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Supa (Kurel) Vibhag Seva Sahakari Mandli Ltd. Versus ITO, Ward-4, Navsari

2016 (2) TMI 461 - ITAT AHMEDABAD

Denial of exemption under section 80P(2) on the interest income earned from the fixed deposits with nationalized bank - Held that:- The total interest income received by the assessee from FDRs. in nationalized bank qualify for exemption under section 80P(2)(a)(i). But, since the assessee itself has offered an amount of ₹ 98,015/- for taxation, the assessee has not challenged the inclusion of this amount from its taxable income. The grounds of appeal which arose from the impugned order pert .....

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me against the order of the ld.CIT(A), Valsad dated 131.03.2011 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 .....

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erest 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 through the record carefully. I find that the Hon ble High Court in the case of Guttigedarara Credit Co-op. Society Ltd., ITO (60 taxmann.com page 215) (Kar) has allowed the claim of the assessee on similar issue. It is worth to note relevant observations o .....

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that the appellate authorities were not justified in denying the said benefit in terms of sub-section (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. 6. Per contra, learned counsel for the Revenue strongly relied on the said judgment of the Supreme Court and submitted that the case is covered by that judgment of the Apex Court and no case for interference is made .....

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interest is attributable to the business of providing credit facilities to its members, is the question. 8. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i):- "80P Deduction in respect of income of co- operative societies:- (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), there shall be deducted, in accordance with and subject to the provisions o .....

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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 generati .....

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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 section 80J. In our view, since the expression of wider imp .....

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eing 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, the society cannot keep the said amount i .....

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s liable to be deducted from the gross total income under Section 80P of the Act. 11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Co-operative 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 market .....

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tion 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 not the liab .....

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a Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220 12 taxmann.com 66. 13. 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 questions of law are answered in favour of the assessee and against the revenue. Hence, we pass the following order:- Appeal is allowed. The impugne .....

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onouncements referred therein. The only issue is in regard to the addition of various types of income such as rent, interest income from nationalized bank, commission income, other income totaling to ₹ 12,72,308 and the AO after allowing deduction under section 80P(2)(c) of the Act assessed the income of the assessee society at ₹ 12,22,308/-. As submitted in the statement of facts by the assessee society that its main object is to provide credit facilities to its members and the soci .....

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. 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 .....

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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 against the revenue. The assessee society s main object is to give credit facilities to its members from the funds received from the members by way of collection of deposits from its members in the common fund and such common fund is deployed in the form of granting loan to the members of the society. As the co-op. credit society is engage .....

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td.(supra), the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act; however, rent income at ₹ 18,600, commission income at ₹ 13,701, other income ₹ 400 and income tax refund of ₹ 13,271 totalling to ₹ 45,542/- is not eligible for deduction under section 80P(2)(a)(i) of the Act. Ground Nos.1 and 2 are partly allowed. 7. Further, it is also worth to take note of the finding recorded by the ITAT in the case of Dhanlaxmi Credit Co-op. Society Ltd., .....

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edit Society Ltd. bearing ITA No.1491/Ahd/2012 (for A.Y. 2009-10) and CO No.138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below:- 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 pu .....

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8 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, .....

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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 Court, hence, these civil appeals have been filed by the assessee(s). 19.2. From the above, it emerges that- (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplu .....

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.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 c .....

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ature 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 o .....

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