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Income Tax Appellate Tribunal, BANGALORE BENCH “ C ”
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Appellant By : Shri V. Srinivasan, C.A. Respondent By : Shri N. Balakrishnan, JCIT (D.R) Date of Hearing : 26.05.2015. Date of Pronouncement : 29.06.2015. O R D E R Per Shri Jason P. Boaz, A.M. : These appeals by the assessee are directed against the common order of the Commissioner of Income Tax (Appeals), Mysore dt.17.10.2014 for Assessment Years 2009-10 & 2010-11.
The facts of the case, briefly, are as under :- 2.1. The assessee company is a co-operative society registered under the Co-operative Societies Act, 1959 and carries on the business of providing credit facilities to its members.
2 & 101/Bang/2015 For Assessment Year 2009-10, the assessee filed its return of income on 30.9.2009 declaring NIL income. The assessee subsequently filed revised returns on 15.10.2009 and 12.7.2010 declaring NIL income after claiming deduction under Section 80P(2) of the Income Tax Act, 1961 (herein after referred to as 'the Act'). The case was selected for scrutiny and the assessment was concluded under Section 143(3) of the Act vide order dt.11.11.2011 wherein the assessee's income was determined at Rs.5,95,035. For Assessment Year 2010-11, the assessee filed its return of income on 30.9.2010 declaring NIL income after claiming deduction under Section 80P(2) of the Act. The case was selected for scrutiny and the assessment was concluded under Section 143(3) of the Act vide order dt.21.3.2013 wherein the income of the assessee was determined at Rs.18,43,090. 2.2 While concluding the above assessments, the Assessing Officer allowed deduction under Section 80P(2) of the Act to the extent of Rs.13,33,172 for Assessment Year 2009-10 in respect of the business income as assessed by him, but denied the assessee's claim for deduction under Section 80P(2)(a)(i) of the Act in respect of the interest income earned from banks amounting to Rs.5,95,037. The Assessing Officer observed that the assessee had earned this interest income of Rs.5,95,037 on fixed deposits kept with banks out of surplus funds and had relied on the judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale Society Ltd. reported in 332 ITR 283. In that view of the matter, the total income of the assessee was assessed at Rs.5,95,035 after allowing 3 & 101/Bang/2015 deduction of Rs.13,33,172 under Section 80P(2) of the Act, as against deduction of Rs.19,28,209 claimed by the assessee. 2.3 For Assessment Year 2010-11, the Assessing Officer has denied the entire deduction claimed under Section 80P(2) of the Act on the ground that the assessee is a co-operative bank and that therefore the restriction placed by Section 80P(4) of the Act will be applicable.
3. Aggrieved by the orders of assessment for Assessment Years 2009-10 dt.11.11.2011 and 2010-11 dt.21.3.2013 respectively, the assessee preferred separate appeals before the CIT (Appeals), Mysore. The learned CIT(A) observed that the assessee is a credit co- operative society that carries on the business of providing credit facilities to its members and it was entitled to deduction under Section 80P(2)(a)(i) as per the decision of the Hon'ble High Court of Karnataka in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot in ITA No.5006/2013 dt.5.2.2014 and allowed the deduction claimed by the assessee for Assessment Year 2010-11. However, while doing so, the learned CIT(A) observed that the assessee has earned interest income on fixed deposits kept with banks amounting to Rs.5,95,037 for Assessment Year 2009-10 and Rs.7,58,464 for Assessment Year 2010-11 and this interest was not earned from members to whom loans were advanced. The learned CIT (Appeals) held that the assessee cannot be allowed deduction in respect of interest income earned from the banks as the same was covered by the judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale 4 & 101/Bang/2015 Society Ltd. (supra). The learned CIT(A), therefore, vide the impugned order dt.17.10.2014 allowed the assessee partial relief.
4. Aggrieved by the common orders of the learned CIT(A), Mysore dt.17.10.2014 for Assessment Years 2009-10 and 2010-11, the assessee has preferred these appeals before the Tribunal raising the following common grounds for both the assessment years involved :- “1. The order of the learned CIT (Appeals) in so far as it is prejudicial to the interests of the appellant, is opposed to law and facts of the case.
