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TMI Blog2018 (10) TMI 1394X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits with the nationalized bank. The assessee be given an opportunity of being heard by AO and also to be allowed to rely upon the evidences in support of his case to be considered by the Ld. Assessing Officer. Appeal of the assessee is partly allowed for statistical purposes. - I.T.A. No.428/Ahd/2017 - - - Dated:- 3-10-2018 - Shri Waseem Ahmed, Accountant Member And Ms. Madhumita Roy, Judicial Member For the Appellant : None For the Respondent : Shri Omprakash Pathak, Sr.DR ORDER PER Ms. MADHUMITA ROY - JM: The instant appeal has been filed by the Assessee before us against the order dated 30.09.2016 passed by the Commissioner of Income Tax(Appeals)-4, Vadodara [Ld.CIT(A) in short] arising out of the order dated 30.11.2015 passed by the ITO, Ward-1, Anand for Assessment Year (AY) 2013-14. 2. The assessee has come up before us with the following grounds: 1. That, the learned CIT(A) has wrongly confirmed the addition of ₹ 14,62,750 as interest income instead of ₹ 9,64,984. [Rs.10,16,984 Less ₹ 50,000 Deduction u/s.80P(2)(c)(ii)]. 2. That, the learned CIT(A) has wrongly confirmed the addition u/s.80P(2)(a)(i) on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose fixed deposits. The society cannot keep the funds idle every time and therefore making fixed deposits at Nationalized Bank is inevitable. The interest income on Fixed Deposits at Nationalized Banks is the income attributable to business of extending credit facilities to members and cannot be treated as separate business of Co-Operative Credit Society. Karnataka High Court in case of Guttigedarara Credit Co-Operative Society Ltd. v/s. Income Tax Officer (2015 377 ITR Karnataka) has also upheld that interest on deposits of banks is an income attributable to the extension of credit facilities to members and therefore entitled to deduction u/s.80P of the Act. Copy of the said judgment is attached herewith for your ready reference. In addition to that, in case of Chief CIT v/s. Sabarkantha Kharid Vechan Mandali Ltd. (1977 107 ITR 447 GUJ), Gujarat high Court has upheld that al interest income on Fixed Deposits cannot be disallowed for 80P deduction and proportionate interest on Fixed Deposits is to be calculated. 3.5. The Ld. Assessing Officer ultimately while disallowing the claim of the assessee observed as follows: I have considered the legal s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction, The word income has been defined u/s.2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The parliament has included specifically business profits into the definition of the word income . The assessee Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, profits and gains of business . Such interest income cannot be said also to be attributable to the activities of the society, viz., carrying on the business of providing credit facilities to its members, Therefore, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Income-tax Act,, 1961 or in section 80P(2)(iii) of the Act and hence, the interest income earned on deposits with banks is taxable u/s,56 of the Income-tax Act, 1961. 3.6 In view of above, the deduction claimed by the assessee u/s.80P(20(a)(i) of the Incometax Act, 1961 is disallowed, However, the assessee is allowed deduction at Rs,50,000 u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of the assessee of providing credit facilities to its members. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) and the interest derived by depositing surplus funds with the nationalized banks not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i). If the appellant wants to avail of the benefit of deduction of such interest income,, it is always open for it to deposit the surplus funds with a cooperative bank/other co-op societies and avail of deduction under section 80P(2)(d). Accordingly, the action of the Assessing Officer of not allowing deduction on such income is upheld and the sole ground of appeal is dismissed. 3.7. Further, the assessee challenged the confirmation of addition u/s.80P(2)(a)(i) of the Act on account of interest income from nationalized bank. 4. We have heard the Ld.DR. We have perused the relevant materials available on record. It is a settled principle of law that the assessee is not entitled to deduction of the interest income accrued from the fixed deposit lying with the nationalized bank out of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and which has been invested in specified securities as investment are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. 14. Thus, in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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