TMI Blog2017 (4) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits in other Co-operative Societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under Clause (d) or (e), as the case may be. The original source of the investments made by the petitioners in nationalised Banks is admittedly the income that the petitioners derived from the activities listed in sub- Clauses (i) to (vii) of Clause (a). The character of such income may not be lost, especially when the statute uses the expression attributable to and not anyone of the two expressions, namely, derived from or directly attributable to. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the Writ Petitions are allowed, and the order of the Assessing Officer, insofar as it relates to treating the interest income as something not allowable as a deduction under Section 80P (2) (a), is set aside. - Decided in favour of assessee. - W.P.Nos. 12727 and 12767 of 2016 and W.P.Nos. 2518, 2571, 2576 and 2581 of 2017 - - - Dated:- 15-3-2017 - SRI V.RAMASUBRAMANIAN AND MS. J.UMA DEVI, JJ. For The Petitioner : Mr. A.V. Krishna Kaundinya, Senior Counsel for Mr. Veerabhadra, Rao Ko ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (4) of Section 80P. 6. Sub-section (1) of Section 80P entitles a Co-operative Society to deduct the sums specified in sub-section (2) from its gross total income, while computing the total income. Sub-section (2) of Section 80P reads as follows: (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 collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members. the whole of the amount of profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation.For the purpose of this section, an urban consumers co-operative society means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. 7. It appears that the petitioners are engaged in the sale of fertilisers to its members. A portion of the income derived therefrom is deposited by the petitioners in Nationalised Banks. The income derived by way of interest on the Fixed Deposits made by the petitioners with the Banks, was treated by the petitioners as an income attributable to the profits and gains of business, eligible for deduction under Section 80P(2)(a). But the Assessing Officer treated the interest income as income from other sources not eligible for deduction. 8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses the expression attributable to, the contention of the petitioners is that clause (a) should receive a wider interpretation. 13. The above contention cannot be rejected outright, for the simple reason that in many Statutes and for that matter even in the Income Tax Act, the expression attributable to is sometimes used with the prefix directly. The words directly attributable to would certainly narrow down the scope of the expression attributable to. Therefore, the fact that the expression attributable to is wider in scope than the expression derived from cannot be denied. 14. Several decisions have been relied upon by both sides, not necessarily in the chronological order. But we think that analysing them in the chronological order would give a better understanding. 15. In CIT V. Madras Auto Rickshaw Drivers Cooperative Society Ltd. (1983) 43 ITR 981 (Mad) , a Division Bench of the Madras High Court was concerned with the question as to whether a society, which was purchasing Auto-rickshaws and reselling them to its members on hire-purchase basis, could be treated as a society engaged in the business of providing credit facilities to its members or not. The Madras Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its own trading stock, it was not entitled to claim deduction from such margin under Section 80P (2) (e). While holding so, the Supreme Court distinguished its earlier decision in CIT v. South Arcot District Cooperative Marketing Society Ltd. (1989) 176 ITR 117 (SC), wherein the commission taken by the society in question for storing the stock on behalf of the State Government and returning the same every month was held to be an allowable deduction. The distinction pointed out by the Supreme Court was that in South Arcot District Co- operative Marketing Society Ltd., there were two sales, first between the Government and the society and the second between the society and the fair price shop. 19. In Totgars Co-operative Sale Society Ltd., v. ITO (2010) 322 ITR 272 (Kar) , a Division Bench of Karnataka High Court held that when a society not carrying on any banking business had invested its surplus funds in security term deposits, the interest accrued from such securities and deposits should be taken as relatable to profits and gains of the society. 20. The above decision of the Karnataka High court was taken on appeal to the Supreme Court. In a decision reported in (2010) 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the activity mentioned in Section 80p(2)(a)(i) of the Act or in Section 80P(2)(a)(iii) of the Act. 21. In CIT v. Punjab State Co-operative Federation of House Building Societies Ltd., (2011) 11 Taxman.com 448 (P H), a Division Bench of the Punjab Haryana High Court followed the decision of the Supreme Court in Totgars and held that the interest income received by the co-operative society from commercial banks cannot be attributed to the activities of the society. 22. In SBI v. CIT (2016) 389 ITR 578 (Guj) , a question arose before the Division Bench of the Gujarat High Court as to whether the interest earned on deposits made by a co-operative society that was registered with the object of accepting deposits from salaried employees of the State Bank with a view to promote thrift and provide credit facilities, was entitled to the benefit of Section 80P (2) (a). Following the decision of the Supreme Court in Totgars the Gujarat High court held that while the interest income earned by the co-operative society by extending credit facilities to its members may be business income, the interest income earned on the deposits of surplus funds with the State Bank of India may not q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Supreme Court in Totgars. But the Division Bench distinguished Totgars on the ground that the said decision was confined to the facts of the said case and that the Supreme Court was not dealing with the cases relating to co-operative banks. Referring to the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd v. CIT (1978) 113 ITR 84 , this Court pointed out that the expression attributable to is wider in scope than the expression derived from and that a co-operative society may earn profits by way of interest by parking their funds in high- yielding deposits or may earn income by circulating its capital among its members in the course of their banking business. Adverting to the fact that the phrase business of banking is not defined in the Income Tax Act, this Court referred to the definition of the expression banking appearing in Section 5(b) of the Banking Regulations Act to come to the conclusion that the income received by a co-operative bank from deposits, whether or not they are made in the discharge of statutory obligation would be eligible for exemption, since it would tantamount to income from banking business. 27. Taking clue from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of supplying to its members; (5) Co-operative society engaged in processing of agricultural produce of its members without the aid of power (6) Co-operative society engaged in collective disposal of the labour of its members (7) Co-operative society engaged in fishing or allied activities The whole of the amount of profits and gains of business attributable to any one or more of such activities. (b) Primary co-operative society engaged in supplying milk, oil seeds, fruits or vegetables grown by its members to 1) a federal co-operative society, engaged in the same business; 2) the Government or a local authority; 3) the Government company or Corporation engaged in the same business; The whole of the amount of profits and gains on such business (c) 1) A consumer co-operative society engaged in activities other than those specified in clause (a) or clause (b) either independently of, or in addition to, all or any of the activities so specified. 2) Co-operative society other than a consumer co-operative society engaged in activities other than those specified in clauses (a) and (b). So much of the profits and gains attributable to such activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness attributable to anyone of those activities, the case would fall under Clause (a). The moment the income derived from one of those activities is invested in another Co- operative Society and an interest or dividend is derived therefrom, the case would be covered by Clause (e). In case the profits and gains of business arising out of the activities listed in sub-Clauses (i) to (vii) of Clause (a) is invested in immovable properties, such as, godowns or warehouses and an income is derived therefrom, the case would be covered by Clause (e) of Section 80P (2). 31. The only area of distinction between clause (a) on the one hand and Clauses (d) and (e) on the other hand is that the benefit under Clause (a) is restricted only to those activities of a Co-operative Society enlisted in sub-clauses (i) to (vii) of Clause (a). On the other hand, the benefit under Clauses (d) and (e) are available to all Co-operative Societies, without any restriction as to the nature of the activities carried on by them. 32. In simple terms, the position can be summarized like this. If there is a Co-operative Society, which is carrying on several activities including those activities listed in sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the decision of the Karnataka High Court in Totgars that the business activity other than marketing of the agricultural produce actually resulted in net loss to the Society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in Clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgars struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other Co-operative Societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under Clause (d) or ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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