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TMI Blog2019 (8) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... plus funds collected from the members is eligible for deduction under section 80P(2)(a)(i). Insofar as the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Credit Society Ltd. [ 2010 (2) TMI 3 - SUPREME COURT] is concerned, the Hon'ble Andhra Pradesh High Court has considered and discussed elaborately. In view of the above, the order passed by the ld. CIT(A) is to be reversed, accordingly we reverse the order passed by the ld. CIT(A). Thus, this appeal filed by the assessee is allowed. We find that the order passed by the AO is neither erroneous nor prejudicial to the interests of the Revenue. Therefore, the order passed by the ld. Pr. CIT is hereby quashed and the appeal filed by the assessee is allowed. - ITA No. 26/VIZ/2018 - - - Dated:- 7-8-2019 - Shri V. Durga Rao, Hon ble Judicial Member And Shri D.S. Sunder Singh, Hon ble Accountant Member For the Assessee : Shri K.S.S. Sarma Adv. For the Department : Shri D.K. Sonawal CIT DR ORDER PER V. DURGA RAO, JUDICIAL MEMBER This appeal by the assessee is directed against the order of Principal Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the ld.Pr.CIT. 6. We have heard both the sides, perused the material available on record and orders of the authorities below. 7. The assessee is a Co-operative society, has deposited surplus funds with various banks and interest received of ₹ 8,41,002/-, the same is claimed as deduction u/sec.80P(2)(a)(i) of the Act. The Assessing Officer after calling various information from time to time and also after examining the evidence in respect of deduction u/sec. 80P(2)(a)(i), allowed the claim made by the assessee. Subsequently, ld.Pr.CIT by exercising powers conferred on him u/sec. 263 and by relying upon the judgment of the Hon'ble Supreme Court in the case of Totgar s Co-operative Sale Society (supra) opined that the assessee is not entitled for deduction in respect of interest received on account of surplus funds deposited with the banks and directed the Assessing Officer to redo the assessment because the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. We find from the assessment order that the Assessing Officer has called the various details and also evidence in respect of claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities to its members. The very same issue has been considered by the coordinate bench of the tribunal in the case of M/s. Kakinada Co-op Building Society Ltd., Vs. Addl. CIT in ITA Nos. 348 349/VIZ/2013, dated 22/01/2016 wherein by following the decision of the Hon'ble Karnataka High Court in the case of Guttigedarara Credit Co-op Society Ltd. Vs. ITO [(2015) 66 (I) ITCL 343 (Kar. HC)] and also by following the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Andhra Pradesh State Co-op Bank Ltd., (2011) 336 ITR 516 (AP) has held that interest earned on deposits by the assessee cooperative society providing credit facilities to its members would qualify for deduction under section 80P(2)(a)(i) of the Act. For the sake of convenience, the relevant portion of the order is extracted as under:- 9. We have heard both the parties, perused the records and gone through the orders of the authorities below. The assessee is Kakinada Co-operative Building Society engaged in the business of collecting the deposits, lending loans to its members for purchase of sites, buildings and construction of houses. When the assessee society receives the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot eligible for deduction. 8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. 10. In order to understand the scope of the controversy, it would be better to present in simple terms, the ambit of clause (a) of sub-section (2) of section 80P. This clause is intended for the benefit of (1) certain types of co-operative societies but (2) confined only to the activities listed in sub-clauses (i) to (vii). In other words, clause (a) of sub-section (2) con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety Ltd. [1983] 143 ITR 981 (Mad.), a Division Bench of the Madras High Court was concerned with the question as to whether a society, which was purchasing autorickshaws and reselling them to its members on hire-purchase basis, could be treated as a society engaged in the business of providing credit facilities to its members or not. The Madras High Court pointed out that a credit society is distinct from a distributive society and a marketing society and that the tax relief under section 80P(2)(a) is a grant by Parliament not to a category of income but to a category of assessee, namely, a co-operative society answering the description of a society engaged in the business of providing credit facilities to its members. In other words, the court came to the conclusion that the income derived by the society by purchasing autorickshaws and selling them to its members under hire-purchase agreements will not be exempt under section 80P(2)(a)(i). This decision of the Division Bench of the Madras High Court was confirmed by the Supreme Court in a very brief order Madras Autorickshaw Drivers' Co-operative Society vs. CIT [2001] 117 Taxman 370/249 ITR 330. 16. In CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the society and the fair price shop. 19. In Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 272 (Kar.), a Division Bench of the Karnataka High Court held that when a society not carrying on any banking business had invested its surplus funds in security term deposits, the interest accrued from such securities and deposits should be taken as relatable to profits and gains of the society. 20. The above decision of the Karnataka High Court was taken on appeal to the Supreme Court. In a decision reported in Totgar's Co-operative Sale Society Ltd.'s case (supra), the Supreme Court held that the interest income arising out of the investment of surplus funds cannot be attributed to the activities of the society. The relevant portion of the judgment of the Supreme Court reads as follows (page 289) : The head note to section 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Section 80P(2), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Bench of the Punjab and Haryana High Court followed the decision of the Supreme Court in Totgar's and held that the interest income received by the cooperative society from commercial banks cannot be attributed to the activities of the society. 22. In State Bank of India v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Guj.), a question arose before the Division Bench of the Gujarat High Court as to whether the interest earned on deposits made by a co-operative society that was registered with the object of accepting deposits from salaried employees of the State Bank with a view to promote thrift and provide credit facilities, was entitled to the benefit of section 80P(2)(a)(i)(2)(a). Following the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) the Gujarat High Court held that while the interest income earned by the co-operative society by extending credit facilities to its members may be business income, the interest income earned on the deposits of surplus funds with the State Bank of India may not qualify for deduction under section 80P(2)(a)(i). 23. Similarly, it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by the Revenue upon the decision of the Supreme Court in Totgar's. But the Division Bench distinguished Totgars on the ground that the said decision was confined to the facts of the said case and that the Supreme Court was not dealing with the cases relating to co-operative banks. Referring to the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, this court pointed out that the expression attributable to is wider in scope than the expression derived from and that a co-operative society may earn profits by way of interest by parking their funds in high-yielding deposits or may earn income by circulating its capital among its members in the course of their banking business. Adverting to the fact that the phrase business of banking is not defined in the Income-tax Act, this court referred to the definition of the expression banking appearing in section 5(b) of the Banking Regulation Act to come to the conclusion that the income received by a co-operative bank from deposits, whether or not they are made in the discharge of statutory obligation would be eligible for exemption, since it would tantamount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a ) (1) Co-operative society carrying on the business of banking or providing credit facilities to its members ; (2) Co-op. society engaged in cottage industry ; (3) Co-operative society engaged in marketing of agricultural produce grown by its members. (4) Co-operative society engaged in purchase of agricultural implements, seeds etc., for the purpose of supplying to its members ; (5) Co-operative society engaged in processing of agricultural produce of its members without the aid of power. (6) Co-operative society engaged in collective disposal of the labour of its members. (7) Co-operative society engaged in fishing or allied activities. The whole of the amount of profits and gains of business attributable to any one or more of such activities. ( b ) Primary co-operative society engaged in supplying milk, oil seeds, fruits or vegetables grown by its members to- (1) a federal co-operative society, engaged in the same business ; (2) the Government or a local authority ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted in clause (a), (B) to be eligible for deduction under clause (b), the society should be a primary society engaged in supplying milk, oilseeds, fruits, etc. to named institutions, such as, Government, Local Authority, Federal Co-operative Society, or Government Company, (C) to be eligible for deduction under clause (c), the institution must be engaged in activities other than those covered by clauses (a) and (b) subject to the further condition that such profits and gains should not exceed a particular limit, (D) to be eligible for deduction under clause (d), the income should be derived from investments with another co-operative society, (E) to be eligible for deduction under clause (e), the income should be derived from letting of godowns or warehouses, etc. 30. Therefore, what follows is that when a co-operative society engaged in any one of the activities stipulated in sub-clauses (i) to (vii) of clause (a) makes profits and gains out of business attributable to anyone of those activities, the case would fall under clause (a). The moment the income derived from one of those activities is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may benefit in terms of clause (d) or (e), but the very same societies will not be entitled to any benefit, if they invest the very same funds in banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under clauses (d) and (e) are available in general to all co-operative societies, including societies engaged in the activities listed in clause (a). Section 80P (2) is not intended to place all types of co-operative societies on the same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression attributable to and not any one of the two expression, namely, derived from or directly attributable to . 11. In the present case, the assessee while carrying its activities i.e. extending credit facilities to its members, collected the deposits which are not immediately necessary to extend the credit facilities to its members, deposit in the bank and interest received. We find that there is proximity between the business carried by the assessee and the interest received. The above decision of the Hon'ble Andhra Pradesh High Court is squarely applies to the facts of the present case. Therefore respectfully following the decision of the Hon'ble Andhra Pradesh High Court in the case of Andhra Pradesh State Co-op Bank Ltd. (supra) and also by following the decision of the coordinate bench of the tribunal in the case of M/s. Kakinada Co-op Building Society Ltd. (supra), we hold that the interest income received by the assessee by depositing the surplus funds collected from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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