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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य,राजे�� राजे�� केकेकेके अनुसार अनुसार -Per Rajendra,AM: लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the orders,dated 24/03/2014 of the CIT(A)-26,Mumbai the Assessing Officer(AO) and the assesse have filed cross-appeals for the above-mentioned Assessment Year(AY.). Assessee,an AOP, is carrying on business of banking. Return of income was filed on 30/09/2010 declaring total income at Rs. NIL, after claiming deduction under section 80P at Rs. 35.64 lakhs. ITA/3793/Mumbai/2014:. 2.Effective ground of appeal deals with allowing deduction under section 80P to the assessee. During the assessment proceedings,the AO found that the society was collecting deposits by way of fixed deposit saving deposits and recurring deposits, that the loans and advances given by it were to the tune of Rs. 11.15 crore,that it had shown profit at Rs. 10.02 lakhs, it had claimed deduction under section 80P at Rs.35.64 lakhs.The AO issued a notice asking the assessee as to why deduction under section 80P should not be disallowed considering the provisions of section 80P(4)inserted with effect from 01/04/2007.After considering the submission of the assessee, dated 19/10/2012, the AO held that the assessee fulfilled the condition laid down under section
4211&3793/M/14(10-11) Lenyadri Sahakari 56(c)(ccv) of part V of the Banking Regulation Act,1949,that it was a primary co-operative bank,that the basic objective of the assessee was to engage in carrying on the business of banking or providing credit facilities to its members, that the assessee fell in the category of a primary co- operative bank, that the provisions of section 80P (4) were applicable. He referred to the cases of Kekri Sahakari Bhumi Vikas Bank Ltd.(54 SOT64)and Kerala State Co-Operative Agricultural Rural Development Bank Ltd.(139TTJ585).Finally,he held that the assessee was a cooperative bank other than a primary agricultural that the society or a primary co-operative agricultural and rural development bank, that deduction claimed by it for Rs. 35,64,509/-was to be disallowed and to be added back to its total income. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that all the activities carried out by the assessee were with members only,that it accepted deposits from the members and would grant loan/advantages to the members, that the society did not conduct any business with any person other than a member,that the AO was not correct in holding that the assessee was a bank or that the assessee was engaged in the business of banking in any manner.The FAA forwarded the information submitted by the assessee to the AO for his comments.Vide his letter dated 11/ 02/ 2014,the AO made detailed submissions.Subsequent to the report of the AO,the assessee filed further explanation and relied upon the case of Jafri Momin Vikas Cooperative Credit Society Ltd., Dated 15/01/2014.
3.1.After considering the available material,the FAA held that assessee was arrested cooperative credit Society, that it was providing facilities to members to deposit their savings on which interest was paid and also loan/advances on which interest was charged from the members for such loans/advances, that the assessee had received aggregate interest from various cooperative and scheduled banks of Rs. 77.71 lakhs on fixed deposits, that it was maintaining a current- account with certain scheduled banks and cooperative banks,that the actual interest received on FD’s stood at Rs. 46.98 lakhs.He referred to the various provisions of section 80P of the Act and the Banking Regulation Act and held that banking would mean accepting deposits from public be payable on demand or otherwise for the purpose of lending or investment, that the assessee did not and could not accept deposits from anyone other than members, that even the membership of the society was restricted only to permanent or quasi-permanent employees in the Telegraph Traffic Engineering arm of the Department of Telecommunication,that it did not conduct any 2
4211&3793/M/14(10-11) Lenyadri Sahakari business with public which was the sense of banking,that the primary object of the assessee could not be said to carry out the business of banking,that the conditions of a Primary Co- Operative Bank were not fulfilled,that it was also not a Primary Co-Operative Bank, that the principal object of the assessee,apparent from the bylaws,did not include providing long-term credit for agricultural and rural development activities,that it was also not a Primary Co- Operative Agricultural and Rural Development Bank,that the provisions of section 80P could not be applied to the assessee,that it is a corporative society, that it was not providing credit facilities to any person other than its members, that assessee was eligible for deduction under section 80P read with section 80P(2)(a)(i) of the Act,that the cases relied upon by the AO were distinguish - able on facts.
