The ITO, Ward-3, Nadiad V. Sahyog Co.Op.Credit Society Ltd., Kheda

ITA 2030/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1440 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 10-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Business income; Question of law
• Section: 56; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.2030/AHD/2013 / ASSTT. YEAR: 2010-2011 ITO, WARD - 3 NADIAD. VS SAHYOG CO - OP. CREDIT SOCIETY LTD., VIRPUR ROAD BALASINOR,DIST. KHEDA. PAN : AABAS 0346 M ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI PRASOON KABRA, SR.DR ASSESSEE BY : SHRI SUNIL H. TALATI / DATE OF HEARING : 10/06/2016 / DATE OF PRONOUNCEMENT: 10/06/2016 $%/ O R D E R THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINS T THE ORDER OF THE LD.CIT(A)-IV, BARODA DATED 24.5.2013 PASSED FOR THE ASSTT.YEAR 2010-11. 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN LAW, IN DIRECTING TO TA X INTEREST RECEIVED FROM SHORT TERM DEPOSITS WITH BANKS AS 'PROFIT AND GAINS OF BUSINESS1 ELIGIBLE FOR DEDUCTION U/S.80P AGAINST 'INCOME FROM OTHER SOURCES' NOT ELIGIBLE FOR DEDUCTION U/S.SOP AS HELD BY THE AO WH ICH GETS SUPPORT FROM THE DECISION OF THE SUPREME COURT IN THE CASE OF TOTGARS CO- OPERATIVE SALE SOCIETY LTD., REPORTED IN 188 TAXMAN 282 (SC) WHEREIN IT HAS BEEN HELD THAT ASSESSEE IS NOT ELIGIBLE FOR DED UCTION U/S.80P(2)(A)(I) WHERE SUCH INTEREST WAS EARNED ON SURPLUS FUNDS INV ESTED IN SHORT TERM DEPOSITS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE/THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER. ITA NO.2030/AHD/2013 2 3. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEN D OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 3. THE LD.COUNSEL FOR THE ASSESSEE AT THE OUTSET SU BMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE ITAT DATED 14.3.2016 IN ITS OWN CASE IN THE ASSTT.YEAR 2009-10 . HE PLACED ON RECORD COPY OF THE ORDER IN ITA NO.910/AHD/2013. THE ORD ER OF THE TRIBUNAL READS AS UNDER: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS C HALLENGED CORRECTNESS OF THE ORDER DATED 11 TH JANUARY, 2013, PASSED BY THE LD. CIT(A), FOR THE ASS ESSMENT YEAR 2009-10, ON THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN LAW, IN DIRECTING TO TAX IN TEREST RECEIVED FROM FIXED DEPOSITS WITH COMMERCIAL BANKS AS PROFIT AND GAINS OF BUSINESS ELIGIBLE FOR DEDUCTION U/S. 80P AGAINST INCOME FRO M OTHER SOURCES NOT ELIGIBLE FOR DEDUCTION U/S. 80P AS HELD BY THE AO WHIC H GETS SUPPORT FROM THE DECISION OF THE SUPREME COURT IN THE CASE OF TOTGA RS CO-OPERATIVE SALE SOCIETY LTD., REPORTED IN 188 TAXMAN 282 (SC) WHEREI N IT HAS BEEN HELD THAT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80P (2)(A)(I) WHERE SUCH INTEREST WAS EARNED ON SURPLUS FUNDS INVESTED IN SHO RT TERM DEPOSITS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER . 2. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISS UE IN APPEAL IS COVERED, IN FAVOUR OF THE ASSESSEE, BY THE DECISION OF THIS T RIBUNAL DATED 13 TH JANUARY, 2016, IN THE CASE OF ANANT SAHAKARI SHARAFI MANDLI LIM ITED VS. ITO IN ITA NO.2747/AHD/2015, WHEREIN THE SMC BENCH OF THE TRIBU NAL HAS, INTER ALIA, OBSERVED AS FOLLOWS: 5. I HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. THE DISCUSSION MADE BY THE HONBLE HIGH COURT IN THE CA SE OF GUTTIGEDARARA CREDIT CO-OP. SOCIETY LTD., ITO(SUPRA) IS WORTH TO NOTE. IT READS 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 AMOUNTS WHICH WAS USED BY THE I ASSESSEE FOR PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE THE SAID INTEREST AMOUNT IS ATTRIBUTABLE TO THE CREDIT FACILITIES PRO VIDED BY THE ASSESSEE AND FORMS PART OF