Sharanabasaveshwar Credit Souhard Sahakri Ni Halingali, Bagalkot V. Assistant Commissioner of Income-Tax, Circle-1, Bijapur

ITA 107/BANG/2023

AI Insights

The case involves Shree Sharanabasaveshwar Credit Souhard Sahakari Ni., a cooperative society, appealing against the order of the CIT(Appeals), which upheld the AO's decision denying deductions under section 80P(2)(a)(i) and section 80P(2)(d) of the Income Tax Act, 1961 for the assessment year 2018-19. The AO had initially allowed some deductions under section 80P(2)(a)(i) but denied others, including interest income from deposits with banks, which was treated as income from other sources. The CIT(Appeals) agreed with the AO's decision, leading to the appeal before the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299865 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 23-04-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 20-02-2023
• Other Referred Cases: Chatrapati Shivaji Cooperative Credit Society Ltd. v. ITO, Prathmik Krishi patina Sahakari Sangha Niyamit v. ITO, Sesa Goa Employees Coop. Credit Society Ltd. v. ITO, Bhavasar Kshatriya Coop. Credit Society Ltd. v. ITO, M/s. Vasavamba Co-operative Society Ltd. v. PCIT, M/s. Manjunatheshwara Credit Co-op. Society Ltd. v. ITO, Judicial Employees House Building Coop Society Ltd. v. ITO, PCIT & Ors. v. Totagars Co-operative Sale Society, Udaipur Sahakari Upbhokta Thok Bhandar Ltd. v. CIT, State Bank of India v. CIT, CIT v. Punjab State Co-operative Agricultural Development Bank Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 56; 28; 80P; 194A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC – B” BENCH : BANGALORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No. 107/Bang/2023 Assessment year : 2018-19 Shree Sharanabasaveshwar Credit Souhard Sahakari Ni., A/P Halingali – 587 315. Tal: Jamkhandi, Dist. Bagalkot. PAN: AAEAS 6699C Vs. The Income Tax Officer, National e-Assessment Centre, Delhi. APPELLANT RESPONDENT Appellant by : Shri Veeranna M. Murgod, CA Respondent by : Shri Ganesh R. Ghale, Standing Counsel. Date of hearing : 24.04.2023 Date of Pronouncement : 17.05.2023 O R D E R This appeal is filed by the assessee against the order of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC] DIN & Order No. ITBA/NFAC/S/250/2022-23/1048359177(1) dated 30.12.2022 for the AY 2018-19 on the following grounds:- “The learned Assessing Officer's order is opposed to the Facts of the case and law. Because, the learned Commissioner of Income Tax F (Appeals) has overlooked the facts of the case and had denied to allow the deduction claimed under section 80P(2)(d) of the Income Tax ITA No. 107/Bang/2023 Page 2 of 18 Act, 1961 of Rs.8,45,161/- being interest received from the deposits held as statutory investments with the District Central Co-operative Bank. Because, the learned Commissioner of Income Tax (Appeals) has overlooked the facts of the case and had directed the A.O. to make an addition of Rs. 2,62,834/-being the receipts incidental to the business activities carried on by the appellant society as per the provisions governing the Co-operative Societies in Karnataka and had denied to allow the deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961 . Because, the learned lower authorities have erred in computing the Total Tax Liability by overlooking the deduction allowed under section 80P(2) of Income Tax Act, 1961 in the Assessment Order. The appellant craves leave to add / alter any of the .grounds of appeal before or at the time of hearing.” 2. The brief facts of the case are that the assessee filed return of income on 5.10.2018 declaring total gross income of Rs.43,06,181 claiming deduction u/s. 80P(2)(a)(i) of the Income-tax Act, 1961 [the Act] under Chapter VI-A declaring total income at NIL. 3. The case was selected for complete scrutiny through CASS and statutory notices were issued to the assessee. After examining the details filed by the assessee, the AO allowed deduction u/s. 80P(2)(a)(i) of Rs.33,94,955. The AO further observed that assessee has received interest income from fixed deposits in Axis Bank, SBI, KVG Bank, Canara Bank, ICICI and BDCC Bank, etc. The AO examined the issue in the light of section 80P(2)(d) of the Act and observed that the interest received from cooperative bank and ITA No. 107/Bang/2023 Page 3 of 18 commercial banks do not qualify for deduction u/s. 80P(2)(d) of the Act and completed the assessment accordingly. 4. Aggrieved, the assessee filed appeal before the CIT(Appeals), and filed detailed written submissions relying on various judgments. The CIT(Appeals) observed that the interest received on deposits of Rs.8,45,161 does not qualify for deduction u/s. 80P(2)(d) of the Act and Other receipts of Rs.262,834 are also not covered u/s. 80P(2)(d) of the Act and upheld the order of the AO. Aggrieved, the assessee is in appeal before the Tribunal. 