State Bank of India Staff Co-Operative Credit Society Ltd, Solapur V. Income-tax Officer, Solapur

ITA 968/PUN/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3034 (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: 2011-2012
• Appeal Filed On: 18-04-2017
• 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. 968/PUN/2017 / ASSESSMENT YEAR : 2011-12 STATE BANK OF INDIA STAFF CO-OPERATIVE CREDIT SOCIETY LTD. SOLAPUR-413 002. PAN : AAGAS5002D ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD- 1(1), SOLAPUR. / RESPONDENT APPELLANT BY : SHRI S.N. PURANIK 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 01.12.2016 FOR ASSESSMENT YEAR 2011-12. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : 1. COMMISSIONER (APPEALS) HAS ERRED IN NOT ALLOWING DEDUCTION U/S. 80P(2)(A)(I) OF RS.7,75,490/-. APPELLANT PRAYS TO A LLOW THE SAME. 2. APPELLANT PRAYS FOR CANCELLATION OF INTEREST CHA RGED U/S. 234B. 3. APPELLANT PRAYS FOR JUST AND EQUITABLE RELIEF. 4. APPELLANT PRAYS TO ADD, ALTER, AMEND AND/OR WITH DRAW THE GROUND/S AS OCCASION MAY DEMAND. 2 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS A CO- OPERATIVE CREDIT SOCIETY REGISTERED UNDER THE MAHARASH TRA COOPERATIVE SOCIETIES ACT, 1960. ASSESSEE IS PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND ACCEPTING DEPOSITS FROM ITS MEMBERS. THE ASS ESSEE- SOCIETY FILED RETURN OF INCOME ON 01-11-2011 DECLARING NIL IN COME. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, AO NOTICED THAT AS SESSEE IS IN RECEIPT OF INCOME FROM INTEREST ON LOANS, INTEREST ON SPECI AL TDR FROM STATE BANK OF INDIA AMOUNTING TO RS.8,58,299/- AND CLAIM ED THE DEDUCTION U/S. 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961. AT TH E END OF ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, THE AO MADE ADDITION OF RS.7,75,490/- AFTER DEDUCTING THE INTEREST PAID (RS.82,809/- ) BY THE ASSESSEE 4. AGGRIEVED WITH THE ORDER OF AO, THE ASSESSEE FILED AN A PPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE FILED WRITT EN SUBMISSIONS DATED 25-11-2016 AND RELIED ON COUPLE OF DEC ISIONS OF PUNE BENCH OF THE TRIBUNAL AS WELL AS ASSESSEES OWN CAS E IN ITA NO.1138/PN/2016 FOR THE A.Y. 2010-11. HOWEVER, THE CIT(A ) CONFIRMED THE ADDITION OF RS.16,99,709/- AND DENIED THE CLAIM OF DEDU CTION U/S.80P(2)(A)(I) OF THE ACT TO THE ASSESSEE RELYING ON THE JU DGMENT OF HONBLE SUPREME COURT IN THE CASE OF TOTGARS COOPERAT IVE SALE SOCIETY LTD. VS. ITO [2020] 322 ITR 283 AND THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF MANTOLA CO-OPERATIVE THRIFT & CR EDIT SOCIETY LTD. VS. CIT 50 TAXMANN.COM 278. CIT(A) ALSO NOTED THE DE CISION OF ITAT IN THE CASE OF JIJAMATA MAHILA BIGAR SHETI SAHAKARI P ATSANSTHA LTD. VS. ITO ITA NO.992/PN/2016, DATED 29-07-2016. CON TENTS OF PARA NO.6.3 OF THE ORDER OF CIT(A) ARE RELEVANT AND THEREFO RE, THE SAME ARE EXTRACTED HERE AS UNDER : 3 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., 6.3 IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING T HE DELHI HIGH COURT DECISION AND SUPREME COURT DECISION WHICH IS DIRECT LY ON THE ISSUE INVOLVED ON INTEREST FROM THE BANK IS TO BE TREATED AS INCOME FROM OTHER SOURCES AND APPELLANT IS NOT ELIGIBLE FOR 80P THE A PPELLANT HAS RECEIVED INTEREST OF RS.7,75,490/- FROM THE BANK WHICH CANNO T BE CHARACTERIZED AS INCOME FROM BUSINESS OF PROVIDING CREDIT FACILIT Y TO MEMBERS OF THE SOCIETY. THEREFORE, ACTION OF THE ASSESSING OFFICER IN TREATING RS.7,75,490/- AS INCOME FROM OTHER SOURCES AND DENY ING THE DEDUCTION U/S.80P ON INCOME FROM OTHER SOURCES IS UPHELD AND GROUND NO.1 OF THE APPEAL IS DISMISSED. 5. AGGRIEVED WITH THE ORDER OF CIT(A) CONFIRMING THE ADDITION RS.7,75,490/-, THE ASSESSEE IS IN APPEAL BEFORE ME RAISING T HE AFORESAID GROUNDS. 