Shri Sarvodaya Credit Co.Op. Society Ltd., Botad V. The Income Tax Officer, Ward-2(5), Bhavnagar

ITA 3489/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1838 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-03-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 11-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: VIPUL B KHANDHAR
• Keywords: Business income; Question of law
• Section: 56

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA.NO.3489/AHD/2015 / ASSTT. YEAR: 2012-2013 SHRI SARVODAYA CREDIT CO - OP. SOCIETY LTD. PANJARAPOL ROAD TOWER CHOCK PARA, BOTAD 364 710. PAN : AAAAS 7625 L VS ITO, WARD - 2(5) BHAVNAGAR. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI VIPUL B. KHANDHAR, AR REVENUE BY : SHRI NARENDRA SINGH, SR.DR / DATE OF HEARING : 17/03/2016 / DATE OF PRONOUNCEMENT: 05/04/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF THE LD.CIT(A) DATED 23.9.2015 PASSED FOR THE ASSTT.YEAR 2012-13. 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPEL LATE TRIBUNAL) RULES, 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIV E IN NATURE. IN BRIEF, THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE LD.C IT(A) HAS ERRED IN ITA NO.3489/AHD/2015 2 CONFIRMING THE ADDITION OF RS.6,51,958/- IN RESPEC T OF INTEREST INCOME, WHICH THE ASSESSEE HAS CLAIMED AS DEDUCTIBLE UNDER SECTION 80P OF THE INCOME TAX ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF PROVIDING CREDI T FACILITY TO ITS MEMBERS. IT HAS FILED ITS RETURN OF INCOME ON 25.8 .2012 DECLARING TOTAL INCOME AT NIL. ACCORDING TO THE AO, THE ASSESSEE-S OCIETY HAD CLAIMED DEDUCTION UNDER SECTION 80P(2) OF THE ACT OF RS.28, 38,890/-, OUT OF WHICH, RS.5,80,704/- WAS EARNED AS INTEREST INCOME FROM THE BANKS. THE LD.AO HAS OBSERVED THAT AS PER PROVISIONS OF SECTIO N 80P(2)(A)(I) AND 80P(2)(D) OF THE INCOME TAX ACT, INTEREST INCOME EA RNED OUT OF INVESTMENT/DEPOSITS MADE WITH THE NATIONALIZED BANK S ARE NOT DIRECTLY CONNECTED WITH THE BUSINESS ACTIVITIES OF THE ASSES SEE, AND THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SECTIO N 80P OF THE INCOME TAX ACT. 4. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE HAS C ONTENDED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE FOLLOWING DECISIONS: 1 CIT, HYDERABAD VS. ANDHRA PRADESH STATE CO-OP. BANK LTD. (2011) 12 TXMANN.COM 66 (AP); 2 CIT VS. MUZAFFARNAGAR DISTRICT-CO-OP. BANK LTD., (2 012) 28 TAXMANN.COM 132 (ALL.) 3 JAFARI MOMIN VIKAS CO-OP. CREDIT VS. ITO, ITA NO.1491/AHD/2012; ITA NO.3489/AHD/2015 3 4 SHREE SIDDESHWAR SOUHARDHANA SAH. NIYAMIT VS. ITO, ITA NO.5019/2012 (KAR.HIGH COURT DHARWAD BENCH). HE ALSO PLACED ON RECORD COPIES OF THE ABOVE ORDERS OF THE ABOVE DECISIONS. 6. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE CIT(A) HAS FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S.THE TOTGARS COOPERATIVE SALES SOCIETY LTD. VS. ITO, KARNATAKA, 322 ITR 283. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. WE FIND THAT SIMILAR ISSUE HAS C OME UP BEFORE THE ITAT, AHMEDABAD BENCH IN LARGE NUMBER OF CASES. IN ITA NO.1767/AHD/2011 IN THE CASE OF SUPA (KURAL) VIBHAG SEVA SAHARI MANDLI LTD. VS. ITO, ORDER DATED 13.1.2016 THE TRIB UNAL, WHILE ALLOWING THE CLAIM OF THE ASSESSEE, HAS RECORDED THE FOLLOWI NG FINDING: 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. I FIND THAT THE HONBLE HIGH COU RT IN THE CASE OF GUTTIGEDARARA CREDIT CO-OP. SOCIETY LTD., ITO (60 T AXMANN.COM PAGE 215) (KAR) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON SIMI LAR ISSUE. IT IS WORTH TO NOTE RELEVANT OBSERVATIONS OF THE JUDGMENT OF THE H ONBLE KARNATAKA HIGH COURT AS UNDER: 5. LEARNED COUNSEL FOR THE ASSESSEE ASSAILING THE I MPUGNED ORDER CONTENDED THAT THE INTEREST ACCRUED FROM THE DEPOSITS 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 THER EFORE 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 SUPPO RT OF HIS CONTENTIONS, HE RELIED ON SEVERAL JUDGMENTS AND POINTED OUT THAT TH E APEX COURT IN THE AFORESAID JUDGMENT HAS NOT LAID DOWN ANY LAW. ITA NO.3489/AHD/2015 4 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 EARNED FR OM SHORT-TERM DEPOSITS AND FROM SAVINGS BANK ACCOUNT. THE ASSESSEE IS A CO -OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS N OT CARRYING ON ANY OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE ASSESSE E BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS DEPOSITED IN THE BANKS FOR A SHORT DURATION WHICH HAS EARNED INTEREST. THEREFORE, WHETHER THIS INTERE ST IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS, IS THE QUESTION. 8. IN THIS REGARD, IT IS NECESSARY TO NOTICE THE RE LEVANT PROVISION OF LAW I.E., SECTION 80P(2)(A)(I): '80P DEDUCTION IN RESPECT OF INCOME OF CO- OPERATIV E SOCIETIES: (1) WHERE, IN THE CASE OF AN [ ASSESSEE BEING A CO-OPERATIVE S OCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SEC TION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PRO VISIONS 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 MEANING 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 ATTRIBUT ABLE TO THE BUSINESS OF THE SPECIFIED INDUSTRY (HERE GENERATION AND DIST RIBUTION OF ELECTRICITY) ON WHICH THE LEARNED SOLICITOR-GENERAL RELIED, IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATURE HAS DELIB ERATELY USED THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT ITA NO.3489/AHD/2015 5 CANNOT BE DISPUTED THAT THE EXPRESSION 'ATTRIBUTABL E TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. HAD THE EXPRESSION 'DERIVED FROM' BEEN USED, IT COULD HAVE WITH SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISING FROM THE SALE OF OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED AS PROFI TS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF GENERAT ION 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, NAMELY, 'ATTRIBUTABLE TO', HAS BEEN USED, THE LEGISLATURE INTENDED TO COVER RE CEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GE NERATION AND DISTRIBUTION OF ELECTRICITY.' 10. THEREFORE, THE WORD 'ATTRIBUTABLE TO' IS CERTA INLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. WHENEVER THE LEGISLA TURE 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 PROVIDING CRED IT FACILITIES TO ITS MEMBERS, EARNS PROFITS AND GAINS OF BUSINESS BY PRO VIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPITAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO THE MEMBERS, THE SOCIETY CAN NOT KEEP THE SAID AMOUNT 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 INC OME. THE INCOME SO DERIVED IS THE AMOUNT OF PROFITS AND GAINS OF BUSIN ESS ATTRIBUTABLE TO THE ACTIVITY OF CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS BY A CO-OPERATIVE SOCIETY AND IS LIA BLE TO BE DEDUCTED FROM THE GROSS TOTAL INCOME UNDER SECTION 80P OF THE ACT. 11. IN THIS CONTEXT WHEN WE LOOK AT THE JUDGMENT OF 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. ITA NO.3489/AHD/2015 6 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. 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 INT EREST. THE SAID INTEREST 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 COURT IN T HE CASE OF CIT V. ANDHRA PRADESH STATE CO-OPERATIVE 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. ITAT, AHMEDABAD BENCH IN THE CASE OF DHANLAXMI C REDIT CO-OP. SOCIETY, IN ITA NO.2073/AHD/2015 FOR THE ASSTT.YEAR 2012-13 SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL FOR THE ASSTT.Y EAR 2012-13. THE FINDING OF THE TRIBUNAL RECORDED IN PARA-5 OF ITA NO.2073/A HD/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 AV AILABLE AND JUDICIAL PRONOUNCEMENTS REFERRED THEREIN. THE ONLY ISSUE IS IN REGARD TO THE ADDITION OF VARIOUS TYPES OF INCOME SUCH AS RENT, INTEREST INCOME FROM NATIONALIZED BANK, COMMISSION INCOME, O THER INCOME TOTALING TO RS.