TMI Blog2015 (5) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised by the Revenue read as under : 1. The learned CIT(Appeals) erred in holding that interest received of an amount of ₹ 1972805/- is taxable. 2. The learned CIT(Appeals) erred in holding that interest received from the banks and cooperative societies of ₹ 2,99,520/- is not entitled to deduction U/s 80(P)(2)(d) and accordingly enhance the income of ₹ 10,26,715/-. 2. In this case the assessee is a cooperative society involved in banking business and provides credit facilities to its members. The Assessing Officer noted that the assessee has claimed deduction of ₹ 36,69,599/- under section 80P of the I.T. Act. The Assessing Officer noted that as per section 80P(4) provisions of above section will not apply in relation to any cooperative banking other than a primary agricultural credit society or primary agricultural credit society or a primary agricultural credit cooperative agricultural and rural development bank. Assessee s counsel replied that they are not cooperative bank but cooperative credit society. Hence the provisions of section 80P(4) were not applicable to them. The Assessing Officer referred to the provisions of section 80P. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) Umiya Bank liable to be disallowed. The working is as under :- Interest received from all Banks together- ₹ 29,99,520/- (Assessable under the Head Income from Other Sources ) (-) Interest received from Nationalised Govt. aided Bank i.e. Union Bank NDC Bank is at ₹ 10,26,715/- ( ₹ 29,99,520/- (-) ₹ 10,26,715/-) = ₹ 19,72,805/-. The amount of interest earned from Parmatma Bank, Shikshak Sah. Bank, Nagpur Nagrik Bank and Umiya Bank Amounting to ₹ 19,72,805/- is not eligible for deduction u/s 80-P and is taxable. Accordingly disallowed. 4. Against the above order, assessee appealed before the learned CIT(Appeals). The learned CIT(Appeals) held that the assessee cannot be said to be a cooperative bank. However, as regards the treatment of interest income from fixed deposit, learned CIT(Appeals) was of the opinion that interest income earned was taxable as income from other sources. In this regard, learned CIT(Appeals) referred to the decision of Hon ble Apex Court in the case of Totgars Cooperative Sales Society Ltd. v/s. ITO 322 ITR 283 (SC). The learned CIT(Appeals) concluded as under : Hence additions made by A.O. are confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be reclaimed even before maturity or else society can avail an overdraft facility against the said deposits. The society cannot afford to keep interest bearing funds(deposits) idle as this needs to be repaid at the date of maturity along with interest. 7. Therefore, because of high current liabilities, society has to maintain high working capital. It won t be a prudent business practice to keep this working capital idle in current account. This working capital is nothing but a certain percentage of interest bearing deposits received from members ploughed back in to the business. Therefore, these deposits are parked in a ventures where it can be converted in to a cash at go and also certain interest incomer yields from these funds. The learned counsel of the assessee further submitted that the Cooperative Credit Societies generally prefer to invest their working capital in short term deposits with Nationalised banks and other Co-operative banks. As an when urgent funds are required these deposits are either redeemed or an overdraft facility can be availed from said banks against these deposits. 8. The learned counsel pointed out that as per Rule 41 of the Maharashtra State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal s decision is as under : 4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining operations funds and to meet any eventuality towards re-payment of deposit, the Co-operative Society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT B Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op.Credit Society Ltd. bearing ITA No.1491/Ahd/2012 (for A.Y. 2009-10) and CO No.138/Ahd/2012 (by Assessee) order dated 31/10/2012. T he relevant portion is reproduced below:- 19. The issue dealt with by the Hon ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under: What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.4. While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - -in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon ble Supreme Court had not spelt out anything with regard to operational funds; 19.5. Considering the above facts, we find that the re is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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