TMI Blog2014 (4) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER For the Appellant : Mr. P. L. P athade For the Respondent : Mr. Pramod Shingte ORDER PER G. S. PANNU, AM The captioned appeal by the Revenue is directed against an order of the Commissioner of Income Tax (Appeals)-I, Nashik dated 24.05.2012 which, in turn, has arisen from an order dated 30.12.2011 passed by the Assessing Officer u/s 143(3) of the Income-tax Act, 1961 (in short the Act ), pertaining to the assessment year 2009-10. 2. The solitary issue in the appeal of the Revenue relates to the action of the CIT(A) in allowing exemption u/s 80P(2)(a)(i) of the Act in relation to a sum of ₹ 75,36,432/-, which was denied by the Assessing Officer in the assessment. 3. The assessee before us is a Co-operative Society registered under the Maharashtra Co-operative Societies Act, 1960 and is, inter-alia, engaged in the business of providing credit facilities to its members. For the assessment year under consideration, it filed a return of income declaring total income at Rs. Nil which, inter-alia, included a claim of exemption u/s 80P(2)(a)(i) of the Act with respect to the surplus declared by it in its Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-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 co-ordinate bench in the case of Niphad Nagari Sahakari Patsanstha Ltd. (supra) and uphold the plea of 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 the Tribunal to uphold the plea of the assessee :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sale proceeds at times were retained by it. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 co-operative 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 any eventuality, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment 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 Co-operative 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 accepting depo ..... 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