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TMI Blog2016 (2) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. In the absence of the same and following the same parity of reasoning laid down by the Hon’ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO ([2015 (2) TMI 995 - KARNATAKA HIGH COURT]) and the facts of the present case being at variance to the facts before the Hon’ble Supreme Court in Totgar’s Co-operative Sale Society Ltd. Vs. ITO (2010 (2) TMI 3 - SUPREME COURT) we hold that the assessee is entitled to the claim of deduction under section 80P(2)(a)(i) - Decided in favour of assessee. Profit from other activities and services - deduction under section 80P(2)(a)(i) - relief allowed by the CIT(A) - Held that:- The perusal of the details filed of receipts totalling ₹ 50,21,759/-, out of which some details totalling ₹ 44,21,523/- are tabulated at page 9 of the CIT(A)’s order, it reflects that the assessee has received dividend of ₹ 160/-. The assessee had received interest income from savings account totalling ₹ 3,28,820/- and service charges of ₹ 4,48,431/-, cheque return charges of ₹ 68,680/- and charge and DD commission of ₹ 93,131/-, processing fees of ₹ 10,38,970/-, loan form fees of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 80P(2)(a)(i) on the interest income of ₹ 37,16,147/- earned on the investments/deposits with other banks, overlooking the fact that the interest income has no direct nexus with the assessee society's normal course of business of providing credit facilities to it's members nor is earned out of investment with other cooperative societies. 2. On the facts and in the circumstances of the case, and in law, the Id. CIT(A)-I, Thane has erred in deleting the addition of ₹ 25,786/- made on account of profit from other activities and services, overlooking the fact that the receipts have no direct nexus with the assessee society's normal course of business of providing credit facilities to it's members. 3. The appellant prays the order of the Ld. CIT(A)-I, Thane, may be vacated and that of the Assessing Officer be restored. 4. The appellant craves leave to add, amend or alter any ground/grounds, which may be necessary. 4. The assessee in CO No.34/PN/2015 has raised the following cross objections:- 1. The assessee submits that assuming without admitting that the interest income of ₹ 37,16,147/- is not entitled for deduction u/s 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0P(2) of the Act and consequently, show cause notice was issued to the assessee. Out of total receipts of ₹ 1,57,98,465/-, the receipts on account of providing credit facilities to the members were ₹ 1,11,85,582/- only. Further, the assessee had credited sum of ₹ 4,86,506/ - on account of receipts from other activities and services and interest income earned and receivable on deposits of ₹ 41,26,377/-. The assessee had claimed the deduction on both these receipts under section 80P(2) of the Act. The Assessing Officer was of the view that the interest income was to be assessed as income from other sources on which, the assessee was not entitled to the deduction under section 80P(2) of the Act. The claim of the assessee before the Assessing Officer was that all the receipts were attributable to the activity of providing credit facilities to its members and was attributable to its business activity and hence, eligible for deduction under section 80P(2) of the Act. Further, objection of the Assessing Officer was that in view of the recent decision of Hon ble Apex Court in To tgar Cooperative Sale Society Ltd. Vs. ITO (2010) 322 ITR 283 (SC), the Apex Court had h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn, were used mainly for lending to the members. The interest income earned on such lending was eligible for deduction under section 80P(2)(a)(i) of the Act. The CIT(A) further observed that in terms of Maharashtra Co-operative Societies Act, 1960, the assessee had to keep about 20 to 30% of its deposits with other financial institutions on which it earns interest income. During the year under consideration, sum of ₹ 37,16,146/- was earned as interest on such deposits and which was claimed to be eligible for deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer had held that such interest to be income from other sources and hence, the deduction was denied. The CIT(A) held that since the assessee was making the investment in deposits with other financial institutions for the purpose of earning interest income as it was mandatorily required to maintain some percentage of deposits as investments with other financial institutions, therefore, the interest income earned on such investments is incidental to carrying on the business activity and the assessee was eligible for deduction under section 80P(2)(a)(i) of the Act. With regard to the Assessing Officer s rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rest of the interest was on FDs which totalled to ₹ 37,16,146/-. The first plea raised by the learned Authorized Representative for the assessee was that the said interest income of ₹ 37,16,146/- was earned during the course of business activity and hence, the same was eligible for deduction under section 80P(2)(a)(i) of the Act. The second plea raised by the learned Authorized Representative for the assessee was that if in case the said income is to be included in the hands of the assessee, then corresponding expenditure is to be allowed against the said receipts. He further stressed that the loan received from the members was partly given on credit and partly invested in FDs and hence, the business element in the transaction. 13. The learned Departmental Representative for the Revenue after the factual aspects were brought to our notice, pointed out that the provisions of section 80P(4) of the Act were overriding provisions and the said provisions were applicable to Primary Agricultural Credit Societies, Primary Cooperative Agricultural and Rural Development Banks. The case laws relied upon by the assessee were not relevant, as per the learned Departmental Repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard, the assessee furnished calculation of the proportionate expenditure adjustable against the interest income. The learned Authorized Representative for the assessee further pointed out that the third aspect of the issue is in case, the assessee is not entitled for deduction under section 80P(2)(a)(i) of the Act, then the said interest received from co-operative banks was entitled to the deduction under section 80P(2)(d) of the Act. He further pointed out that the said issue was raised before the CIT(A), but the same was not decided by the CIT(A) as the assessee was held to be eligible for deduction under section 80P(2)(a)(i) of the Act. He fairly pointed out that the interest derived from cooperative societies except for the dividends from UTI Mutual Funds and Sundaram Finance, were eligible for deduction under section 80P(2)(d) of the Act. Reliance in this regard was placed on the decisions of Pune Bench of Tribunal in ACIT Vs. M/s. Bajaj Auto Ltd. in ITA No.1047/PN/2012, relating to assessment year 2009-10, order dated 26.08.2013 and ITO Vs. Jankalyan Nagri Sahakari Pat Sanstha Ltd. (2012) 24 taxmann.com 127 (Pune). 