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TMI Blog2017 (3) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... ness 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 CIT-A justified in holding that the assessee is entitled to deduction u/s.80P(2)(a)(i) when the income of the society on account of interest from banks other than Co-op. Banks, interest on Mutual Funds, long term capital gain on mutual funds and short term capital gain on Mutual Fund - Decided in favour of assessee - ITA No. 4211/Mum/2014 - - - Dated:- 15-3-2017 - Shri Rajendra, A.M. and Sanjay Garg, J.M. For The Revenue by: Shri Uday Bhasker Jakka For The Assessee by: Shri Subodh Ratnaparkhi Per Rajendra, AM: Challenging the orders, dated 24/03/2014 of the CIT(A)-26, Mumbai the Assessing Officer(AO) and the assesse have filed cross-appeals for the above-mentioned Assessment Year(AY.). Assessee, an AOP, is carrying on business of banking. Return of income was filed on 30/09/2010 declaring total income at Rs. NIL, after claiming deduction under section 80P at ₹ 35.64 lakhs. ITA/3793/Mumbai/2014: . 2. Effective ground of appeal deals with allowing deduction under section 80P to the assessee. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le material, the FAA held that assessee was arrested cooperative credit Society, that it was providing facilities to members to deposit their savings on which interest was paid and also loan/advances on which interest was charged from the members for such loans/advances, that the assessee had received aggregate interest from various cooperative and scheduled banks of ₹ 77.71 lakhs on fixed deposits, that it was maintaining a currentaccount with certain scheduled banks and cooperative banks, that the actual interest received on FD s stood at ₹ 46.98 lakhs.He referred to the various provisions of section 80P of the Act and the Banking Regulation Act and held that banking would mean accepting deposits from public be payable on demand or otherwise for the purpose of lending or investment, that the assessee did not and could not accept deposits from anyone other than members, that even the membership of the society was restricted only to permanent or quasi-permanent employees in the Telegraph Traffic Engineering arm of the Department of Telecommunication, that it did not conduct any business with public which was the sense of banking, that the primary object of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as per the balancesheet the accrued interest as on 31/03/2010 stood at ₹ 77.71 lakhs, that the accrued interest on fixed deposits could not be said to be the interest income earned received were accrued for the year under appeal, that the interest on fixed deposit accrued for the year was only ₹ 46.98 lakhs as per the income and expenditure account, that the interest had been received either from a scheduled bank or a cooperative bank, that no interest income had been received by the assessee from its investment in co-operative society, that the provisions of section 80P(2)(d) were not applicable to the assessee. He upheld the disallowance under section 80P to that extent. 4. During the course of hearing before us, the Authorised Representative(AR) stated that. He relied upon the cases of Kulswami Co-operative Society, (ITA/6790/Mum/ 2012 CO/05/ Mum/ 2014 AY. 2009-10, dt. 21. 08.2015), Niphad Nagari Sahakari Patsanstha Ltd. (ITA/ 1336/ PN/ 2011, dtd. 31.07.2013). The Departmental Representative (DR) supported the order of the AO. 5. We have heard the rival submissions and perused the material before us. We find that the issue stands squarely covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n placed in sub-section (4) of section 80P of the Act. Therefore, as per the assessee, the provisions of sub-section (4) of section 80P of the Act did not disentitle the assessee from claim of exemption u/s 80P of the Act. The CIT(A) found that similar issue came up in the case of assessee for assessment year 2008-09, wherein, the predecessor CIT(A) had upheld assessee's claim for exemption u/s 80P of the Act. Following the precedent in the assessee's own case, by way of the order of predecessor CIT(A) for assessment year 2008-09, the CIT(A) held the assessee entitled for claim of exemption u/s 80P of the Act. 6. Before us, it was a common point between the parties that identical controversy has been considered by the Tribunal in the assesse's own case for assessment years 2007-08, and 2008-09 vide ITA Nos. 3223/Mum/2011 505/Mum/2012 dated 28.03.2014, whereby it has been held that assessee Co- operative Society does not fall within the restriction placed in sub-section (4) ofsection 80P of the Act. The following discussion in the order of the Tribunal dated 28.03.2014 (supra) is relevant:- 4. Having heard both the sides and perused the material on record, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding credit facilities to its members and thereby earns interest and dividend cannot make the 'society' into a 'bank' for the purposes of section 80P(4) of the Act. If the intention of the legislature was not to grant deduction to cooperative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted. This proposition is supported by various decisions including the decision of the Gujarat High Court in the case of CIT Vs. Jafari Momin Vikas Cooperative Credit Society Ltd and the decision of the Tribunal in the case of DCIT Vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. [2012] 137 ITD 163. 4.4 In addition to the aforementioned discussion, the distinction between cooperative society registered under the Banking Regulation Act 1949 and the cooperative society registered under the Maharashtra State Cooperative Societies Act 1960 as brought out by the Ld.CIT(A) on the basis of the submission of the assessee is extracted hereunder: XXXX The above distinction makes it very clear that the assessee is not a co-operative bank for the purposes of section 80P(4) of the Act. 4.5 As regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the AR argued that interest received by theassessee was exempt under both the sub-sections of the section 80P of the Act, i.e.80P (2) (a)(i) and 80P(2)(d), that alternatively the FAA had not allowed expenditure with regard to the interest income. The DR supported the order of the FAA. 8. We have heard the rival submissions and perused the material before us. We find that the FAA had held that interest income received by the assessee was chargeable to tax under the head income from other sources, that the FD.s were out of the reserve funds, that interest arising there - on were not eligible u/s. 80P (2)(a)(i)or 80P(2)(d)of the Act. We find that the Tribunal has dealt the identical issue in the case of Niphad Nagari Sahakari Patsanstha Ltd. (ITA/1336/ PN/ 2011, dtd. 31.07.2013). We would like to reproduce the relevant portion of the order of the Tribunal dealing with the issue and it reads as follow: 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounting to ₹ 44, 64, 353/. Rejecting the explanation given by the assessee and relying on the decision of Hon'ble Supreme Court in the case of Totogar's Co-op Society Ltd. (Supra) he held that such income on sale of mutual funds amounting to ₹ 44, 64, 353/- cannot be allowed u/s.80P. He also rejected the claim of the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the IT. Act. 4. Before the Ld. CIT(A) the assessee strongly argued that the decision relied on by the Assessing Officer in the case of Totogar's Co-op Society Ltd. (Supra) is distinguishable and not applicable to the facts of the present case. XXXXX 7. Based on the arguments advanced by the assessee the Ld.CIT(A) held that the assessee is entitled to deduction u/s.80P(2)(a)(i). The relevant observations of Ld.CIT(A) at Para 5.2 of his order reads as under : XXXXX 8. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds : 1. On the facts and in the circumstances of the case the Ld. CIT (A) is not justified in holding that the assessee is entitled to deduction u/s.80P(2)(a)(i) when the income of the society on account of interest from banks other than Co-op. Banks, interest on Mutual Funds, long term capital gain on mutual funds and short term capital gain on Mutual Fund 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 I.T. Act. 2. The Ld. CIT(A) has also disregarded the fact that the Co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of banking is eligible for deduction. 11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s. Jafari Momin Vikas Cooperative Credit Society Ltd. (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) has observed as under : 17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in it's applicably in the circumstances of the assessee's case. 18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose 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 ..... essee co- operative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totgar's Co- operative Sale Society Ltd (supra) is not applicable in respect of the cooperative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee co-operative society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income, the assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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