Mafatlal Industries Ltd's Employees Co.Op.Credit So.Ltd., Nadiad V. The Income tax Officer,Ward-1, Nadiad

ITA 2797/AHD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5334 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Keywords: Business income; Proportionate interest
• Section: 80HHC; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CREDIT SOCIETY LTD, NEW SHORROCK MILLS COMPOUND, KAPADWANJ ROAD, NADIAD PAN: AAAAM0581D (APPELLANT) VS THE INCOME TAX OFFICER, WARD 1, NADIAD (RESPONDENT) REVENUE BY: SRI K.C.MATHEWS, SR.D.R. ASSESSEE BY: SRI SMT. ARTI SHAH, A.R . DATE OF HEARING : 03-02-2014 DATE OF PRONOUNCEMENT : 07-02-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-IV BARODA DATED 16-10-2012. ITA NO. 2797/AHD/2012 ASSESSMENT YEAR 2009-10 I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 2 2. THE ASSESSEE HAS TAKEN FOLLOWING TWO GROUNDS:- 1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) -IV, BARODA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING AN ADDITION OF RS. 13,58,98O./- BEING THE DISALLOWANCE OF CLAIM MADE BY THE APPELLA NT U/S 80(P)(2)(A)(I) OF THE ACT. THE ENTIRE CLAIM MADE BY THE APPELLANT SOCIETY U/S 80(P)(2)(A)(I) PERTAINED TO INCOME ATTR IBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS WAS FULLY ALLOWABLE. THE DISALLOWANCE OF THE CLAIM RESULTING IN THE ADDITION BEING CONTRARY TO THE FACTS AND IN VIOLATION OF THE PROVISIONS OF LAW DESERVES TO BE DELETED. 2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) -IV, BARODA HAS FURTHER ERRED IN LAW AND IN FACTS IN NOT ALLOWING T HE ALTERNATIVE PLEA OF THE APPELLANT TO ALLOW SETTING OFF OF EXPENDITURE I NCURRED TO EARN THE BANK INTEREST INCOME AS PROVIDED U/S 57 OF THE ACT. 3. FIRST GROUND RELATES TO ADDITION OF RS. 13,58,98 0/- BEING THE DISALLOWANCE OF CLAIM MADE BY ASSESSEE U/S. 80(P)(2 )(A)(I) OF THE ACT. 4. THE FACTS LEADING TO THIS DISALLOWANCE BY AO HAV E BEEN SUMMARIZED BY THE LD. CIT(A) AS UNDER:- 7. AS PER THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF PROFIT AND LOSS ACCOUNT, IT IS OBSERVED THAT THE APPELLANT HAD RECEIVED INTEREST INCOME OF RS. 53,73,809/- AS UNDER: INTEREST ON MEMBERS LOAN : RS. 31,16,44/- INTEREST ON SAVING BANK : RS. 737/- INTEREST ON CALL DEPOSITS : RS 12,35,592/- INTEREST ON NARMADA BOND : RS. 6,39,236/ INTEREST FROM BANK FD : RS. 3,81,803/- TOTAL RS. 53,73,809/- 8. AS PER THE AO, AS CAN BE SEEN FROM THE ABOVE TH AT THE APPELLANT HAD RECEIVED INTEREST INCOME OF RS. 31,L6,440/- ON LOANS ADVANCED TO ITS MEMBERS. AS PER THE AO, AS PER PROVISION OF SEC TION 80P(2)(A)(I) OF THE IT ACT IN THE CASE OF THE CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACI LITIES TO ITS I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 3 MEMBERS, THE WHOLE OF THE PROFIT AND GAINS OF BUSIN ESS ATTRIBUTABLE TO SUCH ACTIVITIES SHALL BE ALLOWED AS DEDUCTION. IN T HIS CASE, THE APPELLANT