3.2.He further held that the deduction under section 80P(2)(a)(i)was to be restricted to the business income of the assessee from the business of income or providing credit facility to the members, that the interest income of the assessee from fixed deposits and bank,to the extent of fixed was of stated is funds,could not be said to be business income of the assessee from its activity of business of banking or providing credit facility to its member.He observed that reserves of the assessee for the year under appeal were of Rs. 1.24 crores.Referring to the section 65 of Maharashtra Cooperative Societies Act,he held that the reserve funds were to be utilised as per the provisions of the said Act with the approval of the registrar of the cooperative societies,that such funds were also to be invested as per the guidelines of the government of Maharashtra,that the statutory reserve funds could not be regarded as business funds of the assessee,that the income on such fixed deposit was from investment of its surplus fund or investment of its funds which it could not use or appropriate except as provided in the Maharashtra Cooperative Societies Act, that same was to be assessed under the head income from other sources,that the interest received by the assessee on fixed deposit of Rs. 124.46 lakhs was to be assessed under the head income from other sources, that deduction under section 80P (2)(a)(i)was not available in respect of such interest income.He further observed that the assessee had claimed deduction of Rs.46.98 lakhs under section 80P(2)(d)of the Act that as per the balancesheet the accrued interest as on 31/03/2010 stood at Rs. 77.71 lakhs, that the accrued interest on fixed deposits could not be said to be the interest income earned received were accrued for the year under appeal, that the interest on fixed deposit accrued for the year was only Rs.46.98 lakhs as per the income and expenditure account, that the interest had been received 3
4211&3793/M/14(10-11) Lenyadri Sahakari either from a scheduled bank or a cooperative bank, that no interest income had been received by the assessee from its investment in co-operative society, that the provisions of section 80P(2)(d) were not applicable to the assessee.He upheld the disallowance under section 80P to that extent.
4.During the course of hearing before us,the Authorised Representative(AR) stated that.He relied upon the cases of Kulswami Co-operative Society,(ITA/6790/Mum/ 2012 & CO/05/ Mum/ 2014 AY.2009-10,dt.21.08.2015), Niphad Nagari Sahakari Patsanstha Ltd.(ITA/ 1336/ PN/ 2011, dtd. 31.07.2013).The Departmental Representative (DR) supported the order of the AO.
5.We have heard the rival submissions and perused the material before us.We find that the issue stands squarely covered by the order of the Tribunal delivered in the case of Kulswami Co- operative Society(supra).We are reproducing the relevant portion of the order and it reads as under: “The Revenue has raised following Ground of appeal:- "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,14,64,254/- by holding that the assessee being Co- operative Credit Society is not a Co-operative bank and hence is entitled for deduction u/s 80P of the I.T. Act."
3. The assessee before us is a Co-operative society, which is, inter alia, engaged in the business of providing credit facilities to its members. For the assessment year under consideration i.e. assessment year 2009-10, it filed a return of income declaring total income at Nil on account of claim of exemption u/s 80P of the Act. In the revised return of income filed by the assessee, the gross total income as per the Income and Expenditure Account was declared at Rs. 1,14,64,524/-, which was also claimed as exempt in terms of section 80P of the Act and accordingly, the returned income was declared at Nil.
4. In the course of assessment proceedings, the Assessing Officer show-caused the assesee as to why the claim of exemption u/s 80P of the Act be not disallowed in view of the provisions of sub- section (4) of section 80P of the Act, inserted w.e.f 01.04.2007. In terms of sub-section (4) of section 80P of the Act, the provisions of section 80P of the Act were made inapplicable to a Co-operative Bank other than primary agricultural credit society or primary co-operative agricultural and rural development banks. The stand of the Assessing Officer was that since the assessee was a Co-operative Society registered under the Maharashtra State Co-operative Societies Act, 1960 and was engaged in providing credit facilities to its members, such an assessee would be covered by the provisions of sub-section (4) of section 80P of the Act. Accordingly, assessee's claim for exemption u/s 80P was denied in toto and the gross total income of Rs. 1,14,64,254/- was determined as the final taxable income.
5. In appeal before the CIT(A), the pertinent plea of the assessee was that a Co- operative Society engaged in the activity of providing credit facilities to its members is quite different from a Co- operative Bank, which falls under the restriction placed in sub-section (4) of section 80P of the Act. Therefore, as per the assessee, the provisions of sub-section (4) of section 80P of the Act did not disentitle the assessee from claim of exemption u/s 80P of the Act. The CIT(A) found that similar issue came up in the case of assessee for assessment year 2008-09, wherein, the predecessor CIT(A) had upheld assessee's claim for exemption u/s 80P of the Act. Following the precedent in the assessee's own case, by way of the order of predecessor CIT(A) for assessment year 2008-09, the CIT(A) held the assessee entitled for claim of exemption u/s 80P of the Act.
4211&3793/M/14(10-11) Lenyadri Sahakari
6. Before us, it was a common point between the parties that identical controversy has been considered by the Tribunal in the assesse's own case for assessment years 2007-08, and 2008-09 vide & 505/Mum/2012 dated 28.03.2014, whereby it has been held that assessee Co- operative Society does not fall within the restriction placed in sub-section (4) ofsection 80P of the Act. The following discussion in the order of the Tribunal dated 28.03.2014 (supra) is relevant:- "4. Having heard both the sides and perused the material on record, it is pertinent to mention that the only issue arising out of both the appeals relate to the allowability of the exemption/deduction claimed by the assessee u/s 80P of the Income Tax Act. The allowability of exemption of the said income depends on whether the assessee/cooperative credit society is a co-operative bank or not for the purposes ofsection 80P(4) of the Act since according to the said provision, deduction under section 80P shall not be available to any co- operative bank other than primary agricultural society or primary co-operative agricultural and rural development bank. 4.1 It is the case of the Revenue that the assessee has been functioning as a cooperative bank and by virtue of section 80P(4), the assessee is not entitled for the benefit of section 80P and also the assessee is not coming within the purview of primary agricultural society or primary co-operative agricultural and rural development bank. It is the case of the assessee that it is not a cooperative bank but only a cooperative society to which clause (4) of section 80P is not applicable. 4.2 In this connection, it is pertinent to mention that the assessee has brought on record before the lower authorities, the letter of the CBDT bearing No. F. No. 133/06/2007-TPL dated 09.05.2008 addressed to the Delhi Urban T&C Society Ltd., stating that for the purposes of subsection 4 of section 80P, 'cooperative bank' shall have the same meaning as assigned to it in part V of the Banking Regulation Act 1949, according to which 'cooperative banks' means a State Co-operative Bank, a Central Co- operative Bank and Primary Co- operative Bank. Though the said clarification is given by the CBDT in connection with some other assessee, the crux of the matter pertains to the clarification of 'co-operative bank' for the purpose of subsection 4 of section 80P. It is observed that the said clarification has also been relied by the Tribunal in many cases. Therefore, 'cooperative banks' mentioned in the said subsection indicates only the State, Central and Primary Co-operative Banks only. 4.3 Moreover, for commencing a banking business by the co-operative society, due license has to be obtained from the Reserve Bank of India and in the assessee's case, there is no such license obtained for commencing any banking business. The mere fact that the assessee has been providing credit facilities to its members and thereby earns interest and dividend cannot make the 'society' into a 'bank' for the purposes of section 80P(4) of the Act. If the intention of the legislature was not to grant deduction to cooperative societies carrying on the business of providing credit facilities to its members, then this section would have been deleted. This proposition is supported by various decisions including the decision of the Gujarat High Court in the case of CIT Vs. Jafari Momin Vikas Cooperative Credit Society Ltd and the decision of the Tribunal in the case of DCIT Vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. [2012] 137 ITD 163. 