ORISSA STATE HANDLOOM WEAVERS COOPERATIVE SOCIETY LTD.,BHUBANESWAR vs. ITO, WARD-1(2), BHUBANESWAR

In the grounds of appeal, the effective grievance of the assessee is that the ld CIT(A) was not justified in confirming the action of the AO in rejecting the claim of deduction u/s 80P(2)(ii) of the Act of Rs.14,49,015/-.

Ld D.R. could not controvert the aforesaid submission of the assessee.

We have heard the rival submissions and perused the record of the case.

In the present case, the assessee had shown interest income of Rs.1,53,24,015/- and before the assessing authority explained the amount of Rs.1,38,75,000/- as interest from reserve fund but failed to explain the nature of interest of balance amount of Rs.14,49,015/-, the impugned addition herein. The ld CIT(A) referred to the decision of Hon’ble Supreme Court in the case of Totghars Co-operative Sales Society Ltd vs ITO, 322 ITR 283 (SC), wherein, it has been held that interest income earned by co-operative from fund created by retention which is not required immediately for business purposes fall under the head “ income from other source” and hence, is taxable u/s.56 of the Act and, accordingly, held that the said amount is not eligible for deduction u/s. 80P(2)(ii) of the Act.

We also find that in its appeal in for the assessment year 2013-14, in Ground No.1 of appeal, the revenue had disputed the deletion of P a g e 2 | 5 69/CTK/201 6 Assessm ent Y ear : 20 11- 12 addition of Rs.17,29,750/- made by the AO treating it as income from other sources when the interest income earned from surplus funds not required immediately for business purposes. The Tribunal by relying its own order for the assessment year 2003-04 has dismissed the ground of the revenue and no contrary decision was placed on record before us.

We find that the Apex Court in the case of Totgars Co-operative Sale Society Ltd.(supra), on which reliance was placed in the impugned order, 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 and the sale consideration received from marketing agricultural produce of its members was retained in many cases, and the said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security; such an amount which was retained 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 could not be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or u/s. 80P(2)(a)(iii) of the Act. In the facts of the said case, the Hon’ble Supreme Court held that the Assessing officer was right in taxing the interest income u/s. 56 of the Act” But this is not the case of the AO in the present case and facts and circumstances are quite dissimilar and distinguishable from that case. Hence, benefit of the ratio of the judgment of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd.(supra) is not available for revenue in the present case. Hence, ld CIT(A) as P a g e 3 | 5 69/CTK/201 6 Assessm ent Y ear : 20 11- 12 well as the AO was not correct in relying on this judgment while dismissing the claim of the assessee u/s. 80P(2) of the Act.

It is the submission of the assessee that a reserve fund was created to the meet the unforeseen loss as per the guidelines of Orissa Co-operative Society Rules, 1965. From para 3.1 of assessment order, it is observed that the AO found that the assessee has created certain reserve funds from year to year and part of its surplus income in the form of fixed deposit in different banks resulting into substantial interest income. We are in agreement with the contention of ld A.R. that this aspect was thoroughly examined by the Tribunal in para 5 of order dated 1.12.2008 in assessee’s own case in for A.Y. 2003-04, wherein, it was held that the assessee created a reserve fund as per the guidelines of Orissa Co-operative Society, 1965, Chapter -V clause -44 and as per Article of Associations and clause 34(1) to meet the unforeseen loss. It was also accepted by the Tribunal that the assessee was bound to create such surplus fund under this guidelines and it was intrinsically connected with the carrying out of the business and being a business compulsion and the interest earned from such statutory deposits was the income from business and not the income from other sources as held by the AO. Therefore, we have no hesitation to hold that the said income is exempt from taxation u/s. 80P(2)(ii) of the Act. Out conclusion gets strong support from the decision of Hon’ble Supreme Court in the case of CIT vs. Karnataka State Co.op. Apex Bank, 251 ITR 194 (SC) and in the case of CIT vs Bangalore District Co-operative Central Bank Ltd, 233 ITR 282 (SC).

On being asked by the Bench, ld D.R. could not show any new decision or dissimilar facts from the case of the assessee for the assessment year 2003-04.

In the result, appeal of the assessee is allowed.