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TMI Blog2023 (9) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... an Employees Credit Co-operative Society established by Gurudev Rabindranath Tagore in 1927. Assessee is engaged in the business of credit facility to its members. It provides low cost finance to employees and ex-employees of Visva Bharati University who are its members. Assessee filed its return of income on 09.09.2015, reporting total income as nil. In the course of assessment proceedings, Ld. AO noted that assessee has made investments/deposits with Nationalised Banks which has yielded interest income amounting to Rs. 45,56,500/- plus a provision of Rs. 1,73,221/-, totalling to Rs. 48,29,771/-. 3.1. Assessee explained its case in respect of deduction u/s. 80P which included this interest income. However, Ld. AO held that interest income is not part of its operational business income but is an income from other sources, not deductible u/s. 80P of the Act. While holding so, he placed reliance on the decision of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO, [2010] 188 Taxmann 285 (SC) as well as decision of Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. [201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any relevance in the case of the assessee for the following reasons and the provision u/s. 80P(2)(a)(i) of the Act is fully applicable in its case. 1) Totgars Co-operative Sale Society is a Co-operative Society engaged in the business of marketing of agricultural produce grown by its members apart from providing credit facilities to its members. Whereas your assessee is only engaged in the business of providing credit facilities to its members and nothing else. 2) The amount invested by "Totgars Co-operative Sale Society" in short term deposit/securities was arrived from sales consideration of agricultural produces of its members which was retained and was payable to its members therefore to the extent such interest income cannot be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Income Tax Act, 1961 and taxable under section 56 of the Income Tax Act, 1961. Whereas your assessee, the amount invested in banks to earn interest was not an amount due to its members. This amount is profit and gains in nature and was not immediately required by your assessee for lending money to its members as there is no taker. So the interest income attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2)(a)(i) of the Act. 6.1. According to him, since the sole basis of disallowance made by Ld. AO is the decision of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra), he invited the attention of the Bench to the issue which was dealt with by the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra). The same is extracted as under: "What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of 'income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3. In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4. While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1.) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration the revisionary proceedings in the assessee's own case for the immediately preceding assessment year on identical set of facts whereby Ld. PCIT has accepted the distinguishing features pointed out by the assessee vis-a-vis decision of Hon'ble Supreme Court in Totgars Co-operative Sale Society Ltd. (supra) and the same being dropped which suggests the acceptance of the submissions made by the assessee as to non-applicability of the decision of Totgars Co-operative Sale Society Ltd. (supra) by the department. While dropping the revisionary proceeding, ld. PCIT has given a categorical finding as extracted above that decision of Hon'ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra) is not applicable in the facts of the case of assessee. 9. Considering the facts and circumstances of the case and the decision referred above, we are of the considered view that assessee is entitled for deduction of interest income earned from deposits made by it with banks which has arisen out of deposits received from its members pursuant to conduct of business of providing credit facilities to its members. Accordingly, grounds taken by the assessee in this respect ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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