INCOME TAX OFFICER WARD-2, KHAMGAON vs. MAHARASHTRA URBAN CO-OPERATIVE CREDIT SOCIETY LTD, MEHKAR

4. The Ld. CIT(A) has erred on facts and in law holding that AO was not justified in making addition of interest received from nominal members without appreciating the fact that it is against the law of the land as laid down in the case of Citizen Co-operative Society Limited vs ACIT [2017] 84 taxmann.com 114 (SC).

5. The Ld. CIT(A) has erred on facts and in law holding that AO was not justified in denying benefit of deduction u/s 80P(2)(d) of the Act without appreciating the fact that the assessee has not claimed the same in original return of income as per the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs Cit (2006) 204CTR(SC)182.

6. The Ld. CIT(A) has erred on facts and in law holding that AO was not justified in denying benefit of deduction u/s 80P(2)(d) of the Act without appreciating the fact that this is against the Law of the land in Totagar's Co- operative Sales Society Ltd. vs. ITO, (2010) 322 ITR 283(SC).

8. The Ld. CIT(A) has erred on facts and in law holding that AO was not justified in denying benefit of deduction u/s 80P(2)(c) of the Act without appreciating the fact that the assessee has not claimed the same in original return of income.

3 Maharashtra Urban Co–operative Credit Society Ltd. A.Y. 2018-19, 2020-21 & 2022-23 9. Any other ground that may be raised during the course of appellate proceedings.”

4 Maharashtra Urban Co–operative Credit Society Ltd. A.Y. 2018-19, 2020-21 & 2022-23

by the Revenue in the case of MSEB Engineers Co-Op. Credit Society Ltd., wherein the ITAT, Nagpur Bench, vide order dated 05/05/2016 held as under : “Upon hearing both the counsel and perusing the records, we find that the above issue is covered in favour of the assessee by the decision of this ITA, referred by the Ld. CIT(A) in his appellate order. The distinction mentioned in the grounds of appeal is not at all sustainable. We further find that this Tribunal again in the case of Chattisgarh Urban SahakariSansthaMaryadit Vs. ITO in vide order dated 27.05.2015 has adjudicated similar issue as under:-

11. Upon careful consideration, we not that identical issue was the subject matter of consideration by ITAT, Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd (supra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal‟s decision is as under:

4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining “operations funds” and to meet any eventuality towards repayment of deposit, the Co-operative society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT “B” Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.JafariMominVikas Co-op Credit Society Ltd., bearing (for A.Y. 2009-10) and CO No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :-

19. The issue dealt with by the Hon‟ble Supreme 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 interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for business purposes? The assesse(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such 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…..” 19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain 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 –

5 Maharashtra Urban Co–operative Credit Society Ltd. A.Y. 2018-19, 2020-21 & 2022-23

“(on page 286) 7 …….. Before the assessing officer, it was argued by the assesse(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence these civil appeals have been filed by the assessee(s). 19.2 From the above, it emerges that (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii)marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds:- - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it had 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 there is force in the argument of the assessee that the assessee not a co- operative bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee 6 Maharashtra Urban Co–operative Credit Society Ltd. A.Y. 2018-19, 2020-21 & 2022-23 was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source : Balance Sheet of the assessee available on record]. 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon‟ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly.”

5. Respectfully following the above decision of the Co-ordinate Bench, we hereby hold that the benefit of deduction u/s 80P(2)(a)(i) was rightly granted by ld. CIT(A), however, he has wrongly held that the interest income is taxable u/s 56 of the Act so do not fall under the category of exempted income u/s 80P of the Act. The adverse portion of the view, which is against the assessee, of ld. CIT(A) is hereby reversed following the decision of the Tribunal cited supra, resultantly ground is allowed.

7 Maharashtra Urban Co–operative Credit Society Ltd. A.Y. 2018-19, 2020-21 & 2022-23 and ` 2,92,205 for A.Y. 2022-23, earned by the assessee Co–operative Society from their nominal members is an income derived by it from its business activities which is assessable under the head “Income From Business” and not under the head ”Income From Other Sources”. We, therefore, respectfully following the decision of the Co–ordinate Bench in The Ismailia Urban Co–operative Society v/s ITO, ITA no.122/Nag./2023, order dated 18/06/2024, uphold the impugned orders passed by the learned CIT(A) by dismissing the grounds raised by the Revenue for the years under consideration.