5. The ld. AR reiterated the submissions made before the lower authorities and submitted that the assessee has sufficient internal funds and external funds which were invested in the banks. The funds invested in fixed deposits were excess funds received from members which cannot be immediately lent out to the members. Therefore it is operational income and directly connected to the normal activities of the assessee. Therefore the interest received from cooperative bank and other banks is eligible for deduction as per section 80P(2)(d) of the Act. He further submitted that the whole interest and dividend derived from investments with other cooperative society is covered u/s. 80P(2)(d). The cooperative banks are primarily registered as a cooperative society and it is merely running the business of banking after obtaining licence from RBI, but originally it is a cooperative society. Therefore interest received from cooperative bank is also ITA No. 107/Bang/2023 Page 4 of 18 eligible for deduction u/s. 80P(2)(d). He relied on the following judgments:- Chatrapati Shivaji Cooperative Credit Society Ltd. v. ITO, ITA No.2619/Bang/2018 for AY 2017-18 dated 7.12.2018. Prathmik Krishi patina Sahakari Sangha Niyamit, ITA No.2630/Bang/2018 for AY 2015-16 dated 28.11.2019. Sesa Goa Employees Coop. Credit Society Ltd., ITA No.203/PAN/2019 for AY 2014-15 dated 16.11.2022. Bhavasar Kshatriya Coop. Credit Society Ltd. v. ITO, ITA No.581/Bang/2022 for AY 2015-16 dated 19.10.2022. 6. In respect of deduction u/s. 80P(2)(a)(i) on the Other Receipts, the ld. AR submitted that the income generated in the normal activities has been classified under different heads as Other Receipts as per the consolidated Profit & Loss account and therefore it is operational income of the assessee eligible for deduction u/s. 80P(2)(a)(i) of the Act which was denied by the lower authorities. 7. The ld. DR relied on the orders of the lower authorities and submitted that interest received from cooperative banks and banks are not covered u/s. 80P(2)(d) of the Act. He further submitted that co- operative bank where its entire income is earned from banking activities cannot be termed as co-operative society. He further submitted that it is settled by the Supreme Court judgment in the case of Totagars Co-operative Sale Society reported in 395 ITR 611 that interest received from surplus funds is to be taxed as income from ITA No. 107/Bang/2023 Page 5 of 18 other sources and therefore it is not eligible to claim deduction u/s. 80P & the assessee received interest is on Fixed Deposits which are surplus fund of the assessee. He further submitted that in the case of PCIT & Ors. v. Totagars Co-operative Sale Society reported in 395 ITR 0611 (Karnataka), the Hon’ble Court had decided that deduction u/s. 80P(2)(d) is allowable on the interest income received from co- operative society. He strongly relied on the following judgments:- (a) M/s. Vasavamba Co-operative Society Ltd. v. PCIT, ITA No.453/Bang/2020 dated 13.8.2021. (b) M/s. Manjunatheshwara Credit Co-op. Society Ltd. v. ITO, ITA No.2238/Bang/2019 dated 4.10.2021. (c) Judicial Employees House Building Coop Society Ltd. in ITA No.108/Bang/2023 dated 11.04.2023. 8. In the rejoinder, the ld. AR submitted that in the case of PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka) order dated 05.01.2017, the Hon’ble Court has held that even section 56(i)(ccv) of the Banking Regulation Acts Act, 1949, defines a primary co-operative bank as the meaning of co-operative society, therefore a co-operative society bank would be included in the words ‘Co-operative Society’. 9. After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, I note that the assessee has received on interest on deposits of Rs.8,45,161 from cooperative banks and commercial banks on which deduction has been denied by the AO u/s. 80P(2)(d) of the Act, whereas the assessee has claimed it ITA No. 107/Bang/2023 Page 6 of 18 as deduction u/s. 80P(2)(a)(i) and the deduction on Other Receipts of Rs.2,62,834 is also claimed as deduction u/s. 80P(2)(a)(i) of the Act. However, the AO after discussing about Other Receipts in detail has not allowed deduction u/s. 80P(2)(a)(i), but he has not brought the Other Receipts to tax, which the CIT(Appeals) has directed to bring the same to tax. 10. The assessee is a cooperative society governed by the Karnataka Cooperative Societies Act, 1959 accepting deposits from its members and providing credit facilities to its members. As per the submissions of the assessee, the assessee keeps the surplus funds in other cooperative society in order to comply with SLR and CRR requirements. As per submission of the ld. AR the Karnataka Co- operative Societies Act, the assessee is mandatorily required to keep 25% of its profits with District Cooperative Banks, following which the assessee invested