M/s. Hinglajmata Nagari Sahakari Sanstha Maryadit, Solapur V. Income-tax Officer, Ward - 2(4), Solapur

ITA 2062/PUN/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5166 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 31-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Keywords: Business income
• Section: 56

Judgement Text

SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO.2062/PUN/2017 / ASSESSMENT YEAR : 2013-14 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT, 21/22, SAKHARPETH, SOLAPUR PAN : AAAAH1509C . /APPELLANT VS. INCOME-TAX OFFICER, WARD-2(4), SOLAPUR . / RESPONDENT / APPELLANT BY : SHRI PRAMOD SHINGTE / RESPONDENT BY : SHRI SANJEEV GHEI / DATE OF HEARING : 04.10.2018 / DATE OF PRONOUNCEMENT: 05.10.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY ASSESSEE AGAINST THE ORDER O F CIT(A)-7, PUNE DATED 29-05-2017 FOR THE ASSESSMENT YEAR 2013-14. 2. GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED HERE AS UND ER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN NOT FOLLOWING THE JUDGMENT OF JURISDICTIONAL PUNE TRIBUNAL, WHICH IN TURN HAS FOLLOWED HIGH COURT JUD GMENT, AND FURTHER ERRED IN RELYING ON THE JUDGMENT OF DELHI HIGH COUR T, THEREBY VIOLATING THE PRINCIPLE OF JUDICIAL DISCIPLINE AND THEREFORE SUCH ORDER PASSED BY LD.CIT(A) NEEDS TO BE STRUCK DOWN AND APPEAL MAY BE ALLOWED IN FAVOUR OF APPELLANT WITHOUT PREJUDICE TO ABOVE GROUND FOLLOWING GROUND IS TAKEN ON MERIT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.AO ERRED IN NOT TREATING A SUM OF RS.13,39,760/- BEING INTEREST RECEIVED FROM INVESTMENTS, AS INCOME FROM BUSINESS O F THE APPELLANT THEREBY FURTHER ERRED IN NOT ALLOWING DEDUCTION U/S .80P(2)(A)(I) OF THE INCOME TAX ACT, 1961 ON SUCH INCOME BY DISREGARDING APPELLANTS CONTENTION. ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 2 3. BRIEFLY STATED RELEVANT FACTS OF THE ASSESSEE ARE THAT T HE ASSESSEE IS A CO-OPERATIVE CREDIT SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING BANKING OR CREDIT FACILITIES TO ITS MEMBERS. ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR UNDER APPEAL ON 25.09.2013 DE CLARING TOTAL INCOME AT NIL AFTER CLAIMING DEDUCTION U/S.80P OF THE I.T. A CT AT RS.40,96,369/-. IN THE ASSESSMENT U/S.143(3) OF THE ACT, TH E AO DISALLOWED RS.13,39,760/- BEING INTEREST EARNED FROM NON MEM BER COOPERATIVE SOCIETIES, I.E. NATIONALISED BANKS (AXIS BANK, CENTR AL BANK OF INDIA AND STATE BANK OF MYSORE) U/S.80P(2)(A)(I) OF THE ACT. 4. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. AGGRIEVED WITH THE ORDER O F CIT(A), THE ASSESSEE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL RAIS ING THE GROUNDS EXTRACTED ABOVE. 5. BEFORE ME, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE RAISED BY THE ASSESSEE STANDS COVERED BY VIRTUE OF SMC DECISION IN THE CASE OF VIJAY GRAMIN BIGARSHETI SAH. PATSANSTHA VS. ITO IN ITA NO.900/PUN/2017, DATED 16-05-2018 AND FILED THE COPY OF THE SAME. 6. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF AO AND THE CIT(A). 7. I HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF T HE REVENUE. I FIND THE CORE ISSUE RAISED IN THE APPEAL RELATES TO TAXATIO N OF INTEREST INCOME EARNED FROM THE FIXED DEPOSITS KEPT WITH THE NATIO NALISED BANKS OTHER THAN CO-OPERATIVE BANKS/SOCIETIES. AO IS OF THE O PINION THAT THE SAID INCOME IS TAXABLE AND THE EXEMPTION U/S.80P(2)(A)(I) OF THE ACT IS NOT AVAILABLE TO SUCH RECEIPTS. CIT(A) CONFIRMED THE SAME. I FIND THE ABOVE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSE E BY THE ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 3 DECISIONS OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF VIJA Y GRAMIN BIGARSHETI SAH. PATSANSTHA VS. ITO (SUPRA) AND IN THE CAS E OF BALIRAJA GRAMIN BIGARSHETI VS. ITO IN ITA NOS. 50 & 51/PUN/2017, DATED 26-03-2018 WHERE THE JUDGMENTS OF HONBLE SUPRE ME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. IT O 322 ITR 283 AND HONBLE DELHI HIGH COURT IN THE CASE OF MANTOLA CO-OP ERATIVE THRIFT & CREDIT SOCIETY LTD VS. CIT 50 TAXMANN.COM 278 (DELHI) AR E CONSIDERED. I FIND IT RELEVANT TO EXTRACT THE FINDINGS OF T HE TRIBUNAL IN THE CASE OF VIJAY GRAMIN BIGARSHETI SAH. PATSANSTHA VS. ITO (SUPRA) AND THE SAME ARE REPRODUCED HERE AS UNDER : 9. ON HEARING BOTH THE PARTIES, I FIND THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL IN THE CASE OF B ALIRAJA GRAMIN BIGARSHETI SAHAKARI PAT SANSTHA MARYADIT VS. ITO (S UPRA.) RELATING TO ELIGIBILITY OF CLAIMING DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME EARNED FROM SCHEDULED BANKS. PARA 10 TO 12 A RE RELEVANT IN THIS REGARD AND SAME ARE EXTRACTED AS UNDER: 10. WE FIND THAT THE ISSUE HAS BEEN ELABORATELY CON SIDERED BY THE PUNE BENCH OF TRIBUNAL IN ITO VS. M/S. MAHARASH TRA BANK EMPLOYEES CO-OP. CREDIT SOCIETY LTD. IN ITA NOS.454 TO 456/PUN/2015, RELATING TO ASSESSMENT YEARS 2007-08, 2008-09 & 2010-11 ALONG WITH CO NOS.16 & 17/PUN/2017, ORDER D ATED 22.12.2017 , WHEREIN THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT WAS ALSO TAKEN NOTE AND SUBSEQUENT DECISION O N THE ISSUE WAS ALSO CONSIDERED AND IT WAS HELD AS UNDER:- 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE LIMITED ISSUE WHICH ARISES IN THE PRES ENT APPEAL FILED BY THE REVENUE IS AGAINST RELIEF GIVEN BY THE CIT(A) ON THE CLAIM OF ASSESSEE SOCIETY THAT INTERE ST INCOME RECEIVED ON FDRS WITH SCHEDULED BANK OF MAHARASHTRA IS ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80P(2) (A)(I) OF THE ACT. THE ASSESSEE WAS A CO-OPERATIVE SOCIETY O F THE EMPLOYEES OF BANK OF MAHARASHTRA, AND WAS ENGAGED I N THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ACTIVITIES CARRIED ON BY THE ASSESSEE SOCIETY W ERE SUBJECT TO THE PROVISIONS OF MAHARASHTRA CO-OPERATI VE SOCIETIES ACT, 1960. UNDER SECTION 66 OF THE SAID ACT, EVERY SOCIETY WHICH IS MAKING PROFITS FROM ITS TRANSACTIO NS SHALL MAINTAIN RESERVE FUND AS PER CLAUSE (1) TO SECTION 66 OF THE SAID ACT. CLAUSE (2) FURTHER LAYS DOWN THAT EVERY SOCIETY SHALL CARRY ATLEAST ONE-FOURTH OF NET PROFITS EACH YEAR TO THE RESERVE FUND; AND SUCH RESERVE FUND MAY SUBJECT TO THE RULES MADE THEREUNDER, IF ANY, BE USED IN THE BUSIN ESS OF SOCIETY OR MAY, SUBJECT TO PROVISIONS OF SECTION 70 , BE INVESTED, AS THE STATE GOVERNMENT MAY BY GENERAL OR SPECIAL ORDER DIRECT OR MAY, WITH THE PREVIOUS SANC TION OF THE STATE GOVERNMENT BE USED IN PART FOR SOME PUBLI C ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 4 PURPOSE TO PROMOTE THE OBJECTS OF THE ACT OR SOME S UCH PURPOSES OF THE STATE GOVERNMENT OR OF THE LOCAL IN TEREST. SECTION 70 OF THE SAID ACT LAYS DOWN THAT SOCIETY S HALL INVEST OR DEPOSIT ITS FUNDS IN ONE OR MORE OF THE I NVESTMENTS PROVIDED IN CLAUSES (A) TO (E) THEREUNDER. WE ARE CONCERNED HERE WITH CLAUSE (D) TO SECTION 70 OF THE SAID ACT, WHICH READS AS UNDER:- 70 (A). (B). (C) (D) IN ANY CO-OPERATIVE BANK (OTHER THAN THOSE REFERRED TO IN CLAUSE (A) OF THIS SECTION) OR BANKI NG COMPANY APPROVED FOR THIS PURPOSE BY THE REGISTRAR, AND ON SUCH CONDITIONS AS THE REGISTRAR MAY FROM TIME TO TIME IMPOSE: (E).. 12. READING THE PROVISIONS OF MAHARASHTRA CO-OPERAT IVE SOCIETIES ACT, IT IS INCUMBENT UPON THE SOCIETY WHI CH IS MAKING PROFITS TO PARK ONE-FOURTH OF ITS PROFITS IN THE RE SERVE FUND. FURTHER, THE SAID RESERVE FUNDS AS PER DIRECTIONS OF THE STA TE GOVERNMENT BY GENERAL OR SPECIAL ORDER ARE TO BE INVESTED IN O NE OF THE SECURITIES, WHICH ARE PROVIDED UNDER SECTION 70 OF THE SAID ACT. CLAUSE (D) CLEARLY LAYS DOWN THAT THE INVESTMENT OR DEPOSIT OF FUNDS COULD BE IN ANY CO-OPERATIVE BANK OR BANKING COMPANY APPROVED FOR THIS PURPOSE BY THE REGISTRAR. THE AS SESSEE SOCIETY BELONGING EXCLUSIVELY TO THE EMPLOYEES OF BANK OF M AHARASHTRA, HAD INVESTED ITS RESERVE FUNDS IN FDS WITH BANK OF MAHARASHTRA. ACCORDINGLY, THE ASSESSEE SOCIETY APPLIED FOR REQUI SITE PERMISSION FROM THE REGISTRAR OF CO-OPERATIVE SOCIETIES UNDER SECTION 70 TO DO SO. THE REGISTRAR VIDE ITS LETTER DATED 18.10.1995 IN RESPECT OF INVESTMENT OF RESERVE FUNDS CONSEQUENT TO SOCIETYS RESOLUTION DATED 25.08.1994 AND MANAGEMENT COMMITTEES RESOLUT ION DATED 29.07.1991 AND FURTHER THE ASSESSEES LETTER DATED 11.07.1995, GRANTED PERMISSION UNDER SECTION 70 OF THE MAHARASH TRA CO- OPERATIVE SOCIETIES ACT, 1960 AND RULE 54 OF THE RU LES 1961 TO TRANSFER RESERVE FUNDS AMOUNT WITH PUNE DISTRICT CE NTRAL CO- OPERATIVE BANK TO THE BANK OF MAHARASHTRA WITH COND ITION OF INVESTMENT AND ALSO THAT THE AMOUNT INVESTED IN THE BANK OF MAHARASHTRA COULD NOT BE GIVEN AS SECURITY FOR BORR OWING OR USED FOR ANY OTHER PURPOSE WITHOUT WRITTEN PERMISSION FR OM THE REGISTRAR. THE COPY OF SAID PERMISSION IS PLACED A T PAGE 6 WITH ENGLISH TRANSLATION AT PAGE 7 OF THE PAPER BOOK. T HE CLAIM OF ASSESSEE WAS THAT IN LINE WITH THE SAID PERMISSION RECEIVED FROM THE REGISTRAR AS UNDER THE PROVISIONS OF SECTION 66 AND 70 OF THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, IT WAS REQU IRED TO TRANSFER THE FUNDS I.E. ONE-FOURTH OF PROFITS OF ASSESSEES SOCIETY TO THE RESERVE FUND AND THEREAFTER, THE FUNDS IN THE RESER VE FUND WERE INVESTED AS FDRS WITH THE BANK OF MAHARASHTRA. THE ASSESSEE POINTS OUT THAT THE SAID PARKING OF FUNDS IN FDRS W ITH THE BANK OF MAHARASHTRA WAS ONE OF THE CONDITIONS FOR CARRYING ON THE BUSINESS ACTIVITIES OF THE ASSESSEE SOCIETY, HENCE INTEREST EARNED THEREFROM WAS BUSINESS INCOME IN THE HANDS OF ASSES SEE. IT WAS TIME AND AGAIN REITERATED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE AMOUNTS WH ICH WERE PARKED IN FDRS WITH BANK OF MAHARASHTRA WERE NOT OU T OF SURPLUS AND IDLE FUNDS BUT WERE OUT OF FUNDS TRANSFERRED TO RESERVE FUND. THE ASSESSEE THUS, CLAIMED THAT ONCE THE INTEREST I NCOME HAS BEEN EARNED DURING THE COURSE OF CARRYING ON OF ITS BUSI NESS ACTIVITIES, ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 5 THEN THE SAME IS ELIGIBLE FOR GRANT OF DEDUCTION UN DER SECTION 80P(2)(A)(I) OF THE ACT . 