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TMI Blog2022 (1) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made in SCDCC Bank. The deduction on the aforesaid sum was claimed by the Assessee u/s.80P(2)(a)(i) of the Act. 3. The Assessee claimed that interest received by it were on deposits made in compliance with section 58 of the Karnataka Co-operative Societies Act, 1959 and therefore constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the deduction under section 80-P(2)(a)(i) of the Income Tax Act, 1961 in respect thereof was rightly allowed by the Income Tax Officer. It was submitted that the interest received by it on deposits was in compliance with rule 28 of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to be held that the Assessee was eligible for deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 4. This was rejected by the AO by pointing out that interest received from deposits with co-operative Banks was not eligible for deduction u/s.80P(2)(d) of the Act and therefore the Assessee was making a claim for deduction on interest income u/s.80P(2)(a)(i) of the Act. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Sheet that the assessee society made fixed deposits of Rs. 3,39,71,566/- in various banks including DCC Bank. The assessee earned interest of Rs. 29, 29, 371/- @08.62% on the above F.D.s. The same is considered as income from other sources. Assessee reported a net profit of Rs. 37,34,562/- which is 38.13% on G.P of Rs. 97,94,297/-. The net profit attributable to the interest income of Rs. 29, 29,371/- is Rs. 11,16,969/- and the same is not eligible for deduction u/s 80P. Therefore, this amount of Rs. 11, 16,969/- is disallowed from the deduction of Rs. 37, 27,908/- claimed by the assessee 8. A table showing disallowance of 80P deduction claimed by the assessee is as under: Sl.No. Calculation of Interest earned on FDs as IOS & Disallowance of 80P deduction F.Ds (in Rs.) Interest (in Rs.) 1 Gross Interest on FDs as per F& L statement 29,29,371 2 Total investment in FDs as per Balance Sheet 3.39.71,566 3 Rate of Interest on investment of FDs (29,29,371/3,39,71,566 X100) 08.62% 4 Percentage of Net profit on Gross receitps as per P&L statement 29,29,371/97 ,94 ,297X100) 38.13% 5 Net profit attributable to the Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctible under Section 80P(2)(d) of the Act?" 8. 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 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced 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 cooperative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases..............". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act.(Paragraph-18 of the Judgment) 6. The Court finally concluded that it would not make a difference, whether the interest income is earned from investments/deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of the Judgment) 10. It can thus be seen that the ratio laid down by the Hon'ble Karnataka High Court in the case of Totalgars Cooperative Sales Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8. The Ld. A.R. submitted that the assessee is entitled to claim deduction allowable u/s 57 of the Act in respect of cost of funds and proportionate administrative and other expenses. In support of this submission, the Ld. A.R. placed reliance on the decision rendered by Hon'ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO (2015) 58 taxmann.com 35 (Karn). The Ld. A.R. submitted that the assessee in the above said case had put forth identical claim claim before Hon'ble Supreme Court in the case reported as Totgars Cooperative Sale Society Ltd. Vs. ITO (2010) 188 taxmann.com 282 and the Hon'ble Supreme Court, vide 14 of its order, had restored the question raised by the assessee to the file of Hon'ble High Court of Karnataka. Consequent thereto, the Hon'ble High Court of Karnataka has passed the order in the case reported in 58 taxmann.com 35 and held that the Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deduction in respect of proportionate cost, administrative expenses incurred in respect of such deposits. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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