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TMI Blog2017 (1) TMI 1601X X X X Extracts X X X X X X X X Extracts X X X X ..... tly allowed for statistical purposes.- Appeal of the assessee is partly allowed for statistical purposes - ITA No.2426/Ahd/2013 - - - Dated:- 24-1-2017 - Shri S. S. Godara, JM Shri Manish Borad, AM. Appellant by Shri D. K. Parikh, AR Respondent by Shri P. S. Chaudhary, Sr.DR O R D E R PER Manish Borad, Accountant Member. This appeal of assessee for Asst. Year 2009-10 is directed against the order of ld. CIT(A), Gandhinagar, Ahmedabad, dated 8/8/2013 vide appeal No.CIT(A)/GNR/306/2011-12 arising out of order u/s 143(3) of the Income-tax Act, 1961 (in short the Act) framed on 23.12.2011 by ITO, Ward-2, Patan. Assessee has raised following grounds of appeal :- 1. The Assessing Officer has erred in facts and in law, in making addition Whole Profit of Amt. of ₹ 14,72,940/- and was disallowed and also not granted benefit of Section U/s. 80-P of I. T. Act. But Learned Commissioner of Income Tax (Appeals) Gandhinagar has granted relief of ₹ 6,17,0867-, Out of Total Fixed Deposits Interest earned Amt. of ₹ 13,85,849/-. 2. That the appellant craves leave to add, to alter, to amend, to modify, to Substitute, delete and/or rescind all or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). The CIT(A) vide order No.CIT(A)/GNR/186/2010-11 dated 9/07/2012 held as under: I have gone through the facts of the case, the assessment order :7and the submissions, As per the definition of banking as per sec 5(b) of Banking Regulation Act, Banking means the accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. The definition is basic law to be considered to decide whether a credit society is a co-operative bank or not. Only, those credit societies which are allowed to take deposits of money from the public and do other banking activities as defined in the sec 5(b) of Banking Regulation Act would quality to be a co-operative bank. I agree that taking deposits from public cannot be equivalent to taking deposits from members of the society only which has got a much restricted meaning and the relationship between a society and a public has to be understood in a much larger sense, This has been made clear by the Hon'ble jurisdictionat High Court in the case of Baroda Peoples Co-op. Bank Ltd (Supra). To understand the issue better, I went through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that a license cannot be granted to it. The above report clearly defines the circumstances in which a credit society can be allowed to carry on banking business, These are 'Primary Credit Society', which can carry on business of banking until it is granted a license or notified that a license cannot be granted to it. These credit societies would not get the benefit of the deduction u/s 80P(2)(a)(i). Considering the above facts, it is dear that the appellant is not allowed to do banking business as defined under Banking Regulation Act and therefore, is not a cooperative bank. Therefore, it is not excluded from the benefit of deduction u/s 80P(2)(a)(i) of the IT Act as it does not fall under the exceptions as provided u/s 8QP(4). I have also noted the decision of honorable TTAT Mumbai bench in the case of Salgaon Sanmitra Sahakari Pathped Ltd. 12 taxmann.corn 246; where both the CIT (Appeals) and the ITAT have held that the corporative credit society in that case was not a cooperative bank , I also respectfully agree with the decision of the ITAT Bangalore B Bench in the case of ACIT Vs M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd in ITA No.l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been rightly taxed by the Department under section 56 of the I. T. Act In the light of the above, the interest income if any, earned from keeping the surplus fund in banks would be taxable u/s 56 and will not qualify for deduction u/s SOP. It is seen that the total interest earned from deposits with other banks' (other than co-op, societies, which is exempt) FD etc is ₹ 10,44,394/-. The appellant has mixed funds wherein the members' interest free contribution and accumulated profits are mixed with interest bearing funds. The interest earned from members etc., is Rs, 41,14,0027-and total interest paid is ₹ 29,79;405/-. Therefore, for earning total interest of ₹ 51,58,396/- the appellant has spent ₹ 29,79,405/-, Taking on pro-rata basis, the interest expenses on earning the interest from bank