TaxTMI 
TaxTMI 
2020 (11) TMI 173
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.... that the assessee is Federation for al co-operative societies formed and registered under Karnataka Co-operative Societies Act, 1959. The members of the assessee are co-operative societies in the State of Karnataka. Its main object is to impart education and training to the members, potential members, Directors and office bearers of the co-operative societies and members of general public. The Assessing Officer while completing the assessment treated the contribution received at Rs. 11,39,69,052; Rs. 13,25,27,459 and Rs. 16,57,07,934 for the Assessment Years 2013-14, 2014-15 & 2015-16 respectively towards co-operative education fund as income of the assessee. The assessee made plea before the CIT (Appeals) that the said amount was collected from various co-operative societies towards education and training as per the requirement of provisions of Karnataka Co-operative Societies Act, 1959. The utilization of the said amount is defined in the said provisions of the Act and prior approval of Advisory Board constituted for the purpose as prescribed. The assessee does not have any right or power over the funds and it is required to spend the amount only as provided in the statute. It h....
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....ed that the assessee Federation formed for providing education and training to the employees of the members of the co-operative societies. Therefore the contribution received from the member co-operative societies to be considered as income of the assessee as the assessee has claimed the corresponding expenditure n the 'income and expenditure' account. According to learned Departmental Representative there is no strength in the argument of the ld. AR that the amount has been received for specified purpose, it should be considered as diverted at source by over-riding title. He relied on the orders of the lower authorities. 6. We have heard both the parties and perused the material on record. The assessee is a registered co-operative society under Karnataka Societies Act, 1959 Under Section 57(2A) of Co-operative Societies Act, every co-operative society shall contribute 2% of its net profits to co-operative education fund to be administered by the assessee i.e. Karnataka State Co-operative Federation Ltd. As per Section 57A of the Karnataka Societies Act, 1959, the said amount has to be expended in such manner as may be prescribed. We reproduce the relevant provisions of Section 57....
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....y days from the date of its annual general meeting. (2) The cooperative education fund shall be maintained and administered by the State Cooperative Federation Limited and shall be utilized on the advice of an advisory committee consisting of the following members, namely.- (a) President, Chairperson of the State Cooperative Federation Chairperson (b) Four apex societies' president/ chairpersons i. e. Karnataka State Cooperative Apex Bank Ltd., Karnataka Cooperative Milk Federation Ltd., Karnataka State Cooperative Urban Banks Federation Ltd., and Karnataka State Credit Cooperative Societies Federation Ltd., Member are the members. (c) The Director, Regional Institute of Co-operative Management, Bangalore. Member (d) The Registrar of Cooperative Societies or his Nominee Member (e) The chief executive officer of the State co-operative Federation. Member Secretary (3) *The quorum for a meeting of the advisory committee shall' be five. The advisory committee shall be convened at least once in three months. (3A) No decision shall be taken by the Board of the Karnataka State Co-operative Federation Limited which contravenes the decision of the advisory committee,....
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....ure that the members, directors and employees are well informed and trained about the theory, principles and practice of co-operation. It shall also aim at ensuring that the transparency, the levels of awareness, member participation and member control expected of any good co-operative society are reached out to the members, the directors and the employees of the co-operative society.] 6.1 As rightly pointed out by the learned Authorised Representative, the above provisions show that Federation does not have control over the funds and is required to spend the amount only as provided in the statute. S.57A mandates that the co-operative fund shall be utilized for the purpose of promotion of co-operative movement and providing education to members and others. It also requires that the amount contributed under Section 57(2A) should be credited to a fund account and the fund shall be administered as prescribed in the Rules. It also states that no expenditure can be incurred without the approval of the advisory board. Rule 20(4) states that the Federation must maintain a separate account and all income by way of interest or otherwise that accrue from the contribution towards education f....
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....tilisation should be treated as additional grant of the scheme and not to be treated as income of the company held that such interest is not income. Since the amount received cannot be diverted for any other purpose for which it was received, it cannot be treated as income of the assessee since it was diverted at source. 6.3 Further the Hon'ble Supreme Court in the case of CIT Vs. Bijli Cotton Mills (P) Ltd. 116 ITR 60 (SC) wherein it was held that the amount collected from customers by way of Dharmada which was charged in invoice is not income as it came with an obligation to spend the money so collected for charitable purposes. 6.2 In the present case, the contribution received by the assessee from co-operative societies towards specific purpose and the assessee has not discretion to spend the amount and utilize above fund is decided by the Advisory Board consists of different persons as per the direction of the Government of Karnataka. The donations received by the assessee were for specific purpose. The donations whch are for specific purposes do not belong to the assessee. Such donation do not form its income of the assessee. This donation is for specific purposes would o....
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.... or substantially financed by the Government. Therefore, before claiming exemption u/s. 10(23C)(iiiab), the assessee is required to establish that it is either university or educational institution existing solely for educational purpose and not for the purpose of profit and it is wholly or substantially financed by the Government. These aspects were examined by the AO in his order after recording the objects of the assessee society. 7. Undisputedly, the assessee is a State Co-operative Federation of co-operative societies and its members are District Co-operative Unions, Apex Federal Co-operative Society, Co-operative Spinning Mills, Cooperative Sugar Factories, Co-operative Societies whose area of operation s more than districts but extends upto State and Co-operative Societies registered under Multi State Co-operative Societies and whose Had Office is located in the State of Karnataka. The main objects of the assessee are to function as the accredited representative of the co-operative movement in Karnataka State with a view to further its progress and to safeguard its interest and also to impart training to the employees of Co-op. Societies, Dept. of Co-operation and Dept. of....
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....o agriculture, cottage industries, village and small scale industries, minor forest produce and processing units belonging to the co-operative institutions; (xi) To establish Co-operative Training Centres, Schools and Colleges for running prescribed courses of training and imparting instructions, holding examinations, awarding Diploma and issuing certificates; (xii) To develop inter-co-operative relationship and help the coordinated functioning of the co-operative movement in various sectors; (xiii) To conduct State Level / National Level Co-operative Conferences, Seminars, Meetings, Workshops, Exhibitions and competitions in Essay writing, Debates etc. among students of High Schools, Colleges and Universities; (xiv) To acquire, purchase, own or dispose of the immovable property by way of sale, lease, exchange or otherwise for the furtherance of the objects of the Federation with approval of the general body; (xv) To promote study and research on problems connected with rural development in general and cooperation in particular and to conduct socio-economic surveys of rural and urban areas and to take up consultancy work, valuation etc., (xvi) To establish printing pres....
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....earned Authorised Representative submitted that as per the decision of Hon'ble jurisdictional Karnataka High Court in the case of Guttigedarara Credit Co-operative Society Limited Vs. ITO 377 ITR 464 and also in the case of CIT Vs. Totagars Co-operative Sales Society Ltd. 392 ITR 74 (Kar), the interest received by the co-operative society from deposit kept with co-operative bank is entitled for deduction under Section 80P(2)(d) of the Act. The learned Authorised Representative relied on the decision of Bangalore Bench of Tribunal in the case of Menasi Seemaya Group Gramangala Seva Sanghe Niyamita Vs. DCIT in ITA Nos.609 & 610/Bang/2014. However, the D.R. is of the opinion that the interest received on savings bank account is not in accordance with above judgments. In our opinion, as per the Section 80P(2)(d) of the Act, the only condition for availing the deduction under this provision is any income by way of interest or dividend derived by the co-operative society from its investment with any other co-operative society, the whole of such income is allowable as a deduction. Therefore there is no condition for the assessee society to invest in Fixed Deposits only. As regards the....