AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 1562
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The Revenue in ITA No.454/PUN/2015 has raised the following grounds of appeal:- 1. The order of the Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case. 2. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) has erred in holding that the assessee society was eligible for deduction u/s 80P of the I.T. Act in respect of interest income on deposits with non co-operative banks. 3. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) has erred in ignoring the Hon'ble Apex Court's decision in the case of Totgar's Co-operative Sale Society Ltd. Vs. ITO reported in 322 ITR 283 (2010) 4. For this and such other reasons as may be urged at the time of hearing, the order of the Ld. CIT(A) may be vacated and that of the Assessing Officer be restored. 4. The assessee in CO No.16/PUN/2017 has raised the following grounds of objections:- 1) The learned Commissioner of Income Tax (Appeals)-I erred in sustaining the validity of reopening of assessee society's assessments 2) The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee thus, was asked to explain as to why interest income received by it from fixed deposits with Bank of Maharashtra should not be taxed under the head 'Income from other sources' and why the deduction claimed under section 80P(2)(a)(i) of the Act be not disallowed. In reply, the assessee pointed out that similar issue was decided by the Tribunal in assessee's own case in assessment year 1996-97 and the deduction under section 80P(2)(a)(i) of the Act was allowed against interest income. It was further pointed out by him that the Revenue had not filed any appeal against the said order, hence the said decision has become final. Without prejudice to the same, it was further pointed out that the assessee was Co-operative society engaged in the business of providing credit facilities to its members. The said business activities were subject to the provisions of Maharashtra Co-operative Societies Act, 1960 and section 66 of the said Act requires every society that was making profit, to maintain reserve fund and transfer minimum of 25% of its profits every year to the reserve fund. It further provided that reserve fund may be invested in accordance with provisions of section 70, wherein cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om nationalized bank was not an operational income and it was income from other sources and the same was required to be taxed under the head 'Income from other sources'. The Assessing Officer thus, disallowed deduction claimed by the assessee under section 80P(2)(a)(i) of the Act on interest income received on fixed deposits kept with Bank of Maharashtra. 7. The CIT(A) first decided the issue of reassessment and held the same to be correctly invoked since after the return of income was filed by the assessee, the same was processed under section 143(1) of the Act and no assessment was made under section 143(3) of the Act. Relying on the ratio laid down by the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd . (2007) 291 ITR 500 (SC), the CIT(A) held that what had to be seen was whether the Assessing Officer had prima facie reason to believe that income had escaped assessment, for issue of notice under section 148 of the Act. In the present case, the CIT(A) held that there were prima facie reasons to believe that income had escaped assessment, hence invoking of jurisdiction under section 147 / 148 of the Act by the Assessing Officer was upheld. The CIT(A) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re him was also engaged in the business of providing credit facilities to its members and deposits in question were made in the course of said business of the assessee society; therefore, the assessee was entitled to deduction claimed under section 80P(2)(a)(i) of the Act in respect of interest earned on deposits made with the banks. 8. The Revenue is in appeal against the order of CIT(A) in deciding the issue in favour of assessee on merits, Whereas the assessee has filed Cross Objections against invoking of jurisdiction of reassessment by the Assessing Officer under section 147/148 of the Act. 9. The learned Departmental Representative for the Revenue relying on the order of Assessing Officer in turn, relied on the following decisions:- i) State Bank of India Vs. CIT (2016) 72 taxmann.com 64 (Guj) ii) Mantola Co-operative Thrift & Credit Society Ltd. Vs. CIT in Income Tax Appeal No.569/2013, judgment dated 27.08.2014 iii) Totgar's Co-operative Sale Society Ltd. Vs. ITO reported in 188 Taxman 282 (SC) 10. The learned Authorized Representative for the assessee pointed out that first of all, this issue is squarely covered in favour of assessee by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....State Cooperative Agricultural Development Bank Ltd., Chandigarh in Income Tax Appeal No.638/2009, judgment dated 11.11.2016 ii) SE Railway Employees Co-op. Credit Soceity Ltd., 390 ITR 524 (Cal) iii) CIT Vs. Karnataka State Co-operative Apex Bank reported in 251 ITR 194 (SC) iv) ITO Vs. M/s. Kundalika Nagari Sah. Patsanstha Maryadit in ITA No.900/PN/2014, relating to assessment year 2010-11, CO No.34/PN/2015 & Anr, order dated 29.01.2016 v) M/s. Pearl Plastic Products Vs. ITO in ITA Nos.740 to 744/PN/2010, relating to assessment years 2002-03 to 2006-07, order dated 29.05.2015 11. We have heard the rival contentions and perused the record. The limited issue which arises in the present appeal filed by the Revenue is against relief given by the CIT(A) on the claim of assessee society that interest income received on FDRs with scheduled Bank of Maharashtra is entitled to claim of deduction under section 80P(2)(a)(i) of the Act. The assessee was a Co-operative society of the employees of Bank of Maharashtra, and was engaged in the business of providing credit facilities to its members. The activities carried on by the assessee society were subjec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 and further the assessee's letter dated 11.07.1995, granted permission under section 70 of the Maharashtra Co-operative Societies Act, 1960 and Rule 54 of the Rules 1961 to transfer reserve funds amount with Pune District Central Co-operative Bank to the Bank of Maharashtra with condition of investment and also that the amount invested in the Bank of Maharashtra could not be given as security for borrowing or used for any other purpose without written permission from the Registrar. The copy of said permission is placed at page 6 with English translation