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TMI Blog2025 (5) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... tive Sale Society Ltd. vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable in 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 marketing the agriculture produce of members. 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 cooperative society is statutorily required to maintain a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and marketing the agriculture produce of members. 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 cooperative 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 Loss Account from the gross interest of Rs. 3,45,29,714/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to the business of providing credit facilities and marketing the agriculture produce of members. 6. 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 Ld. A. O. Additional grounds of appeal 1. That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses of Rs. 5,43,58,995/- and 'Interest paid Rs. 51,91,972/- debited in the Profit and Loss Account from the gross interest of Rs. 2,61,79,220/-. 2. 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. 3. The Ld. C.I.T.(A) erred on facts and in law in not considering that 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 Reserve Fund cannot be said to be made out of surplus funds. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s condoned and the appeal is admitted for adjudication. In respect of appeal in ITA No. 15/Lkw/2023, where the delay is of 357 days, it is observed that 128 days of said delay are covered in the Covid period as per the decision of Hon'ble Supreme Court in Suo Moto Writ Petition No. 03/2020. For the remaining 229 days, it has been submitted that the order was served on the email ID [email protected], which belonged to the counsel of the assessee and the Society did not receive any intimation from the local counsel about the service of the appellate order. It was only upon the receipt of outstanding demand intimation from the jurisdictional AO that the assessee society enquired from its counsel about the pendency of the first appeal and was informed by the counsel that the order of the Hon'ble CIT(A), NFAC had been passed on 24.11.2021 and received on his email ID. Thereafter, the Secretary of the Society immediately contacted the counsels at Lucknow. However, due to last date of filing of return and tax audit report, the counsels were busy and could not file the appeal. Once the same was over, the assessee was asked to deposit the appeal fee which it did on 22.11.2022 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2012 in the case of Cooperative Cane Development Union Limited had held that in M/s Totgars Cooperative Sale Society Limited, the Hon'ble Supreme Court had explained the eligibility of deduction under section 80P and held that where the investment in securities was not a primary object of the Cooperative Credit Society, the interest therefrom could not be regarded as income attributable to business but would in fact be regarded as income from other sources. He noted that the Hon'ble Allahabad High Court in the said case had pointed out that the assessee was a Cooperative Cane Development Union and the objects of the society did not provide for investment of money in the post office or bank and to earn interest on the same and therefore, in its case also, the interest earned out of the investments made in the bank would be an interest which would be income from other sources and chargeable to tax under section 56 of the Act. Therefore, relying upon the case of the Hon'ble Supreme Court in the case of M/s Totgars Cooperative Sale Society Limited vs. ITO (supra) and the Hon'ble Allahabd High Court in ITA No.520 of 2008 in the case of Cooperative Cane Development Union, Lakhimpur Khe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said deposits could not be brought to tax under section 56 of the Income Tax Act, 1961 by relying on the decision of the Hon'ble Apex Court in the case of Totgars Cooperative Sale Society Limited. It was submitted that the Hon'ble Madras High Court in the case of K. 2058, Saravanampatti Primary Agricultural Co-Operative Credit Society Ltd. v. ITO 426 ITR 251 (Mad) had held after considering that the society was required to maintain statutory reserve of 25% under the Tamilnadu Cooperative Societies Act, that the same cannot be the surplus fund of the society as decided in the case of Totgars Cooperative Sale Society Limited and after placing reliance on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax V. Nawanshahar Central Cooperative Bank Limited reported in 289 ITR 6, it had set aside the assessment for de novo and fresh examination. It was, therefore, prayed that in the light of the above facts which had not been examined by the lower authorities, the issue may be set aside for fresh examination by the ld. AO in the interest of justice. The ld. AR also invited our attention to the decision of the ITAT Lucknow 'B' Bench in the case of Coope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds preferred by him, the ld. AR submitted that if his prayer of restoring the matter back to the file of the ld. AO for reconsideration of his order in the light of the statutory provisions as contained in section 58 and 59 of the U.P. Cooperative Societies Act, 1965 and Rule 173 of the U.P. Cooperative Society Rules, 1968, were accepted and the orders of the Tribunal given earlier on the issue of investment of provident fund of employees was reiterated, he would not press the remaining grounds for a decision at this stage. 7. Responding to these arguments, Sh. Sanjeev Krishna Sharma, ld. Sr. DR (hereinafter referred to as the 'ld. Sr. DR') pointed out that the relevant issue had already been decided in favour of Revenue by the Hon'ble Supreme Court in the case of PCIT, Hubli vs. M/s Totgars Cooperative Sale Society (2017) 83 taxman.com 140 which re-emphasized the fact that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. He further submitted that the above verdict of the Hon'ble Supreme Court had been further followed by the Hon'ble Allahabad High Court in similar cases wherein the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Supreme Court in that matter. As pointed out by the ld. Sr. DR, as per the said judgment, the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In that particular case, the Hon'ble Supreme Court observed that, in the facts and circumstances of that case, the assessee society had earned interest on funds which were not required for business purposes at the given point of time. Therefore, as it clarified, on the facts and circumstances of that case, they rendered their judgment that such interest income fell in the category of, "other income" which had rightly been taxed by the Department under section 56 of the Act and therefore, was ineligible for deduction under section 80P of the Act. The two judgments of Hon'ble Allahabad High Court that have been cited by the ld. Sr. DR have followed the principle laid down by the Hon'ble Supreme Court and held, that the objects of the society did not provide for investment of money in a post office or bank and earn interest and therefore, the interest earned out of the investments made in the bank would be an interest, which in turn would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed banks and Co- operative banks in view of the specific requirements of U.P. Cooperative Societies Act. We find that section 58 of the U.P. Co- operative Societies Act requires the net profit to be distributed as under: "(a) An amount not less than twenty five percent shall be transferred to a fund called the reserved fund: (b) Not less than such amount as may be prescribed, shall be credited to a Cooperative Education fund to be established in the manner prescribed, and this shall be applicable to such cooperative society also which incur loss in the year, [Provided that the provisions of this clause shall not apply to a Primary Agriculture Credit Co-operative Society, a Central Cooperative Bank or the Apex Bank.',] (c) An amount that may be prescribed shall be credited to the research and development fund created in the Apex Societies of the concerned class of Cooperative society and which shall be maintained for the purpose of Research and development in the prescribed manner. (d) an amount not exceeding twenty percent as may be prescribed shall be transferred to a fund called the Equity Redemption Fund to be established and utilized in the manner prescribed by su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 476 (Raipur-Trib.) wherein the Tribunal has held that the interest earned by the assessee from deposit with co-operative bank and nationalized bank was eligible for deduction u/s 80P(2)(a) of the Act. 7.4 The above two judgments respectively by Hon'ble High Court and Tribunal hold that the interest earned by a Co-operative Society on deposits, which are statutorily required to be kept in the form of bank deposits or Government securities, are attributable to the business of an assessee. 7.4 Here in the present cases, we do not find the figures regarding the interest which the assessee's may have earned on fixed deposits attributable to the making of statutory reserves. We further find that bye laws of the assessee has to be gone through which, though are available in the paper book, but require examination by the Assessing Officer as these were filed before Hon'ble Supreme Court as additional evidences. Therefore, we deem it appropriate to remit the issue of deduction u/s 80P for read-judication by the Assessing Officer, who, in the light of judgment of Hon'ble Supreme Court and keeping in view the judgments relied on by the assessee and keeping in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the U.P. Cooperative Societies Act is "attributable" to the main activities of that Society, has been accepted by the Revenue. The assessee is governed by the same U.P. Cooperative Societies Act and Rules as the Cooperative Cane Development Council, Lakhimpur and therefore, in its case also, it must be held that interest earned from investment made by it as per sections 58 and 59 of the U.P. Cooperative Societies Act r.w.r.173 of the U.P. State Cooperative Rules, is attributable to the activity in which the assessee is engaged and therefore, is eligible to be deducted under section 80P(2)(a) of the Act. 16. We have further observed that the Hon'ble Madras High Court in the case of K. 2058, Saravanampatti Primary Agricultural Co-Operative Credit Societies Ltd. v. Income Tax Officer 426 ITR 251 (Mad), after considering that the Societies was required to maintain a statutory reserve of 25% under the Tamilnadu Cooperative Societies Act held that the same could not be regarded as the surplus funds of the Society as decided in M/s Totgars Cooperative Sale Society Limited (supra) and therefore, it set aside the assessment of the ld. Assessing Officer in the light of the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly, additions made on this account in A.Ys. 2017-18 and 2020-21 are deleted. In view of the fact that we have allowed Ground numbers 1 to 5, Ground numbers 7 to 9 are rendered infructuous and are dismissed as such." 9. Accordingly, following the said order, we restore the matter back to the file of the ld. AO to re-compute admissible deduction under section 80P to the interest earned on investments made in accordance with sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Society Rules, 1968. Such investments that have been made in accordance with these statutory provisions would be regarded as attributable to the business of the assessee society and eligible for deduction under section 80P. Furthermore, since the provident fund balances do not belong to the assessee, but the assessee is merely a custodian of the same and the interest earned on the investments made on this account is credited to this account which is to ultimately be repaid to the employees at the conclusion of their contracted terms, the interested on the same cannot be regarded as the income of the assessee and cannot be brought to tax in its hands. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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