9911796707
TMI Blog2016 (9) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... P(2)(a)(i) nugatory as the said section of the Act allows deduction to a cooperative Society engaged in carrying on business of banking or providing credit facilities to its members ?" Section 80P in so far as the same is material for our purpose is quoted below: 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members or (ii) a cottage industry or [(iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] [(vi) the collectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lending money to the members. While accepting deposits, the assessee promises to pay interest at a specified rate. When money is lent to the members, interest is recovered also at a specified rate. The difference between the two rates is the income earned by the assessee. There are, however, periods when the entire deposit received from the members cannot be lent because the members are not in need or there is no demand for loan. Whether the money is lent or not, the assessee continues to be liable for payment of interest to the depositors resulting in loss. In order to mitigate the loss the surplus funds have to be invested. So that the interest earned can be set off against the liability to pay interest to the depositors. He submitted that this is what the assessee has done. He drew our attention to the details of investments for the purpose of establishing that the major investments were for a period between 15 and 91 days which is a pointer to show that the money was invested only when the money was not in demand by the members. Therefore, the interest earned from such investments has to be treated as an income attributable to the business of providing credit facilities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributable to the business of providing credit facilities to its members. Section 80P, it is true provides that, "in the case of a cooperative society engaged in carrying on the business .................... providing credit facilities to its members ................ the whole of the amount of the profits and gains of business "attributable" to any such activity "shall be deducted". But there is a caution appearing in sub-section (1) which provides that the gross total income of a cooperative society may include income from various activities. It is only an income falling under sub-section(2), which is deductible. The Supreme Court in the case of Totgars Co-operative Sale Society Limited vs ITO reported in (2010) 322 ITR 283 (SC) took the following view in para 10 of the report. "10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under s. 80P(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 s. 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st held as ineligible for deduction under s. 80P(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". Further, as stated above, 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, from whom produce was bought, which was invested in short-term deposits/securities. 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 s. 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the AO was right in taxing the interest income, indicated above, under s. 56 of the Act." We are prepared to agree with Mr. Khaitan to the extent that the interest earned from out of the investments made under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of providing credit facilities to its members and on that basis, the assessee did not separately provide for the expenditure incurred for the purpose of earning Rs. 99 lakhs during the assessment year 2003-04 and Rs. 1.12 crores during the assessment year 2004-05, from investments. Those investments were obviously made from out of the funds deposited by the members and for such deposits, interest has been paid to those members by the assessee. The interest paid to those members on account of such deposits should, therefore, have been separately accounted for, which exercise was not undertaken. The result thereof was that the expenditure was artificially enhanced and the income arising out of the business of providing credit facilities to its members got reduced. When the income got reduced, the amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded to the Assessing Officer for the purpose of working out the amount of expenditure incurred in earning the approximate sums of Rs. 99 lakhs and Rs. 1.12 crores respectively. The expenditure incurred for earning those two amounts of income is the amount of interest paid for that mone ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
