TaxTMI 
TaxTMI 
2016 (3) TMI 1007
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....td. vs. ITO but not following the decision of Ahmedabad ITAT in favour of Jafari Momin Vikas Co-op. Credit Society Ltd. on similar facts in ITA No.1491/Ahd/2012 d.4.9.12 which had distinguished the facts from Totagars case. 2. Ld. CIT(A) had further erred in enhancing addition of Rs. 3,30,212/- i.e. from Rs. 2,18,305/- as made by A.O. to 5,48,517/- by way of treating Gross interest income of Rs. 5,48,517/- as income from other sources instead of Rs. 2,18,305/- as worked out by AO by calculating income on prorate basis after considering interest and other expenses on proportionate basis. 3. The appellant crave leave to add, amend, alter or delete any of above grounds of appeal. 2. Briefly stated facts are that the assessee is a Co-op. Credit Society. It e-filed its return of income on 11.9.2012 declaring total income of Rs.NIL. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued and duly served upon the assessee . During the course of assessment proceedings it was observed that assessee received interest income from Bank deposits a/c as well as Govt. securities and on the basis of submissions made by the assessee Assessing O....
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....ould be taxed as business income under section 28 of the Act. An important point needs to be mentioned. The words the whole of the amount of profits and gains of business emphasis 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. In the particular case, the evidence shows that the assessee society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income fails in the category of 'Other Income' which has been rightly taxed by the Department under section 56 of the I. T. Act " It is to be noted that the Hon'ble Jurisdictional Tribunal in the case relied upon by the appellant (Jafari Momin Vikas Co-op. Credit Society Ltd) for AY 2009-10 has decided the above issue in favour of appellant with the following findings: "In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society (supra) cannot in any way come to....
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....s case, in our view, such interest income falls in the category of 'Other Income' which has been rightly taxed by the Department under section 56 of the I. T. Act" From the above, I find that the Hon'ble Supreme Court is very clear in the above land mark judgment in the case of cooperative" societies as to whether the surplus funds of members which was invested in specified securities and deposits in the nationalized banks was required to be taxed u/s 28 of the Act. The Hon'ble High Court of Gujarat is silent in its order dated 15/01/2014 in the case of Jafari Momin (supra) on the decision of Hon'ble ITAT, as regards the taxability of interest income u/s 56 of the Act. Taking into consideration, the ratio of the Hon'ble Supreme Court in the case of Totgars (supra), the decision of Hon'ble jurisdictionai Tribunal in the case of JafarlIMomin (supra) in ITA No.l491/Ahd/2012 dtd 4/9/2012 is distinguishable. This clearly indicates that appellant has received the interest income from nationalized banks which definitely falls under the purview of section 56 in view of Hon'ble Supreme Court decision of Totgars (supra), The AO has calculated the taxa....
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....urposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of 'income from other sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer..." 19.1. However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon'ble Supreme Court - "(On page 286) 7....... Before the assessing officer, it was argued by the assessee(s) that it had invested th....
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....see not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs. 13,69,955/- [source: Balance Sheet of the assessee available on record]. 19.6. In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. 9supra) cannot in any way come to the rescue of either the Ld.CIT(A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT(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." 5. Respectfully following the above decision of the Co-ordinate Bench, we hereby hold that the benefit of deduction u/s.80P(2)(a)(i) was rightly granted by ld.CIT(A), howev....
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.... we are dealing in this appeal are different than the case decided by Hon. Supreme Court. On the other hand assessee has relied on the views taken by the co-ordinate bench in the case of Jafari Momin Vikas Co-op. Credit Society Ltd. (supra) wherein the coordinate bench has made a finding that the assessee which is not a co-operative bank but its nature of activity is of accepting deposits from the members and lending to its members and to meet eventuality which was required to maintain the liquidity funds and these liquidity funds used to be invested in short term deposits and interest income earned on such short term deposits were held to be income from activities of co-op. society and not to be taxed u/s 56 of the Act. 9. From going through the assessment order, we find that assessee has earned income from interest and commission at Rs. 5,48,517.00 from following :- S.S.N.Ltd. Interest 3,98,082/- U.G.V.C.L. Interest 41,836/- SBI interest 1,08,312/- UGVCL Commission 3,287/- Total 5,48,517/- Certainly from the above details, we find that the major portion of income is earned from Govt. securities which too are not of short term natur....
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....rest income is from government securities and are not in the nature of short term deposits. Therefore, the facts of the case are clearly distinguishable from the facts discussed in the case of Totagars Co-op. Sale Society Ltd. vs. ITO (supra) and that of co-ordinate bench in the case of Jafari Momin Vikas Co-op. Credit Society Ltd. (supra) as well as in the case of Dhanalaxmi Credit Co-op. Society Ltd. vs. ITO (supra). This interest income is on investments not of short term nature except bank interest which too includes interest on Fixed Deposits. In these circumstances, we are of the view that as the assessee suo moto has given a proposition of taxing the interest and commission income on investments to be taxed u/s 56 of the Act and has also shown that proportionate expenses of Rs. 3,31,828/- have been incurred to earn the above income and the same has duly been accepted by the assessing authority, so we find it justified that Assessing Officer has rightly taxed the interest income of Rs. 2,16,689/- as income from other sources. However, deduction u/s 80P(2)(c) ought to have been allowed to the assessee as section 80P(2)(c) reads as under :- Section 80P(2)(c) (....