TaxTMI 
TaxTMI 
2026 (7) TMI 1069
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....nd in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made u/s. 56 of the Act by the Assessing Officer on account of "other income" earned from deposits/investments held in the banks of Rs. 8,98,87,796/- without appreciating the fact that the deduction u/s. 80P(2)(a) is available to only the 'operational income from business, but not to the other income' which accrues to the assessee-society. ii) Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in not appreciating the fact that the assessee earned interest and dividend income on surplus funds invested in co-operative banks and similar other institutions which cannot be said to be attributable to the activity mentioned in Section 80P(2)(a)(i) of the Act and therefore, the interest and dividend income are not eligible for deduction u/s. 80P(2)(a)(i) of the Act?" iii) Whether on the facts and in the circumstances of the case and in law, the Ld. CTT(A) is justified in granting relief to the assessee Co-operative society without appreciating the facts that the above interest income does not satisfy the ingredients of mutuali....
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....Return of Income for A.Y.2022-23 on 13.08.2022 u/s. 139(1) of the Act declaring returned income at Rs. NIL. It is specifically mentioned in the assessment order that assessee had claimed deduction u/s. 80P(2)(a)(i) of the Act, in the Return of Income. Assessee's case was selected for scrutiny, accordingly, AO issued notice u/s. 143(2) of the Act, dated 01.06.2023 and notice u/s. 142(1) of the Act. Assessee filed reply on various dates. During the Assessment Proceedings, Assessee submitted that Assessee provides credit facilities to its Members only. During the assessment proceedings, Assessee specifically submitted that as per Maharashtra Co-operative Societies Act, every Co-operative Society providing credit facility to its members is required to maintain atleast 25% of the amount of the total deposits collected from its members in the form of Investment in Banks to protect depositors. It was also submitted that as per RBI Guidelines also, Assessee has to maintain certain deposits in the bank. Assessee had filed relevant provisions of Maharashtra Co-operative Societies Act, 1960 during the assessment proceedings. During Assessment proceedings, Assessee relied on the decisions of I....
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....s laid down earlier in the case of Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114(SC). Further, Hon'ble Supreme Court in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC) has held:- "The assessee-co-operative bank was required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. That being so, any income derived from funds so placed arose from the business carried on by it and the assessee had not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for purpose of carrying on the banking, business, the income derived therefrom would be income from the assessee's business. It could not be accepted that only income derived from circulating or working capital would fall within section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. Thus, deduction was allowable in respect of income derived from the funds placed with the State Bank or the Reserve Bank." 7. In this case, Revenue has filed appea....
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....me and though on the face of it, the same may appear to be falling in any of the specified Clauses of Section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under Section 80P(2) of the Act. The case in Udaipur Sahakari Upbhokta Thok Bhandar Ltd. (supra) was that of Section 80P(2)(e) of the Act, whereas in the present case, itis under Section 80P(2)(d) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank and thus, clause (d) of Section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court. Unquote. 12. The proposition of law emanating from above decision is that Character of Income depends upon the nature of activity. The Character of In....
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....ve question of Law raised by Revenue, the Hon'ble Supreme Court observed as under : Quote, "......There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business......" Unquote. 17. The Hon'ble Supreme Court in the above case answered the question in favour of Assessee and against Revenue. 17.1 Thus, the proposition of law emanating from the above decision is that Interest earned from Funds deposited with State bank of India by Co-Operative Bank is business income and eligible for deduction u/s. 80P(2)(a) of the Act. 18. The Hon'ble Bombay High Court in the case of PCIT Vs. M/s.Annasaheb Patil Mathadi Kamgar Sahakari Pathpedhi Ltd. in Income Tax Appeal No.933 ....
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....etitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ........................ 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members o....
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....redit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, the Hon'ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024 has held as under : Quote "7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or....