TaxTMI 
TaxTMI 
2015 (1) TMI 1004
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.... a cooperative credit society is entitled to deduction u/s.80P(2)(a)(i) in respect of income attributable to providing credit facility to its member and interest income from other cooperative society u/s.80P(2)(d). However, from the details furnished by the assessee he noted that there is interest income from other investment in other than cooperative bank which is not deductible u/s.80P(2)(a)(i). From the details furnished by the assessee he noted that the interest income from banks shown at Rs. 83,32,886/- includes interest income of Rs. 36,15,925/-, the details of which are as under : 3.1 Relying on the decision of Hon'ble Supreme Court in the case of Totogar's cooperative sales society Vs. ITO reported in 322 ITR 283 he held that the interest from bank deposits and Government securities fell under the head "income from other sources and hence is taxable u/s.56 and cannot fall within the expression "profit and gains of business". Such interest income cannot be said to be attributable to the activities of the society namely the business of providing credit facilities to its members or marketing of agricultural produce to its members. 3.2 The Assessing Officer further noted ....
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.... Net income not eligible deduction u/s.80P 1) Interest from banks other than Co-op Bank 36,15,925 17,70,396 18,45,529 2) Interest on Mutual funds 23,21,994 10,08,442 13,13,552 3) Long Term Capital Gain 22,72,278 9,86,850 12,85,428 4) Short Term Capital Gain 22,70,597 9,86,120 12,84,477 Total 1,04,80,794 47,51,808 57,28,986 The A.O. held that the above income is not attributable to the activity of the society namely business of providing credit facilities to its members and hence income from the said activity is not profit and gains of its business but the said income is "income from other sources" not eligible for deduction u/s. 80P(2)(a)(i) of the IT. Act. 4. Before the Ld. CIT(A) the assessee strongly argued that the decision relied on by the Assessing Officer in the case of Totogar's Co-op Society Ltd. (Supra) is distinguishable and not applicable to the facts of the present case. The assessee furnished the distinctions which are as under : Case of Totogar's Co-op. Society Ltd. Case of the Appellant 1) The society is not a credit co-op, society i.e. Patsanstha. 1) The society is a c....
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....of Mahavir Nagari Sahakari Patsanstha Ltd. Vs. DCIT (2002) 74 TTJ 793 (Pune), the Hon'ble ITAT has held that the said credit society is carrying on business of banking and providing credit facilities to its members is eligible for deduction u/s.80P(2)(a)(i). In the said decision in para 29 the Hon'ble ITAT has termed the said credit society i.e. Patsanstha as banking concern. Further Hon'ble ITAT, Calcutta, in the case of Electro Urban Co- Op. Credit Society Ltd. Vs. ITO (2001) 70 TTJ 441 (Cal)(T.M.), it has been held that income from units of UTI invested out of circulating capital of banking business and interest on fixed deposits earned by a co-operative society engaged in lending money to its members out of membership funds and deposits collected from such members was income attributable to business of banking carried on by it and was eligible for deduction u/s.80P(2)(a)(i). It was accordingly argued that the assessee society is carrying on the business of banking and hence is eligible for deduction u/s.80P(2)(a)(i) of the Income Tax Act. 5. Following decisions were also relied on by the assessee to the proposition that interest income on Government ....
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....held that: the business of the society is providing credit facility to its members and the above income is not related to the said activity of the society and hence the same is income from "other sources" not eligible for deduction u/s. 80P(2)(a)(i) of the Act. In support of this proposition, the A.O. has relied on the decision in the case of Totogar's Co-Op. Society Ltd. Vs. ITO 322 ITR 283 (SC). On the other hand, the appellant has pointed out that the facts of the case of the-appellant are distinguishable from the facts of the case relied on by the A.O. The appellant has pointed out that the activity carried out by the appellant society is covered by activity of business of banking. In support of this proposition the appellant has relied on the ratio laid down in the cases of Mahavir Nagari Sahakari Patsanstha Ltd. Vs. DCIT (2002) 74 TTJ 793 (Pune) and Electro Urban Co-Op. Credit Society Ltd. Vs. ITO (2001) 70 TTJ 441 (Cal) (T.M.). In these cases the assessees were credit co-operative societies i.e. Patsanstha, as is the case of the appellant. In these cases the Hon'ble Tribunals have laid down that the said societies providing credit facilities to its members are carrying o....
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....apital gain on Mutual Fund 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 I.T. Act. 2. The Ld. CIT(A) has also disregarded the fact that the Co-operative Society is required to satisfy the criteria for availing benefit of Sec.80P(2)(d) i.e. the interest income should be from other Co-op. Society, whereas in the assessee society's case the interest income is from other than Co-op Bank with regard to investments made. 3. The order of the Ld. CIT(A) be cancelled and that of the A.O. be restored. 4. The appellant craves leave to add/alter/amend ground of appeal". 9. The Ld. Departmental Representative heavily relied on the order of the Assessing Officer. Referring to the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) he submitted that the issue is decided against the assessee. He also relied on the decision of Hon'ble Rajast....
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....e assessee submitted that the Tribunal in the said decision after considering the decision of the Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) has held that CIT(A) was not justified in disallowing deduction u/s.80P to the extent of Rs. 6,40,639/- by treating the income from interest on bank deposit as taxable u/s.56 of the Income Tax Act. He also relied on the decision of the Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Bank Ltd. Vs. ITO vide ITA No.372/Coch/2010 order dated 20-01-2012. 10.2 So far as the decisions relied on by the Ld. Departmental Representative he submitted that those decisions are distinguishable and not applicable to the facts of the present case. In the case of JME Employees Cooperative Credit and Thrift Society Ltd. Vs. ITO (Supra) it has been held that activity of purchasing shares and earning dividend income is not attributable to banking activity and therefore dividend income earned by cooperative society did not qualify for deduction u/s.80P(2)(i) more so when the society had no surplus funds and it had to borrow funds for carrying on banking activity. Referring to the decision of Hon'bl....
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....ted in short term deposits and securities was not out of interest bearing deposits collected from members but out of sale proceeds of agricultural produce of farmer members marketed by the society. Further, the Hon'ble Apex Court has considered only the latter part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in carrying on the business of banking is eligible for deduction. 11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s. Jafari Momin Vikas Cooperative Credit Society Ltd. (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) has observed as under : "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. &nb....
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....; "(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 section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s)." 19.2 From the above, it emerges that - (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested 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 w....
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....IT (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 v. 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 Cochin 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's Cooperative Sale Society Ltd. (Supra) and various other decisions has observed as under : "5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the Apex co....