TaxTMI 
TaxTMI 
2019 (11) TMI 1185
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....uthorities have erred in law as well in the facts in disallowing the same. It is reiterated that the assessee's books are audited by the state government's Registrar of Cooperative Societies as well and therefore the impugned disallowance is not liable to be affirmed. Our attention is further invited to the CIT(A)'s findings as under: "2.1 The individual grounds of appeal are dealt as under: Ground Nos. 3, 4, 5 & 6: 10% disallowance out of loading and unloading charges, printing & stationery and sales promotion and 20% disallowance out of business promotion. 2.2 The A.O has stated the following in support of the addition - On perusal of the relevant P/L Account of Servo Division and other details, it is found that the assessee Co-operative Society, Servo Division debited i) Loading & Unloading Charges of Rs. 2,11,564/-, ii) Printing & Stationery Charges of Rs. 1,46,049/-, iii) Business Promotion of Rs. 20,96,023/- and iv) Sales Promotion of Rs. 73,698/-. The A.R of the assessee was requested to produce all bills & vouchers in respect of these expenses. But he submitted some documents from which it is found that those expenses was paid sometimes t....
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.... (Out of total Business Promotion expenses of Rs. 20,96,023/-) The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy of ledger and documents enclosed for your perusal. (Page-7) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI, SC] where it was held by the Apex -Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business. 5) The Ld. A.O. disallowed 10% of Sales Promotion of Servo Division Rs. 7,369/- on assumption basis (Out of total Sales promotion expenses of Rs. 73,698/-) The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis 'at all. Copy of ledger and documents enclosed for your perusal, (Page-B) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [28....
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..... (i) Section 80P(4) is reproduced below: 80P(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank For the purposes of this sub-section - (a)"Co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. From the definition u/s 80P(4) it is clear that if it was intended that Co-operative society is not a Cooperative bank then there was no need to Primary Agricultural Credit Society (PACS) or Primary Co-operative Agricultural and Rural Development Bank (PCARDB) since the appellant is not a PACS, therefore, it would be covered under definition of Co-operative Bank and would therefore be covered by 80P(4). (ii) Followi....
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.... to be a Co-operative Society.- In view of the above definition it is clear that the legislature only wants to exclude PACS and PCARDB. Other Credit Societies would be covered under-section 80P(4). (iii) Further, Section 5A of Banking regulation Act, 1949 overrides Bye laws of the co op credit society whose principal business of a primary credit society is thetransaction of banking business and when its paid up capital and reserves attain the level of Rs. 1 lakh, a primary credit society automatically becomes a primary co-operative bank. (iv) Further, vide para 8 in the case of [Salgaon Sanmitra Sahakari Pathpedhi Ltd. v. Additional Commissioner' of Income-tax, Ward-17(3),Mumbai. - [12, Taxmann.com 246 (2011)] the assessee society was classified as "Co-operative Bank" under section 12(1) of the Maharashtra Co-operative Society Act, 1960 as per the registration certificate issued by the Assistant Registrar, Co-operative Society, Mumbai. Once the urban Co-operative credit society and Pal-pedhis are classified as Bank then they are not eligible for benefit provided under section 80P of the Income Tax Act, 1961, from Assessment Year 2007-08 by virtue of S....
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....tual backdrop that the assessee's impugned deduction claim deserves to be rejected as per this tribunal's latest decision in ACIT vs. Central Bank of India Employees Co-operative Society Ltd. ITA No.1868/Kol/2017 dated 30.11.2018 taking into consideration their lordships' decision as under: "2. The Revenue's sole substantive grievance pleaded in the instant appeal challenges the CIT(A)'s order accepting assessee's section 80P(2)(a)(i) deduction claim of Rs.2,20,70,040/- in the nature of interest income earned from investment in fixed deposits with various banks. 3. This assessee is a co-operative society of employees working with the Central Bank of India. It 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) 18....
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....d the appellant's contention for its eligibility to Deduction u/s 80P in respect of its entire income from interest, was accepted. Further, the appellant had also kept invested certain statutory funds with Banks in accordance with the relevant provisions of the Multi-State Co-operative Societies Act, 2002. The appellant was formed, and has been operating from long ago for the main purpose of providing credit facilities to its members. This is the main activity pursued by the appellant co-op Society and this is sufficiently evident from the Profit and Loss Account of the appellant as well as the Asset & liabilities disclosed in the appellant's Balance Sheet. Apart from the main activity 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 busi....
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.... also to provide the members the facilities for the exercise of Thrifts and Savings. (ii) The concerned co-operative society had been in the business of marketing the agricultural produce of its members and the said society used to retain the sale proceeds from such business, in many cases. The "retained amounts" which were payable to the society's members from whom the produce had been bought, not being required immediately for the society's business, were invested in the short-term deposits/securities. In the appellant's case the primary objects were to create fund to be lent to the members as well as to provide facilities for the exercise of Thrifts and Savings. The appellant had to arrange 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 h....
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....on by the appellant and thus the interest earned therefrom should necessarily be treated as arising from business carried on by the appellant. Reference may kindly be made to the Supreme Court decision in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194(SC) wherein it was held that any income derived from funds placed in accordance with the statutory requirements, would be considered as income arising from business and thus deduction u/s 80P(2)(a)(i) would be available in respect thereof. In fact, during the assessment proceeding, this particular Supreme Court decision was brought to the attention of the Assessing Officer . Without prejudice to the above claim of considering 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 l....
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....iness Income, the Assessing Officer should also have excluded the expenses towards Interest paid on Deposits aggregating to Rs. 21073824, out of the head 'Business Income' since the said expenses of interest had direct nexus with the earning of the Interest on deposits. Hence, it is submitted that if it is held that the Interest income of Rs. 22070040 would not be eligible for deduction u/s 80P(2)(a)(i), necessary direction may kindly be given to the Assessing Officer to reduce the Interest expenses of Rs. 21073824 from the Interest income of Rs. 22070040 for determining the income/loss arising from such earning of Interest allegedly assessable under the head "Income from Other sources". 5. Mr. Choudhury'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 ....
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.... in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities :" 4. The AO was of the view that as per the decision rendered by the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd vs ITO 322 ITR 283 (SC) interest earned on deposits had to be regarded as income under the head 'Income from other sources' and therefore deduction u/s 80P(2)(a)(i) of the Act cannot be allowed to the assessee as only the whole of the amount of profits and gains of business attributable to carrying on the business of banking or providing credit facilities to its members is allowed as deduction under the 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).....
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....e Tribunal, the Tribunal held as follows: "6. At the time of hearing of this appeal the ld. Counsel for the assessee filed before me a copy of the decision rendered by ITAT, Kolkata Bench in the case of S.E., S.E.C. & E.Co. Railways Employees'Co-operative Credit Society ltd. Vs ACIT in ITA No.1693/Kol/2012 order dated 30.10.2014. In the aforesaid case the identical question as to whether interest income had to be regarded as income from business or income from other sources had come up for consideration. The Assessee in the aforesaid decision accepted loans and deposits from its members and utilized the same towards providing loans and credit facilities to its members. However excess funds were utilized in making deposits in 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 t....
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....his regard we would like to place reliance upon the decision of the Hon'ble Apex Court in the case of CIT vs Excel Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to take a different view, any deviation is not permitted. 7.3. Now we come to the case laws relied upon by the ld. CIT(A). As regards the decision of the Hon'ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra) we find that the said decision is not applicable in the facts of the case. We find that the Hon'ble Apex Court in the said decision in para 11 has itself mentioned that "We are confining the judgment to 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 circumstanc....
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....ion in respect of interest income it earned on deposit of surplus funds as eligible for deduction u/s.80P(2)(a)(i) of the Act. The appellate authorities under the Act held that assessee is liable to income tax in view of the judgment of the Apex Court in the case of Totgars Co-operative Sale Society Ltd. v. ITO 377 ITR 283 (Karn.). On appeal by the Assessee, the Hon'ble Karnataka High Court held: "9. The word 'attributable' used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v.CIT 113 ITR 84 (SC) (at page 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 canno....
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....ich reliance is placed, the Supreme Court was dealing with a case where the assessee/Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of 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....
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....per hon'ble jurisdictional high court's decision in CIT vs. South Eastern Railway Employees Co-operative Credit Society in ITAT No.135 of 2010 GA No.1838 of 2010 dated 22.07.2010. The Revenue had filed said appeal against the tribunal's order holding the concerned assessee's interest income arising from investments in banks to be eligible for sec. 80P(2)(a)(i) deduction. Their lordships' detailed discussion in the said case qua in the instant issue as follows:- "It appears in this matter the Revenue wants us to admit the appeal on the points as formulated hereinbelow; - i) Whether on the facts and circumstances of the case, the interest earned by the assessee to the tune of Rs.l,18,07,64S/- out of its investment in banks is not the activity 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 Le....
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.... challenged by any of the parties before this Court. It is submitted by Mr. Bhowmick that there has been challenge of the decision in relation to assessment years 1995-96, 1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the pendency of that earlier matter is of no consequence in this matter. Had there been a challenge of the decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and also 2003-04 to 2004-05 the matter would have been different. The revenue did not take any step whatsoever. Therefore, we 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 o....
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....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 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 member' 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. In this connection, we may analyze section 80P of the Act. This section comes in Chapter 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 co-operative 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....
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....erative Societies Act, 2002 is attributable to the business of providing credit facilities to its members. But we are not able to agree with Mr. Khaitan that the rest of the interest earned by the assessee from the investments is also attributable to the business of providing credit facilities to its members. We have not been impressed by the judgment cited by Mr. Khaitan. 10. We are unable to agree with the views of the Patna High Court in the case of Bihar State Housing Co-op Federation Ltd. (supra). The Division Bench in that case relied upon the judgment of the apex court in the case of CIT v. Karnataka State Co-operative Apex Bank reported in [2001] 251 ITR 194 (SC). That was a case of a co-operative bank. A co-operative bank and a co-operative 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 S....
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....o be ascertained and that has to be deducted from the expenditure of the eligible business so that the eligible amount of deduction can be worked out. At the same time, The Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of investments of the funds created under section 63 as an income attributable to the business. Mr. Saraf submitted that this is a new case made out by the assessee before the High Court. This was never the plea before any of the authorities. He is no doubt correct in his submission. But court cannot refuse to give a person what is due to him. As a matter of fact, only that is a good judgment which renders every person his due. Whether the assessee claimed the amount 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....