TaxTMI 
TaxTMI 
2017 (7) TMI 1049
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing these years with a Co-operative Bank, M/s.Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Co-operative Sale Society Limited vs. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act? " 3. The ratio decidendi of the Supreme Court decision in the case of assessee, Totagar's Co-operative Sale Society Limited itself, was that such interest income earned by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of the Act, would be eligible for deduction. The word "income" has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub- section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in Section 80P(2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. 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 activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll the judgements cited were cases relating to Cooperative Banks and assessee-Society is not carrying on Banking business. We are confining this judgement to the facts of the present case. To say that the source of income is not relevant for deciding the applicability of Section 80P of the Act would not be correct because we need to give weightage to the words "the whole of the amount of profits and gains of business" attributable to one of the activities specified in Section 80P(2)(a) of the Act. An important point needs to be mentioned. The words "the whole of the amount of profits and gains of business" emphasise 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 this 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 falls in the category of "Other Income" which has been rightly taxed by the Department under Section 56 of the Act." 5. Before adverting to the rival contentions rais....
X X X X Extracts X X X X
X X X X Extracts X X X X
....society, being a society engaged in the business of supplying milk, oilseeds, fruits or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,- (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees; and (ii) in any other case, twenty fifty thousand rupees. Explanation.- In this clause,"consumers' co- operative society" means a society for the benefit of the consumers; (d) in respect of any income by way of interest or dividends derived by the co-operative soci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aj, learned counsel appearing for the Revenue has made the following submissions:- (i) That the controversy stands covered by the Supreme Court's decision in the case of assessee Co-operative Society itself in 'Totgar's Co-operative Sale Society Limited vs. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223, and the Income Tax Tribunal as well as CIT (Appeals), have erred in allowing the deductions in respect of the whole of the interest income earned by the respondent- assessee for Assessment Years 2007-08 to 2011-12 under consideration merely because such interest was earned from the deposits and investments made by the respondent-assessee with another Co-operative Bank, namely, M/s.Kanara District Central Co-operative Bank. He submitted that whether the deposits and investments of surplus funds of the respondent- assessee not immediately required for business purposes, is made with the Scheduled Banks or Nationalised Banks or whether Co-operative Banks does not make a difference, as far as the character of the income earned by the respondent- assessee is concerned and if it does not partake the character of its business operational income from its business....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income earned from the co-operative activities like providing credit facilities to its members, running a cottage industry, marketing of agricultural produces, agricultural implements, seeds, livestock, collective disposal of labour, fishing or allied activities or supply of milk and oil seeds, fruits, vegetables, etc. and the income derived from renting godowns or warehouses, etc. He, therefore, submitted that in order to promote the co-operative movement, these deductions from gross total income were provided in Section 80P of the Act to promote such co-operative movement, whereas the interest income earned on investments or deposits of surplus funds was never intended to be given the benefit of exemption or 100% deduction and therefore, not only the decision rendered by the Hon'ble Supreme Court in the case of respondent assessee itself covers the field even for these assessment years from 2007- 2008 to 2011-2012, but subsequently, the legislative amendments also makes the legislative intent explicit that the income earned by the Co-operative Bank or even through or from the Co-operative Banks are not entitled for such exemption or 100% deduction. CONTENTIONS OF THE ASSESSEE: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ered Co-operative Society and therefore, exclusion of Co-operative Banks under subsection (4) of Section 80P of the Act does not hit the respondent Assessee. (IV) It was also urged that one of the appeals against this Respondent assessee, namely ITA No.100069 of 2016 for Assessment Year 2012-2013 in the case of CIT Vs. Totagar's Co-operative Sale Limited, has already been dismissed by a co- ordinate Bench of this Court on 05th January 2017 holding that the aforesaid Supreme Court's decision relied upon by the Revenue is not applicable to the Assessment Year 2012-2013 in question, because the said decision dealt with the interpretation of the deduction under Section 80P(2)(a)(i) of the Act and not under Section 80P(2)(d) of the Act and the Court has held that the Co-operative Bank is a specie of the genus term Co- operative Society and therefore, the present appeals filed by the Revenue also deserves to be similarly dismissed. (V) That for the five appeals filed by the assessee on the limited ground of rejection of its cross-objections by the Income Tax Appellate Tribunal on the issue of justifiability of the reassessment under Section 147 / 148 of the Act for some of the Assessme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....misses two essential points required for claiming the exemption or 100% deduction from gross total income for a co-operative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co-operative Bank. (ii) that What the Hon'ble Supreme Court held in the case of the respondent assessee itself, against the assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under Section 28 of the Act, but was taxable as "income from other sources" under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section 80P of the Act should be its business or operational income. 13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise. 17. As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be inferred in such provisions. What was clearly held to be not exempt and not deductible under Section 80P(2)(a) of the Act by the Hon'ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court for subsequent years merely on account of the change of the Bank where....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under Section 80P(2) of the Act only if such income was derived by such letting of godowns and warehouses for storage, processing or facilitating the marketing of commodities. Where the rental income was derived by the assessee, where the income claimed as deduction under Section 80P(2)(e) of the Act was by way of netting / difference between the sale of own trade stock stored in such warehouses or godowns was claimed as deductible, the Hon'ble Supreme Court denied the said claim, holding that the burden was on the assessee to establish that the income comes within the four corners of Section 80P(2)(e) of the Act. The relevant portion of the said judgment from the Head Note is quoted below for ready reference: " HELD, affirming the decision of the High Court, that the burden was on the assessee under section 80P(2)(e) to establish that the income comes within the four corners of section 80P(2)(e) of the Act. The exemption was available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting was storage, processing or facilitating the marketing of commodities. If the godown was let out (including user) for any purpose besides stori....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i) . There was no infirmity in the orders of the Appellate Tribunal warranting interference. TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD. v. ITO [2010] 322 ITR 283 (SC) followed." x x x " Thus, in the light of the principles enunciated by the Supreme Court in Totgar's Co- operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Supreme Court was not dealing with the case relating to co-operative banks. The present appeal is not being considered on the basis that banking is the assessee's business either. 32. Mr. Bansal relied upon the judgment of the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO [2015] 55 taxmann.com 447 (Karn). In that case, the assessee-co-operative society provided credit facilities to its members and earned interest from short- term deposits with banks and from savings bank accounts. The interest income earned by the assessee by providing credit facilities to its members was deposited in banks for a short duration which earned interest. The question was whether this interest was attributable to the business of providing credit facilities to the members. The Division Bench held as follows : "8. Therefore, the word 'attributable to' is certainly wider in import than the expression 'derived from'. Whenever the Legislature wanted to give a restricted meaning, they have used the expression 'derived from'. The expression 'attributable to' being of wider import, the said expression is used by the Legislature whene....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mbers. 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 deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. A. P. State Co-operative Bank Ltd. reported in [2011] 336 ITR 516 (AP) ; [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order. Appeal is allowed." (The reproduction is from the original website of the Karnataka High Court). There is an important distinction. The Divisio....