in the fixed deposits in the cooperative bank/banks and received interest on deposits. The AO and the CIT(Appeals) have denied deduction u/s. 80P(2)(d) of the Act on the interest received from fixed deposits kept with cooperative bank and other banks. The CIT(A) has relying on various decisions observed that surplus funds available with the assessee has been invested in fixed deposits in banks / cooperative bank which do not qualify for deduction u/s. u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. We find that this Tribunal in the case of Judicial Employees House Building Coop Society Ltd. in ITA No.108/Bang/2023 dated 11.04.2023 has ITA No. 107/Bang/2023 Page 7 of 18 considered similar issue and decided the issue in favour of the revenue by observing as under:- “10. Heard both the parties, perused the entire material on record and the orders of the lower authorities. The assessee society is running business of forming, developing and distributing residential sites to its members and has claimed deduction u/s. 80P(2)(d) of the Act on the interest received on Fixed Deposits from The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. and Punjab National Bank. It is clear from the facts of the case as observed by the AO that the surplus funds were invested in Fixed Deposits as investments in Co-operative Bank & Nationalised Bank. The ld. AR has relied on the judgment dated 05.01.2017 of the Hon’ble jurisdictional High Court in the case of PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka). However, the Hon’ble jurisdictional High Court in the later judgment dated 16.6.2017 in the case of PCIT v. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka) for AYs 2007-08 to 2011-12 has decided in the issue in favour of the revenue by observing as under for claiming deduction u/s 80P(2)(d) on interest received from Co- operative bank:- ‘9. We have heard the learned counsels at length and perused the record and the judgments cited at the Bar. 10. Admittedly and undoubtedly, the respondent assessee is a Co- operative Society engaged mainly in the activity of marketing of agricultural produces grown by its members. The assessee co-operative society also accepts deposits from its members and provides credit facility to its members, runs Kirana Stores, rice mills, live stocks, van section, medical shops, Areca-nut trading section, lodging, plying and hiring of goods carriage, etc. 11. The Assessment Years involved in the present batch of appeals are Assessment Years 2007-2008 to 2011- 2012. The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), the assessee has shifted the deposits and investments from Schedule Banks to Co- operative Bank and such Co-operative Bank is essentially a Co- operative Society also and Clause (d) allows deduction of income by ITA No. 107/Bang/2023 Page 8 of 18 way of interest or dividends derived by the assessee Co-operative Society from its investments with any other Co-operative Society. 12. The sheet anchor of the contention of the learned counsel for the assessee misses two essential points required for claiming the exemption or 100% deduction from gross total income for a co- operative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co- operative Bank. (ii) that What the Hon'ble Supreme Court held in the case of the respondent assessee itself, against the assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under Section 28 of the Act, but was taxable as "income from other sources" under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section 80P of the Act should be its business or operational income. 13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co- operative society should be out of the investments with any other co- operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co- operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. 14. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society .....". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative Society from a Co-operative Bank. ITA No. 107/Bang/2023 Page 9 of 18 This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society. 15. The amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of "Co- operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. 16. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise. 17. As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be inferred in such provisions. What was clearly held to be not exempt and not deductible under Section 80P(2)(a) of the Act by the Hon'ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court for subsequent years merely on account of the change of the Bank where such deposits were made by the respondent assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. ITA No. 107/Bang/2023 Page 10 of 18 18. The contention of the learned counsel for the assessee that a co- ordinate bench of this Court dismissed the Revenue's appeals by referring, but not applying the decision of the Hon'ble Supreme Court, we observe with greatest respects that we do not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee in the said order passed by the co-ordinate Bench and therefore, we are unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. We find in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that "the issue whether a co- operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases..............". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act. 19. In our opinion, it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co- ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court. 20. In Udaipur Sahakari Upbhokta Thok Bhandar Ltd. v. CIT [2009] 315 ITR 21/182 Taxman 287 (SC), the Hon'ble Supreme Court while dealing with a case falling under Section 80P(2)(e) of the Act also negatived the claim of this special deduction to a co-operative society, while holding that the income derived by the Co-operative Society from the letting of the godowns or the warehouses was eligible for this deduction under Section 80P(2) of the Act only if such income was derived by such letting of godowns and warehouses for storage, processing or facilitating the marketing of commodities. Where the rental income was derived by the assessee, where the income claimed as deduction under Section 80P(2)(e) of the Act was by way of netting/difference between the sale of own trade stock stored in such warehouses or godowns was claimed as deductible, the Hon'ble Supreme Court denied the said claim, holding that the burden was on the assessee to establish that the income comes within the four corners of Section 80P(2)(e) of the Act. The relevant portion of the said judgment from the Head Note is quoted below for ready reference: ITA No. 107/Bang/2023 Page 11 of 18 "HELD, affirming the decision of the High Court, that the burden was on the assessee under section 80P(2)(e) to establish that the income comes within the four corners of section 80P(2)(e) of the Act. The exemption was available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting was storage, processing or facilitating the marketing of commodities. If the godown was let out (including user) for any purpose besides storing, processing or facilitating the marketing of commodities, then the assessee was not entitled to such exemption. Any income derived by the society unconnected with such letting or use of the godown would not fall under clause (e). The High Court was right in coming to the conclusion that the assessee was storing the commodities in question in its godowns as part of its own trading stock and hence, it was not entitled to claim the deduction under Section 80P(2)(e). In this case, the issue price was set off against the sale price which clearly indicated that the netting/difference between the two prices constituted receipt on a commercial basis or net profit. A. Venkata Subbarao v. State of Andhra Pradesh AIR 1965 SC 1773 applied. CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117 (SC) distinguished. Surath Venkar Sahakari Sangh Ltd v. CIT [1971] 79 ITR 722 (Guj) approved. Decision of the Rajsthan High Court in CIT v. Udaipur Shahakari Upbhokta Thok Bhandara Ltd. [2007] 295 ITR 164 Affirmed." 21. The aforesaid decision of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra) was followed by a Division Bench of the Gujarat High Court in the case of State Bank of India v. CIT [2016] 389 ITR 578/241 Taxman 163/72 taxmann.com 64 and the Division Bench of the Gujarat High Court has held as under: "(ii) That the assessee did not carry on any banking business and its objects did not contemplate investment of surplus funds received from its members. The business of a credit society like that of the assessee was limited to providing credit to its members and the income that was earned by providing such credit facilities to its members was deductible under section 80P(2)(a)(i). The character of interest was different from the income attributable to the business of the assessee- society providing credit facilities to its members. The interest income ITA No. 107/Bang/2023 Page 12 of 18 derived from investing surplus funds with the bank must be closely linked with the business of providing credit facilities for it to be held attributable to the business of the assessee. Therefore, the profits and gains could be said to be directly attributable to the business of providing credit facilities to its members if there was a direct and proximate connection between the profits and gains and the business of the assessee. There was no obligation on the assessee to invest its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i) . There was no infirmity in the orders of the Appellate Tribunal warranting interference. Totgar's Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 (SC)followed." ** ** ** "Thus, in the light of the principles enunciated by the Supreme Court in Totgar's Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co- operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co- operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act." 22. Again, the Division Bench of Punjab and Haryana High Court in still a later decision reported in the same volume of ITR in the case of CIT v. Punjab State Co-operative Agricultural Development Bank Ltd. [2016] 389 ITR 607/76 taxmann.com 307 (Punj. & Har.) concurred with the aforesaid view of the Gujarat High Court, distinguishing the view taken by the Andhra Pradesh High Court and Karnataka High Court, held in the following terms: ITA No. 107/Bang/2023 Page 13 of 18 '30. We are entirely in agreement with the judgment of the Gujarat High Court especially the observation that the judgment of the Supreme Court is not restricted only to the investments made by the assessee from the amounts retained by it which were payable to its members and that the judgment also applies in respect of other funds not immediately required for business purposes. We reproduced paragraph 15 of the judgment only to indicate that we uphold the appellant's case only on the ground that the assessee is not entitled to the said deduction on the basis that it is engaged in carrying on the business of providing credit facilities to its members. We do not express any opinion as to whether the appellant would be entitled to the said benefit in the event of it being held that the assessee is also engaged in carrying on the business of banking. That is an issue that the Tribunal would decide upon remand pursuant to this order. 31. Mr. Bansal relied upon the judgment of the Andhra Pradesh High Court in CIT v. A. P. State Co-operative Bank Ltd. [2011] 336 ITR 516 (AP). The judgment is distinguishable. In that case, the respondent-assessee was a co-operative society engaged in the business of banking and it was held that the assessees were subject to the regulations of the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The Division Bench distinguished the judgment of the Supreme Court in Totgar's case (supra) on the ground that the Supreme Court was not dealing with the case relating to co-operative banks. The present appeal is not being considered on the basis that banking is the assessee's business either. 32. Mr. Bansal relied upon the judgment of the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO [2015] 55 taxmann.com 447 (Karn). In that case, the assessee-co-operative society provided credit facilities to its members and earned interest from short- term deposits with banks and from savings bank accounts. The interest income earned by the assessee by providing credit facilities to its members was deposited in banks for a short duration which earned interest. The question was whether this interest was attributable to the business of providing credit facilities to the members. The Division Bench held as follows : "8. Therefore, the word 'attributable to' is certainly wider in import than the expression 'derived from'. Whenever the Legislature wanted to give a restricted meaning, they have used the expression 'derived from'. The expression 'attributable to' being of wider import, the said expression is used by the Legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A ITA No. 107/Bang/2023 Page 14 of 18 co-operative society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context when we look at the judgment of the apex court in the case of Totgar's Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee- co-operative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was brought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-society was a liability and it was shown in the balance-sheet on the liability side. Therefore, to that extent, such interest income can not 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 Pradesh High Court in the case of CIT v. A. P. State Co-operative Bank Ltd. reported in [2011] 336 ITR 516 (AP) ; [2011] 200 Taxman ITA No. 107/Bang/2023 Page 15 of 18 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order. Appeal is allowed." (The reproduction is from the original website of the Karnataka High Court). There is an important distinction. The Division Bench expressly held in paragraph 10 that interest income was attributable to the business of banking and, therefore, liable to be deducted under section 80P(2)(a)(i) of the Act. At the cost of repetition, we have not considered whether the assessee carries on the business of banking. If it is established upon remand that the assessee carries on the business of banking the result may be different. In any event assuming that the judgment is not distinguishable on this ground, we would with respect disagree with the same in view of the judgments that we have already referred to and on the basis of our interpretation of Totgar's case. In any event, we are with respect unable to agree with the observations that the Supreme Court in Totgar's case (supra) did not lay down any law. 33. For the same reason, the judgment of the Karnataka High Court in Guttigedarara Credit Co-operative Society Ltd. v. ITO [2015] 377 ITR 464 (Karn); [2015] 60 taxmann.com 215 (Karn) is of no assistance to the respondent-assessee.' 