M/s Tumkur Merchants Souharda Credit Co-operative Ltd., Tumkur V. ITO, Tumkur

ITA 1622/BANG/2012

• Counselvise Citation: 162221114 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Gift; Business income; Question of law
• Section: 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.1622/BANG/2012 ASSESSMENT YEAR : 2009-10 M/S. TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD., 1 ST FLOOR, VEERASHAIVA KALYANA MANTAP BUILDING, J.C. ROAD, TUMKUR. PAN : AABAT 3140N VS. THE INCOME TAX OFFICER, WARD 1, TUMKUR. APPELLANT RESPONDENT ITA NOS.1674/BANG/2012 ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, WARD 1, TUMKUR. VS. M/S. TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD., TUMKUR. PAN : AABAT 3140N APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANIAN, C.A. RESPONDENT BY : SHRI BIJOY KUMAR PANDA, ADDL.CIT(DR) DATE OF HEARING : 19.02.2014 DATE OF PRONOUNCEMENT : 21.02.2014 O R D E R PER BENCH ITA NO.1674/B/12 IS AN APPEAL BY THE REVENUE AND I TA NO.1672/B/12 IS AN APPEAL BY THE ASSESSEE. BOTH TH ESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 11.10.2012 OF THE CIT(APPEA LS)-II, BANGALORE RELATING TO ASSESSMENT YEAR 2009-10. ITA NOS. 1672 & 1674/BANG/2012 PAGE 2 OF 17 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL IS WITH REGARD TO THE ACTION OF THE CIT(APPEALS) IN ALLOWING DEDUCTION U/ S. 80P(2)(A)(I) OF THE ACT IN RESPECT OF PROFITS DERIVED BY IT FROM THE BUSINE SS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE CONTENTION OF THE R EVENUE IS THAT THE ASSESSEE IS A COOPERATIVE BANK. BY VIRTUE OF SECTI ON 80P(4) OF THE ACT, THE ASSESSEES INCOME CLAIMED AS EXEMPT U/S. 80P(2)(A)( I) OF THE ACT HAS TO BE REJECTED. 3. BY THE FINANCE ACT, 2006 W.E.F. 1-4-2007, SUB-SE CTION (4) WAS INSERTED IN SEC.80-P WHICH PROVIDES AS FOLLOWS: (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULT URAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. EXPLANATION : FOR THE PURPOSES OF THIS SUB-SECTION, (A) 'CO-OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL C REDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO TH EM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); (B) 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DE VELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVI DE FOR LONG-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIV ITIES. 4. THE AO WAS OF THE VIEW THAT AFTER AMENDED BY THE FINANCE ACT, 2006 W.E.F. 1.4.2007 BY WHICH SUB-SECTION (4) WAS I NSERTED, THE ASSESSEE WHICH WAS A CO-OPERATIVE SOCIETY CARRYING ON BANKIN G BUSINESS WAS NOT ENTITLED TO DEDUCTION U/S.80P(2)(I) OF THE ACT. AC CORDING TO THE AO, THE ITA NOS. 1672 & 1674/BANG/2012 PAGE 3 OF 17 ASSESSEE WAS A CO-OPERATIVE BANK AND THEREFORE THE DEDUCTION U/S. 80P(2)(A)(I) CANNOT BE ALLOWED. IN COMING TO THE A BOVE CONCLUSION, THE AO NOTICED THAT THE NATURE OF THE ACTIVITY OF THE ASSE SSEE, THOUGH REGISTERED AS A CREDIT CO-OPERATIVE SOCIETY, IS THAT OF A BANKING INSTITUTION NOTWITHSTANDING THE FACT THAT RECEIPT OF AND LENDING MONEY IS LIMIT ED TO ITS MEMBERS. THE AO FURTHER NOTICED THAT CLAUSE (VIIA) IN SECTION 2( 24) OF THE ACT WAS INSERTED BY THE FINANCE ACT 2006 EFFECTIVE FROM 1/4/2007, WH ICH PROVIDES THAT PROFITS AND GAINS OF ANY BUSINESS (INCLUDING PROVIDING CRED IT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBERS THE ASSESSE ES ACTIVITY WAS ALSO INCOME. THAT THE DEDUCTION FROM GROSS TOTAL INCO ME OF CERTAIN RECEIPTS IS AVAILABLE ONLY TO PRIMARY AGRICULTURAL CREDIT SOCIE TIES OR PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS; AND THAT THE BENEFIT OF SUCH DEDUCTION IS NOT AVAILABLE TO INSTITUTIONS LIKE THE ASSESSEE SOCIETY. THE AO ALSO REFERRED TO SECTION 5(B) OF THE BANKING REGULA TION ACT TO HOLD THAT, IF ONE OF THE TWO CONDITIONS OF THE APPELLANT I.E. ITS PRIMARY OBJECT SHOULD BE BANKING OR ITS PRINCIPAL BUSINESS MUST BE TRANSACTI ON IN BANKING BUSINESS, IS SUFFICIENT TO BRING THE APPELLANT INTO THE CONCE PT OF A BANKING INSTITUTION. THE AO REFERRED TO THE OBJECTS OF THE ASSESSEE SOCI ETY IN ITS BYE LAWS THAT THE ACTIVITIES OF THE ASSESSEE FALL WITHIN THE PROV ISIONS OF SECTIONS 5(B), 6(1)(A), 6(1)(G), 6(1)(K) AND 6(1)(N) OF THE BANKIN G REGULATIONS ACT AND HELD THAT, BROADLY, THEY ARE IN THE NATURE OF BANKING AC TIVITY. ACCORDING TO THE AO, THE FOLLOWING FEATURES MAKE THE ASSESSEE INELIG IBLE TO EXEMPTION CONTEMPLATED IN SECTION 80P OF THE ACT: ITA NOS. 1672 & 1674/BANG/2012 PAGE 4 OF 17 I) SINCE MEMBERSHIP IS OPEN TO ANYONE PAYING A SUM OF RS.10/- TO RS.100/- FOR MEMBERSHIP AND NO OTHER CON DITION IS IMPOSED. IN OTHER WORDS, MEMBERSHIP AS IS AVAILA BLE IN ANY BANKING INSTITUTION IS AVAILABLE IN THE CASE OF THE APPELLANT SOCIETY. II) THE PURPOSE OF ACCEPTING DEPOSITS FROM THE PUB LIC IS FOR MAKING INVESTMENTS AND FOR LENDING TO MEMBERS. CONFINING THE LENDING ONLY TO MEMBERS MAKES NO DIFFERENCE. III) DEPOSITS COLLECTED FROM THE DEPOSITORS ARE RE PAYABLE ON DEMAND AND DO NOT GO INTO THE CORPUS OF THE APPELLA NT. IV) THOUGH WITHDRAWAL OF MONEY IS NOT DONE BY C HEQUES, DRAFTS OR PAY-OUT SLIPS, PAY ORDERS ARE ISSUED IN FAVOUR O F A PERSON ON BEHALF OF THE DEPOSITOR. V) THE ASSESSEE SOCIETY CAME WITHIN THE EXPLANATIO N TO SUB- SECTION (4) OF SECTION 80P OF THE ACT AS A BANKING INSTITUTION. 5. IN THE LIGHT OF THE ABOVE-MENTIONED OBSERVATIONS , THE AO HELD THAT THE APPELLANT WAS NOT ENTITLED TO EXEMPTION U/S 80P (2)(A)(I) OF THE ACT AND BROUGHT THE SAME TO TAX. 6. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) ALLO WED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80P(2)(A)(II) OF TH E ACT BY FOLLOWING THE DECISION OF ITAT IN THE FOLLOWING CASES:- I) ACIT, CIRCLE-3(1), BANGALORE V. M/S BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LT D. - ITA.NO.1069/BANG/2010 DATED 8/4/2011 [ITAT, BANGALORE BENCH B, BANGALORE] ITA NOS. 1672 & 1674/BANG/2012 PAGE 5 OF 17 II) ITO, WARD-1(4) V. JANKALYAN NAGRI SAHAKARI PAT SANSTHA LTD. [(2012) 24 TAXMANN.COM 127 (PUNE-TRIB) DATED 26/6/2012] III) DCIT, CENTRAL CIRCLE, PANAJI V. JAYALAKSHMI MA HILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. ITA NOS. 1 T O 3 (PNJ)/1012 DATED 30/3/2012. 7. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. AT THE TIME OF HEARING, IT WAS SEEN THAT THE ISS UE RAISED BY THE REVENUE HAS ALREADY BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN THE CASE OF ACIT, CIRCLE 3(1), BANGALORE V. M/S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LT D. IN ITA NO.1069/BANG/2010 , WHEREIN THIS TRIBUNAL HELD THAT SECTION 80P(4) IS APPLICABLE ONLY TO COOPERATIVE BANKS AND NOT TO CRE DIT COOPERATIVE SOCIETIES. THE INTENTION OF THE LEGISLATURE OF BRI NGING IN COOPERATIVE BANKS INTO THE TAXATION STRUCTURE WAS MAINLY TO BRING IN PAR WITH COMMERCIAL BANKS. SINCE THE ASSESSEE IS A COOPERATIVE SOCIETY AND NOT A COOPERATIVE BANK, THE PROVISIONS OF SECTION 80P(4) WILL NOT HAV E APPLICATION IN THE ASSESSEES CASE AND THEREFORE, IT IS ENTITLED TO DE DUCTION U/S 80P(2)(A)(I) OF THE ACT. THE FOLLOWING WERE THE RELEVANT OBSERVATI ONS OF THE TRIBUNAL:- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE WAS DENIED THE DE DUCTION U/S 80-P(2)(A)(I) OF THE ACT FOR THE REASON OF INTRODUC TION OF SUB SECTION 4 TO SECTION 80P. SECTION 80P(4) READS AS FOLLOWS:- ITA NOS. 1672 & 1674/BANG/2012 PAGE 6 OF 17 (4) THE PROVISIONS OF THIS SECTION SHALL NOT A PPLY IN RELATION TO ANY COOPERATIVE BANK OTHER THAN A PRIMA RY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIV E AGRICULTURAL AND RURAL DEVELOPMENT BANK. EXPLANATION: FOR THE PURPOSES OF THIS SUB-SECTION, (A) CO-OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); (B) PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LONG TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 9.1 THE ABOVE SUB-SECTION 4 OF SECTION 80P PROVID ES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE AVAILABLE TO AN Y COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR RURAL DEVELOPMENT BANK. FOR THE PURPOSE OF THE SAID SUB SECTION, COO PERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART V OF THE BA NKING REGULATION ACT, 1949. IN PART V OF THE BANKING REGULATION ACT , COOPERATIVE BANK MEANS A STATE COOPERATIVE BANK, A CENTRAL COO PERATIVE BANK AND A PRIMATE COOPERATIVE BANK. 9.2 FROM THE ABOVE SECTION, IT IS CLEAR THAT THE PR OVISIONS OF SECTION 80P(4) HAS GOT ITS APPLICATION ONLY TO COOPERATIVE BANKS. SECTION 80P(4) DOES NOT DEFINE THE WORD COOPERATIVE SOCIET Y. THE EXISTING SUB-SECTION 80P(2)(A)(I) SHALL BE APPLICABLE TO A C OOPERATIVE SOCIETY CARRYING ON CREDIT FACILITY TO ITS MEMBERS. THIS VIEW IS CLARIFIED BY CENTRAL BOARD OF DIRECT TAX VIDE ITS CLARIFICATION NO.133/06/2007-TPL DATED 9 TH MAY, 2007. THE DIFFERENCE BETWEEN A COOPERATIVE B ANK AND A COOPERATIVE SOCIETY ARE AS FOLLOWS:- ITA NOS. 1672 & 1674/BANG/2012 PAGE 7 OF 17 NATURE COOPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT, 1949 COOPERATIVE SOCIETY REGISTERED UNDER KARNATAKA COOPERATIVE SOCIETY ACT, 1959. REGISTRA -TION UNDER THE BANKING REGULATION ACT, 1949 AND COOPERATIVE SOCIETIES ACT, 1959. COOPERATIVE SOCIETIES ACT, 1959. NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING REGULATION ACT. 2. CAN OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS (DD), PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. COOPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI). 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS, PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT AS CLEARING AGENT, FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. SOCIETY ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE COOPERATIVE SOCIETIES ACT. FILING OF RETURNS COOPERATIVE BANKS HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR. SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPEC- TION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVERALL FUNCTIONING OF THE BANK. PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO COOPERATIVE BANKS. PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO COOPERATIVE BANKS. USE OF WORDS THE WORD BANK, BANKER, BANKING CAN BE USED BY A COOPERATIVE BANK. THE WORD BANK, BANKER, BANKING CANNOT BE USED BY A COOPERATIVE SOCIETY. 9.3 IF THE INTENTION OF THE LEGISLATURE WAS NOT TO GRANT DEDUCTION U/S 80P(2)(A)(I) TO COOPERATIVE SOCIETIES CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS, THEN THIS SECTION WOULD HAVE BEEN DELETED. THE NEW PROVISO TO SECTIO N 80P(4) WHICH IS BROUGHT INTO STATUTE IS APPLICABLE ONLY TO COOPERAT IVE BANKS AND NOT TO CREDIT COOPERATIVE SOCIETIES. THE INTENTION OF THE LEGISLATURE OF BRINGING IN COOPERATIVE BANKS INTO THE TAXATION STR UCTURE WAS MAINLY TO BRING IN PAR WITH COMMERCIAL BANKS. SINCE THE ASSE SSEE IS A COOPERATIVE SOCIETY AND NOT A COOPERATIVE BANK, THE PROVISIONS OF SECTION 80P(4) WILL NOT HAVE APPLICATION IN THE ASS ESSEES CASE AND THEREFORE, IT IS ENTITLED TO DEDUCTION U/S 80P(2)(A )(I) OF THE ACT. HENCE, ITA NOS. 1672 & 1674/BANG/2012 PAGE 8 OF 17 WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED F OR. 9. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF TA X APPEAL NO.442 OF 2013 WITH TAX APPEAL NO.443 OF 2013 WITH TAX APPEAL NO.863 OF 2013 IN THE CASE OF CIT VS. JAFARI MOMIN VIKAS CO-OP CREDIT SOCIETY LTD. BY JUDGMENT DATED 15.1.2014 HAD TO DEAL WITH THE FOLLO WING QUESTION OF LAW: WHETHER THE HONBLE TRIBUNAL IS CORRECT IN ALLOWIN G DEDUCTION UNDER SECTION 80P(2)(A)(I) TO ASSESSEES SOCIETY EV EN THOUGH SAME IS COVERED UNDER SECTION 80P(4) RWS 2(24) (VIIA) BE ING INCOME FROM PROVIDING CREDIT FACILITIES CARRIED ON BY A CO -OPERATIVE SOCIETY WITH ITS MEMBER? THE HONBLE COURT HELD AS FOLLOWS: 4. AS PER SECTION 80P(4), THE PROVISIONS OF SECTI ON 80P WOULD NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHER TH AN PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. AS PER THE EXPLANATION, THE TERMS CO- OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDIT SO CIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949. 5. ASSESSING OFFICER HELD THAT BY VIRTUE OF SECTIO N 80P(4), THE RESPONDENT ASSESSEE WOULD NOT BE ENTITLED TO BENEFI TS OF DEDUCTION UNDER SECTION 80P. CIT(APPEALS) AS WELL AS THE TRIB UNAL REVERSED THE DECISION OF THE ASSESSING OFFICER ON THE PREMISE TH AT THE RESPONDENT ASSESSEE NOT BEING A BANK, EXCLUSION PROVIDED IN SU B-SECTION(4) OF SECTION 80P WOULD NOT APPLY. THIS, IRRESPECTIVE OF THE FACT THAT THE RESPONDENT WOULD NOT FALL WITHIN THE EXPRESSION PR IMARY AGRICULTURAL CREDIT SOCIETY. 6. HAD THIS BEEN THE PLAIN STATUTORY PROVISIONS UN DER CONSIDERATION IN ISOLATION, IN OUR OPINION, THE QUE STION OF LAW COULD BE STATED TO HAVE ARISEN. WHEN, AS CONTENDED BY THE AS SESSEE, BY VIRTUE ITA NOS. 1672 & 1674/BANG/2012 PAGE 9 OF 17 OF SUBSECTION(4) ONLY CO-OPERATIVE BANKS OTHER THAN THOSE MENTIONED THEREIN WERE MEANT TO BE EXCLUDED FOR THE PURPOSE O F DEDUCTION UNDER SECTION 80P, A QUESTION WOULD ARISE WHY THEN LEGISL ATURE SPECIFIED PRIMARY AGRICULTURAL CREDIT SOCIETIES ALONG WITH PR IMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS FOR EXCLUS ION FROM SUCH EXCLUSION AND IN OTHER WORDS, CONTINUED TO HOLD SUC H ENTITY AS ELIGIBLE FOR DEDUCTION. HOWEVER, THE ISSUE HAS BEEN CONSIDER ABLY SIMPLIFIED BY VIRTUE OF CBDT CIRCULAR NO.133 OF 2007 DATED 9.5 .2007. CIRCULAR PROVIDES AS UNDER:- SUBJECT: CLARIFICATION REGARDING ADMISSIBLY OF DED UCTION UNDER SECTION 80P OF THE INCOME-TAX ACT, 1961. 1. PLEASE REFER TO YOUR LETTER NO.DCUS/30688/2007, DATED 28.03.2007 ADDRESSED TO CHAIRMAN, CENTRAL BOA RD OF DIRECT TAXES, ON THE ABOVE GIVEN SUBJECT. 2. IN THIS REGARD, I HAVE BEEN DIRECTED TO STATE T HAT SUB-SECTION(4) OF SECTION 80P PROVIDES THAT DEDUCTI ON UNDER THE SAID SECTION SHALL NOT BE ALLOWABLE TO AN Y CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. FOR THE PURPOSE OF THE SAID SUB-S ECTION, CO-OPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED T O IT IN PART V OF THE BANKING REGULATION ACT, 1949. 3. IN PART V OF THE BANKING REGULATION ACT,CO- OPERATIVE BANK MEANS A STATE CO-OPERATIVE BANK, A CENTRAL CO-OPERATIVE BANK AND A PRIMARY CO-OPERATIV E BANK. 4. THUS, IF THE DELHI CO OP URBAN T & C SOCIETY LT D. DOES NOT FALL WITHIN THE MEANING OF CO-OPERATIVE B ANK AS DEFINED IN PART V OF THE BANKING REGULATION ACT, 19 49, SUBSECTION(4) OF SECTION 80P WILL NOT APPLY IN THIS CASE. 5. THE ISSUES WITH THE APPROVAL OF CHAIRMAN,CENTRA L BOARD OF DIRECT TAXES. 7. FROM THE ABOVE CLARIFICATION, IT CAN BE GATHER ED THAT SUB- SECTION(4) OF SECTION 80P WILL NOT APPLY TO AN ASSE SSEE WHICH IS NOT A CO-OPERATIVE BANK. IN THE CASE CLARIFIED BY C BDT, DELHI COOP URBAN THRIFT & CREDIT SOCIETY LTD. WAS UNDER CONSIDERATION. CIRCULAR CLARIFIED THAT THE SAID ENT ITY NOT BEING A ITA NOS. 1672 & 1674/BANG/2012 PAGE 10 OF 17 COOPERATIVE BANK, SECTION 80P(4) OF THE ACT WOULD N OT APPLY TO IT. IN VIEW OF SUCH CLARIFICATION, WE CANNOT ENTERTAIN THE REVENUES CONTENTION THAT SECTION 80P(4) WOULD EXCLUDE NOT ON LY THE CO- OPERATIVE BANKS OTHER THAN THOSE FULFILLING THE DES CRIPTION CONTAINED THEREIN BUT ALSO CREDIT SOCIETIES, WHICH ARE NOT COOPERATIVE BANKS. IN THE PRESENT CASE, RESPONDENT ASSESSEE IS ADMITTEDLY NOT A CREDIT CO-OPERATIVE BANK BUT A CRE DIT CO- OPERATIVE SOCIETY. EXCLUSION CLAUSE OF SUB-SECTION( 4) OF SECTION 80P, THEREFORE, WOULD NOT APPLY. IN THE RESULT, TAX APPEALS ARE DISMISSED. 10. IN VIEW OF THE AFORESAID DECISIONS, WE ARE OF T HE VIEW THAT THERE IS NO MERIT IN THIS APPEAL BY THE REVENUE. CONSEQUENTLY, THE SAME IS DISMISSED. 11. AS FAR AS THE APPEAL BY THE ASSESSEE IS CONCERN ED, THE ISSUE RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL READS THUS :- 2. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRE D IN LAW AND ON FACTS IN HOLDING THAT THE SUM OF RS.1,77,305 /- BEING THE INTEREST ON DEPOSITS WITH BANKS IS NOT ENTITLED TO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. 3. WITHOUT PREJUDICE TO GROUND NO.2, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN LAW AND ON FACTS IN HOLDING ENTIRE INCOME OF RS.1,77,305/- IS TAXABLE W ITHOUT ALLOWING THE PERMISSIBLE DEDUCTION TOWARDS EXPENSES . 12. AS WE HAVE ALREADY SEEN, THE ASSESSEE IS A COOP ERATIVE SOCIETY. THE ASSESSEE EARNED INTEREST INCOME ON DEPOSIT OF S URPLUS FUNDS, WHICH IT HAD DEPOSITED IN BANKS. THE ASSESSEE CLAIMED DEDUC TION U/S. 80P(2)(A)(I) OF THE ACT IN RESPECT OF INTEREST EARNED ON SUCH DE POSITS. THE AO AS WELL AS THE CIT(APPEALS) HELD THAT THE INTEREST INCOME I N QUESTION CANNOT BE ITA NOS. 1672 & 1674/BANG/2012 PAGE 11 OF 17 TREATED AS INCOME EARNED ON THE BUSINESS OF PROVIDI NG CREDIT FACILITIES TO ITS MEMBERS AND WOULD THEREFORE NOT FALL WITHIN SECTION 80P(2)(A)(I) OF THE ACT TO CLAIM EXEMPTION. IN COMING TO THE AFORESAID CON CLUSION, THE CIT(APPEALS) PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO, 322 ITR 283 (SC) . 