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State Bank of India (SBI) Versus Commissioner of Income Tax

2016 (7) TMI 516 - GUJARAT HIGH COURT

Revision u/s 263 - whether the appellant is entitled to claim deduction under section 80P(2)(a)(i) of the Act in respect of the interest earned on the deposits placed with the State Bank of India? - Held that:- In case of a credit society like the present one, the business of the society is limited to providing credit to its members and the income that is earned from providing such credit facilities to its members is deductible under section 80P(2)(a)(i) of the Act. However, investing its surplu .....

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ived from investing surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attributable to the business of the assessee. In the present case there is no obligation upon the appellant to invest its surplus funds with the State Bank of India. Investing surplus funds in a bank is no part of the business of the assessee of providing credit facilities to its members. Therefore, it is only the interest derived fro .....

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tion 80P(2)(d) of the Act. - Commissioner of Income-tax, in the notice issued under section 263 of the Act, has sought to revise the order passed by the Assessing Officer on the ground that the petitioner had claimed deduction of the interest income from State Bank of India under section 80P(2) in contravention of the provisions of section 80P(2)(d) of the Act, wherein only interest income from a co-operative society qualifies for deduction under section 80P. In response to the notice under .....

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n 80P(2)(a) of the Act and gains of business attributable to such activity is exempt from taxable income and that based on the above, interest income of fixed deposits with S.B.I. has been treated as business income of the Society engaged in the business of banking or providing credit facilities to its members and accordingly income derived from this activity has been claimed exempt under section 80P(1) and 80P(2)(a) of the Act. Having regard to the stand adopted by the appellant in response to .....

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rt, does not merit consideration for the reason that it is for the Assessing Officer, pursuant to the order under section 263 of the Act to examine the nature of the income and tax it accordingly. Insofar as the order under section 263 of the Act is concerned, in the light of the above discussion, it is not possible to state that the same suffers from any legal infirmity. The Tribunal was, therefore, wholly justified in upholding the same. - ITAT was justified in upholding invocation of powe .....

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the appellant and Mr. M.R. Bhatt, senior advocate, learned counsel for the respondent. Having regard to the submissions advanced by the learned counsel for the respective parties, the court is of the view that the matters require consideration, hence admit. The following substantial questions of law arise for consideration:- (1) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in upholding invocation of powers under section 263 of the Inc .....

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ctive parties had addressed the court at length on the merits of the case, the appeals were taken up for final hearing at the admission stage itself. 2. Both these appeals at the instance of the assessee arise out of the common order dated 26th March, 2015 passed by the Income Tax Appellate Tribunal, D Bench, Ahmedabad (hereinafter referred to as the Tribunal ) in ITA Nos.492/AHD/2014 and 900/AHD/2014 and hence, the same were taken up for hearing together and are decided by this common judgment. .....

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Retiring Benefit Fund etc. and at the same time, is advancing loans to the members such as consumer goods loan, car-vehicle loan, food grain loan and general purposes loan, etc. 3.1 The appellant filed its original return of income for assessment year 2009-10 on 21st August, 2009 declaring total income at Rs. Nil after claiming deduction under section 80P of the Income Tax Act, 1961 (hereinafter referred to as the Act ) at ₹ 29,69,444/-. The matter was taken up in scrutiny by the Assessin .....

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its original return of income on 5th August, 2010 declaring nil total income after claiming deduction under section 80(P)(2)(a)(i) of the Act at ₹ 43,64,828/-. The matter was taken up for scrutiny by the Assessing Officer, who, vide notice under section 142(1) of the Act, called for various details, which included justification regarding claim of deduction under section 80P. The appellant society in its reply narrated the nature of activities carried out by it and the claim of deduction un .....

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India for assessment year 2010-11 was not exempt under section 80P(2)(d) of the Act. In response to the above show-cause, the appellant contended that the interest income was business income and was exempt under section 80P(2)(a)(i) of the Act. The Commissioner of Income Tax did not find the explanation satisfactory on the ground that interest income had not been received from a co-operative bank so as to be exempt under section 80P(2)(d) of the Act and that it was not business income so as to .....

