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Income – Tax Officer, Ward – 1, Sirsi Versus M/s. The Totagar’s Rural Co – Operative Agricultural Credit Society Ltd.

2016 (10) TMI 585 - ITAT BANGALORE

Section 80P deduction eligibility - Held that:- Interest income and dividend earned on deposits with other co–operative banks/societies are fully deductible u/s. 80P (2)(a)(1) from the income liable to tax though the assessee has claimed the same as exempt u/s. 80P (2)(d) of the Act. See M/s. The Totgars´ Cooperative Sale Society Limited Versus Income Tax Officer. Karnataka [2010 (2) TMI 3 - SUPREME COURT] - ITA 213 & 214/Bang/16 - Dated:- 26-8-2016 - SRI. SUNIL KUMAR YADAV, JUDICIAL MEMBER For .....

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spect of interest income as the same is not earned by the assessee from investments made by it with co - operative societies. 2 The Learned CIT(A) erred in holding that the assessee was eligible to claim the deduction u/s. 80P(1)(a)(i) in respect of the income earned by way of interest on deposits/savings bank account and dividend income on the ground that the said income is attributable to the business activity of the assessee co - operative society and hence, the assessee is eligible to claim .....

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gned issues are that the assessee, a Rural Co-Operative Bank and its main activities are lending of money to its members and accepting deposits from them. It filed its return of Income for the A.Ys: 2010 - 11 & 2012 - 13 and claimed exemption u/s. 80P (2) (d) of the I T Act, 1961 (hereinafter called as an act). The A.O disallowed the same and brought to tax the declared income following the decision of the Supreme Court in the case of Totagar s Co-Operative Sale Society Ltd., vs. ITO, Sirsi, .....

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alls in the sub-clause(1) viz., providing credit facilities to its members. 5 Being aggrieved with the order of the CIT(A), revenue has preferred an appeal before the Tribunal with the submission that while adjudicating the issue CIT(A) has not taken to account in the judgment of the Apex Court in the case of M/s. Totagar s Co-Operative Sales Society Ltd.,. Whereas the learned counsel for the assessee placed the reliance on the order of the CIT(A) with the submission that the CIT(A) has decided .....

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d., and the judgment of different High Courts. Relevant observation of the CIT(A) are extracted here as under: On the contrary, the assessee in its written submissions brought to my notice the provision of the Karnataka Co- Operative Societies Act, 1959, especially to Sec. 58 which deals with investment of funds, according to which a co- operative society may invest or deposit its funds: 1 In a Govt. Savings Bank or 2 In any securities specified in Sec. 20 of India Trust Act 1982, 3 In the share .....

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cts of the case as under. M/s. Totagar s Co - Operative Sale Society, apart from providing credit facilities to members, was also in the business of marketing agricultural produce grown by its members. The sale consideration received from marketing agricultural produce from members was retained in many cases. The said retained amount payable to members was invested in short term deposit. Such amount which was retained by the society was a liability and it was shown as such, in the Balance Sheet .....

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as further based its grounds of appeal by taking recourse to the following decided case Laws. 1 Similar view as held by the above Apex court was taken in the case of CIT III Hyderabad vs. A.P Co - Operative Bank Ltd., by A.P High Court (2011) 336 ITR 516 (A.P). 2 Tumkur Merchants Souharda Credit Co - Operative Ltd., vs. ITO, Tumkur, ITA No. 307 of 2014. The Karntaka High Court held that the assessee had to invest money in form of deposits in banks to earn interest which is attributable to carryi .....

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In the latest case decided by the Karnataka High Court in ITA No. 307 of 2014 (Tumkur Merchants Souharda Credit Co - Operative Society), the Court referred to the following cases where similar view was taken by the Courts. a CIT vs. BilGurubasava Pattina Shakari Sangh Niyamit. b CIT vs. Bangalore Credit Co - Operative Society in ITA No. 598/2013. c CIT vs. Yeshwantpur Credit Co - Operative Society Ltd., in ITA No. 237/2012. d CIT vs. Mysore University Employees Co - Operative Society Ltd., in IT .....

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see cannot be termed to be under the Banking Regulation Act. Therefore the assessee prays that the decision of the Jurisdictional High Court in ITA No. 307 of 2014, i.e.,Tumkur Merchants Souharda Credit Co - Operative Society Ltd., and also that of Cahndrapabhu Urban Co - Operative Credit Society Ltd., Nippani vs. ITA in ITA No. 100043 and 1000045, dtd. 21/09/2015, be followed and relief be granted. I have gone through the assessment orders for the assessment years, viz., 2010 - 2011 and 2012 - .....

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or claiming deduction u/s. 80P of the Act and once it is proved beyond doubt that a particular income is attributable to only the activity/activities mentioned u/s. 80P(2)(a) of the Act, the whole of such income is eligible for deduction u/s. 80P of the Act. The interest income stems from the deposits made by a mandatory requirement for carrying on the activity of providing credit facilities to the members. If such deposits are not made as required as per the stature, then it would be an offence .....

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e of Cambay Electric Supply {(1978) 113 ITR 84 (SC)} the Supreme Court held that the meaning of the word attributable is much wider than the word derived from and since the expression of wider import viz., Attributable to , has been used the Legislature intended to cover receipts from sources other than the interest earned by the assessee on the deposits made for liquidity purposes and as a measure of fund management which is essential for its activities of providing credit facilities to its mem .....

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(i) in the case of co - operative banks. The court analysed this issue in the light of various Apex Court decisions which have equated the money held by a bank to its stock-in-trade or circulating capital and finally held as we have pointed above , it is a normal mode of carrying on banking business to invest money in a banker that are readily available and that is just as much a part of the mode of conducting bank s business are receiving deposits or lending moneys or discounting hundies or iss .....

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isions of sec 80P (2) (a) (ii), with reference to the decision of the Supreme Court, referred to by the AO, i.e., Totagar s Co - Operative Sale Society and also other decisions and further held that the word attributable to is much wider when compared to derived from as held by another Apex Court decision (Cambay Electric Supply Industrial Co. Vs. CIT (1978) 113 ITR 84), squarely applies to the facts of the case and hold that the interest and dividend income earned by the assessee will qualify f .....

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p;…….. . The word Attributable to used in the said section is of great importance. From the above, it can be analysed that: 1 The object of keeping or investing the surplus funds of co - operative society is intended to meet any unforeseen losses. 2 The amount that is eligible for deduction under the section, is the amount of profit attributable to the activity of the assessee falls under sub-clause (1), viz., providing credit facilities to members. 3 It is the activity that is the .....

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offence under the law and it would not be in a position to carry on its business. 6 The interest and dividend earned are thus incidental to and inextricably linked with the activity of providing credit facilities to members and consequently the interest thereon cannot be considered as a source of income having distinct identify for itself. Without prejudice to the above findings that the interest income from deposits are eligible for deduction u/s. 80P (2) (a) (i), it is to be noticed that the a .....

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