IS ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE, THE WHOLE OF THE PROFIT AND GAINS OF BUS INESS ATTRIBUTABLE TO SUCH ACTIVITIES WOULD BE DEDUCTIBLE. HOWEVER, EARNI NG OF INTEREST FROM BANKS CANNOT BE AN ACTIVITY FOR WHICH INCOME WOULD BE DEDUCTIBLE AS ENVISAGED IN SECTION 80P(2)(A)(I) OF THE IT ACT. AS PER THE AO, IN VIEW OF THE ABOVE FACTS OF THE CASE, THE APPELLANT VIDE LETTER DATED 15/12/2011 WAS REQUESTED TO SHOW CAUSE AS TO WHY IT S CLAIM OF DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT FOR THE EN TIRE INCOME SHOULD NOT BE RESTRICTED TO THE ELIGIBLE DEDUCTION U/S 80P (2)(A)(I) AND 80P(2)(D) OF THE IT ACT. AS PER THE AO, IN RESPONSE , THE APPELLANT FURNISHED ITS REPLY VIDE LETTER DATED 07/12/2011 AN D THE SUBMISSION OF THE APPELLANT WAS CONSIDERED CAREFULLY BUT THE SAME IS NOT ACCEPTABLE IN VIEW OF THE FACT THAT THE PROVISIONS IN THIS REG ARD IS VERY CLEAR AS TO AVAILABILITY OF DEDUCTION UNDER THIS SECTION AND IT CAN NEVER BE TREATED THAT THE INTEREST RECEIVED ON FIXED DEPOSITS WITH C OMMERCIAL BANK AND NARMADA BOND AS QUALIFIED FOR DEDUCTION U/S 80P(2)( A)(I) OF THE IT ACT AS THAT OF INCOME FROM PROVIDING CREDIT FACILIT IES TO ITS MEMBERS. AS PER THE AO, AS PER THE PROVISIONS OF SECTION 80P (2)(D) OF THE IT ACT, IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVI DENDS DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME IS DEDUCTIBLE. AS PER THE AO, IN THE INSTANT CASE, THE APPELLANT HAS RECEIVED INTEREST F ROM COMMERCIAL BANK AND ACCORDINGLY, SUCH INTEREST INCOME CANNOT B E SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES MENTIONED IN SECTION 80P(2)(A)(I) OF THE IT ACT. AS PER THE AO, IN VIEW OF THE ABOVE DISCUSS ION, AS WELL AS IN VIEW OF THE FACTS AND LEGAL POSITION, IT IS HELD TH AT THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE IT A CT ON INTEREST OF RS 22,81,357/- DETAILS OF WHICH ARE UNDER: INTEREST ON SAVING BANK: RS. 737/- INTEREST ON CALL DEPOSITS: RS. 12,35,592/- INTEREST ON NARMADA BOND : RS. 6,39,236/- INTEREST FROM BANK FD: RS. 3,81,803/- MISCELLANEOUS INCOME: RS. 10,352/- PREVIOUS YEARS SURPLUS PROVISION: RS. 13,637/ - TOTAL : RS. 22,81,357/- I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 4 9. AS PER THE AO, FURTHER WITH DUE RESPECT TO THE DECISION CITED BY THE APPELLANT, IT MAY BE MENTIONED HERE THAT THE FA CTS OF THE DECISION QUOTED BY THE APPELLANT ARE NOT SIMILAR TO THAT OF FACTS OF THE APPELLANT'S CASE AND THEREFORE, THE APPELLANT WOULD NOT GET ANY HELP FROM THE DECISION RELIED UPON BY IT. AS PER THE AO, FURTHER, SO FAR AS THE ALTER-NATIVE CLAIM FOR DEDUCTION OF EXPENSES AN D INTEREST PAYMENT IS CONCERNED THE SAME IS ALSO NOT ACCEPTABLE SINCE THE SAID EXPENDITURE, HAS ALREADY BEEN INCLUDED IN THE TOTAL INTEREST PAID WHICH HAS ALREADY BEEN DEBITED BY APPELLANT TO ARRIVE AT NET PROFIT AS PER PROFIT AND LOSS ACCOUNT AND THEREFORE, NO FURTHER E XPENDITURE REQUIRED TO BE GIVEN FOR EARNING SUCH INCOME. AS PER THE A.O . AFTER EXCLUDING THE INTEREST INCOME AND OTHER INCOME OF RS. 22,81,3 57/- AS DISCUSSED IN PARA 4.6 OF ASSESSMENT ORDER THE TOTAL INCOME OF THE APPELLANT WAS WORKED OUT AT NEGATIVE FIGURES AND THEREFORE, NO DE DUCTION U/S 80P(2)(A)(I) OF THE ACT WAS ALLOWED. THE TOTAL INCO ME OF THE APPELLANT WAS ASSESSED AT RS. 13,58,977/-. 