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TMI Blog2024 (9) TMI 1733X X X X Extracts X X X X X X X X Extracts X X X X ..... ale Society Ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable on facts from the case of the Appellant Assessee. (3) That the Ld. C.I.T. (A) erred on facts and in law in considering that the A. O. has failed to demonstrate in the Assessment Order that the Interest Income on FDR's and Saving Bank Accounts was on account of surplus funds of the Society and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in Appellant's Case. (4) That the Ld. C.I.T. (A) erred on facts and in law in not considering that the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. WITHOUT PREJUDICE TO ABOVE (5) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the Society being co- operative Society is statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. WITHOUT PREJUDICE TO ABOVE (5) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the Society being co- operative Society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (6) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of Society which is held in the form of deposits are not the investments of the Society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid' debited in the Profit and Los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the P. F. Balance of seasonal employees of Society which is held in the form of deposits are not the investments of the Society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid' debited in the Profit and Loss Account from the gross interest of Rs. 41,05,832/- (8) That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. (9) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A)." 2. The facts of the case are that the assessee claimed deduction under section 80P of Rs.4,41,73,841/- in the assessment year 2017-18 Rs. 4,28,64,206/- in the assessment year 2018-19 and Rs. 2,95,03,846/- in the assessment year 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was a Welfare Society for cane growers and the main object of the Society was to provide assistance to the cane growers for better development of cane crops, to make available and provide assistance in obtaining better quality of seeds, fertilizers, agricultural equipments etc., expeditious supply of sugarcane to mills and ensuring prompt payment to the cane growers and also to provide credit facilities to the members for purchase of equipments, seeds, fertilizers etc,. Thus the basic object of the assessee cooperative was the welfare of cane growers. The assessee was registered under the U.P. Sahkari Samiti Adhiniyam, 1965 and was providing facilities to cane growers as under:- a. In the form of building roads in their geographical jurisdiction for transport of cane produce by cane growers. b. Providing agricultural implements at subsidized rates to the members and also providing fertilizers and seeds for better cultivation of cane crop. c. Ensuring prompt payment to farmers from sugar mills. d. Providing credit facilities in the form of providing loans to cane growers for the purpose of purchase of fertilizers, seeds, agricultural implements etc,. 6. It was sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of bonus to members, contribution to any fund as may be specified by the rules or byelaws and donation of amounts not exceeding 5% for any charitable purpose. It was, therefore, submitted that as per the said provisions, the Society was statutorily required to invest not less than 25% of its profit in a statutory reserve fund and deposit the same with a nationalized bank as per section 59 of the U.P. Cooperative Societies Act. It was also statutorily required to keep such amount for purposes of investment in other funds, as detailed above. Distributions from these surplus funds were later to be made, as per the directions of the State Government / Cane Commissioner. It was submitted that these funds, which are tagged as statutory reserve fund as per law, were required to be kept in the form of FDRs in National Banks and Cooperative Banks, in accordance with section 59 of the UP Cooperative Act r.w.r 173 of the U.P. Cooperative Societies Rules, 1968. 