4.4 In addition to the aforementioned discussion, the distinction between cooperative society registered under the Banking Regulation Act 1949 and the cooperative society registered under the Maharashtra State Cooperative Societies Act 1960 as brought out by the Ld.CIT(A) on the basis of the submission of the assessee is extracted hereunder: XXXX The above distinction makes it very clear that the assessee is not a co-operative bank for the purposes of section 80P(4) of the Act. 4.5 As regards the claim of the revenue that for the Assessment Year 2007-08, the assessee has not claimed the deduction of the section 80P of the Act in the return of income but 5
4211&3793/M/14(10-11) Lenyadri Sahakari claimed the same only during the course of the assessment proceedings and hence the claim of the assessee is not admissible in view of the findings of the Hon'ble Apex Court in the case of Goetze India Ltd. [284 ITR 323 (SC) (2006)], it is pertinent to mention that the Hon'ble Bombay High Court in the case of the CIT Vs. Pruthvi Brokers and Shareholders P. Ltd. [(2012) 349 ITR 336 (Bom)] has held that the appellate authorities have the power to consider the claim not made in return of income. The Ho'ble Bombay High Court while deciding so, has considered the judgment of the Hon'ble Apex Court in the case of Goetze India Ltd. (supra). In view of that matter, the Ld.CIT(A) giving relief to the assessee at the appellate stage on the claim of deduction not made in the return of income is justified. 4.6 Considering the entire facts and position of law, we are of the considered opinion that the Ld.CIT(A) is justified in directing the AO to allow the deduction claimed by the assessee u/s 80P of the Act on the reason that the assessee, a cooperative credit society is not a bank for the purposes of section 80P(4) of the Act. Thus the orders of the Ld.CIT(A) dated 11.02.2011 and 29.11.2011 for the Assessment Years 2007-08 and 2008- 09 respectively are upheld.
Following the aforesaid precedent, which has been rendered in assessee's own case under identical circumstances, we hereby affirm the order of CIT(A) upholding assessee's claim for exemption u/s 80P of the Act. Thus the Revenue fails in its appeal.” Respectully following the above order,we hold that the order of the FAA does not suffer from any legal or factual infirmity.All the grounds raised by the AO have been dealt by the Tribunal in it order,So,confirming the order of the FAA,we decide the issue against the AO.
ITA/4211/Mumbai/2014:.
6.In the appeal filed by the assessee,the effective ground of appeal is about denial of deduction u/s.80P(2)(a)(i)of the Act to the extent of interest income arising on fixed deposit of Rs.124.46 lakhs.While adjudicating the appeal filed by the AO,we have narrated the facts of the issue at length at paragraphs 3-3.2.
7.During the course of hearing the AR argued that interest received by theassessee was exempt under both the sub-sections of the section 80P of the Act, i.e.80P (2) (a)(i) and 80P(2)(d),that alternatively the FAA had not allowed expenditure with regard to the interest income.The DR supported the order of the FAA.
8.We have heard the rival submissions and perused the material before us.We find that the FAA had held that interest income received by the assessee was chargeable to tax under the head income from other sources,that the FD.s were out of the reserve funds,that interest arising there - on were not eligible u/s. 80P (2)(a)(i)or 80P(2)(d)of the Act.We find that the Tribunal has dealt the identical issue in the case of Niphad Nagari Sahakari Patsanstha Ltd.(ITA/1336/ PN/ 2011,
4211&3793/M/14(10-11) Lenyadri Sahakari dtd.31.07.2013).We would like to reproduce the relevant portion of the order of the Tribunal dealing with the issue and it reads as follow: “2. Facts of the case, in brief, are that the assessee is a cooperative society providing credit facility to its members and also earns income from various investments made. During the impugned assessment year, the assessee society earned income of Rs.64,20,855/- as per audited profit and loss account. The assessee has declared the said income as income from its business and claimed deduction of the same u/s.80P(2)(a)(i) and declared the income of the society at NIL.