5. LD. CIT(A) AFTER TAKING INTO CONSIDERATION THE S UBMISSION OF THE ASSESSEE WHICH HAS BEEN REPRODUCED BY HIM IN PARA 4 OF HIS ORDER HAS CONFIRMED THIS DISALLOWANCE BY OBSERVING AS UNDER:- 11. THE ASSESSMENT ORDER AND THE SUBMISSION OF THE APPELLANT HAS BEEN CONSIDERED. THE ABOVE ENTIRE SUBMISSION OF THE APPELLANT IS NOT FOUND TO BE ACCEPTABLE. THE APPELLANT'S AR VIDE HIS SUBMISSION DATED 13-06-2012 HAS STATED THAT THE APPELLANT IS A CO-OP ERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBER. IT IS NOW SETTLED POSITION OF LAW THAT THE INTEREST IN COME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOSITS AND SECURIT IES IS REQUIRED TO BE TAX U/S 56 OF THE IT ACT BEING THE SAME INCOME FROM OTHER SOURCES. IN THIS REGARD SUPPORT IS DRAWN FROM THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF TOTGARS' CO-OPERATIVE SALE SOC IETY LTD. VS. ITO (2010) 188 TAXMAN 282. IN THIS REFERRED CASE, THE A SSESSEE WAS A COP-OPERATIVE CREDIT SOCIETY AND ITS BUSINESS WAS T O PROVIDE CREDIT FACILITIES TO ITS MEMBER AND TO MARKET THEIR AGRICU LTURAL PRODUCTS. DURING THE RELEVANT ASSESSMENT YEARS, IT HAD SURPLU S FUND WHICH WAS INVESTED IN SHORT TERM DEPOSITS WITH THE BANK AND I N THE GOVERNMENT SECURITIES AND EARNED INTEREST THEREON. ACCORDING T O THE ASSESSEE, ITS ACTIVITY CONSTITUTED 'ELIGIBLE ACTIVITY' U/S 80P(2) (A)(I) AND HENCE IT WAS ENTITLED TO THE BENEFIT OF DEDUCTION FROM ITS GROSS TOTAL INCOME. IN VIEW OF THESE THE ASSESSEE CLAIMED DEDUCTION U/S 80P(2)( A)(I) IN RESPECT OF I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 5 SUCH INTEREST INCOME. THE MATTER WENT TO TRIBUNAL A ND THE TRIBUNAL HELD THAT SUCH INTEREST INCOME WOULD FALL UNDER THE HEAD 'INCOME FROM OTHER SOURCES' U/S 56 AND NOT U/S 28 AND CONSEQUENT LY, THE ASSESSEE SOCIETY WOULD NOT BE ENTITLED TO DEDUCTION U/S 80P( 2)(A)(I). THE HON'BLE HIGH COURT AFFIRMED THE DECISION OF THE TRI BUNAL. THE MATTER WENT TO SUPREME COURT. 'IT WAS THE CASE OF THE ASSESSEE(S) BEFORE US THAT THE ASSESSEE(S) IS A COOPERATIVE CREDIT SOCIETY. ITS BUSINESS IS TO PRO VIDE CREDIT FACILITIES TO ITS MEMBERS AND TO MARKET THE AGRICULTURAL PRODUCE OF ITS MEMBERS. ACCORDING TO THE ASSESSEE(S), ITS ACTIVITY CONSTITU TED 'ELIGIBLE ACTIVITY' UNDER SECTION 80P(2)(A)(I) OF THE ACT, HENCE, IT WA S ENTITLED TO THE BENEFIT OF DEDUCTION FROM ITS GROSS TOTAL INCOME. I N THIS CONNECTION, IT WAS URGED THAT, UNDER SECTION 80P(2) OF THE ACT, TH E WHOLE OF THE AMOUNT OF 'BUSINESS PROFITS' ATTRIBUTABLE TO ANY ON E OF THE ENUMERATED ACTIVITIES IS ENTITLED TO DEDUCTION. ACCORDING TO T HE ASSESSEE(S), ONE NEED NOT GO BY THE SOURCE/ HEAD OF SUCH INTEREST IN COME BECAUSE NO SOONER INTEREST INCOME ACCRUED TO THE ASSESSEE(S) O N ABOVE-MENTIONED SPECIFIED DEPOSITS/SECURITIES, IT BECAME BUSINESS I NCOME ATTRIBUTABLE TO THE ACTIVITY CARRIED ON BY THE ASSESSEE(S) BY CR EDIT FACILITIES TO ITS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS AND NO SOONER SUCH INTEREST INCOME FALLS UNDER THE HEAD 'B USINESS PROFITS' ATTRIBUTABLE TO ONE OR MORE OF SUCH ELIGIBLE ACTIVI TIES, SUCH INTEREST INCOME BECAME ELIGIBLE FOR DEDUCTION UNDER THE SAID SECTION. THE ASSESSEE(S) FURTHER CONTENDED, BEFORE US, THAT, UND ER REGULATIONS 23 AND 28 READ WITH SECTIONS 57 AND 58 OF THE KARNATAK A COOPERATIVE SOCIETIES ACT, 1959, A STATUTORY OBLIGATION WAS IMP OSED ON COOPERATIVE CREDIT SOCIETIES TO INVEST ITS SURPLUS FUNDS IN SPECIFIED SECURE-TIES AND, IN VIEW OF SUCH STATUTORY OBLIGATI ON, THE ABOVE- MENTIONED INTEREST INCOME DERIVED FROM SHORT-TERM D EPOSITS AND SECURITIES MUST BE CONSID-ERED AS INCOME DERIVED BY THE ASSESSEE(S) FROM ITS BUSINESS ACTIVITIES. IN THE ALTERNATIVE, I T WAS SUBMITTED THAT, EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT SUCH IN TEREST INCOME IS HELD TO BE COVERED BY SECTION 56 OF THE ACT UNDER T HE HEAD 'INCOME FROM OTHER SOURCES', EVEN THEN THE ASSESSEE-SOCIETY WAS ENTITLED TO THE BENEFIT OF SECTION 80P(2)(A)(I) OF THE ACT. IN THI S CONNECTION, LEARNED COUNSEL FOR THE ASSESSEE(S) SUBMITTED, PLACING RELI ANCE ON NUMEROUS JUDGMENTS, THAT THE SOURCE OR HEAD OF INCOME WAS IR RELEVANT FOR DECIDING THE QUESTION AS TO WHETHER A GIVEN ITEM IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE ACT. ACCORDING T O THE ASSESSEE(S), I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 6 ONCE INTEREST INCOME ACCRUES ON SPECIFIED INVESTMEN TS, PAR-TICULARLY WHEN A LOCAL ENACTMENT MAKES IT STATUTORILY INCUMBE NT ON THE SOCIETY TO INVEST IN SPECIFIED INVESTMENTS, THE INTEREST IN COME IS AUTOMATI-CALLY ELIGIBLE FOR DEDUCTION IRRESPECTIVE OF THE SOURCE O R HEAD UNDER WHICH SUCH INCOME WOULD FALL. IN THIS CONNECTION, LEARNED COUNSEL FOR THE ASSESSEE(S) SUBMITTED THAT ONE NEEDS TO COMPARE THE LANGUAGE OF SECTION 80P(2)(A)(I) AND (III) OF THE ACT WITH EXPL ANATION (BAA) TO SECTION 80HHC , THE LANGUAGE USED IN SECTION 80HHD(3) AND THE WORDS USED IN SECTION 80HHE(5) OF THE ACT. IN THIS CONNECTION, IT WAS URGED THAT THERE IS A WIDE CONTRAST IN THE LANGUAGE BETWEEN SECTION 80P(2)(A) ON ONE HAND AND THE LANGUAGE USED IN SECT ION 80HHC READ WITH EXPLANATION (BAA), SECTION 80HHD(3) AND SECTIO N 80HHE(5) AS ALSO THE LANGUAGE USED IN SECTIONS 72 AND 32AB OF T HE ACT. ACCORDING TO ASSESSEE(S) , IF ONE KEEPS THIS CONTRAST IN MIND, IT IS CLEAR THA T THE CONCEPT OF HEAD OF INCOME OR SOURCE OF INCOME WILL NOT APPLY TO THE PROVISIONS OF SECTION 80P(2) OF THE ACT BECAUSE WHE REVER PARLIAMENT INTENDED TO EMPHASISE THE APPLICABILITY OF SUCH CON CEPT IT HAS EXPRESSLY SO STATED IN THE RELEVANT SECTION. ACCORD ING TO THE ASSESSEE(S) , BY WAY OF ILLUSTRATION, UNDER EXPLANATION (BAA) TO SECTION 80HHC OR UNDER SECTION 80HHD(3) OR UNDER SECTION 80 HHE(5) , ETC., THE WORDS USED ARE, 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS'. THEREFORE, ACCORDING TO THE ASSESSEE(S) , WHEN SUCH WORDS DO NOT FIND PLACE IN SECTION 80P(2) OF THE ACT, IT IS CLEAR THA T THE CONCEPT OF SOURCE OF INCOME OR HEAD OF INCOME IS NOT IN-BUILT IN SECT ION 80P(2) OF THE ACT AND , CONSEQUENTLY, SUCH A CONCEPT CANNOT BE READ INTO T HE SAID SECTION. AS STATED ABOVE, ACCORDING TO THE ASSESSEE (S) , NO SOONER SURPLUS FUNDS ARE INVESTED IN SPECIFIED SECURITIES, INTEREST INCOME FROM SUCH INVESTMENT IS AUTOMATICALLY ELIGIBLE FOR DEDUC TION UNDER SECTION 80P(2)OF THE ACT. 9. IN ORDER TO DETERMINE THE ISSUE INVOLVED IN THES E CIVIL APPEALS, WE NEED TO REPRODUCE HEREINBELOW THE RELEVANT PROVISIO N OF SECTION 80P OF THE ACT, AS IT STOOD AT THE MATERIAL TIME. IT RE ADS THUS: 'DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOC IETIES.(1) WHERE , IN THE CASE OF AN ASSESSEE BEING A CO-OPERATIVE SOC IETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUBSECTIO N (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 ASSESSES, I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 7 (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E THE FOLLOWING, NAMELY : (A) IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED I N (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS, OR (II) A COTTAGE INDUSTRY, OR (III)THE MARKETING OF THE AGRICULTURAL PRODUCE OF I TS MEMBERS, OR (IV)THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SEEDS , LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTUR E FOR THE PURPOSE OF 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 ME MBERS, 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 AMOUNT OF PROFITS AND GAINS OF BUS INESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES.' 10. AT THE OUTSET, AN IMPORTANT CIRCUMSTANCE NEEDS TO BE HIGHLIGHTED. IN THE PRESENT CASE, THE INTEREST HELD NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT IS NOT THE INTEREST RECEIVED FROM THE MEMBERS FOR PROVIDING CREDIT FACILITIES 'TO THEM. W HAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST I NCOME ARISING ON THE SURPLUS INVESTED IN SHORT-TERM DEPOSITS AND SECURIT IES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES. ASSESSEE(S ) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TRE ATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH RETENTION W AS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION, BEFORE US, IS - WHETHER I NTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUE S TO THE MEMBERS ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SE CTION 28 OF THE ACT? IN OUR VIEW, SUCH INTEREST INCOME WOULD COME I N THE CATEGORY OF 'INCOME FROM OTHER SOURCES', HENCE, SUCH INTEREST I NCOME WOULD BE TAXABLE UNDER SECTION 56 OF THE ACT, AS TIGHTLY HEL D BY THE ASSESSING OFFICER. IN THIS CONNECTION, WE MAY ANALYZE SECTION 80P OF THE ACT. THIS SECTION COMES IN CHAPTER VI-A, WHICH, IN TURN, DEALS WITH 'DEDUCTIONS IN RESPECT OF CERTAIN INCOMES'. THE HEA DNOTE TO SECTION I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 8 80P INDICATES THAT THE SAID SECTION DEALS WITH DEDU CTIONS IN RESPECT OF INCOME OF CO-OPERATIVE SOCIETIES. SECTION 80P(1), I NTER ALIA, STATES THAT WHERE THE GROSS TOTAL INCOME OF A CO-OPERATIVE SOCI ETY INCLUDES ANY INCOME FROM ONE OR MORE SPECIFIED ACTIVITIES, THEN SUCH INCOME SHALL BE DEDUCTED FROM THE GROSS TOTAL INCOME IN COMPUTIN G THE TOTAL TAXABLE INCOME OF THE ASSESSEE-SOCIETY. AN INCOME, WHICH IS ATTRIBUTABLE TO ANY OF THE SPECIFIED ACTIVITIES IN SECTION 80P(2) OF THE ACT, WOULD BE ELIGIBLE FOR DEDUCTION. THE WORD 'INC OME' HAS BEEN DEFINED UNDER SECTION 2(24)(I) OF THE ACT TO INCLUD E PROFITS AND GAINS. THIS SUB-SECTION IS AN INCLUSIVE PROVISION. THE PAR LIAMENT HAS INCLUDED SPECIFICALLY 'BUSINESS PROFITS' INTO THE D EFINITION OF THE WORD 'INCOME'. THEREFORE, WE ARE REQUIRED TO GIVE A PREC ISE MEANING TO THE WORDS 'PROFITS AND GAINS OF BUSINESS' MENTIONED IN SECTION 80P(2) OF THE ACT. IN THE PRESENT CASE, AS STATED ABOVE, ASSE SSEE-SOCIETY REGULARLY INVESTS FUNDS NOT IMMEDIATELY REQUIRED FO R BUSINESS PURPOSES. INTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTA BLE TO THE ACTIVITIES OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF THE AGRIC ULTURAL PRODUCE OF ITS MEMBERS. WHEN THE ASSESSEE-SOCIETY PROVIDES CRE DIT FACILITIES TO ITS MEMBERS, IF EARNS INTEREST INCOME. AS STATED ABOVE, IN THIS CASE, INTEREST HELD AS INELIGIBLE FOR DEDUCTION UNDER SEC TION 80P(2)(A) IS NOT IN RESPECT OF INTEREST RECEIVED FROM MEMBERS. IN TH IS CASE WE ARE ONLY CONCERNED WITH INTEREST WHICH ACCRUES ON FUNDS NOT REQUIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINESS PUR POSES AND WHICH HAVE BEEN ONLY INVESTED IN SPECIFIED SECURITIES AS 'INVESTMENT'. FURTHER AS STATED ABOVE, ASSESSEE(S) MARKETS THE AG RICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS THE SALE PROCEEDS IN MAN Y CASES. IT IS THIS 'RETAINED AMOUNT' WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WAS INVESTED IN SHORT-TER M DEPOSITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETA INED BY THE ASSESSEE-SOCIETY, WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE-SHEET ON THE LIABILITY-SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CAN NOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SE CTION 80P(2)(A)(I) OF THE ACT OR IN SECTION 80P(2)(A)(III) OF THE ACT. T HEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE VIEW THAT THE I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 9 ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME, INDICATED ABOVE, UNDER SECTION 56 OF THE ACT. 11. AN ALTERNATIVE SUBMISSION WAS ADVANCED BY THE A SSESSEE(S) STATING THAT, IF INTEREST INCOME IN QUESTION IS HELD TO BE COVERED BY SECTION 56 OF THE ACT , EVEN THEN, THE ASSESSEE-SOCIETY IS ENTITLED TO THE BENEFIT OF SECTION 80P(2)(A)(I) OF THE ACT IN RESPECT OF SUCH INTEREST INCOME. WE FIND NO MERIT IN THIS SUBMISSION. SECTION 80P(2)(A )(I) OF THE ACT CANNOT BE PLACED AT PAR WITH EXPLANATION (BAA) TO S ECTION 80HHC , SECTION 80HHD(3) AND SECTION 80HHE(5) OF THE ACT. EACH OF THE SAID SECTIONS HAS TO BE INTERPRETED IN THE CONTEXT OF IT S SUBJECT-MATTER. FOR EXAMPLE, SECTION 80HHC OF THE ACT, AT THE RELEVANT TIME, DEALT WITH DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. THE SCOPE OF SECTION 80HHC IS , THEREFORE, DIFFERENT FROM THE SCOPE OF SECTION 80P OF THE ACT , WHICH DEALS WITH DEDUCTION IN RESPECT OF INCOME OF CO- OPERATIVE SOCIETIES. EVEN EXPLANATION (BAA) TO SEC TION 80HHC WAS ADDED TO RESTRICT THE DEDUCTION IN RESPECT OF PROFI TS RETAINED FOR EXPORT BUSINESS. THE WORDS USED IN EXPLANATION (BAA) TO SE CTION 80HHC , THEREFORE, CANNOT BE COMPARED WITH THE WORDS USED I N SECTION 80P OF THE ACT WHICH GRANTS DEDUCTION IN RESPECT OF 'THE W HOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS'. A NUMBER OF JUDG MENTS WERE CITED ON BEHALF OF THE ASSESSEE(S) IN SUPPORT OF ITS CONT ENTION THAT THE SOURCE WAS IRRELEVANT WHILE CONSTRUING THE PROVISIONS OF S ECTION 80P OF THE ACT. WE FIND NO MERIT BECAUSE ALL THE JUDGMENTS CIT ED WERE CASES RELATING TO CO-OPERATIVE BANKS AND ASSESSEE-SOCIETY IS NOT CARRYING ON BANKING BUSINESS. WE ARE CONFINING THIS JUDGMENT TO THE FACTS OF THE PRESENT CASE. TO SAY THAT THE SOURCE OF INCOME IS NOT RELEVANT FOR DECID ING THE APPLICABILITY OF SECTION 80P OF THE ACT WOULD NOT BE CORRECT BECA USE WE NEED TO GIVE WEIGHTAGE TO THE WORDS 'THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS' ATTRIBUTABLE TO ONE OF THE ACTIVITIES SPECIFIED IN SECTION 80P(2)(A ) OF THE ACT. AN IMPORTANT PAINT NEEDS TO BE MENTIONED. THE WORDS 'THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS' EMPHASISE THAT THE INCOME IN RESPECT OF WHICH DEDUC TION IS SOUGHT MUST CONSTITUTE THE OPERATIONAL INCOME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. IN THIS PARTICULAR CA SE, THE EVIDENCE SHOWS THAT THE ASSESSEE-SOCIETY EARNS INTEREST ON F UNDS WHICH ARE NOT REQUIRED FOR BUSINESS PURPOSES AT THE GIVEN POINT O F TIME. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE , IN OUR VIEW, SUCH INTEREST I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 10 INCOME FALLS IN THE CATEGORY OF 'OTHER INCOME' WHIC H HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT UNDER SECTION 56 OF THE ACT '. 12. FROM THE ABOVE DECISION OF HON'BLE SUPREME COUR T IT IS CLEAR THAT THE ONLY INTEREST WHICH IS RECEIVED BY THE CO-OP. C REDIT SOCIETY FROM ITS MEMBERS FOR PROVIDING CREDIT FACILITIES TO THEM IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. HOWEVER, THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOS ITS, INTEREST FROM SAVING BANK, INTEREST FROM CALL DEPOSITS, INTEREST ON NARMADA BOND, MISCELLANEOUS INCOME AND PREVIOUS YEAR SURPLUS PROV ISION ETC. WOULD COME IN THE CATEGORY OF 'INCOME FROM OTHER SOURCES' AND THEREFORE SUC INTEREST INCOME WOULD BE TAXABLE U/S 56 OF THE ACT. SUCH INTEREST INCOME DO NOT FALL WITHIN THE MEANING OF EXPRESSION 'PROFITS AND GAINS OF BUSINESS', 'SUCH BUSINESS INCOME CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE CO-OP CREDIT SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FA CILITIES TO ITS MEMBER OR MARKETING FACILITIES TO ITS MEMBERS. IN VIEW O F ABOVE DECISION OF HON'BLE SUPREME COURT, I HOLD THAT THE AO HAS CORRE CTLY HELD THAT THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)( A)(I) IN RESPECT OF INTEREST OF RS 22,81,357/. THUS, THE ACTION OF AO REGARDING REJECTION OF APPELLANT'S CLAIM OF DEDUCTION OF THIS INTEREST INCOME OF RS. 22,81,357/- U/S 80P(2)(A)(I) HEREBY CONFIRMED. 6. SINCE LD. CIT(A) HAS CONFIRMED THE ACTION OF AO BY PLACING RELIANCE ON THE DECISION OF APEX COURT WHICH IS SQUARELY APP LICABLE TO THE FACTS OF THIS CASE AND LEARNED COUNSEL OF THE ASSESSEE DID N OT BRING ANY CONTRARY BINDING DECISION ON THE ISSUE ON RECORD, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHE LD. THIS GROUND OF THE ASSESSEE IS DISMISSED. 7. GROUND NO. 2 OF THE ASSESSEE IS AN ALTERNATE PLE A OF THE ASSESSEE TO ALLOW SETTING OFF OF EXPENDITURE INCURRED TO EARN T HE INCOME OF BANKING INTEREST AS PROVIDED U/S 57 OF THE ACT. THIS ALTER NATE PLEA HAS BEEN REJECTED BY LOWER AUTHORITIES BY HOLDING THAT SUCH EXPENSES HAVE ALREADY BEEN DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCO UNT TO ARRIVE AT NET PROFIT I.T.A NO.2797/AHD/2012 A.Y. 2009-10 PAGE NO MAFATLAL INDUSTRIES LTDS EMPLOYEES CO-OPERATIVE CR EDIT SOCIETY LTD 11 AND THEREFORE NO FURTHER EXPENDITURE WAS REQUIRED T O BE ALLOWED FOR EARNING SUCH INCOME AFTER EXCLUDING THE INTEREST INCOME AND OTHER INCOME OF RS. 22,81,357/-. 8. BEFORE US LEARNED COUNSEL OF THE ASSESSEE HAS SU BMITTED A STATEMENT SHOWING INTEREST INCOME AND INTEREST EXPENSES ACCOR DING TO WHICH PROPORTIONATE INTEREST TO THE EXTENT OF RS. 6,04,39 0/- ONLY SHOULD HAVE BEEN DISALLOWED. SINCE THESE DETAILS WERE NOT BEFORE LO WER AUTHORITIES, WE DEEM IT PROPER THAT MATTER BE SENT BACK TO THE FILE OF A O FOR FRESH ADJUDICATION AS PER LAW AFTER VERIFYING THESE DETAILS. WE HOLD ACC ORDINGLY. THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PU RPOSE. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 07/02/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,