TaxTMI 
TaxTMI 
2016 (4) TMI 1001
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.... State Bank of India. The ld.AO has observed that as per provisions of section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, interest income earned out of investment/deposits with cooperative society are only eligible for deduction. The interest incomes earned from other than cooperative society are not eligible for deduction. Accordingly, the ld.AO did not grant deduction of Rs. 9,76,625/-. 4. Appeal to the CIT(A) did not bring any relief to the assessee. 5. Before us, the ld.counsel for the assessee has contended that the issue in dispute is squarely covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court rendered in the case of Guttigedarara Credit Co-op. Society Ltd. Vs. ITO, (2015) 377 ITR 464. He also placed on record copy of the ITAT, Ahmedabad Bench decision passed in ITA No.2610/Ahd/2015 in the case of Shree Balaji Urban Coop. Credit Society Ltd. Vs. ITO, wherein under similar circumstances deduction was allowed to the assessee. 6. On the other hand, the ld.DR submitted that the CIT(A) has followed the decision of the Hon'ble Supreme Court in the case of M/s.The Totgars' Cooperative Sales Society Ltd. Vs. ITO, Karnataka, 322 ITR 283. 7....
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....aw i.e., Section 80P(2)(a)(i):- "80P Deduction in respect of income of co- operative societies:- (1) Where, in the case of an [ assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or ** ** the whole of the amount of profits and gains of business attributable to any one or more of such activities." 9. The word 'attributable' used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT[1978] 113 ITR 84 (at page 93) as under:- 'As regards the aspect emerging from the expression "attributable t....
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....ying on the business of 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. 11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Cour....
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....ts members and the society is neither registered under Banking Regulation Act nor doing any banking activity. Surplus funds in the hands of society at times when borrower members demand was less in comparison to the deposits from members held by the assessee society. Therefore, in the interest of the members this surplus fund was given as deposit in nationalized bank to fetch some income. Similar type of issues has been dealt by Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. reported in (2015) 55 Taxman.com 447 (Kar). The relevant portion from the above referred judgment is reproduced below :- "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 d....
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..../Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below:- "19. The issue dealt with by the Hon'ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under: "What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? 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 ve....
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....with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds; 19.5. Considering the above facts, we find that there is force in the argument of the assessee that the assessee 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 no....