TMI Blog2014 (1) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-10-2012 - D. K. TYAGI And A. MOHAN ALANKAMONY, JJ. For the Appellant : Shri S. P. Talati, Sr. DR For the Respondent : Shri A. C. Shah, AR ORDER:- PER : A. MOHAN ALANKAMONY These two appeals (i) one by the Revenue; and (ii) cross objection by the assessee are directed against the impugned order of the Ld. CIT (A), Ahmedabad in Appeal No. CIT (A)/GNR/63/2011-12 dated 17.4.2012 for the assessment year 2009-10. I. ITA NO.1491/A/2012 by the Revenue: 2. The Revenue has raised three grounds in which Ground Nos.2 and 3 are general in nature and do not survive for adjudication. Ground No.1 relates to a solitary issue, namely, the CIT (A) has erred in allowing deduction u/s 80P (2)(a)(i) of the Act, amounting to Rs.71,88,101/-. II. C.O NO.138/A/2012 by the assessee: 3. The assessee s lone cross objection relates to an issue that the CIT (A) has erred in disallowing deduction u/s 80P to the extent of Rs.6,40,639/- by treating the income from interest on bank deposit as taxable u/s 56 of the Act. 4. As the issues raised by the rival parties pertaining to the same assessment year, they were heard, considered together and disposed off, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission, the substance of which is summarized as under: - that the assessee is a credit society engaged in the business of providing credit facilities to its members by accepting deposits from the members and lending to them; and that providing credit facilities to his members is the only activity carried on by the assessee; - that from the objects of the assessee extracted hereunder clearly exhibits that the assessee is a credit society engaged in the business of providing credit facilities to its members: (i) To encourage saving and thrift and mutual co-courage saving and thrift and mutual co-operation among to members ; (ii) To accept deposits from members (iii) To makes saving schemes for collection of deposits; (iv) To give loans to members; (v) To give loans to members by getting cash credit for central loan institution; (vi) To work as insurance agent for insurance of life and assets of members; (vii) To purchase, to sale, to make lease, to construct movable and immovable assets for working of society. - that the assessee had claimed deduction of the profit of Rs.7.28 lakhs as per s. 80P (2)(a)(i), but, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso to section 80P (4) which is brought into Statute is applicable only to co-operative banks and not to credit co-operative societies. The intention of the legislature of bring in co-operative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a co-operative society and not a co-operative bank, the provisions of section 80P(4) will not have application in the assessee s case and, therefore, it is entitled to deduction u/s 80P (2)(a)(i) of the Act .. (ii) DCIT v. Jayalakshmi Mahila Vividodeshagala Soudharda Saharkari Ltd in ITA No. 1 to 3/Pnj/2012 ITA No.4 to 6/Pnj/2012 dated 30.3.2012: Precisely the issue before the Hon ble Panaji Bench of the Tribunal was 1. Whether on the facts and circumstances of the case, the CIT (A) was correct in holding that the provisions of sub-section (4) of s. 80P are applicable only to co-operative banks and not to credit co-operative societies which are engaged in business of banking, including providing credit facilities to their members; 2. Whether on the facts and circumstance of the case that CIT (A) was correct in holding that the assessee is a co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 80 P(2) (a) (i) specifically provide deduction in respect of co-operative societies engaged in carrying on the business of banking providing credit facilities to its members. Section 80 P(4) which stipulates that the provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank only takes out co-operative banks from the ambit of deduction u/s 80 P of the Act but further grants exemption to co-operative bank which is primarily an agricultural credit society or co-operative agricultural and rural development bank. This view is also clarified by Central Board of Direct Taxes vide its clarification No. 133/06/2007-TPL dated 9th May 2007. Further, the distinction between co-operative society under Banking Regulations Act, 1949 and co-operative society registered under State Co-operative Societies Act, Viz. Karnataka State Cooperative Societies Act, 1959 is vividly brought out in the ITAT Order, Bangalore Bench in the case of ACIT Vs Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010 for AY 2007-08 dated 08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in its cross objection is that the CIT (A) had erred in disallowing deduction u/s 80P of the Act to the extent of Rs.6.4 lakhs. 12. Briefly, the AO had disallowed the entire claim of Rs.78,28,742/- which included interest income of Rs.6,40,639/- u/s 80P (2)(a) of the Act. 13. Aggrieved, the assessee took up this issue before the CIT (A) for relief. The CIT (A), after elaborately quoting the ruling of the Hon ble Supreme Court in the case of Totgars Co-Op. Sale Society Ltd. V. ITO cited supra, came to the conclusion that the interest income is taxable u/s 56 of the Act. The reasons recorded by the CIT (A) are as under: 6 .. (On Page 8) In the light of the above, the interest income, if any, earned from keeping the surplus fund in banks would be taxable u/s 56 and will not qualify for deduction u/s 80P. It is seen that the total interest earned from bank i.e., Dena Bank and Development Bank is Rs.19,13,743/-. The appellant has mixed funds wherein the members interest free contribution and accumulated profits are mixed with interest bearing funds. The interest earned from members is Rs.1,84,56,163/- and interest paid is Rs.1,36,20,112/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - on short term deposits is taxable u/s 56 of the Act. The CIT (A) had gone beyond the subject matter of appeal as he cannot tax the source which was not processed by the AO in the assessment order. The AO had treated the entire income u/s 28, but, gave no findings regarding the income from other sources u/s 56. Therefore, it was argued, the addition of Rs. 6.4 lakhs u/s 56 of the Act was bad in law. - relies on the case law - CIT v. Sardari Lal Co. 251 ITR 864 (Del). 16. On the other hand, the learned D R had fully supported the stand of the CIT (A) and urged that the assessee has no cause to agitate and, therefore, pleaded that the findings of the CIT (A) require to be sustained. 17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in it s applicably in the circumstances of the assessee s case. 18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e civil appeals have been filed by the assessee(s). 19.2 From the above, it emerges that (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surp ..... 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