TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 481
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Rs.6,40,639/- by treating the income from interest on bank deposit as taxable u/s 56 of the Act." 4. As the issues raised by the rival parties pertaining to the same assessment year, they were heard, considered together and disposed off, for the sake of convenience, in this consolidated order. I. ITA NO.1491/A/2012 - by the Revenue: 5. Briefly stated, the assessee, a co-operative Credit Society, engaged in providing credit facilities to its members, had furnished its return of income, admitting NIL income by claiming deduction u/s 80P (2)(a) of the Act. The return was initially processed u/s 143(1) of the Act and, subsequently, taken up for scrutiny by the AO. During the course of assessment proceedings, the assessee was required to furnish its reply as to why the claim of deduction u/s 80P (2) of the Act should not be disallowed in view of insertion of sub-section (4) of s. 80P of the Act. 6. After due consideration of the assessee's contentions and for the reasons recorded in the assessment order, the AO had disallowed the assessee's claim on the prime reasoning that - "4.......................................................
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of deposits; (iv) To give loans to members; (v) To give loans to members by getting cash credit for central loan institution; (vi) To work as insurance agent for insurance of life and assets of members; & (vii) To purchase, to sale, to make lease, to construct movable and immovable assets for working of society. - that the assessee had claimed deduction of the profit of Rs.7.28 lakhs as per s. 80P (2)(a)(i), but, the AO erred in disallowing the same on the ground that the assessee is not primary agricultural credit society or a primary co-operative agricultural and rural development bank in view of insertion of sub-section (4) of s.80P of the Act; - that the CIT (A) in his order under dispute, held that the assessee is a credit society and, thus, eligible for deduction; - that s. 80P(2)(a)(i) grants deduction of the whole of profits of business of Co-op Bank and Credit societies; and that the deduction granted to Co-op Bank is withdrawn by insertion of sub-section (4) to s. 80P, however, it was argu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t................." (ii) DCIT v. Jayalakshmi Mahila Vividodeshagala Soudharda Saharkari Ltd in ITA No. 1 to 3/Pnj/2012 & ITA No.4 to 6/Pnj/2012 dated 30.3.2012: Precisely the issue before the Hon'ble Panaji Bench of the Tribunal was - "1. Whether on the facts and circumstances of the case, the CIT (A) was correct in holding that the provisions of sub-section (4) of s. 80P are applicable only to co-operative banks and not to credit co-operative societies which are engaged in business of banking, including providing credit facilities to their members; & 2. Whether on the facts and circumstance of the case that CIT (A) was correct in holding that the assessee is a co-operative society and not a cooperative bank in terms of sub-section (4) of s. 80P without considering the meaning of co-operative bank as envisaged under part V of Banking Regulation Act 1949 wherein it is defined that co-operative bank includes primary co-operative bank which is further defined as co-operative society with the primary object of transactions of banking business." 10.2 After comprehensively analyzing the issue as well as the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank" only takes out co-operative banks from the ambit of deduction u/s 80 P of the Act but further grants exemption to co-operative bank which is primarily an agricultural credit society or co-operative agricultural and rural development bank. This view is also clarified by Central Board of Direct Taxes vide its clarification No. 133/06/2007-TPL dated 9th May 2007. Further, the distinction between co-operative society under Banking Regulations Act, 1949 and co-operative society registered under State Co-operative Societies Act, Viz. Karnataka State Cooperative Societies Act, 1959 is vividly brought out in the ITAT Order, Bangalore Bench in the case of ACIT Vs Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No.1069/Bang/2010 for AY 2007-08 dated 08-04-2011 as under: Nature Co-operative Society registered under Banking Regulation Act,1949 Co-operative Society registered under Karnataka Co-operative Societies Act, 1959 Registration Under the Banking Regulation Act, 1949 and Co-operative Societies Act, 1959 Co-operative Societies Act, 1959....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case of Totgars Co-Op. Sale Society Ltd. V. ITO cited supra, came to the conclusion that the interest income is taxable u/s 56 of the Act. The reasons recorded by the CIT (A) are as under: "6............................................................................................ ...... (On Page 8) In the light of the above, the interest income, if any, earned from keeping the surplus fund in banks would be taxable u/s 56 and will not qualify for deduction u/s 80P. It is seen that the total interest earned from bank i.e., Dena Bank and Development Bank is Rs.19,13,743/-. The appellant has mixed funds wherein the members' interest free contribution and accumulated profits are mixed with interest bearing funds. The interest earned from members is Rs.1,84,56,163/- and interest paid is Rs.1,36,20,112/-. The appellant has taken net amount of interest i.e., Rs.48,36,151/- to the P & L account. Besides, the appellant has interest from co-operative societies exempt u/s 80P(2)(d) of the Act, totaling Rs.1,03,943/-. Therefore, for earning total interest of Rs.2,04,73,899/-, the appellant has spent Rs.1,36,20,112/-. Taking on pro-rata basis, the interest expenses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the income from 'other sources' u/s 56. Therefore, it was argued, the addition of Rs. 6.4 lakhs u/s 56 of the Act was bad in law. - relies on the case law - CIT v. Sardari Lal & Co. 251 ITR 864 (Del). 16. On the other hand, the learned D R had fully supported the stand of the CIT (A) and urged that the assessee has no cause to agitate and, therefore, pleaded that the findings of the CIT (A) require to be sustained. 17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in it's applicably in the circumstances of the assessee's case. 18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ested surplus funds, which were not immediately required for the purpose of its business, in short term 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....