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TMI Blog2021 (10) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed and not the gross income, this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon ble jurisdictional High Court in the case of Totagars Sale Cooperative Society (Supra). Accordingly, the case is restored to the files of the A.O. A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources . If so, the same shall be allowed as deduction u/s 57 - Appeal filed by the assessee is allowed for statistical purposes. - ITA No.2238/Bang/2019 - - - Dated:- 14-10-2021 - Shri George George K, JM And Shri B.R.Baskaran, AM For the Appellant : Sri.Chaitanya V. Mudrabettu, CA For the Respondent : Sri.K.Sankar Ganesh, JCIT-DR ORDER PER GEORGE GEORGE K, JM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The assessment u/s 143(3) of the I.T.Act was completed vide order dated 28.12.2017, wherein the assessee was denied the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act amounting to ₹ 50,18,018. The A.O. held that the assessee is carrying on the business of banking and in view of the amended provisions of section 80P of the I.T.Act, the assessee society, which is carrying on the business of banking was not entitled to the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act. In holding so, the Assessing Officer held that the Hon ble Karnataka High Court judgment in the case of Bilur Gurubasava Pattina Sahakari Sangha Niyamit in ITA No.5006/2013 (judgment dated 05.02.2014) relied on by the assessee has not attained finality and the same is pending in SLP before the Hon ble Supreme Court. 5. Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT(A) partly allowed the appeal of the assessee. With regard to the interest income earned by providing credit facilities to the members, the CIT(A) by following the judgment of Hon ble Karnataka High Court in the case of Bilur Gurubasava Pattina Sahakari Sangha Niyamit (supra) held that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angalore Bench of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. (supra) had followed the judgment of the Hon ble jurisdictional High Court in the case of Pr.Commissioner of Income-tax Anr. v. Totagars Co-operative Sale Society 395 ITR 611 (Kar.). The relevant finding of the Bangalore Bench of the Tribunal, reads as follow:- 8. We have carefully considered the rival submissions. An order passed contrary to a decision of the Hon ble Jurisdiction High Court would be in the nature of an order prejudicial to the interest of the revenue being an order passed on an incorrect application of law. In the case of Malabar Industrial Co. Ltd. vs. CIT[2000] 243 ITR 83(SC), the Supreme Court held that there must be two conditions namely that the order of assessment is erroneous and that the order is prejudicial to the interests of the Revenue which must be satisfied before the Commissioner may invoke his powers under Section 263 of the Act. The Court held that every loss of tax cannot be said to be prejudicial to the interests of the Revenue. If two views are possible, and the AO has adopted one of those views, the order of assessment cannot be prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive society and is liable to be deducted from the gross total income under Section 80P of the Act. The Hon ble Court also distinguished the decision of the Hon ble Supreme Court in the case of Totgars (supra) by observing that the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Cooperative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 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? 11. 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, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragarph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) 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 coordinate bench that the learned Judges have observed that the issue whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society 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 agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een adopted was the later binding decision of the High Court in the case of Totagar co-operative sales society 395 ITR 611 (Karn.). 16. The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-operative sales society 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the Assessee on the earlier decisions of the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision in Totgars Cooperative Sale Society (supra) stands explained by the later decision in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 8.1 In the light of the above order of the Bangalore Bench of the Tribunal, which has analysed the judicial precedents on the subject, we hold that the assessee is not entitled to deduction u/s 80P(2)(d) nor u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income earned from investments with Cooperative Banks. 8.2 The learned AR had claimed that if interest income is to be assessed as income from other sources, necessarily, the cost incurred for earning such interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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