TaxTMI 
TaxTMI 
2019 (2) TMI 807
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....073/- from the fixed deposits with the DCCB and called the explain as to how interest income is eligible for deduction under section 80P(2)(a)(i) of the Act. It was submitted by the assessee before the Assessing Officer that as per rules issued by the Government, from the fixed deposits collected from the members of the society, an amount equivalent to 25% of the total deposits collected should invariable be deposited in the form of fixed deposits with DCCB since DCCB is also a guarantor for repayment. The assessee further explained that the society had surplus funds during the year in the form of deposits collected from people and such surplus funds were deposited with the DCCB over and above the statutory requirement. The Assessing Officer after considering the explanation of the assessee, he has noted that it was seen from the books produced, society has collected Rs. 1.79 crores of deposits in total from the members and though the 25% requirement translates to 44.88 lakhs, the society had actually invested an amount of Rs. 1.44 crores with the DDCB. Therefore, a part of the total interest received of Rs. 9.74 lakhs from DCCB comprised of interest received on the surplus funds d....
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.... assessee has received an amount of Rs. 11,29,453/- on account of surplus funds deposited with the DCCB bank and claimed deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer by following the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Credit Society Ltd., (supra) disallowed the interest received on account of surplus funds deposited with the bank is not eligible for deduction under section 80P(2)(a)(i) for the reason that such interest income could not be said to be attributable to the activities of the society i.e. carrying the business of providing credit facilities to its members. The very same issue has been considered by the coordinate bench of the tribunal in the case of M/s. Kakinada Co-op Building Society Ltd., Vs. Addl. CIT in ITA Nos. 348 & 349/VIZ/2013, dated 22/01/2016 wherein by following the decision of the Hon'ble Karnataka High Court in the case of Guttigedarara Credit Co-op Society Ltd. Vs. ITO [(2015) 66 (I) ITCL 343 (Kar. HC)] and also by following the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Andhra Pradesh State Co-op Bank Ltd., (2011) 336 ITR 516 (AP) has held that inter....
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....sp; "7. It appears that the petitioners are engaged in the sale of fertilisers to its members. A portion of the income derived therefrom is deposited by the petitioners in Nationalised Banks. The income derived by way of interest on the fixed deposits made by the petitioners with the banks, was treated by the petitioners as an income attributable to the profits and gains of business, eligible for deduction under section 80P(2)(a). But the Assessing Officer treated the interest income as income from other sources not eligible for deduction. 8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of ....
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....o". Therefore, the fact that the expression "attributable to" is wider in scope than the expression "derived from" cannot be denied. 14. Several decisions have been relied upon by both sides, not necessarily in the chronological order. But we think that analysing them in the chronological order would give a better understanding. 15. In CIT v. Madras Autorickshaw Drivers Co-operative Society Ltd. [1983] 143 ITR 981 (Mad.), a Division Bench of the Madras High Court was concerned with the question as to whether a society, which was purchasing autorickshaws and reselling them to its members on hire-purchase basis, could be treated as a society engaged in the business of providing credit facilities to its members or not. The Madras High Court pointed out that a credit society is distinct from a distributive society and a marketing society and that the tax relief under section 80P(2)(a) is a grant by Parliament not to a category of income but to a category of assessee, namely, a co-operative society answering the description of a society engaged in the business of providing credit facilities to its members. In other words, the court came to the conclusion that the incom....
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....in question for storing the stock on behalf of the State Government and returning the same every month was held to be an allowable deduction. The distinction pointed out by the Supreme Court was that in South Arcot District Co-operative Marketing Society Ltd.'s case (supra), there were two sales, first between the Government and the society and the second between the society and the fair price shop. 19. In Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 272 (Kar.), a Division Bench of the Karnataka High Court held that when a society not carrying on any banking business had invested its surplus funds in security term deposits, the interest accrued from such securities and deposits should be taken as relatable to profits and gains of the society. 20. The above decision of the Karnataka High Court was taken on appeal to the Supreme Court. In a decision reported in Totgar's Co-operative Sale Society Ltd.'s case (supra), the Supreme Court held that the interest income arising out of the investment of surplus funds cannot be attributed to the activities of the society. The relevant portion of the judgment of the Supreme Court reads as follows (page 2....
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....est income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a)(iii)) of the Act." 21. In CIT v. Punjab State Co-operative Federation of Housing Building Societies Ltd. [2011] 11 taxmann.com 448 (Punj. & Har.) a Division Bench of the Punjab and Haryana High Court followed the decision of the Supreme Court in Totgar's and held that the interest income received by the cooperative society from commercial banks cannot be attributed to the activities of the society. 22. In State Bank of India v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Guj.), a question arose before the Division Bench of the Gujarat High Court as to whether the interest earned on deposits made by a co-operative society that was registered with the object of accepting deposits from salaried employees of the State Bank with a view to promote thrift and provide credit facilities, was entitled to the benefit of section 80P(2)(a)(i)(2)(a). Following the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) the Gujarat High Court held that while the interest income earned by the co....
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....owed the appeal of the assessee holding that in respect of interest income arising both from SLR securities and from non-SLR securities, deduction was allowable. In an appeal under section 260A to this court, heavy reliance was placed by the Revenue upon the decision of the Supreme Court in Totgar's. But the Division Bench distinguished Totgars on the ground that the said decision was confined to the facts of the said case and that the Supreme Court was not dealing with the cases relating to co-operative banks. Referring to the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, this court pointed out that the expression "attributable to" is wider in scope than the expression "derived from" and that a co-operative society may earn profits by way of interest by parking their funds in high-yielding deposits or may earn income by circulating its capital among its members in the course of their banking business. Adverting to the fact that the phrase "business of banking" is not defined in the Income-tax Act, this court referred to the definition of the expression "banking" appearing in section 5(b) of the Banking Regulation Act to c....
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....le to each one of them, as follows : Category of co-op. societies covered by Nature and extent of (a) (1) Co-operative society carrying on the business of banking or providing credit facilities to its members ; (2) Co-op. society engaged in cottage industry ; (3) Co-operative society engaged in marketing of agricultural produce grown by its members. (4) Co-operative society engaged in purchase of agricultural implements, seeds etc., for the purpose of supplying to its members ; (5) Co-operative society engaged in processing of agricultural produce of its members without the aid of power. (6) Co-operative society engaged in collective disposal of the labour of its members. (7) Co-operative society engaged in fishing or allied activities. The whole of the amount of profits and gains of business attributable to any one or more of such activities. (b) Primary co-operative society engaged in supplying milk, oil seeds, fruits or vegetables grown by its members to- (1) a federal co-operative society, engaged in the same business ; The whole of the amount of profits and gains on such business. (2) the Government or a local authority ; (3) the Gove....
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....nd (b) subject to the further condition that such profits and gains should not exceed a particular limit, (D) to be eligible for deduction under clause (d), the income should be derived from investments with another co-operative society, (E) to be eligible for deduction under clause (e), the income should be derived from letting of godowns or warehouses, etc. 30. Therefore, what follows is that when a co-operative society engaged in any one of the activities stipulated in sub-clauses (i) to (vii) of clause (a) makes profits and gains out of business attributable to anyone of those activities, the case would fall under clause (a). The moment the income derived from one of those activities is invested in another co-operative society and an interest or dividend is derived therefrom, the case would be covered by clause (e). In case the profits and gains of business arising out of the activities listed in sub-clauses (i) to (vii) of clause (a) is invested in immovable properties, such as, godowns or warehouses and an income is derived therefrom, the case would be covered by clause (e) of section 80P(2). 31. The only area of distinction between clause (a) on....
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....tion confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investme....