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The Kabilpore Peoples Co-op. Credit Society Ltd Versus Income-tax Officer, Ward-2, Navsari

2015 (12) TMI 291 - ITAT AHMEDABAD

Eligibility of deduction u/s 80P - Held that:- Assessee society in the interest of its members as well as in the interest of the object of the society as well as a safety measure minimum liquid funds and convenience of fund movements, the appellant society has kept its surplus liquid funds with different nationalized banks and relying on the judgment of Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Co-op. Ltd. vs. ITO [2015 (2) TMI 995 - KARNATAKA HIGH COURT] we hereby hold th .....

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, such activities formed part of the business of the appellant and the 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), .....

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ice 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 for ₹ 3,65,508/- in aggregate without granting prorate deduction of interest expenses and administrative overhead claimed. 3. On the facts and in the circumstances of the case, the ld. CIT(A)-Valsad has erred in confirming the addition made by the AO adopting th .....

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ks, denying the claim of prorate deduction of interest expenses and administrative overheads is liable to be struck down. 5. Your appellant further reserves its rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal. 2. Ground No.1 is not pressed by the assessee being misconceived ground. Hence the same is rejected as not pressed and effective ground nos.2 & 3 are to be dealt with and other two grounds are consequential in nature. 3. .....

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lectricity collection charges received by society at ₹ 57,350/- being an activity not related to the main object of the society. However, the AO gave the basic deduction of ₹ 50,000/- under section 80P(2)(c)(ii). 4. Aggrieved, the assessee went in appeal before the CIT(A) who confirmed the addition made by the AO on account of interest income (other than interest from members) at ₹ 365508/- but deleted the addition of electricity collection charges income of ₹ 57350/- acc .....

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a 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 fro .....

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ral produce of its members, interest earned by investing surplus funds in short term deposits and Govt. securities fell under the head income from the other sources taxable u/s 56 and it cannot be said to be attributable to one of the activities of the society and therefore, the interest income did not qualify for deduction u/s 80P(2)(a)(i). According to the SC, the words the whole of the amount of profits and gains of business emphasise that the income in respect of which deduction is sought mu .....

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s, it is difficult to ascertain what was the amount spent to earn that interest income. But it is a fact that whatever the expenses incurred has already suffered allowance in the main business activities, further allowing any expenditure will amount to double deduction and I am not inclined to give any relief in this account. Thus, the addition made by the AO in this ground is confirmed. This ground of appeal is hence, dismissed. 5. Being aggrieved, the assessee is in further appeal before the T .....

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a common fund by way of deposits from its members and such common fund is deployed in form of granting loans to the members of the society and placing the surplus fund by way of fixed deposits with the 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. Un .....

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TD 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 of the case similar to the facts discussed by Hon ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. (supra) .....

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of assessee which apart from being a credit society for credit facilities to its members was also indulging providing services to its members by way of depositing electricity bills to the Electricity Department. The ld. DR further elaborated that assessee society used to collect the electricity bills as well as the bill amount from its members and used to deposit the same with the Electricity Department on scheduled banks and in view thereof used to charge electricity collection charges and duri .....

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s members on account of electricity expenses and the due date of depositing of electricity bills on behalf of the members. Therefore, we do not find any basis in the submissions of ld. DR that the facts of the case are similar to the facts dealt by Hon ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. (supra). Whereas after going through the case laws referred by the ld. AR along with his submissions, before giving our finding we would like to analyze a few of them. In the case o .....

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n 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 .....

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. Since the fund created by such 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 section 56 of the Ac .....

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invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High .....

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of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 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 .....

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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 assessee was r .....

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d (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of ₹ 9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly. 8. In the case of Tumkur Merchants Souharda Credit Co-op. Ltd. vs. ITO (supra) Hon ble Karnataka High Court has decided the issue by observing as under :- 10. In the instant case, the amount wh .....

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able to be deducted in terms of Section 80P (1) of the Act. I fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v/s. Andhra Pradesh State Co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and ag .....

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