M/s Honnali Credit Co-operative Society Ltd , Honnali V. Income Tax Officer Ward-2 , Shimoga

ITA 2752/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5603 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 18-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NAYAZ PASHA
• Keywords: Business income; Question of law
• Section: 56

Judgement Text

ITA.2752 & 2753/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIT KUMAR, JUDICIAL MEMBER I.T.A NOS.2752 & 2753/BANG/2017) (ASSESSMENT YEARS : 2011-12 & 2012-13) M/S. HONNALI CREDIT CO-OP SOCIETY LTD, T. M. ROAD, HONNALI .. APPLICANT PAN : AAATH4527L V. INCOME-TAX OFFICER,, WARD -2, SHIVAMOGA .. RESPONDENT ASSESSEE BY : SHRI. NAYAZ PASHA, CA REVENUE BY : SMT. PADMAMEENAKSHI, JCIT HEARD ON : 24.01.2018 PRONOUNCED ON : 31.01.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT (A), DAVANGERE, DT.26.06.2017 AND 19.07.201 7, FOR THE ASSESSMENT YEARS 2011-12 AND 2012-13 RESPECTIVELY. BOTH THE APPEALS INVOLVE A COMMON QUESTION OF LAW, WHETHER THE ASSES SEE-SOCIETY IS ENTITLED TO THE BENEFIT OF SECTION 80P(2) ON THE IN TEREST EARNED ON THE ITA.2752 & 2753/BANG/2017 PAGE - 2 DEPOSITS MADE BY IT TO OTHER COOPERATIVE BANKS AND SOCIETIES, BE TREATED AS BUSINESS INCOME OR INCOME FROM OTHER SOU RCES. ITA.2752/BANG/2017 -A. Y.2011-12 : 02. THE AO HAD REOPENED THE ASSESSMENT OF THE ASSES SEE FOR AY 2011-12 ON THE GROUND THAT THE ASSESSEE ON THE GROU ND THAT THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF SECTION 80P(2) AS THE ASSESSEE IS A COOPERATIVE SOCIETY REGISTERED UNDER THE COOPE RATIVE SOCIETIES ACT. FURTHER AS PER THE FINANCIAL STATEMENTS FILED , THE ASSESSEE IS CARRYING ON THE ACTIVITY OF ACCEPTING THE DEPOSITS AND LENDING WHEREBY IT HAS INCOME FROM BOTH LENDING MONEY AND INCOME FR OM DEPOSITS. ASSESSEE HAS SHOWN THE EXPENDITURE ON PAYMENT OF IN TEREST. THE AO HAS WRONGLY HELD THAT THE ASSESSEE WAS CARRYING ON THE BANKING ACTIVITY AND IS THEREFORE NOT ENTITLED TO THE BENEF IT OF SECTION 80P(2) AND THEREFORE AS HELD THAT THE ASSESSEE IS NOT ELIG IBLE FOR DEDUCTION U/S.80P(2)(A)(I) AND HAS ALSO HELD THAT THE ASSESSE E IS NOT ELIGIBLE FOR THE INTEREST EARNED ON THE DEPOSITS MADE WITH OTHER COOPERATIVE SOCIETIES /BANKS. 03. THE ASSESSEE FILED APPEAL BEFORE THE CIT (A) WH O, IN PARA 4C OF HIS ORDER HAS HELD THAT THE SOCIETY IS ELIGIBLE FOR THE BENEFIT U/S.80P(2)(A) AND DELETED THE ADDITION OF RS.5,65,6 66/-. 04. ON THE OTHER GROUND OF DISALLOWANCE OF RS.6,72, 805/- IN RESPECT OF AY 2011-12, THE CIT (A) RELYING UPON THE ORDER O F THE HONBLE SUPREME COURT IN THE MATTER OF TOTGARS COOPERATIVE SALE SOCIETY LTD ITA.2752 & 2753/BANG/2017 PAGE - 3 V. ITO [(2010) 188 TAXMAN 0282] AND THE RECENT JUDG MENT OF THE HONBLE HIGH COURT IN TOTGARS COOPERATIVE SALE SOCI ETY LTD V. ITO [(2017) 83 TAXMANN.COM 140] HAD DISALLOWED THE CLAI M OF DEDUCTION FOR THE AMOUNT OF RS.6,72,804/-. NOW THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING THE ORDER OF THE CIT (A) DISALLOWING THE AMOUNT OF RS.6,72,804/- BEING THE INTEREST EARNED ON THE INVE STMENT. 05. THE LD. AR HAD SUBMITTED THAT THE AIMS AND OBJE CTS OF THE ASSESSEE AS RECORDED BY THE AO IS TO PROVIDE CREDIT FACILITIES TO THE MEMBERS AND IT WAS ALSO RECORDED BY THE AO THAT ASS ESSEE IS INTO GIVING LOANS AND ACCEPTING DEPOSITS FROM ITS MEMBER S. THE AO IN PAGE 6 HAD RECORDED THE FINANCIALS OF THE ASSESSEE WHICH IS AS UNDER : SURETY LOAN 1976129 BUSINESS LOAN 12065034 MORTGAGE LOAN 8219233 VEHICLE LOAN 834217 SALARY LOAN 231500 JEWELLERY LOAN 8334408 NSC LOAN 188011 EMPLOYEE SALARY LOAN 215250 SUVARNA NIDHI DEPOSIT LOAN 552442 PIGMY DEPOSIT LOAN 867567 BUILDING CONSTRUCTION 2737605 OD LOAN 2220000 TOTAL 38441396 ITA.2752 & 2753/BANG/2017 PAGE - 4 THE CORRESPONDING FUNDS DIRECTLY AVAILABLE FROM MEM BERS DEPOSITS ARE: PIGMY DEPOSITS 1802225 FIXED DEPOSIT 13903927 SAVINGS DEPOSIT 8557518 CURRENT DEPOSIT 84291 OD DEPOSIT 1155728 TOTAL 35503689 THUS IT IS CLEAR THAT THE ASSESSEE IS CARRYING ON T HE ACTIVITIES ONLY WITH THE MEMBERS AND THE LOAN DISBURSED BY THE ASSESSEE FROM THE DEPOSITS ACCEPTED FROM THE MEMBERS OF THE ASSESSEE SOCIETY. 06. IT WAS SUBMITTED BY THE LD. AR THAT ONCE THE CI T (A) HELD THAT IF THE ASSESSEE IS CARRYING OUT THE ACTIVITIES ENVI SAGED U/S.80P(2)(A)(I) AS UNDER : (I) CARRYING ON THE BUSINESS OF BANKING OR PROVID ING CREDIT FACILITIES TO ITS MEMBERS, OR (II) A COTTAGE INDUSTRY, OR (III) THE MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS, OR (IV) THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SEE DS, LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE O F SUPPLYING THEM TO ITS MEMBERS, OR (V) THE PROCESSING, WITHOUT THE AID OF POWER, OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS, OR (VI) THE COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS, OR (VII) FISHING OR ALLIED ACTIVITIES, THAT IS TO SAY, THE CATCHING, CURING, PROCESSING, PRESERVING, STORING OR MARKETING OF FIS H OR THE PURCHASE OF MATERIALS AND EQUIPMENT IN CONNECTION THEREWITH FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS, THE WHOLE OF THE AMO UNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES: ITA.2752 & 2753/BANG/2017 PAGE - 5 THEN THE INTEREST INCOME EARNED BY THE ASSESSEE BY MAKING THE DEPOSITS IN COOPERATIVE SOCIETY / BANKS WOULD BE AN ACTIVITY RELATABLE TO THE BUSINESS OF THE ASSESSEE AND IS THEREFORE EL IGIBLE FOR DEDUCTION U/S.80P(2)(A) AND 80P(2)(D). IF THE RESTRICTIVE ME ANING AS SOUGHT TO BE GIVEN BY THE AUTHORITIES BELOW IS GIVEN TO THE INTE RPLAY OF SECTIONS 80P(2)(A) AND 80P(2)D), IN THAT EVENTUALITY THEN 80 P(2)(D) WOULD BECOME REDUNDANT AND WOULD NOT HAVE ANY CONSEQUENCE . THE LD. AR RELIED UPON THE JUDGMENT OF THE HONBLE KARNATAKA H IGH COURT IN THE MATTER OF ITO V. TUMKUR MERCHANTS SOUHARDA CREDIT C OOPERATIVE LTD [55 TAXMANN.COM 447] AND HAS SUBMITTED THAT THE RAT IO OF THE HONBLE SUPREME COURT HAS BEEN DISTINGUISHED BY THE HONBLE JURISDICTIONAL HIGH COURT ON THE BASIS OF THE FACTS AS THE AIMS AN D OBJECTS AND ACTIVITIES OF THE ASSESSEE SOCIETY IN THAT CASE I.E , TUMKUR MERCHANTS SOUHARDA (SUPRA) WERE FOUND TO BE DISTINGUISHABLE F ROM TOTGARS COOPERATIVE SALE SOCIETY LTD. OUR ATTENTION WAS D RAWN TO PARA 9 AND 10 TO THE FOLLOWING EFFECT : 9. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF TH E APEX COURT IN THE CASE OF M/S. TOTGARS CO-OPERATIVE SALE SOCIE TY LTD., ON WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEA LING WITH A CASE WHERE THE ASSESSEE-COOPERATIVE SOCIETY, APART FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS ALS O IN THE BUSINESS OF MARKETING OF AGRICULTURAL PRODUCE 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 M EMBERS FROM WHOM PRODUCE WAS BOUGHT, WAS INVESTED IN A SHO RT-TERM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH WAS RETAINED BY THE ASSESSEE - SOCIETY WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXT ENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY ITA.2752 & 2753/BANG/2017 PAGE - 6 MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR UND ER 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 TAXING THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHER THEY MADE IT CLEAR THAT THEY ARE CONFINING THE SAID JUDGMENT TO THE FACTS OF THAT CASE. THEREFORE IT IS CLEAR, SUPREME COURT WAS NOT LAYING DOWN ANY LAW. 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBE RS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDIN G MONEY TO THE MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THE Y HAD DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTERES T. THE SAID INTEREST INCOME IS ATTRIBUTABLE TO CARRYING 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 ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. AND HRA PRADESH STATE CO-OPERATIVE BANK LTD., [2011] 200 TAXMAN 220/12 TAXMANN.COM 66 . IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYI NG THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINAB LE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER: 07. ON THE OTHER HAND THE LD DR HAD ABLY SUBMITTED THAT THE AUTHORITIES BELOW WERE RIGHT IN DISALLOWING THE CLA IM OF THE ASSESSEE- SOCIETY ON THE BASIS OF ITS RELIANCE ON THE RECENT JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE MATTER OF PR. CIT V. TOTGARS COOPERATIVE SALE SOCIETY [83 TAXMANN.COM 140]. OUR ATTENTION WAS DRAWN TO PARA 22 AND 23 WHICH READ AS UNDER : 22. AGAIN, THE DIVISION BENCH OF PUNJAB AND HARYAN HIG H COURT IN STILL A LATER DECISION REPORTED IN THE SAME VOLUME OF ITR IN THE CASE OF CIT V. PUNJAB STATE CO-OPERATIVE AGRICULTURAL DE VELOPMENT BANK LTD. [2016] 389 ITR 607/76 TAXMANN.COM 307 (PUNJ. & ITA.2752 & 2753/BANG/2017 PAGE - 7 HAR.) CONCURRED WITH THE AFORESAID VIEW OF THE GUJARAT H IGH COURT, DISTINGUISHING THE VIEW TAKEN BY THE ANDHRA PRADESH HIGH COURT AND KARNATAKA HIGH COURT, HELD IN THE FOLLOWING TERMS: '30. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDGMENT OF THE GUJARAT HIGH COURT ESPECIALLY THE OBSERVATION THAT THE JUDG MENT OF THE SUPREME COURT IS NOT RESTRICTED ONLY TO THE INVESTM ENTS MADE BY THE ASSESSEE FROM THE AMOUNTS RETAINED BY IT WHICH WERE PAYABLE TO ITS MEMBERS AND THAT THE JUDGMENT ALSO APPLIES IN RESPE CT OF OTHER FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES. WE REPRODUCED PARAGRAPH 15 OF THE JUDGMENT ONLY TO INDICATE THAT WE UPHOLD THE APPELLANT'S CASE ONLY ON THE GROUND T HAT THE ASSESSEE IS NOT ENTITLED TO THE SAID DEDUCTION ON THE BASIS THAT IT IS ENGAGED IN CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILI TIES TO ITS MEMBERS. WE DO NOT EXPRESS ANY OPINION AS TO WHETHER THE APP ELLANT WOULD BE ENTITLED TO THE SAID BENEFIT IN THE EVENT OF IT BEI NG HELD THAT THE ASSESSEE IS ALSO ENGAGED IN CARRYING ON THE BUSINES S OF BANKING. THAT IS AN ISSUE THAT THE TRIBUNAL WOULD DECIDE UPON REM AND PURSUANT TO THIS ORDER. 31. MR. BANSAL RELIED UPON THE JUDGMENT OF THE ANDH RA PRADESH HIGH COURT IN CIT V. A. P. STATE CO-OPERATIVE BANK LTD. [2011] 336 ITR 516 (AP) . THE JUDGMENT IS DISTINGUISHABLE. IN THAT CASE, TH E RESPONDENT-ASSESSEE WAS A CO-OPERATIVE SOCIETY ENGA GED IN THE BUSINESS OF BANKING AND IT WAS HELD THAT THE ASSESS EES WERE SUBJECT TO THE REGULATIONS OF THE RESERVE BANK OF INDIA ACT, 1 934 AND THE BANKING REGULATION ACT, 1949. THE DIVISION BENCH DI STINGUISHED THE JUDGMENT OF THE SUPREME COURT IN TOTGAR'S CASE (SUP RA) ON THE GROUND THAT THE SUPREME COURT WAS NOT DEALING WITH THE CASE RELATING TO CO-OPERATIVE BANKS. THE PRESENT APPEAL IS NOT BEING CONSIDERED ON THE BASIS THAT BANKING IS THE ASSESSE E'S BUSINESS EITHER. 32. MR. BANSAL RELIED UPON THE JUDGMENT OF THE KARN ATAKA HIGH COURT IN TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERAT IVE LTD. V. ITO [2015] 55 TAXMANN.COM 447 (KARN) . IN THAT CASE, THE ASSESSEE-CO-OPERATIVE SOCIETY PROVIDED CREDIT FACIL ITIES TO ITS MEMBERS AND EARNED INTEREST FROM SHORT- TERM DEPOSI TS WITH BANKS AND FROM SAVINGS BANK ACCOUNTS. THE INTEREST INCOME EARNED BY THE ASSESSEE BY PROVIDING CREDIT FACILITIES TO ITS MEMB ERS WAS DEPOSITED IN BANKS FOR A SHORT DURATION WHICH EARNED INTEREST . THE QUESTION WAS WHETHER THIS INTEREST WAS ATTRIBUTABLE TO THE B USINESS OF ITA.2752 & 2753/BANG/2017 PAGE - 8 PROVIDING CREDIT FACILITIES TO THE MEMBERS. THE DIV ISION BENCH HELD AS FOLLOWS : '8. THEREFORE, THE WORD 'ATTRIBUTABLE TO' IS CERTAI NLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. WHENEVER THE LE GISLATURE WANTED TO GIVE A RESTRICTED MEANING, THEY HAVE USED THE EX PRESSION 'DERIVED FROM'. THE EXPRESSION 'ATTRIBUTABLE TO' BEING OF WI DER IMPORT, THE SAID EXPRESSION IS USED BY THE LEGISLATURE WHENEVER THEY INTENDED TO GATHER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS. A CO-OPERATIVE SOCIETY WHICH IS CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, EARNS P