Supa(Kurel) Vibhag Seva Sahakari Mandli Ltd., Navsari V. The Income tax Officer,Ward-4, Navsari

ITA 1767/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9853 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIV SEWAK
• Assessee Lawyers: MITESH MODI
• Keywords: Business income; Question of law
• Section: 56; 28

Judgement Text

, SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.1767/AHD/2011 [ASSTT/YEAR 2007-2008] SUPA (KUREL) VIBHAG SEVA SAHAKARI MANDLI LTD. AT & PO : SUPA TA&DIST: NAVSARI. PAN : AABTS 5034 P VS ITO, WARD-4 NAVSARI. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI MITESH MODI, AR REVENUE BY : SHRI SHIV SEWAK, SR.DR ! / DATE OF HEARING : 11/01/2016 '#$ ! / DATE OF PRONOUNCEMENT: 13/01/2016 %& / O R D E R THE ASSESSEE IS IN APPEAL BEFORE ME AGAINST THE ORD ER OF THE LD.CIT(A), VALSAD DATED 131.03.2011 PASSED FOR THE ASSTT.YEAR 2007-08. 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE RELATES T O DENIAL OF EXEMPTION UNDER SECTION 80P(2) ON THE INTEREST INCO ME EARNED FROM THE FIXED DEPOSITS WITH NATIONALIZED BANK. 3. THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN SUPPLYING FERTILIZERS, AGRICULTURE IMPLEMENTS ETC. TO ITS MEM BERS AND CONSUMER ACTIVITY AND PROVIDING CREDIT FACILITY TO ITS EMBER S. THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 29.10.2007 DECLARING TOTAL INCOME AT RS.48,300/-. THE ASSESSEE HAS SHOWN TOTAL INTEREST INCOME OF RS.2,48,563/-. THE ASSESSEE HAS DEDUCTED INTEREST EXPENSES OF ITA NO.1767/AHD/2011 2 RS.1,07,069/- AND PRORATA OVERHEAD AT RS.58,817/-. THE ASSESSEE HAS OFFERED NET INTEREST INCOME AT RS.98,015/-. THE AO HAS DISALLOWED THE TOTAL CLAIM OF THE ASSESSEE. IN OTHER WORDS, THE A O HAS HELD THAT THE ASSESSEE HAS MADE AN INVESTMENT IN NATIONALIZED BAN KS, AND THEREFORE, THE CLAIM OF THE ASSESSEE FOR INTEREST INCOME OF RS .2,48,563/- SHOULD BE DISALLOWED. HE DID NOT GRANT EXEMPTION UNDER SECTI ON 80P(2) OF THIS AMOUNT. 4. ON APPEAL, THE LD.CIT(A) HAS UPHELD THE ORDER OF THE AO. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. I FIND THAT THE HONBLE HIGH COURT IN THE CASE OF GUTTIGEDARARA CREDIT CO-OP. SOCIETY LTD., ITO (60 T AXMANN.COM PAGE 215) (KAR) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON SIMILAR ISSUE. IT IS WORTH TO NOTE RELEVANT OBSERVATIONS OF THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT AS UNDER: 5. LEARNED COUNSEL FOR THE ASSESSEE ASSAILING THE I MPUGNED ORDER CONTENDED THAT THE INTEREST ACCRUED FROM THE DEPOSI TS MADE BY THE ASSESSEE IN A NATIONALIZED BANK OUT OF THE AMOU NTS WHICH WAS USED BY THE I ASSESSEE FOR PROVIDING CREDIT FACILIT IES TO ITS MEMBERS AND THEREFORE THE SAID INTEREST AMOUNT IS A TTRIBUTABLE TO THE CREDIT FACILITIES PROVIDED BY THE ASSESSEE AND FORMS PART OF PROFITS AND GAINS OF BUSINESS AND THEREFORE HE SUBM ITS THAT THE APPELLATE AUTHORITIES WERE NOT JUSTIFIED IN DENYING THE SAID BENEFIT IN TERMS OF SUB-SECTION (2) OF SECTION 80P OF THE A CT. IN SUPPORT OF HIS CONTENTIONS, HE RELIED ON SEVERAL JUDGMENTS AND POINTED OUT THAT THE APEX COURT IN THE AFORESAID JUDGMENT HAS N OT LAID DOWN ANY LAW. 6. PER CONTRA, LEARNED COUNSEL FOR THE REVENUE STRO NGLY RELIED ON THE SAID JUDGMENT OF THE SUPREME COURT AND SUBMITTE D THAT THE CASE IS COVERED BY THAT JUDGMENT OF THE APEX COURT AND NO CASE FOR INTERFERENCE IS MADE OUT. 7. FROM THE AFORESAID FACTS AND RIVAL CONTENTIONS, THE UNDISPUTED FACTS WHICH EMERGE ARE, CERTAIN SUMS OF INTEREST WE RE EARNED FROM SHORT-TERM DEPOSITS AND FROM SAVINGS BANK ACCO UNT. THE ASSESSEE IS A CO-OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS NOT CARRYING ON ANY OTHER BUSINESS. THE INTEREST ITA NO.1767/AHD/2011 3 INCOME EARNED BY THE ASSESSEE BY PROVIDING CREDIT F ACILITIES TO ITS MEMBERS IS DEPOSITED IN THE BANKS FOR A SHORT DURAT ION WHICH HAS EARNED INTEREST. THEREFORE, WHETHER THIS INTEREST I S ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IS THE QUESTION. 