Shri Bhagwant Sahakari Nagari Pat Ltd., Solapur V. Income-tax Officer, Ahmednagar

ITA 955/PUN/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3030 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 17-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Business income
• Section: 56

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO. 955/PUN/2017 ! ! / ASSESSMENT YEAR : 2012-13 SHRI BHAGWANT SAHAKARI NAGARI PAT. LTD., 2625, RUI OAL, AINAPUR MARUTI ROAD, BARSHI, SOLAPUR-413 401. PAN : AABAS0993A ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD- 2(5), SOLAPUR / RESPONDENT APPELLANT BY : SHRI PRAMOD SHINGTE RESPONDENT BY : SHRI PANKAJ GARG / DATE OF HEARING : 17.05.2018 / DATE OF PRONOUNCEMENT : 25.05.2018 / ORDER PER D. KARUNAKARA RAO, AM THIS APPEAL FILED BY ASSESSEE IS AGAINST THE ORDER OF CIT(A )-7, PUNE DATED 02.01.2017 FOR ASSESSMENT YEAR 2012-13. 2. THE SOLITARY GROUND RAISED BY THE ASSESSEE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED ASSESSING OFFICER ERRED IN DENYING THE DEDU CTION U/S. 80P(2)(A)(I) OF RS.16,99,709/-, ON THE INTEREST INC OME EARNED BY THE APPELLATE SOCIETY BY REJECTING THE APPELLANTS CONT ENTION THAT EARNING INTEREST ON INVESTMENT IS INTEGRAL PART OF THE APPE LLANTS BUSINESS ACTIVITY AND IT HAS BEEN TREATED AS BUSINESS INCOME SINCE INCEPTION. APPELLANT SOCIETY PRAYS FOR THE DEDUCTION AS CLAIME D. 2 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS A CO- OPERATIVE CREDIT SOCIETY REGISTERED UNDER THE MAHARASHT RA COOPERATIVE SOCIETIES ACT, 1960 AND IS PROVIDES THE CREDIT FACILITIES TO IT S MEMBERS. THE ASSESSEE-SOCIETY FILED RETURN OF INCOME DECLARING NIL INCO ME ON 29.09.2012 AND DISCLOSED THE PROFIT OF RS.38,88,694/- BEFORE C LAIMING DEDUCTION U/S. 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT ASSESSEE R ECEIVED INTEREST ON FIXED DEPOSIT/SAVING ACCOUNT WITH THE SCHED ULED BANKS/NATIONALIZED BANKS, THE DETAILS OF WHICH ARE GIVEN IN P ARA NO.06 OF THE ASSESSMENT ORDER. THE SAME ARE EXTRACTED HERE AS UN DER : SR. NO. NAME OF INSTITUTION AMOUNT OF INTEREST RECEIVED. 1. IDBI BANK FDR INTEREST RS.13,91,807/- SAVINGS A/C. INTEREST RS.58,174/- 2. STATE BANK OF INDIA FDR INTEREST -RS.1,27,345/- 3. UNION BANK OF INDIA FDR INTEREST RS.1,22,383/- TOTAL INTEREST- RS.16,99,709/- AT THE END OF ASSESSMENT PROCEEDINGS U/S.143(3) OF THE A CT, THE AO MADE ADDITION OF RS.16,99,709/- TREATING THE SAME AS INCOME FROM OTHER SOURCES U/S.56 OF THE ACT. AO ALSO MADE ANOTHER ADDITION OF RS.3,20,579/- U/S.80P(2)(A)(I) ON ACCOUNT OF COMMISSION RECEIVED FROM MSEB AND THEREON TO THE TOTAL INCOME OF THE ASSESSEE. AO DENIED CLAIM OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT IN RESPECT OF THES E RECEIPTS. 4. AGGRIEVED WITH THE ORDER OF AO, THE ASSESSEE FILED AN A PPEAL BEFORE CIT(A). THE CIT(A) CONFIRMED THE ADDITION OF RS.16,99,709/- AND DENIED THE CLAIM OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT RELYING ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TOTGA RS COOPERATIVE SALE SOCIETY LTD. VS. ITO [2020] 322 ITR 283 AND THE 3 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF MANTOLA CO- OPERATIVE THRIFT & CREDIT SOCIETY LTD. VS. CIT 50 TAXMANN.C OM 278. CIT(A) ALSO NOTED THE DECISION OF ITAT IN THE CASE OF JIJAM ATA MAHILA BIGAR SHETI SAHAKARI PATSANSTHA LTD. VS. ITO ITA NO.992 /PN/2016, DATED 29-07-2016. HOWEVER, WITH REGARD TO OTHER ADDITIO N OF RS.3,20,579/-, THE CIT(A) DELETED THE ADDITION. REVENUE IS NO T IN APPEAL ON THE RELIEF GRANTED BY THE CIT(A). 5. HOWEVER, AGGRIEVED WITH THE ORDER OF CIT(A) CONFIRMING T HE ADDITION RS.16,99,709/-, THE ASSESSEE IS IN APPEAL BEFORE ME RAISING THE AFORESAID SOLITARY GROUND. 6. BEFORE ME, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT EARNING INTEREST ON INVESTMENT IS INTEGRAL PART OF THE ASSESSEES BUSINESS ACTIVITY AND THE CLAIM OF THE ASSESSEE IN THIS REGARD WA S CONSISTENTLY ALLOWED BY THE AO SINCE INCEPTION TO THE ASSESSEE. HE FURT HER SUBMITTED THAT AS MAIN NATURE OF BUSINESS OF SOCIETY IS T O ACCEPT THE DEPOSITS AND LENDING THE MONEY TO ITS MEMBERS TO MAINTAIN THE LIQUIDITY OF FUND. ASSESSEE INVESTED THE FUNDS WHICH ARE RE CEIVED FROM MEMBERS OF SOCIETY AGAINST ACCEPTED DEPOSITS INTO THE B ANK FOR SHORT TERM PERIODS, HENCE THE SAID INVESTED FUND ARE NOT OUT O F THE SURPLUS FUNDS OF THE SOCIETY. LD. COUNSEL FURTHER SUBMITTED THAT T HE DEPOSITS ARE ASSESSEES OWN BUSINESS RELATED DEPOSITS AND THE SA ME OUGHT TO BE CONSIDERED AS INCOME FROM BUSINESS. LD. COUNSEL FOR THE ASS ESSEE FURTHER SUBMITTED THAT ISSUE RAISED IN PRESENT APPEAL IS S QUARELY COVERED BY THE DECISION OF PUNE BENCH OF TRIBUNAL IN THE C ASE OF BALIRAJA GRAMIN BIGARSHETI SAHAKARI PAT SANSTHA MARYADIT V S. ITO, ITA NO. 50 & 51/PUN/2017, DATED 26-03-2018, DATED 26.03 .2018 FOR THE A.YRS. 2013-14 AND 2012-13. 4 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT 7. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS O F AO/ CIT(A). 8. I HEARD BOTH SIDES. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE CLAIM OF DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT ON TH E INTEREST INCOME EARNED FROM NATIONALIZED BANKS. IT IS UNDISP UTED FACT THAT IS A CREDIT CO-OPERATIVE SOCIETY AND RECEIVED ADVA NCES AND LOANS FROM ITS MEMBERS, ON WHICH INTEREST WAS BEING RECEIVED AND PAID. I FIND THE ISSUE HAS BEEN ELABORATELY CONSIDERED BY THE PU NE BENCH OF TRIBUNAL IN THE CASE OF BALIRAJA GRAMIN BIGARSHETI SAHAKARI P AT SANSTHA MARYADIT VS. ITO (SUPRA.), WHEREIN, IT HAS BEEN HELD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT . THE RELEVANT FINDINGS OF THE TRIBUNAL ARE REPRODUCED AS UNDER: 10. WE FIND THAT THE ISSUE HAS BEEN ELABORATELY CO NSIDERED BY THE PUNE BENCH OF TRIBUNAL IN ITO VS. M/S. MAHARASHTRA BANK EMPLOYEES CO-OP. CREDIT SOCIETY LTD. IN ITA NOS.454 TO 456/PU N/2015, RELATING TO ASSESSMENT YEARS 2007-08, 2008-09 & 2010-11 ALONG W ITH CO NOS.16 & 17/PUN/2017, ORDER DATED 22.12.2017 , WHEREIN THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT WAS ALSO TAKEN NOTE AN D SUBSEQUENT DECISION ON THE ISSUE WAS ALSO CONSIDERED AND IT WA S HELD AS UNDER:- 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE LIMITED ISSUE WHICH ARISES IN THE PRES ENT APPEAL FILED BY THE REVENUE IS AGAINST RELIEF GIVEN BY THE CIT(A ) ON THE CLAIM OF ASSESSEE SOCIETY THAT INTEREST INCOME RECEIVED O N FDRS WITH SCHEDULED BANK OF MAHARASHTRA IS ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ASSESSE E WAS A CO- OPERATIVE SOCIETY OF THE EMPLOYEES OF BANK OF MAHAR ASHTRA, AND WAS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FAC ILITIES TO ITS MEMBERS. THE ACTIVITIES CARRIED ON BY THE ASSESSEE SOCIETY WERE SUBJECT TO THE PROVISIONS OF MAHARASHTRA CO-OPERATI VE SOCIETIES ACT, 1960. UNDER SECTION 66 OF THE SAID ACT, EVERY SOCIETY WHICH IS MAKING PROFITS FROM ITS TRANSACTIONS SHALL MAINT AIN RESERVE FUND AS PER CLAUSE (1) TO SECTION 66 OF THE SAID AC T. CLAUSE (2) FURTHER LAYS DOWN THAT EVERY SOCIETY SHALL CARRY AT LEAST ONE- FOURTH OF NET PROFITS EACH YEAR TO THE RESERVE FUND ; AND SUCH RESERVE FUND MAY SUBJECT TO THE RULES MADE THEREUND ER, IF ANY, BE USED IN THE BUSINESS OF SOCIETY OR MAY, SUBJECT TO PROVISIONS OF SECTION 70, BE INVESTED, AS THE STATE GOVERNMENT MAY BY GENERAL OR SPECIAL ORDER DIRECT OR MAY, WITH THE PR EVIOUS SANCTION OF THE STATE GOVERNMENT BE USED IN PART FOR SOME PU BLIC PURPOSE TO PROMOTE THE OBJECTS OF THE ACT OR SOME SUCH PURP OSES OF THE STATE GOVERNMENT OR OF THE LOCAL INTEREST. SECTION 70 OF THE SAID ACT LAYS DOWN THAT SOCIETY SHALL INVEST OR DEPOSIT ITS FUNDS IN ONE 5 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT OR MORE OF THE INVESTMENTS PROVIDED IN CLAUSES (A) TO (E) THEREUNDER. WE ARE CONCERNED HERE WITH CLAUSE (D) TO SECTION 70 OF THE SAID ACT, WHICH READS AS UNDER:- 70 (A). (B). (C) (D) IN ANY CO-OPERATIVE BANK (OTHER THAN THOSE RE FERRED TO IN CLAUSE (A) OF THIS SECTION) OR BANKING COMPAN Y APPROVED FOR THIS PURPOSE BY THE REGISTRAR, AND ON SUCH CONDITIO NS AS THE REGISTRAR MAY FROM TIME TO TIME IMPOSE: (E).. 12. READING THE PROVISIONS OF MAHARASHTRA CO-OPERAT IVE SOCIETIES ACT, IT IS INCUMBENT UPON THE SOCIETY WHI CH IS MAKING PROFITS TO PARK ONE-FOURTH OF ITS PROFITS IN THE RE SERVE FUND. FURTHER, THE SAID RESERVE FUNDS AS PER DIRECTIONS O F THE STATE GOVERNMENT BY GENERAL OR SPECIAL ORDER ARE TO BE IN VESTED IN ONE OF THE SECURITIES, WHICH ARE PROVIDED UNDER SECTION 70 OF THE SAID ACT. CLAUSE (D) CLEARLY LAYS DOWN THAT THE INVESTM ENT OR DEPOSIT OF FUNDS COULD BE IN ANY CO-OPERATIVE BANK OR BANKI NG COMPANY APPROVED FOR THIS PURPOSE BY THE REGISTRAR. THE AS SESSEE SOCIETY BELONGING EXCLUSIVELY TO THE EMPLOYEES OF BANK OF M AHARASHTRA, HAD INVESTED ITS RESERVE FUNDS IN FDS WITH BANK OF MAHARASHTRA. ACCORDINGLY, THE ASSESSEE SOCIETY APPLIED FOR REQUI SITE PERMISSION FROM THE REGISTRAR OF CO-OPERATIVE SOCIE TIES UNDER SECTION 70 TO DO SO. THE REGISTRAR VIDE ITS LETTER DATED 18.10.1995 IN RESPECT OF INVESTMENT OF RESERVE FUND S CONSEQUENT TO SOCIETYS RESOLUTION DATED 25.08.1994 AND MANAGE MENT COMMITTEES RESOLUTION DATED 29.07.1991 AND FURTHER THE ASSESSEES LETTER DATED 11.07.1995, GRANTED PERMISS ION UNDER SECTION 70 OF THE MAHARASHTRA CO-OPERATIVE SOCIETIE S ACT, 1960 AND RULE 54 OF THE RULES 1961 TO TRANSFER RESERVE F UNDS AMOUNT WITH PUNE DISTRICT CENTRAL CO-OPERATIVE BANK TO THE BANK OF MAHARASHTRA WITH CONDITION OF INVESTMENT AND ALSO T HAT THE AMOUNT INVESTED IN THE BANK OF MAHARASHTRA COULD NO T BE GIVEN AS SECURITY FOR BORROWING OR USED FOR ANY OTHER PUR POSE WITHOUT WRITTEN PERMISSION FROM THE REGISTRAR. THE COPY OF SAID PERMISSION IS PLACED AT PAGE 6 WITH ENGLISH TRANSLA TION AT PAGE 7 OF THE PAPER BOOK. THE CLAIM OF ASSESSEE WAS THAT IN LINE WITH THE SAID PERMISSION RECEIVED FROM THE REGISTRAR AS UNDER THE PROVISIONS OF SECTION 66 AND 70 OF THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, IT WAS REQUIRED TO TRANSFER THE FUND S I.E. ONE-FOURTH OF PROFITS OF ASSESSEES SOCIETY TO THE RESERVE FUN D AND THEREAFTER, THE FUNDS IN THE RESERVE FUND WERE INVESTED AS FDRS WITH THE BANK OF MAHARASHTRA. THE ASSESSEE POINTS OUT THAT THE SAID PARKING OF FUNDS IN FDRS WITH THE BANK OF MAHARASHT RA WAS ONE OF THE CONDITIONS FOR CARRYING ON THE BUSINESS ACTI VITIES OF THE ASSESSEE SOCIETY, HENCE INTEREST EARNED THEREFROM W AS BUSINESS INCOME IN THE HANDS OF ASSESSEE. IT WAS TIME AND A GAIN REITERATED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE AMOUNTS WHICH WERE PARKED IN FDRS WITH BANK OF MAHARASHTRA WERE NOT OUT OF SURPLUS AND IDL E FUNDS BUT WERE OUT OF FUNDS TRANSFERRED TO RESERVE FUND. THE ASSESSEE THUS, CLAIMED THAT ONCE THE INTEREST INCOME HAS BEEN EARNED 6 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT DURING THE COURSE OF CARRYING ON OF ITS BUSINESS AC TIVITIES, THEN THE SAME IS ELIGIBLE FOR GRANT OF DEDUCTION UNDER S ECTION 80P(2)(A)(I) OF THE ACT . 13. THE APEX COURT IN CIT VS. KARNATAKA STATE CO-OP ERATIVE APEX BANK (SUPRA) WHILE DECIDING THE CASE OF CO-OPE RATIVE SOCIETIES AND SCOPE OF SPECIAL DEDUCTION HAD HELD A S UNDER:- INTEREST ARISING FROM INVESTMENT MADE, IN COMPLIAN CE WITH STATUTORY PROVISIONS TO ENABLE IT TO CARRY ON BANKI NG BUSINESS, OUT OF RESERVE FUND BY A CO-OPERATIVE SOCIETY ENGAG ED IN BANKING BUSINESS, IS EXEMPT UNDER SECTION 80P(2)(A)(I) OF T HE INCOME-TAX ACT, 1961. THE PLACEMENT OF SUCH FUNDS BEING IMPERA TIVE FOR THE PURPOSE OF CARRYING ON BANKING BUSINESS THE INCOME THEREFROM WOULD BE INCOME FROM THE ASSESSEES BUSINESS. THERE IS NOTHING IN THE PHRASEOLOGY OF SECTION 80P( 2)(A)(I) WHICH MAKES IT APPLICABLE ONLY TO INCOME DERIVED FROM WOR KING OR CIRCULATING CAPITAL. 14. WE FURTHER FIND THAT SIMILAR ISSUE WAS CONSIDER ED BY THE PUNE BENCH OF TRIBUNAL IN ITO VS. M/S. KUNDALIKA NA GARI SAH. PATSANSTHA MARYADIT (SUPRA), WHEREIN THE ISSUE WAS WITH REGARD TO INVESTMENTS WITH OTHER CO-OPERATIVE SOCIETY AS P ER THE MANDATE OF MAHARASHTRA CO-OPERATIVE SOCIETIES ACT A ND WHETHER THE INTEREST INCOME EARNED BY THE ASSESSEE ON SUCH INVESTMENTS WAS LIABLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ASSESSING OFFICER HAD DENIED THE CLAIM RELYING ON T HE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN TOTGARS CO-OP ERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA), THE TRIBUNAL AFT ER CONSIDERING THE FACTUAL AND LEGAL ASPECTS HELD AS UNDER:- 17. IN ORDER TO ADJUDICATE THE ISSUE, FIRST REFERE NCE IS MADE TO THE DECISION OF HONBLE SUPREME COURT IN TOTGAR CO- OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA). IN THE FACTS OF THE SAID CASE, THE ASSESSEE BEFORE THE HONBLE APEX COURT WAS A CO-OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO THE MEMBERS OR MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS. THE ASSESSEE HAD PARKED ITS FUNDS IN SHORT TERM BANK DEPOSITS AN D SECURITIES AND THE INTEREST EARNED ON THE SAME WAS CLAIMED AS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE REVENUE AUTHORITIES HELD THAT THE SAME WAS TAXABLE UNDER THE HEAD INCO ME FROM OTHER SOURCES. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THESE WER E NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND CONSE QUENTLY, INTEREST RECEIVED BY THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. FURTHER, TH E CONTENTION OF THE ASSESSEE BEFORE THE COURT WAS THAT UNDER REGULA TIONS 23 AND 28 R.W.S. 57 AND 58 OF THE KARNATAKA CO-OPERATIVE S OCIETIES ACT, 1959, A STATUTORY OBLIGATION WAS IMPOSED ON CO-OPER ATIVE CREDIT SOCIETIES TO INVEST ITS SURPLUS FUNDS IN SPECIFIED SECURITIES AND IN VIEW OF THE AFORESAID STATUTORY OBLIGATIONS, THE AB OVE MENTIONED INVESTMENT WAS MADE BY THE ASSESSEE AND THE SAME WA S IN THE NATURE OF ITS BUSINESS ACTIVITY. THE SAID INTEREST INCOME WAS CLAIMED TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT, IRRESPECTIVE OF THE SOURCE OR HEAD UNDER W HICH SUCH INCOME WOULD FALL. THE HONBLE APEX COURT NOTED TH AT THE INTEREST INCOME ARISING ON SURPLUS INVESTMENT IN SH ORT TERM DEPOSITS AND SECURITIES, WHICH SURPLUS WAS NOT REQU IRED FOR BUSINESS PURPOSE, WAS TO BE TAXED UNDER SECTION 56 OF THE ACT. THE HONBLE APEX COURT FURTHER NOTED THAT THE ASSES SEE MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT T IMES WERE 7 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT RETAINED BY IT AND THE TAX TREATMENT OF SUCH AMOUNT WAS THE ISSUE BEFORE THEM. THE HONBLE APEX COURT HELD THA T WHERE THE INTEREST ON DEPOSITS / SECURITIES, WHERE THE FUNDS WERE NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, WAS INVE STED IN SPECIFIED SECURITIES, WOULD BE TAXABLE AS INCOME UN DER SECTION 56 OF THE ACT. IT FURTHER HELD THAT WHERE THE ASSE SSEE SOCIETY REGULARLY INVESTS ITS FUNDS NOT IMMEDIATELY REQUIRE D FOR BUSINESS PURPOSES, INTEREST ON SUCH INVESTMENT COULD NOT FAL L WITHIN THE EXPRESSION OF PROFITS AND GAINS OF BUSINESS AND THE SAME COULD NOT BE HELD TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY I.E. CARRYING ON OF BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS OR MARKETING THE AGRICULTURAL PRODUCE OF IT S MEMBERS. THE HONBLE APEX COURT FURTHER REITERATED THAT WHER E THE ASSESSEE MARKETS THE AGRICULTURAL PRODUCE OF ITS ME MBERS AND IT RETAINS THE SALE PROCEEDS IN MANY CASES AND WHERE T HE RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM THE PRODUCE WAS BOUGHT, WAS INVESTED IN SHORT TERM DEPO SITS / SECURITIES, THE SAID AMOUNT WAS LIABILITY OF THE AS SESSEE AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITIES S IDE, THEREFORE, TO THAT EXTENT, THE HONBLE SUPREME COURT HELD THAT SUCH INTEREST INCOME COULD NOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN 80P(2)(A)(I) OR 80P(3) OF THE ACT. IN VIEW THEREOF, THE HONBLE SUPREME COURT UPHELD THE ORDER OF ASSESSING OFFICER IN TAXING THE SAID AMOUNT UNDER SECTION 56 OF THE ACT. THE ALTERNATE PLEA OF THE ASSESSEE THAT EVEN IF THE SAI D INTEREST INCOME WAS HELD TO BE COVERED UNDER SECTION 56 OF T HE ACT, WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) O F THE ACT, WAS REJECTED. 