PROFITS AND GAINS OF BUSINESS AND THE REFORE HE SUBMITS THAT THE APPELLATE AUTHORITIES WERE NOT JUSTIFIED IN DENYING THE SAID BENEFIT IN TERMS OF SUB-SECTION (2) OF SECTION 80P OF THE ACT. IN SU PPORT OF HIS CONTENTIONS, HE ITA NO.2030/AHD/2013 3 RELIED ON SEVERAL JUDGMENTS AND POINTED OUT THAT TH E APEX COURT IN THE AFORESAID JUDGMENT HAS NOT LAID DOWN ANY LAW. 6. PER CONTRA, LEARNED COUNSEL FOR THE REVENUE STRO NGLY RELIED ON THE SAID JUDGMENT OF THE SUPREME COURT AND SUBMITTED THAT TH E CASE IS COVERED BY THAT JUDGMENT OF THE APEX COURT AND NO CASE FOR INT ERFERENCE IS MADE OUT. 7. FROM THE AFORESAID FACTS AND RIVAL CONTENTIONS, THE UNDISPUTED FACTS WHICH EMERGE ARE, CERTAIN SUMS OF INTEREST WERE EAR NED FROM SHORT-TERM DEPOSITS AND FROM SAVINGS BANK ACCOUNT. THE ASSESSE E IS A CO-OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS NOT CARRYING ON ANY OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE A SSESSEE BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS DEPOSITED IN TH E BANKS FOR A SHORT DURATION WHICH HAS EARNED INTEREST. THEREFORE, WHETHER THIS INTEREST IS 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-OPER ATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN S UB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB-SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE 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 CONSIDER THE MEAN ING OF THE WORD 'ATTRIBUTABLE' AS SUPPOSED TO DERIVE FROM ITS USE I N VARIOUS OTHER PROVISIONS OF THE STATUTE IN THE CASE OF CAMBAY ELECTRIC SUPPL Y INDUSTRIAL CO. LTD. V. CIT[1978] 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 ATTR IBUTABLE TO THE BUSINESS OF THE SPECIFIED INDUSTRY (HERE GENERATION AND DISTRIBUTION OF ELECTRICITY) ON WHICH THE LEARNED SOLICITOR-GENE RAL RELIED, IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATURE HAS DE LIBERATELY USED THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT CANNOT BE DISPUTED THAT THE EXPRESSION 'ATTRIBUT ABLE TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERI VED FROM'. HAD THE EXPRESSION 'DERIVED FROM' BEEN USED, IT COULD H AVE WITH SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISIN G FROM THE SALE ITA NO.2030/AHD/2013 4 OF OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED A S PROFITS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF G ENERATION AND DISTRIBUTION OF ELECTRICITY. IN THIS CONNECTION, IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A REST RICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR- GENE RAL, IT HAS USED THE EXPRESSION 'DERIVED FROM', AS, FOR INSTANCE, IN SECTION 80J. IN OUR VIEW, SINCE THE EXPRESSION OF WIDER IMPORT, NAM ELY, 'ATTRIBUTABLE TO', HAS BEEN USED, THE LEGISLATURE INTENDED TO COV ER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS OF GENERATION AND DISTRIBUTION OF ELECTRICITY.' 10. THEREFORE, THE WORD 'ATTRIBUTABLE TO' IS CERTA INLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. WHENEVER THE LE GISLATURE 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 G ATHER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS. A CO-OPERATIVE SOCIETY WHICH IS CARRYING ON THE BUSINESS OF PROVID ING CREDIT FACILITIES TO ITS MEMBERS, EARNS PROFITS AND GAINS OF BUSINESS BY PRO VIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR T HE CAPITAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO THE MEMBERS, THE SOCIETY CANNOT KEEP THE SAID AMOUNT IDLE. IF THEY DEPOSIT THIS AMOUNT IN BA NK SO AS TO EARN INTEREST, THE SAID INTEREST INCOME IS ATTRIBUTABLE TO THE PRO FITS AND GAINS OF THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS 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 GAIN S OF BUSINESS ATTRIBUTABLE TO THE ACTIVITY OF CARRYING ON THE BUSINESS OF BANK ING 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. 11. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT O F THE APEX COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY'S CASE (SUPRA), O N WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEALING WITH A CASE W HERE THE ASSESSEE/CO- OPERATIVE SOCIETY, APART FROM PROVIDING CREDIT FACI LITIES TO THE MEMBERS, WAS ALSO IN THE BUSINESS OF MARKETING OF AGRICULTURAL P RODUCE GROWN BY ITS MEMBERS. THE SALE CONSIDERATION RECEIVED FROM MARKE TING AGRICULTURAL PRODUCE OF ITS MEMBERS WAS RETAINED IN MANY CASES. THE SAID RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS FROM WHOM P RODUCE WAS BOUGHT, WAS INVESTED IN A SHORT-TERM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE-S OCIETY WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABIL ITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE A TTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE A CT OR UNDER SECTION 80P(2)(A)(III) OF THE ACT. THEREFORE IN THE FACTS O F THE SAID CASE, THE APEX COURT HELD THE ASSESSING OFFICER WAS RIGHT IN TAXIN G THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHE R THEY MADE 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. ITA NO.2030/AHD/2013 5 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 W AS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNT. IN FAC T THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATEL Y REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO ITS 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 CARRYIN G ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO BE DEDUCTED I N TERMS OF SECTION 80P(1) OF THE ACT. IN FACT SIMILAR VIEW IS TAKEN BY THE AN DHRA PRADESH HIGH COURT IN THE CASE OF CIT V. ANDHRA PRADESH STATE CO-OPERA TIVE BANK LTD. [2011] 336 ITR 516/200 TAXMAN 220 12 TAXMANN.COM 66. 13. IN THAT VIEW OF THE MATTER, THE ORDER PASSED B Y THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSE SSEE 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. IN THE CASE OF DHANLAXMI CREDIT CO-OP. SOCIETY, A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL FOR THE ASSTT.YEAR 2012- 13. THE FINDING OF THE TRIBUNAL RECORDED IN PARA-5 OF ITA 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 RECORDS AVAILA BLE AND JUDICIAL PRONOUNCEMENTS REFERRED THEREIN. THE ONLY ISSUE IS IN REGARD TO THE ADDITION OF VARIOUS TYPES OF INCOME SUCH AS RENT, INTEREST I NCOME FROM NATIONALIZED BANK, COMMISSION INCOME, OTHER INCOME TOTALING TO R S.12,72,308 AND THE AO AFTER ALLOWING DEDUCTION UNDER SECTION 80P(2)(C) OF THE ACT ASSESSED THE INCOME OF THE ASSESSEE SOCIETY AT RS.12,22,308/-. A S SUBMITTED 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 ACTIVI TY. SURPLUS FUNDS IN THE HANDS OF SOCIETY AT TIMES WHEN BORROWER MEMBERS DEM AND WAS LESS IN COMPARISON TO THE DEPOSITS FROM MEMBERS HELD BY THE ASSESSEE SOCIETY. THEREFORE, IN THE INTEREST OF THE MEMBERS THIS SURP LUS FUND WAS GIVEN AS DEPOSIT IN NATIONALIZED BANK TO FETCH SOME INCOME. SIMILAR TYPE OF ISSUES HAS BEEN DEALT BY HONBLE HIGH COURT OF KARNATAKA I N THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP. LTD. REPORTED IN ( 2015) 55 TAXMAN.COM 447 (KAR). THE RELEVANT PORTION FROM THE ABOVE REFE RRED JUDGMENT IS REPRODUCED BELOW :- 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INV ESTED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBE RS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THE IR ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND G AINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MO NEY TO THE ITA NO.2030/AHD/2013 6 MEMBERS, AS THERE WERE NO TAKERS. THEREFORE, THEY H AD 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 CO URT IN THE CASE OF CIT V/S. ANDHRA PRADESH STATE CO-OPERATIVE BANK LTD., [2011] 200 TAXMAN 220/12 TAXMANN.COM 66. IN THAT VIEW OF T HE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING T HE 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. THE ASSESSEE SOCIETYS MAIN OBJECT IS TO GIVE CREDIT FA CILITIES TO ITS MEMBERS FROM THE FUNDS RECEIVED FROM THE MEMBERS BY WAY OF COLLECTION OF DEPOSITS FROM ITS MEMBERS IN THE COMM ON FUND AND SUCH COMMON FUND IS DEPLOYED IN THE FORM OF GRANTIN G LOAN TO THE MEMBERS OF THE SOCIETY. AS THE CO-OP. CREDIT SOCIET Y 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 MI NIMUM LIQUID AND CONVENIENCE OF FUND MOVEMENT THE APPELLANT SOCIETY HAD TO KEEP ITS SURPLUS LIQUID FUNDS WITH DIFFERENT BANKS INCLUDING NATIONALIZED BANKS. THEREFORE, IN VIEW OF ABOVE DISCUSSION AND R ELYING ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP. LTD.(SUPRA), THE A SSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) O F THE ACT; HOWEVER, RENT INCOME AT RS.18,600, COMMISSION INCOM E AT RS.13,701, OTHER INCOME RS.400 AND INCOME TAX REFUN D OF RS.13,271 TOTALLING TO RS.45,542/- IS NOT ELIGIBLE FOR DEDUCT ION UNDER SECTION 80P(2)(A)(I) OF THE ACT. GROUND NOS.1 AND 2 ARE PAR TLY ALLOWED. 7. SIMILARLY, WE DEEM IT APPROPRIATE TO TAKE NOTE O F THE FINDING RECORDED BY THE ITAT IN THE CASE OF DHANLAXMI CREDIT CO-OP. SOCIETY LTD., IN THE ASSTT.YAR 2008-09, WHICH READS AS UNDER: 4. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. IT WAS EXPLAINED THAT THE CO-OPERATIVE SOCIETY IS MAINTAIN ING OPERATIONS FUNDS AND TO MEET ANY EVENTUALITY TOWARDS RE-PAYMENT OF D EPOSIT, THE CO- OPERATIVE SOCIETY IS MAINTAINING SOME LIQUIDATED FU NDS AS A SHORT TERM DEPOSIT WITH THE BANKS. THIS ISSUE WAS THOROUGHLY D ISCUSSED BY THE ITAT B BENCH AHMEDABAD IN THE CASE OF THE INCOME TAX O FFICER VS. M/S.JAFARI MOMIN VIKAS CO-OP.CREDIT SOCIETY LTD. BEARING ITA N O.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 APPRECIATION O F 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 WHICH SURPLUS WAS NOT REQUI RED FOR ITA NO.2030/AHD/2013 7 BUSINESS PURPOSES? THE ASSESSEE(S) MARKETS THE PROD UCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAI NED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TRE ATMENT 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, SUCH INTEREST I NCOME WOULD COME IN THE CATEGORY OF INCOME FROM OTHER SO URCES, HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER SECTION 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSESSING OFF ICER 19.1. HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT WAS OBSER VED THAT THE FIXED DEPOSITS MADE WERE TO MAINTAIN LIQUIDITY AND THAT T HERE WAS NO SURPLUS FUNDS WITH THE ASSESSEE AS ATTRIBUTED BY TH E REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HONBLE S UPREME 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 IMM EDIATELY FOR BUSINESS PURPOSES AND, CONSEQUENTLY, SUCH ACT O F INVESTMENT CONSTITUTED A BUSINESS ACTIVITY BY A PRU DENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS LI ABLE TO BE TAXED UNDER SECTION 28 AND NOT UNDER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TR IBUNAL AND THE HIGH COURT, HENCE, THESE CIVIL APPEALS HAVE BEE N 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, W HICH WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF ITS BUSINES S, IN SHORT TERM DEPOSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED ON TWO ACTIVITIES, NAMELY , (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSITS TO THE MEMBE RS; AND (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D) THAT THE SURPLUS HAD ARISEN EMPHATICALLY FROM M ARKETING OF AGRICULTURAL PRODUCES. ITA NO.2030/AHD/2013 8 19.3. IN THE PRESENT CASE UNDER CONSIDERATION, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THERE WER E NO SURPLUS FUNDS. 