TaxTMI 
TaxTMI 
2018 (12) TMI 562
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....t provides loan to its members in lieu of charging interest. The assessee invested its surplus funds in both Central Bank of India, 10, Nellie Sengupta Sarani, Kolkat-87 as well as the West Bengal State Co-operative Bank thereby deriving interest income of Rs.2,20,70,040/-. It claimed the same to be eligible for sec. 80P(2)(a)(i) deduction. The Assessing Officer's assessment order dated 26.12.2016 quoted hon'ble apex court's decision in Tatgar's Cooperative Sale Society Ltd. vs. Income Tax Officer (2010) 188 Taxman 282 (SC) to hold that impugned interest income had been earned from investment in fixed deposits than from carrying on business of banking or providing credit facilities to its members. He accordingly disallowed assessee's impugned deduction claimed. 4. The assessee preferred its appeal. The CIT(A) has reversed the Assessing Officer's action disallowing assessee's deduction claimed mainly on the ground that this issue is already covered in its favour in earlier years as per tribunal's order. His findings in para 4.1 of the lower appellate order are very very much unspeaking. He accepts assessee's written submissions filed during the course of lower appellate proce....
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....vity of providing credit facilities to its members, the appellant also obtains deposits from members to inculcate thrift and savings habits amongst them. The credit to members is provided out of the deposits obtained from the members. The funds obtained as deposits are invested in bank time deposits against which overdraft facilities are obtained and credit facilities are provided to the members. All these activities are closely integrated, interrelated and synergized to carry on the business of providing credit facilities to the members. To take a view that the business of providing credit is only the last step in these chain of activities, will not be reasonable, logical or justified. In the Assessment Year 2014-15 (under Appeal), the Assessing Officer held that the interest income from investments made in time deposits with banks amounting to Rs. 22070040 was allegedly not eligible for deduction u/s 80P(2)(a)(i) on the ground that these funds had allegedly not been used for the purposes of the appellant's business of providing credit facilities to its members. The Assessing Officer just followed his predecessor's Assessment Orders passed for the immediate five p....
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....ange for creation of the necessary funds through - (a) members' contributions to Thrift Fund, (b) members' payments to guarantee fund at the time availing of loan facilities, (c) interest receivable from the members in relation to loans taken by them, (d) interest receivable from the deposits made with the bank out of the contributions/payments received from the members, etc. (iii) While in the case of the concerned co-operative society the interest had been received in relation to the investments made out of the sale proceeds arising out of the business, in the appellant's case interest was earned from deposits and payments received from the members, for creation of funds to be lent out to the members as well as to reward the members by paying interest on their respective balances in thrift fund and guarantee fund. From the above-mentioned specific differences it may kindly be appreciated that while in the above-referred Supreme Court case, the interest had been earned from deposits made by utilizing the idle fund, in the case of the appellant the interest was earned from the deposits that had been made for facilitating the business of the appellant. Henc....
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.... the interest income earned on deposits as part of business income, the Interest income from WB Co-operative Bank Ltd. of Rs. 30,25,211 had qualified for deduction u/s. 80P(2)(d) as the relevant interest was earned from another cooperative society. The Assessing Officer disallowed this claim without showing any specific reason. The appellant submits that the finding of the Assessing Officer are all wrong on facts and law. WB Co-op. Bank Ltd. is a co-operative society having license to carry on banking business from RBI. It is a scheduled bank and that schedule is mentioned in Banking Regulation Act, 1949 only, which have no relationship with the Income-tax Act or any Co-operative Societies Act. The appellant co-op. society is again a member/shareholder of WB Coop. Bank Ltd. and owns shares worth Rs. 1100 of that Bank as duly reflected in its Balance Sheet. The appellant submits that deduction u/s. 80P(2)(d) is available for interest income from W.B. Cooperative Bank Ltd. The deduction has been allowed in the assessee's cases in the past five A.Yrs. by CIT(A) and ITAT. The Assessing Officer did not allow benefit of deduction u/s. 80P(2)(a)(i) on the Miscellaneous Receip....