During the course of assessment proceedings the Assessing Officer noticed that the assessee has shown bank interest of Rs.83,32,886/-. He observed that the assessee being a cooperative credit society is entitled to deduction u/s.80P(2)(a)(i) in respect of income attributable to providing credit facility to its member and interest income from other cooperative society u/s.80P(2)(d). However, from the details furnished by the assessee he noted that there is interest income from other investment in other than cooperative bank which is not deductible u/s.80P(2)(a)(i). From the details furnished by the assessee he noted that the interest income from banks shown at Rs.83,32,886/- includes interest income of Rs.36,15,925/-, the details of which are as under : Sl.No. Particulars Amount 1. UTI bank FDR Interest Rs.91,303/- 2. Kotak Mahindra Rs.1,79,208/- 3. ICICI Bank Rs.4,74,926/- 4. State Bank of India Rs.19,64,302/- 5. Other (Misc. Bank) as per details Rs.9,06,186/- given by the assessee without giving the bank name
TOTAL Rs.36,15,925/- 3.1 Relying on the decision of Hon'ble Supreme Court in the case of Totogar's cooperative sales society Vs. ITO reported in 322 ITR 283 he held that the interest from bank deposits and Government securities fell under the head "income from other sources and hence is taxable u/s.56 and cannot fall within the expression "profit and gains of business". Such interest income cannot be said to be attributable to the activities of the society namely the business of providing credit facilities to its members or marketing of agricultural produce to its members. 3.2 The Assessing Officer further noted that assessee has shown income from mutual funds amounting to Rs.44,64,353/. Rejecting the explanation given by the assessee and relying on the decision of Hon'ble Supreme Court in the case of Totogar's Co-op Society Ltd. (Supra) he held that such income on sale of mutual funds amounting to Rs.44,64,353/- cannot be allowed u/s.80P. He also rejected the claim of the assessee that long term capital gain of Rs.22,72,278/- on sale of mutual funds is exempt u/s.10(38) in absence of giving details of notification of mutual funds u/s.10(23D) and in absence of information relating security transaction tax paid. The Assessing Officer similarly held that interest income on Mutual Fund sold amounting to Rs.23,21,994/- and short term capital gain of Rs.22,70,597/- are not deductible u/s.80P(2)(a)(i) or 80P(2)(d) of the Income Tax Act, 1961. 3.3 From the various details furnished by the assessee he noted that part of the investment has been made out of loans and deposits on which interest has been paid. The assessee has paid interest to members on deposits by them amounting to Rs.2,20,86,063/-. The loans and deposits advanced by the assessee is Rs.17,34,15,808/- which is 64.74% of the loans and deposits from its members. Therefore, he held that out of the interest paid at Rs.2.21 crores, 64.71% is attributable to loans which works out to Rs.1,42,91,891/-. Thus, he held that the balance interest amounting to Rs.77,94,172/- is attributable to investment for the following income earned : Particulars Amount Bank interest Rs. 83,32,886/- Dividend Rs.9,15,288/-
4211&3793/M/14(10-11) Lenyadri Sahakari Mutual Fund Gain Rs.44,64,353/- Mutual Fund Interest Rs.23,21,994/- TOTAL Rs.1,79,44,521/- 3.4 The Assessing Officer computed the interest expenditure attributable for earning the said income which comes to 43.43%. The Assessing Officer accordingly worked out the net income not eligible for deduction u/s.80P(2)(a)(i) as under: Head of income Amount of income Interest at43.43% Net income not Eligible deduction u/s.80P 1) Interest from banks other than Co-op Bank 36,15,925 17,70,396 18,45,529 2) Interest on Mutual funds 23,21,994 10,08,442 13,13,552 3) Long Term Capital Gain 22,72,278 9,86,850 12,85,428 4) Short Term Capital Gain 22,70,597 9,86,120 12,84,477 Total 1,04,80,794 47,51,808 57,28,986 The A.O. held that the above income is not attributable to the activity of the society namely business of providing credit facilities to its members and hence income from the said activity is not profit and gains of its business but the said income is "income from other sources" not eligible for deduction u/s. 80P(2)(a)(i) of the IT. Act.
Before the Ld. CIT(A) the assessee strongly argued that the decision relied on by the Assessing Officer in the case of Totogar's Co-op Society Ltd. (Supra) is distinguishable and not applicable to the facts of the present case. XXXXX 7. Based on the arguments advanced by the assessee the Ld.CIT(A) held that the assessee is entitled to deduction u/s.80P(2)(a)(i). The relevant observations of Ld.CIT(A) at Para 5.2 of his order reads as under : XXXXX 8. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds : "
1. On the facts and in the circumstances of the case the Ld. CIT (A) is not justified in holding that the assessee is entitled to deduction u/s.80P(2)(a)(i) when the income of the society on account of interest from banks other than Co-op. Banks, interest on Mutual Funds, long term capital gain on mutual funds and short term capital gain on Mutual Fund are not covered by the activity of providing credit facilities to its members and hence not eligible for deduction u/s.80P(2)(a) (i) of the I.T. Act.