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it cannot be said that there is such nexus between the interest earned on deposits made with SBI. The Tribunal was of the view that it may be true that the deposits were made in banks so that funds are not kept idle but the motive for making deposits with SBI cannot change the character of interest income earned on deposit made from SBI to one arising from business of providing credit facility to its members. In this regard, the Tribunal drew support of the decision of the Supreme Court in Totga .....

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the members of the Society. It was submitted that the Society is not engaged in any other activity except giving credit facilities to its members who are employees of State Bank of India and that the income generated by the assessee is mainly on account of differential rate of amount of deposits received from the members and the amount of loans given to the members. Thus, the income generated is only from the contributions received from the members and it does not deal in any way with any person .....

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amount is required, the deposits with the State Bank of India are liquidated and utilized for the purposes of the assessee. The deposit of amount with State Bank of India is, therefore, incurred during the course of business and part of the activities of the assessee and cannot be seen in isolation. It was submitted that the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Limited v. Income Tax Officer (supra) would not be applicable to the facts of the present ca .....

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never the legislature wanted to give a restricted meaning, they have used the expression derived from . The expression attributable to being of wider import, the expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of business. A cooperative society which is carrying on the business of providing credit facilities to its members, earns profits and gains from business by providing credit facilities to its members. The interest i .....

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ty 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. As regards the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Limited (supra), the court observed that the Supreme Court was dealing with a case where the assessee - co-operative society, apart from providing credit facilities to the members, was also in the busines .....

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uch 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 Supreme Court held that the Assessing Officer was right in taxing the interest income under section 56 of the Act. The court further observed that the Supreme Court had made it clear that it was confining the said judgment to the facts of the said case and, therefore, was of the view tha .....

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laced upon the decision of the Patna High Court in the case of Bihar State Housing Cooperative Federation Ltd. v. Commissioner of Income Tax, (2009) 315 ITR 286, wherein the court was dealing with the question as to whether on the facts and in the circumstances of that case, the Tribunal was correct in holding that the sum of ₹ 15,98,590/- received by way of interest on bank deposit is not ancillary and incidental to carrying on the business of providing credit facilities to its members an .....

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essee deposits surplus funds available with it and earns interest thereon. The nature of activity in which the assessee is involved clearly creates a situation where surplus fund is available to it which it deposits in the bank and earns interest thereon. The placement of such funds being incidental and ancillary for carrying on business of providing credit facilities to its members by reason of section 80P(2)(a)(i) of the Act, the same is exempt under the said provision. The decision of the Sup .....

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osits and lending money to its members or such other societies as are mentioned in the objects and that when it lays out its moneys so that they may be readily available to meet demand of its depositors if and when they arise, it is not a legitimate mode of carrying on of its banking business. The Privy Council in 1940-8 ITR 635 : (AIR 1940 PC 230) where the profits arose from the sale of Government securities pointed out at page 645 (of ITR) : (at p. 236 of AIR), that in the ordinary cases the .....

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Bank is to place its funds in deposit with other banks and that also is to meet demands which may be made on it. It was however argued that in the instant case the moneys had been deposited with the Imperial Bank on long term deposits inasmuch as they were deposited for one year and were renewed from time to time also for a year; but as is shown by the accounts these deposits fell due at short intervals and would have been available to the appellant had any need arisen. [10] Stress was laid on t .....

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t has not been shown that the moneys which were in deposit with other banks were surplus within that bye-law so as to take it our of banking business. As we have pointed out above, it is a normal mode of carrying on banking business to invest moneys in a manner that they are readily available and that is just as much a part of the mode of conducting a Bank s business as receiving deposits or lending moneys or discounting hundies or issuing demand drafts. That is how the circulating capital is em .....

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be said that the funds of the Bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising therefrom did not form part of its business profits. Under the bye-laws one of the objects of the appellant bank is to carry on the general business of banking and therefore subject to the Co-operative Societies Act, it has to carry on .....

