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Income Tax Appellate Tribunal, BANGALORE ‘A’ BENCH, BANGALORE
Before: SMT ASHA VIJAYARAGHAVAN & SHRI ABRAHAM P GEORGE
per assessee, it was bound to pay interest to the members. Submission of assessee was that acceptance of deposits from its members, closure of such deposits and repayments were regular and routine feature of its business. As
per assessee, unless the funds which were remaining with it were placed in
ITA No1598 & 1596(B)/2014 banks, it would not have been possible for it to pay the interest due to its members.
9. An alternate contention was also made before the CIT (A) that if interest income from bank deposits was considered under the head ‘income from other sources’, then interest paid by assessee on deposits to its members which was used for placing the deposits with bank had to be allowed as a deduction u/s.57(iii) of the Act. As per assessee, there was a direct nexus between the deposits received from its members and the deposits placed by it with the banks, and this was clearly brought out in its balance-sheet.
10. CIT (A) was however not impressed by the above contentions raised by assessee. According to him, the AO was justified in relying on the decision of the Hon’ble Apex Court in the case of Totagars Cooperative Sale Society (supra), which unequivocally held that interest received by a cooperative society on surplus funds placed with banks as deposits, were to be assessed under the head ‘income from other sources’. However, according to the CIT (A), claim of the assessee that deduction should be ITA No1598 & 1596(B)/2014 allowed u/s.57(iii) of the Act, was justified if it could show direct nexus between the funds received from the members which were interest bearing, with the deposits made by it in the banks. For this, he remitted the matter back to the AO for working out the interest that could be allowed.
Now before us, Ld. AR strongly assailing the order of CIT (A), submitted that the Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd., v. ITO (ITA No.307 of 2014, dt 28.10.2014), after considering the judgement of Hon’ble Apex Court in the case of Totgar’s Cooperative Sale Society Ltd., (supra), had held that the said judgment of Hon’ble Apex Court was applicable only to the facts in that case. As per the Ld. AR, the Hon’ble Apex Court had not laid down any law for general application. As per Ld. AR, jurisdictional High Court in the aforesaid case had unequivocally held that funds which were not immediately required by a credit cooperative society for lending money to the members, if deposited in bank, earning interest therefrom, such interest was attributable to the business of banking and, therefore, eligible for claiming deduction
ITA No1598 & 1596(B)/2014 u/s.80P(2)(a)(i) of the Act. Ld. AR pointed out that assessee’s case differed from that of Tumkur Merchants Souharda Credit Cooperative Ltd (supra), only by reason of multiple activities carried on by it. However, according to Ld. AR, providing credit facilities to its members was one of the avowed
The Ld. DR strongly supporting the orders of authorities below submitted that source of the interest was deposits in the bank. According to him, only the immediate source was required to be seen and not the remote source. Hon’ble Apex Court was clear in this aspect in the decision of Totgar’s Cooperative Sale Society Ltd., (supra). Here in the case of assessee, only a very small amount was lent by it to its members. It was not similar to a society which was carrying on credit business. Therefore according to him, claim for deduction u/s.80P(2)(a)(i) of the Act, on such interest was unjustified.
The Ld. AR was that the genesis of funds was the business of assessee. Funds which were placed in banks did not belong to anybody other
ITA No1598 & 1596(B)/2014 than members of the society. Unless such funds are placed in the banks, it would not be possible for assessee to pay interest due to the members.
Hence, according to Ld. AR, it was a part of assessee’s business only.
The learned AR brought to our notice the order of the Hon’ble ITAT in assessee’s appeal in & revenue’s appeal in ITA No.1081/Bang/2013 dated 30-04-2015 wherein similar issue has been discussed elaborately . The relevant portion is extracted herein below:
“ We have perused the orders and heard the rival contentions. There is no dispute that one of the main object of assessee society was providing credit facility to its members. AO himself has mentioned that this was the primary object for which assessee was incorporated, at para 6 of the assessment order. Nodoubt, out of substantial sum received as deposits from the members, only small portion were given by assessee as loans to its members. Major part of the funds were parked in FDs. However, it is an admitted position that assessee was bound to give interest to its members on the deposits received by it from them. Therefore, when there were no takers for the money, which assessee as a part of its objects wanted to lend, the only available choice for ITA No1598 & 1596(B)/2014 assessee, in order not to keep the funds idle, was to place it in banks for earning interest. Their Lordships in the judgment in Tumkur Merchants Souharda Credit Cooperative Ltd (supra), , which was also in relation to a cooperative society having as its object, business of providing business credits to its members, 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 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.
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.
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 ITA No1598 & 1596(B)/2014 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.”
The word ‘attributable’ used in the said section is of great importance. The Apex Court had an occasion to consider the ITA No1598 & 1596(B)/2014
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.”
ITA No1598 & 1596(B)/2014
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 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
ITA No1598 & 1596(B)/2014 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 is answered in favour of the assessee and against the revenue. Hence, we pass the following order. Appeal is allowed."
