M/s Basavan Bagewadi taluka Primary Teachers C0-op Credit Society Ltd , Bagewadi V. Income Tax Officer Ward-3 , Vijayapur

ITA 502/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4610 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH J
• Assessee Lawyers: G S BHUDYAL
• Keywords: Business income
• Section: 143(3); 80HHC; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, B ENGALURU BEFORE S HRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I TA NO. 502 / BANG/2 0 1 8 (ASSESSMENT YEAR: 2013 - 14 ) BASAVAN BAGEWADI TALUKA PRIMARY TEACHERS CO - OP CREDIT SOCIETY LTD., TELAGI ROAD, BASAVAN BAGEWADI - 586203. DIST. VIJAYAPUR PAN:AAAB 5594 K VS. APPELLANT INCOME - TAX OFFICER, WARD 3, VIJAYAPUR. RESPONDENT APPELLANT BY : SHRI G.S.BHUDYAL, CA. RESPONDENT BY : SHRI B.R.RAMESH, JCIT(DR) DATE OF HEARING : 07/06/2018 DATE OF PRONOUNCEMENT : 15 /06/2018 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) , [CIT(A)] BE LAGAVI DAT ED 19 /0 1 /201 8 FOR THE ASSESSMENT YEAR 201 3 - 14. 2 . THE ASSESSEE IS A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2013 - 14 WAS FILED ON 21/10/2013 DECLARING NIL INCO ME. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE AO VIDE ORDER DATED 27/07/2015 PASSED U/S 143(3) OF THE INCOME - TAX ACT,1961 ['THE ACT'] AT TOTAL INCOME OF RS.29,75,877/ - . WHILE DOING SO, THE AO DENIED EXEMPTION U/S 80P(2)(A)(I) OF THE ACT ON THE GROUND THAT THE ASSESSEE - SOCIETY IS A CO - OPERATIVE BANK AND INTEREST INCOME AND DIVIDEND INCOME EARNED DOES NOT CONSTITUTE BUSINESS INCOME AND IS ITA NO . 502 /BANG/20 18 PAGE 2 OF 8 TAXABLE IN THE LIGH T OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF THE TOTGAR S COOPERATIVE SALE SOCIETY LIMITED V ITO (322 ITR 283) . 3. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO , VIDE IMPUGNED ORDER , HELD THAT THE ASSESSEE - SOCIETY IS NOT A CO - OPERATIVE BANK BUT ONLY A CO - OPERATIVE SOCIETY AND THEREFORE, THE PROVISIONS OF SUB - SECTION(4) OF SECTION 80P ARE NOT APPLICABLE. THEREFORE, INTEREST INCOME EARNED ON CREDIT FACILITIES GRANTED TO ITS MEMBERS IS EXEMPT FROM TAX U/S 80P(2)(I). HOWEVER, WITH REGARD TO INTEREST INCOME AND DIVIDEND INCOME EARNED FROM INVEST MENTS, THE LD.CIT(A) HAD CONFIRMED THE ADDITION HOLDING TO BE INCOME EARNED FROM NON - MEMBERS. 4. BEING AGGRIEVED BY THE DIRECTION OF THE LD.CIT(A) DENYING EXEMPTION U/S 80P IN RESPECT OF INTEREST INCOME AND DIVIDEND INCOME, THE ASSESSEE IS BEFORE US IN T HE PRESENT APPEAL. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 5 . LEARNED AR SUBMITTED THAT INTEREST INCOME ON DEPOSI TS AND DIVIDEND INCOME FROM DCC BANK FORMS PART OF BUSINESS INCOME AND IS INTEGRAL TO THE BUSINESS OF THE ASSESSEE. IT CANNOT BE ASSESS ED UNDER THE HEAD INCOME FROM OTHER SOURCES . AS REGARDS DIVIDEND I NCOME EARNED FROM SHARES OF DCC BANK, IT IS SUBMITTED THAT THE ASSESSEE - SOCIETY IS UNDER OBLIGATION BY VIRTUE OF THE PROVISIONS OF THE KARNATAKA SOCIETIES REGISTRATION ACT TO INVEST IN SH A RES OF DCC BANK. THEREFORE, THE DIVIDEND INCOME EARNED ON SUCH INVESTMENTS CANNOT BE ASSESSED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES . FURTHER IT IS CLAIMED THAT SUCH DIVIDEND INCOME IS EXEMPT U/S 80P(2)(D) OF THE ACT. AS REGARDS INTEREST ITA NO . 