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2016 (4) TMI 649 - ITAT AHMEDABAD

2016 (4) TMI 649 - ITAT AHMEDABAD - TMI - Benefit of deduction u/s.80P(2)(a)(i) - Held that:- Assessee is entitled for deduction of interest income derived from investment of surplus funds with banks also. - Decided in favour of assessee - ITA. No. 3489/Ahd/2015 - Dated:- 5-4-2016 - Shri Rajpal Yadav, Judicial Member And Shri N. K. Billaiya, Accountant Member For the Petitioner : Shri Vipul B. Khandhar, AR For the Respondent : Shri Narendra Singh, Sr. DR ORDER Per Rajpal Yadav, Judicial Member T .....

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deductible under section 80P of the Income Tax Act. 3. Brief facts of the case are that the assessee is a co-operative society carrying on the business of providing credit facility to its members. It has filed its return of income on 25.8.2012 declaring total income at NIL. According to the AO, the assessee-society had claimed deduction under section 80P(2) of the Act of ₹ 28,38,890/-, out of which, ₹ 5,80,704/- was earned as interest income from the banks. The ld.AO has observed tha .....

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covered in favour of the assessee by the following decisions: 1 CIT, Hyderabad Vs. Andhra Pradesh State Co-op. Bank Ltd. (2011) 12 txmann.com 66 (AP); 2 CIT Vs. Muzaffarnagar District-Co-op. Bank Ltd., (2012) 28 taxmann.com 132 (All.) 3 Jafari Momin Vikas Co-op. Credit Vs. ITO, ITA No.1491/Ahd/2012; 4 Shree Siddeshwar Souhardhana Sah. Niyamit Vs. ITO, ITA No.5019/2012 (Kar.High Court - Dharwad Bench). He also placed on record copies of the above orders of the above decisions. 6. On the other han .....

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hile 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 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 of the judgment of the Hon ble Karnataka High Court as under: 5. Learned counsel for the assessee assaili .....

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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 out. 7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain .....

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. 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 of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2 .....

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table' 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 .....

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d 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 import, namely, "attributable to", has been used, the legislature intended to cover receipts from .....

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ceipts 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 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 idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributab .....

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hen 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/Cooperative 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 p .....

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ng 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 liability. It was not shown as liability in their account. In fact this amount which is in the nature of pro .....

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6/200 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 impugned order dated 19.9.2014 is set aside. Parties to bear their own costs. 6. ITAT, Ahmedabad Bench in the c .....

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ch 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 society is neither registered under Banking Regulation Act nor doing any banking activity. Surplus funds in .....

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eproduced 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 c .....

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stion 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 engaged in the money lending business it has to maintain certain liquid funds as per various rules and regulat .....

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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., in the Asstt.Year 2008-09 in ITA No.2342/Ahd/2012 as under: 4. With this brief background, we have hear .....

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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 purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained b .....

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, 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 as .....

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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 surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) th .....

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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 carry out any activity except in providing credit facilities to its members and that the funds were of o .....

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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 .....

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