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TMI Blog2016 (4) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... ase are that the assessee is a credit co-operative society. It provides credit facilities to its members. It has filed its return of income electronically on 21.7.2012 declaring total income at NIL. According to the AO, the assessee-society had derived interest income at ₹ 2,21,43,270/-, out of which, ₹ 9,76,625/- was derived from State Bank of India. The ld.AO has observed that as per provisions of section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, interest income earned out of investment/deposits with cooperative society are only eligible for deduction. The interest incomes earned from other than cooperative society are not eligible for deduction. Accordingly, the ld.AO did not grant deduction of ₹ 9,76,625/-. 4. Appeal to the CIT(A) did not bring any relief to the assessee. 5. Before us, the ld.counsel for the assessee has contended that the issue in dispute is squarely covered in favour of the assessee by the decision of the Hon ble Karnataka High Court rendered in the case of Guttigedarara Credit Co-op. Society Ltd. Vs. ITO, (2015) 377 ITR 464. He also placed on record copy of the ITAT, Ahmedabad Bench decision passed in ITA No.2610/Ahd/2015 in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 8. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i):- 80P 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 sub-section (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 assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or ** ** the whole of the amount of profits and gains of business attributable to any one or more of such activities. 9. The word 'attributable' used in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dle. 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 gross total income under Section 80P of the Act. 11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the addition of various types of income such as rent, interest income from nationalized bank, commission income, other income totaling to ₹ 12,72,308 and the AO after allowing deduction under section 80P(2)(c) of the Act assessed the income of the assessee society at ₹ 12,22,308/-. As submitted in the statement of facts by the assessee society that its main object is to provide credit facilities to its members and the society is neither registered under Banking Regulation Act nor doing any banking activity. Surplus funds in the hands of society at times when borrower members demand was less in comparison to the deposits from members held by the assessee society. Therefore, in the interest of the members this surplus fund was given as deposit in nationalized bank to fetch some income. Similar type of issues has been dealt by Hon ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. reported in (2015) 55 Taxman.com 447 (Kar). The relevant portion from the above referred judgment is reproduced below :- 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 portion is reproduced below:- 19. The issue dealt with by the Hon 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 securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 members 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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