TMI Blog2016 (7) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in providing credit facilities to its members. It filed its return of income on 28-09-2011 declaring total income at Nil. During the course of assessment proceedings the AO noted that the society has received interest of ₹ 48,16,346/- from its investment with Bank of India, HDFC Bank, State Bank of India, Development Credit Bank and Bank of Baroda. He, therefore, asked the assessee to explain as to why the interest income received from the fixed deposits kept with Nationalized Banks should not be disallowed in view of the provisions of section 80P(2)(a)(d) of the I.T. Act. According to the AO, income derived by way of interest or dividends derived by the cooperative society from its investment with any other cooperative society, the whole of such income is deductible under the said section. He observed that the Hon ble Supreme Court of India in the case of Totgar s Cooperative Sale Society Vs. ITO reported in 322 ITR 283 has held that investment income of the society not involved in the business of banking is taxable under the head income from other sources . Further, deduction u/s.80P(2)(a) of the Act, i.e. the income in respect of which deduction is sought must cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis in respect of interest earned on deposits with nationalized banks. The administrative expenses debited to profit and loss account, in respect of which proportionate expenses allowable, were worked out and a deduction of ₹ 3,63,565/- was allowed and addition of ₹ 44,52,781/- was made to the total income of the assessee. 5. In appeal the Ld.CIT(A) following the decision of the Pune Bench of the Tribunal in the case of Niphad Nagari Patsanstha Ltd. Vs. ITO holding that the income from such money kept in the bank could be said to be attributable to the business of providing credit facility so as to fall within the ambit of section 80P(2)(a)(i) of the I.T. Act, 1961. 6. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds : 1. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A)-I, Nashik was not justified in holding that assessee is entitled to deduction u/s.80P(2)(a)(i) of the I.T. Act, when the income of the society on account of interest from banks other than cooperative banks are not covered by the activity of providing credit facilities to its members and hence, not eligible for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses for earning such interest income. I find the Ld.CIT(A) following the decision of the Pune Bench of the Tribunal in the case of Niphad Nagari Patsanstha Ltd. (Supra) held that the said interest is its business income eligible for deduction u/s.80P(2)(a)(i) of the I.T. Act. I find the Tribunal in assessee s own case in the immediately preceding assessment year has also decided identical issue and the appeal filed by the Revenue has been dismissed. The relevant observation of the Tribunal from para 6 onwards read as under : 6. At the time of hearing, it was a common point between the parties that an identical controversy has been considered by the Pune Bench of the Tribunal in the case of another co-operative society, namely, ITO vs. Niphad Nagari Sahakari Patsanstha Ltd. vide ITA No.1336/PN/2011 dated 31.07.2013 wherein the issue has been held in favour of the assessee after considering similar objection, which has been raised by the Assessing Officer in the present case. The learned Representative for the assessee has furnished a copy of the said order of the Tribunal dated 31.07.2013 (supra) and has also pointed out that the Tribunal has duly considered the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), 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 deduction. 11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s. Jafari Momin Vikas Cooperative Credit Society Ltd. (Supra) after considering the decision of Hon ble Supreme Court in the case of Totagar s Cooperative Sale Society Ltd. (Supra) has observed as under : 17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in it s applicably in the circumstances of the assessee's case. 18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee co-operative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totgar's Co-operative Sale Society Ltd (supra) is not applicable in respect of the cooperative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee co-operative society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : 9. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute to be decided in the grounds raised by the assessee is that whether the interest amounting to ₹ 25,01,774/- earned by the assessee on short term deposits with banks has to be treated as income from other sources u/s.56 or the assessee is eligible for deduction u/s.80P(2)(a)(i). We find the AO following the decision of Hon ble Supreme Court in the case of The Totgar s Cooperative Sale Society Ltd. (Supra) treated the interest earned from such short term deposits as income from other sources and brought the same to tax which has been upheld by the CIT(A). 10. It is the case of the assessee that in view of the decision of Hon ble Karnataka High Court in the case of Tumkur Merchants Souhards Credit Cooperative Ltd. (Supra) the interest earned from such short term deposits with bank is entitled to deduction u/s.80P(2)(a)(i). We find the Hon ble High Court of Karnataka after considering the decision of Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor-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 with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression derived from , as, for instance, in section-80J. In our view, since the 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 legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the member's, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: 11. No doubt, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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