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TMI Blog2024 (7) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... e ratio of judgment of Supreme Court in the case of Totgars Co-operative sales Society reported in 322 ITR 283(SC) which are distinguishable on fats of the Appellant's case. a) The Appellant has earned interest from investment of its operational funds used in business of investing and lending to members and not by investing surplus funds in short term deposits and: b) The Appellant is a Cooperative society and not engaged in marketing of agriculture produce: 4. The learned Commissioner of Income Tax(Appeals) erred in considering interest income earned by the Appellant from investment into other co operative societies as taxable under the head "Other sources" and not "Business income"; thus rending deduction u/s 80P(2)(d) not applicable. 5. The learned Commissioner of Income Income-tax (Appeals) erred in not considering Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co- operative Ltd. V. Income Tax officer ward-v, Tumkur reported in 120151 55 taxmann.com 447 and Bangalore ITAT decisions in the case of Totagars Co- op sale Society, Sirsi vs The Asst. Commissioner of Income tax, circle-l{l) & TPS, Hubli in ITA No.376 to 379/Bang/2023 where interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Cooperative Societies Act, then it is not a bank per se governed by RBI. 8. The Appellant craves leave add, alter, delete or substitue any of the grounds urged above. 9. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity." 3. Briefly stated the facts of the case are that the assessee filed return of income on 10.2.2021 assessing income at Nil after claiming deduction u/s. 80(P)(2)(a)(i) of the Act of Rs. 2,22,13,125. The case was selected for scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings the assessee filed reply to the notices. From the documents the AO noticed that the assessee society has invested surplus finds with the co-operative bank/nationalised bank/shares and received interest/dividend on the said investment amounting to Rs. 1,81,72,951. The AO noted that the amount invested by the assessee in cooperative bank is not a cooperative society. Therefore deduction u/s. u/s. 80P(2)(d) of the Act cannot be allowed on the said interest income. The AO also held that the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of providing credit facilities to its members and providing financial aids as well as agricultural implements, seeds, fertilizers, pesticides etc. The assessee has earned interest on investments out of its operational fund used in business of lending to its members and not by investing surplus funds in short term deposits. The ld. CIT(A) has wrongly applied the judgment of Hon'ble Apex Cout in the case of Totgars Co-operative Sale Society [2010] 322 ITR 283 and not considered that investment in co-operative bank is a statutory requirement under Karnataka Cooperative Societies Act, 1959. Hence it is attributable to carrying on of business and society is eligible for deduction u/s. 80P(2) of the Act. He further submitted that interest income earned should not be taxed under the head income from other sources and it should be considered as business income. Even the assessee has not been granted deduction u/s. 80P(2)(d). The ld. CIT(A) has also not decided the issue in the light of Hon'ble Supreme Court judgment in the case of Kerala State Cooperative Agricultural and Rural Development Bank Ltd. in Civil Appeal No.10069/2016, order dated 14.09.2023 in which it has been h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Totgars' Co-operative Sales Society Ltd. (supra) and Hon'ble 10. During the course of hearing, the Ld.AR of the assessee relied on the Circular No. 18/2015 dated 02.11.2015 and submitted that as per the provisions of the Karnataka Co-operative Societies Act, the assessee is required to maintain SLR from the deposits received from the members and has to invest 100% from the general reserve and 25% from the deposits collected from members as per rule 28 of the Karnataka Cooperative Society Rules 1960. Accordingly, assessee has invested in the fixed deposits. As per the circular, the income received from the investments should be treated as business income u/s. 28 and assessee is eligible to make a claim of deduction u/s. 80P(2)(a)(i) as business income. Further, the assessee also submitted that the investments were made in co-operative banks which are co-operative society. It is submitted by the ld. AR that interest received on such investments are to be allowed for deduction u/s. 80P(2). In support of his argument, the assessee relied on the following decisions: (i) Mavilayi Service Co-op. Bank Ltd. [2021] 123 taxmann.com 1 (SC). (ii) Tumkur Merchants Souharda Credit Co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered it as income u/s 56 of the Act. As per our considered opinion, going by the rule of literal interpretation that has to be adopted while construing the scope and gamut of a statutory provision, the same does not merit acceptance. As Section 80P(2)(a)(i) does not carve out any exception as regards the applicability of the same in a case where the investments are made under compulsion or as per any direction from Registrar of co-operative society, the aforesaid contention of the Ld. AR that the same could be considered for deduction u/s. 80P(2)(a)(i) cannot be accepted. This view of ours that statutory provision has to be construed as per the rule of literal interpretation is supported by the judgment of the Hon'ble Supreme Court in the case of New Noble Educational Society v. Chief CIT [2022] 143 taxmann.com 276/[2023] 290 Taxman 206/[2023] 448 ITR 594/[CA No. 3793 to 3795 of 2014 dated 19-10-2022]. The Hon'ble Apex Court observed that if the language is unambiguous and capable of only one meaning, that alone should be applied and not any other, based on the surmise that the legislature intended it to be so. In other words, it is only in case of ambiguity that the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Apex Court then the assessee is not eligible to get deduction u/s. 80P(2)(d) on such interest income received from co-operative banks, therefore this issue is also remitted back to the AO for verification of interest received from co-operative bank in above terms. If AO finds that the co-operative bank is carrying its banking business activities in the light of the above judgment, the deduction u/s. 80P(2)(d) on such interest income should not be granted. 14. We further note that the assessee has received interest from other co-operative banks/commercial banks on its investments. The revenue authorities have considered the entire interest as income from other sources u/s. 56 including the interest received from co-operative bank and expenses u/s. 57(iii) has been allowed to the assessee for earning of such income to the extent of Rs. 86,79,382/-. While calculating the income, the net income should be considered as taxable income after reducing the expenditure incurred towards earning of such income. Before us, the ld. AR of the assessee has produced a computation sheet in which he has calculated cost of funds showing loss from investments of Rs. 14,67,949/- but this has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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