confirmed this disallowance by observing as under:- " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income because no sooner interest income accrued to the assessee(s) on above-mentioned specified deposits/securities, it became business income attributable to the activity carried on by the assessee(s) by credit facilities to its members or marketing of agricultural produce of its members and no sooner such interest income falls under the head "Business profits" attributable to one or more of such eligible activities, such interest income became eligible for deduction under the said section. The assessee(s) further contended, before us, that, under Regulations 23 and 28 read with sections 57 and 58 of the Karnataka Cooperative Societies Act, 1959, a statutory obligation was imposed on cooperative credit societies to invest its surplus funds in specified secure-ties and, in view of such statutory obligation, the above- mentioned interest income derived from short-term deposits and securities must be consid-ered as income derived by the assessee(s) from its business activities. In the alternative, it was submitted that, even assuming for the sake of argument that such interest income is held to be covered by section 56 of the Act under the head "Income from other sources", even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to determine the issue involved in these civil appeals, we need to reproduce hereinbelow the relevant provision of section 80P of the Act, as it stood at the material time. It reads thus:-- "Deduction in respect of income of co-operative societies.--(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assesses, (2) The sums referred to in sub-section (1) shall be the following, namely :-- (a) in the case of a co-operative society engaged in-- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii)the marketing of the agricultural produce of its members, or (iv)the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v)the processing, without the aid of power, of the agricultural produce of its members, or (vi)the collective disposal of the labour of its me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in section 80P(2) of the Act. In the present case, as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-society provides credit facilities to its members, if earns interest income. As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a) is not in respect of interest received from members. In this case we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further as stated above, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e source of income is not relevant for deciding the applicability of section 80P of the Act would not be correct because we need to give weightage to the words "the whole of the amount of profits and gains of business" attributable to one of the activities specified in section 80P(2)(a ) of the Act. An important paint needs to be mentioned. The words "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society. In this particular case, the evidence shows that the assessee-Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of "Other Income" which has been rightly taxed by the Department under section 56 of the Act". 12. From the above decision of Hon'ble Supreme Court it is clear that the only interest which is received by the Co-Op. Credit Society from its members for providing credit facilities to them is eligible for deduction u/s 80P(2)(a)(i) of the Act. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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