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ourt in the case of Commissioner of Income Tax v. Andhra Pradesh State Co-operative Bank Ltd. (2011) 336 ITR 516, for the proposition that insofar as the interest earned from deposits is concerned, section 80P(2)(a)(i) does not make any difference nor is it possible to read any limitation having regard to the language of the said provision. Every income attributable to any or more of business of banking shall be deducted from the gross total income. The decision of this court in the case of Comm .....

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business must be attributable to any one or more of the specified activities. 4.4 Referring to the notice issued under section 263 of the Act, it was pointed out that the same has been issued on the ground that the appellant is not entitled to exemption under section 80P(2)(d) of the Act, whereas in fact the appellant has not claimed deduction under section 80P(2)(d) but has claimed deduction under section 80P(2)(a)(i) of the Act. Reliance was placed upon the decision of this court in the case o .....

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might be formed on an examination of the record of the proceedings under the Act, that is to say, the assessee may be in a position to point out that the assessment order is neither erroneous nor prejudicial to the interests of the Revenue, or even if it is erroneous, it is not prejudicial to the interests of the Revenue, or it may not be erroneous, even if it is prejudicial to the interests of the Revenue. Therefore, the moment the Revenue s contention is accepted that in the fresh assessment, .....

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e Revenue without giving the assessee an opportunity of being heard. Therefore, what the CIT himself could not have done, cannot be permitted to be done by the Assessing Officer while giving effect to the order under section 263 of the Act. Mr. Divatia further submitted that thus, the Commissioner of Income Tax is required to give an opportunity of hearing and on that point, the assessee should be heard. Referring to paragraph 9 of the order passed under section 263 of the Act, it was pointed ou .....

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Totgars Cooperative Sales Society Ltd. (supra), the question was whether the income was assessable under section 56 of the Act, which is not so in the present case. It was submitted that there is no finding in the impugned order that the interest income has to be treated as income from other sources under section 56 of the Act. Referring to the show-cause notice under section 263 of the Act, it was pointed out that there is not even a slightest indication that the income is sought to be taxed a .....

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ted, the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) would not be applicable. It was submitted that the interest income is incidental to the main activity of the appellant of providing credit facility and that in the above decision of the Supreme Court, the word incidental had not come up for consideration. Reliance was placed upon the decision of this court in the case of Commissioner of Income-Tax v. Jafari Momin Vikas Co-op. Credit Society Ltd. .....

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o an assessee which is not a co-operative bank. The court accordingly did not accept the contention of the revenue that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not co-operative banks. The court held that in the case before it the respondent assessee was admittedly not a credit co-operative bank but a credit cooperative society and therefore, the exclusion clause of section 80P( .....

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the appellant. It was contended that it is open for the appellant to invest surplus funds with the bank and derive interest thereon, but this does not have any direct or proximate connection with the activities of the appellant, and hence the appellant would not be entitled to the benefit of section 80P(2) of the Act in respect of such income. It was submitted that for the purpose of availing the benefit of deduction under section 80P(2) of the Act, such amounts have to be invested in co-operati .....

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n the case of Totgars Co-operative Sales Society Ltd. (supra) would be squarely applicable to the facts of the present case so far as the merits are concerned. Reference was made to the decision of the Supreme Court in the case of Bangalore Club v. Commissioner of Income Tax & Anr, 2013 (350) ITR 509 wherein the Supreme Court has explained the concept of mutuality and in the facts of the said case, held that the arrangement lacked complete identity between the contributors and participators. .....

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ourse of their banking business, the member banks used such deposits to advance loans to their clients. Hence, in that case, with the funds of mutuality, member banks engaged in commercial operations with third parties outside the mutuality, rupturing the privity of mutuality and consequently, violating the one to one identity between the contributors and participators as mandated by the first condition. The court was accordingly of the view that the first condition for a claim of mutuality was .....

