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2015 (10) TMI 592 - ITAT BANGALORE

2015 (10) TMI 592 - ITAT BANGALORE - TMI - Eligibility of claim for deduction u/s.80P(2)(a)(i) - Held that:- Interest earned on short-term deposits and SB account balances which were from surplus funds, could be attributable to carrying on the business of banking. However in the case before us, there is nothing on record to show whether the deposits placed by the assessee were for short-term or long term. In such circumstances, we are of the view that the issue requires a fresh look by the AO, s .....

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AHAM P. GEORGE, ACCOUNTANT MEMBER : In this appeal filed by assessee, its grievance is that its claim for deduction u/s.80P(2)(a)(i) of the Income-tax Act, 1961 ( the Act in short) was disallowed on interest earned by it from other banks. 02. Facts apropos are that assessee had filed return income for the impugned assessment year declaring nil income after claiming deduction u/s.80P(2)(a)(i) of the Act. It had received interest of ₹ 34,63,090/- on fixed deposits placed with other banks. AO .....

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to the assessee was only ₹ 1,10,09,164/-. According to him interest earned on the balance deposits was out of excess surplus fund available with the assessee and taxable under the head income from other sources . He worked out such amount at ₹ 21,20,280/- and placed it under the head income from other sources . Effectively he disallowed the claim u/s.80P(2)(a)(i) of the Act. 03. Assessee s appeal before the CIT (A) did not meet with any success. According to CIT (A), interest earned .....

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to him, Hon ble jurisdictional High Court had cited the judgment of Hon ble Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Cooperative Bank Ltd, [(2011) 200 Taxman 220] and held in favour of the assessee. 05. Per contra, Ld. DR submitted that in the case of Tumkur Merchants Souharda Credit Cooperative Society (supra) the amounts which were deposited were for short-term, whereas in the case of the assessee, amounts were placed in FDs on long-term basis. Reliance was placed .....

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ith the society, any investments made out of such interest free funds is free of cost and hence, obviously no deduction towards expenditure is required to be allowed. In similar circumstances, the Hon ble High Court of Karnataka in the case of The Totgars Cooperative Sale Society Ltd., v. ITO, W-1, Sirsi (322 ITR 272) has held that proportionate expenses for making such investments are not allowable as deduction. 07. Hon ble jurisdictional High Court in the case of Tumkur Merchants Souharda Cred .....

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sseeand forms part of profits and gains of business and therefore he submits the appellate authorities were not justified in denying the said benefit in terms of Sub-sec.(2) of Section 80P of the Act. In support of his contentions, he relied on several judgments and pointed out that the Apex Court in the aforesaid judgment has not laid down any law. 5. Per contra, learned counsel for the Revenue strongly relied on the said judgment of the Supreme Court and submitted, the case is covered by that .....

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d in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law ie., Section 80P(2)(a)(i): Deduction in respect of income of co-operative societies: 80P (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), ther .....

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iness attributable to any one or more of such activities. 7. The word attributable used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word attributable as supposed to derive from its use in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX, GUJARAT-ll reported in ITR VOL. 113 (1978) PAGE 842 at page 93 as under: As regards the aspect emerging from the express .....

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ived from been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation 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 Solicitor General, it has used the expression derived from , as, for instance, in .....

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of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. 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 the .....

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be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the 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 .....

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. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 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 lia .....

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