502 /BANG/20 18 PAGE 3 OF 8 I NCOME EARNED FROM BIJAPUR DISTRICT CO - OPERATIVE BANK, IT IS SUBMITTED THAT THE SOCIETY IS UNDER STATUTORY OBLIGATION TO KEEP 15% OF THE DEPOSIT S WITH DESIGNATED BANK I.E. BIJAPUR DISTRICT C O - OPERATIVE BANK. INTEREST EARNED ON SUCH DEPOSITS OF RS.6,96,000/ - IS ALSO EXEMPT UNDER CLAUSE (D) OF SUB - SECTION (2) OF SECTION 80P OF THE ACT. ON THE OTHER HAND, LEARNED DR PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE SHORT ISSUE INVOLVE D IN THE PRESENT GROUNDS OF APPEAL BEFORE US IS WHETHER INTEREST INCOME EARNED ON DEPOSITS MADE PURSUANT TO THE REGULATIONS OF THE KARNATAKA CO - OPERATIVE SOCIETIES REGISTRATION ACT WITH ANOTHER DISTRICT CO - OPERATIVE BANK IS ELIGIBLE FOR EXEMPTION UNDER CLA USE (D) OF SUB - SECTION (2) OF SECTION 80P OF THE ACT. FOR BETTER APPRECIATION, IT IS NECESSARY TO EXTRACT THE PROVISIONS OF RELEVANT CLAUSE: (D) IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY THE CO - OPERATIVE SOCIETY FROM ITS INVESTM ENTS WITH ANY OTHER CO - OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME; THE AO , PLACING RELIANCE ON THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF THE TOTGARS COOPERATIVE SALE SOCIETY LIMITED (SUPRA) HELD THAT SUCH INTEREST INCOME AND DIVIDEND INCOME I S ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE, CANNOT BE EXEMPT UNDER CLAUSE (A)(I) OF SUB - SECTION (2) OF SECTION 80P OF THE ACT. UNDISPUTEDLY, THE CLAIM MADE BY THE ASSESSEE - SOCIETY IS UNDER CLAUSE (D) OF SUB - SECTION (2) OF SECTIO N 80P OF THE ACT. THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF THE PRINCIPAL COMMISSIONER OF INCOME - TAX VS. TOTGARS CO - OPERATIVE SALE SOCIETY (392 ITR 74) HAD CLEARLY HELD THAT THE DECISION OF THE HON BLE APEX COURT IN TOTGARS CO - OPERATIVE SALE SOCI ETY (SUPRA) IS NOT IN RESPECT OF CLAIM MADE UNDER CLAUSE (D) OF SUB - SECTION (2) OF 80P OF THE ACT. WHILE HOLDING SO, THE JURISDICTIONAL HIGH COURT HELD AS UNDER: 7. THE ASSESSING OFFICER HELD, ON THE FACTS AND CIRCUMSTANCES OF THESE CASES, THAT THE INTE REST INCOME WHICH THE ASSESSEE(S) HAD DISCLOSED UNDER THE HEAD 'INCOME FROM BUSINESS' WAS LIABLE TO BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. IN THIS CONNECTION, THE ASSESSING OFFICER HELD THAT THE ASSESSEE - SOCIETY HAD INVESTED THE SURPLUS FUNDS AS, AND BY ITA NO . 502 /BANG/20 18 PAGE 4 OF 8 WAY OF, INVESTMENT BY AN ORDINARY INVESTOR, HENCE, INTEREST ON SUCH INVESTMENT HAS GOT TO BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. BEFORE THE ASSESSING OFFICER, 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 PURPOSES AND, CONSEQUENTLY, SUCH ACT OF INVESTMENT CONSTITUTED A BUSINESS ACTIVITY BY A PRUDENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS LIABLE TO BE TAXED UNDER SECTION 28 AND NO T UNDER SECTION 56 OF THE ACT, AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTION 80P(2)( A )( I ) OF THE ACT. THIS ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND THE HIGH COURT, HENCE, THESE CIVIL APPEALS H AVE BEEN FILED BY THE ASSESSEE(S). 8. IT WAS THE CASE OF THE ASSESSEE(S) BEFORE US THAT THE ASSESSEE(S) IS A COOPERATIVE CREDIT SOCIETY. ITS BUSINESS IS TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS AND TO MARKET THE AGRICULTURAL PRODUCE OF ITS MEMBERS. ACCO RDING TO THE ASSESSEE(S), ITS ACTIVITY CONSTITUTED 'ELIGIBLE ACTIVITY' UNDER SECTION 80P(2)( A )( I ) OF THE ACT, HENCE, IT WAS ENTITLED TO THE BENEFIT OF DEDUCTION FROM ITS GROSS TOTAL INCOME. IN THIS CONNECTION, IT WAS URGED THAT, UNDER SECTION 80P(2) OF TH E ACT, THE WHOLE