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Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This is an assessee’s appeal directed against the order of ld. CIT(A) – Davangere dated 19.07.2017 for Assessment Year 2010-11.
The grounds raised
by the assessee are as under.
1. The Order of the learned ITO and CIT (A) is against law and facts.
2. Rs.2,97,123/- (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 co- operative society and further that such interest was not co- operative income. Particulars Rs. Interest income from Co-operative Bank Shimoga District Central Co-op Bank Ltd- SB and FD 2,96,498 Dividend income from Co-operative societies Shimoga District Central Co-op Bank Ltd 625
Total 2,97,123 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 (kern) as these two decisions were dealing with a case of co-operative society indulging in non-cooperative 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 decidendi of 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.”
The ld. AR of assessee submitted copy two judgments of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO in of 2014 dated 28.10.2014 and in the case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO in ITA No. 29/2015 dated 09.06.2015. He submitted that in both these judgments, it was held by Hon'ble Karnataka High Court that if the amount which was invested in banks to earn interest was not an amount due to any members and if it was not the liability and if it is an amount which was not immediately required by the assessee for lending money to the members as there were no takers and for this reason, the money was deposited in a bank so as to earn interest income, it has to be accepted that the said 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. He submitted that in the present case, the matter may be Page 3 of 4 restored back for a fresh decision after examining the facts in the light of these two judgments of Hon'ble Karnataka High Court. The ld. DR of revenue supported the orders of authorities below.
I have considered the rival submissions. I find that in the present case, the issue in dispute is regarding allowability of deduction u/s. 80P(2) of the IT Act in respect of income of Rs. 297,123/- received on account of interest earned on investments with Co operative Banks. In the cases of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (Supra) and Guttigedarara Credit Co- operative Society Ltd. vs. ITO (Supra), it was held that if the amount invested in banks to earn interest was not an amount due to any member and it was not a liability and the amount so invested was not immediately required by the assessee for lending money to its members as there were no takers, the resultant interest income is attributable to carrying on the business of banking and therefore, eligible for deduction u/s 80P. I feel that the facts of the present case are to be examined in the light of these judgments of Hon’ble Karnataka High Court and since, the facts are not available on record and were not examined by the lower authorities, I feel it proper to restore this matter back to AO for afresh decision in the light of these two judgments of Hon’ble Karnataka High Court. I order accordingly. The matter is restored to the file of AO for a fresh decision after examining the facts of the present case in the light of these judgments of Hon’ble Karnataka High Court and after providing adequate opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee stands allowed for statistical purposes.