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TMI Blog2021 (9) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the taxable income was arrived at `Nil'. The assessment was selected for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. The A.O. made an addition of Rs. 14,81,899 being interest earned by the assessee on deposits / securities. The A.O. held that the Hon'ble Apex Court in the case of Totagars Co-operative Sales Society reported in 322 ITR 283 (SC) had distinguished between two types of interest income earned by the assessee-society. One with regard to the interest income earned by providing credit facilities to the members, and other, the interest income earned by the assessee-society by investing funds in deposits / securities. The A.O. allowed deduction u/s 80P(2)(a)(i) of the I.T.Act with regard to interest earned by providing credit facilities to members. As regards the latter, the interest income was assessed as income from other sources by placing reliance on the judgment of the Hon'ble Apex Court in the case of Tatagars Co-operative Sales Society (supra). Consequently, the claim of deduction was denied to the extent of Rs. 14,81,899. 4. Aggrieved by the order of the Assessing Officer for denying the claim of deduction to the extent of Rs. 14,81,899, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lea for deduction u/s 57 of the I.T.Act, the learned Standing Counsel relied on the order of the ITAT in the case of M/s.Sri Basaveshwara Credit Co-operative Society Ltd. v. CIT in ITA No.524/Bang/2012 (order dated 10.05.2013). 7. I have heard rival submissions and perused the material on record. The issue to be decided is with regard to the interest income earned on account of investments made with co-operative Banks, whether it is entitled to deduction either u/s 80P(2)(d) or u/s 80P(2)(a)(i) of the I.T.Act. The Bangalore Bench of the Tribunal in the case of M/s.Vasavamba Cooperative Society Ltd. (supra) had held that the assessee is not entitled to deduction either u/s 80P(2)(d) nor u/s 80P(2)(a)(i) of the I.T.Act with regard to the interest income earned from investments made with co-operative banks. The Bangalore Bench of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. (supra) had followed the judgment of the Hon'ble jurisdictional High Court in the case of Pr.Commissioner of Income-tax & Anr. v. Totagars Co-operative Sales Society 395 ITR 611 (Kar.). The relevant finding of the Bangalore Bench of the Tribunal, reads as follow:- "8. We have carefully con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt held a Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to 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 busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 578(Guj.) in which the Hon'ble Gujarat High Court dissented from the view taken by the Hon'ble Karnataka High Court in the case of Tumkur Merchants case (supra) The Hon'ble Court had to deal with the following substantial question of law: "(I)Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') in respect of whole of its income by way of interest earned by it during the relevant 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent-assessee, a cooperative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. (Paragraph-14 of the judgment) 3. The amendment of Section 194A(3)(v) of the Act excluding the Cooperative Banks from the definition of "Co- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. The Hon'ble Gujarat High Court held that in the case of Totgars Cooperative Sale Society (supra) decided by Hon'ble Supreme Court, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in shortterm 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 fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The argument of the learned counsel for the Assessee has been that the AO has applied his mind and allowed the deduction and therefore the jurisdiction u/s.263 of the Act cannot be exercised. On this argument, the learned DR pointed out that the jurisdiction u/s.263 of the Act was exercised by the CIT not for the reason that the AO failed to make proper enquiries before concluding the Assessment but on the ground that his decision was contrary to decision of Hon'ble Jurisdictional 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-operative sales society 395 ITR 611 (Karn.). 16. 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-operative sales society 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the Assessee on the earlier decisions of the Hon'ble Karn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 57. 12. It is no doubt true that the appellant did initially claim deduction under Section 80P(2). Upon the pronouncement of the order by the Apex Court, in these appeals referred to supra, the income earned on the interest is declared as "other income" falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from "other sources", the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the next income which the appellant earns after deducting cost and expenditure incurred and administrative expenses incurred by the assessee. 13. Accordingly, we answer the question of law and hold that the Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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