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TMI Blog2018 (5) TMI 1821X X X X Extracts X X X X X X X X Extracts X X X X ..... enue in the case of M/s. Shiroli Budruk Krishak Seva Sahakari Patsanstha Maryadit in ITA No. 96/PUN/2017, relating to assessment year 2012-13, wherein following grounds of appeal have been raised:- 1. Whether in facts and circumstances of the case the Ld. CIT(A) was justified in allowing deduction u/s 80P of the IT Act, 1961 of Rs. 35,22,862/- from its reinvestment in Bank of India, a nationalized bank in view of section 80P(2)(d) of the I. T. Act, 1961, Co-operative Credit Societies where interest from investment in Co-operative Banks only are eligible for deduction. 2. Whether in facts and circumstances of the case the Ld. CIT(A) was justified in considering that Bank of India was a member of the society, fixed deposits made in the bank could be considered as loan given to a regular member even when the assessee did not produce any sponsorship agreement between the Bank of India & the appellant having binding clause of reinvestment in the same bank. 3. Whether in facts and circumstances of the case the Ld. CIT(A) erred in placing reliance on the ITAT, Pune decision in the case of M/s Niphad Nagari Sahakari Patsanstha Ltd. when the facts of both the cases are different. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10 and 2010-11, against which the Department had not filed any appeal before the Tribunal. Another aspect which was pointed out was that Bank of India was member of assessee's society since 29. 12. 1979, hence investment made by the assessee with its society and interest earned from the said Bank is exempt. The learned Authorized Representative for the assessee further placed reliance on the ratio laid down by the Pune Bench of Tribunal in Baliraja Gramin Bigarsheti Vs. ITO (2018) 52 CCH 247 (Pune - Trib. ) and pointed out that the assessee was entitled to claim the deduction under section 80P(2)(a) of the Act. 10. Coming to the appeal of assessee in ITA No. 704/PUN/2017, relating to assessment year 2008-09, where the facts are similar, wherein the assessee had claimed deduction under section 80P(2)(a) of the Act on the interest earned on fixed deposits with banks. The learned Authorized Representative for the assessee pointed out that the issue stands covered by the order of Tribunal in assessee's own case in ITA No. 992/PN/2016, relating to assessment year 2010-11, order dated 29. 07. 2016. The learned Authorized Representative for the assessee pointed out that the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the said income belonged to Co-operative society and hence, was not exigible to tax. 14. Similar issue has been elaborately considered by the Pune Bench of Tribunal in ITO Vs. M/s. Maharashtra Bank Employees Co-op. Credit Society Ltd. in ITA Nos. 454 to 456/PUN/2015, relating to assessment years 2007-08, 2008-09 & 2010-11 along with CO Nos. 16 & 17/PUN/2017, order dated 22. 12. 2017, wherein the ratio laid down by the Hon'ble Supreme Court was also taken note of and subsequent decision on the issue was also considered and it was held as under:- "11. We have heard the rival contentions and perused the record. The limited issue which arises in the present appeal filed by the Revenue is against relief given by the CIT(A) on the claim of assessee society that interest income received on FDRs with scheduled Bank of Maharashtra is entitled to claim of deduction under section 80P(2)(a)(i) of the Act. The assessee was a Co-operative society of the employees of Bank of Maharashtra, and was engaged in the business of providing credit facilities to its members. The activities carried on by the assessee society were subject to the provisions of Maharashtra Co-operative Societies Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Maharashtra Co-operative Societies Act, 1960 and Rule 54 of the Rules 1961 to transfer reserve funds amount with Pune District Central Co-operative Bank to the Bank of Maharashtra with condition of investment and also that the amount invested in the Bank of Maharashtra could not be given as security for borrowing or used for any other purpose without written permission from the Registrar. The copy of said permission is placed at page 6 with English translation at page 7 of the Paper Book. The claim of assessee was that in line with the said permission received from the Registrar as under the provisions of section 66 and 70 of the Maharashtra Co-operative Societies Act, it was required to transfer the funds i. e. one-fourth of profits of assessee's society to the reserve fund and thereafter, the funds in the reserve fund were invested as FDRs with the Bank of Maharashtra. The assessee points out that the said parking of funds in FDRs with the Bank of Maharashtra was one of the conditions for carrying on the business activities of the assessee society, hence interest earned therefrom was business income in the hands of assessee. It was time and again reiterated by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue authorities held that the same was taxable under the head 'income from other sources'. The claim of the assessee was that it had invested the funds on short term basis as these were not required immediately for business purposes and consequently, interest received by the assessee was eligible for deduction under section 80P(2)(a)(i) of the Act. Further, the contention of the assessee before the Court was that under regulations 23 and 28 r. w. s. 57 and 58 of the Karnataka Co-operative Societies Act, 1959, a statutory obligation was imposed on co-operative credit societies to invest its surplus funds in specified securities and in view of the aforesaid statutory obligations, the above mentioned investment was made by the assessee and the same was in the nature of its business activity. The said interest income was claimed to be eligible for deduction under section 80P(2)(a)(i) of the Act, irrespective of the source or head under which such income would fall. The Hon'ble Apex Court noted that the interest income arising on surplus investment in short term deposits and securities, which surplus was not required for business purpose, was to be taxed under section 56 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of profits and gains, which was not immediately required by the assessee for lending money to the members as there were no takers and the assessee in such circumstances, deposited the money in bank so as to earn interest. The Hon'ble High Court of Karnataka in such circumstances held that the interest income was attributable to carrying on of business of banking and therefore, it was liable to be deducted in terms of section 80P(1) of the Act, they took note of insertion of section 80P(4) of the Act, which was applied by the Assessing Officer to deny the deduction under section 80P(2)(a)(i) of the Act. The Hon'ble High Court of Karnataka referred to the judgment of Hon'ble Apex Court in Totgar Co-operative Sale Society Ltd. Vs. ITO (supra) and pointed out that in the facts of the said case, the amount which was retained by the assessee was a liability and it was shown in the balance sheet on liabilities side. Where the interest income was earned on such funds, then the same was held by the Hon'ble Apex Court to be treated under section 56 of the Act. However, the distinction was drawn by the Hon'ble High Court of Karnataka in para 10 and it was pointed out that in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity as it was the requirement of Maharashtra Co-operative Societies Act, 1960, that 20 to 30% of total deposits are to be parked in the investments with co-operative banks. It is not the case of the Department that the amount invested by the assessee was out of any liabilities due by the assessee. In the absence of the same and following the same parity of reasoning laid down by the Hon'ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (supra) and the facts of the present case being at variance to the facts before the Hon'ble Supreme Court in Totgar's Co-operative Sale Society Ltd. Vs. ITO (supra), we hold that the assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. In the alternate, we find merit in the plea of the assessee that at best the income which can be assessed in the hands of assessee is the net income and not the gross income as proportionate expenditure incurred is to be allowed in the hands of the assessee. However, we are not adjudicating this issue since we have already held the assessee to be eligible for claim of deduction under section 80P(2)(a)(i) of the Act. In view thereof, we also do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (supra) while deciding similar issue of eligibility of deduction under section 80P(2)(a)(i) of the Act on interest income from deposits of surplus funds in banks held that neither it was business income nor income from investment in any other Co-operative societies. It may be pointed out that the Hon'ble High Court in para 16 has clearly noted that in the said case, there was no obligation upon the assessee to invest its surplus funds with the State Bank of India. It was further observed that investing surplus funds in a bank is no part of the business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. The Hon'ble High Court further referred to section 71 of the Gujarat Co-operative Societies Act, 1961 permitting society to invest or deposit its funds in the State Bank of India. The Hon'ble High Court held that while investment in State Bank of India was permissible under section 71 of that Act, there was no statutory obligation upon the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is mandatory upon the assessee to invest 25% of its