TaxTMI 
TaxTMI 
2018 (11) TMI 436
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....nsolidated order but however, proceed with narrating the facts in ITA No.2537/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 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 20.09.2012 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.27.02.2015 and the total income was determined at Rs. 16,880/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dt.19.07.2017 (in appeal No.PN/CIT(A)-7/Wd-2/66/2015-16) 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, learned CIT(A) has erred in sustaining the interest of Rs. 4,40,679/- earned on the Investment made with the nationalised Banks namely Central Bank of India, Malinagar, State Bank of India Akluj & Vainganga Bank as income from other so....
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....wara 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 278 were considered by the ITAT and decided the issue in favour of the assessee following the decision of the Hon'ble Supreme Court in case of CIT vs Vegetable Products Ltd, reported in 88 ITR 192. Later on SLP has been admitted in case of Mantola Co-operative Thrift & Credit Society Ltd reported in 70 taxmann.com 296 (SC). Later on SLP has been admitted in case of Mantola Co-operative Thrift & Credit Society Ltd reported in 70 taxmann.com 296 (SC). The decision of Merchants Souharda Credit Cooperative Ltd(s....
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.... Pune Tribunal in the case of Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit Vs. ITO (ITA No.1576/PN/2016 dt.26.08.2016.) She placed on record the copy of the aforesaid decision. She further submitted that the facts of the appeal for the year under consideration are identical and to the case of Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit (supra) and therefore following the order of Tribunal in the aforesaid case, 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 Totgars Co-operative Sale Society Ltd., Vs. ITO reported in [2010] 188 Taxman 282, has decided the issue against the assessee. She further submitted that ITAT while deciding the issue in the case of Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit (supra) had not considered the amendment made to Sec.80P w.e.f for A.Y. 2007-08 and the case laws relied upon by the Tribunal while deciding the app....
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.... 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 assessee. I find merit in the argument of the Ld. Counsel for the assessee. I find the Pune Bench of the Tribunal in the case of following the decision of the Tribunal in the case of Niphad Nagari Sahakari Patsanstha Ltd. (Supra) and the decision of the Hon'ble Karnataka High Court in the case of Tumkur Merchan....
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....tal 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 business activity of credit cooperative society, i.e. providing credit facility to its members. According to the Revenue the income of the society on account of interest from banks other than cooperative banks, interest on mutual funds, long term and short term capital gain on sale of mutual funds etc. are....
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....t 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 members' account, could be taxed as business income under section 28 of the Act? in our view, such interest income would come in the category of 'income from other sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer..." ....
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.... 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 31.3.2009 was Rs. 13,69,955/- [source: Balance Sheet of the assessee available on record] 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come....
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....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. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In vi....
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.... 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 i.e., Section 80P(2)(a)(i): "Deduction in respect of income of co-operative societies: 80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with ....
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....ing, 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 profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look....
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.... 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 hold that the view in favour of the assessee, i.e. the decision of the Hon'ble Karnataka High Court has to be followed. Accordingly, we hold that the interest income earned by the assessee on short term deposits kept with banks has to be allowed as deduction u/s.80P(2)(a)(i) of the I.T. Act. The o....