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TMI Blog2024 (9) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee. We also find force in the submission of the learned Senior counsel, distinguishing the decision of the Supreme Court in M/s. The Totgars' Cooperative Sale Society Limited [ 2010 (2) TMI 3 - SUPREME COURT] on the ground that the Court in that case had found that the Society concerned had appropriated amounts forming part of surplus receipts which were due to its members, and invested the same to earn interest during the period when the surplus receipts were in its hands. The facts in the instant cases are entirely different and the investment concerned was of amounts that had already attained the character of surplus profits in the hands of the assessee. On this issue, therefore, we find ourselves in agreement with the view taken in The Vavveru Co-operative Rural Bank Ltd. [ 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT] and Tumkur Merchants Souharda Credit Co-operative Limited [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as follows: Whether on the facts and circumstances of the case and in law, Tribunal is justified in holding that the interest from surplus fund is Income from business and not Income from other sources ? By way of abundant caution, it is made clear that all the other issues decided by the judgment aforesaid in the Income Tax Appeals are not interfered with. 2. As noticed above, the sole issue that now arises for consideration in these I.T. Appeals is whether or not the income received by the respondent Society by way of interest, on deposits of surplus profits earned by it, would qualify for the deduction contemplated under Section 80P(2)(a) of the Income Tax Act [hereinafter referred to as the I.T. Act ] for profits and gains of business attributable to its activity of providing credit facilities to its members. The brief facts necessary for the disposal of these I.T. Appeals on this Question are as follows: 3. The respondent/assessee is a Co-operative Society engaged in the provision of credit facilities to its members. It is a Multi-State Co-operative Society registered under the Multi-State Co-operative Societies Act, 2002, the provisions of which Statute regulate its func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent of net profit to co-operative education fund to be maintained by the Central Government in such manner as may be prescribed and the proceeds from such fund shall be used for co-operative education and training through the National Cooperative Union of India and any other agency in such manner as may be determined by the Central Government; (c) transfer an amount not less than ten per cent to a reserve fund for meeting unforeseen losses. (2) Subject to such conditions as may be prescribed, the balance of the net profits may be utilised for all or any of the following purposes, namely:- (a) payment of dividend to the members on their paid-up share capital at a rate not exceeding the prescribed limit; (b) constitution of, or contribution to, such special funds including education funds, as may be specified in the bye-laws; (c) donation of amounts not exceeding five per cent, of the net profits for any purpose connected with the development of cooperative movement or charitable purpose as defined in section 2 of the Charitable Endowments Act, 1890 (6 of 1890); (d) payment of ex gratia amount to employees of the multi-state cooperative society to the extent and in the manner specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under Section 80P(2) of the I.T. Act. In this connection, he seeks to distinguish the judgment of the Supreme Court in M/s. The Totgars' Cooperative Sale Society Limited v. Income Tax Officer, Karnataka [(2010) 322 ITR 283 (SC)] by pointing out that in the said case, the Supreme Court had to consider the case of a Society that had appropriated amounts forming surplus receipts which were due to its members, and invested the same to earn interest during the period when the surplus receipts were in its hands. It is his submission that the factual situation in the instant cases is entirely different and the investment was of amounts that had already attained the character of surplus profits in the hands of the assessee. 6. Per contra, it is the submission of Sri. Jose Joseph, the learned Standing Counsel for the Revenue, that the interest earned on deposits and investments made, of the principal income which was entitled for the deduction under Section 80P(2) of the I.T. Act, would attract the levy of tax under the head of Income from other sources . This was because wherever the Legislature intended such interest income to also enjoy the benefit of deduction, it was expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee. 8. We also find force in the submission of the learned Senior counsel, distinguishing the decision of the Supreme Court in M/s. The Totgars' Cooperative Sale Society Limited (supra), on the ground that the Court in that case had found that the Society concerned had appropriated amounts forming part of surplus receipts which were due to its members, and invested the same to earn interest during the period when the surplus receipts were in its hands. It was therefore that the court found that the interest earned by the Society through deposit of such receipts with b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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