2023 (9) TMI 211

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....tal income earned during the FY 2016-17 as deduction U/s. 80P amounting to Rs. 73,32,076/-. The Ld. AR observed the P & L Account that the assessee has claimed net interest income of Rs. 2,02,62,233/- derived out of its investments. During the course of scrutiny assessment proceedings, the assessee filed details pertaining to various activities of the Society before the Ld. AO. The Ld. AO found that the Society is investing its surplus funds in the form of Fixed Deposits in various banks and derived interest income on such deposits for Rs. 2,02,62,233/-. The Ld. AO also observed that the interest receipts out of its deposits made with another entity other than its members should categorized as business receipts ought to be treated as income from other sources. After considering the submissions made by the assessee and going through the by-laws of the Society, the Ld. AO by relying on the ratio laid down by the Hon'ble Apex Court in the case of Totgars Cooperative Sale Society Ltd., vs. ITO, Karnataka reported in [2010] 188 taxman 282 (SC ) and also relying on the Coordinate Bench's decision as well as the decisions of the various High Courts considered the interest income received ....

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....rounds that may be urged at the time of hearing." 5. Grounds No. 1 & 8 are general in nature and therefore they need no adjudication. 6. Grounds No.2 to 7 relates to the issue of allowance of interest on deposits earned by the Cooperative Society from the fixed deposits in various bank accounts can be allowed as deduction U/s. 80P(2)(a)(i) of the Act. 7. At the outset, the Ld. Departmental Representative placed heavy reliance on the decision of the Hon'ble Apex Court it he case of M/s. Totgars Co-operative Sale Society Ltd (322 ITR 283). The Ld. DR also argued that as per section 80P(2)(d) of the Act, interest income earned on investments with any other Cooperative Societies is only eligible for deduction. Further, the Ld. DR also submitted that as per the judgment of the Hon'ble Supreme Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) interest income arising out of the short term bank deposits needs to be taxed as income from other sources and cannot be held eligible for deduction U/s. 80P(2)(a)(i) of the Act. The Ld. DR therefore pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. Authorized Representative submitted that the facts in the ....

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....i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon'ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: "(a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities ....

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....e-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression "attributable to" and not any one of the expressions viz., "derived from" or "directly attributable to". The Hon'ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the relevant para 34 of the judgment of the Hon'ble Andhra Pradesh and Telangana High Court herein below: "34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.&#....