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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI ABRAHAM P. GEORGE & SHRI VIJAY PAL RAO
Per Vijay Pal Rao,, Judicial Member
These two appeals by the assessee are directed against two separate orders of the CIT(Appeals), Bengalur-3, Bengaluru, both dated 25.03.2015 for the assessment years 2009-10 and 2010-11 respectively.
Common grounds have been raised by the assessee in these appeals. The effective grounds raised for AY 2009-10 are as under:-
“2. M/s Ashwathapura Pathina Souharda Sahakara Niyamitha (hereinafter referred to as ‘Appellant’) is a Co-operative registered under the Karnataka Souharda Sahakari Act, 1997, whose main object is to encourage savings, self-support and co- operative nature among the society members and the depositors of the Society. The appellant claims deduction u/s 80P (2)(a)(i) of the Income tax Act, 1961 which deals with the deduction in respect of income of co-operative societies. The Appellant, for the Assessment year 2009-10, has claimed Rs. 28,82,562/- as a deduction u/s 80P(2)(a)(i) out of which Rs. 10,54,336/- pertains to interest income earned from Deposits with various Co- operative Banks.
3. The Appellant has earned Interest Income from Deposits with various banks amounting to Rs. 10,54,336/- .The Learned Assessing Officer has erred in treating the said Income as “Income from Other Sources” and thereby not allowing the deduction of the said amount u/s 80P(2)(a)(i).”
The assessee is a co-operative registered under the Karnataka Souharda Sahakari Act, 1997. The assessee filed its return of income declaring NIL income, after claiming deduction u/s. 80P(2)(a)(i) of the Income-tax Act, 1961 [“the Act”].
The Assessing Officer while completing the assessment u/s. 143(3) of the Act disallowed the claim of deduction u/s. 80P(2)(a)(i) on the ground that the assessee is engaged in the business of banking and therefore deduction u/s. 80P(2)(a)(i) is not available.
On appeal, the CIT(Appeals) has allowed the claim of the assessee to the extent of interest earned from the members, but confirmed the disallowance of claim u/s. 80P in respect of interest earned on short term deposits. Thus, the assessee is aggrieved by the order of the CIT(Appeals) only on the disallowance of claim u/s. 80P with respect to interest earned on short term deposits.
We have heard the ld. AR as well as the ld. DR and considered the relevant material on record.
The ld. AR submitted that this issue is now covered by the judgment of the Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, 230 taxman 309 (Kar) wherein the Hon’ble High Court allowed the claim after considering the judgment of the Hon’ble Supreme Court in the case of The Totgars Co-operative Sale Society, 322 ITR 272 (SC).
On the other hand, the ld. DR has submitted that the CIT(Appeals) has relied on the judgment of the Hon’ble Supreme Court in the case of The Totgars Co-operative Sale Society (supra) and therefore there is no error in the finding of the CIT(Appeals), who has followed the judgment of the Hon’ble Supreme Court. He relied upon the order of the CIT(Appeals).
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 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.
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:
Appeal is allowed. The impugned order is hereby set aside. Parties to bear their own cost.”
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.
In the result, the appeals of the assessee are allowed.
Pronounced in the open court on this 10th day of November, 2015.