TaxTMI 
TaxTMI 
2018 (4) TMI 505
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.... by way of interest or dividends derived from its investments with other Co-operative Bank and is not derived from carrying on the business of Banking or providing credit facilities to its members as provided u/s. 80P(2)(a)(i) of the I. T. Act, 1961. 2. On the facts and circumstances of the case, the decision of CIT(A) to allow deduction u/s. 80P(2)(a) of the I.T. Act, 1961 is contrary to the decision of the Hon'ble Supreme Court in the case of Totgar's Co- operative Sales Society Ltd. wherein it was held that interest on funds which are not required for business purposes at the given point of time falls in the category of "Other Income". 4. The assessee in CO No.30/PUN/2017 has raised the following grounds of objections:- 1) The Assessee Society submits that assuming without admitting that the interest received by it to the tune of Rs. 1,18,76,752/- is not eligible for deduction u/s 80P(2)(a)(i), in that event, the interest received by it from Co-operative banks to the tune of Rs. 1,18,76,752/- may be granted deduction u/s 80P(2)(d) of the Act. 2) The Assessee submits that it has incurred expenditure to earn interest income of Rs. 1,18,76,752/....
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....the said claim of deduction on interest income and other receipts and show cause notice in this regard was given to the assessee. The Assessing Officer relying on the ratio laid down by the Hon'ble Apex Court in Totgar's Co-operative Sale Society Ltd. Vs. ITO (supra) held that the assessee was not entitled to claim the deduction under section 80P(2)(a)(i) of the Act from the interest income earned by it as it was not its business income but was to be brought to tax as income from other sources under section 56 of the Act. 8. The CIT(A) noted the plea of assessee that in terms of Maharashtra Co- operative Societies Act, the assessee society was to keep about 20% to 30% of funds with other financial institutes, wherein the society earned income. During the year under consideration, sum of Rs. 1,18,76,752/- was earned as interest on such deposits. The assessee claimed the said interest to be eligible for deduction under section 80P(2)(a) of the Act by treating the same as business income. The Assessing Officer however, held the same to be as income from other sources. The first proposition was decided in favour of assessee on the ground that the assessee society was not mak....
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....a Maryadit Vs. ITO (supra). 11. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is with regard to claim of deduction under section 80P(2)(a) of the Act, wherein the assessee is a Credit Co-operative Society and it had earned interest income from fixed deposits from Co- operative Banks. The case of assessee is that it was mandatorily required under the Maharashtra Co-operative Societies Act to deposit about 20% to 30% of its funds with the Co-operative Banks / Nationalized Banks. The plea of assessee before us was that in view of the said dictate of Maharashtra Co- operative Societies Act, under which it is registered to operate as Credit Co- operative Society in the State of Maharashtra, it is incumbent upon the assessee to make the aforesaid deposits and the interest earned thereon, is thus earned in the course of carrying on the business activity. The Assessing Officer had denied the claim of assessee on the ground that the issue stands covered by the decision of Hon'ble Apex Court in Totgar's Co-operative Sale Society Ltd. Vs. ITO (supra). However, the Pune Bench of Tribunal in series of decisions decided simila....
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.... earned by the assessee on such investments is liable for deduction under section 80P(2) of the Act in the hands of the assessee. The Assessing Officer relying on the ratio laid down by the Hon‟ble Supreme Court in Totgar Co-operative Sale Society Ltd. Vs. ITO (supra) was of the view that the said interest earned by the assessee was not eligible for deduction under section 80P(2)(a)(i) of the Act. The alternate plea of the assessee for claiming the deduction under section 80P(2) of the Act was raised before the CIT(A), who did not adjudicate the same as he was of the view that the assessee was eligible to claim the deduction under section 80P(2)(a)(i) of the Act. Before us, the third contention has been raised that in case, no deduction is available to the assessee, then at best only the net income on such receipts is to be added in the hands of the assessee, for which the assessee has placed the calculation sheet on record. The case of the Revenue on the other hand, is that the decision of the Hon‟ble Apex Court in Totgar Co-operative Sale Society Ltd. Vs. ITO (supra) is clearly applicable. In the alternate, reliance was placed on newly inserted section 80P(4) of the A....
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....ct. It further held that where the assessee society regularly invests its funds not immediately required for business purposes, interest on such investment could not fall within the expression of profits and gains of business and the same could not be held to be attributable to the activities of the society i.e. carrying on of business of providing credit facilities to its members or marketing the agricultural produce of its members. The Hon‟ble Apex Court further reiterated that where the assessee markets the agricultural produce of its members and it retains the sale proceeds in many cases and where the retained amount which was payable to its members, from whom the produce was bought, was invested in short term deposits / securities, the said amount was liability of the assessee and it was shown in the balance sheet on the liabilities side, therefore, to that extent, the Hon‟ble Supreme Court held that such interest income could not be said to be attributable either to the activity mentioned in 80P(2)(a)(i) or 80P(3) of the Act. In view thereof, the Hon‟ble Supreme Court upheld the order of Assessing Officer in taxing the said amount under section 56 of the Act....
