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2014 (8) TMI 1246 - HC - Income TaxDeduction u/s 80P(2)(i) - interest income earned by the assessee, from the fixed deposits - finding recorded by the AO and Tribunal is that the appellant-assessee had surplus funds, which were not required for carrying on the business of granting credit facilities to the members. The said surplus funds were invested in fixed deposit receipts with commercial banks, for an average maturity period of 500 days HELD THAT:- The term or expression, "income" has been defined in Section 2(24) of the Act. By way of Finance Act, 2006, sub-section (viia) was inserted to stipulate that profits and gains of business of banking, including credit facilities, carried on by a cooperative society with its members, is taxable and is included in the term, "income". The aforesaid definition of term "income" is inclusive and a broad one. Thus, the income of the assessee would be taxable u/s 2(24), including the income earned by way of interest on the FDRs with commercial banks. Section 80P provides partial exemption, restricted to the specified "earning" or "incomes" in sub- section (2), and not the entire income. For the purpose of the present appeal, Section 80P(2) clause (a)(i) is material. The present case is of surplus funds, which were not required for carrying on business of providing credit facilities to members. Half of the funds mobilised/collected from the members could be used for providing credit to the members. The balance amount had to be retained and used for specified purpose, other than providing credit facilities to members. This amount was deposited in FDRs for an average period of 500 days. Bye-laws of the appellant cooperative society prescribed that 50% of the amount mobilised/collected would not be given on credit to the members. These constituted surplus funds as has been held by the AO and by the Tribunal. It is on these funds that the interest was earned. The interest earned from the aforesaid funds as held by the Supreme Court in Totgars' Cooperative Sale Society Ltd. [2010 (2) TMI 3 - SUPREME COURT] would fall u/s 56 and would be taxable under the head "income from other sources". Appellant-assessee has pointed out that the CIT (A) had decided the issue in their favour, and therefore other contentions raised regarding expenses covered u/s 57(3) i.e. allowability of expenditure having nexus with earning of the said income was not examined. This ground/argument was in alternative. Revenue submits that this question may be remitted to the CIT (A) as he had not decided the said question having allowed the appeal in entirety holding that the entire interest was exempt u/s 80P. We appreciate the stand taken by the learned counsel for the Revenue and accordingly the matter is remitted on the said aspect to the CIT (Appeals) for decision. Claim for deduction u/s 80P(2)(i), we find that there was no discussion or finding by the CIT ( A), though this ground/issue was raised. This has happened because the CIT (A), as noted above, had granted exemption to the entire income earned by the appellant-assessee u/s 80P(2)(i)(a). Revenue submits that this issue could be examined by the Commissioner of Income Tax (Appeals) on merits.
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