19.4. WHILE COMPARING THE STATE OF AFFAIRS OF THE P RESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COURT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAMELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS W ERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE 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 FACILITIES TO I TS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE O NLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS M EMBERS 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 OPERATIONAL FUNDS ; 19.5. CONSIDERING THE ABOVE FACTS, WE FIND THAT THE RE IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE NOT A CO -OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSITS 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 SU BMITTED 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/- [SOU RCE: BALANCE SHEET OF THE ASSESSEE 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 HON BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LT D. 9SUPRA) CANNOT IN ANY WAY COME TO THE RESCUE OF 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 CON CLUSION 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 DEC I SION 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 HAS WRONGLY HELD THAT THE INTEREST INCOME IS TAXABLE U/S.56 OF THE ACT SO DO NOT FALL UNDER T HE CATEGORY OF EXEMPTED INCOME U/S.80P OF THE ACT. THE ADVERSE PORTION OF T HE VIEW, WHICH IS AGAINST ITA NO.2030/AHD/2013 9 THE ASSESSEE, OF LD.CIT(A) IS HEREBY REVERSED FOLLO WING THE DECISION OF THE TRIBUNAL CITED SUPRA, RESULTANTLY GROUND IS ALLOWED . 8. THUS, CONSISTENTLY, IT HAS BEEN HELD THAT THE IN TEREST INCOME EARNED BY A CREDIT CO-OPERATIVE SOCIETY ON THE FDRS. WITH NATIONALIZED BANK WOULD QUALIFY FOR GRANT OF EXEMPTION UNDER SECTION 80P(2) OF THE INCOME TAX ACT. I ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE A O TO GRANT EXEMPTION TO THE ASSESSEE. 3. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MA TTER THAN THE VIEW SO TAKEN BY THE SMC BENCH OF THE TRIBUNAL IN THE ABOVE SAID CASE. 4. RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION DAT ED 13 TH JANUARY, 2016 (SUPRA), WE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE L EARNED CIT(A) ON THE ISSUE AND DECLINE TO INTERFERE IN THE MATTER. GROUND RAIS ED BY THE ASSESSING OFFICER IS THUS REJECTED. 5. IN THE RESULT, THE APPEAL IS DISMISSED. 4. I DO NOT FIND ANY DISPARITY ON FACTS. THE ASSES SEE IS A COOPERATIVE SOCIETY. IT HAS EARNED INTEREST OF RS.55,42,074/- IN ADDITION TO THE INTEREST EARNED ON LOANS AND ADVANCES MADE TO ITS MEMBERS. THE ALLEGED INTEREST WAS EARNED ON FIXED DEPOSITS WITH COMMERCIAL BANKS AND OTHERS. THE LD.AO DENIED THE BENEFIT UNDER SECTION 80P(2)(A)(I) OF TH IS INTEREST INCOME. IN VIEW OF THE DECISION OF THE CO-ORDINATE BENCH IN THE ASS TT.YEAR 2009-10, I AM OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR EXEMPTIO N UNDER SECTION 80P(2)(A)(I) OF THE INCOME TAX ON THIS INCOME ALSO. THE LD.CIT (A) HAS RIGHTLY GRANTED THE DEDUCTION, AND NO INTERFERENCE IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE IS CALLED FOR, AND THE APPEAL OF THE REVENUE IS DIS MISSED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 10 TH JUNE, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 10/06/2016