TMI Blog2014 (2) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... ection(4) of section 80P, therefore, would not apply. - Decided against revenue. Entitlement to interest on deposits with banks u/s. 80P(2)(a)(i) denied - Held that:- In the present case, as stated above, 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 s. 80P(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 been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject of which is to provide for long-term credit for agricultural and rural development activities. 4. The AO was of the view that after amended by the Finance Act, 2006 w.e.f. 1.4.2007 by which sub-section (4) was inserted, the Assessee which was a co-operative society carrying on banking business was not entitled to deduction u/s.80P(2)(i) of the Act. According to the AO, the assessee was a co-operative bank and therefore the deduction u/s. 80P(2)(a)(i) cannot be allowed. In coming to the above conclusion, the AO noticed that the nature of the activity of the assessee, though registered as a credit co-operative society, is that of a banking institution notwithstanding the fact that receipt of and lending money is limited to its members. The AO further noticed that clause (viia) in section 2(24) of the Act was inserted by the Finance Act 2006 effective from 1/4/2007, which provides that profits and gains of any business (including providing credit facilities) carried on by a co-operative society with its members the assessee s activity was also Income . That the deduction from gross total income of certain receipts is available only to primary agricultural credit societies or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT, Central Circle, Panaji v. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. ITA Nos. 1 to 3 (PNJ)/1012 dated 30/3/2012. 7. Aggrieved by the order of the CIT(Appeals), the revenue has filed the present appeal before the Tribunal. 8. At the time of hearing, it was seen that the issue raised by the revenue has already been considered and decided by this Tribunal in the case of ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010, wherein this Tribunal held that section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a cooperative 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. The following were the relevant observations of the Tribunal:- 9. We have heard the rival submissions and perused the material on record. The assessee was denied the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, overdraft account, cash credit account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts (DD), Pay Orders, Gift cheques, lockers, bank guarantees etc. 3. Cooperative Banks can act as clearing agent for cheques, DDs, pay orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI). 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheques, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act as clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the cooperative societies act. Filing of returns Cooperative banks have to submit annual return to RBI every year. Society has to submit the annual return to Registrar of Societies. Inspection RBI has the power to inspect accounts and overall functioning of the bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Banking Regulation Act, 1949. 5. Assessing Officer held that by virtue of section 80P(4), the respondent assessee would not be entitled to benefits of deduction under section 80P. CIT(Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent assessee not being a bank, exclusion provided in sub-section(4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression primary agricultural credit society . 6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of subsection(4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then Legislature specified primary agricultural credit societies along with primary cooperative agricultural and rural development banks for exclusion from such exclusion and in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal reads thus:- 2. The learned Commissioner of Income Tax (A) erred in law and on facts in holding that the sum of ₹ 1,77,305/- being the interest on deposits with banks is not entitled to deduction u/s. 80P(2)(a)(i) of the Act. 3. Without prejudice to ground No.2, the learned Commissioner of Income Tax (A) erred in law and on facts in holding entire income of ₹ 1,77,305/- is taxable without allowing the permissible deduction towards expenses. 12. As we have already seen, the assessee is a cooperative society. The assessee earned interest income on deposit of surplus funds, which it had deposited in banks. The assessee claimed deduction u/s. 80P(2)(a)(i) of the Act in respect of interest earned on such deposits. The AO as well as the CIT(Appeals) held that the interest income in question cannot be treated as income earned on the business of providing credit facilities to its members and would therefore not fall within section 80P(2)(a)(i) of the Act to claim exemption. In coming to the aforesaid conclusion, the CIT(Appeals) placed reliance on the decision of the Hon ble Supreme Court in the case of The Totgars Co-operative Sale Society Ltd. Vs. ITO, 322 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members is exempt. What is exempt is the business income attributable to the activities of banking or providing credit facilities to the members which is included in the gross total income of the society. Deduction will be allowed only when there is direct or proximate connection with or nexus to the income and the business carried on by the Society. As we have already seen, in the present case, the interest income which is in dispute in the present appeal arises out of fixed deposit with banks. The claim of the Assessee is that the fixed deposits in banks were made to repay fixed deposits to the members and also to ensure that funds are not kept idle and they earn some interest income. As we have already seen that there should be nexus between the earning of interest and business of the Assessee. The interest income earned on extending credit facilities will be business income as there exists nexus between the income and the business of the society which is extending credit facility to its members. One cannot say that there is such nexus between the interest earned on deposits made with the banks. It may be true that deposits are made in banks so that the funds are not kept idle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in s. 80P(2) of the Act, would be eligible for deduction. The word income has been defined under s. 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The 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 s. 80P(2) of the Act. In the present case, as stated above, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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