TaxTMI 
TaxTMI 
2024 (9) TMI 1733
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....Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable on facts from the case of the Appellant Assessee. (3) That the Ld. C.I.T. (A) erred on facts and in law in considering that the A. O. has failed to demonstrate in the Assessment Order that the Interest Income on FDR's and Saving Bank Accounts was on account of surplus funds of the Society and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in Appellant's Case. (4) That the Ld. C.I.T. (A) erred on facts and in law in not considering that the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. WITHOUT PREJUDICE TO ABOVE (5) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in ....
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....hat the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. WITHOUT PREJUDICE TO ABOVE (5) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the Society being co- operative Society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (6) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of Society which is held in the form of deposits are not the investments of the Society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (7) Th....
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.... profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (6) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of Society which is held in the form of deposits are not the investments of the Society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid' debited in the Profit and Loss Account from the gross interest of Rs. 41,05,832/- (8) That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. (9) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the....
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....sment years. 4. Aggrieved with the said dismissal of its appeals, the assessee society is before us in appeal. Shri. Shubham Rastogi, C.A. (hereinafter referred to as 'the ld. AR) filed a written submission and argued the case before us. 5. It was argued that the appellant was a Welfare Society for cane growers and the main object of the Society was to provide assistance to the cane growers for better development of cane crops, to make available and provide assistance in obtaining better quality of seeds, fertilizers, agricultural equipments etc., expeditious supply of sugarcane to mills and ensuring prompt payment to the cane growers and also to provide credit facilities to the members for purchase of equipments, seeds, fertilizers etc,. Thus the basic object of the assessee cooperative was the welfare of cane growers. The assessee was registered under the U.P. Sahkari Samiti Adhiniyam, 1965 and was providing facilities to cane growers as under:- a. In the form of building roads in their geographical jurisdiction for transport of cane produce by cane growers. b. Providing agricultural implements at subsidized rates to the members and also providing fertiliz....
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....sferred to a fund called the equity redemption fund to be established and utilized in the manner prescribed by such cooperative Society which has the subscription of the State Government in its share capital." 7. It was submitted that only the balance that remained, would be used for payment of dividend to members, payment of bonus to members, contribution to any fund as may be specified by the rules or byelaws and donation of amounts not exceeding 5% for any charitable purpose. It was, therefore, submitted that as per the said provisions, the Society was statutorily required to invest not less than 25% of its profit in a statutory reserve fund and deposit the same with a nationalized bank as per section 59 of the U.P. Cooperative Societies Act. It was also statutorily required to keep such amount for purposes of investment in other funds, as detailed above. Distributions from these surplus funds were later to be made, as per the directions of the State Government / Cane Commissioner. It was submitted that these funds, which are tagged as statutory reserve fund as per law, were required to be kept in the form of FDRs in National Banks and Cooperative Banks, in accordance with se....
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....f the Hon'ble Allahabad High Court in that case had been challenged by that Society before the Hon'ble Supreme Court in Civil Appeal No. 7405 to 7409 of 2021. The Hon'ble Supreme Court, vide its order dated 6.12.2021, had restored the matter back to the Tribunal on the basis of additional documents, including the statutory rules, placed before the Hon'ble Supreme Court which had a bearing on the income of society and its entitlement to exemption under section 80P. The ld. AR took us through the judgment of the Hon'ble Supreme Court to show that the said order passed by the Hon'ble High Court had been set aside with directions to the Tribunal to decide the issue of exemption under section 80P on merits and in accordance with law, without being influenced or being bound by the earlier orders passed by them or by the Hon'ble High Court and subsequently, the Hon'ble ITAT, Lucknow Bench, on the basis of this direction, passed a consolidated order in ITA Nos.285/Lkw/2015, 474/Lkw/2015, 525/Lkw/2015, 536/Lkw/2015 and 540/Lkw/2015 on 1.09.2020. It was submitted that the Hon'ble Tribunal, after considering the byelaws and the statutory rules as also the earlier decision of the Hon'ble Allah....
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....d from investment made by the assessee society as per section 59 r.w.r. 173 for the purpose of section 58, had been accepted by the Revenue to be attributable to the activities in which the assessee cooperative society was engaged and therefore eligible for deduction under section 80P (2)(a) of the Act. It was further prayed that the Hon'ble ITAT, Lucknow Bench in the case of Income Tax Officer vs. Sahkari Ganna Vikas Samiti, Rupapur Chauraha (Munder), Hardoi in ITA No. 467/Lkw/2013, vide their order dated 15.07.2015 had dismissed the appeal of the Revenue by relying on the judgment of Hon'ble Allahabad High Court in the present assessees case, reported in 118 ITR 770 (Alld) and in the case of Commissioner of Income Tax vs. Krishak Sahkari Ganna Samiti Limited reported in 258 ITR 594 (All). It had also distinguished the decision of the Hon'ble Apex Court in the case of Totgar's, by pointing out that the facts of that case were different from the case of Sahkari Ganna Vikas Samiti (supra) and no appeal had been preferred by the Revenue against such orders. 9. The ld. AR further drew our attention to the judgment of Hon'ble ITAT, Raipur Bench in the case of Gramin Sewa Sahkari Sam....