6. BEFORE ME, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE THIS THE CORE ISSUE RAISED BY THE ASSESSEE IN THE GROUNDS IS TO DECIDED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF VARIOUS DECISIONS OF PUNE BE NCH OF THE TRIBUNAL. IN SUPPORT OF HIS CASE, LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS BY FILING THE COPIES OF THE ORDERS : 1. BALIRAJA GRAMIN BIGARSHETI SAHAKARI PAT SANSTHA MARYADIT VS. ITO - ITA NO. 50 & 51/PUN/2017, DATED 26-03-2018, D ATED 26.03.2018 FOR THE A.YRS. 2013-14 AND 2012-13. 2. JIJAMATA MAHILA SAHAKARI BIGAR SHETI SAHAKARI PA TSANSTHA LTD. VS. ITO, BALIRAJA GRAMIN BIGARSHETI SAHAKARI PATSAN STHA MARYADIT VS. ITO AND STATE BANK OF INDIA STAFF CO-OPERATIVE CREDIT SOCIE TY LTD. - ITA NO.992/PN/2016, ITA NO.1041/PN/2016 AND ITA NO.1138/PN/2016, DATED 29-07-2016. 3. ITO VS. SWA ASHOKRAO BANKAR NAGARI SAH. PATSANST HA MARYADIT ITA NO.1395/PN/2015, DATED 25-01-2018. 7. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF AO/ CIT(A). 8. I HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE R EVENUE AND THE DECISIONS RELIED ON BY THE ASSESSEE. THE ISSUE RAISED IN TH E PRESENT APPEAL IS AGAINST THE CLAIM OF DEDUCTION U/S. 80P(2)(A)(I) OF THE A CT ON THE INTEREST INCOME EARNED FROM THE STATE BANK OF INDIA. IT IS 4 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., UNDISPUTED FACT THAT IS A CREDIT CO-OPERATIVE SOCIETY PR OVIDING CREDIT FACILITY TO ITS MEMBERS AND RECEIVES DEPOSITS FROM ITS MEMBE RS. ON GOING THROUGH THE FACTS, I FIND THE ISSUE RAISED BY THE A SSESSEE IS A COVERED ISSUE IN FAOVUR OF THE ASSESSEE AND I FIND THIS IS SUE HAS BEEN ELABORATELY CONSIDERED BY THE PUNE BENCH OF TRIBUNAL IN T HE CASE OF BALIRAJA GRAMIN BIGARSHETI SAHAKARI PAT SANSTHA MARYADIT VS. ITO (SUPRA.), WHEREIN, IT HAS BEEN HELD THAT THE ASSESSEE IS ELIGIBLE TO C LAIM 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 AND S UBSEQUENT DECISION ON THE ISSUE WAS ALSO CONSIDERED AND IT WAS 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 ON F DRS 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 MAINTAIN RESERVE FUND AS PER CLAUSE (1) TO SECTION 66 OF THE SAID ACT. C LAUSE (2) FURTHER LAYS DOWN THAT EVERY SOCIETY SHALL CARRY ATLEAST ON E-FOURTH OF NET PROFITS EACH YEAR TO THE RESERVE FUND; AND SUCH RES ERVE FUND MAY SUBJECT TO THE RULES MADE THEREUNDER, IF ANY, BE US ED IN THE BUSINESS OF SOCIETY OR MAY, SUBJECT TO PROVISIONS O F SECTION 70, BE INVESTED, AS THE STATE GOVERNMENT MAY BY GENERAL OR SPECIAL ORDER DIRECT OR MAY, WITH THE PREVIOUS SANCTION OF THE ST ATE GOVERNMENT BE USED IN PART FOR SOME PUBLIC PURPOSE TO PROMOTE THE OBJECTS OF THE ACT OR SOME SUCH PURPOSES OF THE STATE GOVERNME NT OR OF THE LOCAL INTEREST. SECTION 70 OF THE SAID ACT LAYS DO WN THAT SOCIETY SHALL INVEST OR DEPOSIT ITS FUNDS IN ONE 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, WHIC H READS AS UNDER:- 70 (A). 5 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., (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 OF THE STA TE GOVERNMENT BY GENERAL OR SPECIAL ORDER ARE TO BE INVESTED IN O NE OF THE SECURITIES, WHICH ARE PROVIDED UNDER SECTION 70 OF THE SAID ACT. CLAUSE (D) CLEARLY LAYS DOWN THAT THE INVESTMENT OR DEPOSIT OF FUNDS COULD BE IN ANY CO-OPERATIVE BANK OR BANKING 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 SOCIETIES UNDER SECTION 70 TO DO SO. THE REGISTRAR VIDE ITS LETTER DATED 18.10.1995 IN RESPECT OF INVESTMENT OF RESERVE FUNDS CONSEQUENT TO SOCIETYS RESOLUTION DATED 25.08.1994 AND MANAGEMENT COMMITTEES RESOLUTI ON DATED 29.07.1991 AND FURTHER THE ASSESSEES LETTER DATED 11.07.1995, GRANTED PERMISSION UNDER SECTION 70 OF THE MAHARASH TRA CO- OPERATIVE SOCIETIES ACT, 1960 AND RULE 54 OF THE RU LES 1961 TO TRANSFER RESERVE FUNDS AMOUNT WITH PUNE DISTRICT CE NTRAL CO- OPERATIVE BANK TO THE BANK OF MAHARASHTRA WITH COND ITION