2. The learned CIT (Appeals) erred in confirming the Assessing Officer’s view that the interest amount of Rs.5,95,037 earned by the appellant form the funds invested in banks is not allowable as a deduction under Section 80P(2)(a)(i) of the Act on the basis of the decision of the Hon'ble Supreme Court in the case of Totagar’s Co-operative Sale Society Ltd. V. ITO (322 ITR 283) (SC) is applicable to the facts of telecommunication expenses appellant’s case without appreciating that the facts of the said case are distinguishable from the facts of the appellant’s case.
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.”
Grounds at S. Nos. 1 & 3 are general in nature and not being urged before us, are dismissed as infructuous. 5.1 Ground No.2, remains the only effective issue in this appeal that arises for our consideration. It was contended by the learned Authorised Representative that the assessee had placed surplus funds raised from the members for carrying on the business of providing credit facilities to its members, in fixed deposits and earned interest income 5 & 101/Bang/2015 of Rs.5,95,037 for Assessment Year 2009-10 and Rs.7,58,464 for Assessment Year 2010- 11. It was submitted that the said interest arose to the assessee as a part of providing credit facilities to its members and therefore, the same ought to be assessed as business income and contended that the exemption claimed under Section 80P(2)(a)(i) of the Act in respect of interest income of Rs.5,95,037 and Rs.7,58,464 derived by the assessee from investments in fixed deposits was in order. The learned Authorised Representative submitted that the learned CIT(A) held that the assessee is not entitled to the said deduction in respect of the interest income in the light of the judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale Society Ltd. (supra) as the said income is to be brought to tax under the head ‘Other Sources’. The learned Authorised Representative, however, submitted that the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. in ITA No.307/2014 dt.28.10.2014, after considering the judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale Society Ltd. (supra) have held that the interest income earned by a co-operative society engaged in the business of providing credit facilities to its members has to be regarded as income eligible for deduction under Section 80P(2) of the Act. 5.2 The learned Departmental Representative submitted that the issue decided by Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co- operative Society Ltd. (supra) was different and the said judgment was not applicable to 6 & 101/Bang/2015 the facts of the case on hand, as the interest income covered by the judgment of the Hon'ble High Court was from short term deposits. The learned Departmental Representative argued that since the interest income in the case on hand was not from short term deposits, the ratio of the said judgment was not applicable to the facts of the assessee's case. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. It is seen that both the authorities below have placed reliance on the judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale Society Ltd. (supra) and came to the conclusion that the interest income earned by the co-operative societies from bank deposits cannot be regarded as income earned from business of providing credit facilities to its members and are therefore not entitled to deduction under Section 80P(2)(a)(i) of the Act. We, however, find that the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. (supra) has observed that the judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale Society Ltd. (supra) was confined to the facts of that case and there was no law laid down by the Hon'ble Apex Court that interest income has to be assessed under the head ‘Other Sources’. The relevant observations of the Hon'ble High Court at paras 6 to 10 of its order are extracted hereunder :-
7 & 101/Bang/2015 “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 form short term deposits and from savings bank account. The assessee is a co-operative 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 i.e., 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 deduced, 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 toits 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 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. CIT, Gujarat-II 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 8 & 101/Bang/2015 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 issued by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A co-operative 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 aid 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. 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)(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.
9 & 101/Bang/2015 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 CIT III, Hyderabad Vs. Andhra Pradesh State Co-operative 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.” 5.3.2 Respectfully following the order 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 learned CIT (Appeals) erred in refusing to allow the assessee's claim for deduction under Section 80P(2)(a)(i) of the Act in respect of interest income of Rs.5,95,037 for Assessment Year 2009-10 and Rs.7,58,464 for Assessment Year 2010-11 earned by the assessee. The judgment of the Hon'ble Apex Court in the case of Totagars Co-operative Sale Society Ltd. (supra) relied on by the learned CIT (Appeals) has been considered and distinguished by the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. (supra). We find that the facts of the case on hand to be similar to the facts of the aforesaid case decided by the Hon'ble High Court of Karnataka. Applying the ratio of the judgment of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative 10 ITA Nos.100 & 101/Bang/2015 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 with banks out of surplus funds from business, as it forms part of the business income earned by the assessee and the same is not to be taxed under the head “Other Sources”. In this view of the matter, the deduction claimed by the assessee under Section 80P(2)(a)(i) of the Act in respect of interest earned form investment in fixed deposits with banks and government securities out of surplus funds from business is allowed. Consequently, Ground No.2 of the assessee's appeal for both assessment years 2009-10 and 2010-11 are allowed.