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TMI Blog2015 (1) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the decision of the Hon’ble Supreme Court in the case of Totagar’s Cooperative Sale Society Ltd. (2010 (2) TMI 3 - SUPREME COURT ) we find no infirmity in the order of the Ld.CIT(A) to held that the assessee is entitled to deduction u/s.80P(2)(a)(i) - decided in favour of assessee. - ITA No. 1336/PN/2011 - - - Dated:- 31-7-2013 - Shri Shailendra Kumar Yadav and Shri R.K. Panda, JJ. For the Appellant : Shri K.K. Ojha For the Respondent : Shri Nikhil Pathak ORDER PER R.K.PANDA, AM : This appeal filed by the Revenue is directed against the order dated 19- 08-2011 of the CIT(A)-I, Nashik relating to Assessment year 2008-09. 2. Facts of the case, in brief, are that the assessee is a cooperative society providing credit facility to its members and also earns income from various investments made. During the impugned assessment year, the assessee society earned income of ₹ 64,20,855/- as per audited profit and loss account. The assessee has declared the said income as income from its business and claimed deduction of the same u/s.80P(2)(a)(i) and declared the income of the society at NIL. 3. During the course of assessment proceedings the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that long term capital gain of ₹ 22,72,278/- on sale of mutual funds is exempt u/s.10(38) in absence of giving details of notification of mutual funds u/s.10(23D) and in absence of information relating security transaction tax paid. The Assessing Officer similarly held that interest income on Mutual Fund sold amounting to ₹ 23,21,994/- and short term capital gain of ₹ 22,70,597/- are not deductible u/s.80P(2)(a)(i) or 80P(2)(d) of the Income Tax Act, 1961. 3.3 From the various details furnished by the assessee he noted that part of the investment has been made out of loans and deposits on which interest has been paid. The assessee has paid interest to members on deposits by them amounting to ₹ 2,20,86,063/-. The loans and deposits advanced by the assessee is ₹ 17,34,15,808/- which is 64.74% of the loans and deposits from its members. Therefore, he held that out of the interest paid at ₹ 2.21 crores, 64.71% is attributable to loans which works out to ₹ 1,42,91,891/-. Thus, he held that the balance interest amounting to ₹ 77,94,172/- is attributable to investment for the following income earned : Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits and lending money to its members by way of license granted by the said authority. 2) The main object of the society is to provide marketing facility to its members who are farmers. The activity of the society is limited in respect of members, who are farmers. 2) The main object of the society is to provide credit facility to members who can be any person of the society. As per the bylaws of the society any person can become member by paying nominal fees and nominal cost of share of the society. 3) The agricultural produce of the members who are farmers has been marketed by the society and the funds so generated have been invested in short term deposits and securities. On the above facts the interest income was treated as income from other sources by Hon'ble Court. 3) No such activity of providing marketing facility of agricultural produce to farmers and then investment of the sale proceeds in short term deposits and securities has been carried out by the society. The society has collected interest bearing deposits from its members and surplus idle funds have been invested in bank deposits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities, F.Ds, KVPs/IVPs, investments in UTI etc. out of surplus/idle money available from working capital including voluntary reserves accruing to Cooperative banks are all income attributable to business of banking and are eligible for grant of deduction u/s.80P(2)(a)(i) : 1. Surat District Co-Op. Bank Ltd. Ors Vs. ITO (2003) 78 TTJ 1 (Ahd, Spl.Bench). 2. CIT Vs. Ramanathapuram District Co-Op. Central Bank Ltd. (2002) 255 ITR 423 (SC) 3. CIT Vs. Ratnagiri District Central Co-Op. Bank Ltd. (2002) 174 CTR 116 (Bom.) 4. CIT Vs. Madurai District Co-Op. Bank Ltd. (1991) 239 ITR 700 (Mad) and 5. CIT Vs. Solapur Nagari Audyogic Sahakari Bank Ltd. (2009) 182 Taxman, 231 (Bom). 6. It was accordingly submitted that the assessee society is carrying on business of banking and hence is eligible for deduction u/s. 80P(2)(a)(i), whereas in the case of Totogar s Co-Op. Society, the said society was not carrying on business of banking and the Hon'ble Court, therefore, held that interest income earned by the said society on short term deposits and securities out of sale proceeds of agricultural produce of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case decided by Hon'ble Apex Court relied on by the A.O. the amount invested in short term deposits and securities was not out of interest bearing deposits collected from members but out of sale proceeds of agricultural produce of farmer members marketed by the society. The appellant has therefore correctly pointed out that the facts of the case relied on by the A.O. are distinguishable. In the said case relied on by the A.O. the society has not carried out the activity of collecting interest bearing deposits from members and lending the same to members and investing the funds in bank deposits and mutual funds for earning interest income, etc. The Hon'ble Apex Court has, therefore, considered only the later part of section 80P(2)(a)(i) i.e. income of a co- operative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)(a)(i) i.e. income of a co-op. society in carrying on the business of banking in eligible for deduction. In view of the above facts and discussion, I am of the considered view that the appellant society is eligible for deduction u/s.80P(2)(a)(i) in respect of interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive Sale Society Ltd. (Supra) he drew the attention of the Bench to the following observations of Hon ble Supreme Court at Page 289 placeturn (10) : At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes. The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - Whether interest on such deposits/securities, which strictly speaking accrues to the members account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of Income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. He submitted that in the instant case the decision of the Ahdmedabad Bench of the Tribunal is squarely applicable and the assessee is entitled to claim deduction u/s.80P(2)(a)(i). He submitted that when divergent views are available, the view which is in favour of assessee have to be accepted unless it is the view of Hon ble Apex court or Jurisdictional High Court 11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case there is no dispute to the fact that the assessee is a cooperative society engaged in the business activity of credit cooperative society, i.e. providing credit facility to its members. According to the Revenue the income of the society on account of interest from banks other than cooperative banks, interest on mutual funds, long term and short term capital gain on sale of mutual funds etc. are not covered by the activity of providing credit facilities to its members and hence not eligible for deduction u/s.80P(2)(a)(i) of the Income Tax Act in view of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under: What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? in our view, such interest income would come in the category of 'income from other sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer... 19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was ₹ 13,69,955/- [source: Balance Sheet of the assessee available on record] 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Bench of the apex Court in Karnataka State Co- operative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Co-operative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld. 6. In the result, the appeal of the revenue stands dismissed. 11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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