at page 7 of the Paper Book. The claim of assessee was that in line with the said permission received from the Registrar as under the provisions of section 66 and 70 of the Maharashtra Co-operative Societies Act, it was required to transfer the funds i.e. one-fourth of profits of assessee's society to the reserve fund and thereafter, the funds in the reserve fund were invested as FDRs with the Bank of Maharashtra. The assessee points out that the said parking of funds in FDRs with the Bank of Maharashtra was one of the conditions for carrying on the business activities of the assessee society, hence interest earned therefrom was b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es and the interest earned on the same was claimed as deductible under section 80P(2)(a)(i) of the Act. The Revenue authorities held that the same was taxable under the head 'income from other sources'. The claim of the assessee was that it had invested the funds on short term basis as these were not required immediately for business purposes and consequently, interest received by the assessee was eligible for deduction under section 80P(2)(a)(i) of the Act. Further, the contention of the assessee before the Court was that under regulations 23 and 28 r.w.s. 57 and 58 of the Karnataka Co-operative Societies Act, 1959, a statutory obligation was imposed on co-operative credit societies to invest its surplus funds in specified securities and in view of the aforesaid statutory obligations, the above mentioned investment was made by the assessee and the same was in the nature of its business activity. The said interest income was claimed to be eligible for deduction under section 80P(2)(a)(i) of the Act, irrespective of the source or head under which such income would fall. The Hon'ble Apex Court noted that the interest income arising on surplus investment in short term deposits and sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the amount due to any members and it was not the liability of the assessee. In fact, the said amount was in the nature of profits and gains, which was not immediately required by the assessee for lending money to the members as there were no takers and the assessee in such circumstances, deposited the money in bank so as to earn interest. The Hon'ble High Court of Karnataka in such circumstances held that the interest income was attributable to carrying on of business of banking and therefore, it was liable to be deducted in terms of section 80P(1) of the Act, they took note of insertion of section 80P(4) of the Act, which was applied by the Assessing Officer to deny the deduction under section 80P(2)(a)(i) of the Act. The Hon'ble High Court of Karnataka referred to the judgment of Hon'ble Apex Court in Totgar Co-operative Sale Society Ltd. Vs. ITO (supra) and pointed out that in the facts of the said case, the amount which was retained by the assessee was a liability and it was shown in the balance sheet on liabilities side. Where the interest income was earned on such funds, then the same was held by the Hon'ble Apex Court to be treated under section 56 of the Act. However, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tself. The said parking of funds with the co-operative banks was claimed by the assessee to be in the nature of its business activity as it was the requirement of Maharashtra Co-operative Societies Act, 1960, that 20 to 30% of total deposits are to be parked in the investments with co-operative banks. It is not the case of the Department that the amount invested by the assessee was out of any liabilities due by the assessee. In the absence of the same and following the same parity of reasoning laid down by the Hon'ble High Court of Karnataka in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (supra) and the facts of the present case being at variance to the facts before the Hon'ble Supreme Court in Totgar's Co-operative Sale Society Ltd. Vs. ITO (supra), we hold that the assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. In the alternate, we find merit in the plea of the assessee that at best the income which can be assessed in the hands of assessee is the net income and not the gross income as proportionate expenditure incurred is to be allowed in the hands of the assessee. However, we are not adjudicating this issue since we have alre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utable to the business of banking. 17. However, we find that the Hon'ble High Court of Gujarat in State Bank of Income Vs. CIT (supra) while deciding similar issue of eligibility of deduction under section 80P(2)(a)(i) of the Act on interest income from deposits of surplus funds in banks held that neither it was business income nor income from investment in any other Co-operative societies. It may be pointed out that the Hon'ble High Court in para 16 has clearly noted that in the said case, there was no obligation upon the assessee to invest its surplus funds with the State Bank of India. It was further observed that investing surplus funds in a bank is no part of the business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. The Hon'ble High Court further referred to section 71 of the Gujarat Co-operative Societies Act, 1961 permitting society to invest or deposit its funds in the State Bank of India. The Hon'ble High Court held that whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith Bank of Maharashtra and also in order to carry on the business activities of providing credit facilities to its employees, it is mandatory upon the assessee to invest 25% of its profits in the reserve funds, which in turn, are parked in FDRs with Bank of Maharashtra, then interest income earned by the assessee is from carrying on its business activities. Once it is so, then the said income is assessable as 'Income from business' and the assessee is entitled to claim deduction under section 80P(2)(a)(i) of the Act. Accordingly, we hold so. However, the assessee is not entitled to claim the said deduction on Saving Account interest. 19. Before parting, we may also refer to the order of Tribunal in assessee's own case in ITA No.490/PN/1999, relating to assessment year 1996-97, order dated 25.08.2005, wherein similar issue was decided by the Tribunal in turn, referring to the mandatory requirements as per sections 66 and 70 of the Maharashtra Co-operative Societies Act, 1960. The said decision of the Tribunal has been accepted by the Revenue and it has not been brought to our notice that the said decision has been reversed. Accordingly, we find no merit in the stand of Revenue i....