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Income Tax Appellate Tribunal, BANGALORE BENCH A, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by assessee, its grievance is that its claim for deduction u/s.80P(2)(a)(i) of the Income-tax Act, 1961 (‘the Act’ in short) was disallowed on interest earned by it from other banks.
Facts apropos are that assessee had filed return income for the impugned assessment year declaring nil income after claiming deduction u/s.80P(2)(a)(i) of ITA.015/Bang/2015 Page - 2 the Act. It had received interest of Rs.34,63,090/- on fixed deposits placed with other banks. AO was of the opinion that interest earned on such deposits could not be given benefit of deduction u/s.80P(2)(a)(i) of the Act in view of the judgment of Hon’ble Apex Court in the case of Totgar’s Cooperative Sale Society Ltd v. ITO [(2010) 322 ITR 283]. Assessee replied to this inter alia stating that what were deposited by it was only the statutory reserve that was required to be kept. However AO was of the opinion that of the total deposit of Rs.2,67,35,492/-, statutory reserves available to the assessee was only Rs.1,10,09,164/-. According to him interest earned on the balance deposits was out of excess surplus fund available with the assessee and taxable under the head ‘income from other sources’. He worked out such amount at Rs.21,20,280/- and placed it under the head ‘income from other sources’. Effectively he disallowed the claim u/s.80P(2)(a)(i) of the Act.
Assessee’s appeal before the CIT (A) did not meet with any success.
According to CIT (A), interest earned on deposits placed with other banks would fall only under the head ‘income from other sources’ in view of Hon’ble Apex Court judgment in Totgar’s Cooperative Sale Society Ltd (supra).
Now before us, Ld. AR strongly assailing the order of CIT (A) submitted that Hon’ble jurisdictional High Court in the case of CIT v. Tumkur Merchants Souharda Credit Cooperative Ltd (ITA.307 of 2014, dt.28.10.2014), had considered the issue of deduction u/s.80P(2)(a)(i) of the Act, for interest income. According to him, Hon’ble jurisdictional High Court had cited the judgment of Hon’ble Andhra Pradesh High Court in the case of CIT v. Andhra ITA.015/Bang/2015 Page - 3 Pradesh State Cooperative Bank Ltd, [(2011) 200 Taxman 220] and held in favour of the assessee.
Per contra, Ld. DR submitted that in the case of Tumkur Merchants’ Souharda Credit Cooperative Society (supra) the amounts which were deposited were for short-term, whereas in the case of the assessee, amounts were placed in FDs on long-term basis. Reliance was placed on judgment of Hon’ble Apex Court in the case of Totgar’s Cooperative Sale Society Ltd (supra).
We have perused the orders and heard the rival contentions. There is no dispute that the deposits giving rise to the interests were made out of surplus funds available with the assessee. This is clear from para 6.2 of the assessment order reproduced hereunder :
“6.2 As already stated, total interest free funds (being share capital and reserves) to the extent of Rs.2,72,28,541/- was available with the society, any investments made out of such interest free funds is free of cost and hence, obviously no deduction towards expenditure is required to be allowed. In similar circumstances, the Hon’ble High Court of Karnataka in the case of The Totgars Cooperative Sale Society Ltd., v. ITO, W-1, Sirsi (322 ITR 272) has held that proportionate expenses for making such investments are not allowable as deduction.”
7. Hon’ble jurisdictional High Court in the case of Tumkur Merchants’ Souharda Credit Cooperative Society (supra), had held as under at paras 3 to 10 of the judgement dt.28.10.2014 :
"4. The learned counsel for the assessee assailing the impugned order contended, the interest accrued in a sum of Rs.1,77,305/- is from the deposits made by the assessee in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members and therefore the said interest amount is attributable to the credit facilities provided by the assesseeand forms part of profits and ITA.015/Bang/2015 Page - 4 gains of business and therefore he submits the appellate authorities were not justified in denying the said benefit in terms of Sub-sec.(2) of Section 80P of the Act. In support of his contentions, he relied on several judgments and pointed out that the Apex Court in the aforesaid judgment has not laid down any law.
5. Per contra, learned counsel for the Revenue strongly relied on the said judgment of the Supreme Court and submitted, the case is covered by that judgment of the Apex Court and no case for interference is made out.
6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short-term deposits and from savings bank account. The assessee is a Cooperative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law ie., Section 80P(2)(a)(i): “Deduction in respect of income of co-operative societies: 80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in — (i) )carrying on the business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or more of such activities.”
ITA.015/Bang/2015 Page - 5
The word ‘attributable’ used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word ‘attributable’ as supposed to derive from its use in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX, GUJARAT-ll reported in ITR VOL. 113 (1978) PAGE 842 at page 93 as under: “As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business of the specified industry here generation and distribution of electricity on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression “attributable to” and not the expression “derived from”. It cannot be disputed that the expression “attributable to” is certainly wider in import than the expression “derived from”. Had the expression “derived from” been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General, it has used the expression “derived from”, as, for instance, in section 80J. In our view, since the expression of wider import, namely, “attributable to”, has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.”
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 ITA.015/Bang/2015 Page - 6 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 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.
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 ITA.015/Bang/2015 Page - 7
is answered in favour of the assessee and against the revenue. Hence, we pass the following order. Appeal is allowed." 08. Hon’ble jurisdictional High Court had considered the judgment of Hon’ble Apex Court in the case of The Totgars Cooperative Sale Society Ltd, (supra) and thereafter held that interest earned on short-term deposits and SB account balances which were from surplus funds, could be attributable to carrying on the business of banking. However in the case before us, there is nothing on record to show whether the deposits placed by the assessee were for short-term or long term. In such circumstances, we are of the view that the issue requires a fresh look by the AO, so as to correctly consider the allowability of the claim, after assimilating the facts correctly. We therefore set aside the orders of the authorities below and remit it back to Ld. AO for consideration afresh in accordance with law.
In the result, appeal of the assessee stands allowed for statistical purpose.
Order pronounced in the open court on 27th day of August, 2015.