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2016 (6) TMI 1124 - ITAT AHMEDABAD

2016 (6) TMI 1124 - ITAT AHMEDABAD - TMI - Disallowance of deduction u/s 80P(2)(a)(i) - Held that:- The assessee is eligible for deduction u/s 80P(2)(a)(i), which is allowed. Consequently, such income cannot be held as income from other sources. In view of the foregoing, we decide this ground in favour of the assessee for all assessment years under consideration. See TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED Versus THE INCOME TAX OFFICER, WARD-1, TUMKUR [2015 (2) TMI 995 - KARNATAKA H .....

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e following ground is the effective ground:- That the learned CIT(A) has grievously erred in law and on facts, in disallowing the claim of deduction u/s 80P(2)(a)(i) of the Act of ₹ 21,87,277/- for Assessment Year 2007-08, ₹ 22,26,250/- for Assessment Year 2008-09, ₹ 36,54,690/- for Assessment Year 2009-10 & ₹ 41,85,500/- for Assessment Year 2011-12 in respect of interest income received from SBI. 4. Brief facts are - the assessee is a Co-operative Credit Society of S .....

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sessee was not entitled to deduction u/s 80P(2)(a)(i) of the Act on ₹ 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 Totgar .....

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t of overdraft facility is used for meeting the obligations of giving interest and loan to its members without resorting to premature withdrawal of FDs. The overdraft was to maintain liquidity and optimum utilization of funds of society. Accepting deposits from members, granting loans to members and keeping operational funds with bank are integral part of its objective of providing credit facilities to members. The interest income including interest received from members and also on fixed deposi .....

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rvations:- From the above it is clear that deduction u/s 80P is available to a cooperative society engaged in activities listed in (a)(i) to (vii) above on the whole of the amount of profits and gains of business attributable to one or more activities of the co-operative society. Thus it is clear that the deduction is available in respect of profit and gains of business attributable to one or more business activities of the society i.e. deduction is in respect of income wholly attributable to bu .....

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tune of ₹ 3.06 crores. The FDs with the bank were for ₹ 3.15 crores which is roughly equal to the reserve 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 .....

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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 facts and circumstances of this case, in our view, such interest income falls in the category of "Other Income which has been rightly taxed by the Department under sect .....

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cordingly, I uphold the addition of ₹ 21,87,277/- made on this account. This ground of appeal is dismissed. 4.3 Aggrieved, the assessee before us. 5. Ld Counsel for the assessee contends that the issue in question arose in assessee s own case in 263 proceedings for Assessment Year 2010-11 before the ITAT, which by order dated 31.03.2016 in ITA No.347/Ahd/2014 allowed the appeal of the assessee by following observations:- 2.2 Before us, the ld. Authorized Representative for the assessee sub .....

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bers. The interest income so derived or the capital, if not immediately required to be lent to the members, they 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 facilities to its members only. 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 att .....

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mmediately 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 .....

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eposited the money in SBI so as to earn interest. The said interest income was attributable to carrying on the business of banking and therefore it was liable to be deducted in terms of Section 80P(1) of the Act. 2.4 In view of above legal discussion, we are not inclined to concur with the findings of the CIT. Therefore, respectfully following the decision of Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd (supra), we set aside the order of the CIT an .....

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xpression 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 Cooperative 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, they cannot ke .....

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rative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., 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 .....

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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 membe .....

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w is taken by the Andhra Pradesh High Court in the case of Commissioner of Income-Tax III, Hyderabad vs. Andhra Pradesh State cooperative Bank Ltd., reported in (2011) 200 TAXMAN 220/12. 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. Hence, we pass the followi .....

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clear contradiction, the funds in the instant case are the surplus funds and not the liability of the bank but its own surplus funds. Based on this distinction on facts and following the Hon ble Andhra Pradesh High Court judgment (supra), it was held that the interest so earned is relatable to activities of Co-operative Credit Society; therefore, the deduction u/s 80P(2)(a)(i) is clearly allowable. 5.3 Ld. Counsel for the assessee further relied on the decision of this Tribunal in the case of Am .....

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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 th .....

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al for AY 2010-11 was only on the validity of 263 proceedings and not the decision on merits. In this regard, he relied upon the decision of this Tribunal in the case of State Bank of India Employees Co-op. Credit & Supply Society Ltd vs. CIT, reported in [2015] 57 taxmann.com 367 (Ahd Trib.), wherein the 263 action of the Commissioner has been upheld. 5.6 Ld. Counsel for the assessee in rejoinder contends that there are two different views on the issue of 263 and not on the merits. In asses .....

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