TMI Blog2019 (2) TMI 2090X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee : Shri Prateek Jha. For the Revenue : Shri M.K. Verma. ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the Revenue emanates from the order of the Ld. CIT(Appeals)-4, Pune dated 31.05.2017 for the assessment year 2013-14 as per following grounds of appeal on record: 1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in ignoring the income considered as income from other sources of Rs.2,53,41,920/-as interest earned out of surplus funds from investment made in any bank, not being co-operative society is not deductible u/s. 80P(2)(d) of the Act. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.2,53,41,920/- on account of deduction claimed u/s. 80P(2)(ai),without appreciating the principal enunciated by the Hon'ble High Court of Karnataka in the case of Pr. CIT vs. Totagars Co-operative Sales Society (395 ITR 611, 83 Taxman.com 140) and the assessee s case is squarely covered by the said decision. 3. For these and such other grounds as may be urged at the time of hearing, the order of the ld. CIT(A) may be vacated and that of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial business the society had parked its surplus/ideal funds with various commercial/co-operative banks to maximize its return on its funds. Income earned on these is part and parcel of the business. In support of its contention, the AR relied on the decisions of Cambay Electric Supply Indl. Co. Ltd. Vs. CIT reported at 113 ITR P 84 (SC) and CIT Vs. Bangalore District Co-operative Central Bank Ltd reported at 233 ITR 282. 4. That before the Ld. CIT(Appeals), the Ld. AR submitted that the impugned grounds and legal issues are identical with those involved in the assessee s appeal for A.Y.2014-15. Thereafter, the Ld. AR of the assessee has placed following arguments: The undisputed fact in the present case is that the assessee is a Cooperative Credit Society engaged in the business of accepting deposits from members and providing credit facilities to its members. It also deposits the idle funds with banks to earn income in order to augment its resources. The activity is in the nature of banking business and incomes earned on advances, deposits and investments are profits and gains of business of the assessee. Therefore, such incomes are eligible for deduction u/s. 80P(2)(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Society. It has received interest and dividend on its investments with other co-operative societies. The question before the Tribunal was as to whether the interest and dividend income earned by the society were deductible under section 80P (2) (d) of the IT Act. The Tribunal held that the gross amounts of interest and dividend were deductible under section 80P (2) (d).The observation of the Tribunal is reproduced as under- We have heard the rival submissions and perused the records. The scope of u/s. 80P(2)(d) of the Act is to allow a deduction in the computation of total income of a Co-operative Society in respect of incomes earned by the society as enumerated in sub-so (2) to u/s. 80P in sub-cl. (a) to (j). Under cl. (d) to u/s. 80P(2), it is provided that where the gross total income of an assessee being a co-operative society includes income by way of interest or dividend derived by the co-operative societies from its investment with any other co-operative society, the whole of such income shall be deducted while computing the total income of the assessee. The provisions in s. 80P of the Act had been enacted with a view to encourage and promote growth of co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers and also consumer societies and Cooperative societies engaged in supplying milk, oil, seed, fruits or vegetables to other societies or Government bodies. In addition to the profits and gains earned by the co- operative societies, it has also been provided under cl. (d) to s. 80P(2) that the income earned by co-operative society by way of interest and dividend on its investment with any other co-operative society is exempted under the provisions of s. 80P of the IT Act. The deduction is granted categorically to the whole such income meaning thereby the total interest or dividend received by the cooperative society from its investments made with any other co-operative society are entitled to the deduction under s. 80P of the IT Act. Under cl.(e) to s. 80P (2) of the IT. Act, the income earned from letting of godown or warehouses for the purpose of storage, processing or facilitating the marketing of commodities by a co-operative society is exempt from tax. 5.2.3 Reference may also be made to the judgment of the Supreme Court in the case of Bihar State Co-operative Bank Ltd v CIT [1960 J39 ITR 114 (SC). In this case the assessee bank, registered under the Co-operative A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not required for business purposes. 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 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 sources , hence, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with Deductions in respect of certain incomes . The head note to section 80P indicates that the said section deals with deductions in respect of income of co-operative Societies. Section 80P(1), inter alia, states that where the gross total income of a co-operative Society includes any income from one or more specified activities, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 56 of the Act. The facts underlined by the Supreme Court would clearly show that the ratio of this judgment is not applicable to the facts of the assessee s case. 5.2.5 Kind attention is drawn to the decision dated 13-05-2015, of the ITAT Pune B Bench in the case of Mahesh Nagari Sahkari Pat Sanstha Ltd v ITA, for A.Y-2010-11. This assessee had received interest of Rs.29,28,361/- from bank deposits. The AO considered this income as income from other sources and denied deduction u/s 80P in respect of this amount. The ITAT held that the assessee had made deposits with nationalized bank in order to maintain liquidity and provide ready availability of funds for repayment of deposits on redemption/maturity. The ITAT held that interest income was eligible for deduction u/s. 80P(2) (a)(i) of the Act. The ITAT has relied on decision in the case of ITO v Niphard Nagrik Sahakari Patsanstha Ltd wherein the judgment of the Supreme Court in the case of Totgars Co-operative Sale Society Ltd has been considered at length and distinguished. 5.2.6 Kind attention is also invited to the Circular No. 18/2015 dated 02.11.2015 of the CBDT, wherein, it has been brought to notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also considered the various decisions cited before us. In the instant case there is no dispute to the fact that the assessee is a cooperative society engaged in the business activity of credit cooperative society, i.e. providing credit facility to its members. According to the Revenue the income of the society on account of interest from banks other than cooperative banks, interest on mutual funds, long term and short term capital gain on sale of mutual funds etc. are not covered by the activity of providing credit facilities to its members and hence not eligible for deduction u/s. 80P(2)(a)(i) of the Income Tax Act in view of the decision of Hon'ble Supreme Court in the case of Totaqar's Cooperative Sale Society Ltd. (Supra). We find the Ld. CIT(A) allowed the claim of the assessee on the ground that the assessee is entitled to deduction u/s. 80P(2)(a)(i) on account of interest from banks other than cooperative banks, interest on mutual funds long term and short term capital gain on mutual funds etc. While doing so, he held that the decision in the case of Totagar's Cooperative Sale Society Ltd. (Supra) is not applicable to the facts of the present case since in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer ... 19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.03.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon'ble Supreme Court: (On page 286) 7 .Before the assessing officer, it was argued by the assessee(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source: Balance Sheet of the assessee available on record]. 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld.CIT(A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s. 56 of the Act It is ordered accordingly. 19.7. Before parting with, we would, with due regards, like to record that the ruling of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Manekbang Co-op. Housing Society Ltd. reported in (2012) 22 Taxmann.com 220 (Guj.) has been kept in view while deciding the issue. 11.2 We find the Cochiti Bench of the Tribunal in the case of Muttom Service Cooperative Aplappuzha Bank Ltd. Vs. ITO (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 ( Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s. 80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which in turn have considered the decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd.(supra.) we find no infirmity in the order of the Ld. CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed. 5.3.1 Further, reliance is also placed on CBDT's circular No. 18/2015 dated 02/11/2015, wherein, it has been brought to the notice of Officers of the Department that in light of examination of judicial decision in the case of CIT Vs. Nawanshahar Central Co-operative Bank Ltd. [2007] 160 TAXMAN 48 (SC) delivered by the Apex Court, that the investment m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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