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TMI Blog2016 (6) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... income earned on deposits made with banks by the appellant - HELD THAT:- It is not in dispute that the source of such income was due to the investment of surplus funds which the assessee did not require for its business activities. It is logical that when Revenue is permitted to assess the interest income u/s.56 by treating the income earned by way of interest as income from other sources, the assessee should be entitled for proportionate expenses incurred in mobilizing the deposits placed with banks/ cooperative societies. What can be taxed is only the net income earned after deducting the expenditure attributable to such earning. We accordingly direct the TPO to allow the allocation of expenses as per the method of calculation arrived by the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... under: A. Whether the assessee is eligible for deduction under section 80 P (2) (D) relating to income derived from investment in other co-operative societies. B. The availability of deduction of expenses under section 57 regarding income from other sources. 2.2 Be that as it may, on the basis of the order of the Hon'ble Delhi High Court, for assessment year 2008- 09, assessments relating to other assessment years were opened, under section 148 of the act, where there has been either an intimation under section 143 (1) or no order has been passed. In the meanwhile the Ld. CIT (A) decided the issue in other assessment years wide respective orders, the details of which are as under:- Assessment Year Date of order passed by Ld.CIT (A) 2004-05 30.11.2012 2005-06 13/11/2012 2006-07 13/11/2012 2007-08 13/11/2012 2008-09 15/02/2015 2009-10 13/11/2012 2010-11 18/10/2013 2.3 It has been further submitted that reopening of the assessment has been made under section 148 of the Act for assessment years 2004-05 to 2007-08. For assessment year 2008-09, the appeals before us have been initiated by the assessee against the consequential order passed by the Ld.CIT (A) on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion had no application to the facts of the present case, as was held in several decisions rendered by different High Courts subsequent to the decision in Totgar's case. 3. That, without prejudice, on the facts and circumstances of the case, the CIT(A) erred in law in failing to appreciate that the aforesaid interest income of Rs.97,28,027 constituted of interest of Rs.63, 74,470 received from commercial banks and interest of Rs.33,53,557 received from co-operative banks. 3.1 That, without prejudice, on the facts and circumstances of the case, the CJT(A) erred in law in not restricting disallowance under section 80P to interest income of Rs.63,74,470, being the amount of interest received from commercial banks, in view of the provisions of Section 80P(2)( d) of the Act, under which interest received from cooperative banks was admittedly allowable. 4. That, without prejudice, on the facts and circumstances of the case, the CIT(A) erred in law in not holding that the income of the appellant was not liable to tax on the principle of mutuality. 5. That, without prejudice, on the facts and circumstances of the case, the CIT(A) erred in law in holding that no deduction under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts, we are inclined to dispose of these appeals by way of a common order. 3. At the outset Ld. AR submits that issue relating to reopening, which has been raised for assessment years 2004-05 to 2007-08, is not pressed. He further submitted that ground No. 2 and ground No. 4 for assessment years 2004-05 to 2007-08 and assessment years 2009-10 to 2010-11, is against assessee as per the decision of Hon'ble jurisdictional High Court in assessee's own case for assessment year 2008-09 vide order dated 27/08/2014 in ITA No. 569/2013 and reported in (2014) 50 taxmaan.com 278, wherein Hon'ble court held as under: "6. No doubt, the term "attributable" is much wider than the term "derived from", but the question still remains, whether the interest income earned from the FDR's out of surplus funds, which were not to be made available and given as credit to the members, can be treated as income attributable to providing credit facilities to members. We need not day dilate on the said question as the issue was considered and stands answered by the Supreme Court in the case of Totgars' cooperative sale society Ltd VS.ITO (2010) 322 ITR 283/188 Taxman 282. In the said case, the assessee a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om investment in other co-operative societies? b) The allowability of deduction of expenses under section 57 regarding income from other sources." 4.1 It has been submitted by the Ld.AR that the assessee is engaged in the business of banking exclusively with its members by way of mobilising thrift money from them and providing credit facility exclusively to its members. The surplus / ideal funds lying with the assessee are parked with various commercial and cooperative banks that provide best returns on the funds. The income so generated on such bank deposits form part of the societies business profit, which is available for the benefit of the member of the society at large. The assessee operates both current account and saving bank account with these commercial and cooperative banks for the activity carried on by the assessee. He submitted that the entire interest, earned on advances made to the members and interest from bank FDR's are from investments with co-operative bank/societies, investments with commercial banks, and interest paid on deposit to members. He submitted that the assessee's business is twofold:- (i) it is into promotion of savings by inculcating saving hab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activity of the society, namely carrying on the business of providing credit facilities to its members. When the assessee society provides credit facilities to its members and it earns interest there from, is eligible for deduction u/s 80-P(2)(a)(i), which has been allowed by the A.O. himself. 6.2 On a plain reading of the clause (d) sub-section (2) of Section 80-P, it can be stated that the intention of the Legislator is to encourage the idea of Co- operative Societies to help its own members as well as other such Co-operative Societies to grow economically, through credit facilities New Delhi investments, etc. The whole idea of Cooperative movement is based on economic upliftment of certain core areas like agriculture, milk produce cottage industries and similarly placed groups, so to speak, so that the combined resources of such groups are pooled in to strengthen their economic conditions and help them grow in the respective activities. The underlying principle herein is not to earn profits by treating its activity as a commercial venture, but to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 694 37,81,186 200,16,014 2008-09 461,96,615 1,-2,301 142,09,162 248,56,264 2009-10 505,50,726 98,175 167,65,320 288,98,915 1010-11 526,41,687 77,79,354 134,00,129 325,78,394 8. Applying the legal provision u/s 80P to the gross total income earned as enumerated in the chart, we hold that the Assessing Officer was right in allowing the deduction u/s 80P only to the extent of interest earned from members who availed the credit facility. Further from the column of interest earned from investments with Co-operative Banks / Societies, the assessee has neither been able to establish before us nor before the authorities below that interest has been earned exclusively from investment with other cooperative banks. 8.1 Accordingly ground No. 3 for assessment year 2004-05 to 2007-08, 2009-10, 2010-11 and ground No. 1 for assessment year 2008-09 stands dismissed.. 9. The next issue relates to the allowability of deduction of expenses under section 57 of the act incurred by the assessee in relation to earning of interest income. 9.1 The ld. AO disallowed the expenditure on the ground that there was no direct correlation between the expenditure incurred and the interest incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . iii) It has been submitted that the above analogy is drawn and materia with the income computed for deduction under section 80P(2)(d) on net basis. 10.1 It has been submitted by the Ld. A.R. that the interest paid has been bifurcated in the ratio of deployment of funds in credit facility to member and funds deployed in FDR. He submitted that's to complete the fund deployed in a particular segment, the monthly average outstanding has been taken. He thus submitted that the assessee on the same basis has allocated the overhead expense among the two activities. 11. We have perused the orders passed by the authorities below and the judgment relied upon by the assessee. It is not in dispute that the source of such income was due to the investment of surplus funds which the assessee did not require for its business activities. It is logical that when Revenue is permitted to assess the interest income u/s.56 of the Act, by treating the income earned by way of interest as income from other sources, the assessee should be entitled for proportionate expenses incurred in mobilizing the deposits placed with banks/ cooperative societies. What can be taxed is only the net income earned afte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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