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TMI Blog2020 (7) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... -operate in submitting the documents and allow grounds of appeal of the assessee for statistical purposes. Deduction u/s 80P(2)(a)(i) denied as the assessee society accept the deposits from general public being Nama Matra Sadasyaru/Nominal Members and the identity was not established in respect of ordinary members and nominal members in the assessment proceedings - We find nominal members are part of the society for earning surplus/income to the society. Accordingly, we set aside the order of the CIT (Appeals) on this issue and restore this disputed issue to the file of CIT(A) for fresh adjudication on the four categories of members and eligibility of nominal members under Karnataka State Co-operative Societies Act, 1959 and pass a speaking order. Further the assessee should be provided adequate opportunity of hearing and shall co-operate in submitting the information and allow the grounds of appeal of the assessee for statistical purposes. - ITA No.226/Bang/2020 - - - Dated:- 6-7-2020 - Shri A.K. Garodia, Accountant Member And Shri Pavan Kumar Gadale, Judicial Member For the Assessee : Shri Nayaz Pasha, C.A. And ShriThippeswamy .C.A For the Revenue : Smt. R. Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rplus funds has been kept in fixed deposits in co-operative banks and is not eligible to treat the interest income under income from other sources. Whereas, the society has invested/deposited funds which are not required for business being surplus funds and interest on deposits cannot be considered as income from other sources and observed that the interest income is not covered under Section 80P(2)(d) of the Act and relied on the judicial decisions and disallowed the claim. 5. Further, the Assessing Officer dealt on the submissions, financial statements, Bye-laws submitted by the assessee and observed that the assessee has four categories of memberships in the co-operative society. The four categories are - i) Sadasyaru/Members : They are eligible for loans, voting rights and also eligible to share profits. ii) Saha Sadasyaru/Associate Members : They are eligible to purchase shares but no voting rights. iii) Naama Maatra Sadasyaru/Nominal Members :They are not eligible to share the profits and no voting rights. iv) Karnataka Sarkara / Government of Karnataka : Karnataka Government or any organization authorized by the Government of Karnataka can avail membership. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether the Revenue authorities were justified in holding that the assessee was not entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short the Act ) on interest income earned and under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions. The Assessing Officer (AO) denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head Income from Other Sources and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon ble Supreme Court in the case of The Totgar s Co-operative Sales Society Ltd., Vs. ITO 322 ITR 283 (SC) wherein the Hon ble Supreme Court held that the benefit of deduction under section 80P(2)(a)(i) of the Act is only on income which is assessable under the head Income from Business . Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 2011-12 and in AY 1991- 92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra). We found that the facts of the present case are similar to the decision rendered by the co-ordinate bench of the tribunal, in respect of chargeability of interest income under income from other sources or business income. We follow the judicial precedence and restore the disputed issue to the file of the CIT (Appeals) to consider the submissions of the assessee for fresh adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a break-down of principle of mutuality resulting disentitlement of exemption under section 80P. The ld.AO relied upon the judgment of Hon ble Supreme Court in the case of Citizens Cooperative Society Ltd. (supra) to support his view. While the case of the assessee is that being a primary agriculture credit society, it is entitled for exemption under sub-section (4) of section 80P. Judgment of Hon ble Apex Court relied upon by the Revenue is distinguishable on facts. In that case assessee was a cooperative society registered under Multi State Cooperative Societies Act, 2002, while in the present case, assessee is a primary agriculture credit society registered under Gujarat State Cooperative Societies Act. The Hon ble Supreme Court disentitled the assessee from claiming exemption under section 80P due to violation of provisions of MACSA, under which it was formed, and most of the business of the assessee was with carved out category of persons without approval of Registrar of the Societies. Weighing point of view of both sides, we find that balance tilt in favour of the assessee. We find that by virtue of sub-section (4) of section 80P, the assessee is entitled for deduction under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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