TaxTMI 
TaxTMI 
2019 (2) TMI 2090
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....n the case of Pr. CIT vs. Totagars Co-operative Sales Society (395 ITR 611, 83 Taxman.com 140) and the assessee's case is squarely covered by the said decision. 3. For these and such other grounds as may be urged at the time of hearing, the order of the ld. CIT(A) may be vacated and that of the Assessing Officer be restored. 4. The appellant craves, leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble Tribunal." 2. The brief facts in this case are that the assessee is a Multi-State Cooperative Credit Society registered under section 2(A) of Multi State Cooperative Society's Act, 2002 on 08.12.2009 and adopted twenty varied objects. The Principal object of the society is to promote the interest of all its members, to attain their social and economic betterment, self help and mutual aid in accordance with the co-operative principle. During the year under consideration, the society was engaged in providing credit facilities to its members, accepts deposits and disburses it in the form of loan as per the co-operative laws. The accounts of society are audited u/s. 44AB of the Income Tax ....
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.... with banks to earn income in order to augment its resources. The activity is in the nature of banking business and incomes earned on advances, deposits and investments are profits and gains of business of the assessee. Therefore, such incomes are eligible for deduction u/s. 80P(2)(a)(i) of the Act. Kind attention is drawn to sub-section (2) of section 80P. Sub clauses (i) to (vii) of clause (a) enumerates the type of businesses and the last line says "the whole of the amount of profits and gains of business attributable to anyone or more of such activities." The assessee's business is covered in clause (a) (i)- "in the case of a co-operative Society engaged in-(i) carrying on the business of banking or providing credit facilities to its members." The assessee's business is covered under this clause. The section says that the whole of the amount of profits and gains of business attributable to the assessee's activities is deductable u/s. 80P. The term used in this section is 'attributable to' and not derived from. This phrase 'attributable to' has a wide meaning and is wider than the scope of the phrase 'derived from'. This issue has been conside....
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....ies from its investment with any other co-operative society, the whole of such income shall be deducted while computing the total income of the assessee. The provisions in s. 80P of the Act had been enacted with a view to encourage and promote growth of co-operative societies by providing certain categories of income as exempt from tax. Income from certain activities carried on by co-operative societies is exempted from tax for the promotion of such societies. Sub-cl. (a) to s. 80P(2) covers the cases of cooperative society engaged in carrying on of different activities by way of business and the profits and gains attributable to such exempted activity is exempt from tax but all activities carried on by co-operative societies are not exempted from tax. In order to arrive at the income, which is exempted from tax, it has been further provided under the cl. (a) to S. 80P(2) that the whole of the profits and gains of the business attributable to such activities shall be exempted from. tax meaning thereby that while determining the profits and gains of business in addition to the expenditure directly incurred for earning such income, all the expenses attributable to earning such income....
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....a co-operative society is exempt from tax." 5.2.3 Reference may also be made to the judgment of the Supreme Court in the case of Bihar State Co-operative Bank Ltd v CIT [1960 J39 ITR 114 (SC). In this case the assessee bank, registered under the Co-operative Act, 1912, received interest on deposits. This income was assessed as income from other sources. The issue reached the Supreme Court. The court held that the moneys laid out in the form of deposits would not cease to be a part of the circulating capital of the assessee nor would they cease to form part of its banking business. The returns flowing from them would from part of its profits from its business. In a commercial sense the directors of the company owed to the bank to make investments which earned them interest instead of letting moneys lie idle. It could not be said that the funds of the bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising there from did not form part of its business profits. A copy of the judgment is placed in the Paper ....
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....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-Society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under section 2(24)(i) of the Act to include profits and gains." "This sub-section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words ''profits and gains of business" mentioned in section 80P(2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression ''profits and gains of business". Such interest income cannot be ....
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....in the case of Totgars Co-operative Sale Society Ltd has been considered at length and distinguished. 5.2.6 Kind attention is also invited to the Circular No. 18/2015 dated 02.11.2015 of the CBDT, wherein, it has been brought to notice of Officers of the Department that in light of examination of the decision in the case of CIT Vs. Nawanshahar Central Co-operative Bank Ltd [2007] 160 TAXMAN 48 (SC) delivered by the Apex Court, that the investment made by the banking concern and income arising out from such investments is attributable to under the head "Profit and gain of business and Profession". 5.2.7. It is submitted that the issue has been decided in the assessee's favour by the Ld. CIT(A)-4, Pune in the assessee's own case for assessment year 2011-12 vide order dated 10.10.2016, in appeal No. PN/CIT(A)-4/ ITO/Ward-3, Satara/16/2014-15/401." 5. The Ld. CIT(Appeals) after considering the submissions of the assessee, assessment order and facts of the case held as follows: "5.3 DECISION: I have perused the assessment order and the submission made by the appellant as above carefully. The AO's view that the interest income earned by the appellant society on fixed deposi....
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....erm and short term capital gain on mutual funds etc. While doing so, he held that the decision in the case of Totagar's Cooperative Sale Society Ltd. (Supra) is not applicable to the facts of the present case since in that case the amount invested in short term deposits and securities was not out of interest bearing deposits collected from members but out of sale proceeds of agricultural produce of farmer members marketed by the society. Further, the Hon'ble Apex Court has considered only the latter part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)( a)(i), i.e. income of a cooperative society engaged in carrying on the business of banking is eligible for deduction. 11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s. Jafori Momin Vikas Cooperative Credit Society Ltd. (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) has observed as under: "17. We have carefully considered the submissions of the either party, perused ....
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....ely for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)( a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s)." 19.2. From the above, it emerges that (a) That assessee ( issue before the Supreme Court) had admitted before the AO that it had invested 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....
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....l in the case of Muttom Service Cooperative Aplappuzha Bank Ltd. Vs. ITO (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) and various other decisions have observed as under: "5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totqar's Co-operative Sale Society Ltd us. ITO (supra.), the Apex court found that the deposit of surplus funds by the cooperative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar's Co-operative Sale Society Lid vs. ITA (supra), the assessee cooperative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totqar's Cooperative sale Society Ltd (supra) is not applicable in respect of the Co-operative society whose business is banking. Admittedly, the assessee has invested funds in state promoted ....
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....cision in the case of CIT Vs. Nawanshahar Central Co-operative Bank Ltd. [2007] 160 TAXMAN 48 (SC) delivered by the Apex Court, that the investment made by the banking concern and income arising out from such investments IS attributable to under the head "Profits and gains of Business and Profession". 5.3.2 In the present case too, it is not in dispute that the appellant society is engaged in the business of accepting deposits from members and granting them credit facilities is in the nature of banking business and deposits in question were made in the course of the said business of the appellant society. Therefore, the facts in the case of the appellant are squarely covered by the decision of the jurisdictional Tribunal on the issue as extracted above and also the CBDT's circular No.18/2015 dated 02/11/2015. Accordingly, the Assessing Officer is directed to grant deduction u/s. 80P(2)(a)(i) /80P(2)(d) in respect of interest earned by the appellant on deposits made with banks. Ground nos. 1, 3 & 4 raised by the appellant are accordingly allowed." 6. We have perused the case records and given thoughtful consideration to the findings of the Ld. CIT(Appeals). We find that the....