TMI Blog2015 (12) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... income if any out of such service will be exempted. Thus, AO is directed to delete the addition made in this ground. - Decided in favour of assessee. - ITA No.160/Ahd/2012 - - - Dated:- 14-10-2015 - Shri Rajpal Yadav, JM, Manish Borad, AM. For The Appellant : Shri Rasesh Shah, AR For The Respondent : Shri Narendra Singh, Sr.DR ORDER PER Manish Borad, Accountant Member. This appeal of assessee is against the order of CIT(A), Valsad, dated 26.9.2011. Assessment under section 143(3) of the Income-tax Act, 1961 (in short the Act) for AY 2007-08 was framed by ITO, Ward- 2, Navsari on 29/08/2009. The assessee has raised following grounds of appeal :- 1. On the facts and in the circumstances of the case, both the lower authorities have erred in not considering the claim of deduction u/s 80P(2)(a)(i) of the Act for the interest earned on providing credit facilities to its members from gross total income. 2. Without prejudice to the ground no.1 the ld. CIT(A)-Valsad has erred in confirming the order of the AO in making addition of entire amount of interest from nationalized banks, interest from Gujarat Electricity Company and interest on I.T. refund f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rming the addition of interest income referred to above of ₹ 365508/- :- 5.10 Decision: I have carefully considered the observations of the AO and the submissions made by the ld. AR. The short issue here is whether the interest income earned by the appellant from the nationalized bank is eligible for deduction u/s 80P(2)(d) of the Act and whether from such income a pro-rata expenses be allowed? The fact is that the main activities of the appellant is for providing credit facilities to its members and thereby earned interest income from the members. The appellant contended that by virtue of the decision in the case of Sabarkantha Dist. Co-op. Society, the interest income earned from nationalized banks are exempted. The appellant also relied on other decisions and I have gone through those decisions. The undisputed fact is that the appellant had interest income from nationalized banks out of the fund placed on short term deposits. Thus this income is not the business income of the appellant but the income from other source . The law is very clear that income from other source is not exempted u/s 80P(2)(a). The controversy has been set to rest by the SC in the Totgars Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... con-operative banks as well as the nationalized banks. Certain part of the funds collected from the members was deployed by way of deposits with nationalized banks also and therefore, certain portion of interest expenditure was attributable to income from deposits with nationalized banks also. Under such circumstances, you will appreciate that the appellant had rightly allocated and claimed deduction of interest expenses against income from deposits with nationalized banks. Further to strengthen his submissions ld. AR has placed strong reliance on the following case laws :- 1. Tumkur Merchants Souharda Credit Co-op. Ltd. vs. ITO -55 taxmann.com447 (Kar.) 2. CIT vs. Ratnagiri Dist. Central Co-op. Bank Ltd. 120 taxmann 77 (Bom) 3. Electro Urban Co-oprative Credit Society Ltd. vs. ITO 76 ITD 43 (Cal) 4. IT) vs. Jafari Momin Vikas Co-op. Credit Society Ltd. 1491/A/2012 5. Sabarkantha Zilla Kharid V. Sangh Ltd. vs. CIT 69 taxmann 619 (SC) 6. Totgars Co-operative Sale Society Ltd. vs. ITO 58 taxmann.com 35 (Karnataka) 6. On the other hand, ld. DR apart from relying on the orders of lower authorities also drew our attention to one aspect so as to cover the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvation in it s applicably in the circumstances of the assessee s case. 18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act. 19. The issue dealt with by the Hon ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under: 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 whose sale proceeds at times were retained by it. In this case, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent nationalized banks and relying on the judgment of Hon ble Karnataka High Court we hereby hold that the interest income of ₹ 365508 is eligible for deduction under section 80P(2)(a)(i) of the Act. Hence this ground of assessee is allowed. 9. Ground No.3 has been raised by the assessee against the order of CIT(A) for confirming the addition made by AO adopting electricity collection charges of ₹ 68,932/- instead of ₹ 57,350/- actually earned by the assessee. From the perusal of CIT(A) s order it can be seen that CIT(A) has already granted relief to the assessee by directing the AO to delete the addition of ₹ 68,932/- by giving following decision:- 6.5 Decision: I have carefully considered the findings of the AO and the submissions made by the ld. AR. The AO held that the electricity collection charge is not exempted because it was not the main income of the appellant. On the other hand the appellant submitted that the collection of electricity bills was kind of such facility provided mainly to the members of the society and for that activity a commission was given by the Gujarat Electricity Board various overheads including staff salary, electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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