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....sited in the banks so as to earn interest, such interest income earned by the assessee was held to be attributable to carrying on the business and therefore, same was liable to be deducted in terms of section 80P(1) of the Act. 19. Another decision referred to by the learned Authorized Representative for the assessee is Guttigedarara Credit Co-operative Society Ltd. Vs. ITO (supra), wherein the assessee was a co-operative society engaged in the activity of carrying on the business of providing credit facilities to its members. The Assessing Officer in view of insertion of section 80P(4) of the Act, had declined to extend the benefit of deduction under section 80P(2)(a)(i) of the Act. The interest income earned on short term deposits and from saving banks account was held liable to income tax. The Hon‟ble High Court held that where the assessee society was providing credit facilities to its members and was not carrying on any other business, then the surplus funds which it had earned as profits of its business when temporarily not required were invested in banks to earn interest was attributable to carrying on the business of banking and therefore, liable to be deduct....
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....5.47 crores and the other investment in UTI Mutual Funds, Sundaram Finance, gratuity fund and shares totalling Rs. 7,48,216/-, totalling Rs. 5.55 crores. The assessee has further furnished the break-up of FDs with different co-operative banks at pages 57 to 68 of the Paper Book with sample copies of FDs at pages 69 to 75 of the Paper Book. The claim of the assessee before us is that it was engaged in the business of providing credit facilities to its members, out of loan received from its members itself. The surplus amount which was on account of amount received from its members only, which had not been advanced to any of the members was invested in the banks, against which the said investment was made out of surplus funds available with the assessee, which in turn, were amounts advanced by the members itself. 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....
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.... note and subsequent decision on the issue was also considered and it was held as under:- "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 subject to the provisions of Maharashtra Co- operative Societies Act, 1960. Under section 66 of the said Act, every society which is making profits from its transactions shall maintain reserve fund as per clause (1) to section 66 of the said Act. Clause (2) further lays down that every society shall carry atleast one-fourth of net profits each year to the reserve fund; and such reserve fund may subject to the rules made thereunder, if any, be used in the business of society or may, subject to provisions of section 70, be inv....
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....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 business income in the hands of assessee. It was time and again reiterated by the learned Authorized Representative for the assessee that the amounts which were parked in FDRs with Bank of Maharashtra were not out of surplus and idle funds but were out of funds transferred to reserve fund. The assessee thus, claimed that once the interest income has been earned during the course of carrying on of its business activities, then the same is eligible for grant of deduction under section 80P....
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....P(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 securities, which surplus was not required for business purpose, was to be taxed under section 56 of the Act. The Hon‟ble Apex Court further noted that the assessee markets the produce of its members whose sale proceeds at times were retained by it and the tax treatment of such amount was the issue before them. The Hon‟ble Apex Court held that where the interest on deposits / securities, where the funds were not immediate....
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....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 distinction was drawn by the Hon‟ble High Court of Karnataka in para 10 and it was pointed out that in the case before them, the amount which was invested in banks to earn the interest was not an amount due to any member, it was not the liability and it was not shown as liability in their accounts. In fact, the amount was in the nature of profits and gains wh....
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....e 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 already held the assessee to be eligible for claim of deduction under section 80P(2)(a)(i) of the Act. In view thereof, we also do not adjudicate the second alternate plea raised by the assessee that it is entitled to the claim of deduction under section 80P(2)(d) of the Act. However, the assessee is not entitled to the deduction u....
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....ds 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 while investment in State Bank of India was permissible under section 71 of that Act, there was no statutory obligation upon the assessee to deposit the funds as part of its business. The said provision also permitted investment of funds in any Co-operative Bank or....
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....ich 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....." 11. The issue arising in the present appeal is squarely covered by the issue before the Tribunal in ITO Vs. M/s. Maharashtra Bank Employees Co-op. Credit Society Ltd. (supra) and following the same parity of reasoning, we hold that the assessee is entitled to claim the benefit under section 80(P)(2)(a) of the Act on the interest income earned from nationalized banks. In this regard, we also find support from the ratio laid down in Mahesh Nagari Sahkari Pat Sanstha Ltd. Vs. ITO (supra), wherein the Tribunal has held as under:- "5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also examined the decisions on which both the sides have placed reliance. It is an undisputed fact that the assessee is Co-operative Credit Society. It is also....
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....ive society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in carrying on the business of banking is eligible for deduction. 11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s. Jafari Momin Vikas Cooperative Credit Society Ltd. (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) 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 case. 18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon'ble Supreme....
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....e 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 (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, ou....
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....oubt, the latest judgment in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co- operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar's Co- operative Sale Society Ltd vs ITO (supra), the assessee co-operative society was to provide ITA No. 2180/PN/2013, A.Y. 2010-11 credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totgar's Co-operative Sale Society Ltd (supra) is not applicable in respect of the co-operative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee co- operative society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificat....