TMI Blog2016 (2) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.03.2011 passed for the Asstt.Year 2007-08. 2. The solitary grievance of the assessee relates to denial of exemption under section 80P(2) on the interest income earned from the fixed deposits with nationalized bank. 3. The assessee is a cooperative society engaged in supplying fertilizers, agriculture implements etc. to its members and consumer activity and providing credit facility to its embers. The assessee has filed its return of income on 29.10.2007 declaring total income at ₹ 48,300/-. The assessee has shown total interest income of ₹ 2,48,563/-. The assessee has deducted interest expenses of ₹ 1,07,069/- and prorata overhead at ₹ 58,817/-. The assessee has offered net interest income at ₹ 98,015/-. The AO has disallowed the total claim of the assessee. In other words, the AO has held that the assessee has made an investment in nationalized banks, and therefore, the claim of the assessee for interest income of ₹ 2,48,563/- should be disallowed. He did not grant exemption under section 80P(2) of this amount. 4. On appeal, the ld.CIT(A) has upheld the order of the AO. 5. With the assistance of the ld.representatives, I have gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or ** ** the whole of the amount of profits and gains of business attributable to any one or more of such activities. 9. 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. v. CIT[1978] 113 ITR 84 (at page 93) 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 Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression attributable to and not the expression derived from . It cannot be disputed that the expression attributable to is certainly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative 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-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. 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. 12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Similar type of issues has been dealt by Hon ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. reported in (2015) 55 Taxman.com 447 (Kar). The relevant portion from the above referred judgment is reproduced below :- 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 money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable 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. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are concerned with the tax treatment of such amount. 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 Act, as rightly held by the assessing officer 19.1. However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon ble Supreme Court (On page 286) 7 . Before the assessing officer, it was argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was ₹ 13,69,955/- [source: Balance Sheet of the assessee available on record]. 19.6. In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. 9supra) 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. 5. Respectfully following the above decision of the Co-ordinate Bench, we hereby hold that the benefit of deduction u/s.80P(2)(a)(i) was rightly granted by ld.CIT(A), howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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