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LTD. ( SUPRA ), THE ASSESSEE RECEIVED INTEREST FROM BANK DEPOSITS AND GOVERNMENT SECURITIES. THE ASSESSEE WAS A CO-OPERATIVE SOCIETY WHICH MARKETS T HE PRODUCE OF ITS MEMBERS AND AT TIMES RETAINED THE SALE PROCEEDS. S INCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE HONBLE SUPREME COURT HELD THAT INTEREST ON SUCH DEPOSITS/SECURITIES FELL UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND HENCE IT IS TAXABLE UNDER S. 56 AND CA NNOT FALL WITHIN THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. IT WAS HELD THAT SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ACT IVITIES OF THE SOCIETY NAMELY, BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS. THE LEARNE D COUNSEL FOR THE ASSESSEE SOUGHT TO DISTINGUISH THE AFORESAID DECISI ON BY LAYING EMPHASIS ON THE FACT THAT THE ASSESSEE IN THE PRESENT CASE W AS A CO-OPERATIVE CREDIT SOCIETY ENGAGED IN PROVIDING CREDIT FACILITY TO ITS MEMBERS. IT WAS SUBMITTED ITA NOS. 1672 & 1674/BANG/2012 PAGE 12 OF 17 BY HIM THAT THE ASSESSEE COLLECTS DEPOSITS FROM ITS MEMBERS AND INVESTS THE FUNDS NOT REQUIRED FOR IMMEDIATE USE IN OTHER B ANKS TO ENSURE THAT THE MONEY IS READILY AVAILABLE TO MEET THE DEMANDS OF T HE DEPOSITORS. ACCORDING TO HIM, THE EARNING OF INTEREST ON DEPOSI TS WITH BANKS WAS ATTRIBUTABLE TO THE ACTIVITY OF PROVIDING CREDIT FA CILITIES TO ITS MEMBERS AND THEREFORE DEDUCTION U/S.80P(2)(A)(I) OF THE ACT HAS TO BE ALLOWED TO THE ASSESSEE. IT WAS SUBMITTED THAT THE VIEW TAKEN BY THE REVENUE IN NOT ALLOWING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT WAS NOT CORRECT. 14. THE LEARNED DR REITERATED THE STAND OF THE REVE NUE AS REFLECTED IN THE ORDER OF THE CIT(A). 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL CONTENTIONS. THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE CO-O PERATIVE SOCIETIES ACT PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE AS SESSEE ACCEPTS DEPOSITS FROM MEMBERS AND LENDS MONEY ONLY TO MEMBERS. THE INCOME OF THE SOCIETY IS IN THE FORM OF THE INTEREST THAT IT EARN S ON CREDIT FACILITIES EXTENDED TO ITS MEMBERS. UNDER SECTION 80P(2)(A)(I) OF THE ACT, THE PROFITS AND GAINS OF A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS IS EXEMPT. WHAT IS EXEMPT IS THE BUSINESS INCOME ATTRIBUTABLE TO THE A CTIVITIES OF BANKING OR PROVIDING CREDIT FACILITIES TO THE MEMBERS WHICH IS INCLUDED IN THE GROSS TOTAL INCOME OF THE SOCIETY. DEDUCTION WILL BE ALLOWED ON LY WHEN THERE IS DIRECT OR PROXIMATE CONNECTION WITH OR NEXUS TO THE INCOME AN D THE BUSINESS CARRIED ITA NOS. 1672 & 1674/BANG/2012 PAGE 13 OF 17 ON BY THE SOCIETY. AS WE HAVE ALREADY SEEN, IN THE PRESENT CASE, THE INTEREST INCOME WHICH IS IN DISPUTE IN THE PRESENT APPEAL ARISES OUT OF FIXED DEPOSIT WITH BANKS. THE CLAIM OF THE ASSESSEE IS T HAT THE FIXED DEPOSITS IN BANKS WERE MADE TO REPAY FIXED DEPOSITS TO THE MEMB ERS AND ALSO TO ENSURE THAT FUNDS ARE NOT KEPT IDLE AND THEY EARN S OME INTEREST INCOME. AS WE HAVE ALREADY SEEN THAT THERE SHOULD BE NEXUS BET WEEN THE EARNING OF INTEREST AND BUSINESS OF THE ASSESSEE. THE INTERES T INCOME EARNED ON EXTENDING CREDIT FACILITIES WILL BE BUSINESS INCOME AS THERE EXISTS NEXUS BETWEEN THE INCOME AND THE BUSINESS OF THE SOCIETY WHICH IS EXTENDING CREDIT FACILITY TO ITS MEMBERS. ONE CANNOT SAY THA T THERE IS SUCH NEXUS BETWEEN THE INTEREST EARNED ON DEPOSITS MADE WITH T HE BANKS. IT MAY BE TRUE THAT DEPOSITS ARE MADE IN BANKS SO THAT THE FU NDS ARE NOT KEPT IDLE AND ALSO TO ENSURE THAT DEPOSITS ARE REPAID ON MATURITY . WHATEVER MAY BE THE MOTIVE FOR MAKING DEPOSITS WITH BANKS THAT CANNOT C HANGE THE CHARACTER OF INTEREST INCOME EARNED ON DEPOSIT MADE IN BANKS AS ONE ARISING FROM BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBER . IN FACT THE ISSUE HAS BEEN DEALT WITH THREADBARE BY THE HONBLE SUPREME C OURT IN THE CASE OF TOTGARS CCS LTD. (SUPRA). IN PARA-10 OF ITS ORDER, THE HONBLE SUP REME COURT HAS HELD THAT INTEREST INCOME EARNED BY INVE STING FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIV ITIES OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDI T FACILITIES TO ITS ITA NOS. 1672 & 1674/BANG/2012 PAGE 14 OF 17 MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE HON BLE SUPREME COURT: 10. AT THE OUTSET, AN IMPORTANT CIRCUMSTANCE NEEDS TO BE HIGHLIGHTED. IN THE PRESENT CASE, THE INTEREST HELD NOT ELIGIBLE FOR DEDUCTION UNDER S. 80P(2)(A)(I) OF THE ACT IS NOT T HE INTEREST RECEIVED FROM THE MEMBERS FOR PROVIDING CREDIT FACI LITIES TO THEM. WHAT IS SOUGHT TO BE TAXED UNDER S. 56 OF THE ACT I S THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT-TER M DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSIN ESS PURPOSES. ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOS E SALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE , WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SI NCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIAT ELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SEC URITIES. THE QUESTION, BEFORE US, IS WHETHER INTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUE S TO THE MEMBERS' ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER S. 28 OF THE ACT ? IN OUR VIEW, SUCH INTEREST INCOME WOUL D COME IN THE CATEGORY OF 'INCOME FROM OTHER SOURCES', HENCE, SUC H INTEREST INCOME WOULD BE TAXABLE UNDER S. 56 OF THE ACT, AS RIGHTLY HELD BY THE AO. IN THIS CONNECTION, WE MAY ANALYZE S. 80 P OF THE ACT. THIS SECTION COMES IN CHAPTER VI-A, WHICH, IN TURN, DEALS WITH 'DEDUCTIONS IN RESPECT OF CERTAIN INCOMES'. THE HEA DNOTE TO S. 80P INDICATES THAT THE SAID SECTION DEALS WITH DEDU CTIONS IN RESPECT OF INCOME OF CO-OPERATIVE SOCIETIES. SEC. 8 0P(1), INTER ALIA, STATES THAT WHERE THE GROSS TOTAL INCOME OF A CO-OPERATIVE SOCIETY INCLUDES ANY INCOME FROM ONE OR MORE SPECIF IED ACTIVITIES, THEN SUCH INCOME SHALL BE DEDUCTED FROM THE GROSS TOTAL INCOME IN COMPUTING THE TOTAL TAXABLE INCOME OF THE ASSESSEE-SOCIETY. AN INCOME, WHICH IS ATTRIBUTABLE TO ANY OF THE SPECIFIED ACTIVITIES IN S. 80P(2) OF THE ACT, WOULD BE ELIGIBLE FOR DEDUCTION. THE WORD 'INCOME' HAS BEEN DEFINED UNDER S. 2(24)(I) OF THE ACT TO INCLUDE PROFITS AND GAINS. THIS SUB-S ECTION IS AN INCLUSIVE PROVISION. THE PARLIAMENT HAS INCLUDED SP ECIFICALLY 'BUSINESS PROFITS' INTO THE DEFINITION OF THE WORD 'INCOME'. THEREFORE, WE ARE REQUIRED TO GIVE A PRECISE MEANIN G TO THE WORDS 'PROFITS AND GAINS OF BUSINESS' MENTIONED IN S. 80P(2) OF THE ACT. IN THE PRESENT CASE, AS STATED ABOVE, ASSE SSEE-SOCIETY REGULARLY INVESTS FUNDS NOT IMMEDIATELY REQUIRED FO R BUSINESS PURPOSES. INTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FALL ITA NOS. 1672 & 1674/BANG/2012 PAGE 15 OF 17 WITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND G AINS OF BUSINESS'. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAME LY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBER S. WHEN THE ASSESSEE-SOCIETY PROVIDES CREDIT FACILITIES TO ITS MEMBERS, IT EARNS INTEREST INCOME. AS STATED ABOVE, IN THIS CASE, INT EREST HELD AS INELIGIBLE FOR DEDUCTION UNDER S. 80P(2)(A)(I) IS N OT IN RESPECT OF INTEREST RECEIVED FROM MEMBERS. IN THIS CASE, WE AR E ONLY CONCERNED WITH INTEREST WHICH ACCRUES ON FUNDS NOT REQUIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINESS PUR POSES AND WHICH HAVE BEEN ONLY INVESTED IN SPECIFIED SECURITI ES AS 'INVESTMENT'. FURTHER, AS STATED ABOVE, ASSESSEE(S) MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS THE SALE PROCEEDS IN MANY CASES. IT IS THIS 'RETAINED AMOUNT' WHICH W AS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WA S INVESTED IN SHORT-TERM DEPOSITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETAINED BY THE ASSESSEE-SOCIETY, WAS A LIABILI TY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITY SIDE. T HEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE A TTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN S. 80P(2)(A)(I) OF THE ACT OR IN S. 80P(2)(A)(III) OF THE ACT. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE VIEW THAT THE AO WAS RIGHT IN TAXING THE INTEREST INCOME, INDICATED ABOV E, UNDER S. 56 OF THE ACT. 16. THE ATTEMPT MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE TO DISTINGUISH THE AFORESAID DECISION OF THE HONBLE S UPREME COURT ON THE GROUND THAT THE ISSUE BEFORE THE COURT WAS REGARDIN G SALE PROCEEDS RETAINED BY A MARKETING CO-OPERATIVE SOCIETY WHICH SELLS PRODUCE OF ITS MEMBERS CANNOT BE ACCEPTED BECAUSE THE PRINCIPLE LA ID DOWN BY THE HONBLE SUPREME COURT WAS REGARDING NEXUS BETWEEN B USINESS AND THE INTEREST INCOME. THE OBSERVATIONS OF THE HONBLE S UPREME COURT, EVEN IF IT IS TO BE CONSIDER AS AN OBITER, IS STILL BINDING AN D HAVE TO BE FOLLOWED. WE ITA NOS. 1672 & 1674/BANG/2012 PAGE 16 OF 17 ARE THEREFORE OF THE VIEW THAT THE INTEREST INCOME IN QUESTION CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY , NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. IN COMING TO THE ABOVE CONCLUSION, WE HAVE ASSUMED THAT THE ASSESSEE WOULD BE OTHERWISE ENTITLED TO THE BENEFITS OF SEC.80P(2)(A)(I) OF THE ACT. IN FACT, THIS ASPECT HAS NOT BEEN DOUBTED BY THE CIT(A) IN THE IMPUGNED ORDER OR THE AO IN HIS ASSESSMENT ORDER. 17. FOR THE REASONS GIVEN ABOVE, THE ORDER OF THE C IT(APPEALS) HAS TO BE UPHELD. WE DO NOT FIND ANY MERIT IN THE APPEAL BY THE ASSESSEE AND THE SAME IS DISMISSED. 18. IN THE RESULT, THE APPEALS BY THE ASSESSEE AS W ELL AS BY THE REVENUE ARE DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF FEBRUARY, 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 21 ST FEBRUARY, 2014 . /D S/ ITA NOS. 1672 & 1674/BANG/2012 PAGE 17 OF 17 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.