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TMI Blog2024 (11) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in Schedule-18 of the financials and has claimed the entire interest income as deduction u/s. 80P(2)(a)(i) / 80P(2)(d) of the Act. Further, the Ld. AO also observed that the aforesaid deposits / investments in cooperative banks / commercial banks are out of the surplus funds of the society. Further, the Ld. AO observed that any interest income arising from deposit / investment of funds in banks is in the nature of 'income from other sources' taxable u/s. 56 of the Act and cannot be categorized as 'income from profits and gains of business' of the assessee. The Ld. AO also observed that since the deduction u/s. 80P is available only for the profits and gains of the business of assessee ie., providing credit facilities to the members, the said deduction is not available to the interest income which is in the nature of 'other income'. Accordingly, a show cause notice dated 10/11/2021 was issued to the assessee wherein the assessee was asked to explain and justify its claim for allowability of deduction u/s. 80P of the Act. In response, the assessee filed its reply dated 26/02/2022 and 25/03/2022 and submitted, in toto, that the assessee society is entitled to deduction u/s. 80P on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deposits were made in the Krishna District Co-op. Central Bank Ltd., in compliance with the statutory regulation of AP Cooperative Societies Act. The assessee is not having any intention to gain any benefit from other sources. The Ld.AR further submitted that the facts relied on by the Ld. Revenue Authorities in the case of M/s. Totgars Cooperative Sale Society Ltd reported in 322 ITR 283 are entirely different from that of the instant case. The Ld. AR also submitted that as per Para-11 of the judgment in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) it is clearly mentioned that "this judgment is confined to the facts of the present case" and therefore it cannot be applied in the assessee's case, hence, eligible for deduction u/s 80P of the Act. He, therefore, pleaded to quash the order passed by the Ld. CIT(A)-NFAC and allow deduction u/s 80P of the Act. 5. Per contra, the Ld. DR argued that the Ld.CIT(A)-NFAC has rightly upheld the addition made by the Ld. AO as the assessee is not eligible to claim deduction u/s 80P of the Act. The Ld. DR, therefore, pleaded to uphold the order passed by the Ld. CIT(A) -NFAC and dismiss the appeal of the assessee. 6. I have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members u/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon'ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total income while computing the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression "attributable to" and not any one of the expressions viz., "derived from" or "directly attributable to". The Hon'ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd (supra) and dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside." 12. Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO also affirmed the same view by following the decision of the Hon'ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the jurisdictional H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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