OF THE AMOUNT OF 'BUSINESS PROFITS' ATTRIBUTABLE TO ANY ONE OF THE ENUMERATED ACTIVITIES IS ENTITLED TO DEDUCTION. ACCORDING TO THE ASSESSEE(S), ONE NEED NOT GO BY THE SOURCE/ HEAD OF SUCH INTEREST INCOME BECAUSE NO SOONER INTEREST INCOME ACCRUED TO THE ASSESSEE(S) ON ABOVE - MENTIONED SPECIFIED DEPOSITS/ SECURITIES, IT BECAME BUSINESS INCOME ATTRIBUTABLE TO THE ACTIVITY CARRIED ON BY THE ASSESSEE(S) BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEM BERS AND NO SOONER SUCH INTEREST INCOME FALLS UNDER THE HEAD 'BUSINESS PROFITS' ATTRIBUTABLE TO ONE OR MORE OF SUCH ELIGIBLE ACTIVITIES, SUCH INTEREST INCOME BECAME ELIGIBLE FOR DEDUCTION UNDER THE SAID SECTION. THE ASSESSEE(S) FURTHER CONTENDED, BEFORE US , THAT, UNDER REGULATIONS 23 AND 28 READ WITH SECTIONS 57 AND 58 OF THE KARNATAKA COOPERATIVE SOCIETIES ACT, 1959, A STATUTORY OBLIGATION WAS IMPOSED ON COOPERATIVE CREDIT SOCIETIES TO INVEST ITS SURPLUS FUNDS IN SPECIFIED SECURE - TIES AND, IN VIEW OF SUCH STATUTORY OBLIGATION, THE ABOVE - MENTIONED INTEREST INCOME DERIVED FROM SHORT - TERM DEPOSIT S AND SECURITIES MUST BE CONSID ERED AS INCOME DERIVED BY THE ASSESSEE(S) FROM ITS BUSINESS ACTIVITIES. IN THE ALTERNATIVE, IT WAS SUBMITTED THAT, EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT SUCH INTEREST INCOME IS HELD TO BE COVERED BY SECTION 56 OF THE ACT UNDER THE 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 THIS CONNECTION, LEARN ED COUNSEL FOR THE ASSESSEE(S) SUBMITTED, PLACING RELIANCE ON NUMEROUS JUDGMENTS, THAT THE SOURCE OR HEAD OF INCOME WAS IRRELEVANT FOR DECIDING THE QUESTION AS TO WHETHER A GIVEN ITEM IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE ACT. ACCORDING TO THE ASSESSEE(S), ONCE INTEREST INCOME ACCRUE S ON SPECIFIED INVESTMENTS, PAR TICULARLY WHEN A LOCAL ENACTMENT MAKES IT STATUTORILY INCUMBENT ON THE SOCIETY TO INVEST IN SPECIFIED INVESTMENTS, THE INTEREST INCOME IS AUTOMATI CALLY ELIGIBLE FOR DEDUCTION IRRESPECT IVE OF THE SOURCE OR 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 ITA NO . 502 /BANG/20 18 PAGE 5 OF 8 EXPLANATION ( BAA ) TO SECTION 80HHC, TH E 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 SECTION 80HHC READ WITH EXP LANATION ( BAA ), SECTION 80HHD(3) AND SECTION 80HHE(5) AS ALSO THE LANGUAGE USED IN SECTIONS 72 AND 32AB OF THE ACT. ACCORDING TO THE ASSESSEE(S), IF ONE KEEPS THIS CONTRAST IN MIND, IT IS CLEAR THAT THE CONCEPT OF HEAD OF INCOME OR SOURCE OF INCOME WILL NO T APPLY TO THE PROVISIONS OF SECTION 80P(2) OF THE ACT BECAUSE WHEREVER PARLIAMENT INTENDED TO EMPHASISE THE APPLICABILITY OF SUCH CONCEPT, IT HAS EXPRESSLY SO STATED IN THE RELEVANT SECTION. ACCORDING TO THE ASSESSEE(S), BY WAY OF ILLUSTRATION, UNDER EXPL ANATION ( BAA ) TO SECTION 80HHC OR UNDER SECTION 80HHD(3) OR UNDER SECTION 80HHE(5), ETC., THE WORDS USED ARE, 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. THEREFORE, ACCORDING TO TH E ASSESSEE(S), WHEN SUCH WORDS DO NOT FIND PLACE IN SECTION 80P(2) OF THE ACT, IT IS CLEAR THAT THE CONCEPT OF SOURCE OF INCOME OR HEAD OF INCOME IS NOT IN - BUILT IN SECTION 80P(2) OF THE ACT AND, CONSEQUENTLY, SUCH A CONCEPT CANNOT BE READ INTO THE SAID SE CTION. 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 DEDUCTION UNDER SECTION 80P(2)OF THE ACT. 9. IN ORDER TO DETERMINE THE IS SUE INVOLVED IN THESE CIVIL APPEALS, WE NEED TO REPRODUCE HEREINBELOW THE RELEVANT PROVISION OF SECTION 80P OF THE ACT, AS IT STOOD AT THE MATERIAL TIME. IT READS THUS : ' DEDUCTION IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO - OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB - SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB - SECTION (2), IN COMPUT ING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB - SECTION (1) SHALL BE THE FOLLOWING, NAMELY : ( A ) IN THE CASE OF A CO - OPERATIVE SOCIETY ENGAGED IN ( I ) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS ME MBERS, OR ( II ) A COTTAGE INDUSTRY, OR ( III ) THE MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS, OR ( IV ) THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SEEDS, LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTURE 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 MEMBERS, OR ITA NO . 502 /BANG/20 18 PAGE 6 OF 8 ( VII ) FISHING OR ALLIED ACTIVITIES, THAT IS TO SAY, THE CATCHING, CURING, P ROCESSING, PRESERVING, STORING OR MARKETING OF FISH 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 BUSINESS ATTRIBUTABLE TO ANY ONE OR MO RE 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 PROVIDI NG CREDIT FACILITIES TO THEM. 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 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 TREATMENT OF SUCH AMOUNT. SINCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN S PECIFIED SECURITIES. THE QUESTION, BEFORE US, IS - WHETHER INTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTLY 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 IN 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. IN THIS CONNECTION, WE MAY ANALYZE SECTION 80P OF THE ACT. THIS SECTION COMES IN CHAPT ER VI - A, WHICH, IN TURN, DEALS WITH 'DEDUCTIONS IN RESPECT OF CERTAIN INCOMES'. THE HEADNOTE TO SECTION 80P INDICATES THAT THE SAID SECTION DEALS WITH DEDUCTIONS IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. SECTION 80P(1), INTER ALIA, STATES THAT WHERE THE GROSS TOTAL INCOME OF A CO - OPERATIVE SOCIETY INCLUDES ANY INCOME FROM ONE OR MORE SPECIFIED ACTIVITIES, THEN SUCH INCOME SHALL BE DEDUCTED FROM THE GROSS TOTAL INCOME IN COMPUTING THE TOTAL TAXABLE INCOME OF THE ASSESSEE - SOCIETY. AN INCOME, WHICH IS AT TRIBUTABLE TO ANY OF THE SPECIFIED ACTIVITIES IN SECTION 80P(2) OF THE ACT, WOULD BE ELIGIBLE FOR DEDUCTION. THE WORD 'INCOME' HAS BEEN DEFINED UNDER SECTION 2( 24 )( I ) OF THE ACT TO INCLUDE PROFITS AND GAINS. THIS SUB - SECTION IS AN INCLUSIVE PROVISION. THE PARLIAMENT HAS INCLUDED SPECIFICALLY 'BUSINESS PROFITS' INTO THE DEFINITION OF THE WORD 'INCOME'. THEREFORE, WE ARE REQUIRED TO GIVE A PRECISE MEANING TO THE WORDS 'PROFITS AND GAINS OF BUSINESS' MENTIONED IN SECTION 80P(2) OF THE ACT. IN THE PRESENT CASE , AS STATED ABOVE, ASSESSEE - SOCIETY REGULARLY INVESTS FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES. INTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. SUCH INTEREST INCOME CANN OT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS. WHEN THE ASSESSEE - SOCIETY PROVIDES CREDIT FACILITIE S TO ITS MEMBERS, IT EARNS INTEREST INCOME. AS STATED ABOVE, IN THIS CASE, INTEREST HELD AS INELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)( A ) IS NOT IN RESPECT OF INTEREST RECEIVED FROM MEMBERS. IN THIS ITA NO . 