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TMI Blog2019 (8) TMI 1878X X X X Extracts X X X X X X X X Extracts X X X X ..... ome earned by the assessee is from carrying on its business activities. Once it is so, then the said income is assessable as Income from business and the assessee is entitled to claim deduction under section 80P(2)(a)(i) - Decided in favour of assessee. - Shri D. Karunakara Rao, AM And Shri Vikas Awasthy, JM For the Assessee : Shri M.R. Bhagwat. For the Revenue : Mrs. Shabana Parveen. ORDER PER VIKAS AWASTHY, JM : This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-4, Pune dated 23-03-2017 for the assessment year 2014-15. 2. The Revenue has raised following grounds in the appeal : 1. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) has erred in holding that the assessee society was eligible for deduction u/s. 80P of the I.T. Act in respect of interest income on deposits with non co-operative banks. 2. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) has erred in ignoring the Hon'ble Apex Court's decision in the case of Totgar's Co-operative Sale Society Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Totgar Co-operative Sale Society Ltd. Vs. ITO (supra). In the facts of the said case, the assessee before the Hon ble Apex Court was a co-operative society providing credit facilities to the members or marketing agricultural produce of its members. The assessee had parked its funds in short term bank deposits and securities and the interest earned on the same was claimed as deductible under section 80P(2)(a)(i) of the Act. The Revenue authorities held that the same was taxable under the head income from other sources . The claim of the assessee was that it had invested the funds on short term basis as these were not required immediately for business purposes and consequently, interest received by the assessee was eligible for deduction under section 80P(2)(a)(i) of the Act. Further, the contention of the assessee before the Court was that under regulations 23 and 28 r.w.s. 57 and 58 of the Karnataka Co-operative Societies Act, 1959, a statutory obligation was imposed on cooperative credit societies to invest its surplus funds in specified securities and in view of the aforesaid statutory obligations, the above mentioned investment was made by the assessee and the same was in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), the assessee cooperative society was engaged in the activity of carrying on of business of providing credit facilities to its members and it had earned interest income on its deposits. Another fact noted by the Hon ble High Court of Karnataka was that the amount which was invested in banks to earn interest was not the amount due to any members and it was not the liability of the assessee. In fact, the said amount was in the nature of profits and gains, which was not immediately required by the assessee for lending money to the members as there were no takers and the assessee in such circumstances, deposited the money in bank so as to earn interest. The Hon ble High Court of Karnataka in such circumstances held that the interest income was attributable to carrying on of business of banking and therefore, it was liable to be deducted in terms of section 80P(1) of the Act, they took note of insertion of section 80P(4) of the Act, which was applied by the Assessing Officer to deny the deduction under section 80P(2)(a)(i) of the Act. The Hon ble High Court of Karnataka referred to the judgment of Hon ble Apex Court in Totgar Co-operative Sale Society Ltd. Vs. ITO (supra) and poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The surplus amount which was on account of amount received from its members only, which had not been advanced to any of the members was invested in the banks, against which the said investment was made out of surplus funds available with the assessee, which in turn, were amounts advanced by the members itself. The said parking of funds with the co-operative banks was claimed by the assessee to be in the nature of its business activity as it was the requirement of Maharashtra Co-operative Societies Act, 1960, that 20 to 30% of total deposits are to be parked in the investments with co-operative banks. It is not the case of the Department that the amount invested by the assessee was out of any liabilities due by the assessee. In the absence of the same and following the same parity of reasoning laid down by the Hon ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (supra) and the facts of the present case being at variance to the facts before the Hon ble Supreme Court in Totgar s Co-operative Sale Society Ltd. Vs. ITO (supra), we hold that the assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. In the alterna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative Agricultural Development Bank Ltd. (2016) 389 ITR 607 (P H) has remanded the issue back to the Tribunal to decide whether the assessee was carrying on business of banking and thereafter, decide the issue of eligibility of deduction under section 80P(2)(a)(i) of the Act on the interest income attributable to the business of banking. 17. However, we find that the Hon ble High Court of Gujarat in State Bank of Income Vs. CIT (supra) while deciding similar issue of eligibility of deduction under section 80P(2)(a)(i) of the Act on interest income from deposits of surplus funds in banks held that neither it was business income nor income from investment in any other Co-operative societies. It may be pointed out that the Hon ble High Court in para 16 has clearly noted that in the said case, there was no obligation upon the assessee to invest its surplus funds with the State Bank of India. It was further observed that investing surplus funds in a bank is no part of the business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India being attributable to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which it has done. There is no dispute to the same. The second aspect is the utilization of funds in reserve funds by way of making FDRs with Scheduled bank under section 70 of the said Act. The assessee has received permission of the Registrar of Maharashtra Cooperative Societies Act to make such investment with Bank of Maharashtra and also in order to carry on the business activities of providing credit facilities to its employees, it is mandatory upon the assessee to invest 25% of its profits in the reserve funds, which in turn, are parked in FDRs with Bank of Maharashtra, then interest income earned by the assessee is from carrying on its business activities. Once it is so, then the said income is assessable as Income from business and the assessee is entitled to claim deduction under section 80P(2)(a)(i) of the Act. Accordingly, we hold so. However, the assessee is not entitled to claim the said deduction on Saving Account interest. 19. Before parting, we may also refer to the order of Tribunal in assessee s own case in ITA No.490/PN/1999, relating to assessment year 1996-97, order dated 25.08.2005, wherein similar issue was decided by the Tribunal in turn, referring ..... X X X X Extracts X X X X X X X X Extracts X X X X
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