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....ative Societies Act, held that the same cannot be the surplus fund of the Society as decided in M/s Totgars Cooperative Sale Society Limited and after placing reliance on the decision of Hon'ble Supreme Court in the case of Nawanshahar Central Cooperative Bank Ltd. 289 ITR 6 (SC), set aside the assessment for de novo and fresh assessment. In view of these arguments, the ld. AR prayed that the decision of the Hon'ble Supreme Court in the case of Totgars and the decision of the Hon'ble Allahabad High Court in the case of PCIT vs. Cooperative Cane Development Council Limited, Lakhimpur in ITA No. 183 of 2016, would not have any bearing on the case of the assessee as the aforesaid issues were neither brought or argued before the Hon'ble High Court / Hon'ble Supreme Court in those cases and after considering such arguments, the Hon'ble Supreme Court in the case of PCIT vs. Cooperative Cane Development Council Limited, Lakhimpur(supra), had remanded the matter back to the ITAT to take a fresh decision without being influenced by previous orders passed by them or the Hon'ble High Court. It was further submitted that the subsequent orders of the Tribunal in that case supported the assessee....
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....d, Bheera, District Lakhimpur Kheri in ITA No. 520 of 2008, the Hon'ble High Court had held as under:- "6. In Totgar's Cooperative Sale Society Ltd (supra) the Supreme Court has explained the eligibility of deduction under Section 80-P. It was held that where the investment in securities is not a primary object of the cooperative credit society. In the present case, we are faced with a similar situation. Instead of cooperative sale society, the Society a cooperative cane development union. The purposes of both the societies are common. The objects of the Society do not provide for investment of money in post office or bank, and earn interest and thus the interest earned out of the investments made in the bank would be an interest, which will income from other sources and will be chargeable to tax under Section 56 of the Act. 7. The Income Tax Appeal is allowed. The substantial questions of law as framed by the revenue are decided in favour of revenue and against the respondent-assessee....." (copy of order enclosed as Annexure-B)." 12. He also invited our attention to the subsequent decision of Hon'ble Allahabad High Court in the case of PCIT, Bareilly vs. ....
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....Societies Act in this case) and was therefore, the condition precedent to doing of business and accordingly "attributable" to the activities of the assesse cooperative, was not brought before the Hon'ble Allahabad High Court in either of the judgments cited by the ld. Sr. DR. Furthermore, M/s Cane Cooperative Development Council had appealed the judgment of Hon'ble Allahabad High Court in ITA No. 183/2016 to the Hon'ble Supreme Court in Civil Appeal No. 7405 to 7409 of 2021 and placed the statutory rules before the Hon'ble Supreme Court. After considering that such rules may have a bearing on the nature of income and entitlement to exemption under section 80P of the Act, the Hon'ble Supreme Court had remitted the matter back to the Income Tax Appellate Tribunal to decide the appeals afresh, without being bound or influenced by the earlier orders passed by them or by the Hon'ble High Court. In view of such orders of the Hon'ble Supreme Court, the case laws of the jurisdictional Hon'ble Allahabad High Court cited by the ld. Sr. DR did not constitute a binding precedent for the ITAT, Lucknow Bench in the case of Cooperative Cane Development Council in ITA Nos. No.285/Lkw/2015, 474/Lkw....
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....by co-operative Society in the form of Government securities, equivalent to 25% of its profit, was the requirement of keeping the same as statutory reserve therefore, has held that such earning of interest was attributable to the activity carried on by the assessee. The relevant findings of Hon'ble Allahabad High Court are reproduced below: "Clause (c) of Section 80-P(2) exempts income of cooperative society to the extent mentioned in that section if the profits or gains are 'attributable' to the activity in which the Cooperative Society is engaged. The findings are that under statutory provisions the Cooperative Society is bound to invest 25% of its profits in Government securities. The assessee complied with this provision. In the process, it earned interest on these investments. The question is whether such profits or gains are attributable to the activity of supplying sugarcane carried on by the assessee. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 1TR 84 the Supreme Court held that the expression 'attributable to suggests that the Legislature intended to cover receipts from sources other than the actual conduct of the business of th....
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....he said remand, the matter was examined by the Revenue and after consideration of the decision of the Hon'ble Supreme Court and the other judgments relied upon by the Hon'ble ITAT while remanding the matter back to him, the ld. Assessing Officer held as under:- "3.3 Reason for inference drawn that no variation is required on this issue: The submissions made by the Assessee have been examined thoroughly particularly the bylaws of the Assessee Society and the U. P. Cooperative Societies Act. On going through the by-laws of the Assessee Society, it has been noticed that its Part 14 i.e. "Disposal of Net Profit and Societies" Assets and funds and appropriation thereof deals with the appropriation of Net Profits and Funds of the Assessee Society. Further, it has also been noticed that the aforementioned Part-14 of the bylaws of the Societies are in accordance with section 58 and 59 of the U. P. Co-operative Societies Act. Further, it has also been noticed that the secured reserve as well as other reserves are created in Annual General Meeting of the Society as per its bylaws and get accumulated over the year. These reserves are kept in co-operative and nati....
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....stment in fixed deposits and other securities or on account of the provisions of sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and section 173 of the U.P. Cooperative Societies Rules, 1968, it is quite clear that since it has been held that interest on such investment is attributable to the main activity of the assessee cooperative society, the interest earned from such investments ought not to be regarded as a surplus within the meaning of Totgar's Case, but an interest attributable to the main activity of the assessee cooperative and therefore, deductible under section 80P. The assessee has submitted copies of its byelaws and the detailed breakup of investments and interest arising on the same. However, we observe that the ld. Assessing Officer has not examined the breakup of such investments and the interest earned on the same, with reference to the byelaws or sections 58 and 59 of the U.P. Cooperative Societies Act, 1965 and 173 of the U.P. Cooperative Societies Rules, 1968 as he was of the view that no such interest was deductible in view of the decision of Hon'ble Supreme Court in the case of Totgars (supra). Now that the position with regard to such investme....