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the disposal of the third parties, thus, initiating an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality. This contract lacked the degree of proximity between the club and its members which may in a distant and indirect way benefit the club, nonetheless, it cannot be categorised as an activity of the club in pursuit of its objectives. Mr. Bhatt submitted that section 80P of the Act is based upon the concept of mutuality and accordingly .....

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missioner of Income-tax had assumed jurisdiction only qua section 80P(2) (d) of the Act, referring to the order under section 263 of the Act, it was submitted that the Commissioner of Income Tax is clear that the assessee is not eligible either under clause (a) or clause (d) of section 80P(2) of the Act. Reference was made to the decision of the Karnataka High Court in the case of Totgars Co-operative Sale Society Ltd. v. Income-Tax Officer, (2010) 322 ITR 272 (Karn), to point out the nature of .....

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the observation regarding the judgment being confined to the facts of that case is because the assessee was not in the banking business and all the earlier decisions in this regard are relating to banking business. According to the learned counsel, the decision of the Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) is based upon an incorrect reading of the above decision of the Supreme Court. It was submitted that in the case of Bangalore Club (supra .....

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eyond the scope of the notice issued under section 263 of the Act. Reliance was placed upon the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. Commissioner of Income-tax, Kerala, 2000 (243) ITR 83, wherein the court has held that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application .....

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case, the Assessing Officer, pursuant to the order made under section 263 of the Act had gone much beyond the scope of the said order, whereas in the present case the proceedings arise out of the order passed by the Commissioner of Income-tax under section 263 of the Act. It was, accordingly, urged that the appeals being devoid of merits deserve to be dismissed and the questions are required to be answered in favour of the revenue. 6. The short question that arises for consideration in these ap .....

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11 calling for various details including the following: 10. Please justify the claim of deduction under section 80P of the IT Act, 1961 by me. In response to the above notice issued under section 142(1) of the Act, the appellant by its reply dated 9th May, 2011, inter alia submitted thus:- 2. The constitution of assessee is of a co-operative society formed by the employees of the State Bank of India, Ahmedabad Circle for the purpose & benefit of members of the society & has been register .....

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e corpus so received, by way of share capital and contribution from the members by way of monthly deductions from their salaries, the society is giving loans to the members as per their requirements. The entire activity is conducted by Board of Directors elected by the members themselves at the Annual General Meeting. All the members of the Board are honorary members and they do not draw any remuneration & perquisities from the fund of the society. The income generated by the society is main .....

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Board of the society from time to time. 7. As referred to point No.2, the primary activity of the society is to give loans to members and to receive deposits from the members. The main income of the society is interest income. We refer to copy of Profit & Loss Account which clearly indicates the amount of interest received by the society by various loans given to the members and as well as interest received on investment. 10. We refer to the point sr. no.2, wherein the activity carried out b .....

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other than members. In paragraph 10 of the reply, the appellant is specific and categorical about the fact that the whole income is generated by the society from the contribution received from their own members and that the assessee society has not earned any income other than dealing with any outside party or other activity. Hence, the assessee has claimed the whole income as exempted under section 80P of the Income Tax Act. 8. It may be pertinent to note that in the entire reply, there is no .....

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furcation regarding the amount earned by way of interest from the credit facilities provided to its members and the interest from the investment made in the bank. The Assessing Officer, therefore, has not gone into this aspect of the matter at all. 9. Insofar as assessment year 2010-11 is concerned, the Assessing Officer had issued notice dated 20th July, 2012 under section 142(1) of the Act calling upon the appellant to justify various deductions claimed under section 80P of the Act amounting t .....

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t facility to its members who have been employees of the State Bank of India and classified as Employees Co-operative Credit Society, and that the assessee society is eligible for deduction under section 80P(2)(a)(i) at the rate of 100% from its income and accordingly, has claimed deduction in its return of income for assessment year 2010-11. A perusal of the computation of total income shows that the assessee has shown the gross amount of deduction claimed under section 80P of the Act at ₹ .....

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the same is deductible under section 80P(2)(a)(i) of the Act. It is also the case of the appellant that the interest income is incidental to its main activity of providing credit facilities to its members. 10. It is in the backdrop of the aforesaid facts which emerge from the record that the controversy involved in the present case is required to be examined. Since the Tribunal has held that the appellant is not entitled to claim deduction of interest earned from the funds deposited with the Sta .....

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ding credit facilities to its members and also used to market the agricultural produce of its members. The substantial question of law which arose for consideration was: Whether such interest income would qualify for deduction as business income under section 80P(2)(a)(i) of the Income Tax Act, 1961? Thus, the assessee invested in short term deposits and securities, the surplus funds which were not required for business purposes. The assessee also marketed the produce of its members whose sale p .....

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income would be taxable under section 56 of the Act. The court further held thus: 15. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80-P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. 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 su .....

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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. 16. In this connection, we may analyse Section 80-P of the Act. This section comes in Chapter VI-A, which, in turn, deals with Deductions in respect of certain incomes . The headnote to Section 80-P indicates that the said section deals with deduc .....

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der Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically business profits into the definition of the word income . Therefore, we are required to give a precise meaning to the words profits and gains of business mentioned in Section 80-P(2) of the Act. 17. In the present case, as stated above, the assessee Society regularly invests funds not immediately required for business purposes. Interest on such investment .....

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Section 80-P(2)( a )( i ) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as investment . 18. Further, as stated above, the assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this retained amount which was payable to its members, fro .....

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the assessing officer was right in taxing the interest income, indicated above, under Section 56 of the Act. (Emphasis supplied) 11. On behalf of the appellant, it has been contended that the above decision would not be applicable to the facts of the present case, inasmuch as, the Supreme Court was concerned with the sale proceeds belonging to the members, which the assessee therein had retained. It was this retained amount which was payable to its members, from whom produce was bought which was .....

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t the amount belonging to the members which has been deposited with the State Bank of India. What has been invested is the amount received for the purpose of providing credit facilities to the members and hence, the above decision would not be applicable to the facts of the present case. 12. Under section 80P of the Act, an assessee is entitled to exemption in respect of income earned out of the activities enumerated in sub-section (2) thereof, which are as follows: (a) in the case of a cooperat .....

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our of its members, or (vii) fishing or allied activities, that is to say the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members. the whole of the amount of profits and gains of business attributable to any one or more of such activities: Thus, in the case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to .....

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such investments, therefore, cannot fall within the meaning of the expression profits and gains of business . It was held that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce to its members. The court further held that the words the whole of the amount of profits and gains of business emphasise that the income in respect of which deduct .....

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section 56 of the Act. 13. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgars Co-operative Sale Society (supra), as rightly submitted by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payabl .....

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d therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was p .....

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he assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as investment are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income T .....

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iety (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the wh .....

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ieties Act. The objects of the society as stated in the Bye-laws are: (1) to encourage thrift, self-sufficiency and co-operation amongst members of the society; (2) to inculcate the concept of savings amongst the members; (3) to give credit to the members at reasonable rates when the occasion arises; and (4) to carry out all activities for achieving the objects of the society. Thus, the objects of the appellant society do not contemplate investment of surplus funds received from its members. Ins .....

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since the appellant admittedly does not carry on any banking business, the said decisions would not be applicable in the facts of the present case. 16. In case where the co-operative society is a bank, one of its objects would be to carry on the general business of banking. Like other banks, money would be its stock-in-trade or circulating capital and its normal business is to deal in money and credit. The business of such a bank does not consist only of receiving deposits and lending money to i .....

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tion 80P(2)(a)(i) of the Act. However, investing its surplus funds with the State Bank of India is no part of the business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India is profits and gains of business attributable to the activities of the appellant society. The character of the interest is different from the income attributable to the business of the society of providin .....

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appellant. In the present case there is no obligation upon the appellant to invest its surplus funds with the State Bank of India. Investing surplus funds in a bank is no part of the business of the assessee of providing credit facilities to its members. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable .....

