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Income-tax Officer, Ward -4 (2) (2) , Bengaluru Versus The BEML Employees Co-op Society Ltd,

2016 (10) TMI 713 - ITAT BANGALORE

Eligibility of deduction u/s.80P(2)(a)(i) - object of society - idle money placed in bank with interst earned thereon - Held that:- There is no dispute that one of the main object of assessee society was providing credit facility to its members. AO himself has mentioned that this was the primary object for which assessee was incorporated. No doubt, out of substantial sum received as deposits from the members, only small portion were given by assessee as loans to its members. Major part of the fu .....

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COURT] the money meant for lending, remaining surplus, there being no takers, if deposited in banks for earning interest, such interest income would be attributable to the business of banking carried out by the assessee. Thus as the facts of the case here fit perfectly well with the facts in the judgment mentioned above, therefore, hold that assessee was eligible for claiming deduction u/s.80P(2)(a)(i) of the Act. - Decided in favour of assessee - I.T.A No.435/Bang/2016 - Dated:- 26-8-2016 - SH .....

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filed its return of income for relevant assessment year in which it had claimed deduction of ₹ 34,69,117/-, u/s.80P(2)(a)(i) of the Act. The Assessing Officer was of the opinion that the assessee fell within the definition of a cooperative bank given in clause (ccv) of Section 5 of the Banking Regulations Act, 1949. Therefore, according to him, sub-section (4) of section 80P stood attracted. The said sub-section specifically stated that the provisions of section 80P would not apply to a co .....

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other cooperative society as a member. He therefore held it to be a cooperative bank. According to the Assessing Officer, assessee was not eligible for a deduction u/s.80P(2)(a)(i) of the Act. 03. Aggrieved, assessee moved in appeal before the CIT (A). Argument of assessee was that the amounts which were placed in deposits were having direct nexus with the amounts received as deposits from members. When there were no immediate need of the funds for loan disbursements, instead of keeping the fun .....

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by assessee and relying on the judgment of Hon ble High Court of Karnataka in CIT v. Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, Bagalkot (supra), held that assessee was entitled to exemption u/s.80P(2)(a)(i) of the Act. 05. Ld. DR strongly assailing the order of the CIT (A) submitted that source of the interest was deposits in the bank. According to him, only the immediate source was required to be seen and not the remote source. Hon ble Apex Court had clearly laid down this principle .....

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at one of the main object of assessee society was providing credit facility to its members. AO himself has mentioned that this was the primary object for which assessee was incorporated. Nodoubt, out of substantial sum received as deposits from the members, only small portion were given by assessee as loans to its members. Major part of the funds were parked in FDs. However, it is an admitted position that assessee was bound to give interest to its members on the deposits received by it from the .....

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s, held as under at paras 3 to 10 of the judgement dt.28.10.2014 : "4. The learned counsel for the assessee assailing the impugned order contended, the interest accrued in a sum of ₹ 1,77,305/- is from the deposits made by the assessee in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members and therefore the said interest amount is attributable to the credit facilities provided by the assesseeand forms part of profits and .....

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case for interference is made out. 6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of ₹ 1,77,305/- represents the interest earned from short-term deposits and from savings bank account. The assessee is a Cooperative 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 durati .....

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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 co-operative society engaged in - (i) )carrying on the business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or m .....

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he phrase profits and gains attributable to the business of the specified industry here generation and distribution of electricity on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression attributable to 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 .....

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e expression of wider import, namely, attributable to , has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. 8. 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 express .....

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s 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 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 .....

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s. 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 s .....

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