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2016 (3) TMI 912 - ITAT PUNE

2016 (3) TMI 912 - ITAT PUNE - TMI - Disallowance of deduction u/s 80P - interest income received by the assessee co-operative society on investments made in deposits in Jalna Dist. Central Co-operative Bank Ltd. - Held that:- The issue arising before us is similar to the issue before the Tribunal in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (2016 (2) TMI 879 - ITAT PUNE ) and following the same parity of reasoning, we hold that the assessee is eligible for the claim of deductio .....

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sment year 2010-11 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1] The learned CIT(A) erred in confirming the disallowance of deduction u/s 80P in respect of the interest income of ₹ 6,31,391/- received by the assessee co-operative society on investments made in deposits in Jalna Dist. Central Co-operative Bank Ltd. 2] The learned CIT(A) erred in holding that the assessee was not elig .....

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no reason to deny the deduction u/s 80P(2)(a)(i) in respect of the income derived from the above investments. 4] Without prejudice to the above grounds, the assessee submits that Jalna Dist Central Co-op. Bank Ltd. was registered under the Maharashtra Coop. Societies Act, 1960 and hence, the assessee was eligible to claim the deduction u/s 80P(2)(d) in respect of the income derived by way of interest and dividend on investments made in the said co-op. society. 5] The learned CIT(A) erred in hol .....

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was allowable to the assessee society in respect of the said interest income. 7] Without prejudice to the above grounds, assuming without admitting that the assessee is not eligible to claim the deduction u/s 80P(2)(a)(i) or section 80P(2)(d), the assessee submits that the disallowance may be restricted to the net income earned after deducting pr proportionate expenses incurred in respect of the above income and the said disallowance may not be made in respect of the gross income earned by the a .....

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ome received by the assessee co-operative society on investments made in deposits in Jalna District Central Co-operative Bank Ltd. The assessee had made the aforesaid investments out of its surplus funds and has claimed that it was entitled to the benefit of deduction under section 80P(2)(a)(i) of the Act. The authorities below denied the said claim of the assessee and held that the said income was assessable as income from other sources and not entitled to the benefit of deduction under section .....

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rd. The assessee before us is a credit co-operative society, which is accepting deposits from its members and using the same for giving loans to its members. In addition, the assessee is also making investments with other co-operative societies, which it claims to have made as per the mandate of Maharashtra Cooperative Societies Act, 1960. The issue arising before us is whether the interest income earned by the assessee on such investments is liable for deduction under section 80P(2) of the Act .....

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eligible to claim the deduction under section 80P(2)(a)(i) of the Act. Before us, the third contention has been raised that in case, no deduction is available to the assessee, then at best only the net income on such receipts is to be added in the hands of the assessee, for which the assessee has placed the calculation sheet on record. The case of the Revenue on the other hand, is that the decision of the Hon ble Apex Court in Totgar Co -operative Sale Society Ltd. Vs. ITO (supra) is clearly ap .....

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a co-operative society providing credit facilities to the members or marketing agricultural produce of its members. The assessee had parked its funds in short term bank deposits and securities and the interest earned on the same was claimed as deductible under section 80P(2)(a)(i) of the Act. The Revenue authorities held that the same was taxable under the head income from other sources . The claim of the assessee was that it had invested the funds on short term basis as these were not required .....

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tioned investment was made by the assessee and the same was in the nature of its business activity. The said interest income was claimed to be eligible for deduction under section 80P(2)(a)(i) of the Act, irrespective of the source or head under which such income would fall. The Hon ble Apex Court noted that the interest income arising on surplus investment in short term deposits and securities, which surplus was not required for business purpose, was to be taxed under section 56 of the Act. The .....

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nvests its funds not immediately required for business purposes, interest on such investment could not fall within the expression of profits and gains of business and the same could not be held to be attributable to the activities of the society i.e. carrying on of business of providing credit facilities to its members or marketing the agricultural produce of its members. The Hon ble Apex Court further reiterated that where the assessee markets the agricultural produce of its members and it reta .....

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, the Hon ble Supreme Court upheld the order of Assessing Officer in taxing the said amount under section 56 of the Act. The alternate plea of the assessee that even if the said interest income was held to be covered under section 56 of the Act, was eligible for deduction under section 80P(2)(a)(i) of the Act, was rejected. 18. In the facts of the case before Hon ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (supra), the assessee co-operative society w .....

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embers as there were no takers and the assessee in such circumstances, deposited the money in bank so as to earn interest. The Hon ble High Court of Karnataka in such circumstances held that the interest income was attributable to carrying on of business of banking and therefore, it was liable to be deducted in terms of section 80P(1) of the Act, they took note of insertion of section 80P(4) of the Act, which was applied by the Assessing Officer to deny the deduction under section 80P(2)(a)(i) o .....

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rawn by the Hon ble High Court of Karnataka in para 10 and it was pointed out that in the case before them, the amount which was invested in banks to earn the interest was not an amount due to any member, it was not the liability and it was not shown as liability in their accounts. In fact, the amount was in the nature of profits and gains which was not immediately required by the assessee for lending money to the members as there were no takers and hence, was deposited in the banks so as to ear .....

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. The Assessing Officer in view of insertion of section 80P(4) of the Act, had declined to extend the benefit of deduction under section 80P(2)(a)(i) of the Act. The interest income earned on short term deposits and from saving banks account was held liable to income tax. The Hon ble High Court held that where the assessee society was providing credit facilities to its members and was not carrying on any other business, then the surplus funds which it had earned as profits of its business when t .....

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ection 80P(2) of the Act. The learned Authorized Representative for the assessee has made several propositions before us. The first and foremost proposition raised by the learned Authorized Representative for the assessee is that the interest income is eligible for the deduction under section 80P(2)(a)(i) of the Act. However, without prejudice to the same, the learned Authorized Representative for the assessee made an alternate proposition that in case the interest earned by the assessee is held .....

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no amount was assessed in the hands of the assessee except the dividend received from UTI Mutual Funds and Sundaram Finance of ₹ 87,087/- and ₹ 88,519/-. The assessee has placed on record its balance sheet along with Profit & Loss account for the year under consideration at pages 22 to 31 of the Paper Book with its English transaction. The perusal of the balance sheet as on 31.03.2010 reflects the assets in the form of bank balance, cash, investments and other deposits along wit .....

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FDs with cooperative societies totalling to ₹ 5.47 crores and the other investment in UTI Mutual Funds, Sundaram Finance, gratuity fund and shares totalling ₹ 7,48,216/-, totalling ₹ 5.55 crores. The assessee has further furnished the break-up of FDs with different co-operative banks at pages 57 to 68 of the Paper Book with sample copies of FDs at pages 69 to 75 of the Paper Book. The claim of the assessee before us is that it was engaged in the business of providing credit fac .....

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ctivity as it was the requirement of Maharashtra Co-operative Societies Act, 1960, that 20 to 30% of total deposits are to be parked in the investments with co-operative banks. It is not the case of the Department that the amount invested by the assessee was out of any liabilities due by the assessee. In the absence of the same and following the same parity of reasoning laid down by the Hon ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (supra) and the .....

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