AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 280
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.... The facts as well as grounds of appeal narrated in ITA No.427/SRT/2019 for AY 2014-15 have been taken into consideration for deciding both the assessee's appeal en masse. 4. Grounds of appeal raised by the assessee in "lead" case in ITA No. 427/SRT/2019 for AY.2014-15, are as follows: "1.On the facts and in the circumstances of the case as well as law on the subject, the learned commissioner of the Income Tax (appeals) has erred in confirming the action of the Assessing Officer in disqualifying deduction of Rs.9,57,950/- claimed u/s 80P(2)(a)(i) of the Income Tax Act, 1961 for interest earned from the Nationalized (SBI) Bank. 2. It is therefore prayed that the above addition may please be deleted as learned members of the Tribunal may deem it proper." 5. Succinct facts are that assessee is a credit society and governed by the Gujarat Co-Operative Societies Act. The assessee filed return of income for AY.2014-15 on 11.08.2015 declaring total income at Rs. Nil. The assessee's case was selected for scrutiny under CASS and accordingly notice u/s 143(2) was issued on 02.08.2016 and duly served upon the assessee on 11.08.2016. Subsequently, notice u/s 142(1) of t....
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....s has been utilized in providing credit facilities to its members whereas the substantial surplus of the fund has been invested/deposited in the bank account. Also it is very important to mention that depositing or investing the fund that too the substantial surplus fund cannot be a business activity attributable to providing credit facilities to its members under any stretch of imagination. Thus, in the instant case, it is noted that interest income received from the bank on saving/fixed deposit accounts, does not constitute the operational income of the society for the simple reason that the substantial part of the amount received from the members has been deposited in bank account also. It was noted that interest income of Rs.13,30,487/- (saving + FDR) received from SBI does not qualify for deduction under any provision of sub-section 2 of Section 80P of the Act. In view of the above, it was noted by Assessing Officer that the above net interest income of Rs.13,30,487/- is income from other sources of the assessee u/s 56 of the Act. It was also noted by Assessing Officer that the substantial surplus fund of the assessee co-operative society has been deposited in Saving/FDR with ....
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....(2)(a)(i), however, only the net interest should be subjected to tax......" The Hon'ble ITAT Bench, Surat in the case of Gujarat State Co-op Fruit and Vegetable Marketing Federation Ltd ITA No.2502/Ahd/2016/SRT dtd 01.11.2018 has also held that only net interest income after deducting provision-data expenses is taxable (Also see Mahua Vihag People Co-op Credit Society ITA No.2428/Ahd/SRT/dtd 26.10.2018). 3. Respectfully, following above binding decisions, only the net interest income received from other than co-op Societies is taxable, but, since assessee has already offered it to tax, no further addition is called for. The addition made by Ld AO is deleted. Taking a consistent view, I hold that net interest income received from SBI is taxable after deducting proportionate expenses which work out to net interest income for AY.2014-15 is Rs.9,57,950/- and to Rs.5,68,652/- for AY 2015-16. The Ld. AO is directed to restrict the addition to Rs.9,57,950/- for AY.2014-15 and to Rs.5,68,652/- for AY.2015-16 respectively. 11. As a result, the appeal is partly allowed." 10. Aggrieved by the order of the ld. CIT(A), the assessee is in further appeal....
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....the business of banking or providing credit to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9 In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case 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 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 amount which was retained by the assessee - Society was a liability and it was shown in the balance the liability side Therefore, to that e -tent, 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 th....
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....ociety when is left unused for the work of the society then it shall be invested as per Section 71 of the Gujarat Co-Operative Society Act, 1962." Thus, it is evidently clear that assessee-society is engaged in facilities to its members and the assessee-society deposits excess amount for short term in a Nationalized Bank as per section 71 of the Gujarat Co-operate Society Act, 1962. Therefore, the assessee-society claims deduction u/s 80P(2)(a)(i) of the Act. We note that assessee's claim is covered by the order of co-ordinate Bench of ITAT Ahmedabad in the case of Mahidharpura Urban Co-Op Credit Society Ltd. vs. DCIT,Circle-2(3), Surat in ITA No.3312/AHD/2015 dated 16.03.2016, wherein the co-ordinate Bench of ITAT Ahmedabad held as follows:- "3. Brief facts of the case are that the assessee is a credit co-operative society. It provides credit facilities to its members. It has filed its return of income electronically on 21.7.2012 declaring total income at NIL. According to the AO, the assessee-society had derived interest income at Rs.2,21,43,270/-, out of which, Rs.9,76,625/- was derived from State Bank of India. The ld.AO has observed that as per provisions of sectio....
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....uthorities were not justified in denying the said benefit in terms of sub-section (2) of Section 80P of the Act. In support of his contentions, he relied on several judgments and pointed out that the Apex Court in the aforesaid judgment has not laid down any law. 6. Per contra, learned counsel for the Revenue strongly relied on the said judgment of the Supreme Court and submitted that the case is covered by that judgment of the Apex Court and no case for interference is made out. 7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short-term deposits and from savings bank account. The assessee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. 8. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a....
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....onduct of the business of generation and distribution of electricity.' 10. Therefore, the word "attributable to" is certainly wider in import 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 attributabl....
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.... deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial questions of law are answered in favour of the assessee and against the revenue. Hence, we pass the following order:- Appeal is allowed. The impugned order dated 19.9.2014 is set aside. Parties to bear their own costs." 6. ITAT, Ahmedabad Bench in the case of Dhanlaxmi Credit Co-op. Society, in ITA No.2073/Ahd/2015 for the Asstt.Year 2012-13 similar issue has been considered by the Tribunal for the Asstt.Year 2012-13. The finding of the Tribunal recorded in para-5 of ITA No.2073/Ahd/2015 reads as under: "5. We have heard the rival contentions and gone through the facts and circumstances of the case as well as records available and judicial pronouncements referred therein. The only issue is in regard to the addition of various types of income such as rent, interest income from nationalized bank, commission income, other income totaling to Rs.12,72,308 and the AO after allowing deduction under section 80P(2)(c) of the Act assessed the income of the assessee society at Rs.12,22,308/-. As submitted in the statement of facts by the assessee society t....
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....anks including nationalized banks. Therefore, in view of above discussion and relying on the decision of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd.(supra), the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act; however, rent income at Rs.18,600, commission income at Rs.13,701, other income Rs.400 and income tax refund of Rs.13,271 totalling to Rs.45,542/- is not eligible for deduction under section 80P(2)(a)(i) of the Act. Ground Nos.1 and 2 are partly allowed." 7. Further, it is also worth to take note of the finding recorded by the ITAT in the case of Dhanlaxmi Credit Co-op. Society Ltd., in the Asstt.Year 2008-09 in ITA No.2342/Ahd/2012 as under: "4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining "operations funds" and to meet any eventuality towards re-payment of deposit, the Co-operative Society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT "B" Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op.Credit Socie....
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....surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3. In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. "19.4. While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1.) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not ....