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TMI Blog2016 (7) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 constitute the operational income and not the other income which accrues to the society. He, therefore, asked the assessee to explain as to why such interest income should not be disallowed under the provisions of section 80P(2)(d) of the Act. 3. It was submitted that it has invested in fixed deposits with banks other than cooperative banks out of the funds received from its members in the form of fixed deposits which is appearing as its liability in its balance sheet. While investing these funds with the banks other than cooperative banks, the assessee has paid interest on these funds. It is specifically to be noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 deduction u/s.80P(2)(a)(i) of the I.T. Act. 2. The learned CIT(A)-I, Nashik has also disregarded the fact that the cooperative society is required to satisfy the criteria for availing benefit of Section 80P(2)(d), i.e. the interest income should be from other cooperative society, whereas in the assessee society's case the interest income is from other than cooperative banks with regard to investment made. 3. The appellant prays the order of the Assessing Officer may be restored. 4. The appellant prays to adduce such further evidence to substantiate his case. 5. The appellant prays leave to add, alter, clarify, amend and or with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra), which has been relied upon by the Assessing Officer in the present case. The learned Departmental Representative has neither controverted the above matrix and nor referred to any contrary decision and therefore for the sake of maintaining consistency we follow the decision of our coordinate bench in the case of Niphad Nagari Sahakari Patsanstha Ltd. (supra) and uphold the pleaof the assessee. However, before parting, we may reproduce hereinafter the following portion of the order of the Tribunal dated 31.07.2013 (supra) which brings out the reasoning prevailing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords 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 Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act. 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 there is force in the argument of the assessee that the assessee not a cooperative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. 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 its banking activity. Once it is a business income, the, assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Co- operative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Cooperative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld. 6. In the result, the appeal of the revenue stands dismissed." 11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd. (Supra) held that the interest earned by such cooperative societies on short term deposits with scheduled banks is eligible for deduction u/s.80P(2)(a)(i). The relevant observation of the Hon'ble High Court from para 6 onwards read as under : "6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 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 facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hra 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, a contrary decision to this effect was also cited by the Ld. Departmental Representative where the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. (Supra) has held that where the assessee cooperative society was engaged in providing credit facilities to its members earns interest income on surplus funds deposited as fixed deposits, such interest income would be assessable as "income from other sources" and thus not eligible for deduction u/s.80P(2)(a)(i). However, it is also the settled proposition of law that when two views are possible, the view which is in favour of the assessee has to be followed. Since in the instant case, two divergent decisions were cited before us and no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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