THE JYOTI CO-OPERATIVE NON AGRICULTURAL THRIFT & CREDIT SOCIETY LTD.,SIRMOUR V. ITO, WARD, NAHAN

ITA 161/CHANDI/2023

AI Insights

The case involves The Jyoti Co-operative Non Agricultural Thrift & Credit Society Ltd., which appealed against the orders of the lower tax authorities regarding the non-eligibility of interest income from FDRs for deduction under section 80P(2)(a)(i) of the Income Tax Act. The Tribunal considered the submissions and precedents cited by both parties, including various High Court decisions and the Supreme Court's judgment in Totgars Co-operative Society Ltd. vs. ITO. The Tribunal concluded that the interest income from FDRs, being not directly attributable to the business of providing credit facilities to members, does not qualify for the deduction claimed under section 80P(2)(a)(i).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107799 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Other Referred Cases: Totgars Co-operative Society Ltd. Vs. ITO, Guttigedarara Credit Cooperative Society Ltd. vs. ITO, CIT Vs. Andhra Pradesh State Co-operative Bank Ltd., CIT Vs. Baroda Peoples Co-operative Bank Ltd., Tumkur Merchants Southarda Credit Cooperative Ltd. Vs. ITO, CIT Vs. Punjab State Co-operative Agricultural Development Bank Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RANJEET KAUR
• Assessee Lawyers: VISHAL MOHAN
• Keywords: Set aside; Business income; Question of law; Co-operative Credit Society
• Section: 143(3); 142(1); 263; 56; 11; 13; 80P; 28; 2; 20

Judgement Text

"आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “एस.एम.सी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCHES, “SMC” CHANDIGARH HEARING THROUGH: VIRTUAL MODE ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA No.160, 161 & 162/ Chd/2023 िनधाᭅरण वषᭅ / Assessment Year : 2017-18, 2012-13 & 2013-14 The Jyoti Co-operative Non Agricultural Thrift & Credit Society Ltd. Sirmour, Solan, HP-173025 बनाम The ITO Ward-Nahan, Sirmour H.P ᭭थायी लेखा सं./PAN NO: AAABT1453G अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Vishal Mohan, Sr. Advocate with Shri Parveen Sharma, Advocate राज᭭व कᳱ ओर से/ Revenue by : Dr. Ranjeet Kaur, Sr. DR सुनवाई कᳱ तारीख/Date of Hearing : 07/01/2025 उदघोषणा कᳱ तारीख/Date of Pronouncement : 12/02/2025 आदेश/Order PER VIKRAM SINGH YADAV, AM These are three appeals filed by the Assessee against the respective orders of the Ld. CIT(A)/NFAC Delhi each dt. 27/01/2023 pertaining to Assessment Year 2017-18, 2012-13 and 2013-14 respectively. 2. Since all these appeals involve common issue, the same were heard together and are being disposed off by this consolidated order. 3. With the consent of both the parties, the case of the Assessee in ITA No. 161/Chd/2023 for the A.Y. 2012-13 was taken as a lead case for the purpose of present discussion wherein the assessee has taken the following grounds of appeal : 1. That the Ld. Commissioner of Income Tax (Appeal) is not justified in upholding the order of the Ld. Assessing Officer, whereby the Ld. AO held that the interest earned from Scheduled bank by the assessee was not eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 and thereby upholding an addition of Rs. 30,42,784/- made to the taxable income of the assessee appellant as income from the other sources. 2 2. That the order of the Ld. Commissioner of Income Tax (Appeals) is bad in law and facts. 4. Briefly the facts of the case are that the assessee is a cooperative society engaged in providing credit facility to its members. It had filed its return of income declaring income of NIL after claiming deduction under section 80P(2) to the tune of Rs. 13,62,191/-. The AO in the course of assessment proceedings observed that the assessee has claimed deduction under section 80P(2)(a)(i) from gross total income which include interest earned on FDRs with scheduled banks amounting to Rs. 30,42,784/- and the claim of deduction u/s 80(P)(2)(a)(i) was rejected by the AO and the interest income from the scheduled banks was treated as income under the head “income from other sources” and assessed income was determined at Rs 13,62,191/-. Thereafter, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the action of the AO and on further appeal by the assessee, the Coordinate Bench (vide its order dt. 11/03/2019 in ITA No. 1296 & 1297/Chd/2018 pertaining to Assessment Year 2012- 13 & 2013-14) has set aside the matter to the file of the AO with the direction to address the relevant facts and thereafter pass the order considering the past history, complete facts and specifically the bye-laws of the assessee society and examine the claim of partaking of the surplus funds on facts. 5. Thereafter, in the set aside proceedings, notice under section 142(1) was issued by the AO to the assessee on 15/10/2019 calling for the necessary explanation / information from the assessee. In response, the assessee submitted that it has received deposit from various members as well as non members in accordance with its bye laws which are deposited in the bank account of the assessee. It was submitted that as there is always a time lag between the receipt of funds and its disbursement as loan to its members, the amount is parked in the saving bank accounts and FDRs and it was therefore the integral part of the business activity and providing loans / credit facilities to its members. It was submitted that on the FDRs the assessee has raised limits for disbursing loans to its members. It was further submitted that in the bye laws of 3 the assessee society, there is no requirement to park its surplus funds in FDRs. It was further submitted that the decision of Hon’ble Supreme Court in case of Totgars Co-operative Society Ltd. Vs. ITO reported in 322 ITR 272 is not applicable as in that case, the society was engaged in the business of providing credit to its members apart from its marketing activities and under its bye laws, the profit from marketing activities had to be invested / parked in the FDRs and in view of the facts of that case, the Hon’ble Supreme Court held the same to be not attributable to the business income of the society and it was submitted that in the instant case, no such rider exists in the bye laws. Further reliance was placed on the decision of Hon’ble Karnataka High Court in case of Guttigedarara Credit Cooperative Society Ltd. vs. ITO reported in 377 ITR 464, Hon’ble Andhra Pradesh High Court decision in case of CIT Vs. Andhra Pradesh State Co-operative Bank Ltd. reported in 336 ITR 516, Hon’ble Gujarat High Court in case of CIT Vs. Baroda Peoples Co-operative Bank Ltd. reported in 280 ITR 282 and Hon’ble Karnataka High Court in case of Tumkur Merchants Southarda Credit Cooperative Ltd. Vs. ITO (2015) 55 Taxman.com 447. 