13. THE APEX COURT IN CIT VS. KARNATAKA STATE CO-OP ERATIVE APEX BANK (SUPRA) WHILE DECIDING THE CASE OF CO-OPE RATIVE SOCIETIES AND SCOPE OF SPECIAL DEDUCTION HAD HELD A S UNDER:- INTEREST ARISING FROM INVESTMENT MADE, IN COMPLIAN CE WITH STATUTORY PROVISIONS TO ENABLE IT TO CARRY ON BANKI NG BUSINESS, OUT OF RESERVE FUND BY A CO-OPERATIVE SOC IETY ENGAGED IN BANKING BUSINESS, IS EXEMPT UNDER SECTIO N 80P(2)(A)(I) OF THE INCOME-TAX ACT, 1961. THE PLACE MENT OF SUCH FUNDS BEING IMPERATIVE FOR THE PURPOSE OF CARR YING ON BANKING BUSINESS THE INCOME THEREFROM WOULD BE INCO ME FROM THE ASSESSEES BUSINESS. THERE IS NOTHING IN THE PHRASEOLOGY OF SECTION 80P( 2)(A)(I) WHICH MAKES IT APPLICABLE ONLY TO INCOME DERIVED FR OM WORKING OR CIRCULATING CAPITAL. 14. WE FURTHER FIND THAT SIMILAR ISSUE WAS CONSIDERE D BY THE PUNE BENCH OF TRIBUNAL IN ITO VS. M/S. KUNDALIKA NA GARI SAH. PATSANSTHA MARYADIT (SUPRA), WHEREIN THE ISSUE WAS WITH REGARD TO INVESTMENTS WITH OTHER CO-OPERATIVE SOCIETY AS P ER THE MANDATE OF MAHARASHTRA CO-OPERATIVE SOCIETIES ACT AND WHETH ER THE INTEREST INCOME EARNED BY THE ASSESSEE ON SUCH INVE STMENTS WAS LIABLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ASSESSING OFFICER HAD DENIED THE CLAIM RELYING ON T HE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN TOTGARS CO-OP ERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA), THE TRIBUNAL AFTER CO NSIDERING THE FACTUAL AND LEGAL ASPECTS HELD AS UNDER:- 17. IN ORDER TO ADJUDICATE THE ISSUE, FIRST REFERE NCE IS MADE TO THE DECISION OF HONBLE SUPREME COURT IN TO TGAR CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA). IN THE FACTS OF THE SAID CASE, THE ASSESSEE BEFORE THE HONBLE A PEX COURT WAS A CO-OPERATIVE SOCIETY PROVIDING CREDIT F ACILITIES TO THE MEMBERS OR MARKETING AGRICULTURAL PRODUCE OF IT S MEMBERS. THE ASSESSEE HAD PARKED ITS FUNDS IN SHOR T TERM BANK DEPOSITS AND SECURITIES AND THE INTEREST EARNE D ON THE SAME WAS CLAIMED AS DEDUCTIBLE UNDER SECTION 80P(2) (A)(I) OF THE ACT. THE REVENUE AUTHORITIES HELD THAT THE SAME WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THESE WERE NOT REQUIRED IMMEDIA TELY FOR BUSINESS PURPOSES AND CONSEQUENTLY, INTEREST RECEIV ED BY THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTI ON 80P(2)(A)(I) OF THE ACT. FURTHER, THE CONTENTION O F THE ASSESSEE BEFORE THE COURT WAS THAT UNDER REGULATION S 23 AND 28 R.W.S. 57 AND 58 OF THE KARNATAKA CO-OPERATI VE SOCIETIES ACT, 1959, A STATUTORY OBLIGATION WAS IMP OSED ON CO-OPERATIVE CREDIT SOCIETIES TO INVEST ITS SURPLUS FUNDS IN SPECIFIED SECURITIES AND IN VIEW OF THE AFORESAID S TATUTORY OBLIGATIONS, THE ABOVE MENTIONED INVESTMENT WAS MAD E BY THE ASSESSEE AND THE SAME WAS IN THE NATURE OF ITS BUSINESS ACTIVITY. THE SAID INTEREST INCOME WAS CL AIMED TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I ) OF THE ACT, IRRESPECTIVE OF THE SOURCE OR HEAD UNDER WHICH SUCH INCOME WOULD FALL. THE HONBLE APEX COURT NOTED THAT THE INTEREST INCOME ARISING ON SURPLUS INVESTMENT IN SHORT TERM DEPOSITS AND SECURITIES, WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSE, WAS TO BE TAXED UNDER SECTION 56 OF THE AC T. THE ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 6 HONBLE APEX COURT FURTHER NOTED THAT THE ASSESSEE MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT T IMES WERE RETAINED BY IT AND THE TAX TREATMENT OF SUCH A MOUNT WAS THE ISSUE BEFORE THEM. THE HONBLE APEX COURT HELD THAT WHERE THE INTEREST ON DEPOSITS / SECURITIES, W HERE THE FUNDS WERE NOT IMMEDIATELY REQUIRED FOR BUSINESS PU RPOSES, WAS INVESTED IN SPECIFIED SECURITIES, WOULD BE TAXA BLE AS INCOME UNDER SECTION 56 OF THE ACT. IT FURTHER HEL D THAT WHERE THE ASSESSEE SOCIETY REGULARLY INVESTS ITS FU NDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, INTEREST ON SUCH INVESTMENT COULD NOT FALL WITHIN THE EXPRESSIO N OF PROFITS AND GAINS OF BUSINESS AND THE SAME COULD NO T BE HELD TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SO CIETY I.E. CARRYING ON OF BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS OR MARKETING THE AGRICULTURAL PRODUCE OF IT S MEMBERS. THE HONBLE APEX COURT FURTHER REITERATED THAT WHERE THE ASSESSEE MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS AND IT RETAINS THE SALE PROCEEDS IN MANY CA SES AND WHERE THE RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM THE PRODUCE WAS BOUGHT, WAS INVESTED IN SHORT TERM DEPOSITS / SECURITIES, THE S AID AMOUNT WAS LIABILITY OF THE ASSESSEE AND IT WAS SHO WN IN THE BALANCE SHEET ON THE LIABILITIES SIDE, THEREFOR E, TO THAT EXTENT, THE HONBLE SUPREME COURT HELD THAT SUCH IN TEREST INCOME COULD NOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN 80P(2)(A)(I) OR 80P(3) OF THE ACT. IN VIEW THEREOF, THE HONBLE SUPREME COURT UPHELD THE ORDER OF ASSESSING OFFICER IN TAXING THE SAID AMOUNT UNDER S ECTION 56 OF THE ACT. THE ALTERNATE PLEA OF THE ASSESSEE THAT EVEN IF THE SAID INTEREST INCOME WAS HELD TO BE COVERED UNDER SECTION 56 OF THE ACT, WAS ELIGIBLE FOR DEDUCTION U NDER SECTION 80P(2)(A)(I) OF THE ACT, WAS REJECTED. 18. IN THE FACTS OF THE CASE BEFORE HONBLE HIGH CO URT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO- OPERATIVE LTD. VS. ITO (SUPRA), THE ASSESSEE CO-OPE RATIVE SOCIETY WAS ENGAGED IN THE ACTIVITY OF CARRYING ON OF BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS AND IT HAD EARNED INTEREST INCOME ON ITS DEPOSITS. ANOTHE R FACT NOTED BY THE HONBLE HIGH COURT OF KARNATAKA WAS TH AT THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN INTEREST WAS NOT THE AMOUNT DUE TO ANY MEMBERS AND IT WAS NOT TH E LIABILITY OF THE ASSESSEE. IN FACT, THE SAID AMOUN T WAS IN THE NATURE OF PROFITS AND GAINS, WHICH WAS NOT IMMED IATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE M EMBERS AS THERE WERE NO TAKERS AND THE ASSESSEE IN SUCH CIRCUMSTANCES, DEPOSITED THE MONEY IN BANK SO AS TO EARN INTEREST. THE HONBLE HIGH COURT OF KARNATAKA IN S UCH CIRCUMSTANCES HELD THAT THE INTEREST INCOME WAS ATTRIBUTABLE TO CARRYING ON OF BUSINESS OF BANKING AND THEREFORE, IT WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT, THEY TOOK NOTE OF INSERTION OF S ECTION 80P(4) OF THE ACT, WHICH WAS APPLIED BY THE ASSESSI NG OFFICER TO DENY THE DEDUCTION UNDER SECTION 80P(2)( A)(I) OF THE ACT. THE HONBLE HIGH COURT OF KARNATAKA REFER RED TO THE JUDGMENT OF HONBLE APEX COURT IN TOTGAR CO-OPE RATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) AND POINTED OUT T HAT IN THE FACTS OF THE SAID CASE, THE AMOUNT WHICH WAS RETAIN ED BY THE ASSESSEE WAS A LIABILITY AND IT WAS SHOWN IN TH E BALANCE SHEET ON LIABILITIES SIDE. WHERE THE INTER EST INCOME WAS EARNED ON SUCH FUNDS, THEN THE SAME WAS HELD BY THE ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 7 HONBLE APEX COURT TO BE TREATED UNDER SECTION 56 O F THE ACT. HOWEVER, THE DISTINCTION WAS DRAWN BY THE HON BLE HIGH COURT OF KARNATAKA IN PARA 10 AND IT WAS POINT ED OUT THAT IN THE CASE BEFORE THEM, THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN THE INTEREST WAS NOT AN A MOUNT DUE TO ANY MEMBER, IT WAS NOT THE LIABILITY AND IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNTS. IN FACT, THE AMOUNT WAS IN THE NATURE OF PROFITS AND GAINS WHICH WAS NO T IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MON EY TO THE MEMBERS AS THERE WERE NO TAKERS AND HENCE, WAS DEPOSITED IN THE BANKS SO AS TO EARN INTEREST, SUCH INTEREST INCOME EARNED BY THE ASSESSEE WAS HELD TO BE ATTRIB UTABLE TO CARRYING ON THE BUSINESS AND THEREFORE, SAME WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT . 19. ANOTHER DECISION REFERRED TO BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS GUTTIGEDARARA CREDIT CO-OPERATIVE SOCIETY LTD. VS. ITO (SUPRA), WHEREIN THE ASSESSEE WAS A CO-OPERATIVE SO CIETY ENGAGED IN THE ACTIVITY OF CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE AS SESSING OFFICER IN VIEW OF INSERTION OF SECTION 80P(4) OF T HE ACT, HAD DECLINED TO EXTEND THE BENEFIT OF DEDUCTION UNDER S ECTION 80P(2)(A)(I) OF THE ACT. THE INTEREST INCOME EARNE D ON SHORT TERM DEPOSITS AND FROM SAVING BANKS ACCOUNT WAS HEL D LIABLE TO INCOME TAX. THE HONBLE HIGH COURT HELD THAT WHERE THE ASSESSEE SOCIETY WAS PROVIDING CREDIT FAC ILITIES TO ITS MEMBERS AND WAS NOT CARRYING ON ANY OTHER BUSIN ESS, THEN THE SURPLUS FUNDS WHICH IT HAD EARNED AS PROFI TS OF ITS BUSINESS WHEN TEMPORARILY NOT REQUIRED WERE INVESTE D IN BANKS TO EARN INTEREST WAS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE, LIABLE TO BE DED UCTED UNDER SECTION 80P(1) OF THE ACT. 20. FURTHER, THE PUNE BENCH OF TRIBUNAL IN ITO VS. NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA) HAD LAID DOWN THE SIMILAR PROPOSITION AS BY THE HONBLE HIGH COURT OF KARNATAKA. 21. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT IT WAS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FAC ILITIES TO ITS MEMBERS, OUT OF LOAN RECEIVED FROM ITS MEMBERS ITSELF. THE SURPLUS AMOUNT WHICH WAS ON ACCOUNT OF AMOUNT RECEIVED FROM ITS MEMBERS ONLY, WHICH HAD NOT BEEN ADVANCED TO ANY OF THE MEMBERS WAS INVESTED IN THE BANKS, AGAINST WHICH THE SAID INVESTMENT WAS MADE O UT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE, WHICH IN TURN, WERE AMOUNTS ADVANCED BY THE MEMBERS ITSELF. THE S AID PARKING OF FUNDS WITH THE CO-OPERATIVE BANKS WAS CL AIMED BY THE ASSESSEE TO BE IN THE NATURE OF ITS BUSINESS ACTIVITY AS IT WAS THE REQUIREMENT OF MAHARASHTRA CO-OPERATI VE SOCIETIES ACT, 1960, THAT 20 TO 30% OF TOTAL DEPOSI TS ARE TO BE PARKED IN THE INVESTMENTS WITH CO-OPERATIVE BANK S. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE AMOUNT INVE STED BY THE ASSESSEE WAS OUT OF ANY LIABILITIES DUE BY THE ASSESSEE. IN THE ABSENCE OF THE SAME AND FOLLOWING THE SAME P ARITY OF REASONING LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO- OPERATIVE LTD. VS. ITO (SUPRA) AND THE FACTS OF THE PRESENT CASE BEING AT VARIANCE TO THE FACTS BEFORE THE HON BLE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY LTD. ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 8 VS. ITO (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTIT LED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF TH E ACT. IN THE ALTERNATE, WE FIND MERIT IN THE PLEA OF THE ASS ESSEE THAT AT BEST THE INCOME WHICH CAN BE ASSESSED IN THE HAN DS OF ASSESSEE IS THE NET INCOME AND NOT THE GROSS INCOME AS PROPORTIONATE EXPENDITURE INCURRED IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. HOWEVER, WE ARE NOT ADJUDIC ATING THIS ISSUE SINCE WE HAVE ALREADY HELD THE ASSESSEE TO BE ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80P(2 )(A)(I) OF THE ACT. IN VIEW THEREOF, WE ALSO DO NOT ADJUDICAT E THE SECOND ALTERNATE PLEA RAISED BY THE ASSESSEE THAT I T IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80 P(2)(D) OF THE ACT. HOWEVER, THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT REL ATING TO DIVIDEND RECEIVED FROM UTI MUTUAL FUNDS AND SUNDARA M FINANCE OF RS.87,087/- AND RS.88,519/-, WHICH ARE T O BE INCLUDED AS INCOME FROM OTHER SOURCES, ON WHICH THE ASSESSEE IS ENTITLED TO PROPORTIONATE EXPENDITURE. SIMILARLY, THE PROFIT OF RS.25,786/- FROM OTHER ACTIVITIES AND SERVICES IS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTIO N 80P(2)(A)(I) OF THE ACT. ACCORDINGLY, WE PARTLY UP HOLD THE ORDER OF CIT(A). IN VIEW THEREOF, THE GROUNDS OF A PPEAL RAISED BY THE REVENUE ARE PARTLY ALLOWED. 15. THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD., (2003) 263 ITR 320 (P&H) HELD THAT WHERE INVESTMENT IN PSEB BO NDS WAS MADE IN ACCORDANCE WITH MANDATORY PROVISIONS OF SECTION 44 OF PUNJAB CO-OPERATIVE SOCIETIES ACT, IT WAS CLEARLY A STATUTORY INVESTMENT AND THE INTEREST ON THIS INVESTMENT WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE HONBLE PUNJAB & HARY ANA HIGH COURT HELD THAT WHETHER INVESTMENT WAS MADE IN STAT UTORY RESERVES HAD COME OUT OF WORKING OR CIRCULATING CAP ITAL OR OUT OF SURPLUS FUNDS WAS OF NO CONSEQUENCE. THE SA ID DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT IN CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. (2007) 2 89 ITR 6 (SC), WHEREIN IT HAS BEEN HELD THAT WHERE A C O- OPERATIVE BANK CARRYING ON THE BUSINESS OF BANKING, STATUTORILY REQUIRED TO PLACE PART OF ITS FUNDS IN APPROVED SECURITY, THEN THE INCOME ATTRIBUTABLE THERETO IS D EDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE HON'BLE SUPREME COURT RELIED ON EARLIER DECISIONS OF THE APEX COURT IN THIS REGARD. 16. THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. PUNJAB STATE CO-OPERATIVE AGRICULTURAL DEVELOPMENT BANK LTD. (2016) 389 ITR 607 (P&H) HAS REMANDED THE ISSU E BACK TO THE TRIBUNAL TO DECIDE WHETHER THE ASSESSEE WAS CARRYING ON BUSINESS OF BANKING AND THEREAFTER, DEC IDE THE ISSUE OF ELIGIBILITY OF DEDUCTION UNDER SECTION 80P (2)(A)(I) OF THE ACT ON THE INTEREST INCOME ATTRIBUTABLE TO THE BUSINESS OF BANKING. 17. HOWEVER, WE FIND THAT THE HONBLE HIGH COURT OF GUJARAT IN STATE BANK OF INCOME VS. CIT (SUPRA) WHI LE DECIDING SIMILAR ISSUE OF ELIGIBILITY OF DEDUCTION U NDER SECTION 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME FROM DEPOSITS OF SURPLUS FUNDS IN BANKS HELD THAT NEITHE R IT WAS BUSINESS INCOME NOR INCOME FROM INVESTMENT IN ANY O THER ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 9 CO-OPERATIVE SOCIETIES. IT MAY BE POINTED OUT THAT THE HONBLE HIGH COURT IN PARA 16 HAS CLEARLY NOTED THA T IN THE SAID CASE, THERE WAS NO OBLIGATION UPON THE ASSESSE E TO INVEST ITS SURPLUS FUNDS WITH THE STATE BANK OF IND IA. IT WAS FURTHER OBSERVED THAT INVESTING SURPLUS FUNDS I N A BANK IS NO PART OF THE BUSINESS OF THE APPELLANT OF PROVIDING CREDIT TO ITS MEMBERS AND HENCE, IT CANNOT BE SAID THAT THE INTEREST INCOME DERIVED FROM DEPOSITING SURPLUS FUN DS WITH THE STATE BANK OF INDIA BEING ATTRIBUTABLE TO THE B USINESS CARRIED ON BY THE APPELLANT, CANNOT BE DEDUCTED UND ER SECTION 80P(2)(A)(I) OF THE ACT. THE HONBLE HIGH COURT FURTHER REFERRED TO SECTION 71 OF THE GUJARAT CO-OP ERATIVE SOCIETIES ACT, 1961 PERMITTING SOCIETY TO INVEST OR DEPOSIT ITS FUNDS IN THE STATE BANK OF INDIA. THE HONBLE HIGH COURT HELD THAT WHILE INVESTMENT IN STATE BANK OF INDIA W AS PERMISSIBLE UNDER SECTION 71 OF THAT ACT, THERE WAS NO STATUTORY OBLIGATION UPON THE ASSESSEE TO DEPOSIT T HE FUNDS AS PART OF ITS BUSINESS. THE SAID PROVISION ALSO P ERMITTED INVESTMENT OF FUNDS IN ANY CO-OPERATIVE BANK OR ANY BANKING COMPANY APPROVED FOR THIS PURPOSE BY THE REGISTRAR. THE HONBLE HIGH COURT FURTHER HELD THA T THE ASSESSEE COULD NOT AVAIL THE DEDUCTION UNDER SECTIO N 80P(2)(D) OF THE ACT IN THIS REGARD. EVEN IN THE C ASE OF MANTOLA CO-OPERATIVE THRIFT & CREDIT SOCIETY LTD. V S. CIT (SUPRA) THE ISSUE BEFORE THE HONBLE HIGH COURT WAS IN RESPECT OF INTEREST INCOME EARNED FROM FDRS OUT OF SURPLUS FUNDS AND APPLYING THE PRINCIPLE LAID DOWN IN TOTGA RS CO- OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA), THE HO NBLE HIGH COURT HELD THE ASSESSEE NOT TO BE ENTITLED TO CLAIM THE DEDUCTION. 18. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE AT VARIANCE TO THE FACTS BEFORE THE HONBLE HIGH COURT OF GUJARAT (SUPRA). EVEN IN THE FACTS BEFORE THE HON' BLE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA), THE ISSUE WAS DEPOSIT OF SURPLUS F UNDS AS IN THE CASE BEFORE THE HONBLE HIGH COURT OF GUJARA T. THOUGH REFERENCE IS BEING MADE TO THE RESERVE FUNDS BUT THE RATIO LAID DOWN IS AGAINST INVESTING OF SURPLUS FUN DS. WHERE ANY SOCIETY DEPOSITS ITS SURPLUS FUNDS IN FIX ED DEPOSITS WITH SCHEDULED BANK, THEN THE COURTS HAVE HELD THAT SUCH INTEREST INCOME IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. H OWEVER, THE FACTS OF THE PRESENT CASE BEFORE US ARE AT VARIANCE , IT IS NOT SURPLUS FUNDS WHICH HAS BEEN DEPOSITED BY THE ASSES SEE. ON THE OTHER HAND, THE ASSESSEE IS STATUTORILY REQU IRED TO DEPOSIT 25% OF ITS PROFITS IN RESERVE FUNDS, WHICH IN TURN, HAVE TO BE PARKED IN FDRS WITH CO-OPERATIVE BANK OR SCHEDULED BANKING COMPANY. THE ASSESSEE BEFORE US, IN LINE WITH STATUTORY OBLIGATION OF MAINTAINING ITS S TATUS OF CO- OPERATIVE SOCIETY AND AS PER THE REGULATIONS OF MAH ARASHTRA STATE CO-OPERATIVE SOCIETIES ACT, WAS DUTY BOUND TO TRANSFER 25% OF ITS PROFITS TO RESERVE FUNDS, WHICH IT HAS D ONE. THERE IS NO DISPUTE TO THE SAME. THE SECOND ASPECT IS TH E UTILIZATION OF FUNDS IN RESERVE FUNDS BY WAY OF MAK ING FDRS WITH SCHEDULED BANK UNDER SECTION 70 OF THE SA ID ACT. THE ASSESSEE HAS RECEIVED PERMISSION OF THE REGISTR AR OF MAHARASHTRA CO-OPERATIVE SOCIETIES ACT TO MAKE SUCH INVESTMENT WITH BANK OF MAHARASHTRA AND ALSO IN ORD ER TO CARRY ON THE BUSINESS ACTIVITIES OF PROVIDING CREDI T FACILITIES TO ITS EMPLOYEES, IT IS MANDATORY UPON THE ASSESSEE TO ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 10 INVEST 25% OF ITS PROFITS IN THE RESERVE FUNDS, WHI CH IN TURN, ARE PARKED IN FDRS WITH BANK OF MAHARASHTRA, THEN INTEREST INCOME EARNED BY THE ASSESSEE IS FROM CARR YING ON ITS BUSINESS ACTIVITIES. ONCE IT IS SO, THEN THE S AID INCOME IS ASSESSABLE AS INCOME FROM BUSINESS AND THE ASSESS EE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80P(2)(A) (I) OF THE ACT. ACCORDINGLY, WE HOLD SO.. 11. THE ISSUE ARISING IN THE PRESENT APPEAL IS SQUA RELY COVERED BY THE ISSUE BEFORE THE TRIBUNAL IN ITO VS. M/S. MA HARASHTRA BANK EMPLOYEES CO-OP. CREDIT SOCIETY LTD. (SUPRA) A ND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSE SSEE IS ENTITLED TO CLAIM THE BENEFIT UNDER SECTION 80(P)(2)(A) OF T HE ACT ON THE INTEREST INCOME EARNED FROM NATIONALIZED BANKS. IN THIS REGARD, WE ALSO FIND SUPPORT FROM THE RATIO LAID DOWN IN MA HESH NAGARI SAHKARI PAT SANSTHA LTD. VS. ITO (SUPRA), WHEREIN T HE TRIBUNAL HAS HELD AS UNDER:- 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO EXAMINED THE DECISIONS ON WHICH BOTH THE SIDES HAVE PLACED RELIA NCE. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS CO-OPERATIV E CREDIT SOCIETY. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS.29,28,361/- FROM THE DEPOSITS WITH NATIONALIZED BANK. WE FIND THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SIMILAR TO THE ONE ADJUDICATED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO V S. NIPHARD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA). IN THE SAID CASE THE TRIBUNAL HAS CONSIDERED THE JUDGMENT OF THE HON'BLE SUPREME COURT OF INDIA RENDERED IN THE CASE OF TOTGARS' CO-OP. SALE SOCIETY LTD. VS. ITO (SUPRA), AND HAS DISTINGUISHED THE SAME, ON FACTS. THE RELEVANT EXTR ACT OF THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN T HE AFORESAID CASE IS REPRODUCED HERE-IN-BELOW: '11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. I N THE INSTANT CASE THERE IS NO DISPUTE TO THE FACT TH AT THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN TH E BUSINESS ACTIVITY OF CREDIT COOPERATIVE SOCIETY, I. E. PROVIDING CREDIT FACILITY TO ITS MEMBERS. ACCORDING TO THE REVENUE THE INCOME OF THE SOCIETY ON ACCOUNT OF INTEREST FROM BANKS OTHER THAN COOPERATIVE BANKS, INTEREST ON MUTUAL FUNDS, LONG TERM AND SHORT TERM CAPITAL GAIN ON SALE OF MUTUAL FUNDS ETC. ARE NOT COVERED BY THE ACTIVITY OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME TAX ACT IN VIEW OF T HE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SUPRA). WE FIND THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESS EE ON THE GROUND THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) ON ACCOUNT OF INTEREST F ROM BANKS OTHER THAN COOPERATIVE BANKS, INTEREST ON MUTUAL FUNDS LONG TERM AND SHORT TERM CAPITAL GAIN ON MUTUAL FUNDS ETC. WHILE DOING SO, HE HELD THAT T HE DECISION IN THE CASE OF TOTAGAR'S COOPERATIVE SALE ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 11 SOCIETY LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE IN THAT CASE THE AMOUNT INVESTED IN SHORT TERM DEPOSITS AND SECURITIES WAS NOT OUT OF INTEREST BEARING DEPOSITS COLLECTED FROM MEMBERS BUT OUT OF SALE PROCEEDS OF AGRICULTURAL PRODUCE OF FARMER MEMBERS MARKETED BY THE SOCIETY. FURTHER, THE HON'BLE APEX COURT HAS CONSIDERED ONLY THE LATTER PART OF SECTION 80P(2)(A)(I), I.E. INCOM E OF A COOPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS ELIGIBLE FOR DEDUCTION AND HAS NOT CONSIDERED THE EARLIER PART OF SECTION 80P(2)(A)(I), I.E. INCOME OF A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING IS ELIGIBLE FOR DEDUCTION. 