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The Anant Sahakari Sharafi Mandli Ltd. Versus ITO, SK-Ward-2, Himmatnagar

2016 (2) TMI 491 - ITAT AHMEDABAD

Exemption under section 80P as interest from schedule bank denied - Held that:- As consistently, it has been held that the interest income earned by a credit co-operative society on the FDRs. with nationalized bank would qualify for grant of exemption under section 80P(2) of the Income Tax Act. Thus allow the appeal of the assessee and direct the AO to grant exemption to the assessee. - Decided in favour of assessee - ITA No.2747/Ahd/2015 - Dated:- 13-1-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER .....

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ry outset, submitted that the issue in dispute is squarely covered in favour of the assessee by the order of the ITAT in the case of Dhanlaxmi Credit Co-op. Society Ltd. Vs. ITO in ITA No.2073/Ahd/2015. He placed on record copy of the Tribunal order dated 24.9.2015. He further contended that the issue has also been considered by the ITAT, Ahmedabad in the case of Dhanlaxmi Credit Co-op. Society Ltd., for the Asstt.Year 2008-09. There also the Tribunal has granted exemption to the assessee under .....

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the Karnataka Co-operative Societies Act, 1959 and the Karnataka Co-op. Societies Rules, 1960. The assessee had interest income from deposits made by the assessee in nationalized banks out of the amounts which was used by the assessee for providing credit facilities to its members. According to the assessee, the said interest amount is attributable to the credit facilities provided by the assessee and form part of profits and gains of business. The assessee claimed benefit in terms of subsection .....

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h to note. It reads as under: 5. Learned counsel for the assessee assailing the impugned order contended that the interest accrued from the deposits made by the assessee in a nationalized bank out of the amounts which was used by the i assessee for providing credit facilities to its members and therefore the said interest amount is attributable to the credit facilities provided by the assessee and forms part of profits and gains of business and therefore he submits that the appellate authorities .....

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ts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short-term deposits and from savings bank account. The assessee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to th .....

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ied in sub-section (2), in computing the total income of the assessee. (2) The 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 Ap .....

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ity) 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 wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from .....

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to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.' 10. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said .....

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t in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from th .....

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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. .....

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ility 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 its 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. In fact similar view is taken by the Andhra Pradesh High Court in the cas .....

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aside. Parties to bear their own costs. 6. In the case of Dhanlaxmi Credit Co-op. Society, a similar issue has been considered by the Tribunal for the Asstt.Year 2012-13. The finding of the Tribunal recorded in para-5 of ITA No.2073/Ahd/2015 reads as under: 5. We have heard the rival contentions and gone through the facts and circumstances of the case as well as records available and judicial pronouncements referred therein. The only issue is in regard to the addition of various types of income .....

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n the hands of society at times when borrower members demand was less in comparison to the deposits from members held by the assessee society. Therefore, in the interest of the members this surplus fund was given as deposit in nationalized bank to fetch some income. 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 .....

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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. Accordingly it is hereby set aside. The substantial q .....

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ations and also to meet the minimum requirement of the funds. As a measure of safety minimum liquid and convenience of fund movement the appellant society had to keep its surplus liquid funds with different banks including nationalized banks. Therefore, in view of above discussion and relying on the decision of Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd.(supra), the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act; however, ren .....

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both the sides. It was explained that the Co-operative Society is maintaining operations funds and to meet any eventuality towards repayment of deposit, the Co-operative Society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT B Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Coop. Credit Society Ltd. bearing ITA No.1491/Ahd/2012 (for A.Y. 2009-10) and CO No.138/Ahd/2012 (by Assessee) ord .....

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t. 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 , .....

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sing officer, it was argued by the assessee(s) that it had 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 .....

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assessee carried on two activities, namely, (i) acceptance 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 Co .....

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ational 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 sam .....

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