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TMI Blog2014 (9) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. 3. In fact, the argument raised before us is that as per the bye-laws of the appellant cooperative society, only 50% of the thrift mobilised/collected from the members could be given as credit to the members, and the balance had to be kept in FDRs or other income earning avenues. It was submitted that the alleged surplus in fact formed the corpus and therefore interest earned was exempted. 4. Provisions of Sections 11 to 13 of the Act have no application in determining exemption under Section 80P or in determining whether interest income was taxable under the head "income from business" or "income from other sources". Such differentiation between corpus or non-corpus funds is not mandated and stipulated in Section 80P and for determining the head of income; "income from business or profession" or "income from other sources". There is a clear finding that the interest of Rs. 1,43,11,462/- was earned by way of investment of surplus funds in FDRs with banks. The submission made by the appellant assessee itself indicates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative credit society, had provided credit facilities to its members and was also marketing agricultural produce of its members. It had surplus funds, which were invested in short-term deposits and securities, like in the present case where the surplus funds were invested in FDRs for an average period of 500 days. The Supreme Court examined the issue whether the interest income from the said surplus funds was eligible for exemption under Section 80P(2)(a)(i) as income attributable to profit and gains of business. It was observed that interest received from members for providing credit facilities to them was exempt. Further, anything attributable to the said income would also be covered under Section 80P. It was highlighted that exemption is partial and not complete, i.e. the whole income of the cooperative society does not get exemption. In the facts of the said case, it was observed that the deduction being in respect of certain incomes, the interest income earned out of surplus fund, would not qualify for deduction as it was assessable under the head "income from other sources". 7. Learned counsel for the appellant-assessee has submitted that the aforesaid decision should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and the High Court, hence, these civil appeals have been filed by the assessee(s)." "At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80-P(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. The assessee(s) markets the produce of its members and wholesale 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which was retained by the assessee Society, was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80-P(2)(a)(i) of the Act or in Section 80-P(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." 8. 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 Assessing Officer and by the Tribunal. It is on these f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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