Chhattisgad Urban Credit sahakari Sanstha Maryadit, Nagpur V. INCOME TAX OFFICER-Wrd 4(1), Nagpur

ITA 371/NAG/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93399 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 56; 28

Judgement Text

1 ITA NO. 371/NAG/2012 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.371/NAG/2012 ASSESSMENT YEAR : 2009-10. CHHATTISGAD URBAN CREDIT SAHAKARI THE INCOME-TAX OFFICER, SANSTHA MARYADIT, V/S. WARD-4(1), NAGPUR. 430A SHITALL MATA MANDIR CHOWK, BANK CHOWK, DIPTISIGNAL, NAGPUR-440 008. PAN AAAACC846K. APPELLANT. RESPONDEN T. APPELLANT BY :SHRI MAHAVIR ATAL. RESPONDENT BY : SHRI P.R. MANE. DATE OF HEARING - 23-04-2015 DATE OF PRONOUNCEMENT : 27-05-2015. O R D E R PER SHRI SHAMIM YAHYA, A.M. THIS APPEAL BY THE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS)-II, NAGPUR AND PERTAINS TO ASSESSMENT YEAR 2009-10. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER : 2 ITA NO. 371/NAG/2012 1. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT INTEREST RECEIVED OF AN AMOUNT OF ` .1972805/- IS TAXABLE. 2. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT INTEREST RECEIVED FROM THE BANKS AND COOPERATIVE SOCIETIES OF ` .2,99,520/- IS NOT ENTITLED TO DEDUCTION U/S 80(P)(2)(D) AND ACCORDINGLY ENHANCE THE INCOM E OF ` .10,26,715/-. 2. IN THIS CASE THE ASSESSEE IS A COOPERATIVE SOCIE TY INVOLVED IN BANKING BUSINESS AND PROVIDES CREDIT FACILITIES TO ITS MEMB ERS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF ` .36,69,599/- UNDER SECTION 80P OF THE I.T. ACT. THE ASSESSING OFFICER NOTED THAT AS PER S ECTION 80P(4) PROVISIONS OF ABOVE SECTION WILL NOT APPLY IN RELATION TO ANY COOPERATI VE BANKING OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY AGRICULTU RAL CREDIT SOCIETY OR A PRIMARY AGRICULTURAL CREDIT COOPERATIVE AGRICULTURAL AND RU RAL DEVELOPMENT BANK. ASSESSEES COUNSEL REPLIED THAT THEY ARE NOT COOPER ATIVE BANK BUT COOPERATIVE CREDIT SOCIETY. HENCE THE PROVISIONS OF SECTION 80P (4) WERE NOT APPLICABLE TO THEM. THE ASSESSING OFFICER REFERRED TO THE PROVISI ONS OF SECTION 80P. HE OBSERVED AS UNDER : IT IS APPARENT FROM THE ABOVE TEXT THAT AS PER T HE PROVISIONS OF SUB- SECTION 4 OF SECTION 80P DEDUCTION UNDER SECTION 8 0P IS AVAILABLE ONLY TO PRIMARY AGRICULTURAL CREDIT SOCIETY AND PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS. IN THE INSTANT CASE T HE ASSESSEE IS NEITHER A PRIMARY AGRICULTURAL CREDIT SOCIETY AS DEFINED IN SECTION 56(VVIV) IN PART V OF BANKING REGULATION ACT, 1949 WHICH HAS B EEN REFER RED TO IN CONTEXT OF THE EXPLANATION TO SEC. 80P NOR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THEREAFTER THE ASSESSING OFFICER CONSIDERED THE ISS UE AS TO WHETHER THE ASSESSEE IS A COOPERATIVE BANK OR NOT. HE CONCLUDED AS UNDER : FROM THE ABOVE DISCUSSION, IT NOW BECOMES CRYSTAL CLEAR WITHOUT ANY SCOPE FOR AMBIGUITY THAT THE ASSESSEE FULFILLS THE FIRST CONDITION ALSO TO BE 3 ITA NO. 371/NAG/2012 DEFINED AS A COOPERATIVE BANK AS MENTIONED IN SECT ION 50(C)(I)(CCV) OF PART V OF BANKING REGULATION ACT, 1949 WHICH RENDERS IT INELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE INCOME-TAX ACT, 1961. 3. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS RECEIVED INTEREST ON FIXED DEPOSIT/SECURITIES. HE WAS OF THE OPINION THAT THIS INTEREST RECEIVED ARE NOT BUSINESS PROFITS AND HENCE NOT ELI GIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I). THE ASSESSEE ARGUED THAT ITS ACTIVITY FOR PROVIDING FACILITIES TO ITS MEMBER WAS AN ELIGIBLE ACTIVITY UNDER SECTION 8 0P(2)(A)(I) AND THAT AS THE INVESTMENTS WERE MADE AS PER STATUTORY REQUIREMENT, THE BENEFIT WAS ALLOWABLE FROM THE GROSS PROFIT. THE ASSESSING OFFICER DID NO T ACCEPT THIS CONTENTION. HE HELD THAT INTEREST EARNED BY THE SOCIETY ON FIXED D EPOSITS CANNOT BE SAID TO BE INCOME FROM BUSINESS BUT IS INCOME FROM OTHER SOURC ES LIABLE TO TAX UNDER SECTION 36 AND NOT ENTITLED FOR DEDUCTION UNDER SECTION 80P (2)(A). THE ASSESSING OFFICER FURTHER OBSERVED AS UNDER : AS PER THE PROVISIONS OF SECTION 80P(2)(D) PROVI DES DEDUCTION IN RESPECT T OF ANY INCOME BY WAY OF INTEREST DERIVED BY CO-OPE RATIVE SOCIETY FROM ITS INVESTMENT WITH ANY OTHER CO-OPERATIVE SOCIETY, TH E WHOLE OF SUCH INCOME THE LEGISLATURE HAS GIVEN EXCLUSIVE FACILITY TO CO -OPERATIVE SOCIETIES TO AVAIL DEDUCTION ON INTEREST EARNED ON ANY DEPOSITS MADE IN ANOTHER CO- OPERATIVE SOCIETY.------ -------------. IN THE INSTANT CASE INTEREST RECEIVED FROM (A) PAR MATMA BANK, (B)SHIKSHAK BANK (C) NAGPUR NAGRIK BANK, AND (D) UMIYA BANK LI ABLE TO BE DISALLOWED. THE WORKING IS AS UNDER :- INTEREST RECEIVED FROM ALL BANKS TOGETHER- ` .29,99,520/- (ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES ) (-) INTEREST RECEIVED FROM NATIONALISED & GOVT. AIDED BANK I.E. UNION BANK & NDC BANK IS AT 4 ITA NO. 371/NAG/2012 ` .10,26,715/- ( ` .29,99,520/- (-) ` .10,26,715/-) = ` .19,72,805/-. THE AMOUNT OF INTEREST EARNED FROM PARMATMA BANK, SHIKSHAK SA H. BANK, NAGPUR NAGRIK BANK AND UMIYA BANK AMOUNTING TO ` .19,72,805/- IS NOT ELIGIBLE FOR DEDUCTION U/S 80-P AND IS TAXABLE. ACCORDINGLY DI SALLOWED. 4. AGAINST THE ABOVE ORDER, ASSESSEE APPEALED BEFOR E THE LEARNED CIT(APPEALS). THE LEARNED CIT(APPEALS) HELD THAT TH E ASSESSEE CANNOT BE SAID TO BE A COOPERATIVE BANK. HOWEVER, AS REGARDS THE TREA TMENT OF INTEREST INCOME FROM FIXED DEPOSIT, LEARNED CIT(APPEALS) WAS OF THE OPINION THAT INTEREST INCOME EARNED WAS TAXABLE AS INCOME FROM OTHER SOURCES. IN THIS REGARD, LEARNED CIT(APPEALS) REFERRED TO THE DECISION OF HONBLE AP EX COURT IN THE CASE OF TOTGARS COOPERATIVE SALES SOCIETY LTD. V/S. ITO 322 ITR 283 (SC). THE LEARNED CIT(APPEALS) CONCLUDED AS UNDER : HENCE ADDITIONS MADE BY A.O. ARE CONFIRMED AND AL SO APPELLANTS INCOME I.E. INTEREST INCOME RECEIVED FROM GOVERNMENT BANK S AND NDC BANK IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(D) AND ENTIRE A MOUNT OF ` .29,99,520/- IS TO BE TREATED INCOME FROM OTHER SOURCES AND TAXE D ACCORDINGLY. IN THE RESULT, INCOME AS DETERMINED BY A.O. IS ENHANCED B Y AN AMOUNT OF ` .10,26,715/-. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL B EFORE US. 5. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED TH AT ASSESSEE IS A COOPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE OBJECTS OF THE SOCIETY WERE ENUMERATED AS UNDER : OBJECTS OF THE TRUST: I. TO ENCOURAGE SAVINGS AMONG MEMBERS AND TO FOLLO W RULES & PROCEDURES OF THE SOCIETY. II. TO RECEIVE DEPOSITS FROM MEMBERS. III. TO ACCEPT LOAN AND TO RAISE FUNDS. 5 ITA NO. 371/NAG/2012 IV. TO ADVANCE LOAN TO MEMBERS ON MORTGAGE OF IMMO VABLE PROPERTY AND PERSONAL LOANS. V. TO PURCHASE LAND AND BUILDING WITH PROPER PRIOR PERMISSION OF REGISTRAR OFFICE. VI. TO AUCTION AND RECOVER MONEY FROM MORTGAGED AS SETS IN EVENT OF DEFAULT BY BORROWER. VII. TO PROVIDE LOAN FOR SMALL SCALE INDUSTRIES, C OTTAGE INDUSTRIES AND SELF EMPLOYMENT BUSINESS. VIII. TO MAINTAIN STOCK OF ASSETS AND SAFEGUARD AS SETS OF SOCIETY. IX. TO DO ALL ALLIED ACTIVITIES TO ACCOMPLISH ABOV E MENTION ANY OR ALL OBJECTS. 6. THEREAFTER LEARNED COUNSEL MADE THE FOLLOWING SU BMISSIONS: DURING THE YEAR UNDER CONSIDERATION BALANCE OF DE POSITS RECEIVED AS ON 31 ST MARCH IS TO THE TUNE OF ` .4,72,69,843.42/-. OUT OF THE TOTAL DEPOSITS 80% OF DEPOSITS I.E. AN AMOUNT OF ` .3,80,58,669/- IS RECEIVED AS SAVING DEPOSITS AND D AILY DEPOSITS (PIGMY). THESE DEPOSITS ARE SHORT TERM LIA BILITY OF THE SOCIETY WHICH NEEDS TO BE REPAID AS AND WHEN THE DEPOSITOR SEEKS REPAYMENT. MOREOVER SOCIETY ALSO HAS A SHARE CAPITAL OF ` .1,29,49,400/-. EVEN THIS NEEDS TO B E BUY BACK/REDEEMED TO THE MEMBERS AS AND WHEN MEMBERS AP PROACHES FOR REDEMPTION. THEREFORE, THE SOCIETY ALWAYS NEEDS TO MAINTAIN A VERY HIGH LIQUID FUNDS TO HONOUR TIME COMMITMENTS. THE LEARNED COUNS EL FURTHER SUBMITTED THAT PERUSAL OF BALANCE SHEET WILL REFLECT THAT ASSESSEE HAS MADE FIXED DEPOSITS WITH BANK TO THE TUNE OF ` .2,74,46,753/- (BAL. AS ON 31/03/2009). THESE DEPOS ITS ARE MADE FOR A TENURE OF 9 MONTHS TO 15 MONTHS. THE ABO VE DEPOSITS ARE SHORT TERM DEPOSITS WITH BANK. IN THE EVENT OF ANY EVENTUALITY THESE DEPOSITS CAN BE RECLAIMED EVEN BEFORE MATURITY OR ELSE SOCIETY CAN AVAIL AN OVERDRAFT FACILITY 6 ITA NO. 371/NAG/2012 AGAINST THE SAID DEPOSITS. THE SOCIETY CANNOT AFFOR D TO KEEP INTEREST BEARING FUNDS(DEPOSITS) IDLE AS THIS NEEDS TO BE REPAID AT THE DATE OF MATURITY ALONG WITH INTEREST. 7. THEREFORE, BECAUSE OF HIGH CURRENT LIABILITIES, SOCIETY HAS TO MAINTAIN HIGH WORKING CAPITAL. IT WONT BE A PRUDENT BUSINESS PRA CTICE TO KEEP THIS WORKING CAPITAL IDLE IN CURRENT ACCOUNT. THIS WORKING CAPI TAL IS NOTHING BUT A CERTAIN PERCENTAGE OF INTEREST BEARING DEPOSITS RECEIVED FR OM MEMBERS PLOUGHED BACK IN TO THE BUSINESS. THEREFORE, THESE DEPOSITS ARE PARK ED IN A VENTURES WHERE IT CAN BE CONVERTED IN TO A CASH AT GO AND ALSO CERTAIN IN TEREST INCOMER YIELDS FROM THESE FUNDS. THE LEARNED COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE CO- OPERATIVE CREDIT SOCIETIES GENERALLY PREFER TO INVE ST THEIR WORKING CAPITAL IN SHORT TERM DEPOSITS WITH NATIONALISED BANKS AND OTHER CO- OPERATIVE BANKS. AS AN WHEN URGENT FUNDS ARE REQUIRED THESE DEPOSITS ARE EITHER REDEEMED OR AN OVERDRAFT FACILITY CAN BE AVAILED FROM SAID BANKS AGAINST THE SE DEPOSITS. 8. THE LEARNED COUNSEL POINTED OUT THAT AS PER RUL E 41 OF THE MAHARASHTRA STATE CO-OPERATIVE SOCIETIES RULE, 1961, EVERY SOC IETY WHICH OBTAINS ANY PORTION OF ITS WORKING CAPITAL BY DEPOSITS SHALL- 1. MAINTAIN SUCH LIQUID RESOURCES AND IN SUCH FORM AS MAY BE PRESCRIBED FROM TIME TO TIME BY REGISTRAR, AND 2. UTILIZE ONLY SUCH PORTION OF ITS WORKING CAPITA L IN LENDING BUSINESS AND DISTRIBUTE ITS ASSETS IN ACCORDANCE WITH SUCH STAN DARDS AS MAY BE SPECIFIED FROM TIME TO TIME BY THE REGISTRAR. THEREFORE, THESE RULES PRESCRIBES THAT IF PORTION OF SOCIETYS WORKING CAPITAL IS OBTAINED BY INTEREST BEARING DEPOSITS THEN SOCIE TY SHALL MAINTAIN LIQUID RESOURCES IN SUCH FORM AS MAY BE PRESCRIBED BY THE REGISTRAR. THE LEARNED COUNSEL 7 ITA NO. 371/NAG/2012 DREW OUR ATTENTION TO SECTION 70 OF THE MAHARASHTR A CO-OPERATIVE SOCIETIES ACT, 1960 , WHICH PRESCRIBES MODES OF INVESTMENTS OF FUN DS BY THE SOCIETIES: (A) IN CENTRAL BANK OR STATE CO-OPERATIVE BANK. (B) IN ANY OF SECURITIES SPECIFIED IN SECTION 20 O F THE INDIAN TRUST ACT, 1982 (C) .. (D) .. (E) . THEREFORE, COMBINE READING OF SECTION 70 OF THE MA HARASHTRA STATE CO-OPERATIVE SOCIETIES ACT, 1960 & RULE 41 OF THE MAHARASHTRA ST ATE CO-OPERATIVE SOCIETIES RULE, 1961 IT CAN BE CULLED OUT THAT, A SOCIETY HAV ING WORKING CAPITAL MOSTLY COMPROMISING OF INTEREST BEARING DEPOSITS, SHOULD M AINTAIN LIQUID FUNDS AND SAME FUNDS CAN BE PARKED IN CENTRAL BANKS AND STATE CO-O PERATIVE BANKS AND OTHER VENTURES MENTIONED IN SECTION 70. HE SUBMITTED THAT INVESTMENT OF WORKING CAPITAL IN SHORT TERM DEPOSIT TO MAINTAIN LIQUID FU NDS IS NOT ULTRA VIRES, AND IT IS PRUDENT BUSINESS PRACTICE OF INVESTING INTEREST BEA RING DEPOSITS IN A SHORT TERM FUNDS WHERE APART FROM MAINTAINING REQUIRED LIQUIDI TY, SOCIETY ALSO EARNS INTEREST ON FUNDS. THE LEARNED COUNSEL, THEREFORE, SUBMITTED THAT THE INTEREST EARNED ON THE INVESTMENTS OF SAID LIQUID FUNDS IN SHORT TERM DEPOSITS SHOULD BE ALLOWED DEDUCTION UNDER SECTION 80P. 9. THE LEARNED COUNSEL FURTHER PLACED RELIANCE UPON THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF DHANLAXMI CREDIT COO PERATIVE SOCIETY LTD. V/S. ITO IN ITA NO. 2342/AHD/2012 VIDE ORDER DATED 08-02 -2013. 10. THE LEARNED D.R., ON THE OTHER HAND, PLACED REL IANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 8 ITA NO. 371/NAG/2012 11 UPON CAREFUL CONSIDERATION, WE NOTE THAT IDENTIC AL ISSUE WAS THE SUBJECT MATTER OF CONSIDERATION BY ITAT, AHMEDABAD BENCH DE CISION IN THE CASE OF DHANLAXMI CREDIT COOPERATIVE SOCIETY LTD. (SUPRA), IN WHICH ONE OF US, LEARNED JUDICIAL MEMBER, WAS A PARTY. THE CONCLUDING PORTI ON OF THE TRIBUNALS DECISION IS AS UNDER : 4. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH T HE SIDES. IT WAS EXPLAINED THAT THE CO-OPERATIVE SOCIETY IS MAINTAI NING OPERATIONS FUNDS AND TO MEET ANY EVENTUALITY TOWARDS RE-PAYMENT OF DEPOSIT, THE CO-OPERATIVE SOCIETY IS MAINTAINING SOME LIQUIDATED FUNDS AS A SHORT TERM DEPOSIT WITH THE BANKS. THIS ISSUE WAS THOROUGHLY DISCUSSED BY THE ITAT B BENCH AHMEDABAD IN THE CASE OF THE INCOME TAX OFFICER VS . M/S.JAFARI MOMIN VIKAS CO-OP.CREDIT SOCIETY LTD. BEARING ITA NO.149 1/AHD/2012 (FOR A.Y. 2009-10) AND CO NO.138/AHD/2012 (BY ASSESSEE) ORDE R DATED 31/10/2012. T HE RELEVANT PORTION IS REPRODUCED BELOW:- 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME C OURT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION OF FACTS, AS UNDER: WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF T HE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TE RM DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOS ES? THE ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROC EEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WIT H THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH BY SUCH RET ENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION, BEFORE US, IS WHETHER INTEREST ON SU CH DEPOSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS AC COUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT? IN OU R VIEW, SUCH INTEREST INCOME WOULD COME IN THE CATEGORY OF INCOME FROM OTHER SOURCES, HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER SECTIO N 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSES SING OFFICER... 19.1. HOWEVER, IN THE PRESENT CASE, ON VERIFICATIO N OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT WAS OBSERVED THAT THE FIXED DEPOSITS MADE WERE TO MAINTAIN LIQUIDITY AND THAT THERE WAS NO SURPLU S FUNDS WITH THE ASSESSEE AS 9 ITA NO. 371/NAG/2012 ATTRIBUTED BY THE REVENUE. HOWEVER, IN REGARD TO T HE CASE BEFORE THE HONBLE SUPREME COURT (ON PAGE 286) 7....... BEFORE THE ASSESSING OFFIC ER, IT WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS ON SHOR T TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSE S AND, CONSEQUENTLY, SUCH ACT OF IN VESTMENT CONSTITUTED A BUSINESS ACT IVITY BY A PRUDENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS L IABLE TO BE TAXED UNDER SECTION 28 AND NOT UNDER SECTION 56 OF THE ACT AND , CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTIO N 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND THE HIGH COURT, HENCE, THESE CIVIL APPEALS HAV E 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 DEP OSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUN T RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED ON TWO ACTIVITIES, NAMEL Y , (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSITS TO THE MEMBERS; AN D (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D) THAT THE SURPLUS HAD ARISEN EMPHATICALLY FROM MARKETING OF AGRICULTURAL PRODUCES. 19.3. IN THE PRESENT CASE UNDER CONSIDERATION, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THERE WERE NO SUR PLUS FUNDS. 19.4. WHILE COMPARING THE STATE OF AFFAIRS OF THE PRESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COURT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAMELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE WERE NO SURPLUS FUNDS; - 10 ITA NO. 371/NAG/2012 -IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS ADMITTED BEFORE THE AO, OUT OF RETAINED AMOUNTS ON MARKETING OF AGRIC ULTURAL PRODUCE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT C ARRY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND TH AT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAILABLE WITH TH E ASSESSEE WAS DEPOSITS FROM ITS MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; - IN THE CASE OF TOTGARS, THE HONBLE SUPREME COU RT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS; 19.5. CONSIDERING THE ABOVE FACTS, WE FIND THAT T HE 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 WI TH ITS MEMBERS, AS IT ACCEPTS DEPOSITS FROM AND LENDS THE SAME TO ITS ME MBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAI N SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD INVESTED IN SHORT- TERM DEPOSITS. FURTHERMORE, THE ASSESSEE HAD MAINT AINED OVERDRAFT FACILITY WITH DENA BANK AND THE BALANCE AS AT 31.3.2009 WA S RS.13,69,955/- [SOURCE: BALANCE SHEET OF THE ASSESSEE AVAILABLE O N RECORD]. 19.6. IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HONBLE SUPR EME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD. 9SUPRA) C ANNOT IN ANY WAY COME TO THE RESCUE OF EITHER THE LD.CIT(A) OR THE REVEN UE. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED C IT(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 T HE CO-ORDINATE BENCH, WE HEREBY HOLD THAT THE BENEFIT OF DEDUCTION U/S.80P (2)(A)(I) WAS RIGHTLY GRANTED BY LD.CIT(A), HOWEVER, HE HAS WRONGLY HELD THAT THE INTEREST INCOME IS TAXABLE U/S.56 OF THE ACT SO DO NOT FALL UNDER THE CATEGORY OF EXEMPTED INCOME U/S.80P OF THE ACT. THE ADVERSE P ORTION OF THE VIEW, WHICH IS AGAINST THE ASSESSEE, OF LD.CIT(A) IS HER EBY REVERSED FOLLOWING THE DECISION OF THE TRIBUNAL CITED SUPRA, RESULTAN TLY GROUND IS ALLOWED. 11 ITA NO. 371/NAG/2012 8. WE FIND THAT THE RATIO OF ABOVE CASE ALSO APPL IES TO THE PRESENT CASE. AS OBSERVED IN THE ABOVE CASE LAW, IN THIS CASE ALSO THE SUBMISSIONS OF THE ASSESSEES COUNSEL IS THAT THE ASSESSEE SOCIETY IS MAINTAINING OPERATIONAL FUNDS AND TO MEET ANY EVENTUALITY TOWARDS REPAYMENT OF DE POSIT THE COOPERATIVE SOCIETY IS MAINTAINING SOME LIQUIDATED FUNDS AS SHO RT TERM DEPOSITS WITH BANKS. HENCE ADHERING TO THE DOCTRIN STAIR DESISES, WE HOL D THAT THE ASSESSEE SHOULD BE GRANTED BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(A )(I). ACCORDINGLY, THE INTEREST ON DEPOSITS WOULD QUALIFY FOR DEDUCTION UNDER THE S AID SECTION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DECID E THE ISSUE IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY, 2015. SD/- SD/- (MUKUL K. SHRAWAT) (SHAMIM YAHYA) JUDICIAL MEMBER. ACCOUNTANT MEMBER NAGPUR, DATED: 27 TH MAY, 2015. 12 ITA NO. 371/NAG/2012 COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. T RUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE