TaxTMI 
TaxTMI 
2024 (6) TMI 1404
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....ng officer is right in holding that the Appellant is not entitled for deduction u/s 80P of the Income Tax Act-1961? 4] Appellant pray to kindly allow to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal." 3. The appellant is a credit co-operative society engaged in the business of banking ONLY. The Appellate society is not carrying out any other activities except the banking business activities. During the relevant year, Assessment proceedings were carried out u/s 143(3) wherein the learned Assessing Officer observed that the Appellate has earned interest income of Rs.99,94,363/- on its investment with other banks as under; Sr.No. Name of the bank Rs. 1. Yavatmal Urban Co-operative Bank -FDR 54,20,823 2 Nagpur District Co-operative Bank - Reserve Fund 56,957 3 Nagpur District Co-operative Bank - FDR 26,67,183 4 Dharampeth Mahila Bank - FDR 5,04,650 5 Pusad Urban Co-operative Bank - FDR 13,44,339 TOTAL Rs. 99,94,952 Net surplus of the Assessee society was of Rs.74,00,363/- which was claimed as deducti....
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....ent of the Appellant is income from business or income from other source? Hon'ble ITAT Nagpur in ITA No.30/Nag/2015, has dismissed the appeal filed by the revenue. It was held that the interest income of the Appellant is eligible for deduction u/s 80P(2)(a)(i). Since the investment is done in the course of the business of banking only, the same is liable to be taxed as business income only. 3. Whether on the facts and circumstances of the case, learned assessing officer is right in holding that the Appellant is not entitled for deduction u/s 80P of the Income Tax Act-1961? Appellant is eligible for deduction not only Section 80P(2)(a)(i), but also Section 80P(2)(d). The issue has been decided in various judicial pronouncements. 6.2 Deduction u/s 80P(2)(a)(i) : (a) That, the Appellant is a credit co-operative society engaged in the business of banking and also providing credit facilities to its members, which is eligible for deduction u/s 80P. Scope of Section 80P : a) The relevant part of section 80P is reproduced herewith: 80P. Deduction in respect of income of co-operative societies. (1) Where, in the case of an as....
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....e totally different and need not be applied here. Supreme Court in this case has made the following observation which is verbatim produced hereunder for your kind consideration: "At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not Assessing Officer was right in taxing the interest income, indicated above, under Section 56 of the Act. ......... ..... In this particular case, the evidence shows that the assessee Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on....
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....esently and will make repayment later". The newspaper, social media, competitors, etc., would ensure that such an institutions die instantly in such a situation no matter howsoever fundamentally strong it may be. In short, some fund is required to be kept from the perspective of the prudence besides statutory requirements. (g) The society has to maintain a CD ratio (Current Assets vs. Deposit Ratio) i.e., ratio of Loans to Deposit as per the guidelines of the Registrar of the Societies which is the regulating authorities for the societies in Maharashtra. CD Ratio means how much a society lends out of the deposits it has mobilized and remaining amount is to be kept ready to cater the needs of the depositor who may withdraw their deposits at the maturity term or on Demand basis. The CD Ratio plays an important role in deciding the "Credit Rating" of the society also and the depositors often make the investment by checking the Rating of the societies. Hence, liquidity is maintained either by keeping in invested in Deposit or in saving account with any other bank, thus it is part of working capital of the society. Appellant society is only engaged in the activity of b....
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....gment, Division Bench of Karnataka High Court held that when a society not carrying on any banking business had invested its surplus funds in security term deposit, the interest accrued from such securities and deposits should be taken as relatable profits and gains of the society. (l) The case of Totgars Co-operative Sale Society Ltd., v. ITO was well distinguished by Telangana & AP High Court in the case of Vavveru Co-operative Rural Bank Ltd vs CCIT, Buchireddy Palem Co-operative Rural Bank Ltd vs CCIT. It was also distinguished by the Pune ITAT in the case of Sindhudurg Zilla Madhyamik Adhyapak Sahakari Patpedhi Maryadit, Sindhudurg vs. ITO. All this judgment observed that in Totgars Co Operative Society, Assessee was carrying two businesses viz. Trading and giving finance to members. The surplus funds from which activity is invested in bank deposit were not possible to be known and hence, the same may be treated as income from other source. In the present case, the Appellant society is engaged only in one business activity of providing finance to its members and hence, the decision of Totgars is not at all applicable. 6.4 CBDT CIRCULAR ON TA....