2. The Ld. CIT(A) has also disregarded the fact that the Co-operative Society is required to satisfy the criteria for availing benefit of Sec.80P(2)(d) i.e. the interest income should be from other Co- op. Society, whereas in the assessee society's case the interest income is from other than Co-op Bank with regard to investments made.
3. The order of the Ld. CIT(A) be cancelled and that of the A.O. be restored.
4. The appellant craves leave to add/alter/amend ground of appeal". XXXXX
11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case there is no dispute to the fact that the assessee is a cooperative society engaged in the business activity of credit cooperative society, i.e. providing credit facility to its members. According to the Revenue the income of the society on account of interest from banks other than cooperative banks, interest on mutual funds, long term and short term capital gain on sale of mutual funds etc. are not covered by the activity of providing credit facilities to its members and hence not eligible for deduction u/s.80P(2)(a)(i) of the Income Tax Act in view of the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra). We find the Ld. CIT(A) allowed the claim of the assessee on the ground that the assessee is entitled to deduction u/s.80P(2)(a)(i) on account of interest from 8
4211&3793/M/14(10-11) Lenyadri Sahakari banks other than cooperative banks, interest on mutual funds long term and short term capital gain on mutual funds etc. While doing so, he held that the decision in the case of Totagar's Cooperative Sale Society Ltd. (Supra) is not applicable to the facts of the present case since in that case the amount invested in short term deposits and securities was not out of interest bearing deposits collected from members but out of sale proceeds of agricultural produce of farmer members marketed by the society. Further, the Hon'ble Apex Court has considered only the latter part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in carrying on the business of banking is eligible for deduction. 11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s. Jafari Momin Vikas Cooperative Credit Society Ltd. (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) has observed as under : "17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in it's applicably in the circumstances of the assessee's case.
It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act.
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 the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(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 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 - "(On page 286) 7............Before the assessing officer, it was argued by the assessee(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 -
4211&3793/M/14(10-11) Lenyadri Sahakari
(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 the 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 did 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 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. 19.7 Before parting with, we would, with due regards, like to record that the ruling of the Hon'ble jurisdictional High Court in the case of CIT v. Manekbang Co-op Housing Society Ltd reported in (2012) 22 Taxmann.com 220(Guj) has been kept in view while deciding the issue." 11.2 We find the Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Aplappuzha Bank Ltd. Vs. ITO (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) and various other decisions has observed as under : "5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co- operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar's Co-operative Sale Society Ltd vs ITO (supra), the assessee co- operative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in 10
4211&3793/M/14(10-11) Lenyadri Sahakari Totgar's Co- operative Sale Society Ltd (supra) is not applicable in respect of the co- operative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee co-operative society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income, the assessee is entitled for deduction u/s 80P(2)((a)(i). therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Co- operative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Co-operative Bank (supra), the order of the Commissioner of Income- tax(A) is upheld.
In the result, the appeal of the revenue stands dismissed." 11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which in turn have considered the decision of the Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) we find no infirmity in the order of the Ld.CIT(A). Accordingly, the same is upheld and the grounds raised
by the Revenue are dismissed.
12. In the result, the appeal filed by the Revenue is dismissed.” Respectfully following the same,we reverse the order of the FAA and decide the effective ground of appeal in favour of the assessee.
As a result,appeal filed by the AO is dismissed and the appeal of the assessee is allowed.
फलतः िनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है और िनधा�रती क� अपील मंजूर क� जाती है. Order pronounced in the open court on 15th March, 2017. आदेश क� घोषणा खुले �यायालय म !दनांक 15 माच�, 2017 को क� गई । Sd/- Sd/- (संजय गग� /Sanjay Garg) (राजे�� / RAJENDRA) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य मुंबई Mumbai; !दनांक/Dated : 15.03.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ$ 2. Respondent /%&यथ$ 11
4211&3793/M/14(10-11) Lenyadri Sahakari