TaxTMI 
TaxTMI 
2019 (12) TMI 970
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.... s 80P(2) in respect of the interest income received from which is prayed to be now allowed. 2. The learned CIT(A) erred in rejecting the claim of the appellant for allowing the proportionate expenses including interest paid as deduction against the interest earned from the bank. That on the facts and in the circumstances of the case, the said claim of the appellant being legal and proper ought to have been allowed and is prayed to be now allowed. 3. The appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. 2. The facts giving rise to the present appeal are that case of the assessee was picked up for scrutiny assessment and the assessment u/ s 143(3) of the Income Tax Act, 1961 (hereinafter called as 'the Act') was framed vide order dated 29.1.2016. The A.O. while framing the assessment denied the claim of deduction u/ s 80P(2) of the Act on the basis of the surplus lying in the banks to earn interest cannot be termed as 'business income'. The A.O. placed reliance on the decision of the Hon'ble Apex Court rendered in th....
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....g the year is from interest on account of loans of Rs. 1,69, 13,209/- received from members, receipts from interest from bank of Rs. 36,82,545/- Und from tanker hire charges of Rs. 14,76,294/-. 5. The case was selected under scrutiny, proceedings were attended from time to time Wherein written submissions were made, The assessments were concluded wherein the interest received from bank of Rs. 31,30,759/- and of Rs- 36,82,545/- in AY 2013-14 and AY 2014-15 respectively was treated as income from other sources and the benefit of deduction u/s 80P(2J was denied in respect or this income. 6. The above action or the Learned AO was challenged by the appellant before the Learned CIT(A)- However the appellant could not succeed al the first appellate stage, therefore, is now in appeal before the Honourable Bench. The appellant has raised the following effective grounds of appeal, I. The Learned CIT(A) erred in confirming the action -of the Learned AO in treating the interest received from bank as income from other sources and denying the benefit of deduction u/s BOP(2). It is submitted that on the facts and in the circumstances of the case, the appellant is entitl....
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....44 of Madhya Pradesh Society Act, 1960 read as under: "44. Investment of funds.- (1) Subject to the provision of sub-section (3), a society may invest or deposit its funds (a) in savings account of Government Post -office or Government securities; or (b) in any Bank or financial institution regulated by Reserve Bank: or (c) in any of the securities specified in. section 20 of the Trusts Act, 1882 (II of 7882); or (d) with the federal society of which it is a member or in the purchase of the share thereof; or (e) With any other society with limited liability or in the purchase of the shares or securities or debentures thereof, 10. It is submitted that in view of the above legal position, the appellant society as per Para 45 of its byelaws (copy at page no. 22 to 43 - specific reference to page no. 40) is statutorily required to deposit 25% of its profits in "Reserve Funds", which in turn, was parked in FDRs with Nationalised Bank, which is one of the permitted route for making investments by the societies. The appellant, in line with statutory obligation of maintaining its status of Co-operative society and as p....
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.... to any one or more of such activities." 14. The word 'attributable' used in the said section is of great importance, Therefore, whether the interest received from Nationalized Bank is attributable to the business of providing credit facilities to its members, is the question. 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 or Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) as under: "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains of business" attributable to the business of the specified industry (here generation and distribution or 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 co....
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....unt of profits and gains of business attributable to the activity or carrying on the business of banking or providing credit. facilities to its members by a cooperative society and is liable to be deducted from the gross total income under Section 80P of the Act. 16. The original source of the investments made by the appellant in nationalised Banks is admittedly the income that the appellant derived from the activities of banking provided to its members, In these circumstances the interest so earned in respect of deposits with the banks is very much attributable to the core activity of the appellant. The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not anyone of the two expressions, namely, "derived From" or "directly attributable to". 17. The appellant places reliance on the High Court of Karnataka in the case Of Guttigedarara Credit Co-Operative Society Ltd, Vs. Income Tax Officer (2015) 377 ITR 0464 which is as under: (Copy enclosed at page 01 to 04 of case law paper book) "Certain sums of interest were earned from short term deposits and from savings bank account. The assessee....
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.... interest, in fact was the amount in the nature of profits and gains; which was deposited in the banks on which interest was earned. 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 Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State cooperative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. 19. it is worth pointing out the appellant has been accorded deduction u/s 80P(2) In respect of interest earned on deposits with the banks in earlier years also in the scrutiny assessments as explained hereunder: (a) For Assessment Year 2009-10 In this case the assessment was completed u/s 143(3), Allowing I-he deduction claimed u/ s 80P(2) an the interest income received from banks. Later on the case was reopened u/s 148, precisely on the issue under consideration and the re-assessment proceedings were completed accepting the contentions or the assessee and deduction u/s 80P(2) allowed as claimed vide order dated 17.01.2014 passed by ITO 4(3)- Copy of the said assessment order is enclosed at page 44 to ....
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....- (a) In the case of Totgars, the said society marketed the agricultural produce of its members and also provided credit facilities to its members whereas the appellant society being a "credit' society is primarily engaged in the business of banking by providing credit facilities to it's members and also accepting deposits from its members. The appellant society is providing full range of banking services to it's member like maintaining saving a/c, RD A/c, current Account, term deposit a/c, OD A/c, term loan A/c, other loan A/c etc. (b) A copy of the decision of Honourable High court or Karnataka in the case of Totgars Co-operative Sale Society Ltd, V/ s ITO (2010) 322 ITR 272 is enclosed at page No. 33 to 40 of case law paper book. The facts of the case are more elaborately explained in Para 2 or the said judgment wherein it is stated that. (a) the business carried on by Tougars was marketing of agriculture produce Of the members. (b) It is also stated that the Honourable ITAT rendered a categorical finding or fact that income from securities end deposits is not attributable to profits and gains of the essessee as the assessee is not....
