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TMI Blog2023 (9) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... ain interest income to be set off against the interest payable to the member/depositors. Parking of funds by the assessee with banks in the form of fixed deposits to earn interest income is part and parcel of the business of providing credit facilities to its members. Assessee has received the deposits from its members only which are subjected to interest charge. In the case of Totgars Co-operative Sale Society Ltd. [ 2010 (2) TMI 3 - SUPREME COURT] an important fact which has been noted is that assessee had invested the fund on short term basis since they were not required immediately for business purposes. In the present case, the funds available are for the business purpose of providing credit facilities to its members. It is only because in a given point of time, there is no demand for loan that they have been parked with the banks as fixed deposit. The only fund available with the assesses are out of deposits from its members and there is no surplus funds as such. This fund of the assessee is the operational fund. By taking into consideration the revisionary proceedings in the assessee s own case for the immediately preceding assessment year on identical set of facts whereby L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plus a provision of Rs. 1,73,221/-, totalling to Rs. 48,29,771/-. 3.1. Assessee explained its case in respect of deduction u/s. 80P which included this interest income. However, Ld. AO held that interest income is not part of its operational business income but is an income from other sources, not deductible u/s. 80P of the Act. While holding so, he placed reliance on the decision of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO, [2010] 188 Taxmann 285 (SC) as well as decision of Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. [2011] 11 taxmann.com 488 (P&H) as also of Hon'ble High Court of Gujarat in the case of State Bank of India Vs. CIT [2016] 72 taxmann.com 64 (Guj.). Ld. AO thus, by observing that assessee regularly invested funds not immediately required for business purposes, disallowed the claim and made an addition of Rs. 48,29,721/- as income from other sources. Aggrieved, assessee went in appeal before the Ld. CIT(A). 4. Before the Ld. CIT(A), assessee made a detailed representation, distinguishing the application of decision of Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort term deposit/securities was arrived from sales consideration of agricultural produces of its members which was retained and was payable to its members therefore to the extent such interest income cannot be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Income Tax Act, 1961 and taxable under section 56 of the Income Tax Act, 1961. Whereas your assessee, the amount invested in banks to earn interest was not an amount due to its members. This amount is profit and gains in nature and was not immediately required by your assessee for lending money to its members as there is no taker. So the interest income attributable to carry on the business of banking and therefore is liable to be deductible u/s. 80P(2)(a)(i) of the Act." 4.2. While dropping this revisionary proceeding for AY 2014-15, ld. PCIT held that decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra) is not applicable in the facts of the case. The observations so made are reproduced as under: "14. I have heard the case and gone through the facts and circumstances of the case as well as records available and judicial pronouncements referred the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of 'income from other sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer... " 6.2. In this regard, Hon'ble Supreme Court observed that - "(On page 286) 7…. Before the assessing officer, it was argued by the assessee(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o surplus funds. 19.4. While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1.) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; -in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds;" 7. Per contra, Ld. Sr. DR placed reliance on the orders of authorities below wherein decision of the Hon'ble Supreme Court has been dealt with effectively. 8. Considering the facts of the present case and the submissions made before us, we find force in the arguments of the Ld. Counsel for the assessee. We not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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