8. IN THIS REGARD, IT IS NECESSARY TO NOTICE THE RE LEVANT PROVISION OF LAW I.E., SECTION 80P(2)(A)(I): '80P DEDUCTION IN RESPECT OF INCOME OF CO- OPERATIV E SOCIETIES: (1) WHERE, IN THE CASE OF AN [ ASSESSEE BEING A CO- OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORD ANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB-SECTION (2), IN COMPUTING THE TOTAL INCOME OF T HE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E THE FOLLOWING, NAMELY: (A) IN THE CASE OF CO-OPERATIVE SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS, OR ** ** THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUS INESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES. ' 9. THE WORD 'ATTRIBUTABLE' USED IN THE SAID SECTION IS OF GREAT IMPORTANCE. THE APEX COURT HAD AN OCCASION TO CONSI DER THE MEANING OF THE WORD 'ATTRIBUTABLE' AS SUPPOSED TO D ERIVE FROM ITS USE IN VARIOUS OTHER PROVISIONS OF THE STATUTE IN T HE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT[1 978] 113 ITR 84 (AT PAGE 93) 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 INDUS TRY (HERE GENERATION AND DISTRIBUTION OF ELECTRICITY) ON WHIC H THE LEARNED SOLICITOR-GENERAL RELIED, IT WILL BE PERTIN ENT 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 'DERI VED 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 P ROFITS ITA NO.1767/AHD/2011 4 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 SUGGESTE D BY THE LEARNED SOLICITOR- GENERAL, IT HAS USED THE EXP RESSION 'DERIVED FROM', AS, FOR INSTANCE, IN SECTION 80J. I N OUR VIEW, SINCE THE EXPRESSION OF WIDER IMPORT, NAMELY, 'ATTR IBUTABLE TO', HAS BEEN USED, THE LEGISLATURE INTENDED TO COV ER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRIC ITY.' 10. THEREFORE, THE WORD 'ATTRIBUTABLE TO' IS CERTA INLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING, TH EY HAVE USED THE EXPRESSION 'DERIVED FROM'. THE EXPRESSION 'ATTR IBUTABLE TO' BEING OF WIDER IMPORT, THE SAID EXPRESSION IS USED BY THE LEGISLATURE WHENEVER THEY INTENDED TO GATHER RECEIP TS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS. A 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 REQUI RED TO BE LENT TO THE MEMBERS, THE SOCIETY CANNOT KEEP THE SAID AMOUN T IDLE. IF THEY DEPOSIT THIS AMOUNT IN BANK SO AS TO EARN INTE REST, THE SAID INTEREST INCOME IS ATTRIBUTABLE TO THE PROFITS AND GAINS OF THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS ONLY. THE SOCIETY IS NOT CARRYING ON ANY SEPARATE BUSINESS FO R EARNING SUCH INTEREST INCOME. THE INCOME SO DERIVED IS THE AMOUN T OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO THE ACTIVITY OF CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILIT IES TO ITS MEMBERS BY A CO-OPERATIVE SOCIETY AND IS LIABLE TO BE DEDUCTED FROM THE GROSS TOTAL INCOME UNDER SECTION 80P OF TH E ACT. 11. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF THE APEX COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY'S CASE ( SUPRA), ON WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEA LING WITH A CASE WHERE THE ASSESSEE/CO-OPERATIVE SOCIETY, APART FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS ALS O IN THE BUSINESS OF MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS M EMBERS. THE SALE CONSIDERATION RECEIVED FROM MARKETING AGRICULT URAL PRODUCE OF ITS MEMBERS WAS RETAINED IN MANY CASES. THE SAID RE TAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS FROM WHOM P RODUCE WAS BOUGHT, WAS INVESTED IN A SHORT-TERM DEPOSIT/SE CURITY. SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE-S OCIETY WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET O N THE LIABILITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCO ME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENT IONED IN SECTION ITA NO.1767/AHD/2011 5 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 C OURT HELD THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHER THEY MAD E IT CLEAR THAT THEY ARE CONFINING THE SAID JUDGMENT TO THE FACTS O F THAT CASE. THEREFORE IT IS CLEAR. SUPREME COURT WAS NOT LAYING DOWN ANY LAW. 12. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVE STED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBERS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILIT Y IN THEIR ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFI TS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDIN G MONEY TO ITS MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HA D DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. THE SAI D INTEREST INCOME IS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO BE DEDUCTED IN TERMS OF S ECTION 80P(1) OF THE ACT. IN FACT SIMILAR VIEW IS TAKEN BY THE ANDHR A PRADESH HIGH COURT IN THE CASE OF CIT V. ANDHRA PRADESH STATE CO -OPERATIVE BANK LTD. [2011] 336 ITR 516/200 TAXMAN 220 12 TAXM ANN.COM 66. 13. IN THAT VIEW OF THE MATTER, THE ORDER PASSED B Y THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCT ION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCORDING LY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTIONS OF LAW ARE ANS WERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER: APPEAL IS ALLOWED. THE IMPUGNED ORDER DATED 19.9.20 14 IS SET ASIDE. PARTIES TO BEAR THEIR OWN COSTS. 6. ITAT, AHMEDABAD BENCH IN THE CASE OF DHANLAXMI C REDIT CO-OP. SOCIETY, IN ITA NO.2073/AHD/2015 FOR THE ASSTT.YEAR 2012-13 SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL FOR THE A SSTT.YEAR 2012-13. THE FINDING OF THE TRIBUNAL RECORDED IN PARA-5 OF I TA NO.2073/AHD/2015 READS AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS RECO RDS AVAILABLE AND JUDICIAL PRONOUNCEMENTS REFERRED THEREIN. THE O NLY ISSUE IS IN REGARD TO THE ADDITION OF VARIOUS TYPES OF INCOME S UCH AS RENT, INTEREST INCOME FROM NATIONALIZED BANK, COMMISSION INCOME, OTHER INCOME TOTALING TO RS.12,72,308 AND THE AO AF TER ALLOWING DEDUCTION UNDER SECTION 80P(2)(C) OF THE ACT ASSESS ED THE INCOME ITA NO.1767/AHD/2011 6 OF THE ASSESSEE SOCIETY AT RS.12,22,308/-. AS SUBMI TTED IN THE STATEMENT OF FACTS BY THE ASSESSEE SOCIETY THAT ITS MAIN OBJECT IS TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS AND THE SOCIETY IS NEITHER REGISTERED UNDER BANKING REGULATION ACT NOR DOING ANY BANKING ACTIVITY. SURPLUS FUNDS IN THE HANDS OF SOC IETY AT TIMES WHEN BORROWER MEMBERS DEMAND WAS LESS IN COMPARISON TO THE DEPOSITS FROM MEMBERS HELD BY THE ASSESSEE SOCIETY. THEREFORE, IN THE INTEREST OF THE MEMBERS THIS SURPLUS FUND WA S GIVEN AS DEPOSIT IN NATIONALIZED BANK TO FETCH SOME INCOME. SIMILAR TYPE OF ISSUES HAS BEEN DEALT BY HONBLE HIGH COURT OF KARN ATAKA IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP. LTD . REPORTED IN (2015) 55 TAXMAN.COM 447 (KAR). THE RELEVANT POR TION FROM THE ABOVE REFERRED JUDGMENT IS REPRODUCED BELOW :- 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVE STED 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 WHI CH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATELY RE QUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS, A S THERE WERE NO TAKERS. THEREFORE, THEY HAD DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. THE SAID IN TEREST 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. I FACT SIMILAR VIEW IS TAKEN BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V/S. ANDHRA P RADESH STATE CO-OPERATIVE BANK LTD., [2011] 200 TAXMAN 220 /12 TAXMANN.COM 66. IN THAT VIEW OF THE MATTER, THE ORD ER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BEN EFIT 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 AG AINST THE REVENUE. THE ASSESSEE SOCIETYS MAIN OBJECT IS TO GIVE CREDIT FACILITIES TO ITS MEMBERS FROM THE FUNDS REC EIVED FROM THE MEMBERS BY WAY OF COLLECTION OF DEPOSITS FROM I TS MEMBERS IN THE COMMON FUND AND SUCH COMMON FUND IS DEPLOYED IN THE FORM OF GRANTING LOAN TO THE MEMBER S OF THE SOCIETY. AS THE CO-OP. CREDIT SOCIETY IS ENGAGED IN THE MONEY LENDING BUSINESS IT HAS TO MAINTAIN CERTAIN L IQUID FUNDS AS PER VARIOUS RULES AND REGULATIONS AND ALSO TO MEET THE MINIMUM REQUIREMENT OF THE FUNDS. AS A MEASURE OF SAFETY MINIMUM LIQUID AND CONVENIENCE OF FUND MOVEM ENT THE APPELLANT SOCIETY HAD TO KEEP ITS SURPLUS LIQUI D FUNDS WITH DIFFERENT BANKS INCLUDING NATIONALIZED BANKS. THEREFORE, IN VIEW OF ABOVE DISCUSSION AND RELYING ON THE DECI SION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR ITA NO.1767/AHD/2011 7 MERCHANTS SOUHARDA CREDIT CO-OP. LTD.(SUPRA), THE A SSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I ) OF THE ACT; HOWEVER, RENT INCOME AT RS.18,600, COMMISSION INCOME AT RS.13,701, OTHER INCOME RS.400 AND INCOME TAX REFUND OF RS.13,271 TOTALLING TO RS.45,542/- IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . GROUND NOS.1 AND 2 ARE PARTLY ALLOWED. 7. FURTHER, IT IS ALSO WORTH TO TAKE NOTE OF THE FI NDING RECORDED BY THE ITAT IN THE CASE OF DHANLAXMI CREDIT CO-OP. SOC IETY LTD., IN THE ASSTT.YEAR 2008-09 IN ITA NO.2342/AHD/2012 AS UNDER : 4. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. IT WAS EXPLAINED THAT THE CO-OPERATIVE SOCIETY IS MAIN TAINING OPERATIONS FUNDS AND TO MEET ANY EVENTUALITY TOWA RDS RE- PAYMENT OF DEPOSIT, THE CO-OPERATIVE SOCIETY IS MAI NTAINING SOME LIQUIDATED FUNDS AS A SHORT TERM DEPOSIT WITH THE B ANKS. THIS ISSUE WAS THOROUGHLY DISCUSSED BY THE ITAT B BENCH AHME DABAD IN THE CASE OF THE INCOME TAX OFFICER VS. M/S.JAFARI M OMIN VIKAS CO- OP.CREDIT SOCIETY LTD. BEARING ITA NO.1491/AHD/2012 (FOR A.Y. 2009-10) AND CO NO.138/AHD/2012 (BY ASSESSEE) ORDER DATED 31/10/2012. THE RELEVANT PORTION IS REPRODUCED BELO W:- 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME CO URT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRE CIATION OF FACTS, AS UNDER: WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOSITS AND SECURITIES WHIC H SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES? THE ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. I N THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. 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 SECTION 28 OF THE ACT? IN OUR VIEW, SU CH INTEREST INCOME WOULD COME IN THE CATEGORY OF INCOME FROM OTHER SOURCES, HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER SECTION 56 OF THE ACT , AS RIGHTLY HELD BY THE ASSESSING OFFICER ITA NO.1767/AHD/2011 8 19.1. HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT W AS OBSERVED THAT THE FIXED DEPOSITS MADE WERE TO MAINT AIN LIQUIDITY AND THAT THERE WAS NO SURPLUS FUNDS WITH THE ASSESSEE AS ATTRIBUTED BY THE REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HONBLE SUPREME COURT (ON PAGE 286) 7. BEFORE THE ASSESSING OFFICER, I T WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND, CONSEQUENTLY, SUCH ACT OF INVESTMENT CONSTITUTED A BUSINESS ACTIVITY BY A PRUDENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS LIABLE TO BE TA XED UNDER SECTION 28 AND NOT UNDER SECTION 56 OF THE AC T AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. TH E ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND THE HIGH COURT, HENCE, THE SE CIVIL APPEALS HAVE BEEN FILED BY THE ASSESSEE(S). 