TaxTMI 
TaxTMI 
2017 (12) TMI 1883
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....alify for deduction u/s 80P. 2. For that the Ld. CIT(A) ought to have considered that the judgment in the case of Totgars Co-operative Sale Society Ltd. v. ITO 322itr 283 (SC) is not applicable to the facts of the assessee's case. 3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) ought to have allowed the proportionate deduction in respect of interest paid / payable to the members out of the interest income. 4. For that the Ld. CIT(A) has erred in not adjudicating ground no. (vi) raised in the memorandum of appeal. 5. For that the Ld. CIT(A) has erred in not giving any finding/direction to the AO in respect of ground nos. (i) (vi) and (vii). 6. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal." Shri Arindam Bhattacharjee, Ld. Departmental Representative appeared on behalf of Revenue and Shri Subash SAgarwal, Ld. Advocate appeared on behalf of assessee. 2. The ground no. 1, 4 & 5 are inter-related and therefore being taken up together. The issued raised by Revenue in this appeal is that Ld CIT(A) erred in deleting the addition made by the Assessing Officer u/s 80P(2)(a)(i) of the Act on account of in....
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....death, a fixed sum of Rs. 30,000.00 is paid to the deceased employee's nominee out of this fund. It therefore becomes necessary to ensure that this fund earns interest so that interest may in turn be paid to the members when they retire or payments may be made when they die. Similarly the Reserve Fund is maintained as per the statutory provision. The fund is intended to provide a cushion against losses sustained by the business of providing loans. The balance of the fund that remains invested in fixed deposits does not constitute a surplus. It cannot be dealt with freely and it is certainly is not out of a surplus fund. The fund is earmarked for a certain purpose and therefore it cannot be under any circumstances be deemed to be a surplus. The fund is set aside to provide for contingencies which cannot be predicted. Thus the Reserve Fund is intended to provide against losses arising from the business of providing credit and therefore the interest earned from investing such fund is attributable to that same business. The bad debts fund is another fund created by the society for its specific purpose to provide safeguard against losses arising from default in payment of loans by mem....
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....l to Ld CIT(A). The assessee before the Ld. CIT(A) submitted that the AO failed to appreciate that the aforesaid income earned by the assessee were in the course of its business of "carrying on the business of providing credit facilities to its members" and were inextricably linked to and part and parcel of its activities. The AO wrongly applied the judgment of the Hon'ble Supreme Court in the case of "Totgars' Co-operative Sale Society Ltd., Vs. ITO (2010) 188 taxmann 282 (SC), which was rendered on entirely on different facts inasmuch as the said society was not solely engaged in the business of providing credit facilities to its members but had earned surplus from the sale of the produce of its members. The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under:- "4- Ground No.(i) relates to contention of the appellant against not allowing deduction The fact of the case is that the interest income shown by the appellant aggregating to Rs. 64,88,318/- was claimed as deduction u/s.80P which was disallowed by the AO. The interest income includes interest from Fixed deposits, Reserve fund, Bad debt fund and MSSS acc....
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.... banking or providing credit facilities to its members? The relevant finding of the Hon'ble Court reads as under : "... ... we are not able to agree with Mr. Khaitan that the rest of the interest earned by the assessee from the investments is also attributable to the business of providing credit facilities to its members. We have not been impressed by the judgments cited by MR. Khaitan." On the other hand, the Ld. AR before us submitted that the assessee has earned inter alia interest income on the money deposited with the bank which was claimed as deduction under section 80P(2)(a)(i) of the Act. The necessary details of such interest income stand as under:- (1) Interest on fixed deposit(general) Rs.40,76,664/- (2) Interest on reserve fund Rs. 3,66,436/- (3) Interest on bad debts fund Rs. 2,62,408/- (4) Interest on MSSS (Net) Rs.20,33,844/- The interest income earned by the assessee on the fixed deposits (general) made with the bank for Rs. 67,39,352.00 was disallowed by the AO on the ground that it does not arise from the business of providing credit to the members. However the Ld CIT(A) was pleased to delete the addition to the tune of 5% of the interest income....
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....ety Limited (supra), the Hon'ble Karnataka High Court in the decision rendered subsequently in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. -vs- ITO [2015] 55 taxmann.com 447 has distinguished the decision of the Hon'ble Supreme Court in the case of Totgars' Co-operative Sale Society Limited (supra) on certain specific aspects and after taking into consideration this distinction pointed out by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), the Tribunal in the case of ITO-vs- The Baskara Cooperative Credit Society Ltd. decided vide its order dated 18th November, 2015 passed in ITA No.1890/Ko1/2012 has restored the similar issue to the file of the AO after recording its observations in paragraph nos. 11 and 12 as under : 11. We have considered the. rival submissions and carefully perused the relevant material available on record. In the case of Totgar's Cooperative Sale Society Limited (supra) cited by the ld. D.R. in support of the revenue's case .on the issue under consideration, the assessee Society besides carrying on the business of providing credit facilities to its members was also ....
