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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 ..... Question No.2, which was answered in favour of the revenue and against the assessee by this Court while disposing I.T.A.No.68 of 2017 and connected cases. On hearing Advocate A. Kumar, the learned counsel for the assessee and Sri. Jose Joseph, the learned Standing counsel for the Income Tax Department, we are of the view that the legal issue involved in Question No.2 that was raised in the Income Tax Appeals requires to be considered on merits and for enabling a consideration of the same, the judgment dated 10.11.2022 in I.T.A.No.68 of 2017 and connected cases is recalled to the limited extent that it decides Question No.2 referred therein. The Income Tax Appeals are directed to be posted before this Court for consideration of Question No.2 on merits. Question No.2 reads 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee Society shall, inter alia, out of its net profits in any year, transfer an amount not less than 25% to the reserve fund and subject to such conditions as may be prescribed, the balance of the net profits may be utilised for all or any of the purposes stipulated in sub clause (2) of Section 63. Similarly, the assessee Society is also permitted to invest or deposit its funds in any of the modes specified in Section 64 of the Multi-State Co-operative Societies Act. The provisions of Sections 63 and 64 of the Multi-State Co-operative Societies Act read as follows: "63. Disposal of net profits - (1) A multi-state cooperative society shall, out of its net profits in any year- (a) transfer an amount not less than twenty-five per cent, to the reserve fund; (b) credit annually one per 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kur Merchants Souharda Credit Cooperative Limited v. The Income Tax Officer - [I.T.A.No.307 of 2014], the decision of the Calcutta High Court in Principal Commissioner of Income Tax Asansol v. Gunja Samabay Krishi Unnayan Samity Ltd. - [2023 (1) TMI 783] and the decision of the Karnataka High Court in Lalitamba Pattina Souharda Sahakari Niyamita v. The Income Tax Officer, Ward-1 Gadag - [2018 (3) TMI 224], it is the contention of the learned Senior counsel that in as much as the investment of surplus profits was in accordance with the statutory prescriptions under the Multi-State Co-operative Societies Act, the interest earned on the deposits continued to retain the character of profits of business attributable to the activity of providing credit facilities to its members, and hence, there was no justification to deny the assessee the benefit of deduction 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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