M/S MADHYA PRADESH VIDHYUT MANDAL KARMACHARI PRASPAR SAHKARI SAKH SANSTHA MARYADIT,INDORE vs. THE ACIT CIRCLE 4(1), INDORE

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE Before Shri Kul Bharat, Hon’ble Judicial Member and Shri Manish Borad, Hon’ble Accountant Member

ITA No. 413/Ind/2017 A.Y. 2013-14 Madhya Pradesh Vidyut Mandal Karmachari Sahkari Sakh Sanstha Ltd. Indore ::: Appellant Vs ACIT Circle 4(1) Indore ::: Respondent Appellant by Shri Vijay Bansal & Shri Rajesh Sodani Respondent by Shri Ram Prakash Mourya Date of hearing 26.6.2018 Date of pronouncement 29.6.2018

O R D E R PER SHRI MANISH BORAD, AM

This appeal of the assessee relating to the assessment

years 2013-14 is directed against the order dated

13.2.2017 of the Commissioner of Income Tax (Appeals)-II,

Indore, which are arising out of the order u/s 143(3) of the

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 Act dated 29.2.2016 framed by Additional ACIT, Circle 4(1),

Indore.

that the learned Commissioner of Income Tax (Appeals)

was not justified in confirming the action of the Assessing

Officer in denying the benefit of section 80P(2)(a)(i) of the

Act for the interest earned on bank deposits.

that the assessee is a cooperative society engaged in

providing credit facilities to its members. E-return of

income filed on 25.9.2013 showing total income at Rs. Nil

after claiming deduction of Rs. 1,56,16,642/- u/s 80P of

the Act. Case selected for scrutiny through CASS.

Necessary notices u/s 143(2) and 142(1) of the Act were

served upon the assessee. During the course of assessment

proceedings the Assessing Officer noticed that the assessee

has earned interest income of Rs.1,24,67,426/- from the 2

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 fixed deposit receipts with various banks wherein surplus

funds were kept by the society. He further noticed that the

assessee derives income from money lending to the

members of the society which is mainly the business

operation of the society and, therefore, took a view that

interest from banks which is earned on surplus funds lying

in the bank cannot be treated as business income and

should be taxed as “Income from other sources” u/s 56 of

the Act. The learned Assessing Officer denying the benefit

of deduction u/s 80P of the Act on alleged interest on FDR

added the interest income of Rs.1,24,67,426/- under the

head ‘income from other sources’ and completed the

assessment.

learned Commissioner of Income Tax (Appeals) but failed to

succeed, as the learned Commissioner of Income Tax

(Appeals) followed the judgment of the Hon'ble Supreme

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 Court in the case of Totgars Cooperative Sale Society

Limited vs. ITO; 322 ITR 283 (SC) and confirmed the

additions. Now the assessee is in appeal before the

Tribunal.

submitted that the facts of the assessee’s case are different

from the facts adjudicated by the Hon'ble Supreme Court

in the case of Totgars Cooperative Sale Society Limited

(supra) for the very reason that in that case the issue

related to surplus funds whereas in the present case the

issue relates to the fund mandatorily required to be

maintained by the assessee society to cover up various

reserve funds and other funds. The learned counsel for the

assessee referred to following judgments :-

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 Pune (2018) 52 CCH 247 4. ITO Ward-1 Sirsi vs. M/s The Totagar’s Rural Cooperative Agricultural Credit Society Ltd.; ITAT SMC Bench –C, Bangalore 5. ITO vs. Lokopayogi Illakhe and Karnataka Neerawari Nawakara, ITAT Panaji Tribunal (2015) 45 CCH 49 6. The Totgars Cooperative Sale Society Ltd. vs. ITO; Supreme Court (2010) 322 ITR 283.

supporting the orders of the authorities below.

material available on record. The only issue before us is

whether the lower authorities were justified in treating the

interest income from bank deposits of Rs.1,24,67,426/- as

income from other sources thereby denying the benefit

under section 80P(2)(a)(i) of the Act. We find that the

assessee society is mainly engaged in the business of

borrowing and lending money to its members. This fact is

not in dispute that the alleged interest of Rs.1,24,67,426/-

has not been earned out of the business operation of

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 lending money to its members. It is contended by the

learned counsel for the assessee that the deposits on which

interest income has been earned have been made for the

purpose of running the business expeditiously and to

safeguard the interest of the members of the society.

Reference was also made to the audited balance sheet

placed at page 18 of the paper book. The learned counsel

for the assessee submitted that the fixed deposit with other

banks were mainly on account of share capital, reserve

funds and other funds, which were statutorily required for

the purpose of carrying on the activities of the society.

From perusal of the balance sheet abstract we find that

FDR investment in Banks stood at Rs.14,37,72,261/- and

under the head ‘capital’ a sum of Rs. 12,64,30,656/- is

shown and the details of this sum relate to the following

heads :-

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 Details of funds Rs. Rs. Share Capital 19891159 Reserve Fund 20758196 Depreciation 763052 fund Education fund 791038 Building fund 1752181 Gratuity Fund 1512420 Kalyan Nidhi 61468298 Dividend 201125 equalization fund Dividend fund 5061214 Profit fund 1517177 Credit fund 1517182 Festival fund 215458 Profit and loss 10439468 account Dead Stock fund 542688 126430656

assessee referred to the relevant sections of the manual

meant for cooperative societies registered under the

Madhya Pradesh. On perusal of the relevant sections we

find that a duty has been cast upon the society to transfer

25% of the profits to the reserve fund, 20% to equity

redemption fund, etc. whereas in the balance sheet

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 abstract referred to by the learned counsel for the assessee,

there are various funds viz. depreciation, taxes, building,

gratuity fund, kalyan nidhi, dividend income, festival fund,

dead stock found and profit and loss account. The learned

counsel for the assessee was not able to clear as to which

of these funds is statutorily required to be maintained by

the assessee. We are of the considered opinion that by

virtue of the local State laws meant for cooperative societies

or other statutory requirements if certain deposits in

scheduled banks are required to be maintained by the

cooperative society mandatorily then in such a situation,

interest income on such fixed deposits with banks i.e. other

than cooperative banks are also eligible for deduction u/s

80P(2)(a)(i) of the Act. However, if any surplus fund or any

amount put in the fixed deposit for any other liabilities

created under the head funds which are not statutorily

required to be maintained by the assessee society then the

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 interest earned on such bank deposits made out of these

funds is liable to be assessed as income from other sources

u/s 56 of the Act.

necessary inquiry in this matter and also direct the

assessee to produce the relevant documents, records,

bylaws as well as rules and regulations of cooperative

society to demonstrate that the fixed deposits which have

been made are for the funds statutorily required to be

maintained by the society and to this extent if the assessee

is able to demonstrate this fact, the benefit of section

80P(2)(a)(i) of the Act may be given to it. The Assessing

Officer is directed to examine the material produced by the

assessee before him and make the assessment accordingly.

Needless to say that the assessee should be provided

adequate opportunity of hearing in the matter.

Madhya Pradesh Vidyut Mandal ITA 413/Ind/2017 8. In the result, the appeal of the assessee is allowed for

statistical purposes.

Pronounced in open Court on 29th June, 2018.

Sd/- sd/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER

29 June, 2018 Dn/- Copy to – Appellant/Respodent/Pr.CIT/CIT(A)/DR/Guard File By order Private Secretary