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....ich has been rightly taxed by the Department under Section 56 of the Act, However in the present case from the very nature of the objects and activities of the appellant society it is evident that the interest income earned by it on bank deposits is the business income and not income from other sources, Therefore, the observations made by the Honourable Supreme Court in the case of Totgars, on the contrary supports the case or the appellant before Your Honour. (v) Thus the ratio laid down in the case of Totgars should not have been applied by the Learned AO against the appellant also for the reason that the said society is admittedly marketing society which falls under an altogether different classification of societies whereas the appellant is a resource society whose objects are to provide banking facilities to its members, 21. It is reiterated that the appellant Co-operative Society is maintaining operations funds" and In the process, for complying with the requirement of transferring part of the income to reserve fund and also for meeting the unexpected/contingent fund requirements of the members cither towards re-payment of deposit of the members or by way of....
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....Ahd/2012 (copy enclosed at page no, 09 to 24 or case law paper book) wherein the Hon'ble bench has made a finding considering the decision of Supreme Court decision of Totgars that the assessee which is not a co-operative bank but its nature of activity is of accepting deposits from the members and lending to its members and to meet eventuality which was required to maintain the liquidity funds and these liquidity funds used to be invested in short term deposits and interest income earned on such short term deposits were held to be income from activities of co-op- society and not to be taxed u/s 56 of the Act. 24. The Hon'ble ITAT, cochin in the case of ITO vs. Muttom Service Cooperative I.T.A. No. 372/Coch/2010 has clearly stated that the Apex Court in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the object of the said co-operative society was to market the agricultural produce and to provide credit facility to its members and was not in the business of banking. Therefore, the Honourable Tribunal opined that that the judgment of the Apex court in Totgar's Co-operative Sale Society Ltd (supra) is not applicable in respect of the co-operative society w....
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....n account of interest amounting to Rs. 1,11,93,299/- from the IDBI Bank, Bank of Baroda, PNB Bank and interest of Rs. 3,35,732/- from saving bank account totaling to Rs. 1,15,29,031/- by holding that interest is not covered by section 80P(2)(a)(i) of the Act. Aggrieved the said order the appeal was filed with CIT(A). The learned CIT(A) deleted the said addition which was also confirmed by the Hon'ble ITAT, The Honourable ITAT relied on the decision or the Honourable JTAT Mumbai in the case or ITO V/s Malad Sahakari bank Ltd. (Supra) wherein the decision of the Honourable Supreme Court Totgar's Co- operative Sale Society was distinguished. The Honourable ITAT following its own earlier decisions in the case of the same assessee, where in it was observed that the interest received in deposits with bank etc made out of surplus funds available with the asscssee in the intervening period or making the advances and recovery or the loans was qualified for deduction u/ s 80P. 28. In the judgment of Hon'ble ITAT Ahmedabad 'C' Bench in case of -Income Tax Officer vs. Gujarat State Coop. Land Development Bank Ltd.(1983) 15 TTJ 0391 (1984) it was held that the ....
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....rofits and gains of business'. Such interest income is not only attributable to the activities of the society, namely, carrying on the business or banking and providing credit facilities to its members but is also derived during the course of carrying out such activities, when the assessee society provides credit facilities to its members, it earns interest income from members and banks and also pays interest on deposits received from members, Therefore, looking to the facts and circumstances of this case, the interest income, indicated above is eligible for deduction under Section 80P(2)(a)(i) The assessee has claimed deduction u/ s 80P(1) i.e. deduction in respect of co-operative this section says that in case of an assessee being a co-operative society the gross total income includes any income referred in sub section 2 of section 80P shall be deducted. As per section (2)(a)(i) of section 80P "in the case of a co-operative society engaged in carrying on the business of banking of providing credit facilities to its member the whole or the amount of profit and gains of business attributable to such activities is deductible". Since the assessee in engaged in the business of ban....
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.... received from members, receipt of interest from bankers of Rs. 31,30,759/- and tanker hire charges of Rs. 14,38,700/- He submitted that word 'attributed to' is far wider than the word 'derived from' as the provision of law speaks of word 'attributed to'. Further, it is contended that as per the M.P./ Chattisgarh Societies Act, 1960 section 43, the assessee is required to transfer an amount not being less than 25% of profits to reserve funds. He contended that the interest earned from banks is out of the reserve funds. He drew our attention to the balance sheet for the year under appeal. 8. We have heard the rival submissions, perused the materials available on records and gone through the orders of the authorities below. The only basis of declining claim of deduction u/ s 80P(2) by the A.O. is that the surplus funds deposited in bank account would partake character of 'income from other sources' but not 'income from business'. We have perused the case laws as relied by the Ld. Counsel for the assessee. The Hon'ble Karnataka High Court in the case of Guttigedarara Credit Co-operative Society Ltd. Vs. ITO (supra) has held as under: 9....
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.... to have been allowed and is prayed to be now allowed. 3. The appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. 12. The identical grounds have been raised as were in ITA No.422/Ind/2017. Ld. representatives of the parties have adopted the same arguments. We have decided the issues in para Nos. 8 & 9 of this order. Therefore, taking a consistent view, finding in ITA No.422/Ind/2017 would apply pari materia to this appeal as well. The appeal filed by the assessee is allowed. 13. In the result, the appeals filed by the assessee in ITA No.422/Ind/2017 for the A.Y. 2013-14 & ITA No.649/Ind/2018 for the A.Y. 2014-15 are allowed. Order was pronounced in the open court on 17.12.2019. ============= Document 1 8. In this regard, it is necessary to notice the relevant provision of law ie., Section 80P(2)(a)(i): "Deduction in respect of income of cooperative 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 subsection (2), there shall be deducted,....
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.... 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 Co-operative 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, the society 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 so....