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The Botad Peoples Co-op. Credit Society Ltd. Versus ITO, Ward-2 (5) , Bhavnagar

2016 (4) TMI 305 - ITAT AHMEDABAD

Deduction under section 80P(2)(a)(i) for the interest earned from deposits in banks denied - Held that:- Assessee is entitled for deduction of interest income derived from investment of surplus funds with banks also. See M/s. The Totgars´ Cooperative Sale Society Limited Versus Income Tax Officer. Karnataka [2010 (2) TMI 3 - SUPREME COURT] - Decided in favour of assessee - ITA. No. 3508 /Ahd/2015 - Dated:- 5-4-2016 - Shri Rajpal Yadav, Judicial Member And Shri N. K. Billaiya, Accountant Memb .....

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ex parte qua the assessee-appellant after hearing the ld.DR and considering the material available on record. 3. Though the assessee has raised five grounds of appeal, but the only issue involved in this appeal is that theld.CIT(A) has erred in confirming the action of the AO in disallowing the deduction claimed under section 80P(2)(a)(i) of the Income Tax for the interest earned from deposits in banks. 4. Brief facts of the case are that the assessee is a co-operative society carrying on the b .....

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Bank of India : ₹ 19,922/- ii) Bank of India : ₹ 1,23,369/- iii) Botad People s Co-op. Bank Ltd. : ₹ 2,05,691/- ₹ 3,48,982/- The ld.AO has observed that as per provisions of section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, interest income earned out of investment/deposits made with the nationalized banks are not directly connected with the business activities of the assessee, and therefore, the assessee is not entitled for deduction under section 80P of the incom .....

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R 283. 7. We have heard the ld.DR and gone through the record carefully. We find that similar issue has come up before the ITAT, Ahmedabad Bench in large number of cases. In ITA No.1767/Ahd/2011 in the case of Supa (Kural) Vibhag Seva Sahari Mandli Ltd. Vs. ITO, order dated 13.1.2016 the Tribunal, while allowing the claim of the assessee, has recorded the following finding: 5. With the assistance of the ld.representatives, I have gone through the record carefully. I find that the Hon ble High Co .....

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ies 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 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, lear .....

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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 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 o .....

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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:- ' .....

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utable 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 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 mean .....

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ression "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 expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of bu .....

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ived 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 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/Coopera .....

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ance 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. Therefor .....

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d 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 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. Acco .....

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orded 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 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 in .....

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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 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 the .....

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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 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 w .....

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rent 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, 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 sectio .....

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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 Co-op.Credit 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 unde .....

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ified 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 o .....

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estment 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 Court, hence, these civil appeals have been filed by the assessee(s). 19.2. From the above, it emerges that- (a) that assessee (issue befo .....

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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: (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 .....

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lt 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 required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furth .....

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m 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), however, he has wrongly held that the interest income is taxable u/s.56 of the Act so do not fall under the category of exempted income u/s.80P of the Act. The a .....

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