9911796707
TMI Blog2016 (6) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... rvisory Officers of State Bank of India. A survey was carried out u/s 133A of the Act on 02.08.2013 on the premises of the assessee. It was found that interest was earned on SBI FDRs and also received interest income from the loan advanced to members. Assessee was allowed deduction u/s 80P(2)(a)(i), which according to Assessing Officer the assessee was not eligible to assessee. Notice u/s 147 was issued, during the course of reassessment proceedings, the Assessing Officer observed that the assessee was not entitled to deduction u/s 80P(2)(a)(i) of the Act on Rs. 21,87,277/- (AY 2007-08) received as interest on FDs with SBI as the conditions laid down in the said section were not satisfied. Further, the FD amounts were equal to the reserve fund of the appellant and hence the assessee's contention that operational funds were deposited with SBI was not acceptable. The deposits were from surplus funds. The Assessing Officer relying on the judgment of the Hon'ble Apex Court in Totgars' Co-operative Sale Society Ltd, 322 ITR 283 (SC) disallowed the deduction u/s 80P(2)(a)(i) of the Act of Rs. 21,87,277/- (AY 2007-08) in respect of interest income received from SBI and treated the same as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund This clearly shows that the FDs were not from operational funds but were from the surplus funds available with the appellant. Thus what has been invested is society's own funds and therefore the income by way of interest arising on deposits is a source of income apart from business activity of the appellant. As said above also, earning interest from bank deposits is not a business activity of the appellant. The hon'ble Apex Court has dealt with this issue in Totgars Co-operative Sale Society Ltd. vs. ITO 322 1TR 283 (SC) and held that interest earned on surplus funds not required for business immediately and invested in short term deposits is required to be taxed as Income from Other Sources u/s.56 of the Act Hon'ble Apex Court observed as follows: - "The words "the whole of the amount of profits and gains of business" emphasize that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society. In this particulars case, the evidence shows that the assessee-Society earns interest on funds which are not required for business purpose at the given point of time. Therefore, on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 8] 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 carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. (Para 10] In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction on the aforesaid amount is unsustainable in law. [Para 10]" 2.3 Nothing contrary was brought to our knowledge on behalf of the Revenue. In the present case, it is undisputed that the amount in question, which was invested in SBI to earn interest, was not an amount due to any members. It was not the liability. It was also not shown as liability in their account. This amount, which is in the nature of profits and gains, was not immediately required by the assessee for l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in a short-term deposit/security. 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 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. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the aforesaid decision of Hon'ble Karnataka High Court and in the absence of any contrary binding decision pointed out by Revenue, we are of the view that the interest earned by the assessee is eligible for deduction u/s 80P. We therefore set aside the order of the AO. In the result the ground of the assessee is allowed." 5.4 The aforesaid ITAT judgment has been followed by the ITAT, Ahmedabad Bench in the case of Maroli Bazar Vibhag Vividh Karyakari Sahkari Mandi Limited vs. ITO in ITA Nos. 3130/Ahd/2014 & 1834/Ahd/2013, by allowing similar claim. The ld. Counsel thus contends that the assessee's case is supported by the Hon'ble Karnataka High Court, Andhra Pradesh High Court and ITAT judgments in the case of Tumkur Merchants Souharda Credit Cooperative Ltd, Andhra Pradesh State Cooperative Bank Ltd., Amalsad Vibhag Vividh Karyakari Sahkari kHedut Mandali Ltd. and Maroli Bazar Vibhag Vividh Karyakari Sahkari Mandi Limited (supra). Thus, the assessee's claim may be allowed. 5.5 Ld. Departmental Representative, on the other hand, contends that the issue of assessee's appeal for AY 2010-11 was only on the validity of 263 proceedings and not the decision on merits. In this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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