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TMI Blog2024 (6) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled for deduction u/s 80P of the Income Tax Act-1961? 4] Appellant pray to kindly allow to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal." 3. The appellant is a credit co-operative society engaged in the business of banking ONLY. The Appellate society is not carrying out any other activities except the banking business activities. During the relevant year, Assessment proceedings were carried out u/s 143(3) wherein the learned Assessing Officer observed that the Appellate has earned interest income of Rs.99,94,363/- on its investment with other banks as under; Sr.No. Name of the bank Rs. 1. Yavatmal Urban Co-operative Bank -FDR 54,20,823 2 Nagpur District Co-operative Bank - Reserve Fund 56,957 3 Nagpur District Co-operative Bank - FDR 26,67,183 4 Dharampeth Mahila Bank - FDR 5,04,650 5 Pusad Urban Co-operative Bank - FDR 13,44,339 TOTAL Rs. 99,94,952 Net surplus of the Assessee society was of Rs.74,00,363/- which was claimed as deduction u/s 80P. Assessee claimed deduction u/s 70P of Rs.74,00,363 under Section 80P(2)(a)(i) and u/s 80P(2)(a)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the interest income of the Appellant is eligible for deduction u/s 80P(2)(a)(i). Since the investment is done in the course of the business of banking only, the same is liable to be taxed as business income only. 3. Whether on the facts and circumstances of the case, learned assessing officer is right in holding that the Appellant is not entitled for deduction u/s 80P of the Income Tax Act-1961? Appellant is eligible for deduction not only Section 80P(2)(a)(i), but also Section 80P(2)(d). The issue has been decided in various judicial pronouncements. 6.2 Deduction u/s 80P(2)(a)(i) : (a) That, the Appellant is a credit co-operative society engaged in the business of banking and also providing credit facilities to its members, which is eligible for deduction u/s 80P. Scope of Section 80P : a) The relevant part of section 80P is reproduced herewith: 80P. Deduction in respect of income of co-operative societies. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. 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 retention was not Assessing Officer was right in taxing the interest income, indicated above, under Section 56 of the Act. ......... ..... In this particular case, the evidence shows that the assessee Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of "Other Income" which has been rightly taxed by the Department under Section 56 of the Act." (b) With above factual position of the case, it is respectfully submitted that the case of Totgars Co-operative Sales Ltd. Vs ITO (2010) 188 Taxman 282 (SC) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deposit Ratio) i.e., ratio of Loans to Deposit as per the guidelines of the Registrar of the Societies which is the regulating authorities for the societies in Maharashtra. CD Ratio means how much a society lends out of the deposits it has mobilized and remaining amount is to be kept ready to cater the needs of the depositor who may withdraw their deposits at the maturity term or on Demand basis. The CD Ratio plays an important role in deciding the "Credit Rating" of the society also and the depositors often make the investment by checking the Rating of the societies. Hence, liquidity is maintained either by keeping in invested in Deposit or in saving account with any other bank, thus it is part of working capital of the society. Appellant society is only engaged in the activity of banking only. There is no other activity or business in which the Appellant society is engaged except the business of banking. (h) Since, the Appellant society is not engaged in any other activities or business, entire income is taxable as "Income from Business & Profession" only. There is no reason to treat the income from bank FDR as "Income from Other Source". Your kind honour will appreciate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Bank Ltd vs CCIT, Buchireddy Palem Co-operative Rural Bank Ltd vs CCIT. It was also distinguished by the Pune ITAT in the case of Sindhudurg Zilla Madhyamik Adhyapak Sahakari Patpedhi Maryadit, Sindhudurg vs. ITO. All this judgment observed that in Totgars Co Operative Society, Assessee was carrying two businesses viz. Trading and giving finance to members. The surplus funds from which activity is invested in bank deposit were not possible to be known and hence, the same may be treated as income from other source. In the present case, the Appellant society is engaged only in one business activity of providing finance to its members and hence, the decision of Totgars is not at all applicable. 