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TMI Blog2016 (3) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... ority, so we find it justified that Assessing Officer has rightly taxed the interest income of ₹ 2,16,689/- as income from other sources. From going through the above provisions it is very clear that the assessee is eligible for deduction of ₹ 50,000/- under section 57 of the Act and the same should have been allowed by the Assessing authority. Partly allow the appeal of assessee and accordingly the addition made by Assessing Officer shall be reduced to ₹ 1,68,305/- [Rs.2,16,689/- minus ₹ 50,000/- deduction u/s 80P(2)(c)]. - ITA No.2704/Ahd/2015 - - - Dated:- 11-2-2016 - Shri Rajpal Yadav, JM, and Manish Borad, AM. For The Appellant : Shri H. V. Doshi, AR For The Respondent : Mr. Lala Philips, Sr.DR ORDER PER Manish Borad, Accountant Member. This appeal of assessee is directed against the order of CIT(A), Gandhinagar, Ahmedabad, dated 17.8.2015 in appeal No.CIT(A)/GNR/218/2014-15. Assessment for Asst. Year 2012-13 was framed u/s 143(3) of the Income-tax Act, 1961 (in short the Act) on 30/10/2014 by the ITO, Ward-4, Mehsana. Grounds of appeal raised by the assessee are as under :- 1. The ld. CIT(A) had erred in law and fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the AO u/s 56 of the Act Appellant has challenged this action of the AO relying on the decision of the Hon'ble Gujarat High Court in Tax Appeal N0.442, 443 863 of 2013 dated 15/1/2014 in the case of Jafari MominVikas Co-op. Credit Society Ltd. The issue has been decided by the Hon'ble Supreme Court' in the case of Totgars Co-op. Sale Society Ltd Vs ITO, Karnataka~(2010) 188 TAXMAN 0282. In the aforementioned judgement, the issue for determination was whether interest income on the short term bank deposits and securities would be qualified as business income u/s.80P(2)(a)(i) of the IT Act, 1961. The Hon'ble Supreme Court had decided the issue as under: , At the outset an important circumstance needs to be highlighted. In* the present case, the interest held not eligible for deduction u/s, 80P(2)(a)(i) of the Income tax Act is not the interest received from the members for providing the credit facilities to them. What is sought to be taxed u/s. 36 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 purpose. Assessee markets the produce of its memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would qualify as business income u/s. 80P(2)(a)(i) of the IT Act, 1961. The Hon'ble Supreme Court had decided the issue as under: At the outset an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction u/s. 80P(2)(a)(i) of the Income tax Act is not the interest received from the members for providing the credit facilities to them. What is sought to be taxed u/s. 36 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 purpose, Assesses 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. An important point needs to be mentioned. The words the whole of the amount of profits and gains of business .empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income other than from investments in co-op. bank and further addition enhanced by ld. CIT(A) to ₹ 5,48,517/- by taxing entire interest income without considering deduction u/s 57 of the Act is not in accordance with law and also following the decision of co-ordinate bench in the case of Dhanalaxmi Credit Co-op. Society Ltd. vs. ITO in ITA No.2342/Ahd/2012 dtd. 8.2.13, wherein the Tribunal has relied on the decision of co-ordinate bench in the case of ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd. in ITA No.1491/Ahd/2012 for Asst. Year 2009-10 dated 31.10.2012 and held as under: - 4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining operations funds and to meet any eventuality towards re-payment of deposit, the Co-operative Society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT B Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op.Credit Society Ltd. bearing ITA No.1491/Ahd/2012 (for A.Y. 2009-10) and CO No.138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3. In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4. While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome treating interest received from banks and govt. securities as income from other sources u/s 56 of the Act and secondly against the enhancement made by ld. CIT(A) by not allowing the claim of incidental expenses at ₹ 3,30,212/- incurred for earning interest income. 8. From going through the records we find that assessee is a credit co-op. society. Ld. CIT(A) has relied on the ratio laid down in the decision of Hon. Supreme Court in the case of Totagars Co-op. Sale Society Ltd. vs. ITO 188 taxman 0282. From perusal of this decision it reveals that in the case of Totagars Co-op. Sale Society Ltd. vs. ITO (supra) the assessee was marketing agricultural produce of its members whose sale proceeds at times were retained by the society and those retained funds which were not required for business purposes were invested in specified securities and the income earned on such funds which were not required for business purposes and were retained on behalf of the members fetched interest income and the same was decided by the Hon. Supreme Court to be taxed as income from other sources under section 56 of the Act whereas in the case of present assessee which is a credit coop. society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of expenses incurred to earn investment income. A\\s there is no direct nexus of expense attributable to earn investment income, proportionate expenses incurred to earn interest income on investment should be allowed. The working is as under.- Sr.No particular Amount 1 Gross Receipt as per P L a/c. 10307727.00 2 Gnoss.income as per Computation of income 4072007.00 3 Expense claimed from gross receipts (1-2) 6235720.00 4 Interest on investments, Commission . income considered not eligible for deduction ii/s.8QP. 548517.00 5 Proportionate expenses available as deduction* u/s.57 of the l. T. Act. ... 548517*(6235720/1 0307727)* ; 331828.00- 6. Income from other sources (4-5) 216689.00 Out of above income, deduction u/s 80P(2) of ..... 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