19.2. FROM THE ABOVE, IT EMERGES THAT (A) THAT ASSESSEE (ISSUE BEFORE THE SUPREME COURT) HAD ADMITTED BEFORE THE AO THAT IT HAD INVESTED SURPLUS FUNDS, WHICH WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF ITS BUSINESS, IN SHORT TERM DEPOSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMB ERS; (C) THAT ASSESSEE CARRIED ON TWO ACTIVITIES, NAMELY , (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSIT S TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUC E; AND (D) THAT THE SURPLUS HAD ARISEN EMPHATICALLY FROM M ARKETING OF AGRICULTURAL PRODUCES. 19.3. IN THE PRESENT CASE UNDER CONSIDERATION, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AN D THERE WERE NO SURPLUS FUNDS. 19.4. WHILE COMPARING THE STATE OF AFFAIRS OF THE P RESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COU RT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAM ELY: ITA NO.1767/AHD/2011 9 (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS W ERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THER E WERE NO SURPLUS FUNDS; - IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS ADMITTED BEFORE THE AO, OUT OF RETAINED AMOUNTS ON MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT CAR RY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILIT IES TO ITS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAILABLE WITH THE ASSESSEE WA S DEPOSITS FROM ITS MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; - IN THE CASE OF TOTGARS, THE HONBLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATION AL FUNDS; 19.5. CONSIDERING THE ABOVE FACTS, WE FIND THAT THE RE IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSE SSEE NOT A CO-OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSI TS FROM AND LENDS THE SAME TO ITS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD INVESTED IN SHORT-TERM DEPOSIT S. FURTHERMORE, THE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AND THE BALANCE AS AT 31.3.2009 WAS RS.13,69,955/- [SOURCE: BALANCE SHEET OF THE ASSESS EE AVAILABLE ON RECORD]. 19.6. IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SO CIETY LTD. 9SUPRA) CANNOT IN ANY WAY COME TO THE RESCUE O F EITHER THE LD.CIT(A) OR THE REVENUE. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN COMING TO A CONCLUSION THAT THE SUM OF RS.9,40,639/- WAS TO BE TAXED U/S.56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 5. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO-ORDINATE BENCH, WE HEREBY HOLD THAT THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) WAS RIGHTLY GRANTED BY LD.CIT(A), HOWEVER, HE ITA NO.1767/AHD/2011 10 HAS WRONGLY HELD THAT THE INTEREST INCOME IS TAXABL E U/S.56 OF THE ACT SO DO NOT FALL UNDER THE CATEGORY OF EXEMPTED I NCOME U/S.80P OF THE ACT. THE ADVERSE PORTION OF THE VIEW, WHICH IS AGAINST THE ASSESSEE, OF LD.CIT(A) IS HEREBY REVERSED FOLLOWING THE DECISION OF THE TRIBUNAL CITED SUPRA, RESULTANTLY GROUND IS ALL OWED. 8. THE TOTAL INTEREST INCOME RECEIVED BY THE ASSESS EE FROM FDRS. IN NATIONALIZED BANK QUALIFY FOR EXEMPTION UNDER SECTI ON 80P(2)(A)(I). BUT, SINCE THE ASSESSEE ITSELF HAS OFFERED AN AMOUN T OF RS.98,015/- FOR TAXATION, THE ASSESSEE HAS NOT CHALLENGED THE INCLU SION OF THIS AMOUNT FROM ITS TAXABLE INCOME. THE GROUNDS OF APPEAL WHI CH AROSE FROM THE IMPUGNED ORDER PERTAIN TO THE AMOUNTS, OVER AND ABO VE TO THIS. THEREFORE, IN VIEW OF MY ABOVE DISCUSSION, I ALLOW THE CLAIM OF THE ASSESSEE PARTLY OUT OF TOTAL INTEREST INCOME OF RS. 2,48,563/-. THE LD.AO IS DIRECTED TO GRANT EXEMPTION UNDER SECTION 80P(2) OF RS.1,50,548/-. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 13 TH JANUARY, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 13/01/2016