ITA No1598 & 1596(B)/2014
Hence, in view of the judgement of Hon’ble jurisdictional High Court reproduced above, where in at para 10, it has been clearly mentioned that the money meant for lending, remaining surplus, there being no takers, if deposited in banks for earning interest, such interest income would be attributable to the business of banking carried out by the assessee, we are of the opinion that the facts of the case here fit perfectly well with the facts in the judgment mentioned above.
We also find that the Co-ordinate Bench has decided the issue in assessee’s appeal in and revenue’s appeal in ITA No.1081/Bang/2013 and others dated 30-04-2015. We, therefore, hold that assessee was eligible for claiming deduction u/s.80P(2)(a)(i) of the Act, on the interest earned on the FDs placed by it with banks, this being a part of its business income. Ground 2 of the assessee therefore stands allowed.
ITA No1598 & 1596(B)/2014
When grounds 3 and 3.1 were taken up, learned counsel for assessee submitted that he was not pressing these grounds. These grounds are therefore dismissed as not pressed.
Vide its ground 4, grievance raised by assessee is that it was denied deduction u/s.80P(2)(a)(iv) of the Act, on income from operation of water treatment plant.
The assessee had supplied treated water to its members from its water treatment plant and on the amount received for supply of the water, it had claimed deduction u/s.80P(2)(a)iv) of the Act. AO was of the view that supply of water was both for agricultural operation as well as to tenants of a commercial complex which was leased out by assessee. Thus, according to AO, the water was not intended for agricultural purpose alone. Further, as
per the AO, there was no cost for purchase of water and deduction of income could not be allowed. Reliance on the decision of Mumbai High Court in the case of CIT vs. Shetkari Sahakari Sakhar Karkhana Ltd., (1999) 238 ITR 983, wherein it was held that only water for irrigation facilities could be
ITA No1598 & 1596(B)/2014 considered as agricultural use. In this view of the matter, he disallowed the deduction claimed u/s.80P(2)(a)(iv) of the Act.
In its appeal before the CIT (A), argument of assessee was that water was basically supplied for drinking purpose to the commercial complex and partly for agricultural purpose. According to assessee, even if it was used partly for agricultural purpose, it could claim deduction u/s.80P(2)(a)(iv) of the Act. However, CIT (A) was not impressed. He confirmed the disallowance.
21. Now before us, Ld. AR strongly assailing the orders of authorities below submitted that similar claim of tractor hire charges was allowed by CIT (A) relying on the judgment in Addl. CIT vs. Ryots Agricultural Produce Co-operative Marketing Society Ltd., (1978) 115 ITR 709 (Kar). According to him, there was no reason as to why income earned on supply of water, if used for agricultural operations should be denied such deduction.
The learned DR supported the orders of authorities below.
ITA No1598 & 1596(B)/2014
We find that a similar issue has been decided in ITA No.1081/Bang/2013 for the assessment year 2009-10. The relevant portion is reproduced hereunder;
“ We have perused the orders and heard the rival contentions. It is not disputed that the water which was purified using water treatment plant was not the one essentially meant for drinking purpose and supplied to a commercial complex. As per assessee’s admission, only a part of the water was used for agricultural purpose. Section 80P(2)(a)(iv) is reproduced hereunder : Section 80P - Deduction in respect of income of co-operative societies. (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 a co-operative society engaged in—
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members,
ITA No1598 & 1596(B)/2014 what is exempted by virtue of the above is income arising on account of purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members.
Here admittedly there was no purchase. Further, the water was not exclusively intended for agricultural use. We are, therefore, of the opinion that claim of the assessee was rightly denied by the lower authorities. We do not find any ground to interfere with the orders of authorities below. Ground 4 of the assessee stands dismissed.
In the result, appeal of the assessee is partly allowed”.
(B)/2014 for AY: 2010-11 M/s Tibetan Rabgayling Co-OP. Society Ltd.
Now we take up appeal of the Revenue. The revenue has raised altogether five grounds. But the sole grievance raised by it through these grounds is that CIT (A) directed the AO to allow deduction u/s.57(iii) of the Act, on its interest earnings from FDs kept with the banks. CIT (A) had given this relief based on the contention of assessee that funds placed by it in ITA No1598 & 1596(B)/2014 the banks were deposits from its members and therefore, interest paid on such deposits had a direct nexus with interest earned on the FDs.
We have at paras 5 above, in relation to ground no.2 of the assessee held that interest earned by assessee out of FDs can be considered only under the head ‘income from other business’, in view of the judgement of the Hon’ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd., (supra) and assessee was entitled for deduction thereon u/s.80P(2)(a)(i) of the Act. In view of this, grounds raised by the Revenue have become irrelevant and infructuous.
To sum up the result, the assessee’s appeal is partly allowed and the revenue appeal is dismissed.
Order pronounced in the open court on the 4th September, 2015.