TMI Blog2018 (12) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... ing account with Bank of Maharashtra amounting to ₹ 2,27,008/- is not entitled to the aforesaid deduction - Appeals of Revenue are partly allowed. - ITA Nos.239 & 240/PUN/2017 - - - Dated:- 18-12-2018 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Appellant : Shri Sudhendu Das For the Respondent : Shri M.R. Bhagwat ORDER PER SUSHMA CHOWLA, JM: Both the appeals filed by Revenue are against separate orders of CIT(A)-8, Pune, both dated 30.11.2016 relating to assessment years 2009-10 and 2012-13 against respective orders passed under section 143(3) r.w.s. 147 and 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The Revenue in ITA No.239/PUN/2017, relating to assessment year 2009-10 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in holding that the re-opening of the assessment u/s. 147 of the IT Act, 1961 is without jurisdiction, void and illegal. 2. The order of the Commissioner of Income Tax (Appeals) is contrary to law and the facts and circumstances of the case. 3. On the facts and in circumstances of the case and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n saving fund account with the same bank were taxable in the hands of the assessee. The relevant findings of the Tribunal are as under : 11. We have heard the rival contentions and perused the record. The limited issue which arises in the present appeal filed by the Revenue is against relief given by the CIT(A) on the claim of assessee society that interest income received on FDRs with scheduled Bank of Maharashtra is entitled to claim of deduction under section 80P(2)(a)(i) of the Act. The assessee was a Co-operative society of the employees of Bank of Maharashtra, and was engaged in the business of providing credit facilities to its members. The activities carried on by the assessee society were subject to the provisions of Maharashtra Co-operative Societies Act, 1960. Under section 66 of the said Act, every society which is making profits from its transactions shall maintain reserve fund as per clause (1) to section 66 of the said Act. Clause (2) further lays down that every society shall carry atleast one-fourth of net profits each year to the reserve fund; and such reserve fund may subject to the rules made thereunder, if any, be used in the business of society or may, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 under the provisions of section 66 and 70 of the Maharashtra Co-operative Societies Act, it was required to transfer the funds i.e. one-fourth of profits of assessee‟s society to the reserve fund and thereafter, the funds in the reserve fund were invested as FDRs with the Bank of Maharashtra. The assessee points out that the said parking of funds in FDRs with the Bank of Maharashtra was one of the conditions for carrying on the business activities of the assessee society, hence interest earned therefrom was business income in the hands of assessee. It was time and again reiterated by the learned Authorized Representative for the assessee that the amounts which were parked in FDRs with Bank of Maharashtra were not out of surplus and idle funds but were out of funds transferred to reserve fund. The assessee thus, claimed that once the interest income has been earned during the course of carrying on of its business activities, then the same is eligible for grant of deduction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 imposed on co-operative credit societies to invest its surplus funds in specified 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 80P(4) of the Act, which was applied by the Assessing Officer to deny the deduction 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 immed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Credit Co-operative Ltd. Vs. ITO (supra) and the facts of the present case being at variance to the facts before the Hon‟ble Supreme Court in Totgar‟s Co-operative Sale Society Ltd. Vs. ITO (supra), we hold that the assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. In the alternate, we find merit in the plea of the assessee that at best the income which can be assessed in the hands of assessee is the net income and not the gross income as proportionate expenditure incurred is to be allowed in the hands of the assessee. However, we are not adjudicating this issue since we have already held the assessee to be eligible for claim of deduction under section 80P(2)(a)(i) of the Act. In view thereof, we also do not adjudicate the second alternate plea raised by the assessee that it is entitled to the claim of deduction under section 80P(2)(d) of the Act. However, the assessee is not entitled to the deduction under section 80P(2)(a)(i) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 obligation upon the assessee to invest its surplus funds with the State Bank of India. It was further observed that investing surplus funds in a bank is no part of the business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. The Hon‟ble High Court further referred to section 71 of the Gujarat Co-operative Societies Act, 1961 permitting society to invest or deposit its funds in the State Bank of India. The Hon‟ble High Court held that while investment in State Bank of India was permissible under section 71 of that Act, there was no statutory obligation upon the assessee to deposit the funds as part of its business. The said provision also permitted investment of funds in any Co-operative Bank or any banking company approved for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee is entitled to claim deduction under section 80P(2)(a)(i) of the Act. Accordingly, we hold so. However, the assessee is not entitled to claim the said deduction on Saving Account interest. 19. Before parting, we may also refer to the order of Tribunal in assessee‟s own case in ITA No.490/PN/1999, relating to assessment year 1996-97, order dated 25.08.2005, wherein similar issue was decided by the Tribunal in turn, referring to the mandatory requirements as per sections 66 and 70 of the Maharashtra Co-operative Societies Act, 1960. The said decision of the Tribunal has been accepted by the Revenue and it has not been brought to our notice that the said decision has been reversed. Accordingly, we find no merit in the stand of Revenue in this regard and dismissing the grounds of appeal raised by the Revenue, we uphold the order of CIT(A) in directing the Assessing Officer to allow eligible deduction under section 80P(2)(a)(i) of the Act on the interest income earned on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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