profits in the reserve funds, which in turn, are parked in FDRs with Bank of Maharashtra, then interest income earned by the assessee is from carrying on its business activities. Once it is so, then the said income is assessable as 'Income from business' and the assessee is entitled to claim deduction under section 80P(2)(a)(i) of the Act. Accordingly, we hold so.... . " 15. The issue arising in the present appeal is squarely covered by the issue before the Tribunal in ITO Vs. M/s. Maharashtra Bank Employees Co-op. Credit Society Ltd. (supra) and following the same parity of reasoning, I hold that the assessee is entitled to claim the benefit under section 80(P)(2)(a) of the Act on the interest income earned from nationalized banks. In this regard, support is drawn from the ratio laid down in Mahesh Nagari Sahkari Pat Sanstha Ltd. Vs. ITO in ITA No. 2180/PN/2013, order dated 13. 05. 2015, wherein the Tribunal has held as under:- "5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also examined the decisions on which both the sides have pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal and the High Court, hence, these civil appeals have been filed by the assessee(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lower authority. No doubt, the latest judgment in Totgar's Co-operative Sale 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 ITA No. 2180/PN/2013, A. Y. 2010-11 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 co-operative 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 fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the assessee is eligible to claim deduction u/s. 80P(2)(a)(i). In view of the above, the impugned order is set aside and the appeal of the assessee is allowed. " 16. The learned Departmental Representative for the Revenue on the other hand, had placed reliance on the ratio laid down by the Hon'ble High Court of Delhi in Mantola Co-operative Thrift & Credit Society Ltd. (supra). The learned Authorized Representative for the assessee pointed out that the said ratio has also been considered by the Tribunal in the case of ITO Vs. Swa Ashokrao Bankar Nagari Sah. Patsanstha Maryadit (supra), wherein it was held as under:- "10. We further find that the issue of allowability of deduction under section 80P(2)(a)(i) of the Act on interest income earned by the assessee in the hands of assessee was decided by the Tribunal in ITA No. 1584/PN/2012, relating to assessment year 2009-10, vide order dated 30. 04. 2014; thereafter in ITA No. 1394/PN/2015, relating to assessment year 2011-12, vide order dated 22. 07. 2016 and also in ITA No. 2006/PUN/2014, relating to assessment year 2010-11, vide order dated 04. 05. 2017. The Tribunal in assessment year 2011-12 had made reference to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for deduction u/s. 80P(2)(a)(i). The relevant observation of the Hon'ble High Court from para 6 onwards read as under : "6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/ represents the interest earned from shortterm deposits and from savings bank account. The assessee is a Cooperative 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 80P(2)(a)(i): "Deduction in respect of income of cooperative societies: 80P (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns 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 said amount idle. If they 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 cooperative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd. , on which reliance is placed, the Supreme Court was dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has held that where the assessee cooperative society was engaged in providing credit facilities to its members earns interest income on surplus funds deposited as fixed deposits, such interest income would be assessable as "income from other sources" and thus not eligible for deduction u/s. 80P(2)(a)(i). However, it is also the settled proposition of law that when two views are possible, the view which is in favour of the assessee has to be followed. Since in the instant case, two divergent decisions were cited before us and no decision of the Hon'ble jurisdictional High Court is available, therefore, following the decision of the Hon'ble Supreme Court in the case of CIT Vs. Vegetable products reported in 88 ITR 192 we hold that the view in favour of the assessee, i. e. the decision of the Hon'ble Karnataka High Court has to be followed. Accordingly, we hold that the interest income earned by the assessee on short term deposits kept with banks has to be allowed as deduction u/s. 80P(2)(a)(i) of the I. T. Act. The order of the CIT(A) is accordingly set aside and the grounds raised by the assessee are allowed. " 17. Applying the said ratio to the facts of present case, it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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