TMI Blog2019 (10) TMI 1494X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.51/2015- 16 dated 03.02.2017 for the assessment year (AY) 2015-16 with the following grounds: Both the CIT Appeals and Learned Assessing Officer has erred in making the disallowance. Aggrieved by the CIT s order the assessee files the following grounds of appeal. 1. Staff advance under section 56-₹ 1,01,03,351/-: Since the advances given to the employees as forms integral part of the business operations of the assessee, the interest income (₹ 1,O1,03,351/-) earned on staff advances is eligible under section 80P of the Income Tax Act. 2. Interest earned on Fixed deposit and Savings Bank Account - ₹ 3,59,28,438/-: The interest earned on fixed deposit and savings bank account is incidental to the main object of providing credit facilities to the members and it is embedded with the main income of the society and hence the interest of ₹ 3,59,28,438/-. earned on the fixed deposit and savings bank account is eligible for deduction under section 80P of the income Tax Act. The assessee shall be permitted to furnish any further grounds of appeal during the course of hearing. The Appellant prays that the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members. Reliance was placed on the decision of Jaipur Bench of the Tribunal in the case of ITO vs. Jhalawar Sahkari Bhoomi Vikas Bank Limited( ITA 634/JP/2012, dated 20.03.2015). 3. Adverting to the second ground, ld. Authorised Representative submitted that ld. Assessing Officer had denied exemption u/s.80P(2)(a) (i) of the Act on interest of ₹14,85,237/- on deposits with savings bank account. As per the ld. Authorised Representative, such deposits were made from temporary surplus funds available with the assessee. Contention of the ld. Authorised Representative was that assessee was empowered to do so by virtue of Sec. 64 of the Multi State Co-operative Society Act, 2002. According to him, such interest only went to reduce interest cost of borrowings. Ld. Authorised Representative referring to provisions of Sec. 64 of Multi Society Cooperative Society Act, 2002 submitted that the conditions set-out therein were complied while making such deposits. As per the ld. Authorised Representative loans were given to its members from the deposits in such savings bank account as well. According to him, ld. Commissioner of Income Tax (Appeals) had erroneously treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its members. Such deduction was denied only on the interest received by the assessee on advances given to employees and interest earned on the deposits in savings bank account. In so far as interest earned from employees are concerned, contention of the assessee is that this was to be construed as a part of its main business activity of providing credit facility to its members. Certificate of registration of the assessee issued by the office of the Central Registrar of Cooperative Societies, which is available on record, clearly indicate that it is a Multi State Co-operative Society. It is obviously not a society engaged in the business of banking. Section 80P(2)(a)(i) of the Act which apposite is reproduced hereunder:- (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:-- (a) in the case of a co-operative soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such activities which are mentioned in sub-section (2). 19) Since we are concerned here with sub-section (i) of clause (a) of subsection (2), it recognizes two kinds of co-operative societies, namely: (i) those carrying on the business of banking and; (ii) those providing credit facilities to its members. 20) In the case of Kerala State Cooperative Marketing Federation Limited Ors. v. Commissioner of Income Tax5, this Court, while dealing with classes of societies covered by Section 80P of the Act, held as follows: 6. The classes of societies covered by Section 80-P of the Act are as follows: (a) Engaged in business of banking and providing credit facilities to its members; xx xx xx 7. We may notice that the provision is introduced with a view to encouraging and promoting growth of cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a cooperative soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is in tune with the judgment of this Court in Kerala State Cooperative Marketing Federation Limited (supra). 23) With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. 24) Undoubtedly, if one has to go by the aforesaid definition of cooperative bank , the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a cooperative bank, it is imperative to have a license from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity; that no person can earn from him; that there a profit motivation; and that there is no sharing of profit. It is noticed that the fund invested with bank which are not member of association welfare fund, and the interest has been earned on such investment for example, ING Mutual Fund [as said by the MD vide his statement dated 20.12.2010]. [Though the bank formed the third party visa- vis the assessee entitled between contributor and recipient is lost in such case. The other ingredients of mutuality are also found to be missing as discussed in further paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as members may not be the member of the society as such the AOP body by the society is not covered by concept of mutuality at all. 27) These are the findings of fact which have remained unshaken till the stage of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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