11.1 WE FIND THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S. JAFARI MOMIN VIKAS COOPERATIVE CREDIT SOCIETY LTD. (SUPRA) AFTER CONSIDERING THE DECISION OF HON' BLE SUPREME COURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SUPRA) HAS OBSERVED AS UNDER: '17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE EITHER PARTY, PERUSED THE RELEVANT RECORDS AND ALSO THE CASE LAW ON WHICH THE LEARNED AR HAD RESERVATION IN IT'S APPLICABLY IN THE CIRCUMSTANCES OF THE ASSESSEE'S C ASE. 18. IT WAS THE STAND OF THE LEARNED CIT (A) THAT TH E ENTIRE INCOME WAS NOT EXEMPT AND THAT IT WAS TO BE EXAMINE D AS TO WHETHER THERE WAS ANY INTEREST INCOME ON THE SHO RT TERM BANK DEPOSITS AND SECURITIES INCLUDED IN THE TOTAL INCOME OF THIS SOCIETY WHICH HAS BEEN CLAIMED AS EXEMPT. ACCO RDING TO THE CIT (A), A SIMILAR ISSUE TO THAT OF THE PRES ENT ONE WAS DEALT WITH BY THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD V. ITO (SUPRA). THE ISSUE BEFORE THE HON'BLE COURT FOR DETERMINATION WAS WHET HER INTEREST INCOME ON SHORT TERM BANK DEPOSITS AND SEC URITIES WOULD BE QUALIFIED AS BUSINESS INCOME U/S 80P (2)(A )(I) OF THE ACT. 19. THE ISSUE DEALT WITH BY THE HON'BLE SU PREME COURT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION 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 STRICTL Y SPEAKING ACCRUES TO THE MEMBERS' ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT? IN OUR VIEW, SUCH INTEREST INCOME WOULD COME I N 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.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 12 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 HON'BLE SUPREME COURT '(ON PAGE 286) 7............BEFORE THE ASSESSING OF FICER, IT WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVEST ED 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 IT A NO. 2180/PN/2013, A.Y. 2010-11 ACT 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, THESE 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 T HE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED O N TWO ACTIVITIES, NAMELY, (I) ACCEPTANCE OF DEPOSIT A ND LENDING BY WAY OF DEPOSITS TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D) THAT TH E SURPLUS HAD ARISEN EMPHATICALLY FROM MARKETING OF AGRICULTURAL PRODUCES. 19.3 IN THE PRESENT CASE UNDER CONSIDERATION, THE E NTIRE 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 PR ESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COU RT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAM ELY: (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 O F RETAINED AMOUNTS ON MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT CARRY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; IN THE CASE OF TOTGARS, THE HON'BLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS; ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 13 19.5 CONSIDERING THE ABOVE FACTS, WE FIND THAT THER E IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE N OT A CO- OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUP LED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSITS FR OM AND LENDS THE SAME TO ITS MEMBERS. TO MEET ANY EVENTUAL ITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS . THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT H AD INVESTED IN SHORT-TERM DEPOSITS. FURTHERMORE, THE A SSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AN D THE BALANCE AS AT 31.3.2009 WAS RS.13,69,955/- [SOURCE: 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 SOC IETY LTD (SUPRA) CANNOT IN ANY WAY COME TO THE RESCUE OF EIT HER THE LD. CIT (A) OR THE REVENUE. IN VIEW OF THE ABOVE FA CTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT (A) WAS N OT 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. 19.7 BEFORE PARTING WITH, WE W OULD, WITH DUE REGARDS, LIKE TO RECORD THAT THE RULING OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. MANEKBANG CO-OP HOUSING SOCIETY LTD REPORTED IN (20 12) 22 TAXMANN.COM 220(GUJ) HAS BEEN KEPT IN VIEW WHILE DECIDING THE ISSUE.' 11.2 WE FIND THE COCHIN BENCH OF THE TRIBUNAL IN TH E CASE OF MUTTOM SERVICE COOPERATIVE APLAPPUZHA BANK LTD. VS. ITO (SUPRA) AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME C OURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SUPRA) AND VARIOUS OTHER DECISIONS HAS OBSERVED AS UNDER : '5. WE HAVE CONSIDERED THE RIVAL SUBMISSION ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDER OF THE LOWER AUTHORITY. NO DOUBT, THE LATEST JUDGMENT IN TOTGAR'S CO-OPERAT IVE SALE SOCIETY LTD VS ITO (SUPRA), THE APEX COURT FOUND TH AT THE DEPOSIT OF SURPLUS FUNDS BY THE CO-OPERATIVE SOCIET Y IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2). IN THE CASE BEFO RE THE APEX COURT IN TOTGAR'S CO-OPERATIVE SALE SOCIETY LT D VS ITO (SUPRA), THE ASSESSEE CO-OPERATIVE SOCIETY WAS TO P ROVIDE ITA NO. 2180/PN/2013, A.Y. 2010-11 CREDIT FACILITY TO ITS MEMBERS AND MARKET THE AGRICULTURAL PRODUCE. THE ASSESSEE IS NOT IN THE BUSINESS OF BANKING. THEREFO RE, THIS TRIBUNAL IS OF THE OPINION THAT THE JUDGMENT OF THE APEX COURT IN TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD (SU PRA) IS NOT APPLICABLE IN RESPECT OF THE CO-OPERATIVE SOCIETY W HOSE BUSINESS IS BANKING. ADMITTEDLY, THE ASSESSEE HAS I NVESTED FUNDS IN STATE PROMOTED TREASURY SMALL SAVINGS FIXE D DEPOSIT SCHEME. SINCE GOVERNMENT OF INDIA HAS WITHD RAWN INDIA VIKAS PATRA, AS A SMALL SAVINGS INSTRUMENT, F UNDS INVESTED AT THE DISCRETION OF THE BANK IS ONE OF TH E ACTIVITIES OF THE BANKING AS PER THE BANKING REGULATION ACT. S INCE THE ASSESSEE CO-OPERATIVE SOCIETY IS IN THE BUSINESS OF BANKING THE INVESTMENT IN THE STATE PROMOTED TREASURY SMALL SAVINGS FIXED DEPOSIT CERTIFICATE SCHEME IS A BANKING ACTIV ITY, THEREFORE, THE INTEREST ACCRUED ON SUCH INVESTMENT HAS TO BE TREATED AS BUSINESS INCOME IN THE COURSE OF ITS BAN KING ACTIVITY. ONCE IT IS A BUSINESS INCOME, THE ASSESSE E IS ENTITLED FOR DEDUCTION U/S 80P(2)((A)(I). THEREFORE , THIS TRIBUNAL IS OF THE OPINION THAT THE JUDGMENT OF THE LARGER ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 14 BENCH OF THE APEX COURT IN KARNATAKA STATE COOPERAT IVE APEX BANK (SUPRA) IS APPLICABLE TO THE FACTS OF THI S CASE. BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE APEX COU RT IN KARNATAKA STATE CO-OPERATIVE BANK (SUPRA), THE ORDE R OF THE COMMISSIONER OF INCOME-TAX(A) IS UPHELD. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED.' 11.3 IN THE INSTANT CASE THERE IS NO DISPUTE TO THE FACT THAT THE SOCIETY IS A CREDIT COOPERATIVE SOCIETY AUTHORI SED BY THE REGISTRAR OF COOPERATIVE SOCIETIES FOR ACCEPTING DE POSITS AND LENDING MONEY TO ITS MEMBERS AS PER LICENSE GRANTED BY THE REGISTRAR OF COOPERATIVE SOCIETIES AND THE MAIN OBJ ECT OF THE SOCIETY IS TO PROVIDE CREDIT FACILITY TO MEMBERS WH O CAN BE ANY PERSON OF THE SOCIETY. WE FIND THE PUNE BENCH O F THE TRIBUNAL IN THE CASE OF MAHAVIR NAGARI SAHAKARI PAT SANSTHA LTD. REPORTED IN 74 TTJ 793 (PUNE) HAS HELD THAT THE CREDIT SOCIETY WHICH IS CARRYING ON THE BUSINES S OF BANKING ACTIVITY AND PROVIDING CREDIT FACILITY TO I TS MEMBERS IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I). IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING THE DECISIONS OF THE AHMED ABAD BENCH OF THE TRIBUNAL AND COCHIN BENCH OF THE TRIBU NAL WHICH IN TURN HAVE CONSIDERED THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SUPRA) WE FIND NO INFIRMITY IN THE OR DER OF THE LD.CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. THE STAND OF THE ASSESSEE RIGHT THROUGH HAS BEEN THAT THE SOCIETY IS NOT ENGAGED IN ANY OTHER ACTIVITY EX CEPT RECEIVING DEPOSITS FROM ITS MEMBERS AND PROVIDING C REDIT FACILITIES TO ITS MEMBERS. THE ASSESSEE HAS MADE DE POSITS WITH NATIONALIZED BANKS IN ORDER TO MAINTAIN LIQUID ITY AND PROVIDE READY AVAILABILITY OF FUNDS FOR REPAYMENT O F DEPOSITS ON REDEMPTION/MATURITY. THESE FACTS HAVE N OT BEEN REFUTED BY THE DEPARTMENT. SINCE, THE ISSUE RA ISED IN THE APPEAL IS IDENTICAL TO THE ONE ALREADY ADJUDICA TED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE RESPECTFULLY FOLLOW THE SAME RATIO. THUS, WE HOLD THAT THE ASSESSEE IS ELIGIBLE TO CLAI M DEDUCTION U/S. 80P(2)(A)(I). IN VIEW OF THE ABOVE, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE A SSESSEE IS ALLOWED. 12. IN VIEW THEREOF, WE DIRECT THE ASSESSING OFFICE R TO ALLOW DEDUCTION UNDER SECTION 80(P)(2)(A) OF THE ACT ON T HE INTEREST INCOME EARNED FROM FIXED DEPOSITS WITH NATIONALIZED BANKS. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. THE ABOVE ORDER OF PUNE BENCH OF TRIBUNAL DECIDED O N IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE SERIES OF DECISION ON SIMILAR ISSUE. CONSIDERING THE ABOVE DECISION, I AM OF THE OPINION THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION U/S. 80 P(2)(A) (I) OF THE ACT. ACCORDINGLY, GROUND RAISED BY ASSESSEE IS ALLOWED. ITA NO.2062/PUN/2017 M/S. HINGLAJMATA NAGARI SAHAKARI SANSTHA MARYADIT 15 IT IS THE SUBMISSION OF THE LD. AR FOR THE ASSESSEE THAT THE DECISIONS/JUDGMENTS RELIED UPON BY THE AO/CIT(A) (I.E. IN TH E CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. (SUPRA) AND MANTOLA CO-OPERATIVE THRIFT & CREDIT SOCIETY LTD VS. CIT (SUPRA) ARE CONSIDERED BY THE PUNE BENCH IN DECIDING THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE . CONSIDERING THE PRECEDENT ON THE SAME ISSUE BY THE TRIB UNAL, I AM OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U /S.80P(2)(A)(I) IN RESPECT OF THE INTEREST INCOME EARNED ON FIXED DEPOSITS KEPT WITH THE NATIONALIZED BANKS/SCHEDULED BANKS AND THE SAME CONSTITU TE AS BUSINESS INCOME OF THE ASSESSEE. I THEREFORE REVERSE THE ORDER OF CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF ASSESSEE. ACCORD INGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED IN FAVOUR OF THE ASSESSE E. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 05 TH DAY OF OCTOBER, 2018. SD/- (D.KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; DATED : 05 TH OCTOBER, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-7, PUNE 4. / THE PR.CIT-6, PUNE 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE