M/S NORTH CANARA DISTRICT CO-OP FISH MARKETING FEDERATION LTD ,KARWAR vs. INCOME TAX OFFICER WARD-1 ,, KARWAR

O R D E R Per Shri A.K. Garodia, Accountant Member Both these appeals are filed by the assessee and these are directed against two separate orders of ld. CIT(A)-10, Bangalore both dated 21.11.2017 for Assessment Years 2012-13 and 2013-14. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

raised by the assessee in Assessment Year 2012-13 are as under. “1. The Assessment order passed by the learned Assessing Officer ("AO")and the order of the Commissioner of Income tax (Appeals) [“CIT(A)”] under Income Tax Act, 1961 ("the Act") are not in accordance with the law and is contrary to the facts and circumstances of the present case.

2. The Ld CIT(A) and AO has erred, in law and in facts, by holding interest income amounting to INR 617,749 and dividend income amounting to INR 20,274 shall not be eligible to claim deduction under Section 80P of the Act.

3. The Ld CIT(A) and AO has erred in law by holding that interest / dividend income received on idle funds invested with other members or financial institutions shall not be considered as income from business or profession.

raised by the assessee in Assessment Year 2013-14 are as under. “1. The Assessment order passed by the learned Assessing Officer ("AO")and the order of the Commissioner of Income tax (Appeals) ["CIT(A)"]under Income Tax Act, 1961 ("the Act") are not in accordance with the law and is contrary to the facts and circumstances of the present case.

2. The Ld CIT(A) and AO has erred, in law and in facts, by holding interest income amounting to INR 16,98,106 and dividend income amounting to INR 23,833 shall not be eligible to claim deduction under Section 80P of the Act.

3. The Ld CIT(A) and AO has erred in law by holding that interest / dividend income received on idle funds invested with other members or financial institutions shall not be considered as income from business or profession.

4. The Ld CIT(A) and AO has failed to acknowledge the facts that, the interest income considered as business income and eligible for deduction under Section 80HHC of the Act, since the interest income is considered to be incidental to carrying the main activities of the business. Applying the same principles to the present case, the Appellant interest and dividend income earned by the Appellant is also incidental to carrying on the main objects of the Society and interest and dividend should be considered as income from business or profession only. Accordingly benefits of Section 80P should be extended to interest and dividend also. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Honorable Income Tax Appellate Tribunal to decide this appeal according to law.”

4. It was submitted by ld. AR of assessee that the issue in dispute in present case is covered in favour of the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO as reported in 230 Taxman 309. At this juncture, it was pointed out by the bench that there is later judgment of Hon'ble Karnataka High Court rendered in the case of PCIT and Another Vs. Totagars Co- operative Sale Society as reported in 395 ITR 611 (Karn). In both these judgments, the conclusion is different because the facts were different. The bench wanted to know whether there is any finding of the authorities below regarding the facts of the present case of assessee as to whether the facts of the present case are similar to the facts in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra) or PCIT and Another Vs. Totagars Co-operative Sale Society (supra). The bench also wanted to know as to whether the facts are available in the paper book. In reply it was submitted by ld. AR of assessee that those facts are not readily available and there is no finding of lower authorities regarding the relevant facts of the present case and therefore, the matter may be restored back to the file of AO for fresh decision after examining the facts of the present case in the light of these two judgments. The ld. DR of revenue supported the order of CIT(A).

5. I have considered the rival submissions. First of all, I reproduce the relevant Para from the judgment of Hon'ble Karnataka High Court rendered in the case of PCIT and Another vs. Totagars Co-operative Sale Society (supra) being second Para on page 616 of 395 ITR. The same is as under.

Further, as state 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 depos- its/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 80P(2)(a)(i) of the Act or in section 80P(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.

6. I also reproduce Para no. 10 from the judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO(supra). The same reads as under. “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 COMMISSIONER OF INCOME-TAX III, HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12. 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 impugned order is hereby set aside. Parties to bear their own cost.”

7. When I go through both these judgments of Hon'ble Karnataka High Court, I find that there is no contradiction in both these judgments. Both these judgments are on the same line that if the deposits in bank are out of own funds of society then the interest on same is eligible for deduction u/s. 80P (1) and if the deposit in bank is out of the fund available with the society in the form of liability then the same is not eligible for deduction u/s. 80P (2) of IT Act. The conclusion is different in both the judgments because the facts are different in both these cases. If as per the facts of the present case, it is found that the deposit in bank are out of own funds of society then the interest on same is eligible for deduction u/s. 80P (1) as per the judgment of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO(supra) but if it is found that the deposit in bank is out of the fund available with the society in the form of liability then the same is not eligible for deduction u/s. 80P (2) of IT Act as per the judgment of Hon'ble Karnataka High Court rendered in the case of PCIT and Another vs. Totagars Co-operative Sale Society (supra). Hence, the facts of the present case has to be looked into and since the facts of the present case are not readily available and there is no finding of any of the authorities below in respect of these facts, I set aside the orders of CIT (A) in both years and restore the matter back to his file for a fresh decision with the direction that he should decide the issue afresh in both years as per above discussion after providing adequate opportunity of being heard in both years to both sides.

Order pronounced in the open court on the date mentioned on the caption page.