TaxTMI 
TaxTMI 
2018 (11) TMI 204
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....ppeals by a consolidated order but however, proceed with narrating the facts in ITA No.2542/PUN/2017 for assessment year 2012-13. 3. The relevant facts as culled out from the material on record are as under :- Assessee is a Co-operative Credit Society engaged in the business of providing credit facilities to its members. Assessee electronically filed its return of income for A.Y. 2012-13 on 11.09.2012 declaring total taxable income of Rs.Nil. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dt.21.11.2014 and the total income was determined at Rs. 14,44,050/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dt.04.08.2017 (in appeal No.PN/CIT(A)-7/Wd- 1(4)/1112/2014-15) dismissed the appeal of assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal and raised the following grounds for A.Y. 2012-13 : "1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in sustaining the interest of Rs. 14,44,050/- earned on the investment made with the nationalized bank as income from other sources and taxing the same u/s 56 of the Income Tax A ct, 1....
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....ncome not be disallowed. The submissions made by the assessee were not found acceptable to the AO. He thereafter considered the interest income earned aggregating to Rs. 14,44,054/- as "income from other sources" u/s 56 of the Act and denied the claim of deduction u/s 80P(2)(a)(i) of the Act. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who upheld the order of AO by observing as under : 6.2 The identical issue has been decided by the ITAT Bangalore in case of Sri Basaveshwara Credit Co-operative Society Ltd. (supra.) and the Delhi High Court in case of Mantola Co-Operative Thrift & Credit Society Ltd. (supra.) and the Hon'ble Supreme Court in the case of Totgar' Co-operative Sale Society Ltd. (supra.). These decisions are squarely applicable to the case of the appellant. The decision of Laxmi Narayan Nagar Sahakari Pat Sanstha Vide ITA No.604/PN/2014, order dated 19/08/2015 wherein the decision of the Karnataka High Court in case of Tumkur Merchants Southarda Credit Cooperative Ltd. Vs. ITO, reported in 55 taxmann.com 447 and Delhi High Court in case of Mantola Co-operative Thrift & Credit Society Ltd. Vs. CIT reported in 50 taxmann.com 2....
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.... cannot be characterized as income from business of providing credit facility to members of the society. Therefore, action of the Assessing Officer in treating Rs. 14,44,054/- as income from other sources is upheld and ground No.1, 2 and 3 of the appeal is dismissed." Aggrieved by the order of Ld.CIT(A), assessee is now in appeal. 9. Before me, Ld.A.R. reiterated the submissions made before AO and Ld.CIT(A). Ld.A.R. further submitted that the issue in the present case is directly covered by the decision of Pune Tribunal in assessee's own case for A.Y. 2008-09 (ITA No.1576/PN/2016 dt.26.08.2016.) She placed on record the copy of the aforesaid decision. She further submitted that there are no change in the facts of the appeal for the year under consideration and to that of earlier year and therefore following the order of earlier year, the issue be decided in assessee's favour. Ld.D.R. on the other hand, pointing to the findings of Ld.CIT(A), submitted that Ld.CIT(A) following the order of Hon'ble Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd., Vs. CIT reported in [2014] 50 taxmann.com 278 and the Hon'ble Apex Court's decision in the case of T....
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....is entitled to deduction u/s.80P(2)(a)(i) on the interest income kept with various banks other than cooperative banks/societies. The relevant observation of the Tribunal from para 8 onwards read as under : "8. I have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the assessee in the instant case is a cooperative society and has earned interest income of Rs. 15,36,248/- from its investment with different banks which it claimed as deduction u/s.80P(2)(a)(i) of the I.T. Act, 1961. The AO, following the decision of Hon'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd. (Supra), disallowed the above amount by rejecting the claim of deduction u/s.80P(2)(a)(i). I find the Ld.CIT(A) distinguishing the various decisions cited before him dismissed the appeal filed by the assessee. 9. It is the submission of the Ld. Counsel for the assessee that in view of the decision of the Pune Bench of the Tribunal as well as various other decisions the issue stands covered in favour of the assess....
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....r of the Tribunal dated 31.07.2013 (supra) and has also pointed out that the Tribunal has duly considered the decision of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra), which has been relied upon by the Assessing Officer in the present case. The learned Departmental Representative has neither controverted the above matrix and nor referred to any contrary decision and therefore for the sake of maintaining consistency we follow the decision of our co-ordinate bench in the case of Niphad Nagari Sahakari Patsanstha Ltd. (supra) and uphold the plea of the assessee. However, before parting, we may reproduce hereinafter the following portion of the order of the Tribunal dated 31.07.2013 (supra) which brings out the reasoning prevailing with the Tribunal to uphold the plea of the assessee :- "11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case there is no dispute to the fact that the assessee is a cooperative society engaged in the b....
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.... 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 Court in the case of Totgars Coop. Sale Society Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act. 19. The issue dealt with by the Hon'ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under: "What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the mem....
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....purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a cooperative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.20....
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....ve society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income, the, assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Co- operative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Co-operative Bank (supra), the order of the Commissioner of Income-tax(A) is upheld. 6. In the result, the appeal of the revenue stands dismissed." 11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. ....
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....the interest earned from such short term deposits with bank is entitled to deduction u/s.80P(2)(a)(i). We find the Hon'ble High Court of Karnataka after considering the decision of Hon'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd. (Supra) held that the interest earned by such cooperative societies on short term deposits with scheduled banks is eligible for deduction u/s.80P(2)(a)(i). The relevant observation of the Hon'ble High Court from para 6 onwards read as under : "6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short-term deposits and from savings bank account. The assessee is a Cooperative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law....
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.... to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. 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 whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of ....
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....s 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:" 11. No doubt, a contrary decision to this effect was also cited by the Ld. Departmental Representative where the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. (Supra) has held that where the assessee cooperative society was engaged in providing credit facilities to its members earns interest income on surplus funds deposited as fixed deposits, such interest income would be assessable as "income from other sources" and thus not eligible for deduction u/s.80P(2)(a)(i). However, it is also the settled proposition of law that when two views are possible, the view which is in favour of the assessee has to be followed. Since in the instant case, two divergent decisions were cited before us and no decision of the Hon'ble jurisdictional High Court is available, therefore, following the decision of the Hon'ble Supreme Court in the case of CIT Vs. Vegetable products reported in 88 ITR 192 we h....