ROFITS AND GAINS OF BUSINESS BY PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. THE INTEREST INCOME SO DERIVED OR THE CAPITAL, IF NOT IMMEDIATEL Y REQUIRED TO BE LENT TO THE MEMBERS, THEY CANNOT KEEP THE SAID AMOU NT IDLE. IF THEY DEPOSIT THIS AMOUNT IN BANK SO AS TO EARN INTEREST, THE SAID INTEREST INCOME IS ATTRIBUTABLE TO THE PROFITS AND GAINS OF THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS ONLY. TH E SOCIETY IS NOT CARRYING ON ANY SEPARATE BUSINESS FOR EARNING SUCH INTEREST INCOME. THE INCOME SO DERIVED IS THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO THE ACTIVITY OF CARRYING ON THE BUS INESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS BY A CO- OPERATIVE SOCIETY AND IS LIABLE TO BE DEDUCTED FROM THE GROSS TOTAL I NCOME UNDER SECTION 80P OF THE ACT. 9. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF THE APEX COURT IN THE CASE OF TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD. , ON WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEALING W ITH A CASE WHERE THE ASSESSEE-CO-OPERATIVE SOCIETY, APART FROM PROVI DING CREDIT FACILITIES TO THE MEMBERS, WAS ALSO IN THE BUSINESS OF MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS. THE SALE CONSIDERATION RECEIVED FROM MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WAS RETAINED IN MANY CASES. THE SAID RETAINED AMOUNT WH ICH WAS PAYABLE TO ITS MEMBERS FROM WHOM PRODUCE WAS BROUGHT, WAS I NVESTED IN A SHORT-TERM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH W AS RETAINED BY THE ASSESSEE-SOCIETY WAS A LIABILITY AND IT WAS SHO WN IN THE BALANCE- SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXT ENT, SUCH INTEREST INCOME CAN NOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR UND ER 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 TAXING THE INTEREST INCOME INDICATED ABOVE UNDER SECTION 56 OF THE ACT. FURTHER THEY ITA.2752 & 2753/BANG/2017 PAGE - 9 MADE IT CLEAR THAT THEY ARE CONFINING THE SAID JUDG MENT TO THE FACTS OF THAT CASE. THEREFORE IT IS CLEAR, SUPREME COURT WAS NOT LAYING DOWN ANY LAW. 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVES TED 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 A CCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MO NEY TO THE MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HA D 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. IN FACT SIMILAR VIEW IS TAKEN BY THE ANDHRA PRADESH HIGH CO URT IN THE CASE OF CIT V. A. P. STATE CO-OPERATIVE BANK LTD. REPORT ED IN [2011] 336 ITR 516 (AP) ; [2011] 200 TAXMAN 220/12 TAXMANN.COM 66 . IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLA TE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID A MOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING O RDER. APPEAL IS ALLOWED.' (THE REPRODUCTION IS FROM THE ORIGINAL WEBSITE OF T HE KARNATAKA HIGH COURT). THERE IS AN IMPORTANT DISTINCTION. THE DIVISION BEN CH EXPRESSLY HELD IN PARAGRAPH 10 THAT INTEREST INCOME WAS ATTRIBUTAB LE TO THE BUSINESS OF BANKING AND, THEREFORE, LIABLE TO BE DEDUCTED UN DER SECTION 80P(2)(A)(I) OF THE ACT. AT THE COST OF REPETITION, WE HAVE NOT CONSIDERED WHETHER THE ASSESSEE CARRIES ON THE BUSI NESS OF BANKING. IF IT IS ESTABLISHED UPON REMAND THAT THE ASSESSEE CARRIES ON THE BUSINESS OF BANKING THE RESULT MAY BE DIFFERENT. IN ANY EVENT ASSUMING THAT THE JUDGMENT IS NOT DISTINGUISHABLE O N THIS GROUND, WE WOULD WITH RESPECT DISAGREE WITH THE SAME IN VIEW O F THE JUDGMENTS THAT WE HAVE ALREADY REFERRED TO AND ON THE BASIS O F OUR INTERPRETATION OF TOTGAR'S CASE. IN ANY EVENT, WE A RE WITH RESPECT UNABLE TO AGREE WITH THE OBSERVATIONS THAT THE SUPR EME COURT IN TOTGAR'S CASE (SUPRA) DID NOT LAY DOWN ANY LAW. 33. FOR THE SAME REASON, THE JUDGMENT OF THE KARNAT AKA HIGH COURT IN GUTTIGEDARARA CREDIT CO-OPERATIVE SOCIETY LTD. V . ITO [2015] 377 ITA.2752 & 2753/BANG/2017 PAGE - 10 ITR 464 (KARN); [2015] 60 TAXMANN.COM 215 (KARN) IS OF NO ASSISTANCE TO THE RESPONDENT-ASSESSEE.' 23. THUS, THE AFORESAID JUDGMENTS SUPPORTS THE VIEW TA KEN BY THIS COURT THAT CHARACTER OF INCOME DEPENDS UPON THE NAT URE OF ACTIVITY FOR EARNING THAT INCOME AND THOUGH ON THE FACE OF I T, THE SAME MAY APPEAR TO BE FALLING IN ANY OF THE SPECIFIED CLAUSE S OF SECTION 80P(2) OF THE ACT, BUT ON A DEEPER ANALYSIS OF THE FACTS, IT MAY BECOME INELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) OF TH E ACT. THE CASE IN UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD.(SUPR A) WAS THAT OF SECTION 80P(2)(E) OF THE ACT, WHEREAS IN THE PRE SENT CASE, IT IS UNDER SECTION 80P(2)(D) OF THE ACT. HENCE, THE INCO ME BY WAY OF INTEREST EARNED BY DEPOSIT OR INVESTMENT OF IDLE OR SURPLUS FUNDS DOES NOT CHANGE ITS CHARACTER IRRESPECTIVE OF THE FACT W HETHER SUCH INCOME OF INTEREST IS EARNED FROM A SCHEDULE BANK OR A CO- OPERATIVE BANK AND THUS, CLAUSE (D) OF SECTION 80P(2) OF THE ACT W OULD NOT APPLY IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. TH E PERSON OR BODY CORPORATE FROM WHICH SUCH INTEREST INCOME IS RECEIV ED WILL NOT CHANGE ITS CHARACTER, VIZ. INTEREST INCOME NOT ARIS ING FROM ITS BUSINESS OPERATIONS, WHICH MADE IT INELIGIBLE FOR D EDUCTION UNDER SECTION 80P OF THE ACT, AS HELD BY THE HON'BLE SUPR EME COURT. 08. WE HAVE HEARD THE RIVAL CONTENTION OF THE PARTI ES AND PERUSED THE RECORD. ADMITTED FACTS OF BOTH THE PARTIES ARE THAT THE ASSESSEE IS A SOCIETY CARRYING ON THE BUSINESS OF BANKING WHICH W AS PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS ALSO AN AD MITTED FACT THAT AN AMOUNT OF RS.6,72,804/- WAS DISALLOWED ON THE BASIS OF THE INTEREST EARNED ON THE INVESTMENT. IT IS ALSO NOT DISPUTED THAT THE SAID INTEREST WAS EARNED BY THE ASSESSEE SOCIETY BY MAKING DEPOSI TS IN OTHER COOPERATIVE SOCIETIES / BANKS. WHAT IS DISPUTED B EFORE US IS THAT THE ISSUE IS COVERED BY THE JUDGMENT OF THE HONBLE SUP REME COURT IN TOTGARS COOPERATIVE SALE SOCIETY (SUPRA). IN THIS REGARD IT WILL BE RELEVANT TO NOTE THAT THE HONBLE SUPREME COURT IN THE MATTER OF ITA.2752 & 2753/BANG/2017 PAGE - 11 TOTGARS ______ [(2010) 188 TAXMANN.182], AT PARA 10 HAD RECORDED AS UNDER : - - - - - - - - FROM A PERUSAL OF THE ABOVE, IT IS CLEAR THAT THE C ASE BEFORE THE HONBLE SUPREME COURT WAS IN RESPECT TO THE ACTIVIT IES OF THE ASSESSEE WHICH THE ASSESSEE CLAIMS TO BE FALLING UNDER 80P(2 )(A)(I). FURTHER THE HONBLE SUPREME COURT IN PARA 8 OF THE SAID JUDGMEN T RECORDED THAT THE ASSESSEE IS A COOPERATIVE SOCIETY AND IS PROVID ING CREDIT FACILITIES TO ITS MEMBERS, AGRICULTURAL PRODUCE GROWN BY ITS M EMBERS AND THEREAFTER THE HONBLE SUPREME COURT IN PARA 10 HAD HELD THAT THE INTEREST INCOME EARNED BY THE ASSESSEE SOCIETY IS N OT ATTRIBUTABLE TO THE ACTIVITIES MENTIONED IN 80P(2)(A)(I) OR 80P(2)(A)(I II). WHEREAS IN THE PRESENT CASE THE CORE ACTIVITIES OF THE ASSESSEE IS AS RIGHTLY MENTIONED BY THE LD. AR, IS TO PROVIDE CREDIT FACILITIES AND TO ACCEPT DEPOSITS TO AND FROM THE MEMBERS OF THE SOCIETY. THEREFORE THE RE IS A DIFFERENCE BETWEEN THE ACTIVITIES OF THE ASSESSEE BEFORE US AS WELL AS THE ASSESSEE BEFORE THE HONBLE SUPREME COURT IN THE MATTER OF T OTGARS COOPERATIVE SALE SOCIETY, AS WELL AS BEFORE _______ . THEREFORE IN OUR CONSIDERED OPINION THE RELIANCE OF THE CIT (A) ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE MATTER OF TOTGARS COOPERATIVE SALE SOCIETY [2017] 83 TAXMANN.COM 140 IS NOT CORRECT THOUGH IN OUR HUMBLE UNDERSTANDING OF THE LEGAL PRO VISION AS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN TH E MATTER OF TOTGARS COOPERATIVE SALE SOCIETY [ ITA 100066 OF 20 16, DT.16.06.2017] THAT THE GROUND RAISED IN THE APPEAL BEFORE THE HONBLE ITA.2752 & 2753/BANG/2017 PAGE - 12 JURISDICTIONAL HIGH COURT PERTAINING TO 80P(2)(D) O F THE ACT, BUT NONETHELESS THE ACTIVITIES OF TOTGARS COOPERATIVE S ALE SOCIETY WAS NOT FALLING WITHIN THE REALM OF BANKING AND ACTIVITIES AS FALLING UNDER 80P(2)(A)(I). THEREFORE THIS JUDGMENT WILL NOT BE OF ANY HELP TO THE REVENUE. IN OUR VIEW THE REASONING GIVEN BY THE HO NBLE JURISDICTIONAL HIGH COURT IN THE MATTER OF TUMKUR M ERCHANTS (SUPRA) IN PARA 9 AND 10 (SUPRA) ARE CLEARLY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. IN OUR VIEW THEREFORE T HE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) R.W.S. 80P(2 )(D) OF THE ACT. IN VIEW OF THE ABOVE, APPEAL OF THE ASSESSEE IS ALLOWE D. ITA.2753/BANG/2017 AY 2012-13 : 09. THE FACTS AND CIRCUMSTANCES AS EXISTING IN ITA. 2752/BANG/2017 FOR AY 2011-12, ARE SIMILAR TO THE FACTS OF THE PRE SENT CASE. THEREFORE FOLLOWING THE REASONING GIVEN THEREIN, WE ALLOW THE APPEAL OF THE ASSESSEE IN ITA.2753/BANG/2017. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF JANUARY, 2018. SD/- SD/- (JASON P. BOAZ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 31 JANUARY, 2018 MCN* ITA.2752 & 2753/BANG/2017 PAGE - 13 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY