TaxTMI 
TaxTMI 
2017 (1) TMI 1601
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...., to alter, to amend, to modify, to Substitute, delete and/or rescind all or any of the GROUNDS OF APPEALS on or before the final hearing, if necessary so arises. . 2. Briefly stated facts of the case are that assessee is a Credit Co-op. Society Ltd. It filed its return of income on 13.10.2010 declaring NIL income. Case was selected for scrutiny assessment through CASS and notice u/s 143(2) of the Act dated 24.08.2011 followed by notice u/s 142(1) of the Act dated 15.02.2013 was issued along with questionnaire. Necessary details as called for were duly furnished by the Authorized Representative of the assessee. Ld. Assessing Officer while examining the claim of deduction u/s 80P(2)(a)(i) of the Act framed a view that assessee is a primary credit society and not a primary agricultural society and therefore, is out of the ambit of provisions of section 80P(2)(a)(i) of the Act and falls under the provisions of section 80P(4) of the Act and accordingly denied the deduction u/s 80P(2)(a)(i) of the Act. Further during the course of examination of interest income earned on short term deposits and bank securities, ld. Assessing Officer treated it as income from other sources. Ld. Assess....
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....(Supra). To understand the issue better, I went through the RBI website and found that it has been explained in a report of a high level committee appointed by the Reserve Bank of India in May 1999 under the Chairmanship of Shri K. Madhava Rao, Ex-Chief Secretary, Government of Andhra Pradesh to review the performance of Urban Cooperative Banks (UCBs) and suggest necessary measures to strengthen this sector. The report was published on 14/01/2000 and in para, 7.1 & 7.2 of the report, the following has been narrated: "7.1 Cooperative credit structure in India is characterized by a plethora of institutional segments. Leaving aside the agricultural cooperative credit institutions, in the urban cooperative credit fold itself, there are 3 types of institutions recognized' by the Banking Regulation Act 1949 (As Applicable to Cooperative Societies). As discussed elsewhere in the Report, these are (i) primary credit societies/ who virtually function like banks, but whose net worth is less than Rs.l lakh; who are not members of the payment system and to whom deposit insurance is not extended, (ii) primary cooperative banks, popularly called Urban Coopera....
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....f ACIT Vs M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd in ITA No.l069/Bang/2010 for AY 2007-08 dated 08/04/2011 which has decided the issue in favour of the appellant. Therefore, it is held that the appellant is entitled to the benefit of deduction u/s 80P(2)(a)(i) of the IT Act. 5.1 However, not the entire income is exempted; and it is to be examined whether there was any other interest income on the short term bank deposits and securities included in the total income of this society which has been claimed by them as exempt. The issue was decided by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd Vs ITO, Karnataka, In the aforementioned judgement, the issue for determination was whether interest income on the short term bank deposits and securities would be qualified as business income u/s. 80P(2)(a)(i) of the IT Act, 1961. The Hon'ble Supreme Court had decided the issue . as under: "At the outset an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction u/s. 80P(2)(a)(i) of the Income tax Act is not the interest received from the members for providing ....
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....e during the year under consideration are substantially same as in earlier year where addition was made disallowing deduction u/s. SOP of the Act. The addition made by the AO has been deleted without allowing interest income taxable u/s. 56 of the Act. In view of the contentions of appellant and above discussion, and relying on the order of my predecessor for AY 2008-09, it is held that the appellant is to the benefit of deduction u/s 80P(2)(a)(i) of the IT Act. However, the interest income if any, earned from keeping the surplus in banks would be taxable u/s 56 and will not qualify for deduction u/s 80P of the Act. The issue was decided by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd Vs ITO, Karnataka-(2010) 188 TAXMAN 0282. In the aforementioned judgement, the issue for determination was whether interest income on the short term bank deposits and securities would be qualified as business income u/s.80P(2)(a)(i) of the IT Act, 1961. The Hon'ble Supreme Court had decided the issue as under; "At the outset an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction u/s. 80P(2)(a)....
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....a)(i) of the Act for the interest income of Rs. 8,55,854/- earned from nationalized bank, scheduled bank and TDS on interest i.e. interest income other than derived from investments with any other co-operative society. Ld. AR appraised the Bench by referring to the judgment of Hon. Jurisdictional High Court in the case of SBI vs. CIT - (2016) 389 ITR 578 (Guj) dated 25th April, 2016 wherein Hon. High Court has held that in case of credit co-operative societies interest income from deposits with nationalized bank/scheduled bank are taxable under section 56 as income from other sources and deduction u/s 80P(2)(a)(i) of the Act cannot be claimed on such interest income. Ld. AR further conceded to this effect that on account of judgment of Jurisdictional High Court in the above referred case assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act on the interest income of Rs. 8,55,854/-, however, assessee should be allowed pro-rata expenses for earning interest income as well as basic statutory deduction of Rs. 50,000/- as per provisions of section 80P(2)(a)(i) of the Act which has not been allowed to the assessee. In support of this contention ld. AR referred and relied on ....
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....ot shown any bifurcation of the income derived from providing credit facilities to its members and the interest earned by depositing surplus funds with the bank. In response to the notice under section 263, the assessee had contended that the reason for treating the interest income received from deposits as business income was that the funds of the business were kept in interest earning account with facility to withdraw the fund as and when necessary to earn interest for and on behalf of its members and that it was one of its activities as provided in section 80P(2)(a) and that the gains of business attributable to such activity were exempted from taxable income. The contention of the assessee that the Commissioner had not held that the interest derived from the deposits in the bank was income from other sources did not merit consideration for the reason that it was for the Assessing Officer, pursuant to the order under section 263 to examine the nature of the income and tax it accordingly. Having regard to the stand adopted by the assessee in response to the notice under section 263, it could not be said that the Commissioner had travelled beyond the scope of the notice under sect....
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....arning the interest income and also for allowing statutory deduction of Rs. 50,000/- u/s 80P(2)(c)(ii) of the Act. Ld. AR also submitted that a total expenses incurred for the year stood at Rs. 28,60,298/- and pro rata expenses for earning interest income of Rs. 8,55,854/- as against total interest income of Rs. 42,39,515/- will be calculated at Rs. 5,77,423/-. 11. We observe that ld. AR has referred to the decision of the Co-ordinate Bench in the case of Kherava Co-op. Credit Society Ltd. vs. ITO, Ward-4, Mehsana in ITA No.2704/Ahd/2015 for Asst. Year 2012-13 wherein similar issue of allowing pro rata expenses and allowing statutory deduction of Rs. 50,000/- u/s 80P(2)(c)(ii) of the Act has been adjudicated by the Co-ordinate Bench by observing as under :- 10. From going through the alternate submissions made by the assessee we find that major portion of interest income is from government securities and are not in the nature of short term deposits. Therefore, the facts of the case are clearly distinguishable from the facts discussed in the case of Totagars Co-op. Sale Society Ltd. vs. ITO (supra) and that of co-ordinate bench in the case of Jafari Momin Vikas Co-op. Cr....