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ITO, Ward-3, Nadiad Versus Sahyog Co-op. Credit Society Ltd.

2016 (7) TMI 739 - ITAT AHMEDABAD

Entitlement for exemption under section 80P(2)(a)(i) - Held that:- The assessee is a cooperative society. It has earned interest of ₹ 55,42,074/- in addition to the interest earned on loans and advances made to its members. The alleged interest was earned on fixed deposits with commercial banks and others. The ld.AO denied the benefit under section 80P(2)(a)(i) of this interest income. In view of the decision of the Co-ordinate Bench in the Asstt.Year 2009-10, the assessee is entitled for .....

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nst the order of the ld.CIT(A)-IV, Baroda dated 24.5.2013 passed for the Asstt.Year 2010-11. 2. The grounds of appeal taken by the Revenue read as under: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in law, in directing to tax interest received from short term deposits with banks as 'profit and gains of business1 eligible for deduction U/S.80P against 'income from other sources' not eligible for deduction u/s.SOP as held by the AO which ge .....

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ounds as may be deemed necessary. 3. The ld.counsel for the assessee at the outset submitted that the issue is squarely covered in favour of the assessee by the order of the ITAT dated 14.3.2016 in its own case in the Asstt.Year 2009-10. He placed on record copy of the order in ITA No.910/Ahd/2013. The order of the Tribunal reads as under: 1. By way of this appeal, the Assessing Officer has challenged correctness of the order dated 11th January, 2013, passed by the ld. CIT(A), for the assessment .....

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8 taxman 282 (SC) wherein it has been held that assessee is not eligible for deduction u/s. 80P(2)(a)(i) where such interest was earned on surplus funds invested in short term deposits. 2. On the facts and in the circumstances of the case, the learned CIT(A) ought to have upheld the order of the Assessing Officer. 2. Learned Representatives fairly agree that the issue in appeal is covered, in favour of the assessee, by the decision of this Tribunal dated 13th January, 2016, in the case of Anant .....

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ssee in a nationalized bank out of the amounts which was used by the i assessee for providing credit facilities 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 .....

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essee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other 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 8 .....

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co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to 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 .....

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uot; and not the expression "derived from". It cannot be disputed that the expression "attributable 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 electrici .....

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ctricity.' 10. Therefore, the word "attributable to" is certainly wider in import than the expression "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 wh .....

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ly. The society is not carrying on any separate business for earning such interest income. The income so derived 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 cas .....

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urity. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance 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 A .....

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s, 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 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 .....

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2-13. The finding of the Tribunal recorded 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 .....

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rest of the members this surplus fund 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. .....

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desh High Court in the case of CIT v/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 .....

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p its surplus liquid funds with different 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 no .....

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tive Society is maintaining some 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, fo .....

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urposes, it was invested in specified 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 ver .....

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d, consequently, such act of investment 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 tha .....

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(d) that the surplus had arisen 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 t .....

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on ble Supreme Court had not spelt 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 invest .....

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e above facts, we are of the firm 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 .....

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