TaxTMI 
TaxTMI 
2026 (9) TMI 1962
X X X X Extracts X X X X
X X X X Extracts X X X X
....iety andthat such deposits with scheduled banks are made as per the mandatory requirements of the governing legislation, specifically Clause 58 of the Karnataka Cooperative Societies Act, 1959/Karnataka State Souharda Sahakari Act, 1997 2 The Ld. CIT(A) has erred in applying the concept of surplus funds to characterize the deposits made with nationalized/scheduled banks as income from other sources 3 The Ld. CIT(A) has erred in not following and/OR distinguishing binding judicial precedents which hold that interest income earned by a cooperative credit society from scheduled/nationalized banks, when the source of investment is funds derived from its business of providing credit facilities, qualifies as business income eligible for deduction u/s 80P(2)(a)(i) of the Act 4 The Ld. CIT(A) has erred in upholding the AOs treatment of interest income from nationalized/scheduled banks as Income from Other Sources u/s 56 of the Act 3. The sole issue that arises for our consideration, in the present case, pertains to the disallowance of deduction claimed under section 80P(2)(a)(i) of the Act, in respect of interest of Rs. 15,84,473/- earned from deposits with Na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o banking license has been granted to it by the Reserve Bank of India, and that the interest earned by the assessee on deposits with Co-operative Banks qualifies for deduction. The learned CIT(A) accordingly directed the AO to delete the addition of Rs. 15,16,649. However, holding that deduction under section 80P(2)(d) of the Act is admissible only in respect of interest or dividend derived from investments with co-operative societies, the learned CIT(A) confirmed the addition of Rs. 15,84,473 being the interest earned from Nationalised/Scheduled Banks, and dismissed the remaining grounds. Being aggrieved, the assessee is in appeal before us. 7. We have considered the submissions and perused the material available on record. It is undisputed that the assessee is a co-operative credit society registered under the Karnataka State Souharda Sahakari Act, 1997, and is engaged solely in providing credit facilities to its members. It is also undisputed that the interest income of Rs. 15,84,473/- represents interest earned on deposits maintained with Nationalised/Scheduled Banks out of its funds not immediately required for lending to its members. 8. We find that while deciding a sim....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) as under: 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature, has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....heet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra....