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TMI Blog2015 (7) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble High Court of Karnataka, since in both cases the assessee was a credit co-operative society and invested in fixed deposits out of the surplus funds of business. Applying the ratio of the judgment of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. (2015 (2) TMI 995 - KARNATAKA HIGH COURT ), we hold that the assessee is entitled to deduction under Section 80P(2)(a)(i) of the Act in respect of interest income earned on fixed deposits, as well as that the said interest income forms part of the business income earned by the assessee and the same is not to be taxed under the head ‘Other Sources’. In this view of the matter, the deduction claimed by the assessee under Section 80P(2)(a)(i) of the Act in respect of interest of ₹ 26,16,800 earned from investments in fixed deposits and Govt. Securities out of surplus funds from business, is allowed. - Decided in favour of assessee. Interest under Section 234B and 234C of the Act - Held that:- The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of providing credit facilities to its members and it was entitled to deduction under Section 80P(2)(a)(i) of the Act as per the decision of the Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha in ITA No.5006/2013 dt.5.2.2014. The learned CIT(A) further observed that the assessee had interest income of ₹ 26,16,800 on fixed deposits kept with banks and not from members to whom loans were advanced. The learned CIT(A) held that the assessee cannot be allowed deduction in respect of the interest income earned from the banks as the same has to be assessed under the head Other Sources and since the assessee s case was covered by the judgement of the Hon'ble Apex Court in the case of Totagars Co-operative Sales Society Ltd. (supra). The learned CIT(A) disposed off the assessee's appeal vide order dt.16.10.2014 allowing the assessee partial relief. 3. Aggrieved by the order of the CIT (Appeals), Mysore dt.16.10.2014 for Assessment Year 2010-11, the assessee has preferred this appeal raising the following grounds :- 1. The learned CIT (Appeals), on facts and in law, erred in upholding the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res co-operative societies to invest the Reserve Fund in any scheduled bank or financial institution controlled by the Reserve Bank of India and accordingly, ought to have held that the interest received by the appellant on short term deposits with Syndicate Bank made out of Reserve Fund constituted its income from the business of providing credit facilities to the members. 6. Without prejudice to the above, the learned Commissioner (Appeals) ought to have taken note of section 58 of the Karnataka Co-operative Societies Act, 1959 requiring cooperative societies to deposit their funds with any scheduled banks and accordingly, ought to have held that the interest received by the appellant on short term deposits with Syndicate Bank made in compliance with statutory provisions constituted its income form the business of providing credit facilities to the members. 7. Without prejudice to the above, the learned Commissioner (Appeals) erred in not considering and adjudicating upon Ground Nos.6 to 11 raised by the appellant before him. 8. Without prejudice to the above, the learned Commissioner (Appeals) erred in not considering and adjudicating upon Ground No.12 raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Apex Court in the case of Anjum H Ghaswala (252 ITR 1) and we, therefore, uphold the action of the Assessing Officer in charging the said interest. The Assessing Officer is, however, directed to recompute the interest chargeable u/s. 234B and 234C of the Act, if any, while giving effect to this order. 6.1 The Grounds at S.Nos.1 to 9 pertain to the sole effective issue in this appeal that arises for our consideration. The learned Authorised Representative submitted that the assessee had placed the surplus funds raised from members for carrying on the business of providing credit facilities to its members in fixed deposits and had earned interest income of ₹ 26,16,800. He submitted that the said interest arose to the assessee as a part of the business of providing credit facilities to its members and therefore the same ought to be assessed as business income. The learned Authorised Representative contends that the exemption claimed under Section 80P(2)(a)(i) of the Act, in respect of interest income of ₹ 26,16,800 derived by the assessee from investments in fixed deposits was in order. The learned Authorised Representative submitted that the learned CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no law laid down by the Hon'ble Apex Court that interest income has to be assessed under the head Other Sources . The relevant observations of the Hon'ble High Court of Karnataka at paras 6 to 10 are extracted hereunder :- 6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of ₹ 1,77,305 represents the interest earned form short term deposits and from savings bank account. The assessee is a co-operative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i) : Deduction in respect of income of co-operative societies : 80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression derived from . Whenever the legislature wanted to give a restricted meaning, they have used the expression derived from . The expression attributable to being of wider import, the said expression issued by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A co-operative society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the aid amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the revenue. Hence, we pass the following order. Appeal is allowed. 6.3.2 Respectfully following the decision of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. (supra), we hold that the learned CIT(A) was not correct in denying the assessee the deduction claimed under Section 80P(2)(a)(i) of the Act in respect of ₹ 26,16,800 earned by the assessee. The judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale Society Ltd. (supra) relied upon by the learned CIT(A) has been considered and distinguished by the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. (supra). We find that the facts of the case on hand are similar to the facts of the aforesaid case decided by the Hon'ble High Court of Karnataka, since in both cases the assessee was a credit co-operative society and invested in fixed deposits out of the surplus funds of business. Applying the ratio of the judgment of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. (supra), we hold that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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