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2016 (7) TMI 565 - ITAT AHMEDABAD

2016 (7) TMI 565 - ITAT AHMEDABAD - TMI - Treatment of assessee’s interest income from its surplus funds parked in the State Bank of India, IDBI and Sardar Sarobar Narmada Nigam - Held that:- Entitlment for Section 80P deduction qua interest income allowed - Addition made in respect of profits earned out of trading activity - Held that:- Departmental Representative fails to rebut this factual position that the lower appellate order does not deal with the assessee’s second substantive grievan .....

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1, hereinafter the Act . 2. The assessee s first substantive ground raised in the instant appeal challenges action of both the lower authorities denying it Section 80P deduction on interest income of ₹ 2,70,168/- derived from its investment made with nationalized banks. There is no dispute about the assessee being a co-operative society. It is mainly engaged in marketing of agricultural produce of its member, supply of agricultural implements, fertilizers, pesticides, seeds, provides essen .....

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2,70,168/- as its income from other sources. The CIT(A) confirms the same. 3. We have heard both the parties. Case file perused. The sole issue between the parties is qua treatment of assessee s interest income from its surplus funds parked in the State Bank of India, IDBI and Sardar Sarobar Narmada Nigam resulting in interest income to the tune of ₹ 59,969/-, 1,02,031/- & ₹ 1,08,148/-; respectively. Even the CIT(A) is fair in observing that the very issue stands decided in asses .....

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of Guttigedarara Credit Co-operative Society Ltd. vs. ITO reported in [2015] 60 taxmann.com 215 (Karnataka). The Hon ble Karnataka High Court has reversed the order of the Tribunal and held that interest income earned by a Credit Co-operative Society on deposits of surplus funds with scheduled bank would qualify for deduction u/s.80P(2)(a)(i) of the Income Tax Act. The questions framed by Hon ble Karnataka High Court read as under: (i) Whether the Tribunal failed in law to appreciate that the in .....

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n the facts and circumstances of the case? (iii) Without prejudice, whether the tribunal is justified in not holding that if at all the interest earned from deposits with scheduled banks is held to be not attributable to the activity of providing credit to members, then the whole of such income is not liable to tax but only the net income after reducing the expenditure incurred to earn such interest income would be liable to tax on the facts and circumstances of the case? The Hon ble Karnataka H .....

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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 of an assessee being a co-operative society, the gross total income includes any income referred to in su .....

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e 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:- 'As regards the aspect emerging from the expression "attributable to" occurring .....

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. 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 meaning in the manner suggested by the learned Solicitor- General, it has used the expression .....

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, 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 business by providing credit facilities to its members. The interest income so derived or the capital, .....

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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/Cooperative Society, apart from providing credit facilities to the members, was also in the business of mar .....

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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. Therefore it is clear, Supreme Court was not laying down any law. 12. In the instant case, the amount which .....

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