taxable u/s 56 would be ₹ 6,03,224/-( 10,44,394 x 29,79,405/ 51,58,396). Therefore, the interest income which is taxable u/s 56 and is not exempt would be ₹ 4,41,170/- (Rs. 10,44,394- ₹ 6,03,224/-). The ground of appeal is decided accordingly. The facts of the case during the year under consideration are substantially same as in earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this case, in our view, such interest income falls in the category of 'Other Income' which has been rightly taxed by the Department under section 56 of the I. T. Act In the light of the above, the interest income earned from keeping the surplus fund in banks or other investments would be taxable u/s 56 and will not qualify for deduction u/s 80P. As per the interest calculation submitted by the appellant, it has earned interest from deposits in nationalized bank an amount of ₹ 7,35,277/-, Schedule Banks ₹ 1,08,852/-and ₹ 11,725/- as TDS. These earnings are part of surplus funds of interest account which comes under the purview of section 56. Thus, as per the provisions of section 56, the total amount of ₹ 8,55,854/- is taxable in the hands of the appellant and will not qualify for deduction u/s SOP. 4. Aggrieved, assessee is now in appeal before the Tribunal; whereas Revenue has not filed any appeal against the order of ld. CIT(A). 5. At the outset ld. AR submitted that the only grievance through this appeal is against the order of ld. CIT(A) denying deduction u/s 80P(2)(a)(i) of the Act for the interest income of ₹ 8,55,854/- earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so observed that income from interest on deposit other than those held with Co-op. Society are liable to be taxed as income from other sources u/s 56 of the Act. Thereafter when the matter was carried before ld. CIT(A) assessee s appeal was partly allowed to the effect that assessee was held to be eligible for claiming deduction u/s 80P(2)(a)(i) of the Act, but interest earned from deposits with scheduled/nationalized banks was held to be taxable u/s 56 of the Act. Assessee came up in appeal before the Tribunal against the action of ld. CIT(A) denying deduction u/s 80P(2)(a)(i) of the Act on the interest of ₹ 8,55,854/-. 9. Thereafter in due course of time Hon. Jurisdictional High Court in the case of SBI vs. CIT (supra) decided the issue in the case of credit co-operatie society about treatment of interest income from deposits of surplus funds in bank to be taxed u/s 56 of the Act as income from other sources. Hon. Court while deciding so observed as follows :- Held, dismissing-the appeals, (i) that the assessee had claimed deduction under section 80P and not specifically under section 80P(2)(a)(i). The assessee had also not shown any bifurcation of the income derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. There was no obligation on the assessee to invest its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i). There was no infirmity in the orders of the Appellate Tribunal warranting interference. 10. We further observe that during the course of hearing hefore us, ld. AR accepted that assessee is not eligible to claim deduction u/s 80P(2)(a)(i) of the Act on the interest earned on surplus deposits/investments held with Scheduled/Nationalized bank but urged for allowing deduction on pro rata expenses incurred for earning the interest income and also for allowing statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.- In this clause, consumers co- operative society means a society for the benefit of the consumers;] From going through the above provisions it is very clear that the assessee is eligible for deduction of ₹ 50,000/- u/s 80P(2)(a)(i) of the Act and the same should have been allowed by the Assessing authority.. 11. Therefore, in view of our above discussion, we quash the order of ld. CIT(A) enhancing the addition and also 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)]. 11. Respectfully following the judgment of Hon. Jurisdictional High Court and examining the facts of the case as also in the light of decision of the Co-ordinate Bench discussed in the above paragraphs, we are of following view :- (1) Assessee is not eligible for deduction u/s 80P(2)(a)(i) of the Act on the interest income earned from surplus deposits held with Nationalized/Scheduled banks. (2) Assessee will be eligible to statutory deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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