502 /BANG/20 18 PAGE 7 OF 8 CASE, WE ARE ONLY CONCERNED WITH INTEREST WHICH ACCRUE S ON FUNDS NOT REQUIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINESS PURPOSES AND WHICH HAVE BEEN ONLY INVESTED IN SPECIFIED SECURITIES AS 'INVESTMENT'. FURTHER, AS STATED ABOVE, ASSESSEE(S) MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS TH E SALE PROCEEDS IN MANY CASES. IT IS THIS 'RETAINED AMOUNT' WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WAS INVESTED IN SHORT - TERM DEPOSITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETAINED BY THE ASSESSEE - SOCIETY, WAS A LIABILITY AN D IT WAS SHOWN IN THE BALANCE - SHEET ON THE LIABILITY - SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)( A )( I ) OF THE ACT OR IN SECTION 80P(2)( A )( III ) OF THE ACT. THER EFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE VIEW THAT THE 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 ASSESSEE(S) S TATING 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 SUBMISSI ON. SECTION 80P(2)( A )( I ) OF THE ACT CANNOT BE PLACED AT PAR WITH EXPLANATION ( BAA ) TO SECTION 80HHC, SECTION 80HHD(3) AND SECTION 80HHE(5) OF THE ACT. EACH OF THE SAID SECTIONS HAS TO BE INTERPRETED IN THE CONTEXT OF ITS SUBJECT - MATTER. FOR EXAMPLE, SECT ION 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 INCO ME OF CO - OPERATIVE SOCIETIES. EVEN EXPLANATION ( BAA ) TO SECTION 80HHC WAS ADDED TO RESTRICT THE DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. THE WORDS USED IN EXPLANATION ( BAA ) TO SECTION 80HHC, THEREFORE, CANNOT BE COMPARED WITH THE WORDS USED IN SECTION 80P OF THE ACT WHICH GRANTS DEDUCTION IN RESPECT OF 'THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS'. A NUMBER OF JUDGMENTS WERE CITED ON BEHALF OF THE ASSESSEE(S) IN SUPPORT OF ITS CONTENTION THAT THE SOURCE WAS IRRELEVANT WHILE CONSTRUING THE PROVISIONS OF SECTION 80P OF THE ACT. WE FIND NO MERIT BECAUSE ALL THE JUDGMENTS CITED 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 PR ESENT CASE. TO SAY THAT THE SOURCE OF INCOME IS NOT RELEVANT FOR DECIDING THE APPLICABILITY OF SECTION 80P OF THE ACT WOULD NOT BE CORRECT BECAUSE WE NEED TO GIVE WEIGHTAGE TO THE WORDS 'THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS' ATTRIBUTABL E TO ONE OF THE ACTIVITIES SPECIFIED IN SECTION 80P(2)( A ) OF THE ACT. AN IMPORTANT POINT 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 DEDUCTION IS SOUGHT MUST CON STITUTE THE OPERATIONAL INCOME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. IN THIS PARTICULAR CASE, THE EVIDENCE SHOWS THAT THE ASSESSEE - SOCIETY EARNS INTEREST ON FUNDS WHICH ARE NOT REQUIRED FOR BUSINESS PURPOSES AT THE GIVEN POINT OF TIME. THE REFORE, ON THE FACTS AND ITA NO . 502 /BANG/20 18 PAGE 8 OF 8 CIRCUMSTANCES OF THIS CASE, IN OUR VIEW, SUCH INTEREST INCOME FALLS IN THE CATEGORY OF 'OTHER INCOME' WHICH HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT UNDER SECTION 56 OF THE ACT. .................... THE FACTS OF PRESENT CASE ARE IDENTICAL TO THE FACTS IN THE CASE CITED ABOVE. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF TOTGARS CO - OPERATIVE SALE SOCIETY (SUPRA), WE HOLD THAT THE ASSESSEE - SOCIETY IS ENTITLED FOR EXEMPTION UNDER CLAUSE (D) OF SUB - SECTION (2) OF SECTION 80P OF THE ACT. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE , 2018 S D/ - S D/ - ( SUNIL KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BENGALURU. D A T E D : 15 / 0 6 /201 8 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE