TMI Blog2021 (8) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Sec.80P(2)(a)(i) or 80P(2)(d) of the Act. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society[ 2017 (7) TMI 1049 - KARNATAKA HIGH COURT] The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society [supra] - We uphold the order of the CIT and dismiss the appeal of the assessee. - ITA No.650/Bang/2020 - - - Dated:- 13-8-2021 - Shri N.V. Vasudevan, Vice President And Shri Chandra Poojari, Accountant Member For the Appellant : Shri. R. Chandrasheka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Pr.CIT however did not agree with the aforesaid submissions of the assessee. He referred to the decision of the Hon ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd., Vs. ITO 230 taxman 309 wherein it was held that interset earned from short term deposits with banks by a society providing credit facilities to its members from capital not immediately required to be lent to the members and which cannot be kept idle, such interest is attributable to the profits and gains of business of providing credit facilities to its members. The Pr.CIT observed that in a subsequent decision rendered by the Hon ble Karnataka High Court in the case of Totagars Co-operative Sale Society 295 ITR 611(Karn)(supra), the Karnataka High Court held that the said decision was distinguishable and was contrary to the law laid down by the Hon ble Supreme Court in the case of Totagars Co-operative Sale Society 322 ITR 283 (SC) and therefore interest income is taxable under the head income from other sources and will not be entitled to deduction under section 80P(2)(a)(i) of the Act. The Pr.CIT accordingly directed the AO to revise the Order of Assessment by br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilities to its members and that the funds are operational funds. The only fund available with the pure credit societies is deposits from its members and, thus, there are no surplus funds as such. 6. It was further submitted that the decision relied upon by the Pr.CIT in the impugned order in the case of Totagars Co-operative Sale Society 395 ITR 611 (Karn) was the case the Hon ble Court was dealing with the claim of deduction under section 80P(2)(d) whereas in the present case, the deduction is claimed under section 80P(2)(a)(i) of the Act. The learned DR relied on the order of CIT and reiterated the stand of the revenue as contained in the impugned order. 7. We have carefully considered the rival submissions. An order passed contrary to a decision of the Hon ble Jurisdiction High Court would be in the nature of an order prejudicial to the interest of the revenue being an order passed on an incorrect application of law. In the case of Malabar Industrial Co. Ltd. vs. CIT[2000] 243 ITR 83(SC), the Supreme Court held that there must be two conditions namely that the order of assessment is erroneous and that the order is prejudicial to the interests of the Revenue which must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. The Hon ble Court also distinguished the decision of the Hon ble Supreme Court in the case of Totgars (supra) by observing that the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Cooperative Bank, M/s. Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Cooperative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act? 10. The Hon ble Court held that such interest income is not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o- operative Society by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragarph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Hon ble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Hon ble Gujarat High Court in this regard referred to the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court and therefore this argument of the learned counsel for the Assessee cannot be accepted. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 15. The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the assessee on the earlier decisions of the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision in Totgars Co-operative Sale Society (supra) stands explained by the later decision in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 16. For the reasons given above, we uphold the order of the CIT and dismiss the appeal of the assessee. 17. In the result, appeal of the Assessee is dismissed. Pronounced in the open court on the date mentioned on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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