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....ed that, "Therefore, the income arising from such investment is attributable to the business of banking falling under the head "Profit and Gains of Business and Profession"." 6.5 Deduction u/s 80P(2)(d): (a) It is respectfully submitted that Appellant has also received interest from co-operative societies which are operating as a bank duly authorized by the RBI. The said interest is eligible for deduction u/s 80P(2)(d) as well. The relevant part of section which provides for deduction from Gross Total income offers the deduction for the following. (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income; It is very respectfully submitted that there is no specific or general exclusion to the co-operative bank from section 80P(2)(d) of the Income Tax Act-1961. The appellant may be granted deduction u/s 80P(2)(d) as it is not dependent on the heads of income and categorically provides deduction towards interest received from other co-operative societies. It is most humbly submitted that the specific exclusion wa....
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....perative society. The revenue is not required to look to the nature of the investment whether it was from its surplus funds or otherwise. We have also considered the case of Totgars Co-operative Sale Society Ltd. 322 ITR 282 relied upon by the ld. DR and find that the Hon'ble Supreme Court has deliberated on the issue of deduction u/s 80P(2)(a)(i) but not on Section 80P(2)(d). We also observed that in the case of Totgars Co-operative Sale Society Ltd., itself the Hon'ble High Court of Karnataka has allowed the claim of deduction u/s 80P(2)(d) vide order dated 05.01.2017. Hence, keeping in view the provisions of the Act and the judgments of the Hon'ble High Court and Supreme Court in the case of Totgars Co-operative Sale Society Ltd., we hereby hold that the Appellant is eligible for deduction u/s 80P(2)(d) on the income earned by way of interest from the co-operative societies". [Para 18, 19 and 20] (d) The same view has been affirmed in the following cases as well : (i) M/s Solitaire CHSA Ltd vs. Pr.CIT-26, Mumbai, ITA No. 3155/Mum/ 2019, dated 29.11.2019. (ii) Land and Cooperative Housing Society Ltd. Vs. ITO (2017 46 CCH 52 (....
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.... Kolhapur - [ITA No. 261/Pun/2023, decided on 16.05.2023] 8. The learned authorized representative vehemently submitted that both the lower authorities have seriously misapplied upon law and facts in denying the deduction under Section 80P(2)(a)(i). Even submitted before us the assessment order for the Assessment Year 2016-17, wherein in the course of assessment under Section 143(3), deduction under Section 80P(2)(a)(i) was allowed. There being no change in the underlying facts and circumstances. He pleaded, the similar deduction should be allowed in the current year also. Upon confronting these facts before the departmental representative, he pleaded that reliance may be made upon the orders of the lower authorities in view of the fact that interest from fund not required immediate for business purposes is not eligible for deduction under Section 80P. 9. Upon hearing both the counsel and perusing the record, we find that the issue involved is covered in favour of the assessee by a catena of decisions from ITAT as well as a decision of jurisdictional High Court. In this regard we may gainfully refer the Hon'ble Jurisdictional High Court decision in the case of CIT vs. Solapur....
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....sideration by ITAT, Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd (supra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal's decision is 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 repayment 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 Society Ltd., bearing ITA No. 1491/Ahd/2012 (for A.Y. 2009-10) and CO No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :- "19. The issue dealt with by the Hon'ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts as under : What is sought to be taxed under section 56 of the Act is interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for busines....
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.... 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 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 had not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative bank, but its na....