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/-. AS SUBMITTED IN THE STAT EMENT OF FACTS BY THE ASSESSEE SOCIETY THAT ITS MAIN OBJECT IS TO PROVIDE CREDIT FACILITIES TO ITS ITA NO.3489/AHD/2015 7 MEMBERS AND THE SOCIETY IS NEITHER REGISTERED UNDER BANKING REGULATION ACT NOR DOING ANY BANKING ACTIVITY. SURP LUS 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 SURPLUS FUND WAS GIVEN AS DEPOSIT IN NATIONALIZED BANK TO FETCH SOME INCOME. SIMILAR TYPE OF ISSUES HAS BEEN DEALT BY HONBLE HI GH COURT OF KARNATAKA IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP. LTD. REPORTED IN (2015) 55 TAXMAN.COM 447 (KAR). TH E RELEVANT PORTION FROM THE ABOVE REFERRED JUDGMENT IS REPRODU CED BELOW :- 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVE STED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBERS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABILITY IN THEIR 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 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) O F 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 THE M ATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BEN EFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCOR DINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWE RED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE ASSESSEE SOC IETYS MAIN OBJECT IS TO GIVE CREDIT FACILITIES TO ITS MEMBERS FROM TH E FUNDS RECEIVED FROM THE MEMBERS BY WAY OF COLLECTION OF DEPOSITS FROM I TS MEMBERS IN THE COMMON FUND AND SUCH COMMON FUND IS DEPLOYED IN THE FORM OF GRANTING LOAN TO THE MEMBERS OF THE SOCIETY. AS THE CO-OP. CREDIT SOCIETY IS ENGAGED IN THE MONEY LENDING BUSINESS IT HAS TO MAINTAIN CERTAIN LIQUID FUNDS AS PER VARIOUS RULES AND REGUL ATIONS AND ALSO TO MEET THE MINIMUM REQUIREMENT OF THE FUNDS. AS A MEA SURE OF SAFETY MINIMUM LIQUID AND CONVENIENCE OF FUND MOVEMENT THE APPELLANT SOCIETY HAD TO KEEP ITS SURPLUS LIQUID FUNDS WITH D IFFERENT BANKS INCLUDING NATIONALIZED BANKS. THEREFORE, IN VIEW OF ABOVE DISCUSSION AND RELYING ON THE DECISION OF HONBLE KARNATAKA HI GH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP. LTD .(SUPRA), THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 P(2)(A)(I) OF THE ACT; HOWEVER, RENT INCOME AT RS.18,600, COMMISSION INCOME AT RS.13,701, OTHER INCOME RS.400 AND INCOME TAX 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. ITA NO.3489/AHD/2015 8 7. FURTHER, IT IS ALSO WORTH TO TAKE NOTE OF THE FI NDING RECORDED BY THE ITAT IN THE CASE OF DHANLAXMI CREDIT CO-OP. SOCIETY LTD., IN THE ASSTT.YEAR 2008-09 IN ITA NO.2342/AHD/2012 AS UNDER: 4. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. IT WAS EXPLAINED THAT THE CO-OPERATIVE SOCIETY IS MAINTAIN ING OPERATIONS FUNDS AND TO MEET ANY EVENTUALITY TOWARDS RE-PAYME NT OF DEPOSIT, THE CO-OPERATIVE SOCIETY IS MAINTAINING SOME LIQUIDATED FUNDS AS A SHORT TERM DEPOSIT WITH THE BANKS. THIS ISSUE WAS THOROUG HLY DISCUSSED BY THE ITAT B BENCH AHMEDABAD IN THE CASE OF THE INC OME TAX OFFICER VS. M/S.JAFARI MOMIN VIKAS CO-OP.CREDIT SOC IETY LTD. BEARING ITA NO.1491/AHD/2012 (FOR A.Y. 2009-10) AND CO NO.1 38/AHD/2012 (BY ASSESSEE) ORDER DATED 31/10/2012. THE RELEVANT PORTION IS REPRODUCED BELOW:- 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME CO URT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION OF F ACTS, 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 BUSINESS PURPOSES? THE ASSESSEE(S) MARKETS THE PROD UCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH BY SUCH RETE NTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION, BEFORE US, I S 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, SU CH INTEREST INCOME WOULD COME IN THE CATEGORY OF INCOME FROM O THER SOURCES, HENCE, SUCH INTEREST INCOME WOULD BE TAXA BLE UNDER SECTION 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSES SING OFFICER 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 OF IN VESTMENT CONSTITUTED A BUSINESS ACTIVITY BY A PRUDENT BUSINE SSMAN; ITA NO.3489/AHD/2015 9 THEREFORE, SUCH INTEREST INCOME WAS LIABLE TO BE TA XED UNDER SECTION 28 AND NOT UNDER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUC TION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS R EJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND T HE HIGH COURT, HENCE, THESE CIVIL APPEALS HAVE BEEN FILED B Y 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. 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 FOLLO WING 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 SUR PLUS 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 ONLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS M EMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; ITA NO.3489/AHD/2015 10 - 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 I TS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD INVESTED IN SHORT-TERM DEPOSITS. FURTHERMORE, T HE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AND TH E 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 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 CONCLUSION THAT THE SUM OF RS.9,40,639/- WAS TO BE TAXED U/S.56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 5. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO-ORDINATE BENCH, WE HEREBY HOLD THAT THE BENEFIT OF DEDUCTION U/S.80 P(2)(A)(I) WAS RIGHTLY GRANTED BY LD.CIT(A), HOWEVER, HE HAS WRONG LY HELD THAT THE INTEREST INCOME IS TAXABLE U/S.56 OF THE ACT SO DO NOT FALL UNDER THE CATEGORY OF EXEMPTED INCOME U/S.80P OF THE ACT. THE ADVERSE PORTION OF THE VIEW, WHICH IS AGAINST THE ASSESSEE, OF LD.C IT(A) IS HEREBY REVERSED FOLLOWING THE DECISION OF THE TRIBUNAL CIT ED SUPRA, RESULTANTLY GROUND IS ALLOWED. 8. THE TOTAL INTEREST INCOME RECEIVED BY THE ASSESS EE FROM FDRS. IN NATIONALIZED BANK QUALIFY FOR EXEMPTION UNDER SECTI ON 80P(2)(A)(I). BUT, SINCE THE ASSESSEE ITSELF HAS OFFERED AN AMOUNT OF RS.98,015/- FOR TAXATION, THE ASSESSEE HAS NOT CHALLENGED THE INCLUSION OF TH IS AMOUNT FROM ITS TAXABLE INCOME. THE GROUNDS OF APPEAL WHICH AROSE FROM THE IMPUGNED ORDER PERTAIN TO THE AMOUNTS, OVER AND ABOVE TO THIS. TH EREFORE, IN VIEW OF MY ABOVE DISCUSSION, I ALLOW THE CLAIM OF THE ASSESSEE PARTLY OUT OF TOTAL INTEREST INCOME OF RS.2,48,563/-. THE LD.AO IS DIRECTED TO GRANT EXEMPTION UNDER SECTION 80P(2) OF RS.1,50,548/-. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ITA NO.3489/AHD/2015 11 8. THE TRIBUNAL HAS PLACED ITS RELIANCE UPON THE DE CISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF GUTTIGE DARAR CREDIT CO-OP. SOCIETY LTD. VS. ITO (SUPRA) WHICH HAS CONSIDERED T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF THE TOTGARS C OOPERATIVE SALES SOCIETY LTD. VS. ITO. THEREFORE, RESPECTFULLY FOLL OWING THE ORDER OF THE CO-ORDINATE BENCH, WE ARE OF THE VIEW THAT THE ASSE SSEE IS ENTITLED FOR DEDUCTION OF INTEREST INCOME DERIVED FROM INVESTMEN T OF SURPLUS FUNDS WITH BANKS ALSO. WE ALLOW THE APPEAL OF THE ASSESS EE AND DELETE THE DISALLOWANCE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 5 TH APRIL, 2016 AT AHMEDABAD. SD/- SD/- ( N.K. BILLAIYA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER