TMI Blog2019 (2) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1. CIT(A) has erred in not granting deduction u/s 80P of ₹ 2,25,441/- for interest on Bank deposits with nationalized banks. Appellant prays to allow the same. 2. CIT(A) has erred in not Following the same parity of reasoning, the binding Order of Pune ITAT on the issue and rejecting appellant claim. 3. Appellant prays for just and equitable relief. 4. Appellant prays for awarding cost for CIT(A) not following Pune ITAT Decision. 5. Appellant prays for deletion of Interest u/s 234B. 3. The issue which is raised in the present appeal is against claim of deduction under section 80P of the Act on interest accrued on bank deposits with nationalized banks. 4. The learned Authorized Representative for the assessee pointed out that the issue raised in the present appeal is squarely covered by the decision of Pune Bench of Tribunal with lead order in Jijamata Mahila Sahakari Bigar Sheti Sahakari Patsanstha Ltd. Vs. ITO in ITA No.992/PN/2016, relating to assessment year 2010-11, order dated 29.07.2016. 5. The only issue raised is the claim of deduction under section 80P(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit its funds in one or more of the investments provided in clauses (a) to (e) thereunder. We are concerned here with clause (d) to section 70 of the said Act, which reads as under:- 70 (a) . (b) . (c) (d) in any co-operative bank (other than those referred to in clause (a) of this section) or banking company approved for this purpose by the Registrar, and on such conditions as the Registrar may from time to time impose: (e) .. 12. Reading the provisions of Maharashtra Co-operative Societies Act, it is incumbent upon the society which is making profits to park one-fourth of its profits in the reserve fund. Further, the said reserve funds as per directions of the State Government by general or special order are to be invested in one of the securities, which are provided under section 70 of the said Act. Clause (d) clearly lays down that the investment or deposit of funds could be in any Co-operative Bank or Banking company approved for this purpose by the Registrar. The assessee society belonging exclusively to the employees of Bank of Maharashtra, had invested its reserve funds in FDs with Bank of Maharashtra. Accordingly, the assessee society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. The placement of such funds being imperative for the purpose of carrying on banking business the income therefrom would be income from the assessee s business. There is nothing in the phraseology of section 80P(2)(a)(i) which makes it applicable only to income derived from working or circulating capital. 14. We further find that similar issue was considered by the Pune Bench of Tribunal in ITO Vs. M/s. Kundalika Nagari Sah. Patsanstha Maryadit (supra), wherein the issue was with regard to investments with other Co-operative Society as per the mandate of Maharashtra Co-operative Societies Act and whether the interest income earned by the assessee on such investments was liable for deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer had denied the claim relying on the ratio laid down by the Hon'ble Supreme Court in Totgar s Co-operative Sale Society Ltd. Vs. ITO (supra), the Tribunal after considering the factual and legal aspects held as under:- 17. In order to adjudicate the issue, first reference is made to the decision of Hon ble Supreme Court in Totgar Co-operative Sale Societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t facilities to its members or marketing the agricultural produce of its members. The Hon ble Apex Court further reiterated that where the assessee markets the agricultural produce of its members and it retains the sale proceeds in many cases and where the retained amount which was payable to its members, from whom the produce was bought, was invested in short term deposits / securities, the said amount was liability of the assessee and it was shown in the balance sheet on the liabilities side, therefore, to that extent, the Hon ble Supreme Court held that such interest income could not be said to be attributable either to the activity mentioned in 80P(2)(a)(i) or 80P(3) of the Act. In view thereof, the Hon ble Supreme Court upheld the order of Assessing Officer in taxing the said amount under section 56 of the Act. The alternate plea of the assessee that even if the said interest income was held to be covered under section 56 of the Act, was eligible for deduction under section 80P(2)(a)(i) of the Act, was rejected. 18. In the facts of the case before Hon ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (supra), the assessee co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a co-operative society engaged in the activity of carrying on the business of providing credit facilities to its members. The Assessing Officer in view of insertion of section 80P(4) of the Act, had declined to extend the benefit of deduction under section 80P(2)(a)(i) of the Act. The interest income earned on short term deposits and from saving banks account was held liable to income tax. The Hon ble High Court held that where the assessee society was providing credit facilities to its members and was not carrying on any other business, then the surplus funds which it had earned as profits of its business when temporarily not required were invested in banks to earn interest was attributable to carrying on the business of banking and therefore, liable to be deducted under section 80P(1) of the Act. 20. Further, the Pune Bench of Tribunal in ITO Vs. Niphad Nagari Sahakari Patsanstha Ltd. (supra) had laid down the similar proposition as by the Hon ble High Court of Karnataka. 21. The claim of the assessee before us is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jab Haryana High Court in CIT Vs. Nawanshahar Central Co-operative Bank Ltd., (2003) 263 ITR 320 (P H) held that where investment in PSEB bonds was made in accordance with mandatory provisions of section 44 of Punjab Co-operative Societies Act, it was clearly a statutory investment and the interest on this investment was eligible for deduction under section 80P(2)(a)(i) of the Act. The Hon ble Punjab Haryana High Court held that whether investment was made in statutory reserves had come out of working or circulating capital or out of surplus funds was of no consequence. The said decision of the Hon ble Punjab Haryana High Court has been confirmed by the Hon'ble Supreme Court in CIT Vs. Nawanshahar Central Co-operative Bank Ltd. (2007) 289 ITR 6 (SC), wherein it has been held that where a Co-operative bank carrying on the business of banking, statutorily required to place part of its funds in approved security, then the income attributable thereto is deductible under section 80P(2)(a)(i) of 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-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are at variance to the facts before the Hon ble High Court of Gujarat (supra). Even in the facts before the Hon'ble Supreme Court in Totgar s Co-operative Sale Society Ltd. Vs. ITO (supra), the issue was deposit of surplus funds as in the case before the Hon ble High Court of Gujarat. Though reference is being made to the reserve funds but the ratio laid down is against investing of surplus funds. Where any society deposits its surplus funds in fixed deposits with Scheduled Bank, then the Courts have held that such interest income is not eligible for claim of deduction under section 80P(2)(a)(i) of the Act. However, the facts of the present case before us are at variance, it is not surplus funds which has been deposited by the assessee. On the other hand, the assessee is statutorily required to deposit 25% of its profits in reserve funds, which in turn, have to be parked in FDRs with Co-operative Bank or Scheduled Banking company. 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, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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