6.4 CBDT CIRCULAR ON TAXATION OF INTEREST INCOME : Interest income from the Bank FDR has been accrued in the "course of the Business of Banking" and is "Attributable to" the business of banking as per the stipulation of Section 80P. Appellant would humbly like to submit that the word "attributable to" is certainly wider in import than the expression 'derived from'. Whenever the Legislature wanted to give a restricted meaning, they have used the expression 'derived from'. The exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Total income offers the deduction for the following. (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income; It is very respectfully submitted that there is no specific or general exclusion to the co-operative bank from section 80P(2)(d) of the Income Tax Act-1961. The appellant may be granted deduction u/s 80P(2)(d) as it is not dependent on the heads of income and categorically provides deduction towards interest received from other co-operative societies. It is most humbly submitted that the specific exclusion was provided in the year 2006 only for the purpose of section 80P(4) to the cooperative bank. As a result of amendment in 2006, Co-operative society working as a bank are not eligible for deduction u/s 80P. Further, another amendment was carried out in the year 2015 in Section 194A whereby interest paid by the co-operative bank to its members was excluded from the purview of TDS exclusion and the members of the co-operative bank. As a result, the interest payment by co-operative society working as a bank is required to do TDS on inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 05.01.2017. Hence, keeping in view the provisions of the Act and the judgments of the Hon'ble High Court and Supreme Court in the case of Totgars Co-operative Sale Society Ltd., we hereby hold that the Appellant is eligible for deduction u/s 80P(2)(d) on the income earned by way of interest from the co-operative societies". [Para 18, 19 and 20] (d) The same view has been affirmed in the following cases as well : (i) M/s Solitaire CHSA Ltd vs. Pr.CIT-26, Mumbai, ITA No. 3155/Mum/ 2019, dated 29.11.2019. (ii) Land and Cooperative Housing Society Ltd. Vs. ITO (2017 46 CCH 52 (Mum) (iii) M/s. C. Green Cooperative Housing and Society Ltd Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017). (iv) Marvwanjee Cama Park Cooperative Housing Society Ltd Vs. ITO-Range 20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017). (v) Kaliandas Udyog Bhavan Premises Co-op. Society Ltd Vs. ITO, 21(2)(1) Mumbai. (vi) M/s Petit Powers Co-op. Housing Society Ltd vs ITO (ITA No. 549/MUM/2021) (vii) Jai Hind Co-operative Housing Society Ltd vs. ACIT-25(2) (ITA No. 1762 & 1763/Mum/2020) (viii) M/s Vadasinor Pragati Samaj Co-operative Credit Society Ltd vs PCIT- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower authorities in view of the fact that interest from fund not required immediate for business purposes is not eligible for deduction under Section 80P. 9. Upon hearing both the counsel and perusing the record, we find that the issue involved is covered in favour of the assessee by a catena of decisions from ITAT as well as a decision of jurisdictional High Court. In this regard we may gainfully refer the Hon'ble Jurisdictional High Court decision in the case of CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. 182 Taxman 231 wherein the following question was raised. "Whether the interest income received by a Co-operative Bank from investments made in Kisan Vikas Patra ('KVP' for short) and Indira Vikas Patra ('IVP' for short) out of voluntary reserves is income from banking business exempt under Section 80P(2)(a)(i) of the Income Tax Act, 1961?" After considering the issue, the Hon'ble Jurisdictional High Court has concluded as under : "12. Therefore, in all these cases, where the surplus funds not immediately required for day-to-day banking were kept in voluntary reserves and invested in KVP/IVP, the interest income received from KVP/IVP would be income from banking bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :- "19. The issue dealt with by the Hon'ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts as under : What is sought to be taxed under section 56 of the Act is interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for business purposes? The assesse(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 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....." 19.1 However, in the present case, on verific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source : Balance Sheet of the assessee available on record]. 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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