TMI Blog2019 (1) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... led by assessee is against order of CIT(A)-7, Pune, dated 06.10.2017 relating to assessment year 2014-15 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1. On the facts in circumstances of the case in law, the lower authorities have erred in incorrectly invoking provisions of section 80P(2)(d) of the Income Tax Act 1961 and thereby incorrectly denying the deduction claimed by the assessee amounting to ₹ 14,21,300/- for the reason that society has earned interest from Bank of Maharashtra and the lower authorities further erred by incorrectly denying the assessee the deduction claimed by the assessee under section 80P(2)(a)(i). 2. On the facts in circumstances of the case in law, the lower authorities have erred in incorrectly invoking provisions of section 80P(2)(d) of the Income Tax Act 1961 and thereby incorrectly denying the deduction claimed by the assessee amounting to ₹ 34,923/- for the reason that society has earned interest from MSEB and the lower authorities further erred by incorrectly denying the assessee the deduction claimed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of CIT(A). 9. I find that similar issue of claim of deduction under section 80P(2)(a)(i) of the Act in respect of interest income from Bank of Maharashtra has been decided by the Tribunal in bunch of cases in the case of 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, relating to assessment years 2007-08 2008-09, order dated 22.12.2017, wherein reliance was placed on the ratio laid down by the Hon ble High Court of Punjab Haryana in CIT Vs. Nawanshahar Central Co-operative Bank Ltd. (2003) 263 ITR 320 (P H), confirmed by the Hon'ble Supreme Court. After considering the ratio laid down by the Hon ble High Court of Delhi in Mantola Co-operative Thrift Credit Society Ltd. Vs. CIT (supra) of interest accrued on surplus funds, the issue was decided in favour of assessee holding 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8223;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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 India 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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