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TMI Blog2021 (9) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 (2) TMI 3 - SUPREME COURT] held that, Income from utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P - we remand this issue back to the Ld.AO to verify the interest earned from investments made in co-operative societies that is eligible for deduction under section 80P(2)(d). X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- was liable for assessment as income from business and not under the head "Other Sources" under the facts and in the circumstances of the appellant's case. 7. The learned CIT[A] ought to have appreciated that the appellant had earned the interest income from investments statutorily required to be maintained under the Karnataka Co-operative Societies Act from out of the profits besides 25% of the total deposits as SLR with co-operative banks and 3% of the total deposits towards CRR and thus, the income earned therefrom ought to have been assessed as part of the business of the providing credit facilities to its members and not under the head 'Other Sources" under the facts and in the circumstances of the appellant's case. 8. Without prejudice to the above, the learned CIT[A] ought to have appreciated that the cost of funds ought to have been allowed u/s. 57[iii] of the Act while assessing the interest income under the head "Other Sources" under the facts and in the circumstances of the appellant's case. 9. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive society Ltd. in Civil appeal No. 10245/2017 dated 08.08.2017, on following grounds: i) interest/dividend income was held to be income from other sources and excluded from the deduction under section 80P(2)(a)(i). For the deduction under section 80P(2)(d) was also denied relying on the decision of Hon'ble Karnataka High Court in case of M/s Totgars Co-operative so sale society Ltd. by order dated 16/06/2070. ii) The principles of majority were violated relying on the decision of Hon'ble Supreme Court in case of M/s citizen co-operative society Ltd., Hyderabad dated 08/09/2017. 2.4 Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld. CIT(A). 2.5 He came to the conclusion that as per the decision of Hon'ble Supreme Court in the case of Citizens Co-op Society (Supra), if the principle of mutuality is not satisfied, then the assessee is not entitled to deduction u/s 80P(2)(a)(i) of the Act. In respect of members, the Ld.CIT(A) observed that the assessee admitted excess nominal/associate members which is more than 15% of the total members when compared to regular members which is in violation of Karnataka Co-operative Society Act, 1959. In view of the viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 6-7 is in respect of granting of deduction u/s 80P(2)(a)(i) set on interest from investments made in commercial banks, South Canara district cooperative banks, co-operative societies. 6.1 We note that the Ld.AO denied deduction under section 80P(2)(d) of the Act, as well in respect of interest income received by assessee from deposits kept with banks for the years under consideration. The Ld.AO assessed the interest income received from bank deposits under the head income from other sources. 6.2 The Ld.Counsel placed reliance on the decision of Hon'ble Karnataka High Court in keep case of Totgars co-operative sale society Ltd. vs ITO reported in (2015) 58 Taxmann.com 35. 6.3 We have perused plethora of decisions on this issue by Hon'ble Karnataka High Court and the ratio laid down by Hon'ble Supreme Court. Hon'ble Supreme Court in the case of the Totgars Co-operative Sale Society Ltd. Vs. ITO reported in 322 ITR 283 held that, Income from utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P. 6.4 The Co-ordinate Bench of this Tribunal in the case of M/s Jyothi Pattin Souhard Sahakari Niyamit in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act?" 10. The Hon'ble Court held that such interest income is not income from business but was income chargeable to tax under the head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Hon'ble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon'ble Court observed that in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that "the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases…………..&q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon'ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon'ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not imm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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