TaxTMI 
TaxTMI 
2014 (12) TMI 1227
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....come from other sources and hence such income is not eligible for deduction u/s 80P of I.T.Act,1961. 2. The grounds of appeal are without prejudice to each other." 2. The brief facts of the case are that the assessee is a cooperative society registered with Registrar of Cooperative Societies. The objective of the society as recorded in the assessment order is to collect deposits from its members and give (credit) loan to its members. The case of the assessee was selected for scrutiny and during assessment proceedings the A.O. observed that the assessee had claimed deduction u/s 80P of the Act and, therefore, vide show cause notice dated 14.12.2010, the assessee was asked to substantiate the claim of deduction u/s 80P of the Act. 3. In reply, the Ld. A.R. of the assessee submitted that the assessee was a cooperative society which was engaged in the activities of providing credit to its members and, therefore, income of the society is exempt as the income is from funds placed in a cooperative bank. However, the A.O. observed that the assessee had earned major part of interest on FDRs which were placed with Bombay Mercantile bank and further dividend was received from D....
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....nt of surplus funds with scheduled banks. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activity of the society, namely, carrying on the business of providing credit facilities to its members. When the assessee-society provides credit facilities to its members, it earns interest income which only is eligible for deduction under section 80P(2)(a)(i). In the present case, the issue is whether income from interest which accrues on funds not required immediately by the assessee(s) for its business purposes and invested in Scheduled Banks for earning "profits" constitutes deducible income or not. These surplus funds constitute the deposits from its members, which was invested in deposits with banks. These deposits from members constitute a liability of the assessee and thereby shown in the balance-sheet on the liabilities-side. Therefore, to that extent, such interest income cannot be said to be attributable to the activity mentioned in section 80P(2)(a)(i) of the Act. 5(ii). Section 80P(2)(a)(i) of the Act permits a co-operative societ....
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....he co-operative banks, emphasizing the intention of promoting only co-operative societies that work only for members without any profit motive. This amendment has been brought to emphasize the point that now only the income arising out of transactions with members can be allowed deduction. Strictly speaking, now only activities of providing credit facilities to its members can give rise to income which can be claimed to be deductible under section 80P(2)(a)(i) of the Act. 5(iv). The only exception carved out by the Legislator to such a restriction in this particular provision is by way of clause (d) of section 80P(2}, which allows for deriving income by way of interest or dividend from investments in another Co- operative Society only, and not from other non-members. However, in the instant case, assessee has derived interest and dividend income from scheduled bank and not from co-operative society. Thus, deduction on the income earned from banks can not be allowed to the assessee as these banks are neither the members of the assessee nor are co-operative societies. The income thus accrued will not be the business income as it is not earned from the members but income from....
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.... term fund invested and getting income from it may be taxable. As per above case interest income is not from its main business while in case of the appellant interest income is from its main business. In above case their lordship was not dealing with case relating to Co-operative Bank. ITAT, CHANDIGARH BENCHES (B) Punjab State Co-operative Federation of House Building Societies Ltd V. ACIT ITA 996/Chd/2009 January 29, 2010 Without Prejudice to above, attention is invited to the legal pronouncement. The Funds kept in bank can be said to be ready for utilization by the co- operative society in its business of providing credit facilities to its members: the to income from such monies, kept in the bank, can be said to be attributable the business of providing credit facilities, so as to fall within the ambit of Section 80P (2)(a)(i) That is to say that even interest income on funds deposited in banks are eligible for deduction u/s 80P (2)(a)(i). Fact of this case is similar to the facts of the appellant's case. Appellant has invested surplus funds in FOR and earned interest. These funds were always available to appellant for utilization for providing cred....
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....ciety. It was submitted that Ld. CIT(A) has passed a non speaking order and has not given any finding and after recording submissions of assessee, had deleted the additions. It was submitted that order of Ld. CIT(A) was violative of principles of natural justice. Regarding case laws relied upon by Ld. CIT(A), Ld. D.R. submitted that before Ld. CIT(A), assessee had relied upon a number of case laws which were pronounced by either Hon'ble High Court or Hon'ble ITAT whereas the case law of Totgar's cooperative Society as relied upon by A.O. is by Hon'ble Supreme Court of India which is a final authority and, therefore, the order of A.O. should be upheld. 7. Inviting our attention to page 8 of Ld. CIT(A)'s order, Ld. D.R. submitted that Ld. CIT(A) has given wrong finding that the case of the assessee was not similar to case law of Totgar's Cooperative Society as the ratio emanating from Totgar's Cooperative Society has been rightly applied by A.O. Ld. D.R. further submitted that alternative contention of the assessee that assessee as noted by Ld. CIT(A) that assessee had obtained credit limits against FDRs and had incurred interest expenditure on the credit limit and, theref....