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TMI Blog2018 (1) TMI 1670X X X X Extracts X X X X X X X X Extracts X X X X ..... e are two classes of businesses mentioned in the above clause. First class is those Co-operative societies carrying on business of banking and second class is Co-operative societies providing credit facilities to its members. Assessee falls in the second class. While holding that liberal interpretation has to be given for Sec.80P(2)(a)(i) of the Act, since said Section was enacted for encouraging its Co-operative Sector, their lordships took a view that interest earned by a Co-operative Societies providing credit facilities to its Associate Members would not be eligible for deduction u/s. 80P(2)(a)(i) of the Act. If interest earned from credits provided to Associate Members is not eligible for claiming the benefit of Section 80P(2)(a) (i) of the Act, it will nigh be impossible to give such benefit to interest earned on advances given to staff. Considering the view taken by Hon'ble Apex Court on the extent of applicability Sec. 80P(2)(a)(i) of the Act, on a Co-operative Society providing credit facilities to its members, the decision of Jaipur Bench of the Tribunal in the case of Jalwar Sahkari Bhoomi Vikas Bank Ltd . [ 2015 (3) TMI 1411 - ITAT JAIPUR] relied on by the ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned on the savings bank account is eligible for deduction under section 80P of the Income Tax Act. The assessee shall be permitted to furnish any further grounds of appeal during the course of hearing''. 2. Ld. Counsel for the assessee, alluding to the first ground submitted that assessee was a Co-Operative Society registered under Multi State Cooperative Society's Act, 2002. As per the ld. Authorised Representative, assessee had earned interest of ₹ 73,60,75,563/- from its members on loans given to them. Apart from this interest, as per the ld. Authorised Representative, assessee had also earned interest of ₹ 97,19,096/- on advances given to its staff. Further, as per the ld. Authorised Representative, Assessee also had deposits with its savings bank account which earned it an interest of ₹ 14,85,237/-. Contention of the ld. Authorised Representative was that interest of ₹ 97,19,096/- received from its staff on advances given to them was not allowed as deduction u/s.80P(2)(a)(i) of the Act. Contention of the ld. Authorised Representative was that such advances were given to employees as a matter of commercial expediency and hence such inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtue of judgment of Apex Court in the case of the Citizen Co-operative Society Ltd vs. CIT (Civil Appeal No.10245 of 2017, dated 08.08.2017), even interest received from loans given to associate members would not be eligible for deduction u/s.80P(2)(a)(i) of the Act. Hence, according to him, assessee's claim for deduction of interest received on staff advances was rightly disallowed by the lower authorities. 5. Viz-a-viz issue of bank interest, contention of the ld. Departmental Representative was that the interest received from savings bank account could not be considered as profits attributable to the business of providing credit facilities to the members of the assessee. As per the ld. Departmental Representative such interest was calculated by the ld. Assessing Officer after reducing the expenditure incurred by the assessee for earning such interest. Contention of the ld. Departmental Representative was that earning of such interest was totally independent from its activity of providing credit facilities to its members. Thus, according to him, assessee was not eligible for claiming deduction u/s.80P of the Act on such bank interest. 6. I have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, it will nigh be impossible to give such benefit to interest earned on advances given to staff. Relevant paras of the judgment of Hon'ble Apex Court is reproduced hereunder:- ''17) We have considered the submissions of the counsel for the parties with reference to the record of this case. 18) We may mention at the outset that there cannot be any dispute to the proposition that Section 80P of the Act is a benevolent provision which is enacted by the Parliament in order to encourage and promote growth of co-operative sector in the economic life of the country. It was done pursuant to declared policy of the Government. Therefore, such a provision has to be read liberally, reasonably and in favor of the assessee (See - Bajaj Tempo Limited, Bombay v. Commissioner of Income Tax, Bombay City-III, Bombay3). It is also trite that such a provision has to be construed as to effectuate the object of the Legislature and not to defeat it (See - Commissioner of Income Tax, Bombay Ors. v. Mahindra and Mahindra Limited Ors.4). Therefore, it hardly needs to be emphasized that all those co-operative societies which fall within the purview of Section 80P of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety is exempt from tax, then it has to be seen whether such income fell within any of the several heads of exemption. If it fell within any one head of exemption,.... It means that a co- operative society engaged in carrying on the business of banking and a co-operative society providing credit facilities to its members will be entitled for exemption under this sub-clause. The carrying on the business of banking by a cooperative society or providing credit facilities to its members are two different types of activities which are covered under this sub-clause. xx xx xx 13. So, in our view, if the income of a society is falling within any one head of exemption, it has to be exempted from tax notwithstanding that the condition of other heads of exemption are not satisfied. A reading of the provisions of section 80P of the Act would indicate the manner in which the exemption under the said provisions is sought to be extended. Whenever the Legislature wanted to restrict the exemption to a primary co-operative society, it was so made clear as is evident from clause (f) with reference to a milk co-operative society that a primary society engaged in supplying milk is entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilized to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act. 26) It is in this background, a specific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the Assessing Officer, our purpose would be served by taking note of the following portion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng credit facilities to its members. Except for stating that the bank account on which it had earned interest was maintained with Schedule bank to enable it to carry out day to-day business, nothing has been brought on record by the assessee to show how such bank account was used for its business. What I notice is that interest was earned was savings bank account and saving bank accounts are not generally used for regular business activity. Assessee was also unable to demonstrate that what was parked by it in its saving bank account was only temporary surplus. Coming to the decision of Bangalore Bench of the Tribunal in the case of M/s. KPTC HESCOM Employees Co-Op Credit Society Ltd (supra) strongly relied on by the ld. Authorised Representative, money which was deposited was surplus remaining with the concerned assesses since there were no takers for loans. Against this, as mentioned be me nothing was brought on record by the assessee to show that deposits in the savings bank were money meant for lending remaining surplus because there were no takers. In the circumstances, I do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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