TMI Blog2014 (9) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Section 80P(2)(i), we find that there was no discussion or finding by the Commissioner of Income Tax (Appeals) , though this ground/issue was raised. This has happened because the Commissioner of Income Tax (Appeals), as noted above, had granted exemption to the entire income earned by the appellant-assessee under Section 80P(2)(i)(a). Learned counsel for the respondent-Revenue submits that this issue could be examined by the Commissioner of Income Tax (Appeals) on merits. - Income Tax Appeal No. 569 of 2013 - - - Dated:- 27-8-2014 - Sanjiv Kumar And V. Kameswar Rao,JJ. For the Petitioner : Mr. Sanjay Kumar, Jr. Standing Counsel For the Respondent : Mr. Ajay Vohra, Ms. Kavita Jha and Mr. Vaibhav Agnihotri JUDGMENT Sanjiv Khanna, J. (Oral) Heard the learned counsel for the parties in this appeal, which relates to assessment 2008-09 and impugns order dated 28th September, 2012, by which it has been held that the interest income, earned by the appellant-assessee, from the fixed deposits did not qualify for the exemption under Section 80P(2)(a)(i) of the Income Tax Act, 1961 ('Act', for short). 2. The appellant-assessee, a cooperative thrift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material. Relevant part of the said provision and clause (iii), for the sake of convenience, is reproduced below:- 80P. Deduction in respect of income of co-operative societies.--(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sum referred to in sub-section (1) shall be the following namely:- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members or (ii) x x x x x x x (iii) the marketing of agricultural produce grown by its members, or x x x x x x The whole of the amount of profits and gains of business attributable to any one or more of such activities. 6. No doubt, the term attributable is much wider than the term derived from , but the question still remains, whether the interest income earned from the FDRs out of surplus funds, which were not to be made available and given as credit to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not change their nature and character, depending on how they were initially earned. Further in clause (iii), profits and gains attributable to marketing of the agricultural produce of members stands exempt. The issue specifically raised was, whether the interest income earned on short-term deposits and securities out of surplus funds would be treated as profit and gains of the business attributable to providing credit facilities. It is in this context, the Supreme Court observed:- The assessing officer held, on the facts and circumstances of these cases, that the interest income which the assessee(s) had disclosed under the head Income from business was liable to be taxed under the head Income from other sources . In this connection, the assessing officer held that the assessee Society had invested the surplus funds as, and by way of, investment by an ordinary investor, hence, interest on such investment has got to be taxed under the head Income from other sources . Before the assessing officer, it was argued by the assessee(s) that it had invested the funds on short-term basis as the funds were not required immediately for business purposes and, consequently, such act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically business profits into the definition of the word income . Therefore, we are required to give a precise meaning to the words profits and gains of business mentioned in Section 80-P(2) of the Act. In the present case, as stated above, the assessee Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression profits and gains of business . Such interest income cannot be said also to be attributable to the activities of the Society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80-P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Business of banking connotes and is different from activities undertaken by the appellant. The aforesaid wide meaning, as suggested, would also be contrary to the dicta and the ratio of the decision in Totgars Cooperative Sale Society Ltd. (supra). 10. As far as principle of mutuality is concerned, this would not have any application in view of sub-section (24), sub-clause (viia) to Section 2 of the Act. Thus, if we accept that the appellant-assessee was a cooperative society and providing credit facilities to its members, clause (viia) to sub-section (24) to Section 2 would be applicable. Even otherwise on the principle of mutuality, the Supreme Court in Bangalore Club Vs. CIT, (2013) 350 ITR 509 has held that the interest earned on FDRs with banks would not be covered by the principle of mutuality as the transactions were not between the contributors and the beneficiary, but were between the assessee and a third person. 11. At this stage, learned counsel for the appellant-assessee has pointed out that the Commissioner of Income Tax (Appeals) had decided the issue in their favour, and therefore other contentions raised regarding expenses covered under Section 57(3) i.e. a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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