6. The submissions so filed by the assessee were considered but not found acceptable to the AO. As per AO, the assessee is not eligible for deduction either u/s 80P(2)(a)(i) of the Act or u/s 80P(2)(d) of the Act in respect of interest income earned from funds parked with Bank. Also the bye laws of the assessee society are silent on this issue and no specific instructions/directions has been incorporated in the bye laws on the issue of parking of surplus funds with scheduled banks in the form of FDRs. Vide point No. xxi on page No. 16 of bye laws of the society, it is stated that \"to invest the surplus funds of the society in accordance with co-operative societies act or rules framed hereunder..\": 6.1 The AO further held that the provisions of sections 11 to 13 of the Act have no application in determining exemption under section 80P of the Act or in determining whether interest income was taxable under the head 'income from business' or 'income from other sources. Such differentiation between corpus or non- corpus funds is not mandated and stipulated in section 80P and for 4 determining the head of income; 'income from business or profession' or 'income from other sources'. There is a clear finding that the interest was earned by way of parking of surplus funds in FDRs with banks. The submission made by the assessee itself indicates and predicates that interest was earned by parking surplus funds in fixed deposits. 6.2 It was further held by the AO that the term or expression, 'income' has been defined in section 2(24). By way of Finance Act, 2006, sub-section (viia) was inserted to stipulate that profits and gains of business of banking, including credit facilities, carried on by a co-operative society with its members, is taxable and is included in the term, 'Income'. The aforesaid definition of term 'income' is inclusive and a broad one. Thus, the income of the assessee would be taxable under section 2(24), including the income earned by way of interest on the FDRs with banks. Section 80P provides partial exemption, restricted to the specified 'earning' or 'incomes' in sub-section (2) and not the entire income. 6.3 The AO further held that no doubt, the term 'attributable' is much wider than the term 'derived from', but the question still remains, whether the interest income earned from the FDRs placed out of Surplus funds which were not to be made available and given as credit to the members, can be treated as income attributable to providing credit facilities to members. One need not dilate on the said question as the issue was considered and stands answered by the Supreme Court in the case of Totgars' Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282. The Supreme Court examined the issue whether the interest income from the said surplus funds were eligible for exemption under section 80P(2)(a)(i) as income attributable to profit and gains of business. It was observed that interest received from members for providing credit facilities to them was exempt. Further, anything attributable to the said income would also be covered under section 80P. It was highlighted that exemption is partial and not complete, i.e, the whole income of the co-operative society does not get exemption. It was held that the deduction being in respect of certain incomes, 5 the interest income earned out of surplus funds, would not qualify for deduction as it was assessable under the head 'income from other sources'. 6.4 It was further held by the AO that the present case is of surplus of funds, which were not used for carrying on business of providing credit facilities to members. The interest earned from the aforesaid funds as held by the Supreme Court in Totgars' Co-operative Sale Society Ltd. (supra), would fall under section 56 and would be taxable under the head \"income from other sources'. 6.5 It was further held by the AO that as far as principle of mutuality is concerned, this would not have any application in view of sub-section (viia) to section 2 of the Act. Thus if one accepts that the assessee was cooperative society and providing credit facilities to its members, clause (viia) to sub-section (24) to section 2 would have application, Even otherwise, on the principle of mutuality, the Hon’ble Supreme Court in Bangalore Club v. CIT [2013] 350 ITR 509/29 taxmann.com 29 has held that the interest earned on FDRs with banks would not be covered by the principle of mutuality as the transactions were not between the contributors and the beneficiary, but were between the assessee and a third person. The AO accordingly held that in view of aforesaid discussion, the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act in respect of interest income earned from the funds parked with co-operative bank. 7. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the findings of the AO. Against the said findings and the order of the ld CIT(A), the assessee is in appeal before us. 8. During the course of hearing, the Ld. AR submitted that the assessee is a cooperative society engaged in providing thrift and credit facilities to its members. For that purposes, the assessee co-operative society accepts deposits from its members as well as non-members in accordance with the bye- laws, the same was received in the shape of recurring deposits, fixed deposits, saving bank accounts etc. all the aforesaid deposits are interest bearing and 6 apart from the said activity, no other activity is being undertaken by the assessee. It was submitted that as there is always time lag between the receipt of funds and its disbursement as loan to its members, the same is parked in the saving bank accounts and FDR's etc, so was integral part of business activity of providing loans/ credit facilities to its members. It was submitted that during the year, the assessee has earned income in the shape of interest on loans granted to its members, and has also earned interest on deposits with cooperative banks as well as scheduled banks. It was submitted that the assessee invested funds in FDR's and earn interest of Rs. 30,42,784/- from the scheduled banks which are not cooperative societies and these funds were always available to assessee for utilisation for providing credit facilities to its members. 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 a liability nor 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 the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. It was submitted that the surplus fund which was pledged with the bank and Cash credit limit is obtained against the same, on which interest have been paid by the assessee society. The CC limits were used for providing credit facilities to its members. The A.O. has failed to notice that income on FDR, on which interest income has accrued, have all been pledged with same bank and CC limit, facilities obtained and on CC Limit, an interest of Rs. 5,30,940/- was paid which is evident from the expenditure account of the society. The CC Limit against Fixed deposit was utilized by the assessee for the purpose of its business or running thrift and credit society for payment to its members. It was submitted that the said issue is no longer res-interga as the said issue has been decided in favour of assessee by various Courts across the country and reliance was placed on the decision of Hon’ble Karnataka High Court in case of Tumur Merchants Souharda Credit Cooperative Ltd. and in case of M/s Guttigedarara Credit Cooperative Society Ltd. as well as the decision of Coordinate Ahmedabad in case of Jafari 7 Momin Vikas Co-operative Credit Society Ltd. Vs. ITO, Coordinate Bengaluru Bench in case of Honnali Credit Co-operative Ltd. vs. ITO, Coordinate Cochin Bench in case of M/s Chirayinkeezhu Service Cooperative Bank Ltd. Vs. ITO and Coordinate Delhi Bench in case of Jwala Cooperative Urban Thrift and Credit Society Vs. ACIT. 9. It was further submitted that the decision of Hon’ble Supreme Court in case of Totgars Co-operative Society Ltd. (supra) was rendered in the peculiar facts of that case wherein the evidence shows that the assessee society earned interest on funds which are not required for business purposes at the given point in time. It was submitted that in the instant case, it is an admitted fact that the assessee has availed cash credit limit against the FDR pledged with bank and such credit limit were used for providing credit facility to its members and accordingly the assessee society has utilized the credit limit against FDR for the purpose of its business and therefore the interest on such FDRs have been earned as part of the business of providing credit facility to its members and therefore the assessee is eligible for claim of deduction under section 80P(2)(a)(i) of the Act. 10. Per contra, the Ld. DR has relied on the findings of the lower authorities and it was submitted that the matter is squarely covered by the decision of the Jurisdictional Punjab & Haryana High Court in case of CIT Vs. Punjab State Co- operative Agricultural Development Bank Ltd. and following the same, the Ld. CIT(A) has rightly held that the interest income earned on surplus funds deployed in FDRs with scheduled banks is not eligible for deduction under section 80P(2)(a)(i) of the Act. Our reference was drawn to the findings of the ld CIT(A) which read as under: “9. I have carefully considered the facts of the case, submission of the appellant, case laws relied upon by the appellant and assessment order of the AO passed u/s 143(3) r.w.s. 254 of the Act. The crux of the discussion is whether the interest received from income parked with scheduled banks is business income or income from other sources and whether such income qualifies for deduction u/s 80P(2)(a)(i) of the Act. 8 9.1 The provisions with regard to deduction in respect of income earned by a co- operative society are contained in Section 80P(2)(a)(i) and 80P(2)(d) of the Act which read as under: \"80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in 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 a co-operative society engaged in- (i) Carrying on the business of banking or providing credit facilities to its members, or xxx (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income\" 9.2 There is no dispute that the appellant is a cooperative society; that it is not in the business of banking; that it is engaged in providing credit facilities to its members; that the appellant had invested funds in FDR's and earn interest of Rs.30,42,784/- from the scheduled banks which are not cooperative societies; that the such funds invested with the banks are surplus funds. 9.3 On this issue, the Jurisdictional Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Co-operative Agricultural Development Bank Ltd. (2016) 389 ITR 607 (P&H)/ [2016] 76 taxmann.com 307 (Punjab & Haryana) has held that interest income from banks falls in the category of income from other sources u/s. 56 and deduction u/s. 80P(2)(a)(i) of the Act is not allowed on such interest income. The Hon'ble Punjab & Haryana High Court held that judgment in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 3 SCC 223 cannot be restricted to cases where the amount invested was the sale proceeds of the produce of an assessee's members marketed by the assessee; that the judgment applies to funds not immediately required for business purposes; that an assessee such as the respondent may have funds from other sources which are not immediately required for business purpose as well and they would include advances from other entities for the purpose of the assessee in turn using the same for its business of providing credit facilities to its members; that if such funds instead of being advanced to the assessee's members are invested with banks, the income from such investments equally cannot be said to be attributable to the assessee's business of providing credit facilities to its members; thus, the income in the present case is not from providing credit facilities to the assessee's members but from the investment with non-members including commercial banks. 