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....ury's sole argument during the course of hearing is that assessee's interest income on investment made in fixed deposits in the Central Bank as well as West Bengal State Cooperative Bank (supra) is not eligible for section 80P(2)(a)(i) deduction since not derived or attributable to any banking business activities or from members. Case law CIT vs. South Eastern Railways Employees Co-Op. Credit Society Ltd. (2017) 390 ITR 524 (Cal) is quoted in support deciding the very issue in Revenue's favour. The assessee's case on the other hand is that this issue of allowability of sec.80P(2)(a)(i) deduction is no more res integria since covered in its favour as per tribunal's earlier order(s). It places on record a co-ordinate bench's order in ITA No.2203/Kol/2016 for AY 2013-14 decided on 01.03.2018 as follows:- "3. The issue involved in this appeal by the revenue is as to whether the CIT(A) was justified in allowing deduction u/s.80P(2)(a)(i) of the Income Tax Act, 1961 (Act) on interest income earned on Fixed Deposits. The Assessee is a Co-operative Society of the employees of Central Bank of India. It provides loan to its members and earns interest on them. In addition to the loan....
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....he said provision. According to the AO the aforesaid income is not derived from the business of providing credit facility to its members. Applying the decision in the case of Totgar's Co-operative Sale Society Ltd vs ITO (supra), the AO treated the interest income as income from other sources and accordingly denied the benefit of deduction u/s 80P(2)(a)(i) of the Act. 5. Aggrieved by the orders of AO, the Assessee preferred appeal before CIT(A). The CIT(A) held that interest income had to be assessed under the head income from business and that the Assessee was entitled to deduction u/s.80P(2)(a)(i) of the Act on the interest income in question. In doing so, he followed his own order in Assessee's own case in AY 2012-13 wherein he had allowed similar claim of the Assessee. 6. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. At the time of hearing it was brought to our notice that this tribunal in Assessee's own case adjudicated identical issue in I.T.ANos.158 & 1808 to 1809/Kol/14 & ITA 1126/Kol/15 for Assessment Years : 2009-10 to 2012-13 by order dated 9.11.2016. The tribunal held on identical issue on identical facts as follows: ....
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....n banks and investments. The Tribunal relying upon the decision rendered by the Hon'ble Calcutta High Court in the case of CIT vs South Eastern railway Employees Co-operative Credit Society in G.A.No.1838 of 2010 dated 22.07.2010 came to the conclusion that interest income has to be regarded as income from business of banking and is entitled for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal had also distinguished the decision rendered by the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd vs ITO (supra). The following observations of the Hon'ble Tribunal read as under :- "7.1. We further find that the issue involved is covered in favour of the assessee by catena of decisions of the Tribunal in assessee's own case. These decisions are also affirmed by the Hon'ble Jurisdictional High Court in its order for A.Yr.2005- 06. In this order the Hon'ble Jurisdictional High Court has considered all the relevant orders and has decided the issue in favour of the assessee. We may gainfully reproduce the operative order of the Jurisdictional High Court which is as under :- "We have gone through the impugned judgment and order of the Learned Tri....
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....o the facts of the present case". The facts of the case were that assessee's business was to provide credit facilities to its members and to market their agricultural produce. In many cases assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same in specified securities and earned interest income. In these circumstances the Hon'ble Apex Court had held that interest earned would come in category of 'Income from other sources' taxable u/s 56 of the Act and would not qualify for deduction as business income u/s 80P(2)(a)(i). From the above it is amply evident in the present case the assessee has not retained any amount due to its members and instead of paying the same had invested the same and earned interest. Thus this case law is not applicable on the facts of the present case. 7.4. As regards the decision of Hon'ble Patna High Court in the case of Bihar Rajya Sahkari Bhoomi Bikash Co-op. Bank Ltd. (supra) the same is also not applicable to the facts of the present case. In that case the question was the treatment of interest earned on ....
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.... 93) as under:- 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, t....
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.... the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Cooperative Bank Ltd. 336 ITR 516 (AP). 13. In that view of the matter....