15. The learned Departmental Representative for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in Totgar Co -operative Sale Society Ltd. Vs. ITO (supra). In the facts of the said case, the assessee before the Hon ble Apex Court was a cooperative society providing credit facilities to the members or marketing agricultural produce of its members. The assessee had parked its funds in short term bank deposits and securities and the interest earned on the same was claimed as deductible under section 80P(2)(a)(i) of the Act. The Revenue authorities held that the same was taxable under the head income from other sources . The claim of the assessee was that it had invested the funds on short term basis as these were not required immediately for business purposes and consequently, interest received by the assessee was eligible for deduction under section 80P(2)(a)(i) of the Act. Further, the contention of the assessee before the Court was that under regulations 23 and 28 r.w.s. 57 and 58 of the Karnataka Co -operative Societies Act, 1959, a statutory obligation was imposed on co-operative credit societies to invest its surplus funds in specified securities and in view of the aforesaid statutory obligations, the above mentioned investment was made by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ltd. Vs. ITO (supra), the assessee cooperative society was engaged in the activity of carrying on of business of providing credit facilities to its members and it had earned interest income on its deposits. Another fact noted by the Hon ble High Court of Karnataka was that the amount which was invested in banks to earn interest was not the amount due to any members and it was not the liability of the assessee. In fact, the said amount was in the nature of profits and gains, which was not immediately required by the assessee for lending money to the members as there were no takers and the assessee in such circumstances, deposited the money in bank so as to earn interest. The Hon ble High Court of Karnataka in such circumstances held that the interest income was attributable to carrying on of business of banking and therefore, it was liable to be deducted in terms of section 80P(1) of the Act, they took note of insertion of section 80P(4) of the Act, which was applied by the Assessing Officer to deny the deduction under section 80P(2)(a)(i) of the Act. The Hon ble High Court of Karnataka referred to the judgment of Hon ble Apex Court in Totgar Co -operative Sale Society Ltd. Vs. IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Authorized Representative for the assessee has made several propositions before us. The first and foremost proposition raised by the learned Authorized Representative for the assessee is that the interest income is eligible for the deduction under section 80P(2)(a)(i) of the Act. However, without prejudice to the same, the learned Authorized Representative for the assessee made an alternate proposition that in case the interest earned by the assessee is held to be assessable as income from other sources, then the proportionate expenditure relatable to such investments is to be allowed in the hands of the assessee and then only balance interest income is to be taxed as income from other sources. Another proposition raised by the learned Authorized Representative for the assessee was that where the investments were made with other co-operative societies, then the assessee was entitled to the benefit of deduction under section 80P(2)(d) of the Act and no amount was assessed in the hands of the assessee except the dividend received from UTI Mutual Funds and Sundaram Finance of ₹ 87,087/- and ₹ 88,519/-. The assessee has placed on record its balance sheet along with Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO (supra), we hold that the assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. In the alternate, we find merit in the plea of the assessee that at best the income which can be assessed in the hands of assessee is the net income and not the gross income as proportionate expenditure incurred is to be allowed in the hands of the assessee. However, we are not adjudicating this issue since we have already held the assessee to be eligible for claim of deduction under section 80P(2)(a)(i) of the Act. In view thereof, we also do not adjudicate the second alternate plea raised by the assessee that it is entitled to the claim of deduction under section 80P(2)(d) of the Act. However, the assessee is not entitled to the deduction under section 80P(2)(a)(i) of the Act relating to dividend received from UTI Mutual Funds and Sundaram Finance of ₹ 87,087/- and ₹ 88,519/-, which are to be included as income from other sources, on which the assessee is entitled to proportionate expenditure. Similarly, the profit of ₹ 25,786/- from other activities and services is not entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits from the other receipts were arrived at ₹ 7,20,302/-, which was added as income of the assessee. 25. The CIT(A) allowed the claim of the assessee observing that the receipts had direct nexus with the assessee s business of banking / providing credit facilities to its members except for the receipt of ₹ 32,536/- received as interest on deposits from MSEB, ₹ 4,65,343/- received as commission from MSEB and ₹ 2,017/- shown as stationary stock. Therefore, the CIT(A) on proportionate basis held that the amount of ₹ 6,34,206/- was eligible for deduction under section 80P(2)(a)(i) of the Act. 26. The perusal of the details filed of receipts totalling ₹ 50,21,759/-, out of which some details totalling ₹ 44,21,523/- are tabulated at page 9 of the CIT(A) s order, it reflects that the assessee has received dividend of ₹ 160/-. The assessee had received interest income from savings account totalling ₹ 3,28,820/- and service charges of ₹ 4,48,431/-, cheque return charges of ₹ 68,680/- and charge and DD commission of ₹ 93,131/-, processing fees of ₹ 10,38,970/-, loan form fees of ₹ 10,780/- and intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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