M/S SRI RAMASEA BAHUSARA KSHATRIYA CO-OPERATIVE SOCIETY LTD ,SHIMOGA vs. INCOME TAX OFFICER WARD-1 , SHIMOGA

O R D E R Per Shri A.K. Garodia, Accountant Member These two appeals are filed by the assessee which are directed against two separate orders of ld. CIT (A), Davangere both dated 19.07.2017.

by the assessee are identical in both years and it read as under in A. Y. 2012 - 13:- “1. The Order of the learned ITO and CIT (A) is against law and facts.

2. Rs.3,20,558/- (Interest income from Co-operative Banks) i. The learned ITO and CIT (A) erred in bringing to tax the interest income received from investment in a co-operative bank on the ground that a 'co-operative bank' is not a cooperative society and further that such interest was not cooperative income.

Particulars Rs. Interest income from Co-operative Banks • Shimoga District Central Co-op Bank Ltd-SB,FD and Other deposits 3,20,158 Dividend Income from Co-operative Bank • Shimoga District Central Co-op Bank 400 Ltd Total 3,20,558 ii. The learned ITO and CIT (A) wrongly applied the decision of the Supreme Court in Totagara Co-operative Sale Society Ltd V ITO (2010) 188 Taxmann and the CIT (A) the decision of Karnataka High Court in Principal Commissioner of Income-Tax and another v. Totagars co-operative sale society [2017] 395 itr 611 (karn) as these two decisions were dealing with a case of co-operative society indulging in noncooperative business also which was not the case in the instant case. iii. The learned ITO and CIA (A) ought to have appreciated that the appellants' activities are restricted and confined to co-operative activities i.e. transactions with members and hence the interest from investment of such surplus relating to co-operative income was equally exempt under the main provisions of Sec. 80P(2). iv. The learned CIT(A) erred in not appreciating the ratio decidendiof the Karnataka High Court decision Pr.Commissioner of Income Tax V Totagara's Co-operative Society (2017) 395 ITR 611 (Kar) which laid down; "It is the character and nature of income which determines its taxability or exemption from taxability" In the instant case the deposits represented surplus of cooperative activity income and not any non-co-operative business income as was the case in Totagar's which had multiple business activities.” In A. Y. 2011 – 12, the amount is Rs. 266,793/- and no other difference. 3.

Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO as reported in 230 Taxman 309 is applicable and therefore, the matter should be restored back to AO or CIT (A) for a fresh decision by following this judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra). At this juncture, the bench wanted to know regarding the facts of the present case because the decision of Hon'ble Karnataka High Court rendered in both these cases i.e. PCIT and Another Vs. Totagars Co-operative Sale Society (supra) and Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra) are on the same line but the conclusion is different because the facts are different. The bench pointed out that in the case of PCIT and Another Vs. Totagars Co-operative Sale Society(supra), the money deposited in bank was out of liability of the assessee and in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO(supra), the money deposited in bank was not out of liability but out of assessee’s own funds and therefore this decision is in favour of the assessee. The bench pointed out that if the facts in the present case are similar to that of the facts in the case of PCIT and Another Vs. Totagars Co-operative Sale Society (supra) then the issue should be decided against the assessee but if the facts of the assessee are similar to that of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO(supra) then the issue is to be decided in favour of the assessee. In reply, it was submitted by ld. AR of assessee that the facts are not readily available and therefore, the matter may be restored back to the file of CIT(A) for fresh decision after examining the facts of the present case in the light of these two judgments of Hon'ble Karnataka High Court. The ld. DR of revenue also agreed to this proposition put forward by the ld. AR of assessee.