TMI Blog2019 (2) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. - Decided in favour of assessee. - ITA No. 199/VIZ/2017 - - - Dated:- 13-2-2019 - SHRI V. DURGA RAO, HON BLE JUDICIAL MEMBER For The Assessee : Shri G.V.N. Hari Advocate. For The Department : Shri P.S. Murthy Sr. DR ORDER PER V. DURGA RAO, JUDICIAL MEMBER This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Guntur, dated 27/01/2017 for the Assessment Year 2008-09. 2. Facts of the case, in brief, are that assessee initially named as Sri Uma Kamandaleswara Co-operative Rural Bank Ltd.‟. Subsequently name has been changed as Sri Uma Kamandaleswara Primary Agricultural Credit Co-operative‟ Society Ltd. The assessee is extending credit facilities to its members and also claiming deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'), the same is allowed by the Assessing Officer. In the assessment order, the Assessing Officer has noted that the assessee has received interest income of ₹ 13,49,073/- from the fixed deposits with the DCCB and called the explain as to how interest income is eligible for deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law relied on by the Assessing Officer is concerned, it is submitted that the facts are entirely different, no application to the present case and submitted that interest received from the bank deposits on account of surplus funds is eligible for 80P(2)(a)(i) of the Act. 6. On the other hand, ld. Departmental Representative strongly supported the orders passed by the authorities below and also placed reliance on the decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Credit Society Ltd., (supra). 7. We have heard both the sides, perused the material available on record and orders of the authorities below. 8. The only issue involved in this appeal is whether assessee is entitled for deduction under section 80P(2)(a)(i) in respect of surplus funds deposits with the bank. The assessee is a primary agricultural Co-op Credit Society extending credit facility to its members. The assessee is also entitled to claim for deduction under section 80P(2)(a)(i) of the Act. So far as this fact is concerned, there is no dispute. The assessee has received an amount of ₹ 11,29,453/- on account of surplus funds deposited with the DCCB bank and claimed ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the interest. The said interest income was attributable to the carrying of business of banking and therefore it was liable to be deducted in terms of section 80P(2)(a)(i) of the Act. The Hon ble Karnataka High Court in case of Guttigedarara Credit Co-operative Society Ltd. Vs. ITO (supra) by following the decision of A.P. High Court in the case of CIT Vs. Andhra Pradesh State Co-operative Bank Ltd. (supra) has held that interest earned on the deposits in the bank by the assessee cooperative society providing credit facility to its members would be quantified for deduction u/s 80P of the Act . We therefore respectfully following the jurisdictional High Court as well as the judgement of the Karnataka High Court, allow this ground of appeal raised by the assessee. 9. A similar issue has been considered by the Hon'ble Andhra Pradesh High Court in the case of Vavveru Co-op Rural Bank Ltd. (supra) wherein by considering the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Credit Society Ltd., (supra) has held as under:- 7. It appears that the petitioners are engaged in the sale of fertilisers to its members. A portion of the income derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or allied activities, sub-clauses (i) and (ii) deal with the nature of the industry/business carried on by the institution. While sub-clause (i) uses the expression business , sub-clause (ii) uses the expression industry . Moreover, all the 7 sub-clauses are connected to the expression co-operative society by the words engaged in appearing in sub-clause (a). 12. The sheet anchor of the case of the petitioners is the expression attributable to appearing in the last part of clause (a) of sub-section (2) of section 80P. Since the statute does not use the expression derived from , but uses the expression attributable to , the contention of the petitioners is that clause (a) should receive a wider interpretation. 13. The above contention cannot be rejected outright, for the simple reason that in many statutes and for that matter even in the Income-tax Act, the expression attributable to is sometimes used with the prefix directly . The words directly attributable to would certainly narrow down the scope of the expression attributable to . Therefore, the fact that the expression attributable to is wider in scope than the expression derived from cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipur Sahkari Upbhokta Thok Bhandar Ltd. v. CIT [2009] 182/Taxman 287/315 ITR 21 (SC), the issue that arose for consideration actually revolved around section 80P(2)(a)(i)(2)(e) and not around section 80P(2)(a)(i). The assessee in that case was running a consumer co-operative store and was also involved in the distribution of controlled commodities such as wheat, sugar, rice and cloth on behalf of the Government under the Public Distribution Scheme for which it received commission. Whether the commission so received could be treated as an income under section 80P(2)(e) eligible for deduction was the question before the court. The Supreme Court ruled that since the assessee was storing the commodities in question in its godowns as part of its own trading stock, it was not entitled to claim deduction from such margin under section 80P(2)(e). While holding so, the Supreme Court distinguished its earlier decision in CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 43 Taxman 328/176 ITR 117 wherein the commission taken by the society in question for storing the stock on behalf of the State Government and returning the same every month was held to be an allowable ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as 'investment'. Further, as stated above, the assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this 'retained amount' which was payable to its members, from whom produce was brought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... binding authority for the proposition that interest income arising on the surplus invested in short-term deposits and securities would come under the category of income from other sources. 26. Thus a line of decisions rendered by various High Courts such as the High Court of Punjab and Haryana, the High Court of Calcutta and the High Court of Gujarat, rendered after the decision of the Supreme Court in Totgar's simply followed the ratio decidendi of Totgars. But, one judgment of this court attempted a distinction and that was in Andhra Pradesh State Co-operative Bank Ltd.'s case (supra). In the said case, the assessee was a co-operative society engaged in the business of banking. The assessee had invested statutory reserves in short-term and long-term deposits and the interest earned thereon was disallowed by the Assessing Officer for deduction under section 80P(2)(a)(i). The Commissioner partly allowed the appeal holding that the interest income relatable to non-SLR investments would not qualify for exemption. The Tribunal allowed the appeal of the assessee holding that in respect of interest income arising both from SLR securities and from non-SLR securities, deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in the case on hand, what was invested by the writ petitioners in fixed deposits was not something that formed part of its liability. Therefore, the learned senior counsel maintained that the decision of this court in Andhra Pradesh State Co-operative Bank Ltd.'s case (supra) would hold the field. 28. We have carefully considered the above submissions. Before considering the effect of the various decisions cited on both sides, we think it would be ideal to look at the statutory prescription in pure and simple form. As we have indicated earlier, section 80P(2) is actually divided into six parts, categorised under clauses (a), (b), (c), (d), (e) and (f). Each one of these clauses deal with different types of co-operative societies engaged in different types of activities. The benefit made available to each one of them is also different from the other. Therefore, it may be useful to present a tabular form, the six categories of co-operative societies covered by clauses (a) to (f) and the nature and extent of the benefit available to each one of them, as follows : Category of co-op. societies covered by Nature and extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( f ) A co-operative society other than (1) A housing society ; (2) An urban consumer society ; (3) A society carrying on transport business ; (4) A society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed ₹ 20,000 (twenty thousand rupees). The income by way of interest on securities and the income from house property chargeable under section 22. 29. From the tabular form presented above, it may be clear that the deductions available under clauses (a) to (c) are activity-based. The deduction available under clauses (d) and (e) are investment-based and the deduction under clause (f) is institution-based. To put it differently, (A) to be eligible for deduction under clause (a), the claim should relate to the profits and gains of business attributable to anyone or more of the activities listed in clause (a), (B) to be eligible for deduction under clause (b), the society should be a primary society engaged in supplying milk, oilseeds, fruits, etc. to named institutions, such as, Government, Local Authority, Federal Co-operative Society, or Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) either by investing the income in another co operative society or investing the income in the construction of a godown or warehouse and letting out the same. 33. In other words, the benefit conferred by clause (d) upon all types of co-operative societies is restricted only to the investments made in other co-operative societies. Such a restriction cannot be read into clause (a), as the temporary parking of the profits and gains of business in nationalised banks and the earning of interest income therefrom is only one of the methods of multiplying the same income. To accept the stand of the Department would mean that co-operative societies carrying on the activities listed in clauses (i) to (vii), which invest their profits and gains of business either in other co-operative societies or in the construction of godowns and warehouses, may benefit in terms of clause (d) or (e), but the very same societies will not be entitled to any benefit, if they invest the very same funds in banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under clauses (d) and (e) are available in general to all co-operative societies, including societi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion attributable to and not any one of the two expressions, namely, derived from or directly attributable to . 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside. 38. The miscellaneous petitions, if any, pending in these writ petitions shall stand closed. No costs. 10. In the above decision, the Hon'ble Andhra Pradesh High Court has considered the term used in section 80P(2) attributable to and observed that the original source of investments made by the petitions in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression attributable to‟ and not any one of the two expression, namely, derived from‟ or directly attributable to‟. 11. In the present case, the assessee while carrying its activities i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