23. Thus, the aforesaid judgments supports the view taken by this Court that character of income depends upon the nature of activity for earning that income 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, it is 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 ITA No. 107/Bang/2023 Page 16 of 18 business operations, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court. 24. In view of the aforesaid, we are of the opinion that the appeals filed by the Revenue deserve to be allowed and the appeals filed by the assessee deserve to be dismissed. 25. The issue relating to the justifiability of the reassessment under Section 147/148 of the Act also becomes academic once the conclusion is arrived at that the deduction under Section 80P(2) of the Act was not available to the assessee for these Assessment Years. 26. The substantial questions of law framed above are thus answered in favour of the Revenue and against the assessee and it is held that the income by way of interest earned by the assessee co-operative society during the Assessment Years 2007-2008 to 2011-12 on the investments made in the co-operative bank are not eligible for deductions under Section 80P(2)(d) of the Act. 27. The appeals of the Revenue are accordingly allowed and those of the assessee are dismissed. No order as to costs.’ Respectfully following the aforesaid detailed order of the Hon’ble Jurisdictional High Court, the appeal of the assessee is dismissed. I make it clear that the assessee is eligible for setting off of losses as per law.” (emphasis supplied) 11. From the above decision of the coordinate Bench, it is noticed that the Hon’ble jurisdictional High Court in the later judgment dated 16.6.2017 in the case of PCIT v. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka) for AYs 2007-08 to 2011-12 has decided in the issue in favour of the revenue wherein it is held that 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. The case in hand is also similar and the ITA No. 107/Bang/2023 Page 17 of 18 character of income will not change. Accordingly interest received on investments with cooperative bank as well as other banks shall be treated as income from other sources and it is not the business income of the assessee, therefore does not quality for deduction u/s. 80P(2)(d) of the Act. 11.1. Since the entire interest received has been taxed as income from other source, I am of the view that the fundamental principle under Income-tax Act being that only net income has to be taxed and not the gross income, especially in the light of the judgment of the Hon’ble jurisdictional High Court in the case of Totagars Sale Cooperative Society v. ITO [2015] 58 taxmann.com 35 (Karnataka) & the judgments cited above. Accordingly, the case is restored to the file of the A.O. with a direction to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources’. If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The AO is directed to decide the issue as per law. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter. It is ordered accordingly. This ground is partly allowed for statistical purpose. 12. The next issue is with regard to deduction u/s. 80P(2)(a)(i) of the Act on other receipts of Rs.2,62,834 under different heads in the Profit & Loss account placed at page 89 of the Paper Book. The AO has not considered the nature of receipts and whether it is part and parcel of the ITA No. 107/Bang/2023 Page 18 of 18 business income of the assessee or not. The CIT(Appeals) has also not discussed this issue. Therefore, in my view, this issue should go back to the AO for examining the nature of receipts and whether it is connected to the regular business activity carried on by the assessee. This issue is accordingly remitted to the AO for fresh consideration. The assessee is directed to substantiate its case before the AO. If the AO finds the receipts are part and parcel of the business income of the assessee, the AO is directed to allow deduction u/s. 80P(2)(a)(i) of the Act to that extent. Accordingly this issue is allowed for statistical purposes. 13. In the result, the appeal by the assessee is partly allowed for statistical purposes. Pronounced in the open court on this 17 th day of May , 2023. Sd/- (LAXMI PRASAD SAHU ) ACCOUNTANT MEMBER Bangalore, Dated, the 17 th May , 2023. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.