18. IN THE FACTS OF THE CASE BEFORE HONBLE HIGH CO URT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP ERATIVE LTD. VS. ITO (SUPRA), THE ASSESSEE CO-OPERATIVE SOC IETY WAS ENGAGED IN THE ACTIVITY OF CARRYING ON OF BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND IT HAD EARNED I NTEREST INCOME ON ITS DEPOSITS. ANOTHER FACT NOTED BY THE HONBLE HIGH COURT OF KARNATAKA WAS THAT THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN INTEREST WAS NOT THE AMOUNT DUE TO ANY MEMBERS AND IT WAS NOT THE LIABILITY OF THE ASSESSEE. IN FACT, TH E SAID AMOUNT WAS IN THE NATURE OF PROFITS AND GAINS, WHICH WAS N OT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MON EY TO THE MEMBERS AS THERE WERE NO TAKERS AND THE ASSESSEE IN SUCH CIRCUMSTANCES, DEPOSITED THE MONEY IN BANK SO AS TO EARN INTEREST. THE HONBLE HIGH COURT OF KARNATAKA IN S UCH CIRCUMSTANCES HELD THAT THE INTEREST INCOME WAS ATT RIBUTABLE TO CARRYING ON OF BUSINESS OF BANKING AND THEREFORE, I T WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT, THEY TOOK NOTE OF INSERTION OF SECTION 80P(4) OF THE ACT, WHICH WA S APPLIED BY THE ASSESSING OFFICER TO DENY THE DEDUCTION UNDER SECTI ON 80P(2)(A)(I) OF THE ACT. THE HONBLE HIGH COURT OF KARNATAKA RE FERRED TO THE JUDGMENT OF HONBLE APEX COURT IN TOTGAR CO-OPERATI VE SALE SOCIETY LTD. VS. ITO (SUPRA) AND POINTED OUT THAT I N THE FACTS OF THE SAID CASE, THE AMOUNT WHICH WAS RETAINED BY THE ASSESSEE WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHE ET ON LIABILITIES SIDE. WHERE THE INTEREST INCOME WAS EA RNED ON SUCH FUNDS, THEN THE SAME WAS HELD BY THE HONBLE APEX C OURT TO BE TREATED UNDER SECTION 56 OF THE ACT. HOWEVER, THE DISTINCTION WAS DRAWN BY THE HONBLE HIGH COURT OF KARNATAKA IN PARA 10 AND IT WAS POINTED OUT THAT IN THE CASE BEFORE THEM , THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN THE INTEREST WA S NOT AN AMOUNT DUE TO ANY MEMBER, IT WAS NOT THE LIABILITY AND IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNTS. IN FACT, THE AMOUNT WAS 8 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT IN THE NATURE OF PROFITS AND GAINS WHICH WAS NOT IMM EDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE M EMBERS AS THERE WERE NO TAKERS AND HENCE, WAS DEPOSITED IN TH E BANKS SO AS TO EARN INTEREST, SUCH INTEREST INCOME EARNED BY THE ASSESSEE WAS HELD TO BE ATTRIBUTABLE TO CARRYING ON THE BUSI NESS AND THEREFORE, SAME WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT. 19. ANOTHER DECISION REFERRED TO BY THE LEARNED AUT HORIZED REPRESENTATIVE FOR THE ASSESSEE IS GUTTIGEDARARA CR EDIT CO- OPERATIVE SOCIETY LTD. VS. ITO (SUPRA), WHEREIN THE ASSESSEE WAS A CO-OPERATIVE SOCIETY ENGAGED IN THE ACTIVITY OF C ARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. THE ASSESSING OFFICER IN VIEW OF INSERTION OF SECTION 8 0P(4) OF THE ACT, HAD DECLINED TO EXTEND THE BENEFIT OF DEDUCTION UND ER SECTION 80P(2)(A)(I) OF THE ACT. THE INTEREST INCOME EARNE D ON SHORT TERM DEPOSITS AND FROM SAVING BANKS ACCOUNT WAS HELD LIA BLE TO INCOME TAX. THE HONBLE HIGH COURT HELD THAT WHERE THE ASSESSEE SOCIETY WAS PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND WAS NOT CARRYING ON ANY OTHER BUSINESS, THEN TH E SURPLUS FUNDS WHICH IT HAD EARNED AS PROFITS OF ITS BUSINES S WHEN TEMPORARILY NOT REQUIRED WERE INVESTED IN BANKS TO EARN INTEREST WAS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BAN KING AND THEREFORE, LIABLE TO BE DEDUCTED UNDER SECTION 80P( 1) OF THE ACT. 20. FURTHER, THE PUNE BENCH OF TRIBUNAL IN ITO VS. NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA) HAD LAID DO WN THE SIMILAR PROPOSITION AS BY THE HONBLE HIGH COURT OF KARNATAKA. 21. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT IT WAS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS, OUT OF LOAN RECEIVED FROM ITS MEMBERS ITSE LF. THE SURPLUS AMOUNT WHICH WAS ON ACCOUNT OF AMOUNT RECEI VED FROM ITS MEMBERS ONLY, WHICH HAD NOT BEEN ADVANCED TO AN Y OF THE MEMBERS WAS INVESTED IN THE BANKS, AGAINST WHICH TH E SAID INVESTMENT WAS MADE OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE, WHICH IN TURN, WERE AMOUNTS ADVANCED BY T HE MEMBERS ITSELF. THE SAID PARKING OF FUNDS WITH THE CO-OPERATIVE BANKS WAS CLAIMED BY THE ASSESSEE TO BE IN THE NATU RE OF ITS BUSINESS ACTIVITY AS IT WAS THE REQUIREMENT OF MAHA RASHTRA CO- OPERATIVE SOCIETIES ACT, 1960, THAT 20 TO 30% OF TO TAL DEPOSITS ARE TO BE PARKED IN THE INVESTMENTS WITH CO-OPERATIVE B ANKS. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE AMOUNT INVESTED BY THE ASSESSEE WAS OUT OF ANY LIABILITIES DUE BY THE ASSE SSEE. IN THE ABSENCE OF THE SAME AND FOLLOWING THE SAME PARITY O F REASONING LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. VS. ITO (SUPRA) AND THE FACTS OF THE PRESENT CASE BEING AT VARIANCE TO THE FACTS BEFORE THE HONBLE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF TH E ACT. IN THE ALTERNATE, WE FIND MERIT IN THE PLEA OF THE ASSESSE E THAT AT BEST THE INCOME WHICH CAN BE ASSESSED IN THE HANDS OF AS SESSEE IS THE NET INCOME AND NOT THE GROSS INCOME AS PROPORTI ONATE EXPENDITURE INCURRED IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. HOWEVER, WE ARE NOT ADJUDICATING THIS IS SUE SINCE WE HAVE ALREADY HELD THE ASSESSEE TO BE ELIGIBLE FOR C LAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. I N VIEW THEREOF, WE ALSO DO NOT ADJUDICATE THE SECOND ALTERNATE PLEA RAISED BY THE ASSESSEE THAT IT IS ENTITLED TO THE CLAIM OF DE DUCTION UNDER SECTION 80P(2)(D) OF THE ACT. HOWEVER, THE ASSESSE E IS NOT 9 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT ENTITLED TO THE DEDUCTION UNDER SECTION 80P(2)(A)(I ) OF THE ACT RELATING TO DIVIDEND RECEIVED FROM UTI MUTUAL FUNDS AND SUNDARAM FINANCE OF RS.87,087/- AND RS.88,519/-, WH ICH ARE TO BE INCLUDED AS INCOME FROM OTHER SOURCES, ON WHI CH THE ASSESSEE IS ENTITLED TO PROPORTIONATE EXPENDITURE. SIMILARLY, THE PROFIT OF RS.25,786/- FROM OTHER ACTIVITIES AND SER VICES IS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80 P(2)(A)(I) OF THE ACT. ACCORDINGLY, WE PARTLY UPHOLD THE ORDER OF CI T(A). IN VIEW THEREOF, THE GROUNDS OF APPEAL RAISED BY THE REVENU E ARE PARTLY ALLOWED. 15. THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD., (2003) 263 ITR 320 (P&H) HELD THAT WHERE INVESTMENT IN PSEB BONDS WAS MADE IN ACCORDANCE WITH MANDATORY PROVISIONS OF SECTION 44 OF PUNJAB CO-OPERATIVE SOCIETIES ACT, IT WAS CLEARLY A STATUT ORY INVESTMENT AND THE INTEREST ON THIS INVESTMENT WAS ELIGIBLE FO R DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE HONBLE PUNJAB & HARYANA HIGH COURT HELD THAT WHETHER INVESTMENT WAS MADE IN STATUTORY RESERVES HAD COME OUT OF WORKING OR CIRCU LATING CAPITAL OR OUT OF SURPLUS FUNDS WAS OF NO CONSEQUENCE. THE SAID DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT IN CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. (2007) 2 89 ITR 6 (SC), WHEREIN IT HAS BEEN HELD THAT WHERE A CO-OPER ATIVE BANK CARRYING ON THE BUSINESS OF BANKING, STATUTORILY RE QUIRED TO PLACE PART OF ITS FUNDS IN APPROVED SECURITY, THEN THE IN COME ATTRIBUTABLE THERETO IS DEDUCTIBLE UNDER SECTION 80 P(2)(A)(I) OF THE ACT. THE HON'BLE SUPREME COURT RELIED ON EARLIER D ECISIONS OF THE APEX COURT IN THIS REGARD. 16. THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. PUNJAB STATE CO-OPERATIVE AGRICULTURAL DEVELOPMENT BANK LTD. (2016) 389 ITR 607 (P&H) HAS REMANDED THE ISSUE BAC K TO THE TRIBUNAL TO DECIDE WHETHER THE ASSESSEE WAS CARRYIN G ON BUSINESS OF BANKING AND THEREAFTER, DECIDE THE ISSU E OF ELIGIBILITY OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT ON THE INTEREST INCOME ATTRIBUTABLE TO THE BUSINESS OF BANKING. 17. HOWEVER, WE FIND THAT THE HONBLE HIGH COURT OF GUJARAT IN STATE BANK OF INCOME VS. CIT (SUPRA) WHILE DECID ING SIMILAR ISSUE OF ELIGIBILITY OF DEDUCTION UNDER SECTION 80P (2)(A)(I) OF THE ACT ON INTEREST INCOME FROM DEPOSITS OF SURPLUS FUN DS IN BANKS HELD THAT NEITHER IT WAS BUSINESS INCOME NOR INCOME FROM INVESTMENT IN ANY OTHER CO-OPERATIVE SOCIETIES. IT MAY BE POINTED OUT THAT THE HONBLE HIGH COURT IN PARA 16 HAS CLEA RLY NOTED THAT IN THE SAID CASE, THERE WAS NO OBLIGATION UPON THE ASSESSEE TO INVEST ITS SURPLUS FUNDS WITH THE STATE BANK OF IND IA. IT WAS FURTHER OBSERVED THAT INVESTING SURPLUS FUNDS IN A BANK IS NO PART OF THE BUSINESS OF THE APPELLANT OF PROVIDING CREDIT TO ITS MEMBERS AND HENCE, IT CANNOT BE SAID THAT THE INTER EST INCOME DERIVED FROM DEPOSITING SURPLUS FUNDS WITH THE STAT E BANK OF INDIA BEING ATTRIBUTABLE TO THE BUSINESS CARRIED ON BY THE APPELLANT, CANNOT BE DEDUCTED UNDER SECTION 80P(2)( A)(I) OF THE ACT. THE HONBLE HIGH COURT FURTHER REFERRED TO SE CTION 71 OF THE GUJARAT CO-OPERATIVE SOCIETIES ACT, 1961 PERMITTING SOCIETY TO INVEST OR DEPOSIT ITS FUNDS IN THE STATE BANK OF IN DIA. THE HONBLE HIGH COURT HELD THAT WHILE INVESTMENT IN ST ATE BANK OF INDIA WAS PERMISSIBLE UNDER SECTION 71 OF THAT ACT, THERE WAS NO STATUTORY OBLIGATION UPON THE ASSESSEE TO DEPOSIT T HE FUNDS AS PART OF ITS BUSINESS. THE SAID PROVISION ALSO PERM ITTED 10 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT INVESTMENT OF FUNDS IN ANY CO-OPERATIVE BANK OR ANY BANKING COMPANY APPROVED FOR THIS PURPOSE BY THE REGISTRAR. THE HONBLE HIGH COURT FURTHER HELD THAT THE ASSESSEE C OULD NOT AVAIL THE DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT IN THIS REGARD. EVEN IN THE CASE OF MANTOLA CO-OPERATIVE THRIFT & CREDIT SOCIETY LTD. VS. CIT (SUPRA) T HE ISSUE BEFORE THE HONBLE HIGH COURT WAS IN RESPECT OF INTEREST INCOME EARNED FROM FDRS OUT OF SURPLUS FUNDS AND APPLYING THE PRINCIPLE LAID DOWN IN TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA), THE HONBLE HIGH COURT HELD THE ASSESSEE NOT TO BE ENTITLED TO CLAIM THE DEDUCTION. 18. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE AT VARIANCE TO THE FACTS BEFORE THE HONBLE HIGH COURT OF GUJAR AT (SUPRA). EVEN IN THE FACTS BEFORE THE HON'BLE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA), THE ISSUE WAS DEPOSIT OF SURPLUS FUNDS AS IN THE CASE BEFORE THE HONBLE HIGH COURT OF GUJARAT. THOUGH REFERENCE IS BEING MADE T O THE RESERVE FUNDS BUT THE RATIO LAID DOWN IS AGAINST INVESTING OF SURPLUS FUNDS. WHERE ANY SOCIETY DEPOSITS ITS SURPLUS FUND S IN FIXED DEPOSITS WITH SCHEDULED BANK, THEN THE COURTS HAVE HELD THAT SUCH INTEREST INCOME IS NOT ELIGIBLE FOR CLAIM OF DE DUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. HOWEVER, THE FACT S OF THE PRESENT CASE BEFORE US ARE AT VARIANCE, IT IS NOT SURPLUS F UNDS WHICH HAS BEEN DEPOSITED BY THE ASSESSEE. ON THE OTHER HAND, THE ASSESSEE IS STATUTORILY REQUIRED TO DEPOSIT 25% OF ITS PROFITS IN RESERVE FUNDS, WHICH IN TURN, HAVE TO BE PARKED IN FDRS WITH CO- OPERATIVE BANK OR SCHEDULED BANKING COMPANY. THE A SSESSEE BEFORE US, IN LINE WITH STATUTORY OBLIGATION OF MAI NTAINING ITS STATUS OF CO-OPERATIVE SOCIETY AND AS PER THE REGUL ATIONS OF MAHARASHTRA STATE CO-OPERATIVE SOCIETIES ACT, WAS D UTY BOUND TO TRANSFER 25% OF ITS PROFITS TO RESERVE FUNDS, WHICH IT HAS DONE. THERE IS NO DISPUTE TO THE SAME. THE SECOND ASPECT IS THE UTILIZATION OF FUNDS IN RESERVE FUNDS BY WAY OF MAK ING FDRS WITH SCHEDULED BANK UNDER SECTION 70 OF THE SAID ACT. T HE ASSESSEE HAS RECEIVED PERMISSION OF THE REGISTRAR OF MAHARAS HTRA CO- OPERATIVE SOCIETIES ACT TO MAKE SUCH INVESTMENT WIT H BANK OF MAHARASHTRA AND ALSO IN ORDER TO CARRY ON THE BUSIN ESS ACTIVITIES OF PROVIDING CREDIT FACILITIES TO ITS EMPLOYEES, IT IS MANDATORY UPON THE ASSESSEE TO INVEST 25% OF ITS PROFITS IN T HE RESERVE FUNDS, WHICH IN TURN, ARE PARKED IN FDRS WITH BANK OF MAHARASHTRA, THEN INTEREST INCOME EARNED BY THE ASS ESSEE IS FROM CARRYING ON ITS BUSINESS ACTIVITIES. ONCE IT IS SO, THEN THE SAID INCOME IS ASSESSABLE AS INCOME FROM BUSINESS AND THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTI ON 80P(2)(A)(I) OF THE ACT. ACCORDINGLY, WE HOLD SO.. 11. THE ISSUE ARISING IN THE PRESENT APPEAL IS SQUA RELY COVERED BY THE ISSUE BEFORE THE TRIBUNAL IN ITO VS. M/S. MAHARASHTRA BANK EMPLOYEES CO-OP. CREDIT SOCIETY LTD. (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE BENEFIT UNDER SECTION 80(P)(2)(A) OF THE ACT ON THE INTEREST INCOME EARNED FROM NATIONALIZED BANKS. IN THIS REGARD, WE ALSO FIND SUPPORT FROM THE RATIO LAID DOWN IN MAHESH NAGARI SAHKARI P AT SANSTHA LTD. VS. ITO (SUPRA), WHEREIN THE TRIBUNAL HAS HELD AS UNDER :- 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRE SENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE A UTHORITIES BELOW. WE HAVE ALSO EXAMINED THE DECISIONS ON WHICH BOTH THE SIDES HAVE PLACED RELIANCE. IT IS AN UNDISPUTED FAC T THAT THE ASSESSEE IS CO-OPERATIVE CREDIT SOCIETY. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS.2 9,28,361/- 11 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT FROM THE DEPOSITS WITH NATIONALIZED BANK. WE FIND T HAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SIMILAR TO THE ONE ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F ITO VS. NIPHARD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA). IN THE SAID CASE THE TRIBUNAL HAS CONSIDERED THE JUDGMENT OF TH E HON'BLE SUPREME COURT OF INDIA RENDERED IN THE CASE OF TOTG ARS' CO-OP. SALE SOCIETY LTD. VS. ITO (SUPRA), AND HAS DISTINGU ISHED THE SAME, ON FACTS. THE RELEVANT EXTRACT OF THE ORDER O F THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE AFORESAID CAS E IS REPRODUCED HERE-IN-BELOW: '11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. I N THE INSTANT CASE THERE IS NO DISPUTE TO THE FACT THAT THE ASSES SEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS ACTIVIT Y OF CREDIT COOPERATIVE SOCIETY, I.E. PROVIDING CREDIT FACILITY TO ITS MEMBERS. ACCORDING TO THE REVENUE THE INCOME OF THE SOCIETY ON ACCOUNT OF INTEREST FROM BANKS OTHER THAN COOPERATIVE BANKS, I NTEREST ON MUTUAL FUNDS, LONG TERM AND SHORT TERM CAPITAL GAIN ON SALE OF MUTUAL FUNDS ETC. ARE NOT COVERED BY THE ACTIVITY O F PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND HENCE NOT ELIG IBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE INCOME TAX ACT IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TO TAGAR'S COOPERATIVE SALE SOCIETY LTD. (SUPRA). WE FIND THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THA T THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) ON ACCOUNT OF INTEREST FROM BANKS OTHER THAN COOPERATIVE BANKS, I NTEREST ON MUTUAL FUNDS LONG TERM AND SHORT TERM CAPITAL GAIN ON MUTUAL FUNDS ETC. WHILE DOING SO, HE HELD THAT THE DECISIO N IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE IN THAT CASE THE AMOUNT INVESTED IN SHORT TERM DEPOSITS AND SECURITIES WAS NOT OUT OF INTEREST BEARING DEPOSITS COLLECTED FROM MEMBERS BU T OUT OF SALE PROCEEDS OF AGRICULTURAL PRODUCE OF FARMER MEMBERS MARKETED BY THE SOCIETY. FURTHER, THE HON'BLE APEX COURT HAS CO NSIDERED ONLY THE LATTER PART OF SECTION 80P(2)(A)(I), I.E. INCOM E OF A COOPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO I TS MEMBERS IS ELIGIBLE FOR DEDUCTION AND HAS NOT CONSIDERED THE E ARLIER PART OF SECTION 80P(2)(A)(I), I.E. INCOME OF A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING IS ELIGIBLE FOR DEDUCTION. 11.1 WE FIND THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S. JAFARI MOMIN VIKAS COOPERATIVE CREDIT SOCIE TY LTD. (SUPRA) AFTER CONSIDERING THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY L TD. (SUPRA) HAS OBSERVED AS UNDER: '17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE EITHER PARTY, PERUSED THE RELEVANT RECORDS AND ALSO THE CASE LAW ON WHICH THE LEARNED AR HAD RESERVATION IN IT'S APPLICABLY IN THE CIRCUMSTANCES OF THE ASSESSEE'S C ASE. 18. IT WAS THE STAND OF THE LEARNED CIT (A) THAT TH E ENTIRE INCOME WAS NOT EXEMPT AND THAT IT WAS TO BE EXAMINE D AS TO WHETHER THERE WAS ANY INTEREST INCOME ON THE SHO RT TERM BANK DEPOSITS AND SECURITIES INCLUDED IN THE T OTAL INCOME OF THIS SOCIETY WHICH HAS BEEN CLAIMED AS EX EMPT. ACCORDING TO THE CIT (A), A SIMILAR ISSUE TO THAT O F THE PRESENT ONE WAS DEALT WITH BY THE HON'BLE SUPREME C OURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD V. I TO 12 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT (SUPRA). THE ISSUE BEFORE THE HON'BLE COURT FOR DETERMINATION WAS WHETHER INTEREST INCOME ON SHORT TERM BANK DEPOSITS AND SECURITIES WOULD BE QUALIFIED AS BUSINESS INCOME U/S 80P (2)(A)(I) OF THE ACT. 19. T HE ISSUE DEALT WITH BY THE HON'BLE SUPREME COURT 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 REQUIRED FOR BUSINESS PURPOSES? THE 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 BY SUCH RETENTION 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 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...' 19.1 HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT W AS OBSERVED THAT THE FIXED DEPOSITS MADE WERE TO MAINT AIN 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 H AD INVESTED THE FUNDS ON SHORT 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 NOT UNDER SECTION 56 OF THE ITA NO. 2180/PN/2013, A.Y. 2010-11 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 13 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT DEPOSITS TO THE MEMBERS; AND (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 E NTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AN D THERE WERE NO SURPLUS FUNDS. 19.4 WHILE COMPARING THE STATE OF AFFAIRS OF THE PR ESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COU RT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAM ELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE WERE NO SURPLUS 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 CAS E OF PRESENT ASSESSEE, IT DID NOT CARRY 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 MEMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; IN THE CASE OF TOTGARS, THE HON'BLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS; 19.5 CONSIDERING THE ABOVE FACTS, WE FIND THAT THER E IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSE SSEE NOT A CO-OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPT S DEPOSITS FROM AND LENDS THE SAME TO ITS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINT AIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED B Y THE ASSESSEE THAT IT HAD INVESTED IN SHORT-TERM DEPOSIT S. 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 CONSI DERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW T HAT THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP SALE SOCIETY LTD (SUPRA) 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 B E TAXED U/S 56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 19.7 BEFORE PARTING WITH, WE WOULD, WITH DUE REGARDS, LI KE TO RECORD THAT THE RULING OF THE HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT V. MANEKBANG CO-OP HOUSING SOCIETY LTD REPORTED IN (2012) 22 TAXMANN.COM 220(G UJ) HAS BEEN KEPT IN VIEW WHILE DECIDING THE ISSUE.' 11.2 WE FIND THE COCHIN BENCH OF THE TRIBUNAL IN TH E CASE OF MUTTOM SERVICE COOPERATIVE APLAPPUZHA BANK LTD. VS. ITO (SUPRA) AFTER CONSIDERING THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY L TD. (SUPRA) AND VARIOUS OTHER DECISIONS HAS OBSERVED AS UNDER : '5. WE HAVE CONSIDERED THE RIVAL SUBMISSION ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE 14 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT HAVE ALSO CAREFULLY GONE THROUGH THE ORDER OF THE L OWER AUTHORITY. NO DOUBT, THE LATEST JUDGMENT IN TOTGAR' S CO- OPERATIVE SALE SOCIETY LTD VS ITO (SUPRA), THE APEX COURT FOUND THAT THE DEPOSIT OF SURPLUS FUNDS BY THE CO-O PERATIVE SOCIETY IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2). I N THE CASE BEFORE THE APEX COURT IN TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD VS ITO (SUPRA), THE ASSESSEE CO-OPERATIVE SOCIE TY WAS TO PROVIDE ITA NO. 2180/PN/2013, A.Y. 2010-11 CREDI T FACILITY TO ITS MEMBERS AND MARKET THE AGRICULTURAL PRODUCE. THE ASSESSEE IS NOT IN THE BUSINESS OF BAN KING. THEREFORE, THIS TRIBUNAL IS OF THE OPINION THAT THE JUDGMENT OF THE APEX COURT IN TOTGAR'S CO-OPERATIVE SALE SOC IETY LTD (SUPRA) IS NOT APPLICABLE IN RESPECT OF THE CO-OPER ATIVE SOCIETY WHOSE BUSINESS IS BANKING. ADMITTEDLY, THE ASSESSEE HAS INVESTED FUNDS IN STATE PROMOTED TREAS URY SMALL SAVINGS FIXED DEPOSIT SCHEME. SINCE GOVERNMEN T OF INDIA HAS WITHDRAWN INDIA VIKAS PATRA, AS A SMALL SAVINGS INSTRUMENT, FUNDS INVESTED AT THE DISCRETIO N OF THE BANK IS ONE OF THE ACTIVITIES OF THE BANKING AS PER THE BANKING REGULATION ACT. SINCE THE ASSESSEE CO-OPERA TIVE SOCIETY IS IN THE BUSINESS OF BANKING THE INVESTMEN T IN THE STATE PROMOTED TREASURY SMALL SAVINGS FIXED DEPOSIT CERTIFICATE SCHEME IS A BANKING ACTIVITY, THEREFORE , THE INTEREST ACCRUED ON SUCH INVESTMENT HAS TO BE TREAT ED AS BUSINESS INCOME IN THE COURSE OF ITS BANKING ACTIVI TY. ONCE IT IS A BUSINESS INCOME, THE ASSESSEE IS ENTITLED F OR DEDUCTION U/S 80P(2)((A)(I). THEREFORE, THIS TRIBUN AL IS OF THE OPINION THAT THE JUDGMENT OF THE LARGER BENCH OF TH E APEX COURT IN KARNATAKA STATE COOPERATIVE APEX BANK (SUP RA) IS APPLICABLE TO THE FACTS OF THIS CASE. BY RESPECT FULLY FOLLOWING THE JUDGMENT OF THE APEX COURT IN KARNATA KA STATE CO-OPERATIVE BANK (SUPRA), THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IS UPHELD. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED.' 11.3 IN THE INSTANT CASE THERE IS NO DISPUTE TO THE FACT THAT THE SOCIETY IS A CREDIT COOPERATIVE SOCIETY AUTHORISED BY THE REGISTRAR OF COOPERATIVE SOCIETIES FOR ACCEPTING DEPOSITS AND LENDING MONEY TO ITS MEMBERS AS PER LICENSE GRANTED BY THE REGIST RAR OF COOPERATIVE SOCIETIES AND THE MAIN OBJECT OF THE SO CIETY IS TO PROVIDE CREDIT FACILITY TO MEMBERS WHO CAN BE ANY P ERSON OF THE SOCIETY. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF MAHAVIR NAGARI SAHAKARI PAT SANSTHA LTD. REPORTE D IN 74 TTJ 793 (PUNE) HAS HELD THAT THE CREDIT SOCIETY WHICH IS CARRYING ON THE BUSINESS OF BANKING ACTIVITY AND PROVIDING CREDIT FACILITY TO ITS MEMBERS IS ELIGIBL E FOR DEDUCTION U/S.80P(2)(A)(I). IN VIEW OF THE ABOVE DI SCUSSION AND FOLLOWING THE DECISIONS OF THE AHMEDABAD BENCH OF THE TRIBUNAL AND COCHIN BENCH OF THE TRIBUNAL WHICH IN TURN HAVE CONSIDERED THE DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOC IETY LTD. (SUPRA) WE FIND NO INFIRMITY IN THE ORDER OF T HE LD.CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. THE STAND OF THE ASSESSEE RIGHT THROUGH HAS BEEN THAT THE SOCIETY IS NOT ENGAGED IN ANY OTHER ACTIVITY EXCEPT RECEIVING DEPOSITS FROM ITS MEMBERS AND PROVIDING CREDIT FACI LITIES TO ITS MEMBERS. THE ASSESSEE HAS MADE DEPOSITS WITH NATION ALIZED 15 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT BANKS IN ORDER TO MAINTAIN LIQUIDITY AND PROVIDE RE ADY AVAILABILITY OF FUNDS FOR REPAYMENT OF DEPOSITS ON REDEMPTION/MATURITY. THESE FACTS HAVE NOT BEEN REFU TED BY THE DEPARTMENT. SINCE, THE ISSUE RAISED IN THE APPEAL I S IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE CO-ORDINATE BENC H OF THE TRIBUNAL, WE RESPECTFULLY FOLLOW THE SAME RATIO. THUS, WE HOLD THAT THE ASSESSEE IS ELIGIBLE TO CLAI M DEDUCTION U/S. 80P(2)(A)(I). IN VIEW OF THE ABOVE, THE IMPUGN ED ORDER IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 12. IN VIEW THEREOF, WE DIRECT THE ASSESSING OFFICE R TO ALLOW DEDUCTION UNDER SECTION 80(P)(2)(A) OF THE ACT ON T HE INTEREST INCOME EARNED FROM FIXED DEPOSITS WITH NATIONALIZED BANKS. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE PUNE BENCH OF THE TRIBUNAL TOOK A VIEW IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING TH E JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TOTGARS COOPERAT IVE SALE SOCIETY LTD. VS. ITO (SUPRA) AND ALSO THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF MANTOLA CO-OPERATIVE THRIFT & CR EDIT SOCIETY LTD. VS. CIT (SUPRA) APART FROM OTHERS CITED ABOVE. CONSIDERING THE PRECEDENT ON THE SAME ISSUE BY THE COO RDINATE BENCH OF THE TRIBUNAL, I AM OF THE OPINION THAT THE ASSESS EE IS ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) IN RESPECT OF THE INTEREST INCOME EARNED ON FIXED DEPOSITS KEPT WITH THE NATIONALIZED BANKS/SCHEDU LED BANKS AND THE SAME CONSTITUTE AS BUSINESS INCOME OF THE ASSES SEE. ACCORDINGLY, THE ONLY GROUND RAISED BY THE ASSESSEE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 25 TH DAY OF MAY, 2018. SD/- ( . /D. KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; / DATED : 25 TH MAY, 2018. SATISH 16 ITA NO.955/PUN/2017 SHRI BHAGWANT SAHAKARI NAGARI PATSANSTHA MARYADIT % ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-7, PUNE 4. THE CIT-7, PUNE 5. , , - ' , / DR, ITAT, SMC BENCH, PUNE. 6. % / GUARD FILE. / BY ORDER, ( % //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE