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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI ABRAHAM P. GEORGE
Per Asha Vijayaraghavan, Judicial Member
This appeal by the assessee is directed against the order dated 11.05.2015 of the CIT(Appeals), Belagavi for the assessment year 2012- 13.
The assessee is a co-operative society carrying on the business of providing credit facilities and supplying fertilizers to its members. The assessee filed its return of income for the A.Y. 2012-13 on 26.09.2012 declaring total income as nil after claiming deduction of Rs.27,40,084 u/s. 80P(2)(a)(i) of Income-tax Act. 1961 (Act). The appellant’s case was selected for scrutiny and notice u/s.143(2) was issued and served.
The assessee during the year has received interest income from deposits made in various co-operative banks and nationalized banks. It claimed the interest income from such deposits u/s. 80P(2)(a)(i) of the Act. The details of the interest income are as follows;
The Assessing Officer denied the deduction of Rs.79,47,916/- u/s. 80P(2)(a)(i) since the interest income is from investments/deposits made with other banks and not eligible for deduction. The AO also held that the interest income is not eligible for deduction u/s. 80P(2)(d) of the Act since the investment is not made in Cooperative Society as mentioned in the Income-tax Act.
Aggrieved by the aforesaid order of the AO, the assessee preferred an appeal before the CIT(Appeals).
The CIT(Appeals) observed that the facts in the decision relied upon by the assessee in the case of Sri Renuka Devi Urban Credit Co.op. Society Ltd. v. CIT (ITA No.5008/2009) are different from the assessee’s case. It was pointed out b the CIT(A) that the Hon’ble High Court of Karnataka in the case of CIT v. Grain Merchants Co-op. Bank Ltd. reported in 267 ITR 742 (Kar) wherein it was held that interest earned on the deposits made by the assessee engaged in any banking activity is exempt u/s. 80P of the Act. The CIT(A) was of the view that in the instant case the facts are different as the assessee is not engaged in ‘banking’ activity and it is only a credit society offering credit facilities and agricultural inputs to its members. The CIT(A) observed that in the other two cases relied upon by the assessee, deduction claimed was u/s. 80P(2)(a)(i) of the Act and the assessees were carrying on the business of ‘banking activity’ and hence the facts were different from the assessee’s case.
The CIT(A) further held as follows:-
“7. Under the circumstances the appellant is not entitled to deduction u/s. 80P(2)(a) & (d). Reliance can also be placed on the decision of the Hon’ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd., Vs. ITO (322 ITR 272] wherein the assessee was denied the benefit of deduction u/s.80P(2)(a)(i) on the ground that the assessee was not doing any banking activity. In that case the Hon’ble High Court of Karnataka has observed as under:- “The assessee was not a co-operative bank and was not doing any banking business and admittedly, the activities of the assessee fell within the ambit of Section 80P(2)(a)(i) and (iii) of the Act. Nor were statutory deposits required to be made by the assessee as required by a society doing banking business In which case also the interest earned from the deposits could be attributable to the business of banking. No material was produced to show that the assessee Society was authorized to accept deposits under the Co- operative Societies Act. What was invested in securities and term deposits with bank were the surplus Funds. The interest received from securities and deposits except deposits with Banks other than co-operative banks other than co-operative banks was not relatable to the business of the Assessee and consequently, it did not qualify for deduction section 80P of the Act. Since earning of interest was not a business activity of the assessee it was Assessable as income from other sources.” 7.1 The appellant has also not been able to prove that such an activity is covered by the bye laws of the society and it is permitted to do under the Karnataka Co-op. Society Act. 7.2 The facts of the Totgars Co-operative Sale Society Ltd. supra are squarely applicable to the facts of the present case as in both the cases, the assessees are not doing ‘banking business’. Accordingly, the assessee is not entitled for deduction u/s. 80P(2)(d) of the Act and the treatment of interest and dividend income on investments with banks by the AO as income from other sources is upheld.”
Aggrieved, the assessee is in appeal before us and has relied on the decision of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, of 2014 dated 28.01.2014, wherein it was held as under:-
“8. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act.
9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. 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 under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
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:
We find that identical issue came up for consideration before this Tribunal in & 817/Bang/2015 in the case of Ashwathpura Pathina Souharda Sahakarai Niyamitha. The Tribunal by its order dated 10.11.2015, following the judgment of Hon’ble jurisdictional High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. (supra) allowed the claim of assessee for deduction u/s. 80P in respect of interest on fixed deposits holding as follows:-
9. Having considered the rival submissions and the material on record, we note that the CIT(A) has denied the claim of deduction u/s. 80P(2)(a)(i) in respect of interest earned on fixed deposits by placing reliance on the judgment of the Hon’ble Supreme Court in the case of The Totgars Co-operative Sale Society (supra). It is pertinent to note that there is no dispute as regards the fact that the assessee is a co-operative society and the interest earned by the assessee is from the fixed deposits which is the dispute in the present appeals. The Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra) had an occasion to consider an identical issue on the allowability of deduction u/s. 80P in respect of interest on deposits. The Hon’ble High Court has decided the issue in paras 8 to 10 ……..
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10. It is clear that the Hon’ble jurisdictional High Court has decided this issue after considering the judgment of the Hon’ble Supreme Court in the case of The Totgars Co-operative Sale Society (supra). Respectfully following the judgment of Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra), we decide this issue in favour of the assessee and consequently the claim of deduction u/s. 80P is allowed in respect of interest on fixed deposits.
Respectfully following the decision of the Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra) and decision of the coordinate Bench of this Tribunal in the case of Ashwathpura Pathina Souharda Sahakarai Niyamitha (supra), we allow the appeal of the assessee.
Pronounced in the open court on this 28th day of December, 2015.