OF INVESTMENT AND ALSO THAT THE AMOUNT INVESTED IN THE BANK OF MAHARASHTRA COULD NOT BE GIVEN AS SECURITY FOR BORR OWING OR USED FOR ANY OTHER PURPOSE WITHOUT WRITTEN PERMISSION FR OM THE REGISTRAR. THE COPY OF SAID PERMISSION IS PLACED A T PAGE 6 WITH ENGLISH TRANSLATION AT PAGE 7 OF THE PAPER BOOK. T HE 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 REQU IRED TO TRANSFER THE FUNDS I.E. ONE-FOURTH OF PROFITS OF ASSESSEES SOCIETY TO THE RESERVE FUND AND THEREAFTER, THE FUNDS IN THE RESER VE FUND WERE INVESTED AS FDRS WITH THE BANK OF MAHARASHTRA. THE ASSESSEE POINTS OUT THAT THE SAID PARKING OF FUNDS IN FDRS W ITH THE BANK OF MAHARASHTRA WAS ONE OF THE CONDITIONS FOR CARRYING ON THE BUSINESS ACTIVITIES OF THE ASSESSEE SOCIETY, HENCE INTEREST EARNED THEREFROM WAS BUSINESS INCOME IN THE HANDS OF ASSES SEE. IT WAS TIME AND AGAIN REITERATED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE AMOUNTS WH ICH WERE PARKED IN FDRS WITH BANK OF MAHARASHTRA WERE NOT OU T OF SURPLUS AND IDLE FUNDS BUT WERE OUT OF FUNDS TRANSFERRED TO RESERVE FUND. THE ASSESSEE THUS, CLAIMED THAT ONCE THE INTEREST I NCOME HAS BEEN EARNED DURING THE COURSE OF CARRYING ON OF ITS BUSI NESS ACTIVITIES, THEN THE SAME IS ELIGIBLE FOR GRANT OF DEDUCTION UN DER SECTION 80P(2)(A)(I) OF THE ACT . 6 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., 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 ENGAGED I N 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 CONSIDERE D 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 AND WHETH ER THE INTEREST INCOME EARNED BY THE ASSESSEE ON SUCH INVE STMENTS 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 AFTER CO NSIDERING 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-OPE RATIVE SOCIETY PROVIDING CREDIT FACILITIES TO THE MEMBERS OR MARKE TING AGRICULTURAL PRODUCE OF ITS MEMBERS. THE ASSESSEE HAD PARKED IT S FUNDS IN SHORT TERM BANK DEPOSITS AND SECURITIES AND THE INT EREST 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 INCOME FROM OTHER SOURCES. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THESE WERE NOT REQUIRED IMMEDIATELY FOR BU SINESS PURPOSES AND CONSEQUENTLY, INTEREST RECEIVED BY THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) O F THE ACT. FURTHER, THE CONTENTION OF THE ASSESSEE BEFORE THE COURT WAS THAT UNDER REGULATIONS 23 AND 28 R.W.S. 57 AND 58 OF THE KARNA TAKA CO- OPERATIVE SOCIETIES ACT, 1959, A STATUTORY OBLIGATI ON WAS IMPOSED ON CO-OPERATIVE CREDIT SOCIETIES TO INVEST ITS SURP LUS FUNDS IN SPECIFIED SECURITIES AND IN VIEW OF THE AFORESAID S TATUTORY OBLIGATIONS, THE ABOVE MENTIONED INVESTMENT WAS MAD E BY THE ASSESSEE AND THE SAME WAS IN THE NATURE OF ITS BUSI NESS 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 WHICH SUCH INCOME WOULD FALL. THE HONB LE APEX COURT NOTED THAT THE INTEREST INCOME ARISING ON SUR PLUS INVESTMENT IN SHORT TERM DEPOSITS AND SECURITIES, WHICH SURPLU S WAS NOT REQUIRED FOR BUSINESS PURPOSE, WAS TO BE TAXED UNDE R SECTION 56 OF THE ACT. THE HONBLE APEX COURT FURTHER NOTED T HAT THE 7 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., ASSESSEE MARKETS THE PRODUCE OF ITS MEMBERS WHOSE S ALE PROCEEDS AT TIMES WERE RETAINED BY IT AND THE TAX T REATMENT OF SUCH AMOUNT WAS THE ISSUE BEFORE THEM. THE HONBLE APEX COURT HELD THAT WHERE THE INTEREST ON DEPOSITS / SECURITI ES, WHERE THE FUNDS WERE NOT IMMEDIATELY REQUIRED FOR BUSINESS PUR POSES, WAS INVESTED IN SPECIFIED SECURITIES, WOULD BE TAXABLE AS INCOME UNDER SECTION 56 OF THE ACT. IT FURTHER HELD THAT WHERE THE ASSESSEE SOCIETY REGULARLY INVESTS ITS FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, INTEREST ON SUCH INVESTMENT COUL D NOT FALL WITHIN THE EXPRESSION OF PROFITS AND GAINS OF BUSIN ESS AND THE SAME COULD NOT BE HELD TO BE ATTRIBUTABLE TO THE AC TIVITIES OF THE SOCIETY I.E. CARRYING ON OF BUSINESS OF PROVIDING C REDIT FACILITIES TO ITS MEMBERS OR MARKETING THE AGRICULTURAL PRODUCE O F ITS MEMBERS. THE HONBLE APEX COURT FURTHER REITERATED THAT WHER E THE ASSESSEE MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS AND IT RETAINS THE SALE PROCEEDS IN MANY CASES AND WHERE THE RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM THE PRO DUCE WAS BOUGHT, WAS INVESTED IN SHORT TERM DEPOSITS / SECUR ITIES, THE SAID AMOUNT WAS LIABILITY OF THE ASSESSEE AND IT WAS SHO WN IN THE BALANCE SHEET ON THE LIABILITIES SIDE, THEREFORE, T O THAT EXTENT, THE HONBLE SUPREME COURT HELD THAT SUCH INTEREST INCOM E COULD NOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENT IONED 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 ALTER NATE PLEA OF THE ASSESSEE THAT EVEN IF THE SAID INTEREST INCOME WAS HELD TO BE COVERED UNDER SECTION 56 OF THE ACT, WAS ELIGIBLE F OR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF 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 INTEREST 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, THE SA ID AMOUNT WAS IN THE NATURE OF PROFITS AND GAINS, WHICH WAS NOT IMME DIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE M EMBERS AS THERE WERE NO TAKERS AND THE ASSESSEE IN SUCH CIRCU MSTANCES, DEPOSITED THE MONEY IN BANK SO AS TO EARN INTEREST. THE HONBLE HIGH COURT OF KARNATAKA IN SUCH CIRCUMSTANCES HELD THAT THE INTEREST INCOME WAS ATTRIBUTABLE TO CARRYING ON OF BUSINESS OF BANKING AND THEREFORE, IT WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT, THEY TOOK NOTE OF INSERT ION OF SECTION 80P(4) OF THE ACT, WHICH WAS APPLIED BY THE ASSESSI NG OFFICER TO DENY THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF TH E ACT. THE HONBLE HIGH COURT OF KARNATAKA REFERRED TO THE JUD GMENT OF HONBLE APEX COURT IN TOTGAR CO-OPERATIVE SALE SOCI ETY LTD. VS. ITO (SUPRA) AND POINTED OUT THAT IN THE FACTS OF TH E SAID CASE, THE AMOUNT WHICH WAS RETAINED BY THE ASSESSEE WAS A LIA BILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON LIABILITIES SIDE. WHERE THE INTEREST INCOME WAS EARNED ON SUCH FUNDS, THEN THE SAME WAS HELD BY THE HONBLE APEX COURT 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 OU T THAT IN THE CASE BEFORE THEM, THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN THE INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMB ER, IT WAS 8 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., NOT THE LIABILITY AND IT WAS NOT SHOWN AS LIABILITY IN THEIR ACCOUNTS. IN FACT, THE AMOUNT WAS IN THE NATURE OF PROFITS AN D GAINS WHICH WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LE NDING MONEY TO THE MEMBERS AS THERE WERE NO TAKERS AND HENCE, W AS DEPOSITED IN THE BANKS SO AS TO EARN INTEREST, SUCH INTEREST INCOME EARNED BY THE ASSESSEE WAS HELD TO BE ATTRIBUTABLE TO CARRYIN G ON THE BUSINESS AND THEREFORE, SAME WAS LIABLE TO BE DEDUC TED 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 CAR RYING 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 AS SESSEE SOCIETY WAS PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND WAS NOT CARRYING ON ANY OTHER BUSINESS, THEN THE SURPLUS FUNDS WHICH IT HAD EARNED AS PROFITS OF ITS BUSINESS WHEN TEMPORARILY NOT REQUIRED WERE INVESTED IN BANKS TO EARN INTEREST WAS ATTRIBU TABLE TO CARRYING ON THE BUSINESS OF BANKING 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 ITSEL F. THE SURPLUS AMOUNT WHICH WAS ON ACCOUNT OF AMOUNT RECEI VED FROM ITS MEMBERS ONLY, WHICH HAD NOT BEEN ADVANCED TO ANY 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-OPER ATIVE BANKS WAS CLAIMED BY THE ASSESSEE TO BE IN THE NATURE OF ITS BUSINESS ACTIVITY AS IT WAS THE REQUIREMENT OF MAHARASHTRA CO-OPERATI VE SOCIETIES ACT, 1960, THAT 20 TO 30% OF TOTAL DEPOSITS ARE TO BE PARKED IN THE INVESTMENTS WITH CO-OPERATIVE BANKS. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE AMOUNT INVESTED BY THE ASSESSEE WAS OUT OF ANY LIABILITIES DUE BY THE ASSESSEE. IN THE ABSENC E OF THE SAME AND FOLLOWING THE SAME PARITY OF REASONING LAID DOW N BY THE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. VS. ITO (SUPRA) AND THE FA CTS 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 T HE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. I N THE ALTERNATE, WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT AT BEST THE INCOME WHICH CAN BE ASSESSED IN THE HANDS OF ASSESSEE IS T HE NET INCOME AND NOT THE GROSS INCOME AS PROPORTIONATE EXPENDITU RE INCURRED IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. HOWEVE R, WE ARE NOT ADJUDICATING THIS ISSUE SINCE WE HAVE ALREADY HELD THE ASSESSEE 9 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., TO BE ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. IN VIEW THEREOF, WE ALSO DO NOT ADJUDICATE TH E SECOND ALTERNATE PLEA RAISED BY THE ASSESSEE THAT IT IS EN TITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT. H OWEVER, THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION UNDER SEC TION 80P(2)(A)(I) OF THE ACT RELATING TO DIVIDEND RECEIVED FROM UTI M UTUAL FUNDS AND SUNDARAM FINANCE OF RS.87,087/- AND RS.88,519/-, WH ICH ARE TO BE INCLUDED AS INCOME FROM OTHER SOURCES, ON WHICH THE ASSESSEE IS ENTITLED TO PROPORTIONATE EXPENDITURE. SIMILARL Y, THE PROFIT OF RS.25,786/- FROM OTHER ACTIVITIES AND SERVICES IS N OT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF TH E ACT. ACCORDINGLY, WE PARTLY UPHOLD THE ORDER OF CIT(A). IN VIEW THEREOF, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE PAR TLY 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 STATUTORY INVESTMENT AND THE INTEREST ON THIS INVESTMENT WAS ELIGIBLE FOR DE DUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE HONBLE PUNJA B & HARYANA HIGH COURT HELD THAT WHETHER INVESTMENT WAS MADE IN STATUTORY RESERVES HAD COME OUT OF WORKING OR CIRCULATING CAP ITAL OR OUT OF SURPLUS FUNDS WAS OF NO CONSEQUENCE. THE SAID DECI SION OF THE HONBLE PUNJAB & HARYANA HIGH COURT HAS BEEN CONFIR MED BY THE HON'BLE SUPREME COURT IN CIT VS. NAWANSHAHAR CENTRA L CO- OPERATIVE BANK LTD. (2007) 289 ITR 6 (SC), WHEREIN IT HAS BEEN HELD THAT WHERE A CO-OPERATIVE BANK CARRYING ON THE BUSINESS OF BANKING, STATUTORILY REQUIRED TO PLACE PART OF ITS FUNDS IN APPROVED SECURITY, THEN THE INCOME ATTRIBUTABLE THERETO IS D EDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE HON'BLE SUPRE ME COURT RELIED ON EARLIER DECISIONS 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 DECIDING SIMILAR ISSUE OF ELIGIBILITY OF DEDUCTION UNDER SECTION 80P(2)(A) (I) OF THE ACT ON INTEREST INCOME FROM DEPOSITS OF SURPLUS FUNDS IN B ANKS HELD THAT NEITHER IT WAS BUSINESS INCOME NOR INCOME FROM INVE STMENT IN ANY OTHER CO-OPERATIVE SOCIETIES. IT MAY BE POINTED OU T THAT THE HONBLE HIGH COURT IN PARA 16 HAS CLEARLY NOTED THA T IN THE SAID CASE, THERE WAS NO OBLIGATION UPON THE ASSESSEE TO INVEST ITS SURPLUS FUNDS WITH THE STATE BANK OF INDIA. IT WAS FURTHER OBSERVED THAT INVESTING SURPLUS FUNDS IN A BANK IS NO PART OF THE BUSINESS OF THE APPELLANT OF PROVIDING CREDIT TO IT S MEMBERS AND HENCE, IT CANNOT BE SAID THAT THE INTEREST INCOME D ERIVED FROM DEPOSITING SURPLUS FUNDS WITH THE STATE BANK OF IND IA BEING ATTRIBUTABLE TO THE BUSINESS CARRIED ON BY THE APPE LLANT, CANNOT BE DEDUCTED UNDER SECTION 80P(2)(A)(I) OF THE ACT. TH E HONBLE HIGH COURT FURTHER REFERRED TO SECTION 71 OF THE GUJARAT CO-OPERATIVE 10 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., SOCIETIES ACT, 1961 PERMITTING SOCIETY TO INVEST OR DEPOSIT ITS FUNDS IN THE STATE BANK OF INDIA. THE HONBLE HIGH COURT HELD THAT WHILE INVESTMENT IN STATE BANK OF INDIA WAS PERMISSIBLE U NDER SECTION 71 OF THAT ACT, THERE WAS NO STATUTORY OBLIGATION U PON THE ASSESSEE TO DEPOSIT THE FUNDS AS PART OF ITS BUSINE SS. THE SAID PROVISION ALSO PERMITTED INVESTMENT OF FUNDS IN ANY CO-OPERATIVE BANK OR ANY BANKING COMPANY APPROVED FOR THIS PURPO SE BY THE REGISTRAR. THE HONBLE HIGH COURT FURTHER HELD THA T THE ASSESSEE COULD 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) THE ISSUE BEFORE THE HONBLE HIGH COURT WAS IN RESPECT OF INTEREST INCOME EARNED FROM FDRS OUT OF SURPLUS FUNDS AND APPLYING THE PRINCIPLE LAI D DOWN IN TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (SU PRA), 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 GUJARAT (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 D EDUCTION 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 PROFI TS IN RESERVE FUNDS, WHICH IN TURN, HAVE TO BE PARKED IN FDRS WITH CO-OP ERATIVE BANK OR SCHEDULED BANKING COMPANY. THE ASSESSEE BEFORE US, IN LINE WITH STATUTORY OBLIGATION OF MAINTAINING ITS STATUS OF CO-OPERATIVE SOCIETY AND AS PER THE REGULATIONS OF MAHARASHTRA S TATE CO- OPERATIVE SOCIETIES ACT, WAS DUTY 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 MAKING FDRS WITH SCHEDULED BANK UND ER SECTION 70 OF THE SAID ACT. THE ASSESSEE HAS RECEIVED PERM ISSION OF THE REGISTRAR OF MAHARASHTRA CO-OPERATIVE SOCIETIES ACT TO MAKE SUCH INVESTMENT WITH BANK OF MAHARASHTRA AND ALSO IN ORD ER TO CARRY ON THE BUSINESS ACTIVITIES OF PROVIDING CREDIT FACI LITIES TO ITS EMPLOYEES, IT IS MANDATORY UPON THE ASSESSEE TO INV EST 25% OF ITS PROFITS IN THE RESERVE FUNDS, WHICH IN TURN, ARE PA RKED IN FDRS WITH BANK OF MAHARASHTRA, THEN INTEREST INCOME EARN ED BY THE ASSESSEE IS FROM CARRYING ON ITS BUSINESS ACTIVITIE S. ONCE IT IS SO, THEN THE SAID INCOME IS ASSESSABLE AS INCOME FROM BUSINESS AND THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER S ECTION 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. MAHARASHT RA BANK EMPLOYEES CO-OP. CREDIT SOCIETY LTD. (SUPRA) AND FOLLOWING TH E 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 INTERES T INCOME EARNED FROM NATIONALIZED BANKS. IN THIS REGARD, WE ALSO FIND S UPPORT FROM THE RATIO LAID DOWN IN MAHESH NAGARI SAHKARI PAT SANSTHA LTD. VS. ITO (SUPRA), WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- 11 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., 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.29,28 ,361/- FROM THE DEPOSITS WITH NATIONALIZED BANK. WE FIND THAT T HE ISSUE RAISED IN THE PRESENT APPEAL IS SIMILAR TO THE ONE ADJUDIC ATED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO V S. NIPHARD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA). IN THE SAI D CASE THE TRIBUNAL HAS CONSIDERED THE JUDGMENT OF THE HON'BLE SUPREME COURT OF INDIA RENDERED IN THE CASE OF TOTGARS' CO- OP. SALE SOCIETY LTD. VS. ITO (SUPRA), AND HAS DISTINGUISHED THE SAM E, ON FACTS. THE RELEVANT EXTRACT OF THE ORDER OF THE CO-ORDINAT E BENCH OF THE TRIBUNAL IN THE AFORESAID CASE IS REPRODUCED HERE-I N-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 T HE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TOTAGAR'S COOP ERATIVE SALE SOCIETY LTD. (SUPRA). WE FIND THE LD. CIT(A) ALLOWE D THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS ENT ITLED TO DEDUCTION U/S.80P(2)(A)(I) ON ACCOUNT OF INTEREST F ROM BANKS OTHER THAN COOPERATIVE BANKS, INTEREST ON MUTUAL FUNDS LO NG TERM AND SHORT TERM CAPITAL GAIN ON MUTUAL FUNDS ETC. WHILE DOING SO, HE HELD THAT THE DECISION IN THE CASE OF TOTAGAR'S COO PERATIVE SALE SOCIETY LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE IN THAT CASE THE AMOUNT INVESTED IN SHOR T TERM DEPOSITS AND SECURITIES WAS NOT OUT OF INTEREST BEARING DEPO SITS COLLECTED FROM MEMBERS BUT OUT OF SALE PROCEEDS OF AGRICULTUR AL PRODUCE OF FARMER MEMBERS MARKETED BY THE SOCIETY. FURTHER, TH E HON'BLE APEX COURT HAS CONSIDERED ONLY THE LATTER PART OF S ECTION 80P(2)(A)(I), I.E. INCOME OF A COOPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS ELIGI BLE FOR DEDUCTION AND HAS NOT CONSIDERED THE EARLIER 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 SOCIETY LTD. (SUPRA) AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME C OURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SU PRA) 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. 12 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., 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 TOTAL INCOME OF THIS SOCIETY WHICH HAS BEEN CLAIMED AS EXEMPT. ACCO RDING TO THE CIT (A), A SIMILAR ISSUE TO THAT OF THE PRES ENT ONE WAS DEALT WITH BY THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD V. ITO (SUPRA). THE ISSUE BEFORE THE HON'BLE COURT FOR DETERMINATION WAS WHET HER INTEREST INCOME ON SHORT TERM BANK DEPOSITS AND SEC URITIES WOULD BE QUALIFIED AS BUSINESS INCOME U/S 80P (2)(A )(I) OF THE ACT. 19. THE ISSUE DEALT WITH BY THE HON'BLE SU PREME 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 WHIC H 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. I N 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, IS-WHETHER INTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTL Y SPEAKING ACCRUES TO THE MEMBERS' ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT? IN OUR VIEW, SUCH INTEREST INCOME WOULD COME I N 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 OF FICER, IT WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVEST ED 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. TH E 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 13 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., (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 T HE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED O N TWO ACTIVITIES, NAMELY, (I) ACCEPTANCE OF DEPOSIT A ND LENDING BY WAY OF DEPOSITS TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUCE; AND (D) THAT TH E 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 W ERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THER E WERE NO SURPLUS FUNDS; - IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS ADMITTED BEFORE THE AO, OUT O F 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 TO 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 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 ASSESSEE N OT A CO- OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUP LED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSI TS 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 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 AS SESSEE AVAILABLE ON RECORD] 19.6 IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE RAT IO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF TO TGARS CO-OP SALE SOCIETY LTD (SUPRA) CANNOT IN ANY WAY CO ME 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 TH E LEARNED CIT (A) WAS NOT JUSTIFIED IN COMING TO A CONCLUSION THAT THE SUM OF RS.9,40,639/- WAS TO BE TAXED U/S 56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 19.7 BEFORE PARTING WITH, W E WOULD, WITH DUE REGARDS, LIKE TO RECORD THAT THE RULING OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. MANEKBANG CO-OP HOUSING SOCIETY LTD REPORTED IN (20 12) 14 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., 22 TAXMANN.COM 220(GUJ) 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 SUPREME C OURT IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SU PRA) 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 HAVE ALSO CAREFULLY GONE THROUGH THE ORDER OF THE LOWER AUTHORITY. NO DOUBT, THE LATEST JUDGMENT IN TOTGAR'S CO-OPERAT