8. It was submitted that the decision of Hon'ble Supreme Court in the case of Totgars' Cooperative Sale Society Limited (supra) was on a different issue inasmuch as, in that case, the Hon'ble Supreme Court was dealing with a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, placed before the Hon'ble Supreme Court which had a bearing on the income of society and its entitlement to exemption under section 80P. The ld. AR took us through the judgment of the Hon'ble Supreme Court to show that the said order passed by the Hon'ble High Court had been set aside with directions to the Tribunal to decide the issue of exemption under section 80P on merits and in accordance with law, without being influenced or being bound by the earlier orders passed by them or by the Hon'ble High Court and subsequently, the Hon'ble ITAT, Lucknow Bench, on the basis of this direction, passed a consolidated order in ITA Nos.285/Lkw/2015, 474/Lkw/2015, 525/Lkw/2015, 536/Lkw/2015 and 540/Lkw/2015 on 1.09.2020. It was submitted that the Hon'ble Tribunal, after considering the byelaws and the statutory rules as also the earlier decision of the Hon'ble Allahabad High Court in the case of Commissioner of Income Tax vs. Krishak Sahkari Ganna Samiti 258 ITR 594 (All), the earlier decision of the Hon'ble ITAT, Lucknow Bench in the case of Commissioner of Income Tax vs. Cooperative Cane Development Union Limited 118 ITR 770 (All) and the earlier decision of the Hon'ble ITAT Lucknow Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Hon'ble ITAT, Lucknow Bench in the case of Income Tax Officer vs. Sahkari Ganna Vikas Samiti, Rupapur Chauraha (Munder), Hardoi in ITA No. 467/Lkw/2013, vide their order dated 15.07.2015 had dismissed the appeal of the Revenue by relying on the judgment of Hon'ble Allahabad High Court in the present assessees case, reported in 118 ITR 770 (Alld) and in the case of Commissioner of Income Tax vs. Krishak Sahkari Ganna Samiti Limited reported in 258 ITR 594 (All). It had also distinguished the decision of the Hon'ble Apex Court in the case of Totgar's, by pointing out that the facts of that case were different from the case of Sahkari Ganna Vikas Samiti (supra) and no appeal had been preferred by the Revenue against such orders. 9. The ld. AR further drew our attention to the judgment of Hon'ble ITAT, Raipur Bench in the case of Gramin Sewa Sahkari Samiti, Maryadit reported in 138 taxman.com 476, wherein the Hon'ble Tribunal had allowed deduction under section 80P(2)(a) to the cooperative Society by holding that the surplus funds parked by the assessee society, by way of short term deposits with cooperative banks, were inextricably inter-linked or interwoven with its business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment. In view of these arguments, the ld. AR prayed that the decision of the Hon'ble Supreme Court in the case of Totgars and the decision of the Hon'ble Allahabad High Court in the case of PCIT vs. Cooperative Cane Development Council Limited, Lakhimpur in ITA No. 183 of 2016, would not have any bearing on the case of the assessee as the aforesaid issues were neither brought or argued before the Hon'ble High Court / Hon'ble Supreme Court in those cases and after considering such arguments, the Hon'ble Supreme Court in the case of PCIT vs. Cooperative Cane Development Council Limited, Lakhimpur(supra), had remanded the matter back to the ITAT to take a fresh decision without being influenced by previous orders passed by them or the Hon'ble High Court. It was further submitted that the subsequent orders of the Tribunal in that case supported the assessee and the Revenue had itself accepted the fact that interest income earned out investment in statutory reserves was income attributable to the business of the assessee. Therefore, he prayed that the facts and law being similar in the case of the assessee, the Tribunal may follow the precedents cited and delete the additions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit society. In the present case, we are faced with a similar situation. Instead of cooperative sale society, the Society a cooperative cane development union. The purposes of both the societies are common. The objects of the Society do not provide for investment of money in post office or bank, and earn interest and thus the interest earned out of the investments made in the bank would be an interest, which will income from other sources and will be chargeable to tax under Section 56 of the Act. 7. The Income Tax Appeal is allowed. The substantial questions of law as framed by the revenue are decided in favour of revenue and against the respondent-assessee....." (copy of order enclosed as Annexure-B)." 