9.4 In the present case, the appellant is not mandated by virtue of any statute of Law or any other banking statute to invest the funds in banks. The assessee- society invested funds not immediately required for its business purpose. These surplus funds constitute the surplus deposits from its members or third parties, which was invested in deposits with bank. It is not relevant as to whether the funds invested in banks are amounts due to any members or not. As held by the Jurisdictional Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Punjab 9 State Co-operative Agricultural Development Bank Ltd (supra), if such funds instead of being advanced to the assessee's members are invested with banks, the income from such investments equally cannot be said to be attributable to the assessee's business of providing credit facilities to its members. Thus, the income in the present case is not from providing credit facilities to the assessee's members but from the investment with commercial banks and it is taxable as income from other source and no deduction is allowable on such interest income u/s 80P(2)(a)(i) or 80P(2)(d) of the Act. 9.5 Further, in a land mark judgment in the case of M/s. Bangalore Club vs. Commissioner of Income tax (supra) as quoted by the AO, the Hon'ble Supreme Court of India has gone into minute details for deciding the nature/character of \"Principle of Mutuality\", under which the tax exemption has been claimed by various Societies. The Honorable Supreme Court held that \"in our opinion, unlike the surplus amount' itself, which is exempt from tax under the doctrine of mutuality, the amount of interest earned by the assessee (Bangalore Club) from the member banks will not fall within the ambit of the mutuality principle and will therefore, be exigible to Income- Tax in the hands of the assessee-club\". In that case, the surplus funds in the hands of the assessee society were placed at the disposal of the corporate members viz. the banks, with the sole motive to earn interest, which brings in the commerciality element and thus, the interest so earned by the assessee has to be treated as a revenue receipt, eligible to tax. The facts of this case are similar to the facts of the instant case i.e. the appellant society had placed its surplus fund at the disposal of the banks, with sole motive to earn interest, which brings in the commerciality of the element. 9.6 The appellant has quoted various decisions in its submission, however, the Hon'ble jurisdictional High Court of Punjab and Haryana in CIT, Chandigarh vs. Punjab State Cooperative Agricultural Development Bank Ltd (supra) has decided the issue in the favour of Revenue. The jurisdictional High Court in that case has distinguished on the case laws in the case of CIT v. Andhra Pradesh State Cooperative Bank Ltd. [2011] 336 ITR 516 (AP), Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO [2015] 55 taxmann.com 447/230 Taxman 309 (Karnataka) and Guttigedarara Credit Co-operative Society Ltd. v. ITO [2015] 60 taxmann.com 215/234 Taxman 476 (Kar.), which are also relied upon by the appellant in the present case. 9.7 Further, the appellant has relied on the decision of the Hon'ble Ahmedabad ITAT in the case of the ITO, Ward-2 vs, Jafari Momin Vikas Coop. Patan, ITA No 1491/Ahd/2012 for AY 2009-10. However, after the above case, Hon'ble ITAT Ahmedabad in the case of Baroda Citizen Community Co-op. Credit Society Ltd., [2022] 134 taxmann.com 290 (Ahmedabad - Trib.) has held that if there is any income arising to the co-operative society from the non-members that will not be subject to deduction under section 80P(2)(a)(i) of the Act. 9.8 Considering the above facts of the case and relying on above decisions and the binding decision of the Hon'ble jurisdictional High Court of Punjab and Haryana in CIT, Chandigarh vs. Punjab State Cooperative Agricultural Development Bank Ltd (supra), the finding of the AO that the interest income earned from Scheduled Banks of Rs. 30,42,784/- is not eligible for deduction under section 80P(2)(a)(i) of the Act and it is to be treated as income from other sources is upheld. This ground of appeal is accordingly dismissed.” 10 11. I have heard the rival contentions and perused the material available on record. In case of CIT Vs. Punjab State Co-operative Agricultural Development Bank Ltd. (supra), the issue for consideration before the Hon’ble Punjab and Haryana High Court was whether the Tribunal was right in law in holding that the interest on reserve funds is attributable to the business of providing credit facility to members and secondly, whether interest on account of call deposits is attributable to the activity of providing credit facility to the members and such interest income is eligible for deduction under section 80(P)(2)(a)(i) of the Act. In the said case, the relevant facts were that the assessee had earned interest of about Rs. 3.99 crores on the investment of its reserve funds and claimed exemption under section 80P(2)(a)(i) of the Act. The Assessing Officer disallowed the claim on the basis that the interest was not earned on account of providing credit facilities to the assessee's members but was earned on surplus funds kept by the assessee in banks to earn income. The assessee also earned interest income of about Rs. 5.84 crores from call deposits made with various banks. This income was also earned by the assessee placing its surplus funds as deposit with the banks for short term with a view to ensure that the funds did not remain idle. The Assessing Officer declined this claim also on the ground that interest was not earned from the business of providing credit facilities to the assessee's members. The Commissioner (Appeals) allowed the claims on the ground that interest invested out of reserve funds was to be treated as arising on account of the activity attributable to the assessee's business of providing credit facilities to its members. The Tribunal allowed the claim holding that such interest was attributable to the business of providing credit facilities to the assessee's members. On appeal by the Revenue, the Hon’ble Punjab and Haryana High Court reversed the decision of the Tribunal and decided the matter in favour of the Revenue and the relevant findings read as under: “23. The assessee earned interest income of about Rs.3.99 crores on the investment of its reserve funds. The AO disallowed the claim on the basis that the interest was not earned on account of providing credit facilities to the assessee's members but was earned on surplus funds kept by the assessee in banks to earn income. The CIT(A) allowed the claim on the ground that interest invested out of 11 reserve funds is to be treated as arising on account of the activity attributable to the assessee's business of providing credit facilities to its members. The Tribunal dealt with the term \"attributable\" in Section 80P(2)(a)(i) and held that the income may be said to be incidental and in proximity to the business of the assessee of providing credit facilities to its members. The Tribunal relied upon its earlier judgment including the judgment of the Special Bench of the Tribunal. The Tribunal rejected the department's contention that the surplus funds had been invested not for providing further credit to their members but to maximize profits for utilization in other areas. 24. The assessee also earned interest income of about Rs.5.84 crores from call deposits made with various banks. This income was also earned by the assessee placing its surplus funds as deposit with banks for short terms with a view to ensure that the funds did not remain idle. The AO declined this claim also on the ground that interest was not earned from the business of providing credit facilities to the assessee's members. The CIT(A), however, allowed the claim. The Tribunal upheld the decision holding that such interest was attributable to the business of providing credit facilities to the assessee's members. 25. Ms. Dhugga submitted that after the decision of the Tribunal dated 25.03.2009, the Supreme Court delivered the judgment in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 3 SCC 223. She submitted that the judgment covers the case in favour of the Revenue. In that case, the assessee was also a Cooperative Credit Society which provided credit facilities to its members and also marketed the agricultural produce of its members. The society had surplus funds which it invested in short term deposits with banks and in Government securities on interest. The question before the Supreme Court was whether such interest income would qualify for deduction as business income under section 80P(2)(a)(i) of the Act. The Court was only concerned with interest income on short term bank deposits and securities. Paragraphs 15, 16, 17, 18, 20 and 21 of the judgment read as under:— “At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80-P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. The assessee(s) markets the produce of its members and wholesale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in 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 Section 28 of the Act? In our view, such interest income would come in the category of \"Income from other sources\", hence, such interest income would be taxable under Section 56 of the Act, as rightly held by the assessing officer. In this connection, we may analyse Section 80-P of the Act. This section comes in Chapter VI-A, which, in turn, deals with \"Deductions in respect of certain incomes\". The headnote to Section 80-P indicates that the said section deals with deductions in respect of income of cooperative societies. Section 80-P(1), inter alia, states that where the gross total income of a cooperative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee Society. An income, which is attributable to any of the specified 12 activities in Section 80-P(2) of the Act, would be eligible for deduction. The word \"income\" has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically \"business profits\" into the definition of the word \"income\". Therefore, we are required to give a precise meaning to the words \"profits and gains of business\" mentioned in Section 80-P(2) of the Act. In the present case, as stated above, the assessee Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression \"profits and gains of business\". Such interest income cannot be said also to be attributable to the activities of the Society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80-P(2)(a) (i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as \"investment\". Further, as stated above, the assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this \"retained amount\" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee Society, was a liability 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 80-P(2)(a)(i) of the Act or in Section 80-P(2) (a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the assessing officer was right in taxing the interest income, indicated above, under Section 56 of the Act. A number of judgments were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of Section 80-P of the Act. We find no merit because all the judgments cited were cases relating to cooperative banks and the assessee Society is not carrying on banking business. We are confining this judgment to the facts of the present case. To say that the source of income is not relevant for deciding the applicability of Section 80-P of the Act would not be correct because we need to give weightage to the words \"the whole of the amount of profits and gains of business\" attributable to one of the activities specified in Section 80-P(2)(a) of the Act. An important point needs to be mentioned. The words \"the whole of the amount of profits and gains of business\" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. In this particular case, the evidence shows that the assessee Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of \"Other income\" which has been rightly taxed by the Department under Section 56 of the Act.' 26. The judgment cannot be restricted to cases where the amount invested was the sale proceeds of the produce of an assessee's members marketed by the assessee. The judgment applies to funds not immediately required for business purposes. Funds not immediately required for business purpose include the amounts received towards the sale price of the produce. However, it is not such 13 funds alone that can be said to be not immediately required for business purposes. An assessee such as the respondent may have funds from other sources which are not immediately required for business purpose as well. They would include advances from other entities for the purpose of the assessee in turn using the same for its business of providing credit facilities to its members. If such funds instead of being advanced to the assessee's members are invested with banks the income from such investments equally cannot be said to be attributable to the assessee's business of providing credit facilities to its members. Thus, the income in the present case is not from providing credit facilities to the assessee's members but from the investment with non-members including commercial banks. 