TMI Blog2014 (2) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest – Held that:- A statement has been submitted showing interest income and interest expenses according to which proportionate interest should have been disallowed - Since these details were not before lower authorities – thus, the matter is remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. - ITA No. 2797/Ahd/2012 - - - Dated:- 7-2-2014 - Sri D. K Tyagi And Shri Anil Chaturvedi,JJ. For the Petitioner : Sri K. C. Mathews, Sr.D.R. For the Respondent : Sri Smt. Arti Shah, A.R. ORDER Per : D. K. Tyagi, Judicial Member:- This is the assessee's appeal against the order of Ld. CIT(A)-IV Baroda dated 16-10-2012. 2. The assessee has taken following two grounds:- 1 The Ld. Commissioner of Income Tax (Appeals)-IV, Baroda has erred in law and in facts in confirming an addition of ₹ 13,58,98O./- being the disallowance of claim made by the appellant u/s 80(P)(2)(a)(i) of the Act. The entire claim made by the appellant society u/s 80(P)(2)(a)(i) pertained to income attributable to the business of providing credit facilities to its members was fully allowable. The disallowance of the claim resulting in the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(d) of the IT Act. As per the AO, in response, the appellant furnished its reply vide letter dated 07/12/2011 and the submission of the appellant was considered carefully but the same is not acceptable in view of the fact that the provisions in this regard is very clear as to availability of deduction under this section and it can never be treated that the interest received on fixed deposits with commercial bank and Narmada Bond as qualified for deduction u/s 80P(2)(a)(i) of the IT Act as that of income from providing credit facilities to its members. As per the AO, as per the provisions of section 80P(2)(d) of the IT Act, in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income is deductible. As per the AO, in the instant case, the appellant has received interest from commercial bank and accordingly, such interest income cannot be said to be attributable to the activities mentioned in section 80P(2)(a)(i) of the IT Act. As per the AO, in view of the above discussion, as well as in view of the facts and legal position, It is held that the appellant is not eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osits and securities is required to be tax u/s 56 of the IT Act being the same income from other sources. In this regard support is drawn from the decision of Hon'ble supreme court in the case of Totgars' Co-operative Sale Society Ltd. vs. ITO (2010) 188 Taxman 282. In this referred case, the assessee was a Cop-operative Credit society and its business was to provide credit facilities to its member and to market their agricultural products. During the relevant assessment years, it had surplus fund which was invested in short term deposits with the bank and in the Government securities and earned interest thereon. According to the assessee, its activity constituted 'Eligible Activity' u/s 80P(2)(a)(i) and hence it was entitled to the benefit of deduction from its gross total Income. In view of these the assessee claimed deduction u/s 80P(2)(a)(i) in respect of such interest income. The matter went to Tribunal and the Tribunal held that such interest income would fall under the head 'Income from Other Sources' u/s 56 and not u/s 28 and consequently, the assessee society would not be entitled to deduction u/s 80P(2)(a)(i). The Hon'ble High Court affirmed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly when a local enactment makes it statutorily incumbent on the society to invest in specified investments, the interest income is automati-cally eligible for deduction irrespective of the source or head under which such income would fall. In this connection, learned counsel for the assessee(s) submitted that one needs to compare the language of section 80P(2)(a)(i) and (iii) of the Act with Explanation (baa) to section 80HHC, the language used in section 80HHD(3) and the words used in section 80HHE(5) of the Act. In this connection, it was urged that there is a wide contrast in the language between section 80P(2)(a) on one hand and the language used in section 80HHC read with Explanation (baa), section 80HHD(3) and section 80HHE(5) as also the language used in sections 72 and 32AB of the Act. According to assessee(s), if one keeps this contrast in mind, it is clear that the concept of head of income or source of income will not apply to the provisions of section 80P(2) of the Act because wherever Parliament intended to emphasise the applicability of such concept it has expressly so stated in the relevant section. According to the assessee(s), by way of illustration, under Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. 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. 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 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 interest income would be taxable under section 56 of the Act, as tightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act. 11. An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by section 56 of the Act, even then, the assessee-Society is entitled to the benefit of section 80P(2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P(2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to section 80HHC, section 80HHD(3) and section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject-matter. For example, section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of section 80HHC is, therefore, different from the scope of section 80P of the Act, which deals with deduction in respect of income of co- operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profits and Gains of Business , 'such business income cannot be said to be attributable to the activities of the Co-op Credit Society, namely, carrying on the business of providing credit facilities to its member or marketing facilities to its members. In view of above decision of Hon'ble Supreme court, I hold that the AO has correctly held that the appellant is not eligible for deduction u/s 80P(2)(a)(i) in respect of interest of ₹ 22,81,357/. Thus, the action of AO regarding rejection of appellant's claim of deduction of this interest income of ₹ 22,81,357/- u/s 80P(2)(a)(i) hereby confirmed. 6. Since Ld. CIT(A) has confirmed the action of AO by placing reliance on the decision of Apex Court which is squarely applicable to the facts of this case and learned counsel of the assessee did not bring any contrary binding decision on the issue on record, we are not inclined to interfere with the order passed by him and the same is hereby upheld. This ground of the assessee is dismissed. 7. Ground No. 2 of the assessee is an alternate plea of the assessee to allow setting off of expenditure incurred to earn the income of banking interest as provided u/s 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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