9911796707
TMI Blog2016 (7) TMI 1498X X X X Extracts X X X X X X X X Extracts X X X X ..... e in ITA No. 992/PN/2016 has raised the following grounds of appeal:- 1. CIT(A) has erred in confirming Assessing Officer's Order of assessing income of Rs. 3,80,660/- against return income of Rs.NIL. Appellant prays for deletion of addition / disallowance. 2. CIT(A) has erred in confirming the action of Assessing Officer in assessing the rent income as Income from House Property against Income from Business and disallowing depreciation and Municipal Taxes rejecting deduction u/s 80P(2). 3. Assessing Officer has erred in assessing the Income from Interest on FD with Nationalized Bank at Rs. 3,08,810/- and further assessing the same as Income from other sources against claim of business income, and rejecting deduction u/s 80P(a)(i). Appellant pray to assess the same as part of Business Income and allow deduction u/s 80P(a)(i). 4. Appellant prays for cancellation of interest charged u/s 234B on addition to income. 5. Appellant prays to just 4 equitable reliefs. 4. Briefly, in the facts of the present case, the assessee was a co-operative credit society and was receiving deposits from its members and providing credit facilities to its members. The assessee had made a deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80P(2)(a)(i) of the Act. There is no dispute with regard to the claim of deduction under section 80P(2)(a)(i) of the Act in respect of such interest income received by providing credit facilities to its members. In addition, the assessee had also received income from interest on FDs with State Bank of India, which was not cooperative bank. 8. The assessee claimed that it was also eligible for deduction under section 80P(2)(a)(i) of the Act in respect of the said bank interest income. However, the same was denied to the assessee by the authorities below. 9. An identical issue of claim of deduction under section 80P(2)(a)(i) of the Act in respect of interest income earned by a credit co-operative society had arisen before the Tribunal in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (supra) and the Tribunal after considering the ratio laid down by the Hon'ble Supreme Court in Totgars Co -op. Sale Society Ltd. Vs. ITO (supra), 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 add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position raised by the learned Authorized Representative for the assessee was that where the investments were made with other co-operative societies, then the assessee was entitled to the benefit of deduction under section 80P(2)(d) of the Act and no amount was assessed in the hands of the assessee except the dividend received from UTI Mutual Funds and Sundaram Finance of Rs. 87,087/- and Rs. 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 Rs. 41,62,699/-. The break-up of the investment of Rs. 5.55 crores is provided by the assessee at page 56 of the Paper Book. The break-up of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the deduction under section 80P(2)(a)(i) of the Act relating to dividend received from UTI Mutual Funds and Sundaram Finance of Rs. 87,087/- and Rs. 88,519/-, which are to be included as income from other sources, on which the assessee is entitled to proportionate expenditure. Similarly, the profit of Rs. 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. 10. The issue arising in the present appeal is squarely covered by the ratio laid down by Pune Bench of Tribunal in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (supra) and since the facts of the present case are identical to the facts in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (supra), which in turn, are at variance to the facts before the Hon'ble Supreme Court in Totgars Co -op. Sale Society Ltd. Vs. ITO (supra), I hold that the assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. The additional interest income of Rs. 33,810/- is also arising on account of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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