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TMI Blog2025 (5) TMI 1548X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case: - Ground No 1:- 1. The CIT(A) erred in confirming the addition to the extent of Rs 75,69,826 (interest income) relating to interest, earned on deposits with Co-Operative Bank, the Appellant cooperative society is registered under KARNATAKA CO-OPERATIVE SOCIETIES ACT 1959, The Appellant society is into the business of accepting deposits and providing credit facilities to the members, investing funds in Banks is integral part of its Business, the bye law, CHAPTER III, Objectives of the Appellant society includes investing of funds which are not required for use immediately, in Co-Operative Banks as per section 58 of the KARNATAKA CO-OPERATIVE SOCIETIES ACT 1959, the extract of the section 58 of the said act is reproduced below. 58. Investment of funds.- A co-operative society may invest or deposit its funds,- (a) in a Government Savings Bank; or (b) in any of the securities specified in section 20 of the Indian Trusts Act, 1882 (Central Act II of 1882); or (c) in the shares or securities of any other co-operative society; or 11(d) with any Co-operative Bank; or 2[(e) with any scheduled bank 2[XXX]2 regulated by the Reserve Bank of its choice and app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per section 57 of the income tax act 1961. The Audited Balance sheet, Profit and Loss Account is attached herewith, the cost of funds is calculated from the Audited Balance sheet and profit and Loss Account, the respective ledgers accounts are also attached herewith. The reliance is placed on following case laws Alnavar Credit Souhardha Co-Operative Ltd Vs ITO, Honorouble ITAT C bench Bangalore ITA 926/2024. BSNL Employees Co-Operative Society Ltd Vs ITO, Honorouble ITAT C bench. Bangalore ITA 1003/2024. 3. As per the decision of the Various judicial authorities, the cooperative Bank is considered as Co-Operative Society bank, because, A reading of the definition as per section 2(19) of Income tax act 1961, would make it clear that 'Co-operative Society' means a Co-operative Society registered under Cooperative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Cooperative bank, hence Co-operative Bank would fall within the purview of the term 'Co-operative Society&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces. The AO also granted 25% of the interest income as expenses to earn that interest income and brought to tax the balance interest income of Rs. 75,69,826/- under the head income from other sources. 6. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that the interest income was earned on the deposits of surplus / reserve funds, which can be deposited in any of the modes mentioned in section 58 of the Karnataka Co-operative Societies Act and therefore the said income is also an eligible income for deduction u/s. 80P(2)(a) of the Act. The assessee also disputed the calculation of the expenditure at 25%. The Ld.CIT(A) had dismissed the appeal by holding that the assessee is not entitled for deduction u/s. 80P(2)(d) of the Act since the deposits are made in co-operative bank or scheduled bank. The Ld.CIT(A) also confirmed 25% of the deduction allowed by the AO. As against the said orders, the assessee is in appeals before this Tribunal. 7. At the time of hearing, the Ld.AR submitted that the Ld.CIT(A) had failed to consider the plea that the deposits are made pursuant to the provision contained in the Karnataka Co-operative Societies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the assessee u/s. 80P(2)(a)(i) of the Act. Even before the Ld.CIT(A), the assessee in the statement of facts had submitted that they have to mandatorily deposit the surplus funds in the co-operative banks and therefore the interest income received from the said deposits are nothing but out of compulsion and therefore the said income is also eligible for deduction u/s. 80P(2)(a)(i) of the Act. The Ld.CIT(A) had not considered the said submissions and confirmed the order of the AO by relying on the judgment of the Hon'ble Karnataka High Court as well as the Hon'ble Supreme Court in the case of Totagars Co-operative Sales Society vs. ITO. The Ld.CIT(A) had not considered the submissions made by the assessee that as per sections 57 and 58 of the Karnataka Co-operative Societies Act, they have to necessarily deposits its funds in any of the co- operative bank. When the assessee had relied on the provision of the Karnataka Co-operative Societies Act for depositing the funds with the co- operative banks, it has to be considered as an income received from the profits and gains of business and therefore eligible for deduction u/s. 80P(2)(a)(i) of the Act. If there is no statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate Bench of this Court in Tumkur Merchants Souharda Credit Co-operative Limited supra has categorically observed that the interest earned by the society in investing in the Banks is attributable to the activity of carrying on business in the banking or providing credit facilities to its members by a Co-operative Society and is liable to be deducted from the gross total income under Section 80P of the Act. The judgment of the Hon'ble Apex Court in the case of Totgars Co-operative Sale Society Limited supra is also considered and distinguished. The view taken by the Andhra Pradesh High Court in the Commissioner of Income Tax -III, Hyderabad, v. Andhra Pradesh State Co-operative Bank Limited, reported in (2011) 200 Taxmann 220/12 is also considered whereby Andhra Pradesh High Court has held that the interest earned by the Co-operative Society by investing the fixed deposits in the Banks is entitled for deduction under Section 80P(2)(i)(a) of the Act. It is also pertinent to note that this judgment of the jurisdictional High Court in Tumkur Merchants Souharda Credit Co- operative Limited supra, has reached finality. As submitted by the learned counsel for the assessee, the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies mixing up the issue of Section 80P(2)(a)(i) and Section 80P(2)(d) cannot reject the claim of the assessee under Section 80P(2)(a)(i) of the Act without giving a proper finding on the issue." 13. In the subsequent judgement the Division Bench of the Hon'ble Jurisdictional High Court had relied on the judgment of the earlier Division Bench order dated 28/10/2014 in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO in ITA No. 307 of 2014 wherein the Hon'ble Jurisdictional High Court had clearly dealt with the issue in the following terms. "10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The matter has been examined in light of the judicial decisions on this issue. In the case of CIT Vs Nawanshahar Central Cooperative Bank Ltd. [2007] 160 TAXMAN 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession". 3.2 Even though the above mentioned decision was in the context of co-operative societies / Banks claiming deduction under section 80P(2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 4. In the light of the Supreme Court's decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn / not pressed upon. This may be brought to the notice of all concerned. (D S Chaudhry) CIT (A&J), CBDT, New Delhi Copy to: 1. The Chairperson, Members and officers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the investments which yielded interest income were all investments that are statutorily required to be maintained under the Karnataka Co-operative Societies Act, the AO had not considered the said direction. 18. In respect of the statutory deposits made by the co-operative societies, the Constitutional Bench of the Hon'ble Supreme Court in the case of CIT Vs. Karnataka State Co-operative Apex Bank reported in 251 ITR 194, had held as follows: "Interest arising from investment made, in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a co-operative society engaged in banking business, is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. The placement of such funds being imperative for the purpose of carrying on banking business the income there-from would be income from the assessee's business. There is nothing in the phraseology of section 80P(2)(a)(i) which makes it applicable only to income derived from working or circulating capital." 19. Therefore, the interest income received by way of mandatory / statutory deposits would also eligible for deduction u/s. 80P(2)(a)(i) of the Act by treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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