12. He also invited our attention to the subsequent decision of Hon'ble Allahabad High Court in the case of PCIT, Bareilly vs. Cooperative Cane Development Council, Lakhimpur in ITA No.183 of 2016 dated 6.12.2016 wherein the Hon'ble High Court followed the said order in ITA No. 520/2008 cited above and allowed the Revenue's appeal, while dismissing the contentions of the assessee. It was, therefore submitted, that the issue was covered by the judicious verdict of Hon'ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Allahabad High Court in ITA No. 183/2016 to the Hon'ble Supreme Court in Civil Appeal No. 7405 to 7409 of 2021 and placed the statutory rules before the Hon'ble Supreme Court. After considering that such rules may have a bearing on the nature of income and entitlement to exemption under section 80P of the Act, the Hon'ble Supreme Court had remitted the matter back to the Income Tax Appellate Tribunal to decide the appeals afresh, without being bound or influenced by the earlier orders passed by them or by the Hon'ble High Court. In view of such orders of the Hon'ble Supreme Court, the case laws of the jurisdictional Hon'ble Allahabad High Court cited by the ld. Sr. DR did not constitute a binding precedent for the ITAT, Lucknow Bench in the case of Cooperative Cane Development Council in ITA Nos. No.285/Lkw/2015, 474/Lkw/2015, 525/Lkw/2015, 536/Lkw/2015 and 540/Lkw/2015. The Hon'ble ITAT, Lucknow Bench after considering the byelaws and the statutory rules, the decisions of Hon'ble Allahabad High Court in CIT vs. Krishak Sahkari Ganna Samiti Limited 258 ITR 594 (Alld) and CIT vs. Cooperative Cane Development Union Limited 118 ITR 770 (Alld) and the decisions of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cooperative society to the extent mentioned in that section if the profits or gains are 'attributable' to the activity in which the Cooperative Society is engaged. The findings are that under statutory provisions the Cooperative Society is bound to invest 25% of its profits in Government securities. The assessee complied with this provision. In the process, it earned interest on these investments. The question is whether such profits or gains are attributable to the activity of supplying sugarcane carried on by the assessee. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 1TR 84 the Supreme Court held that the expression 'attributable to suggests that the Legislature intended to cover receipts from sources other than the actual conduct of the business of the assessee. The investment of the statutory percentage of its profits in Government securities was a condition of the carrying on the business. The profits or gains from such investments were connected with or incidental to the carrying on of the actual business. They were, in our opinion, rightly held by the Tribunal to be attributable to the activity carried on by the assessee within the "meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly the bylaws of the Assessee Society and the U. P. Cooperative Societies Act. On going through the by-laws of the Assessee Society, it has been noticed that its Part 14 i.e. "Disposal of Net Profit and Societies" Assets and funds and appropriation thereof deals with the appropriation of Net Profits and Funds of the Assessee Society. Further, it has also been noticed that the aforementioned Part-14 of the bylaws of the Societies are in accordance with section 58 and 59 of the U. P. Co-operative Societies Act. Further, it has also been noticed that the secured reserve as well as other reserves are created in Annual General Meeting of the Society as per its bylaws and get accumulated over the year. These reserves are kept in co-operative and nationalized banks from where the Assessee earns the interest income under question. In view of the aforementioned facts, it is inferred that the reserve funds kept by the Assessee with Co-operative and nationalized banks are as per the by-laws of the Society and accordingly interest income arising from these funds can be held to be attributable to its main activities and therefore, the assessee is eligible for deduction in respect of this int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of Totgar's Case, but an interest attributable to the main activity of the assessee cooperative and therefore, deductible under section 80P. The assessee has submitted copies of its byelaws and the detailed breakup of investments and interest arising on the same. However, we observe that the ld. Assessing Officer has not examined the breakup of such investments and the interest earned on the same, with reference to the byelaws or sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 as he was of the view that no such interest was deductible in view of the decision of Hon'ble Supreme Court in the case of Totgars (supra). Now that the position with regard to such investments has been clarified by the Hon'ble ITAT in the case of Cooperative Cane Development Council, Lakhimpur and accepted by the Revenue in the consequent assessment, we deem it appropriate to restore the matter in all three cases back to the file of the ld. Assessing Officer for the limited purpose of re-computing the admissible deduction under section 80P with reference to the interest earned on investments made in accordance with sections 58 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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