TMI Blog2018 (3) TMI 1576X X X X Extracts X X X X X X X X Extracts X X X X ..... PER SUSHMA CHOWLA, JM: Both the appeals filed by assessee are against separate orders of CIT(A)-7, Pune, both dated 14.10.2016 relating to assessment years 2013-14 2012-13 against respective orders passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. Despite service of notice, none appeared on behalf of assessee nor any application was moved for adjournment. However, we find that the issue raised in present appeals is squarely covered by the order of Tribunal and hence, the appeals were taken up for hearing and we proceed to decide the same after hearing the learned Departmental Representative for the Revenue. 3. Both the appeals relating to assessee on similar issues were heard together and are being disposed of by this consolidated order for the sake of convenience. In order to adjudicate the issues, reference is being made to the facts in ITA No.50/PUN/2017, relating to assessment year 2013-14. 4. The assessee in ITA No.50/PUN/2017, relating to assessment year 2013-14 has raised the following grounds of appeal:- Learned A.O. Ward 1(3) Pandharpur as well Hon.C.I.T(Appeal)-7, Pune is not justified for following: 1. To t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Totgar s Co-operative Sale Society Ltd. Vs. ITO (2010) 322 ITR 283 (SC) held that interest income was to be taxed as Income from other sources under section 56 of the Act and was not eligible for deduction under section 80(P)(2)(a) of the Act. 7. Before the CIT(A), the assessee made elaborate submissions. The CIT(A) upheld the order of Assessing Officer, in view of the ratio laid down by the Hon ble High Court of Delhi in Mantola Co-operative Thrift Credit Society Ltd. Vs. CIT (2014) 50 taxmann.com 278 (Del) and the Hon'ble Supreme Court in Totgar s Co-operative Sale Society Ltd. Vs. ITO (supra). Reliance of assessee on the decision of Pune Bench of Tribunal in Niphad Nagari Sahkari Pat Sanstha Maryadit in ITA No.1336/PN/2011, order dated 31.07.2013 and also Mahesh Nagari Sahkari Pat Sanstha Ltd. Vs. ITO in ITA No.2180/PN/2013, order dated 13.05.2015, in which the Pune Bench of Tribunal had considered interest earned on fixed deposits even with nationalized banks as business income and allowed the aforesaid deduction, was rejected. 8. Against the order of CIT(A), the assessee is in appeal before us. However, none appeared on behalf of assessee on the appointed date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society or may, subject to provisions of section 70, be invested, as the State Government may by general or special order direct or may, with the previous sanction of the State Government be used in part for some public purpose to promote the objects of the Act or some such purposes of the State Government or of the local interest. Section 70 of the said Act lays down that society shall invest or deposit its funds in one or more of the investments provided in clauses (a) to (e) thereunder. We are concerned here with clause (d) to section 70 of the said Act, which reads as under:- 70 (a) . (b) . (c) (d) in any co-operative bank (other than those referred to in clause (a) of this section) or banking company approved for this purpose by the Registrar, and on such conditions as the Registrar may from time to time impose: (e) .. 12. Reading the provisions of Maharashtra Co-operative Societies Act, it is incumbent upon the society which is making profits to park one-fourth of its profits in the reserve fund. Further, the said reserve funds as per directions of the State Government by general or special order are to be invested in one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under section 80P(2)(a)(i) of the Act. 13. The Apex Court in CIT Vs. Karnataka State Co-operative Apex Bank (supra) while deciding the case of Co-operative Societies and scope of special deduction had held as under:- Interest arising from investment made, in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a co-operative society engaged in banking business, is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. The placement of such funds being imperative for the purpose of carrying on banking business the income therefrom would be income from the assessee‟s business. There is nothing in the phraseology of section 80P(2)(a)(i) which makes it applicable only to income derived from working or circulating capital. 14. We further find that similar issue was considered by the Pune Bench of Tribunal in ITO Vs. M/s. Kundalika Nagari Sah. Patsanstha Maryadit (supra), wherein the issue was with regard to investments with other Co-operative Society as per the mandate of Maharashtra Co-operative Societies Act and whether the interest income earned by the assessee on such investments was li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely required for business purposes, was invested in specified securities, would be taxable as income under section 56 of the Act. It further held that where the assessee society regularly invests its funds not immediately required for business purposes, interest on such investment could not fall within the expression of profits and gains of business and the same could not be held to be attributable to the activities of the society i.e. carrying on of business of providing credit facilities to its members or marketing the agricultural produce of its members. The Hon‟ble Apex Court further reiterated that where the assessee markets the agricultural produce of its members and it retains the sale proceeds in many cases and where the retained amount which was payable to its members, from whom the produce was bought, was invested in short term deposits / securities, the said amount was liability of the assessee and it was shown in the balance sheet on the liabilities side, therefore, to that extent, the Hon‟ble Supreme Court held that such interest income could not be said to be attributable either to the activity mentioned in 80P(2)(a)(i) or 80P(3) of the Act. In view there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was not immediately required by the assessee for lending money to the members as there were no takers and hence, was deposited in the banks so as to earn interest, such interest income earned by the assessee was held to be attributable to carrying on the business and therefore, same was liable to be deducted in terms of section 80P(1) of the Act. 19. Another decision referred to by the learned Authorized Representative for the assessee is Guttigedarara Credit Co-operative Society Ltd. Vs. ITO (supra), wherein the assessee was a co-operative society engaged in the activity of carrying on the business of providing credit facilities to its members. The Assessing Officer in view of insertion of section 80P(4) of the Act, had declined to extend the benefit of deduction under section 80P(2)(a)(i) of the Act. The interest income earned on short term deposits and from saving banks account was held liable to income tax. The Hon‟ble High Court held that where the assessee society was providing credit facilities to its members and was not carrying on any other business, then the surplus funds which it had earned as profits of its business when temporarily not required were inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(i) of the Act relating to dividend received from UTI Mutual Funds and Sundaram Finance of ₹ 87,087/- and ₹ 88,519/-, which are to be included as income from other sources, on which the assessee is entitled to proportionate expenditure. Similarly, the profit of ₹ 25,786/- from other activities and services is not entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. Accordingly, we partly uphold the order of CIT(A). In view thereof, the grounds of appeal raised by the Revenue are partly allowed. 15. The Hon‟ble Punjab Haryana High Court in CIT Vs. Nawanshahar Central Co-operative Bank Ltd., (2003) 263 ITR 320 (P H) held that where investment in PSEB bonds was made in accordance with mandatory provisions of section 44 of Punjab Co-operative Societies Act, it was clearly a statutory investment and the interest on this investment was eligible for deduction under section 80P(2)(a)(i) of the Act. The Hon‟ble Punjab Haryana High Court held that whether investment was made in statutory reserves had come out of working or circulating capital or out of surplus funds was of no consequence. The said decision of the Hon‟ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any approved for this purpose by the Registrar. The Hon‟ble High Court further held that the assessee could not avail the deduction under section 80P(2)(d) of the Act in this regard. Even in the case of Mantola Co-operative Thrift Credit Society Ltd. Vs. CIT (supra) the issue before the Hon‟ble High Court was in respect of interest income earned from FDRs out of surplus funds and applying the principle laid down in Totgar‟s Co-operative Sale Society Ltd. Vs. ITO (supra), the Hon‟ble High Court held the assessee not to be entitled to claim the deduction. 18. We find that the facts of the present case are at variance to the facts before the Hon‟ble High Court of Gujarat (supra). Even in the facts before the Hon'ble Supreme Court in Totgar‟s Co-operative Sale Society Ltd. Vs. ITO (supra), the issue was deposit of surplus funds as in the case before the Hon‟ble High Court of Gujarat. Though reference is being made to the reserve funds but the ratio laid down is against investing of surplus funds. Where any society deposits its surplus funds in fixed deposits with Scheduled Bank, then the Courts have held that such interest income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned interest income of ₹ 29,28,361/- from the deposits with nationalized bank. We find that the issue raised in the present appeal is similar to the one adjudicated by the Co-ordinate Bench of the Tribunal in the case of ITO Vs. Niphard Nagari Sahakari Patsanstha Ltd. (supra). In the said case the Tribunal has considered the judgment of the Hon'ble Supreme Court of India rendered in the case of Totgars' Co-op. Sale Society Ltd. Vs. ITO (supra), and has distinguished the same, on facts. The relevant extract of the order of the Co-ordinate Bench of the Tribunal in the aforesaid case is reproduced here-in-below: 11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case there is no dispute to the fact that the assessee is a cooperative society engaged in the business activity of credit cooperative society, i.e. providing credit facility to its members. According to the Revenue the income of the society on account of interest from banks other than cooperative banks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act. 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 the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The 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 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 intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee 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 ₹ 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 Totga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as business income in the course of its banking activity. Once it is a business income, the assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Cooperative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Co-operative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld. 6. In the result, the appeal of the revenue stands dismissed. 11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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