IVE SALE SOCIETY LTD VS ITO (SUPRA), THE APEX COURT FOUND TH AT THE DEPOSIT OF SURPLUS FUNDS BY THE CO-OPERATIVE SOCIET Y IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2). IN THE CASE BEFO RE THE APEX COURT IN TOTGAR'S CO-OPERATIVE SALE SOCIETY LT D VS ITO (SUPRA), THE ASSESSEE CO-OPERATIVE SOCIETY WAS TO P ROVIDE ITA NO. 2180/PN/2013, A.Y. 2010-11 CREDIT FACILITY TO ITS MEMBERS AND MARKET THE AGRICULTURAL PRODUCE. THE ASSESSEE IS NOT IN THE BUSINESS OF BANKING. THEREFO RE, THIS TRIBUNAL IS OF THE OPINION THAT THE JUDGMENT OF THE APEX COURT IN TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD (SU PRA) IS NOT APPLICABLE IN RESPECT OF THE CO-OPERATIVE SOCIETY W HOSE BUSINESS IS BANKING. ADMITTEDLY, THE ASSESSEE HAS I NVESTED FUNDS IN STATE PROMOTED TREASURY SMALL SAVINGS FIXE D DEPOSIT SCHEME. SINCE GOVERNMENT OF INDIA HAS WITHD RAWN INDIA VIKAS PATRA, AS A SMALL SAVINGS INSTRUMENT, F UNDS INVESTED AT THE DISCRETION OF THE BANK IS ONE OF TH E ACTIVITIES OF THE BANKING AS PER THE BANKING REGULATION ACT. S INCE THE ASSESSEE CO-OPERATIVE SOCIETY IS IN THE BUSINESS OF BANKING THE INVESTMENT IN THE STATE PROMOTED TREASURY SMALL SAVINGS FIXED DEPOSIT CERTIFICATE SCHEME IS A BANKI NG ACTIVITY, THEREFORE, THE INTEREST ACCRUED ON SUCH I NVESTMENT HAS TO BE TREATED AS BUSINESS INCOME IN THE COURSE OF ITS BANKING ACTIVITY. ONCE IT IS A BUSINESS INCOME, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80P(2)((A)(I). THEREF ORE, THIS TRIBUNAL IS OF THE OPINION THAT THE JUDGMENT OF THE LARGER BENCH OF THE APEX COURT IN KARNATAKA STATE COOPERAT IVE APEX BANK (SUPRA) IS APPLICABLE TO THE FACTS OF THI S CASE. BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE APEX COU RT IN KARNATAKA STATE CO-OPERATIVE BANK (SUPRA), THE ORDE R 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 PR OVIDING CREDIT FACILITY TO ITS MEMBERS IS ELIGIBLE FOR DEDU CTION U/S.80P(2)(A)(I). IN VIEW OF THE ABOVE DISCUSSION A ND FOLLOWING 15 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., THE DECISIONS OF THE AHMEDABAD BENCH OF THE TRIBUNA L AND COCHIN BENCH OF THE TRIBUNAL WHICH IN TURN HAVE CONSIDERED THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF TOTAGAR'S COOPERATIVE SALE SOCIETY LTD. (SU PRA) WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A). AC CORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE RE VENUE 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 BANKS IN ORDER TO MAINTAIN LIQUIDITY AND PROVIDE RE ADY AVAILABILITY OF FUNDS FOR REPAYMENT OF DEPOSITS ON REDEMPTION/MA TURITY. THESE FACTS HAVE NOT BEEN REFUTED BY THE DEPARTMENT. SINC E, THE ISSUE RAISED IN THE APPEAL IS IDENTICAL TO THE ONE ALREAD Y ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE RESPECTFU LLY 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 IMPUGNED OR DER 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 THE INTERES T INCOME EARNED FROM FIXED DEPOSITS WITH NATIONALIZED BANKS. THE GROUND S OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE PUNE BENCH OF TH E 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 HONBLE DELHI HIGH COURT IN THE CASE OF MANTOLA CO-OPERATIVE THRIFT & CREDIT SOCIET Y 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 ASSES SEE 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/SCHEDULED BANKS AND THE SAME CONSTITUTE AS BUSINESS INCOME OF THE ASSESSEE. ACCORDINGLY, THE ONLY GROUND RAISED BY THE ASSESSEE IS ALLOWED IN FAVO UR OF THE ASSESSEE. 16 ITA NO.968/PUN/2017 STATE BANK OF INDIA STAFF COOPERATIVE CREDIT SOCIETY LTD., 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 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-7, PUNE. 4. THE CIT-7, PUNE. 5. , , - , / DR, ITAT, SMC BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // /SR. PRIVATE SECRETARY , / ITAT, PUNE.