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2019 (8) TMI 508

..... e present case, the assessee while carrying its activities i.e. extending credit facilities to its members, collected the deposits which are not immediately necessary to extend the credit facilities to its members, deposit in the bank and interest received. We find that there is proximity between the business carried by the assessee and the interest received. The above decision of the Hon'ble Andhra Pradesh High Court is squarely applies to the facts of the present case. Therefore respectfully following the decision in the case of Andhra Pradesh State Co-op Bank Ltd. [2011 (6) TMI 215 - ANDHRA PRADESH HIGH COURT] and also by following the decision of the coordinate bench of the tribunal in the case of M/s. Kakinada Co-op Building Society Ltd. [2016 (3) TMI 14 - ITAT VISAKHAPATNAM] we hold that the interest income received by the assessee by depositing the surplus funds collected from the members is eligible for deduction under section 80P(2)(a)(i). Insofar as the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Credit Society Ltd. [2010 (2) TMI 3 - SUPREME COURT] is concerned, the Hon'ble Andhra Pradesh High Court has considered and discussed el .....

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..... r prejudicial to the interests of the Revenue. He further submitted that the issue involved in this appeal is with regard to interest earned by the assessee from the fixed deposits is eligible u/sec. 80P(2)(a)(i) as per the decision of the Hon'ble Andhra Pradesh & Telangana High Court in the case of The Vevveru Co-operative Rural Bank Ltd. Vs. CCIT & Another [(2007) 281 ITR 6 (SC)] and submitted that appeal may be allowed. He further submitted that the decision of the Hon'ble Supreme Court in the case of Totgar s Co-operative Sale Society (supra) has no application to the assessee s case as the facts are entirely different. 5. On the other hand, ld.DR strongly supported the order passed by the ld.Pr.CIT. 6. We have heard both the sides, perused the material available on record and orders of the authorities below. 7. The assessee is a Co-operative society, has deposited surplus funds with various banks and interest received of ₹ 8,41,002/-, the same is claimed as deduction u/sec.80P(2)(a)(i) of the Act. The Assessing Officer after calling various information from time to time and also after examining the evidence in respect of deduction u/sec. 80P(2)(a)(i), all .....

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..... te. The assessee has received an amount of ₹ 11,29,453/- on account of surplus funds deposited with the DCCB bank and claimed deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer by following the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Credit Society Ltd., (supra) disallowed the interest received on account of surplus funds deposited with the bank is not eligible for deduction under section 80P(2)(a)(i) for the reason that such interest income could not be said to be attributable to the activities of the society i.e. carrying the business of providing credit facilities to its members. The very same issue has been considered by the coordinate bench of the tribunal in the case of M/s. Kakinada Co-op Building Society Ltd., Vs. Addl. CIT in ITA Nos. 348 & 349/VIZ/2013, dated 22/01/2016 wherein by following the decision of the Hon'ble Karnataka High Court in the case of Guttigedarara Credit Co-op Society Ltd. Vs. ITO [(2015) 66 (I) ITCL 343 (Kar. HC)] and also by following the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Andhra Pradesh State Co-op Bank Ltd., (2011) 336 ITR 516 (AP) has .....

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..... . It appears that the petitioners are engaged in the sale of fertilisers to its members. A portion of the income derived therefrom is deposited by the petitioners in Nationalised Banks. The income derived by way of interest on the fixed deposits made by the petitioners with the banks, was treated by the petitioners as an income attributable to the profits and gains of business, eligible for deduction under section 80P(2)(a). But the Assessing Officer treated the interest income as income from other sources not eligible for deduction. 8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in .....

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..... arrow 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 denied. 14. Several decisions have been relied upon by both sides, not necessarily in the chronological order. But we think that analysing them in the chronological order would give a better understanding. 15. In CIT v. Madras Autorickshaw Drivers Co-operative Society Ltd. [1983] 143 ITR 981 (Mad.), a Division Bench of the Madras High Court was concerned with the question as to whether a society, which was purchasing autorickshaws and reselling them to its members on hire-purchase basis, could be treated as a society engaged in the business of providing credit facilities to its members or not. The Madras High Court pointed out that a credit society is distinct from a distributive society and a marketing society and that the tax relief under section 80P(2)(a) is a grant by Parliament not to a category of income but to a category of assessee, namely, a co-operative society answering the description of a society engaged in the business of providing credit facilities to its member .....

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..... herein 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 deduction. The distinction pointed out by the Supreme Court was that in South Arcot District Co-operative Marketing Society Ltd.'s case (supra), there were two sales, first between the Government and the society and the second between the society and the fair price shop. 19. In Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 272 (Kar.), a Division Bench of the Karnataka High Court held that when a society not carrying on any banking business had invested its surplus funds in security term deposits, the interest accrued from such securities and deposits should be taken as relatable to profits and gains of the society. 20. The above decision of the Karnataka High Court was taken on appeal to the Supreme Court. In a decision reported in Totgar's Co-operative Sale Society Ltd.'s case (supra), the Supreme Court held that the interest income arising out of the investment of surplus funds cannot be attributed to the activities of the society. The relevant portion of the judgment of the Supreme .....

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..... 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)(iii)) of the Act." 21. In CIT v. Punjab State Co-operative Federation of Housing Building Societies Ltd. [2011] 11 taxmann.com 448 (Punj. & Har.) a Division Bench of the Punjab and Haryana High Court followed the decision of the Supreme Court in Totgar's and held that the interest income received by the cooperative society from commercial banks cannot be attributed to the activities of the society. 22. In State Bank of India v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Guj.), a question arose before the Division Bench of the Gujarat High Court as to whether the interest earned on deposits made by a co-operative society that was registered with the object of accepting deposits from salaried employees of the State Bank with a view to promote thrift and provide credit facilities, was entitled to the benefit of section 80P(2)(a)(i)(2)(a). Following the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) the Gujarat High Court held that while the interest .....

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..... al allowed the appeal of the assessee holding that in respect of interest income arising both from SLR securities and from non-SLR securities, deduction was allowable. In an appeal under section 260A to this court, heavy reliance was placed by the Revenue upon the decision of the Supreme Court in Totgar's. But the Division Bench distinguished Totgars on the ground that the said decision was confined to the facts of the said case and that the Supreme Court was not dealing with the cases relating to co-operative banks. Referring to the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, this court pointed out that the expression "attributable to" is wider in scope than the expression "derived from" and that a co-operative society may earn profits by way of interest by parking their funds in high-yielding deposits or may earn income by circulating its capital among its members in the course of their banking business. Adverting to the fact that the phrase "business of banking" is not defined in the Income-tax Act, this court referred to the definition of the expression "banking" appearing in s .....

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..... xtent of the benefit available to each one of them, as follows: Category of co-op. societies covered by Nature and extent of (a) (1) Co-operative society carrying on the business of banking or providing credit facilities to its members ; (2) Co-op. society engaged in cottage industry ; (3) Co-operative society engaged in marketing of agricultural produce grown by its members. (4) Co-operative society engaged in purchase of agricultural implements, seeds etc., for the purpose of supplying to its members ; (5) Co-operative society engaged in processing of agricultural produce of its members without the aid of power. (6) Co-operative society engaged in collective disposal of the labour of its members. (7) Co-operative society engaged in fishing or allied activities. The whole of the amount of profits and gains of business attributable to any one or more of such activities. (b) Primary co-operative society engaged in supplying milk, oil seeds, fruits or vegetables grown by its members to- (1) a federal co-operative society, engaged in the same business ; (2) the Government or a local authority ; (3) the Government company or Corporation engaged in the same business ; The whole of the a .....

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..... tion under clause (d), the income should be derived from investments with another co-operative society, (E) to be eligible for deduction under clause (e), the income should be derived from letting of godowns or warehouses, etc. 30. Therefore, what follows is that when a co-operative society engaged in any one of the activities stipulated in sub-clauses (i) to (vii) of clause (a) makes profits and gains out of business attributable to anyone of those activities, the case would fall under clause (a). The moment the income derived from one of those activities is invested in another co-operative society and an interest or dividend is derived therefrom, the case would be covered by clause (e). In case the profits and gains of business arising out of the activities listed in sub-clauses (i) to (vii) of clause (a) is invested in immovable properties, such as, godowns or warehouses and an income is derived therefrom, the case would be covered by clause (e) of section 80P(2). 31. The only area of distinction between clause (a) on the one hand and clauses (d) and (e) on the other hand is that the benefit under clause (a) is restricted only to those activities of a co-operative society enlist .....

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..... #39;s Co-operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot cer .....

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..... plies to the facts of the present case. Therefore respectfully following the decision of the Hon'ble Andhra Pradesh High Court in the case of Andhra Pradesh State Co-op Bank Ltd. (supra) and also by following the decision of the coordinate bench of the tribunal in the case of M/s. Kakinada Co-op Building Society Ltd. (supra), we hold that the interest income received by the assessee by depositing the surplus funds collected from the members is eligible for deduction under section 80P(2)(a)(i) of the Act. 12. Insofar as the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Credit Society Ltd. (supra) is concerned, the Hon'ble Andhra Pradesh High Court has considered and discussed elaborately. In view of the above, the order passed by the ld. CIT(A) is to be reversed, accordingly we reverse the order passed by the ld. CIT(A). Thus, this appeal filed by the assessee is allowed. 8. In view of the above, we find that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue. Therefore, the order passed by the ld.Pr.CIT is hereby quashed and the appeal filed by the assessee is allowed. 9. In the resu .....

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