27. The judgment of a Division Bench of this Court dated 10.05.2011 in CIT v. Punjab State Co-operative Federation of Housing Building Societies Ltd., (ITA-643-2010) supports this view. In that case also, the assessee was a Cooperative Federation and claimed a deduction under the same section. The Tribunal held that the interest income was incidental to the business of the assessee of providing credit facilities to its members. In that appeal, the following question of law were raised and the Division Bench answered the same as follows:— \"Whether on the facts and in the circumstances of the case and in law the order of the Hon'ble Tribunal is perverse in holding that interest income from commercial banks being attributable to the business activity of the assessee, qualifies for deduction u/s 80P(2) (a)(i) of the Act, ignoring the facts that direct source of income is not the loans advanced to the members of the society and it is only the interest income from commercial banks in the form of fixed deposits and saving banks accounts?\" \"4. Plea on behalf of the revenue is that interest received by the assessee from commercial banks was not covered by Section 80P(2) (a)(i). It has nothing to do with the interest income on the loan advanced to the members. Reliance has been placed on the judgment of the Hon'ble Supreme Court in The Totgars Cooperative Sale Society Ltd. v. I.T.O., 2010 (35) DTR 25 holding that interest on bank deposits or Government securities derived by a Cooperative Society could not be attributed to the activities of the Society of providing various facilities to its members and was taxable under Section 56 being income from other sources. It appears that since the judgment of the Tribunal is prior to the judgment of the Hon'ble Supreme Court relied upon on behalf of the revenue, the Tribunal did not have advantage of the law laid down therein. The matter is, thus, covered in favour of revenue by the judgment of Hon'ble Supreme Court. Contrary view of the Tribunal cannot be sustained. 5. In view of above, following the judgment of the Hon'ble Supreme Court in The Totgars Cooperative Sale Society Ltd. case (supra), we decide the question in favour of the revenue. The appeal is allowed.\" 28. By an order dated 03.09.2012, the Supreme Court granted leave to appeal against this judgment in Petition(s) for Special Leave to Appeal (Civil) No(s). 22745/2011 but declined to grant any stay. We are bound by this judgment. It is not open to us to refuse to follow it on the ground that it has not considered the judgment of the Supreme Court in its correct perspective. We are, in any event, in respectful agreement with the interpretation of the Division Bench of Totgar's case. 14 29. Our view is also supported by a judgment of the Gujarat High Court in the case of State Bank of India (SBI)v. CIT [2016] 142 DTR (Guj.). (The name of the appellant in the reported case is incorrectly shown as State Bank of India (SBI). Even the website of the Gujarat High Court indicates the wrong name in the title. Through the Gujarat High Court, we verified that in the original proceedings the name of the appellant is correctly shown as \"State bank of India Employees Co- op. Credit & Supply Soc. Ltd., Main Branch, Bhadra, Ahmedabad.\") One of the questions in that case was \"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that interest income of Rs.16,14,579/- on deposits placed with SBI was exempt under s. 80P(2)(a)(i) of the IT Act?\" In that case, the appellant was a Cooperative Society registered under the Gujarat Cooperative Societies Act, 1961 and had as its object the acceptance of deposits from salaried persons of the State Bank of India with a view to encourage thrift of providing credit facilities. The appellant earned interest income from the State Bank of India. It contended that interest income was business income and was exempt under Section 80P(2)(a)(i). The CIT in proceedings under Section 263 rejected the contention. The Tribunal was of the view that both the deposits were made in banks so that the funds are not kept idle. The motive for making the deposit cannot change the character of the interest income earned on deposits made to one arising from the business of providing credit facilities to the assessee's members. The Division Bench of the Gujarat High Court referred inter-alia to the judgments referred to by Mr. Bansal before us. The Division Bench dealt with Section 80P(2)(a)(i) and the judgment of the Supreme Court in Totgar's Sale Co-operative Sale Society Ltd. case (supra) and held as follows ( page 599 of 389 ITR):— \"Thus, in the case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, what is deductible under section 80P of the Act is the whole of the amount of profits and gains of business attributable to any one or more such activities. The Supreme Court in Totgars Co- operative Sale Society (supra) has, while giving a precise meaning to the words \"profits and gains of business\" mentioned in section 80P (2) of the Act, observed that the assessee in that case regularly invested funds not immediately required for business purposes and was of the view that interest on such investments, therefore, cannot fall within the meaning of the expression \"profits and gains of business\". It was held that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce to its members. The court further held that the words \"the whole of the amount of profits and gains of business\" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. The court observed that in that particular case, the evidence showed that the assessee-society earned interest on funds which were not required for business purpose at the given point of time. Therefore, in the facts and circumstances of the case, the court was of the view that, such interest income falls in the category of \"Other income\" which had rightly been taxed by the Department under section 56 of the Act. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgars Co-operative Sale Society (supra), as rightly submitted by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to 15 the members from whom produce was bought and which was invested in short- term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. This is further clear when one peruses the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression \"profits and gains of business\" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as \"investment\" are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income Tax Officer Ward-V, Tumkur (supra) that the decision of the Supreme Court in Totgars Co- operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. Thus, in the light of the principles enunciated by the Supreme Court in Totgars Co- operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act.... .... .... On behalf of the appellant, reliance has been placed upon bye- law 7 of its Bye- laws, which as translated into English reads thus: \"When the funds of the society are not in use, the same shall be invested or kept in deposit in accordance with the provisions of section 71 of the Co-operative Societies Act.\" The objects of the society as stated in the Bye-laws are: (1) to encourage thrift, self-sufficiency and co-operation amongst members of the society; (2) to inculcate the concept of savings amongst the members; (3) to give credit to the members at reasonable rates when the occasion arises; and (4) to carry out all activities for achieving the objects of the society. Thus, the objects of the appellant society do not contemplate investment of surplus funds received from its members. Insofar as Bye-law 7 is concerned, it may be noted that the same falls under the heading \"fund\" and not under the objects of the society. Thus, the object of the society is to provide credit facilities to its members and it is the income earned out of the credit advanced to the 16 members that is allowable as a deduction under section 80P(2)(a)(i) of the Act. The learned counsel for the appellant has relied upon various decisions wherein the assessee was a banking company. In the opinion of this court, since the appellant admittedly does not carry on any banking business, the said decisions would not be applicable in the facts of the present case.' (Emphasis supplied) 30. We are entirely in agreement with the judgment of the Gujarat High Court especially the observation that the judgment of the Supreme Court is not restricted only to the investments made by the assessee from the amounts retained by it which were payable to its members and that the judgment also applies in respect of other funds not immediately required for business purposes. We reproduced paragraph 15 of the judgment only to indicate that we uphold the appellant's case only on the ground that the assessee is not entitled to the said deduction on the basis that it is engaged in carrying on the business of providing credit facilities to its members. We do not express any opinion as to whether the appellant would be entitled to the said benefit in the event of it being held that the assessee is also engaged in carrying on the business of banking. That is an issue that the Tribunal would decide upon remand pursuant to this order. 31. Mr. Bansal relied upon the judgment of the Andhra Pradesh High Court in CIT v. Andhra Pradesh State Cooperative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220/[2011] 12 taxmann.com 66 (AP). The judgment is distinguishable. In that case, the respondent-assessee was a Cooperative Society engaged in the business of banking and it was held that the assessees were subject to the regulations of the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The Division Bench distinguished the judgment of the Supreme Court in Totgar's case (supra) on the ground that the Supreme Court was not dealing with the case relating to cooperative banks. The present appeal is not being considered on the basis that banking is the assessee's business either. 32. Mr. Bansal relied upon the judgment of the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO [2015] 55 taxmann.com 447/230 Taxman 309 (Karnataka) . In that case, the assessee-Cooperative Society provided credit facilities to its members and earned interest from short term deposits with banks and from savings bank accounts. The interest income earned by the assessee by providing credit facilities to its members was deposited in banks for a short duration which earned interest. The question was whether this interest was attributable to the business of providing credit facilities to the members. The Division Bench held as follows:— '8. 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 expression \"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 Cooperative 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 members, they 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 17 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 members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative 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 received from 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 brought, was invested in a short-term deposit/security. Such an amount which was retained by 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 under 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. 10. 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 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. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Cooperative Bank Ltd.,[2011] 12 taxmann.com 66/200 Taxman 220. 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 against the revenue. Hence, we pass the following order. Appeal is allowed.' (The reproduction is from the original website of the Karnataka High Court). There is an important distinction. The Division Bench expressly held in paragraph 10 that interest income was attributable to the business of banking and, therefore, liable to be deducted under Section 80P(2)(a)(i) of the Act. At the cost of repetition, we have not considered whether the assessee carries on the business of banking. If it is established upon remand that the assessee carries on the business of banking the result may be different. In any event assuming that the judgment is not distinguishable on this ground, we would with respect disagree with the same in view of the judgments that we have already referred to and on the basis of our interpretation of Totgar's case. In any event, we are with respect unable to agree with the observations that the Supreme Court in Totgar's case (supra) did not lay down any law. 18 33. For the same reason, the judgment of the Karnataka High Court in Guttigedarara Credit Co-operative Society Ltd. v. ITO [2015] 60 taxmann.com 215/234 Taxman 476 (Kar.) is of no assistance to the respondent-assessee. 34. In these circumstances, questions No.3 and 4 are answered in favour of the Revenue and against the assessee. The judgment of the Tribunal in that regard is set aside.”(Emphasis supplied) 12. In the aforesaid decision, the Hon’ble Punjab and Haryana High Court, referring to the decision of the Hon’ble Supreme Court in case Totgar's Co- operative Sale Society Ltd.(Supra), has held that the said judgment cannot be restricted to cases where the amount invested was the sale proceeds of the produce of an assessee's members marketed by the assessee. It was held that the judgment equally applies to funds not immediately required for business purposes. Funds not immediately required for business purpose include the amounts received towards the sale price of the produce. However, it is not such funds alone that can be said to be not immediately required for business purposes. An assessee such as the respondent may have funds from other sources which are not immediately required for business purpose as well. They would include advances from other entities for the purpose of the assessee in turn using the same for its business of providing credit facilities to its members. If such funds instead of being advanced to the assessee's members are invested with banks, the income from such investments equally cannot be said to be attributable to the assessee's business of providing credit facilities to its members. It was accordingly held by the Hon’ble High Court that the income in the said case is not from providing credit facilities to the assessee's members but from the investment with non-members including commercial banks. 13. In the instant case, there is no dispute that the assessee cooperative society is providing thrift and credit facilities to its members. It accepts deposits from its members and disburses loans to its members. Given that there are number of members and each of them having their respective requirement whereby they place funds with the society and/or avail loans from the society at different point in time during the financial year, at any given point in time, the assessee society has funds at its disposal which are not immediately required for 19 disbursal to its members. As part of its fund management, the assessee has placed these funds by way of fixed deposits with scheduled commercial banks. The interest income has been earned on such fixed deposits placed with scheduled commercial banks and which has been claimed as eligible for deduction under section 80(P)(2)(a)(i) of the Act. As per decision of the Hon’ble Punjab and Haryana referred supra, where the funds instead of being advanced to the members are invested with banks, the income from such investments cannot be said to be attributable to the assessee's business of providing credit facilities to its members and the said decision supports the case of the Revenue. 14. Here, it is relevant to note that in the said decision, the Hon’ble Punjab and Haryana High Court has referred to the decision of Hon’ble Karnataka High Court in case of Tumkur Merchants Southarda Credit as well as that of Guttigedara credit cooperative and has held that it doesn’t agree with the view taken by the Hon’ble Karnataka High Court and thus, these decisions equally doesn’t support the case of the assessee. 15. As far as the contention of the ld AR that such FDRs are placed with the same scheduled banks to obtain the cash credit limit and such cash credit limit is used for providing credit facilities to its members and for the purposes, the assessee has also incurred an interest expenditure, I find that such a contention doesn’t support the case of the assessee. There is a difference between the placement of funds by way of FDRs with the scheduled banks and subsequent pledging of FDRs with the scheduled banks for the purposes of seeking a cash credit limit. As part of providing cash credit facility to its customers, the banks generally seek collateral security from the borrowers and in the instant case, the assessee has placed its liquid funds by way of pledge of FDRs with the bank, however, both are independent transactions even though the same can be claimed to be connected in the sense of same transacting entities. In the instant case, what is of relevance is the act of placement of funds by the assessee society – whether with its members or with the scheduled banks. 20 Where the funds are not placed with its members but with the scheduled banks, the interest income on such funds placed with scheduled banks cannot be said to be attributable to the assessee's business of providing credit facilities to its members and doesn’t qualify for deduction under section 80(P)(2)(a)(i) of the Act. 16. In light of aforesaid discussions, I find no infirminity in the order so passed by the ld CIT(A) who has rightly followed the dicta laid down by the Jurisdictional Punjab and Haryana High Court in decision referred supra. In the result, the assessee is not eligible for deduction on interest on deposits placed with scheduled commercial banks under section 80(P)(2)(a)(i) of the Act and the appeal of the assessee is dismissed. 17. Both the parties fairly submitted that the facts and circumstances of other two appeals i.e ITA No. 160 and 162/ Chd/2023 are exactly identical to the Appeal in ITA No. 161/Chd/2023 and similar contentions raised therein may be considered, therefore, our findings and directions given in ITA No. 161/Chd/2023 shall apply mutatis mutandis to these two appeals which are accordingly dismissed. 18. In the result, all the three appeals filed by the assessee are dismissed. (Order pronounced in the open Court on 12/02/2025 ) Sd/- िवᮓम ᳲसह यादव (VIKRAM SINGH YADAV) लेखा सद᭭य / ACCOUNTANT MEMBER AG आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 5. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "