The ITO, Ward-3, Nadiad V. Sahyog Co.Op.Credit So.Ltd., Kheda

ITA 910/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9259 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TALATI
• Keywords: Business income; Question of law
• Section: 56; 28

Judgement Text

ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD C BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM ] ITA NO . 910 /AHD/ 20 1 3 ASSESSMENT YEAR : 20 0 9 - 10 INCOME TAX OFFICER .. .APPELLANT WARD 3 , NADIAD . VS. SAHYOG CO - OPE RATIVE CREDIT SOCIETY LIMITED .. . RESPONDENT SAH YOG BHAVAN, LUHAR BAZAR, BALASINOR, DIST. KHEDA . [PAN: A A B AS 0346 M ] APPEARANCES BY: RAJ DEEP SINGH , FOR THE APPELLANT S.H. TALATI , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : MARCH 11 TH , 201 6 DATE OF PRONOUNCING THE ORDER : MARCH 14 TH , 201 6 O R D E R PER PRAMOD KUMAR , AM : 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 11 TH JANUARY , 2013, PASSED BY THE LD. CIT(A), FOR THE ASSESSMENT YEAR 200 9 - 10 , ON THE FOLLOWING GROUNDS : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN LAW, IN DIRECTING TO TAX INTEREST RECEIVED FROM FIXED DEPOSITS WITH COMMERCIAL BANKS AS PROFIT AND GAINS OF BUSINESS ELIGIBLE FOR DEDUCTION U/S. 80 P AGAINST INCOME FROM OTHER SOURCES NOT ELIGIBLE FOR DEDUCTION U/S. 80 P AS HELD BY THE AO WHICH GETS SUPPORT FROM THE DECISION OF THE SUPREME COURT IN THE CASE OF TOTGARS CO - OPERATIVE SALE SOCIETY LTD., REPORTED IN 188 TAXMAN 282 (SC) WHEREIN IT HAS BEEN HELD THAT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) WHERE SUCH INTEREST WAS EARNED ON SURPLUS FUNDS INVESTED IN SHORT TERM DEPOSITS. ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 2 OF 8 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2. LEARNED REPRESENTATIVE S FAIRLY AGREE THAT THE ISSUE IN APPEAL IS COVERED , IN FAVOUR OF THE ASSESSEE, BY THE DECISION OF TH IS TRIBUNAL DATED 13 TH JANUARY, 2016, IN THE CASE OF AN ANT SAHAKARI SHARAFI MANDLI LIMITED VS. ITO IN ITA NO.2747/AHD/2015, WHEREIN THE SMC BENCH OF THE TRIBUNAL HAS, INTER ALIA , OBSERVED AS FOLLOWS: 5. I HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. THE DISCUSSION MADE BY THE HON BLE HIGH COURT IN THE CASE OF GUTTIGEDARARA CREDIT CO - OP. SOCIETY LTD., ITO(SUPRA) IS WORTH TO NOTE. IT READS AS UNDER: 5. LEARNED COUNSEL FOR THE ASSESSEE ASSAILING THE IMPUGNED ORDER CONTENDED THAT THE INTEREST ACCRUED FROM THE DEPOSITS MADE BY THE ASSESS EE IN A NATIONALIZED BANK OUT OF THE AMOUNTS WHICH WAS USED BY THE I ASSESSEE FOR PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE THE SAID INTEREST AMOUNT IS ATTRIBUTABLE TO THE CREDIT FACILITIES PROVIDED BY THE ASSESSEE AND FORMS PART OF PROFITS AND GAINS OF BUSINESS AND THEREFORE 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 SUPPORT OF HIS CONTENTIONS, HE RELIED ON SEVERAL JUDGMENTS AND POINTED OU T THAT THE APEX COURT IN THE AFORESAID JUDGMENT HAS NOT LAID DOWN ANY LAW. 6. PER CONTRA, LEARNED COUNSEL FOR THE REVENUE STRONGLY RELIED ON THE SAID JUDGMENT OF THE SUPREME COURT AND SUBMITTED THAT THE CASE IS COVERED BY THAT JUDGMENT OF THE APEX COURT AN D NO CASE FOR INTERFERENCE IS MADE OUT. 7. FROM THE AFORESAID FACTS AND RIVAL CONTENTIONS, THE UNDISPUTED FACTS WHICH EMERGE ARE, CERTAIN SUMS OF INTEREST WERE EARNED FROM SHORT - TERM DEPOSITS AND FROM SAVINGS BANK ACCOUNT. THE ASSESSEE IS A CO - OPERATIVE SO CIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS NOT CARRYING ON ANY OTHER BUSINESS. THE INTEREST INCOME EARNED BY THE ASSESSEE BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS DEPOSITED IN THE BANKS FOR A SHORT DURATION WHICH HAS EARNED INTEREST. T HEREFORE, WHETHER THIS INTEREST IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, IS THE QUESTION. 8. IN THIS REGARD, IT IS NECESSARY TO NOTICE THE RELEVANT PROVISION OF LAW I.E., SECTION 80P(2)(A)(I): '80P DEDUCTION IN RESPEC T 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 PROVI SIONS 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 BE THE FOLLOWING, NAMELY: (A) IN THE CASE OF CO - OPERATIVE SOCIETY ENGAGED IN ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 3 OF 8 (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR * * ** THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS 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 IN VARIOUS OTHER PROVISIONS OF THE STATUTE IN THE CASE OF CAMBAY ELECTRIC SUPPLY 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 ATTRIBUTABLE TO THE BUSINESS OF THE SPECIFIED INDUSTRY (HERE GENERATION AND DISTRIBUTION OF ELECTRICITY) ON WHICH THE LE ARNED SOLICITOR - GENERAL RELIED, IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATURE HAS DELIBERATELY USED THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT CANNOT BE DISPUTED THAT THE EXPRESSION 'ATTRIBUTABLE TO' IS CERTAINLY WIDE R 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 PROFITS AND GAINS D ERIVED FROM THE CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. IN THIS CONNECTION, IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR - GENERAL, 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 RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY.' 10. THEREFORE, THE WORD 'ATTRIBUTABLE TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING, THEY HAVE USED THE EXPRE SSION 'DERIVED FROM'. THE EXPRESSION 'ATTRIBUTABLE TO' BEING OF WIDER 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 PROFITS AND GAINS OF BUSINESS BY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCOME SO DERIVED OR THE CAPITAL, IF NOT IMMEDIATELY REQUIRED TO BE LENT TO THE MEMBE RS, THE SOCIETY CANNOT 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. THE 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 BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBER S BY A CO - OPERATIVE SOCIETY AND IS LIABLE 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), ON WHICH RELIANCE IS PLACED, THE SUPREME COURT WAS DEALING WITH A CASE WHERE THE ASSESSEE/CO - OPERATIVE SOCIETY, APART FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS, WAS ALSO IN THE BUSINESS OF MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS. THE SALE CONSIDERATION RE CEIVED FROM ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 4 OF 8 MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WAS RETAINED IN MANY CASES. THE SAID RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS FROM WHOM PRODUCE WAS BOUGHT, WAS INVESTED IN A SHORT - TERM DEPOSIT/SECURITY. SUCH AN AMOUNT WHICH WAS RETAINED B Y 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 CANNOT 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 OF 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. 12. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVESTED 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 ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO ITS MEMBERS, AS THERE WERE NO TAKERS. THEREFORE THEY HAD DEPOSITED THE MONE Y IN A BANK SO AS TO EARN INTEREST. 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 CO URT IN THE 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 BY THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOU NT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER: APPEAL IS ALLOWED. THE IMPUGNED ORDER DATED 19.9.2014 IS S ET ASIDE. PARTIES TO BEAR THEIR OWN COSTS. 6. IN THE CASE OF DHANLAXMI CREDIT CO - OP. SOCIETY, A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL FOR THE ASSTT.YEAR 2012 - 13. THE FINDING OF THE TRIBUNAL RECORDED IN PARA - 5 OF ITA NO.2073/AHD/2015 READS AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS RECORDS AVAILABLE AND JUDICIAL PRONOUNCEMENTS REFERRED THEREIN. THE ONLY ISSUE IS IN REGARD TO THE ADDITION OF VARIOUS TYPES OF INCOME SUCH A S RENT, INTEREST INCOME FROM NATIONALIZED BANK, COMMISSION INCOME, OTHER 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 T HE STATEMENT OF FACTS BY THE ASSESSEE SOCIETY THAT ITS MAIN OBJECT IS TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS AND THE SOCIETY IS NEITHER REGISTERED UNDER BANKING REGULATION ACT NOR DOING ANY BANKING ACTIVITY. SURPLUS FUNDS IN THE HANDS OF SOCIETY AT TI MES WHEN BORROWER MEMBERS DEMAND 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 I SSUES HAS BEEN DEALT BY HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO - OP. LTD. REPORTED IN (2015) 55 TAXMAN.COM 447 (KAR). THE RELEVANT PORTION FROM THE ABOVE REFERRED JUDGMENT IS REPRODUCED BELOW : - ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 5 OF 8 10. IN THE INSTAN T CASE, THE AMOUNT WHICH WAS INVESTED 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 ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFITS AND GAINS, WAS NOT IMMEDIA TELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS, AS THERE WERE NO TAKERS. THEREFORE, THEY HAD DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTEREST. 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. I FACT SIMILAR VIEW IS TAKEN BY THE ANDHRA PRADESH HIGH COURT 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 MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BENEFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAIN ST THE REVENUE. THE ASSESSEE SOCIETY S MAIN OBJECT IS TO GIVE CREDIT FACILITIES TO ITS MEMBERS FROM THE FUNDS RECEIVED FROM THE MEMBERS BY WAY OF COLLECTION OF DEPOSITS FROM ITS MEMBERS IN THE COMMON FUND AND SUCH COMMON FUND IS DEPLOYED IN THE FORM OF GR ANTING 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 REGULATIONS AND ALSO TO MEET THE MINIMUM REQUIREMENT OF THE FUNDS. AS A MEASUR E OF SAFETY MINIMUM LIQUID AND CONVENIENCE OF FUND MOVEMENT THE APPELLANT SOCIETY HAD TO KEEP ITS SURPLUS LIQUID FUNDS WITH DIFFERENT BANKS INCLUDING NATIONALIZED BANKS. THEREFORE, IN VIEW OF ABOVE DISCUSSION AND RELYING ON THE DECISION OF HON BLE KARNATAK A HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO - OP. LTD.(SUPRA), THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(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 REFUND OF RS.13,271 TOTALLING TO RS.45,542/ - IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. GROUND NOS.1 AND 2 ARE PARTLY ALLOWED. 7. SIMILARLY, WE DEEM IT APPROPRIATE TO TAKE NOTE OF THE FINDING RECORDED BY THE ITAT IN THE CASE OF DHANLAXMI CREDIT CO - OP. SOCIETY LTD., IN THE ASSTT.YAR 2008 - 09, WHICH READS AS UNDER: 4. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. IT WAS EXPLAINED THAT THE CO - OPERATIVE SOCIETY IS MAINTAINING OPERATIONS FUNDS AND TO MEET ANY EVENTUA LITY 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.JAFA RI MOMIN VIKAS CO - OP.CREDIT SOCIETY LTD. BEARING ITA NO.1491/AHD/2012 (FOR A.Y. 2009 - 10) AND CO NO.138/AHD/2012 (BY ASSESSEE) ORDER DATED 31/10/2012. THE RELEVANT PORTION IS REPRODUCED BELOW: - 19. THE ISSUE DEALT WITH BY THE HON BLE SUPREME COURT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION OF FACTS, 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 REQUIRED F OR BUSINESS PURPOSES? THE ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 6 OF 8 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 RETENTION WAS NOT REQUIR ED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED 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 SECTIO N 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 19.1. HOWEVER, IN THE PRESEN T CASE, ON VERIFICATION 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 SURPLUS FUNDS WITH THE ASSESSEE AS ATTRIBUTED BY THE REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HON BLE SUPREME COURT (ON PAGE 286) 7 . BEFORE THE ASSESSING OFFICER, IT WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND, CONSEQU ENTLY, 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 NOT UNDER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTITLED TO DEDUCTION UNDER SECTION 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 HAVE 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 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 MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D) THAT THE SURPLUS HAD ARI SEN 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 SURPLUS FUNDS. 19.4. WHILE COMPARING THE STATE OF AFFAIRS OF THE PRESEN T 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; ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 7 OF 8 - 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 CARRY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES T O ITS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; - IN THE CASE OF TOTGARS, THE HON BLE SUPREME COURT HAD NOT SPELT OUT ANYTHIN G WITH REGARD TO OPERATIONAL FUNDS; 19.5. CONSIDERING THE ABOVE FACTS, WE FIND THAT THERE 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 ACCEP TS DEPOSITS FROM AND LENDS THE SAME TO ITS 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, THE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AND THE 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 LA ID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF TOTGARS CO - OP. SALE SOCIETY LTD. 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 JU STIFIED 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.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 PORTION OF THE VIEW, WHICH IS AGAINST THE ASSESSE E, OF LD.CIT(A) IS HEREBY REVERSED FOLLOWING THE DECISION OF THE TRIBUNAL CITED SUPRA, RESULTANTLY GROUND IS ALLOWED. 8. THUS, CONSISTENTLY, IT HAS BEEN HELD THAT THE INTEREST INCOME EARNED BY A CREDIT CO - OPERATIVE SOCIETY ON THE FDRS. WITH NATIONALIZED B ANK WOULD QUALIFY FOR GRANT OF EXEMPTION UNDER SECTION 80P(2) OF THE INCOME TAX ACT. I ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE AO TO G RANT EXEMPTION TO THE ASSESSEE. 3. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAK EN BY THE SMC BENCH OF THE TRIBUNAL IN THE ABOVE SAID CASE . ITA NO. 910 /AHD/201 3 ASSESSMENT YEAR: 20 0 9 - 10 PAGE 8 OF 8 4. RESPECTFULLY FOLLOWING THE TRIBUNAL S DECISION DATED 13 TH JANUARY, 201 6 (SUPRA) , WE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) ON THE ISSUE AND DECLINE TO INTERFERE IN THE MATTER . G ROUND RAISED BY THE ASSESSING OFFICER IS THUS REJECTED . 5. IN THE RESULT, THE APPEAL IS DISMISSED . P RONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF MARCH, 2016. SD/ - SD/ - S.S. GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) PBN/* DATED: THE 14 TH DAY OF MARCH, 201 6 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME T AX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD