TMI Blog2018 (4) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal raised by the Revenue are thus, dismissed. - ITA No. 936/PUN/2015, CO No. 30/PUN/2017 - - - Dated:- 4-4-2018 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Assessee by : Shri Nikhil Pathak Revenue by : Shri Ajay Modi ORDER Per Sushma Chowla, JM The appeal filed by the Revenue is against the order of CIT(A)-2, Thane, dated 02.03.2015 relating to assessment year 2010-11 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). The assessee filed Cross Objections against the appeal of Revenue. 2. The appeal filed by the Revenue and Cross Objections filed by the assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The Revenue in ITA No.936/PUN/2015 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the CIT(A) has erred in allowing deduction u/s. 80P(2)(a) of the I.T. Act, 1961 even though the interest income earned by the assessee is by way of interest or dividends derived from its investments with other Co-operative Bank and is not derived from carrying on the business of Banking or providing cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out that the issue raised of claim of deduction under section 80P(2)(a) of the Act is squarely covered by the order of Tribunal with lead order in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit in ITA No.900/PN/2014, along with CO No.34/PN/2015, relating to assessment year 2010-11, order dated 29.01.2016. 7. Briefly, in the facts of the case, the assesses was Credit Co-operative Society, which was engaged in providing credit facilities to its members. The assessee earned income by way of interest received on loans given to its members as well as interest on investments and other receipts from different services provided by it. The income arising out of activity of providing loans to its members qualified for deduction under section 80P(2)(a)(i) of the Act. The assessee also claimed deduction under section 80P(2)(a)(i) of the Act on account of interest income on investments and other receipts from different services provided by it. The Assessing Officer was of the view that the assessee was not entitled to the said claim of deduction on interest income and other receipts and show cause notice in this regard was given to the assessee. The Assessing Officer relyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to the first distinction that Totgar's Co-operative Sale Society Ltd. was not a credit cooperative society as against the claim of assessee that it was credit cooperative society. In this regard, he referred to the facts before the Hon'ble Apex Court. He strongly objected to the observations of CIT(A). 10. The learned Authorized Representative for the assessee on the other hand, pointed out that the issue stands covered in favour of assessee by series of decisions of the Pune Bench of Tribunal and latest being ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (supra). The learned Authorized Representative for the assessee also pointed out that strictly in the alternate, the assessee being Credit Co-operative Society having earned interest on the deposits made with other Co-operative Banks was entitled to the claim of deduction under section 80P(2)(d) of the Act. In this regard, he placed reliance on the decision of Pune Bench of Tribunal in M/s. Sindhudurg Zilla Rajya Sarkari Karmachari Sahakari Pat Sanstha Maryadit Vs. ITO (supra). 11. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee with Co-operative Banks is compulsory because of dictate of the Maharashtra Co-operative Societies Act. Under the said Act, all the Credit Co-operative Societies operating in the State of Maharashtra have necessarily to deposit about 20% to 30% of its funds with Co-operative Banks / Nationalized Banks. 13. The Pune Bench of Tribunal drawing distinction had decided the said issue in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (supra), wherein similar plea was raised by both the learned Authorized Representatives. The Tribunal held as under:- 16. We have heard the rival contentions and perused the record. The assessee before us is a credit co-operative society, which is accepting deposits from its members and using the same for giving loans to its members. In addition, the assessee is also making investments with other co-operative societies, which it claims to have made as per the mandate of Maharashtra Co- operative Societies Act, 1960. The issue arising before us is whether the interest income earned by the assessee on such investments is liable for deduction under section 80P(2) of the Act in the hands of the assessee. The Assessing Officer relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities and in view of the aforesaid statutory obligations, the above mentioned investment was made by the assessee and the same was in the nature of its business activity. The said interest income was claimed to be eligible for deduction under section 80P(2)(a)(i) of the Act, irrespective of the source or head under which such income would fall. The Hon‟ble Apex Court noted that the interest income arising on surplus investment in short term deposits and securities, which surplus was not required for business purpose, was to be taxed under section 56 of the Act. The Hon‟ble Apex Court further noted that the assessee markets the produce of its members whose sale proceeds at times were retained by it and the tax treatment of such amount was the issue before them. The Hon‟ble Apex Court held that where the interest on deposits / securities, where the funds were not immediately required for business purposes, was invested in specified securities, would be taxable as income under section 56 of the Act. It further held that where the assessee society regularly invests its funds not immediately required for business purposes, interest on such investment could not fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under section 80P(2)(a)(i) of the Act. The Hon‟ble High Court of Karnataka referred to the judgment of Hon‟ble Apex Court in Totgar Co- operative Sale Society Ltd. Vs. ITO (supra) and pointed out that in the facts of the said case, the amount which was retained by the assessee was a liability and it was shown in the balance sheet on liabilities side. Where the interest income was earned on such funds, then the same was held by the Hon‟ble Apex Court to be treated under section 56 of the Act. However, the distinction was drawn by the Hon‟ble High Court of Karnataka in para 10 and it was pointed out that in the case before them, the amount which was invested in banks to earn the interest was not an amount due to any member, it was not the liability and it was not shown as liability in their accounts. In fact, the amount was in the nature of profits and gains which was not immediately required by the assessee for lending money to the members as there were no takers and hence, was deposited in the banks so as to earn interest, such interest income earned by the assessee was held to be attributable to carrying on the business and therefore, same was liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed in the hands of the assessee except the dividend received from UTI Mutual Funds and Sundaram Finance of ₹ 87,087/- and ₹ 88,519/-. The assessee has placed on record its balance sheet along with Profit Loss account for the year under consideration at pages 22 to 31 of the Paper Book with its English transaction. The perusal of the balance sheet as on 31.03.2010 reflects the assets in the form of bank balance, cash, investments and other deposits along with the loan advanced to members, property held by the assessee and interest receivable on investments and outstanding loan. On the liabilities side, the assessee has declared share capital, share capital fund of the assessee society, the deposits received from its members and other deposits and thereafter, provision of ₹ 41,62,699/-. The break-up of the investment of ₹ 5.55 crores is provided by the assessee at page 56 of the Paper Book. The break-up of the investment is in different FDs with co- operative societies totalling to ₹ 5.47 crores and the other investment in UTI Mutual Funds, Sundaram Finance, gratuity fund and shares totalling ₹ 7,48,216/-, totalling ₹ 5.55 crores. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sources, on which the assessee is entitled to proportionate expenditure. Similarly, the profit of ₹ 25,786/- from other activities and services is not entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. Accordingly, we partly uphold the order of CIT(A). In view thereof, the grounds of appeal raised by the Revenue are partly allowed. 14. Further, similar issue was also decided by the Pune Bench of Tribunal in Baliraja Gramin Bigarsheti Sahakari Pat Sanstha Maryadit Vs. ITO in ITA Nos.50 51/PUN/2017, relating to assessment years 2013-14 2012-13, order dated 26.03.2018. The relevant findings of Tribunal are as under:- 10. We find that the issue has been elaborately considered by the Pune Bench of Tribunal in ITO Vs. M/s. Maharashtra Bank Employees Co-op. Credit Society Ltd. in ITA Nos.454 to 456/PUN/2015, relating to assessment years 2007-08, 2008-09 2010-11 along with CO Nos.16 17/PUN/2017, order dated 22.12.2017, wherein the ratio laid down by the Hon'ble Supreme Court was also taken note and subsequent decision on the issue was also considered and it was held as under:- 11. We have heard the rival contentions and perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Registrar. The assessee society belonging exclusively to the employees of Bank of Maharashtra, had invested its reserve funds in FDs with Bank of Maharashtra. Accordingly, the assessee society applied for requisite permission from the Registrar of Co-operative Societies under section 70 to do so. The Registrar vide its letter dated 18.10.1995 in respect of investment of reserve funds consequent to Society‟s Resolution dated 25.08.1994 and Management Committee‟s Resolution dated 29.07.1991 and further the assessee‟s letter dated 11.07.1995, granted permission under section 70 of the Maharashtra Co-operative Societies Act, 1960 and Rule 54 of the Rules 1961 to transfer reserve funds amount with Pune District Central Co-operative Bank to the Bank of Maharashtra with condition of investment and also that the amount invested in the Bank of Maharashtra could not be given as security for borrowing or used for any other purpose without written permission from the Registrar. The copy of said permission is placed at page 6 with English translation at page 7 of the Paper Book. The claim of assessee was that in line with the said permission received from the Registrar as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO (supra), the Tribunal after considering the factual and legal aspects held as under:- 17. In order to adjudicate the issue, first reference is made to the decision of Hon‟ble Supreme Court in Totgar Co-operative Sale Society Ltd. Vs. ITO (supra). In the facts of the said case, the assessee before the Hon‟ble Apex Court was a co-operative society providing credit facilities to the members or marketing agricultural produce of its members. The assessee had parked its funds in short term bank deposits and securities and the interest earned on the same was claimed as deductible under section 80P(2)(a)(i) of the Act. The Revenue authorities held that the same was taxable under the head income from other sources‟. The claim of the assessee was that it had invested the funds on short term basis as these were not required immediately for business purposes and consequently, interest received by the assessee was eligible for deduction under section 80P(2)(a)(i) of the Act. Further, the contention of the assessee before the Court was that under regulations 23 and 28 r.w.s. 57 and 58 of the Karnataka Co-operative Societies Act, 1959, a statutory obligation was impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed under section 56 of the Act, was eligible for deduction under section 80P(2)(a)(i) of the Act, was rejected. 18. In the facts of the case before Hon‟ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (supra), the assessee co-operative society was engaged in the activity of carrying on of business of providing credit facilities to its members and it had earned interest income on its deposits. Another fact noted by the Hon‟ble High Court of Karnataka was that the amount which was invested in banks to earn interest was not the amount due to any members and it was not the liability of the assessee. In fact, the said amount was in the nature of profits and gains, which was not immediately required by the assessee for lending money to the members as there were no takers and the assessee in such circumstances, deposited the money in bank so as to earn interest. The Hon‟ble High Court of Karnataka in such circumstances held that the interest income was attributable to carrying on of business of banking and therefore, it was liable to be deducted in terms of section 80P(1) of the Act, they took note of insertion of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nagari Sahakari Patsanstha Ltd. (supra) had laid down the similar proposition as by the Hon‟ble High Court of Karnataka. 21. The claim of the assessee before us is that it was engaged in the business of providing credit facilities to its members, out of loan received from its members itself. The surplus amount which was on account of amount received from its members only, which had not been advanced to any of the members was invested in the banks, against which the said investment was made out of surplus funds available with the assessee, which in turn, were amounts advanced by the members itself. The said parking of funds with the co-operative banks was claimed by the assessee to be in the nature of its business activity as it was the requirement of Maharashtra Co- operative Societies Act, 1960, that 20 to 30% of total deposits are to be parked in the investments with co-operative banks. It is not the case of the Department that the amount invested by the assessee was out of any liabilities due by the assessee. In the absence of the same and following the same parity of reasoning laid down by the Hon‟ble High Court of Karnataka in Tumkur Merchants Souharda Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on the business of banking, statutorily required to place part of its funds in approved security, then the income attributable thereto is deductible under section 80P(2)(a)(i) of the Act. The Hon'ble Supreme Court relied on earlier decisions of the Apex Court in this regard. 16. The Hon‟ble Punjab Haryana High Court in CIT Vs. Punjab State Co-operative Agricultural Development Bank Ltd. (2016) 389 ITR 607 (P H) has remanded the issue back to the Tribunal to decide whether the assessee was carrying on business of banking and thereafter, decide the issue of eligibility of deduction under section 80P(2)(a)(i) of the Act on the interest income attributable to the business of banking. 17. However, we find that the Hon‟ble High Court of Gujarat in State Bank of Income Vs. CIT (supra) while deciding similar issue of eligibility of deduction under section 80P(2)(a)(i) of the Act on interest income from deposits of surplus funds in banks held that neither it was business income nor income from investment in any other Co-operative societies. It may be pointed out that the Hon‟ble High Court in para 16 has clearly noted that in the said case, there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, the assessee is statutorily required to deposit 25% of its profits in reserve funds, which in turn, have to be parked in FDRs with Co-operative Bank or Scheduled Banking company. The assessee before us, in line with statutory obligation of maintaining its status of Co-operative society and as per the regulations of Maharashtra State Co-operative Societies Act, was duty bound to transfer 25% of its profits to reserve funds, which it has done. There is no dispute to the same. The second aspect is the utilization of funds in reserve funds by way of making FDRs with Scheduled bank under section 70 of the said Act. The assessee has received permission of the Registrar of Maharashtra Co-operative Societies Act to make such investment with Bank of Maharashtra and also in order to carry on the business activities of providing credit facilities to its employees, it is mandatory upon the assessee to invest 25% of its profits in the reserve funds, which in turn, are parked in FDRs with Bank of Maharashtra, then interest income earned by the assessee is from carrying on its business activities. Once it is so, then the said income is assessable as Income from business‟ and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(i) of the Income Tax Act in view of the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra). We find the Ld. CIT(A) allowed the claim of the assessee on the ground that the assessee is entitled to deduction u/s.80P(2)(a)(i) on account of interest from banks other than cooperative banks, interest on mutual funds long term and short term capital gain on mutual funds etc. While doing so, he held that the decision in the case of Totagar's Cooperative Sale Society Ltd. (Supra) is not applicable to the facts of the present case since in that case the amount invested in short term deposits and securities was not out of interest bearing deposits collected from members but out of sale proceeds of agricultural produce of farmer members marketed by the society. Further, the Hon'ble Apex Court has considered only the latter part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in carrying on the business of banking is eligible for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon'ble Supreme Court (On page 286) 7............Before the assessing officer, it was argued by the assessee(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the ITA No. 2180/PN/2013, A.Y. 2010-11 Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s). 19.2 From the above, it emerges that (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion that the sum of ₹ 9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly. 19.7 Before parting with, we would, with due regards, like to record that the ruling of the Hon'ble jurisdictional High Court in the case of CIT v. Manekbang Co-op Housing Society Ltd reported in (2012) 22 Taxmann.com 220(Guj) has been kept in view while deciding the issue. 11.2 We find the Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Aplappuzha Bank Ltd. Vs. ITO (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) and various other decisions has observed as under : 5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co- operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar's Co- operative Sale Society Ltd vs ITO (supra), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered the decision of the Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) we find no infirmity in the order of the Ld.CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed. 6. The stand of the assessee right through has been that the society is not engaged in any other activity except receiving deposits from its members and providing credit facilities to its members. The assessee has made deposits with nationalized banks in order to maintain liquidity and provide ready availability of funds for repayment of deposits on redemption/maturity. These facts have not been refuted by the department. Since, the issue raised in the appeal is identical to the one already adjudicated by the Co-ordinate Bench of the Tribunal, we respectfully follow the same ratio. Thus, we hold that the assessee is eligible to claim deduction u/s. 80P(2)(a)(i). In view of the above, the impugned order is set aside and the appeal of the assessee is allowed. 15. In view thereof, we hold that the assessee is entitled to claim the deduction under section 80P(2)(a)(i) of the Act on the interest income earned from ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
