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Shri Laxmi Narayan Nagari Versus ITO, Ward-1 (3) , Kolhapur

2015 (8) TMI 1085 - ITAT PUNE

Eligibility for deduction u/s.80P(2)(a)(i) - interest earned on deposit kept with schedule banks - assessee (cooperative society) engaged in the activity of providing credit facilities to its member - Held that:- Since in the instant case, two divergent decisions were cited before us and no decision of the Hon’ble jurisdictional High Court is available, therefore, following the decision of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable products reported in [1973 (1) TMI 1 - SUPREME C .....

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ded in favour of assessee. - ITA No.604/PN/2014 - Dated:- 19-8-2015 - SHRI R.K. PANDA AND SHRI VIKAS AWASTHY, JJ. For The Assessee : Shri Ajinkya A. Jagoje For The Department : Shri.B.C. Malakar ORDER PER R.K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 19-12-2013 of the CIT(A), Kolhapur relating to Assessment Year 2010-11. 2. Facts of the case, in brief, are that the assessee is a credit cooperative society registered under the Maharashtra Cooperative Socie .....

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ties at ₹ 44,28,065/- which includes interest income of ₹ 19,14,971/- earned by the assessee society from the cooperative societies. According to the AO, as per the provisions of section 80P(2)(a)(i), the income earned by the credit cooperative societies from the activity of giving credit facilities to its members is fully exempt. However, the interest earned from deposits kept with banks other than cooperative credit society has to be taxed as income from other sources u/s.56 of the .....

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peal the Ld.CIT(A) upheld the action of the AO by observing as under : 6. I have gone through the assessment order and the submission of the assessee. I find that the interest income earned from banks cannot be said to be attributable to the activities of the appellant. The activity of the appellant is providing of credit facilities to its members. Had the interest been earned from providing credit facilities to members, the same would be attributable to its activities. But the interest received .....

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t facilities to members as well as acting as marketing cooperative society, the decision of Hon ble Supreme Court is in respect of its business as credit cooperative society as is evident from the following para which is the excerpt of the decisions - "Assessee(s) is a cooperative credit society. During the relevant assessment years in question, it had surplus funds which the assessee(s) invested in shortterm deposits with the banks and in government securities. On such investments, interes .....

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0P(2)(a)(i) but also that the interest earned from Banks from surplus funds, even where the cooperative society is engaged in the activity of providing credit facilities to its members, is also ineligible for this deduction. Therefore the income from interest is income from other sources chargeable to tax under section 56 of the Act and assessing officer's action was justified. Grounds 1 and 2 are rejected. 4. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with t .....

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ooperative society) engaged in the activity of providing credit facilities to its member and accordingly, treating ₹ 25,01,774/being interest earned on deposit kept with schedule banks is not eligible for deduction u/s.80P(2)(a)(i). 5. The Ld. Counsel for the assessee submitted that the assessee is engaged in the business of providing credit facilities and accepts deposits which is akin to carrying on business of Banking which needs to maintain liquidity as per rules and regulations under .....

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aid income is not eligible for deduction u/s.80P(2)(a)(i). To arrive at such conclusion the AO has relied upon the decision of Supreme Court in the case of Totgars Cooperative Sale Society Ltd reported in 322 ITR 283. 6. Referring to the decision of Hon ble Karnataka in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO reported in 55 taxmann.com 447 he submitted that the Hon ble High Court in the said decision has held that where the cooperative society was engaged in the bus .....

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al Representative on the other hand while supporting the order of the CIT(A) referred to the decision of Hon ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. Vs. CIT reported in 50 taxmann.com 278 wherein it has been held that the assessee, a credit cooperative society engaged in providing credit facilities to its members, deposited surplus funds in fixed deposits and earned interest thereon, said interest would be assessable as income from other sources a .....

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the assessee. We have also considered the various decisions cited before us. The only dispute to be decided in the grounds raised by the assessee is that whether the interest amounting to ₹ 25,01,774/- earned by the assessee on short term deposits with banks has to be treated as income from other sources u/s.56 or the assessee is eligible for deduction u/s.80P(2)(a)(i). We find the AO following the decision of Hon ble Supreme Court in the case of The Totgar s Cooperative Sale Society Ltd. .....

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ecision of Hon ble Supreme Court in the case of Totgar s Cooperative Sale Society Ltd. (Supra) held that the interest earned by such cooperative societies on short term deposits with scheduled banks is eligible for deduction u/s.80P(2)(a)(i). The relevant observation of the Hon ble High Court from para 6 onwards read as under : 6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of ₹ 1,77,305/represents the interest earned from shortterm deposi .....

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vant provision of law i.e., Section 80P(2)(a)(i): "Deduction in respect of income of cooperative societies: 80P (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. (2) The sums referred to in subsection (1) shall be the following, .....

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various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) as under: 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned SolicitorGeneral relied, it will be pertinent to observe that the legislature, has deliberately used the .....

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ation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned SolicitorGeneral, it has used the expression "derived from", as, for instance, in section80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of ge .....

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A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities .....

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operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assesseeCooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short .....

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ion 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending mone .....

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