TaxTMI 
TaxTMI 
2016 (6) TMI 1504
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....CIT(Appeals) has erred in treating the interest income of Rs.82,60,109/- as business income since the same is not attributable to the assessee's business of providing credit facility to its members. 2. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in not appreciating the assessing officer's decision that interest income of Rs.82,60,109/- was correctly taxable as 'Income from other sources' as the same was earned by the assessee on investment made in bank deposit and mutual funds out of its surplus funds not required immediately for business purposes. 3. On the facts and circumstances of the case, learned CIT(Appeals) erred in law in not following the decision of the Hon'ble Supreme Court....
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.... After considering the issue the Hon'ble jurisdictional High Court has concluded as under : "12. Therefore, in all these cases, where the surplus funds not immediately required for day-to-day banking were kept in voluntary reserves and invested in KVP/IVP, the interest income received from KVP/IVP would be income from banking business eligible for deduction under section 80P(2)(i) of the Act. 13. In the result, there being no dispute that the funds in the voluntary reserves which were utilised for investment in KVP/OVP by the cooperative banks were the funds generated from the banking business, we hold that in all these cases the Tribunal was justified in holding that the interest income received by the co-operative bank....
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.... "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 fa....
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....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 surp....
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....ument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in shortterm deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source: Balance Sheet of the assessee available on record]. 19.6. In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. ....