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TMI Blog2016 (8) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the fact that appellant's entire income is exempt u/s.80P(2)(a)(i) of the Income Tax Act, 1961 as the appellant society is a patsanstha and not a Bank and providing credit facilities to the members. The above grounds of appeal may kindly be allowed to be amended, altered and/or modified in the interest of natural justice." 3. Facts of the case, in brief, are that the assessee is a Cooperative society engaged in the business of providing credit facilities to its members. It filed its return of income on 29-09- 2008 declaring total income at NIL. During the course of assessment proceedings the AO observed that net profit of the assessee as per profit and loss account is Rs. 13,00,844/-. After making various disallowance and considering the allowables the net income from business of Rs. 14,87,961/- has been shown in the return of income which has been claimed as deduction u/s.80P(2)(a)(i) of the I.T. Act. 4. From the various details furnished by the assessee the AO observed that assessee credit cooperative society has earned income of Rs. 65,67,682/- which includes interest on investment of Rs. 31,96,295/-. From the various details furnished by the assessee the AO notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the only dispute in the instant appeal is regarding the allowability of the claim of deduction u/s.80P(2)(a)(i) on the interest income of Rs. 10,77,0656/- received from the fixed deposits kept with nationalised banks, i.e. Bank of India and IDBI. According to the revenue such interest income has to be treated as income from other sources and thereby assessee is not entitled to deduction u/s.80P(2)(a)(i). According to the assessee such interest income has to be treated as income from business in view of the plethora decisions of the Coordinate Benches of the Tribunal. 9. I find an identical issue had come up before the Tribunal in the case of Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit Vs. ITO, Pandharpur vide ITA No.1352/PN/2016 order dated 29-07-2016 for A.Y. 2010-11. After considering the various decisions made by both the sides, I have decided the issue in favour of the assessee by holding that the assessee is entitled to deduction u/s.80P(2)(a)(i) on the interest income kept with various banks other than cooperative banks/societies. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- after allowing deduction of Rs. 3,63,565/- as proportionate expenses for earning such interest income. I find the Ld.CIT(A) following the decision of the Pune Bench of the Tribunal in the case of Niphad Nagari Patsanstha Ltd. (Supra) held that the said interest is its business income eligible for deduction u/s.80P(2)(a)(i) of the I.T. Act. I find the Tribunal in assessee's own case in the immediately preceding assessment year has also decided identical issue and the appeal filed by the Revenue has been dismissed. The relevant observation of the Tribunal from para 6 onwards read as under : "6. At the time of hearing, it was a common point between the parties that an identical controversy has been considered by the Pune Bench of the Tribunal in the case of another co-operative society, namely, ITO vs. Niphad Nagari Sahakari Patsanstha Ltd. vide ITA No.1336/PN/2011 dated 31.07.2013 wherein the issue has been held in favour of the assessee after considering similar objection, which has been raised by the Assessing Officer in the present case. The learned Representative for the assessee has furnished a copy of the said order of the Tribunal dated 31.07.2013 (supra) and has also poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has considered only the latter part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in carrying on the business 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee(s)." 19.2 From the above, it emerges that - (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose 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 mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co-operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the assessee 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 treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h I am a party) has observed as under : "9. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute to be decided in the grounds raised by the assessee is that whether the interest amounting to Rs. 25,01,774/- earned by the assessee on short term deposits with banks has to be treated as "income from other sources" u/s.56 or the assessee is eligible for deduction u/s.80P(2)(a)(i). We find the AO following the decision of Hon'ble Supreme Court in the case of The Totgar's Cooperative Sale Society Ltd. (Supra) treated the interest earned from such short term deposits as "income from other sources" and brought the same to tax which has been upheld by the CIT(A). 10. It is the case of the assessee that in view of the decision of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souhards Credit Cooperative Ltd. (Supra) the interest earned from such short term deposits with bank is entitled to deduction u/s.80P(2)(a)(i). We find the Hon'ble High Court of Karnataka after considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solicitor-General relied, it will be pertinent to observe that the legislature, has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression "derived from", as, for instance, in section-80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. 8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 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 not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the member's, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order:" 11. No doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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