M/S BAJPE VYAVASAYA SEVA SAHAKARI BANK NIYAMITHA,MANGALORE vs. ITO, MANGALORE

PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

(Mad) 241 ITR 856. Accordingly, AO assessed the interest income of Rs.28,75,000/- and denied deduction u/s 80P on the same.

7. The CIT(A) held as follows :

“I find that this is a covered issue in the decision of Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO 188 Taxman 282 (SC). In fact, on similar issue, Hon’ble jurisdicitnal ITAT ‘C’ Bench, Bangalore in vide their order dt. 19.9.2014 in the case of M/s Guttigedarara Credit Co-op Society Ltd. Vs. ITO, relying on the decision of the Hon’ble ITAT, Bangalore in the case of M/s Tumkur Merchants Souhardha Credit Co-op Society Ltd. Vs. ITO in ITA No.1622/Bang/2012, this view was upheld relying on the decision of the Hon’ble Supreme Court in the case of Totgars Co-operative Society Ltd., cited supra. Under these circumstances, the AO is directed to exclude this interest income from the claim of exemption u/s 80P(2)(a)(i) and tax it under the head ‘other sources’. This addition is confirmed.”

“(1) The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

(2) The learned CIT(A) is not justified in holding that the income earned by the assessee on Fixed Deposits requires to be assessed under the head ‘OTHER SOURCES’ and not as part of the business of providing credit facilities and thereby holding that the appellant is not entitled to deduction u/s 80P[2][a][i] of the Act as claimed by the appellant in the return of income under the facts and in the circumstances of the assessee’s case.

(3) For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

10. The learned AR on the other hand, produced copy of the decision of the Co-ordinate Bench of the Bangalore Bench Tribunal in A.Y 2009-10 in the case of M/s Farmers Agricultural Credit Co-Op Society Ltd., Vs. ITO. The relevant portion of the order has been extracted herein below;

“9. In this context when we look at the judgment of the Apex Court in the case of M/s.Totagars Co-operative Sale Society Ltd, on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Co-operative 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){!ii) of the Act. Therefore in the facts of the said case, the Apex Court held the Assessinq 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.

Ltd.(Supra), we hold that the learned CIT(A) was not correct in denying the assessee the deduction claimed under section 80P(2)(a)(i) of the Act in respect of Rs.26.16,800/- earned by the assessee. The judgment of the Hon’ble Apex Court in the case of Totgar’s Co- operative Sale Society Ltd (Supra) relied upon by the learned CIT(A) has been considered and distinguished by the Hon’ble High Court on Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd(Supra). We find that the facts of the case on hand are similar to the facts of the aforesaid case decided by the Hon’ble High Court of Karnataka, since in both cases the assessee was a credit co-operative society and invested in fixed deposits out of the surplus funds of business. Applying the ratio of the judgment of the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd (Supra), we hold that the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act, in respect of interest income earned on fixed deposits, as well as that the said interest income forms art of the business income earned by the assessee and the same is not to be taxed under the head “Other Sources”. In view of the matter, the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act in respect of interest of Rs.26,16,800/- earned from investments in fixed deposits and Govt. Securities out of surplus funds from business, is allowed. Consequently, the grounds raised y the assessee on this issue are allowed.

Order pronounced in the open court on 20th Nov, 2015.