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2016 (4) TMI 1001 - ITAT AHMEDABAD

2016 (4) TMI 1001 - ITAT AHMEDABAD - TMI - Deduction under section 80P(2)(a)(i) in respect of interest income denied - Held that:- Assessee is entitled for deduction of interest income derived from investment of surplus funds with banks also. See M/s. The Totgarsī Cooperative Sale Society Limited Versus Income Tax Officer. Karnataka [2010 (2) TMI 3 - SUPREME COURT] - Decided in favour of assessee - ITA.No.3312/Ahd/2015 - Dated:- 16-3-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAI .....

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ax Act in respect of interest income of ₹ 9,76,625/-. 3. Brief facts of the case are that the assessee is a credit co-operative society. It provides credit facilities to its members. It has filed its return of income electronically on 21.7.2012 declaring total income at NIL. According to the AO, the assessee-society had derived interest income at ₹ 2,21,43,270/-, out of which, ₹ 9,76,625/- was derived from State Bank of India. The ld.AO has observed that as per provisions of se .....

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d in favour of the assessee by the decision of the Hon ble Karnataka High Court rendered in the case of Guttigedarara Credit Co-op. Society Ltd. Vs. ITO, (2015) 377 ITR 464. He also placed on record copy of the ITAT, Ahmedabad Bench decision passed in ITA No.2610/Ahd/2015 in the case of Shree Balaji Urban Coop. Credit Society Ltd. Vs. ITO, wherein under similar circumstances deduction was allowed to the assessee. 6. On the other hand, the ld.DR submitted that the CIT(A) has followed the decision .....

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ing 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 assailing the impugned order contended that the interest accrued from t .....

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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 sums of interest were earned from short-term deposits and from s .....

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ision 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) The sums referred to in sub-section (1) shall be the following .....

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rovisions 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 to observe that the legislature has deliberately used the expres .....

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nd 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 sources other than the actual conduct of the business of genera .....

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s. 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 attributable to the profits and gains of the business of providing credit .....

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ative 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 payable to its members from whom produce was bought, was invested .....

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ve 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 profits and gains, was not immediately required by the assessee for .....

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er, 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 case of Dhanlaxmi Credit Co-op. Society, in ITA No.2073/Ahd/2015 .....

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ncome, 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 the hands of society at times when borrower members demand was l .....

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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 carrying on the business of banking and therefore it is liable to .....

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he 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 regulations and also to meet the minimum requirement of the funds. As a .....

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ther 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 heard both the sides. It was explained that the Co-operative Society .....

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:- 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 by it. In this case, we are concerned with the tax treatment of s .....

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

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urt, 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) that assessee carried on two activities, namely, (i) acceptance of .....

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(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 operational funds. The only fund available with the assessee was .....

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equired 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 Hon ble Supreme Court in the case of Totgars Co-op. Sale Society .....

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