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....le by the assessee-Society to its members, which represent its liability as was the case in Totgar's Cooperative Sale Society Limited. In this regard, it is observed that this aspect has not been specifically considered either by' the Assessing Officer or by or by the ld. CIT(Appeals) in their respective orders and, therefore, there is no finding specifically given by them on this relevant aspect. In this regard, a perusal of the relevant balance-sheet of the assessee as on 31.03.2009 (copy of which at pages 67 & 68 of the paper book), shows that. the total investment made by the assessee- Society was Rs. 22.08 crores as on 31.03.2009, whereas the Reserves & Surplus and Profit & Loss Alc. balance as on the said date were Rs. 1.76 crores and 1.73 crores respectively. The major amount appearing on the liability side of the balance-sheet as on 31.03.2009 was deposit and other account aggregating to Rs. 28.89 crores, which comprised of various funds and deposits. Keeping in view these facts and figures, we are of the view that the issue as to whether the relevant investment is made by the assessee out of its own surplus funds or out of the amount payable to its members, which r....
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....any dispute decided or referred to arbitration, any right or title accrued, or any liability or obligation or penalty incurred) under the Co-operative Societies Act, 1912 or the Bengal Co-operative Societies Act 1940 or the West Bengal Co-operative Societies At, 1973 shall be deemed to have been done or suffered or taken under this Act, if the provisions of this Act were in force at all material times when such thing was done or suffered or such action was taken. (3) Every co-operative society existing at the commencement of this Act which has been registered or deemed to have registered under the Co-operative Societies Act,1912 or the Bengal Co-operative Societies Act,1940 or the West Bengal Cooperative Societies Act,1973 shall be deemed to have been registered under this Act, and its by-laws shall, in so far as they are not in consistent with the provisions of this Act, continue in force until altered or rescinded and shall to such extent be deemed to be registered under this Act." As per the provisions of Section 63 to 66 of the West Government Co-operative Societies Act 1983, the assessee was required to create certain funds as detailed under:- "63. (1) There shall be a ....
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....in the mischief of the Hon'ble Apex Court's direction." In view of above the Ld. AR pleaded before us to delete the addition as made by the AO on account interest income earned on MSSS, Reserve Fund & on Bad debts Funds. 8. We have heard the rival contentions and perused the materials available on record. In the instant case the assessee has shown income from the fixed deposits maintained with the bank as discussed in the preceding paragraph. The above interest income was disallowed by the AO on the ground that it is not arising from the credit facilities provided to the members therefore it is not eligible for deduction under section 80P(2)(a)(i) of the Act. However at the outset it was noticed that the AO has made the disallowance of interest income on the fixed deposits (general) for Rs. 40,76,664.00 but the Ld CIT(A) has deleted the addition made by the AO to the tune of 5% of the interest income. Both the assessee and the Revenue against the order of Ld CIT(A) preferred an appeal before the Hon'ble ITAT vide ITA No. 1249/Kol/2015 and 1244/Kol/2015 respectively. In this regard, we noticed that Hon'ble ITAT has restored the issue raised by the assessee in ITA 1249/Kol/20....
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....eal to Ld CIT(A), who has deleted the addition made by the AO. The Revenue, being aggrieved, is in appeal before us. 13. Before us both the parties relied on the order of authorities below as favourable to them. 14. We have heard the rival contentions and perused the materials available on record. At the outset we note that impugned issued has already been decided by the Co-ordinate Bench of this Tribunal in the own case of the assessee for the AY 2008- 09 in ITA No. 1564/Kol/2011 where the Co-ordinate Bench of this Tribunal was pleased to delete the addition made by the AO. The relevant extract of the order is reproduced below : "In respect of the subsidy amounting to Rs. 33,000/- since it is of non-capital in nature the same cannot be disallowed by applying the ratio laid down by Hon'ble Supreme Court in the case of the Totgars Co-operative Sales Society Ltd. vs. ITO (supra)" We respectfully following the consistent view decline to interfere with the order passed by the Ld CIT(A) on this account and accordingly the ground taken by the Revenue is regretted. Consequently, the ground of appeal raised by the Revenue is dismissed. 15. The next issue raised by Revenue in thi....