TMI Blog2006 (8) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and the circumstances of the case of the ld. CIT(A) erred in law and in facts in directing the Assessing Officer to allow deduction under section 80P(2)( d ) of the I.T. Act of Rs. 1,26,00,000 (for assessment year 1997-98) Rs. 1,44,76,616 (for assessment year 1998-99) being gross dividend and interest received by the assessee on investments with other co-operative Societies and Banks instead of net dividend and interest i.e., after reducing expenses and interest paid on loans taken for raising such investments. 2. On the facts and the circumstances of the case of the ld. CIT(A) erred in law and in facts in holding that the decision of the Hon ble Rajasthan High Court in the case of CIT v. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. 215 ITD 448 is not applicable to the assessee s case. 3. On the facts and the circumstances of the case of the ld. CIT(A) erred in law and in facts in directing the Assessing Officer to consider the interest income of Rs. 1,98,722 (for assessment year 1997-98) Rs. 4,33,683 (for assessment year 1998-99) for deduction under section 80P(2)( d ), without considering the expenses incurred for earning this income." 3. The assessee has raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks. The said income was shown by the assessee as income from other sources. The assessee claimed that there is no netting of interest received and paid as there is no nexus between the funds invested and borrowings made. The assessee claims to have invested its surplus funds against which the interest and dividend income have been received from Co-operative Societies and Co-operative Banks. Against the said interest and dividend income received by the assessee, during the year under consideration, deduction was claimed under section 80P(2)( d ) of the I.T. Act. The Assessing Officer disallowed the claim of the assessee relying on the decision of the Hon ble Rajasthan High Court in CIT v. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. [1995] 215 ITR 448. Before the CIT(A), it was claimed by the assessee that the ratio of judgment in the case of Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. ( supra ) was not applicable to the facts of the case as the assessee was maintaining separate accounts of its various departments and there is no composite account of its income. It was further claimed by the assessee that the interest and dividend income derived from Co-operative Societies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintaining separate accounts department-wise, there is no merit in applying the ratio laid down by the Hon ble Rajasthan High Court in Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. s case ( supra ) to the facts of the present case. Further, it was also submitted by the learned AR that the assessee had utilized its surplus fund for making the aforesaid investment on which the assessee had earned interest and dividend, which was claimed as a deduction under section 80P(2)( d ) of the I.T. Act. 6. We have heard the rival submissions and perused the records. The scope of section 80P(2)( d ) of the Act is to allow a deduction in the computation of total income of a Co-operative Society in respect of incomes earned by the society as enumerated in sub-section (2) to section 80P in sub-clauses ( a ) to ( f ). Under clause ( d ) to section 80P(2), it is provided that where the gross total income of an assessee being a co-operative society includes income by way of interest or dividend derived by the co-operative societies from its investment with any other co-operative society, the whole of such income shall be deducted while computing the total income of the assessee. The provisions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preserving, storing and marketing of fish or purchase of material and equipment in connection therewith for the purpose of supplying to its Members and also consumer co-operative societies and co-operative societies engaged in supplying milk, oil, seed, fruits or vegetables to other societies or Government bodies. In addition to the profits and gains earned by the co-operative societies, it has also been provided under clause ( d ) to section 80P(2) that the income earned by co-operative society by way of interest and dividend on its investment with any other co-operative society is exempted under the provisions of section 80P of the IT Act. The deduction is granted categorically to "the whole such income" meaning thereby the total interest or dividend received by the co-operative society from its investments made with any other co-operative society are entitled to the deduction under section 80P of the I.T. Act. Under clause ( e ) to section 80P(2) of the I.T. Act, the income earned from letting of godown or warehouses for the purpose of storage, processing or facilitating the marketing of commodities by a co-operative society is exempt from tax. 7. The assessee is a co-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reliance by the learned DR on the decision of the Hon ble Bombay High Court in Maganlal Chhaganlal (P.) Ltd. s case ( supra ) is misplaced as the ratio laid down in the aforesaid case is based on the factual position that the monies were borrowed for investment, wherein dividend was earned and it was held that while allowing the deduction under section 80M of the I.T. Act, full dividend amount received by the assessee is not to be allowed as a deduction but only after deducting interest on monies borrowed for earning such income. As provided in section 80P(2)( d ) of the Act, the word whole of such income very clearly signifies the total income earned by way of interest and dividend and there is no scope for co-relating such income earned with interest paid on borrowed funds in the absence of any nexus to prove that such investments have been made out of borrowed funds. Accordingly, we confirm the order of CIT(A) and dismiss the ground Nos. 1 and 2 filed by the revenue is assessment years 1997-98 and 1998-99. 8. The issue in ground No. 3 raised by the revenue is with regard to the interest income accruing to the assessee amounting to Rs. 1,98,722 relatable to assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )( iii ) of the I.T. Act, on the income in respect of marketing of agricultural produce to its Members. The aforesaid amount was raised in the cross-objection as the assessee had challenged the retrospective amendment to the aforesaid section with effect from 1-4-1968 and the matter was subjudiced before the Courts. The learned AR for the assessee fairly conceded that the issue is decided against the assessee in view of the decision of Hon ble Supreme Court in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [2003] 260 ITR 548, wherein the retrospective amendment of provisions were held to be valid and within legislative competenance of the Parliament. The first ground in both the cross-objections are dismissed as not pressed. 10. The second ground raised in cross-objections is against the disallowance under section 80P(2)( e ) by reducing the miscellaneous income from the rental income received by the assessee. The second ground raised in the cross-objection is also not pressed by the revenue and hence dismissed as not pressed. 11. In the result, the both the appeals filed by the revenue being ITA Nos. 2859 and 2860/Mum/2003 are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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