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....vity that arose from the activity of providing loan and credit facilities to its members as the society is not engaged in the business of banking and is therefore not qualifying for deduction u/S.80P(2a)(a)(i) of the Act, the learned Tribunal is correct in law in holding that interest earned on such investment is within the purview of section 80P of the Act? We have gone through the impugned judgment and order of the Learned Tribunal. It appears that the point involved is whether interest earned out of the investment earned by the assessee cooperative can be treated to be the income arising out of business activity or from other sources in order to apply the provision of Section 80P(2)(a)(i) of the LT. Act. It is an undisputed factual position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97- Then again in relation to the assessment years 2003-04 and 2004-05 a similar point arose. The Learned Tribunal in relation to the assessment years 1998-99 to 2002-03 by order dated 10.11.2006 in ITA Nos.840 to 844/Kol/2006 and again by order dated....
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.... presume the revenue has accepted the subsequent view of the Tribunal and the same now hold the field right now. The appeal is dismissed accordingly." 7. We find that this issue does not set at rest as per the above extracted judgment. Their lordship's subsequent decision in the very assessee's case for assessment years 2003-04 and 2004-05 came to be decided on 15.07.2016 reported as (2017) 390 ITR 524 (Cal). The Revenue's substantial question of law admitted therein was as to whether the said assessee's interest income arising from investment in banks and other financial institutions quantify for sec. 80P(2)(a)(i) deduction or not. The tribunal had admittedly held the same to be eligible for deduction. Hon'ble jurisdictional high court's answers Revenue's substantial question of law as follows:- "7. We have not been impressed by the first submission advanced by Mr.Saraf. If the Multi-State Co-operative Societies At, 2002 does not provide for the consequences of an omission to act in accordance with section 63 thereof, that is no valid reason why the mandate of law should not be followed. When law requires a business to be done in a particular manner the....
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....er VI-A, which, in turn, deals with 'Deductions in respect of certain income'. The headnote to section 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Section 80P(1), inter alia, states that where the gross total income of a cooperative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word 'income' has been defined under section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically 'business profits' into the definition of the words 'income'. Therefore, we are required to give a precise meaning to the words 'profits and gains of business' mentioned in section 80P(2) of the Act. In the present case, as stated above, the assesseesociety regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning....
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....ve bank and a cooperative society do not stand on the same footing. The whole of the income of co-operative bank is deductible whereas in the case of society the income attributable to any one or more of the activities laid down in sub-section (2) is deductible. The Division Bench did not give any independent reasoning. The Division Bench proceeded on the basis that the view taken by them was supported by the judgment in the case of Karnataka State Co-operative Apex Bank (supra) which, with respect, was not a correct impression. The other judgment cited by Mr. Khaitan in the case of Guttigedarara Credit Cooperative Society Ltd. (supra) is not applicable because the caution appearing in sub-section (1) of section 80P, that only an income referred to in subsection (2) was deductible, was not taken into account. The sub-section (2) provides for only the income attributable to the business of advancing credit facilities to its members. Income arising from any other source including investment of capital "if not immediately required to be lent to the member" was not contemplated. The assessee cannot claim any deduction which is not provided for by the section. Moreover the judgment in t....
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....or did not claim the amount, is not of much importance. What is of importance is whether the benefit is allowable in law? If an answer to that question is in the affirmative, then that benefit has to be allowed. In that view of the mater, the question raised for decision is answered in the affirmative and in favour of the Revenue to the extent as indicated above. The appeal is allowed. The matter is, however, remained to the Assessing Officer (a) to work-out the interest earned under sections 63 and 64 of the Multi-Stat Co-operative Societies Act, 20002 and to allow benefit under section 80P and (b) to ascertain the interest paid to the members for the purpose of earning the sums of Rs. 99 lakhs and 1.2 crores on account of interest from investments. Such interest shall be deducted from the expenses of eligible business. Consequent increased amount of profits of eligible business as discussed above shall be the amount of deduction available to the assessee under section 80P." 8. We deem it appropriate to conclude in these peculiar facts and circumstances that assessee's impugned interest income derived from investment is not eligible ....