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TMI Blog2018 (2) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed for statistical purpose. - I.T.A No. 145/Kol/2016 - - - Dated:- 7-2-2018 - Shri M. Balaganesh, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member For the Appellant : Shri Sallong Yaden, Addl.CIT, ld.DR For the Respondent : Shri S.K.Saha, FCA, ld.AR ORDER Shri S.S.Viswanethra Ravi, JM This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), 10, Kolkata dt. 09-11-2015 for the A.Y 2012-13. 2. The only issue to be decided as to whether the CIT-A is justified in allowing the deduction u/s. 80P of the Act in the facts and circumstances of the case. 3. Brief facts of the issue are that the assessee is a co-operative credit society limited, which was registered by the employees of the New India Assurance Co. Ltd for their mutual benefits. The assessee filed its return of income for the A.Y under consideration declaring gross total income at Rs. Nil. Under scrutiny, notices u/s. 143(2) and 142(1) of the Act were issued to assessee. In response to which, the AR of the assessee appeared and produced required information and other details as required by the AO. On verification and examination o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment should not be treated as income from other source and why it should not be added to the total income of the assessee. The assessee, vide his letter dated 24/02/2015 submitted that: In an Employee's co-operative Credit Society, any moment huge fund may be required to meet the member's demand for loan. There can be no prediction as to how many members would apply for loan and for how much amount. Hence, it cannot be stated that the deposits are made out of the funds not immediately required for business. Hence, we are left to maintain full liquidity of our investments for carrying on business of proving credit to our members'. The above submission of the assessee was carefully examined. As per the audit report, the main object of the assessee is to meet up the credit needs of the members of the society at a reasonable rate of interest. On perusal of the Balance sheet of the assessee, it IS noticed that during the year the society has disbursed fresh loan of ₹ 53,18,921/ -. On the other hand, it has received total inflow through Thrift Fund and Guarantee Fund of ₹ 77,27,534/-. Hence, it may be concluded that the society had surplus fund a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in the case of the Maharashtra State Co- op Bank Ltd Vs. ACIT reported in (2010) 38 SOT 325, wherein it is observed that expression profits and gains of business is wider in scope and encompasses not only the income chargeable under the head profits and gains of business or profession , but also other incomes which have some relation with business, though not arising directly from carrying on the business. The expression profits and gains in section 80P(2) also includes other items ( as covered by gains), which have some relation with the business of banking even though they do not fall under the head of business income. The assessee is entitled to claim deduction under section 80P(2)(a)(i) on the amount of interest received u/s. 244A of the Act and interest earned on FDs from bank should be assessed under the profit gains of business . 6. The CIT-A after considering the above submissions and the case laws as relied on by the assessee of Mumbai Tribunal, allowed the claim of the assessee by observing as under:- DECISION: I have carefully considered the assessment order and submission of the appellant. In summary, the Assessing Officer has adjudicated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Learned Tribunal. It appears that the point involved is whether interest earned out of the investment earned by the assessee cooperative can be treated to be the income arising out of business activity or from other sources in order to apply the provision of Section 80P(2)(a)(i) of the I.T. Act. It is an undisputed factual position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97. Then again in relation to the assessment years 2003-04 and 2004-05 a similar point arose. The Learned Tribunal in relation to the assessment years 1998-99 to 2002-2003 by order dated 10.11.2006 in ITA Nos. 840 to 844/Kol/2006 and again by order dated 29.12.2006 in relation to assessment years 2003- 04 and 2004-05 has deleted the disallowance made in those assessment years and it was held that the interest earned by the assessee cooperative society from its short term and fixed deposits with the bans and other institutions were disallowed on the ground that this income was not business profit of the assessee society but was income from other sources. The Ld. Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to take a different view, any deviation is not permitted: 7.3. Now we come to the case laws relied upon by the ld. CIT(A). As regards the decision of the Hon'ble Apex Court in the case of Totgars Co-operative Sales Society Ltd (supra) we find that the said decision is not applicable in the facts of the case. We find that the Hon'ble Apex Court in the said decision in para 11 has itself mentioned that We are confining the judgment to the facts of the present case. The facts of the case were that assessee s business was to provide credit facilities to its members and to market their agricultural produce. In many cases assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same in specified securities and earned interest income. In these circumstances, the Hon'ble Apex Court had held that interest earned would come in category of 'Income from other sources' taxable u/s 56 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under Section 80P(2) of the Act. The relevant observations of the Hon'ble High Court of Karnataka at paras 6 to 10 are extracted hereunder: 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 8OP(2)(a)(i) : Deduction in respect of income of co-operative societies: 8OP (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 deduced, in accordance with and subject to the provisions of this section, the sums s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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, earn 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 hey 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 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the revenue. Hence, we pass the following order. Appeal is allowed. 05. The above reasoning has also been followed by the Hon'ble ITAT SMC Bench, Mumbai in ITA NO. 6627/Mum/2014 dated 10.08.2015. In the background of the above discussion and given the fact that on identical matters, the Hon'ble jurisdiction of High Court of Kolkata has adjudicated in favour of a similarly placed assessee in a similar matter, the grounds taken by the appellant in this matter ( disputed amount of Rs. ₹ 39,30,S37) are allowed. 7. Before us in the second appeal, the ld. DR submits that the CIT-A wrongly placed his reliance on the decision of the Hon ble High court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. The Hon ble High Court of Karnataka in the case of supra did not consider the decision of the Hon ble Supreme Court in the case of Totgars Co-op. Society Ltd. He further argued that the surplus fund invested in FDs in national bank is not allowable as deduction u/s. 80P(2) of the Act. In support of his contention, he relied on the judgment of the Hon ble Jurisdictional High Court in the case South Eastern Employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein that the interest earned by the assessee from investment is also attributable to the business of providing credit facilities to its members. The Hon ble High Court of Calcutta in the case of supra remanded the issue to the file of AO only to the extent to examine whether the assessee therein incurred any expenditure in connection with earning interest income. Relevant portion of which is reproduced herein below:- We are prepared to agree with Mr. Khaitan to the extent that the interest earned from out of the investments made under Section 64 read with Section 63 of the Multi-State Co-operative Societies Act, 2002 is attributable to the business of providing credit facilities to its members. But we are not able to agree with Mr. Khaitan that the rest of the interest earned by the assessee from the investments is also attributable to the business of providing credit facilities to its members. We have not been impressed by the judgments cited by Mr. Khaitan. We are unable to agree with the views of Patna High Court in the case of Bihar State Housing Co- operative Federation Ltd. (supra). The Division Bench in that case relied on the judgment of the Apex Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which exercise was not undertaken. The result thereof was that the expenditure was artificially enhanced and the income arising out of the business of providing credit facilities to its members got reduced. When the income got reduced, the amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded to the Assessing Officer for the purpose of working out the amount of expenditure incurred in earning the approximate sums of ₹ 99 lakhs and ₹ 1.12 crores respectively. The expenditure incurred for earning those two amounts of income is the amount of interest paid for that money to the members which has to be ascertained and that has to be deducted from the expenditure of the eligible business so that the eligible amount of deduction can be worked out. At the same time, the Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of investments of the funds created under Section 63 as an income attributable to the business. 10. The Hon ble Ahmedabad Bench in the case of Shree Modhpatni Co-op Credit Society Ltd held as under:- 6. The ld. Counsel for the assessee could not dispute the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said date were ₹ 1.76 crores and 1.73 crores respectively. The major amount appearing on the liability side of the balance-sheet as on 31.03.2009 was deposit and other account aggregating to ₹ 28.89 crores, which comprised of various funds and deposits. Keeping in view these facts an d figures, we are of the view that the issue as to whether the relevant investment is made by the assessee out of its own surplus funds or out of the amount payable to its members, which represent its liability, requires verification in order to determine the exact head of income under which the interest on such investment is chargeable to tax in the hands of the assessee by applying the relevant case laws. We, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the relevant factual position from record and after giving the assessee proper and sufficient opportunity of being heard. Ground No. 2 of the Revenue's appeal is accordingly treated as allowed for statistical purposes. 12. In the present case, the AO found that the assessee earned interest from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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