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e State Bank of India is permissible under section 71 of that Act, there is no statutory obligation cast upon the appellant to deposit funds as a part of its business. The said provision also permits investment of funds in any co-operative bank or any banking company approved for this purpose by the Registrar on such conditions as the Registrar may from time to time impose. However, insofar as the provisions of the Income Tax Act are concerned, under section 80P(2)(d) thereof, it is only the inc .....

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ly in respect of section 80P(2)(d) of the Act. In this regard, it may be noted that no such contention has been raised before the Tribunal and hence, the same does not arise out of the impugned order. Besides, as is evident from the facts noted hereinabove, the appellant, in the return of income, had claimed deduction under section 80P of the Act and not specifically under section 80P(2)(a)(i). The appellant had also not shown any bifurcation of the income derived from providing credit facilitie .....

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ct. In this background, the Commissioner of Income-tax, in the notice issued under section 263 of the Act, has sought to revise the order passed by the Assessing Officer on the ground that the petitioner had claimed deduction of the interest income from State Bank of India under section 80P(2) in contravention of the provisions of section 80P(2)(d) of the Act, wherein only interest income from a co-operative society qualifies for deduction under section 80P. In response to the notice under secti .....

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(2)(a) of the Act and gains of business attributable to such activity is exempt from taxable income and that based on the above, interest income of fixed deposits with S.B.I. has been treated as business income of the Society engaged in the business of banking or providing credit facilities to its members and accordingly income derived from this activity has been claimed exempt under section 80P(1) and 80P(2)(a) of the Act. Having regard to the stand adopted by the appellant in response to the n .....

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s not merit consideration for the reason that it is for the Assessing Officer, pursuant to the order under section 263 of the Act to examine the nature of the income and tax it accordingly. Insofar as the order under section 263 of the Act is concerned, in the light of the above discussion, it is not possible to state that the same suffers from any legal infirmity. The Tribunal was, therefore, wholly justified in upholding the same. 20. Insofar as the decision of this court in the case of Baroda .....

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eparate activities. The first activity viz. carrying on the business of banking connotes a larger activity than the activity of providing credit facilities to its members. The latter is restricted qua the members of the society while the former is wide enough to take within its sweep as its potential customers, both the members and non-members. The court observed that bearing in mind that section 80P(2)(a)(i) of the Act requires a co-operative society and not a co-operative bank defined under th .....

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incidental or conducive to the promotion or advancement of the business of banking company . Thus, there is a live link, a proximate nexus between clauses (a) to (o) of section 6(1) and the business of banking under section 5(b) of Banking Regulation Act. To say that investment of funds (so called surplus) is not conducive to the promotion or advancement of the business of banking, would not only be derogatory of and contrary to the provisions but pedantic. 21. Thus, the court in the above decis .....

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of banking, but with a co-operative society engaged in the business of providing credit facilities to its members, which is not as wide an activity as the business of banking. Strong reliance has been placed by the learned counsel for the appellant on the findings recorded in paragraphs 52, 67 and 69 of the said decision. In paragraph 52 the court has referred to the decision of the Supreme Court in Vellore Electric Corporation Ltd. v. CIT, (1997) 227 ITR 557, wherein the phrase attributable to .....

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siness profits. In paragraph 69 the court held thus: The question therefore would arise as to whether any distinction can be drawn between so called surplus funds/idle funds and statutory investments. It is necessary to bear in mind that a reserve per se does not yield any income. It is the investment of the fund backing a reserve which would yield income. Therefore, whatever be the nomenclature of a particular reserve, the funds of an assessee in totality are conglomerate of the total amount of .....

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commencing from the Privy Council decision is that such funds must be invested in easily realizable securities. The twin objective as laid down by this Court is not to lose interest by keeping the funds idle and invested in securities so as to encash them readily in case of need. This is in consonance with the definition of the term 'Banking'. The deposits are accepted as payable on demand or otherwise, and also permitting withdrawal by cheques and other prescribed modes. On a plain rea .....

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