AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 762
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....may be set aside and that of the A.O. be restored to the above extent. 2. Grounds raised by assessee in its Cross Objection are as under :- 1. The learned CIT(A) has erred in law & facts in disallowing deduction u/s. 80-P to the extent of Rs. 63190/- by treating the income from interest on bank deposits as taxable u/s, 56 of I.T. Act. 2. The Appellant, therefore/prays that the learned Income tax officer may be directed to modify the assessment accordingly 3. Briefly stated facts as culled out from the records are that assessee is a co-operative credit society. It filed its return of income on 18/9/2009 declaring NIL income. Case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 18.8.2010 followed by notice u/s 142(1) of the Act on 9.11.2011 along with detailed questionnaire. Necessary reply was submitted along with furnishing of details and evidences called for by the Assessing Officer. During the course of assessment proceedings ld. Assessing Officer observed that assessee has shown total gross receipts of Rs. 71,75,856/- and has claimed deduction u/s 80P(2)(a)(i) of the Act at Rs. 35,90,297/-. Ld. Assessing Officer was of the view that assessee ....
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....bject relates to collecting funds and deposits from its members and to give funds for its business and other needs to its members. Further from going through the order of ld. CIT(A) we find that the issue has been dealt in elaborately by observing as under :- 6. I have gone through the facts of the case, the assessment order and the submissions. As per the definition of banking as per sec 5(b) of Banking Regulation Act, "Banking" means the accepting for the purpose of lending or , of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. The definition is basic law to be considered to decide whether a credit society is a co-operative bank or not. Only, those credit societies which are allowed to take deposits of money from the public and do other banking activities as defined in the sec 5(b) of Banking Regulation Act would quality to be a cooperative bank. In my considered view deposits from public cannot be equivalent to taking deposits from members of the society only which has got a much restricted meaning and the relationship between a society and a public has to be understood in a much larger sense. Th....
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....or notified that a license cannot be granted to it." The above report clearly defines the circumstances in which a credit society can be allowed to carry on banking business. These include 'Primary Credit Society', when its paid up capital and reserve attain the level of Rs. 1 lac, which can carry on business of banking until it is granted a license or notified that a license cannot be granted to it. These credit societies would not get the benefit of the deduction u/s 80P(2)(a)(i). Considering the above facts, it is clear that the appellant is not allowed to do banking business as defined under Banking Regulation Act and therefore, is not a co-operative bank. Therefore, it is not excluded from the benefit of deduction u/s 80P(2)(a)(i) of the IT Act 'as it does not fall under the exceptions as provided u/s 80P(4). I have also noted the decision of honorable ITAT Mumbai bench in the case of Salgaon Sanmitra Sahakari Pathped Ltd. 12 taxmann.com 246 ; where both the CIT (Appeals) and the HAT have held that the corporative credit society in that case was not a cooperative bank. Therefore, it is held that the appellant is entitled to the benefit of deduction u/s ....
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....ordinate bench in the case of ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd.(supra) wherein similar issue came up before the Bench as that of the present assessee. We further observe that co-ordinate bench in its decision (referred above) has clearly distinguished the facts before it vis-à-vis the facts before Hon. Supreme Court in the case of Totgars co-op. Sale Society Ltd. vs. ITO(supra) and has come to a conclusion that looking to the nature of business of the assessee credit co-op. society wherein it accepts deposits from and lends the same to its members and in order to meet any eventuality liquidity funds needs to be maintained and for this purpose short term deposits are kept with the banks which fetch bank interest and similarly interest is also earned on the bank balances and certainly such interest earned from banks are eligible to claim u/s 80P(20(a)(i) of the Act and while deciding so the co-ordinate bench 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 ca....
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....was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the 14 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 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 (befor....