Income Tax Appellate Tribunal - Pune
Income-Tax Officer, Ward – 3, Satara vs M/S. Shri Bhairavnath Multistate ... on 8 February, 2019
आयकर अपील य अ धकरण "एक-सद य" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, PUNE
BEFORE SHRI D. KARUNAKARA RAO, AM AND
SHRI PARTHA SARATHI CHAUDHURY, JM
आयकर अपील सं. / ITA No. 2996/PUN/2017
नधा रण वष / Assessment Year : 2013-14
The Income Tax Officer,
Ward-3, Satara.
.......अपीलाथ / Appellant
बनाम / V/s.
M/s. Shri Bhairavnath Multistate
Co-operative Credit Society Ltd.
Phaltan, 48, Laxminagar,
Deccan Chowk, Phaltan,
Tal. Phaltan, Dist. Satara,
Pin-415 523
PAN : AAEAS8344J
...... यथ / Respondent
Assessee by : Shri Prateek Jha
Revenue by : Shri M.K. Verma
सन
ु वाई क तार ख / Date of Hearing : 07.02.2019
घोषणा क तार ख / Date of Pronouncement : 08.02.2019
आदे श / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the Revenue emanates from the order of the Ld. CIT(Appeals)-4, Pune dated 31.05.2017 for the assessment year 2013-14 as per following grounds of appeal on record:
"1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in ignoring the income considered as income from other sources of Rs.2,53,41,920/-as interest earned out of surplus funds from 2 ITA No. 2996/PUN/2017 A.Y.2013-14 investment made in any bank, not being co-operative society is not deductible u/s.80P(2)(d) of the Act.
2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.2,53,41,920/- on account of deduction claimed u/s.80P(2)(ai),without appreciating the principal enunciated by the Hon'ble High Court of Karnataka in the case of Pr.CIT vs. Totagars Co-operative Sales Society (395 ITR 611, 83 Taxman.com 140) and the assessee's case is squarely covered by the said decision.
3. For these and such other grounds as may be urged at the time of hearing, the order of the ld. CIT(A) may be vacated and that of the Assessing Officer be restored.
4. The appellant craves, leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble Tribunal."
2. The brief facts in this case are that the assessee is a Multi-State Co-
operative Credit Society registered under section 2(A) of Multi State Co-
operative Society's Act, 2002 on 08.12.2009 and adopted twenty varied objects. The Principal object of the society is to promote the interest of all its members, to attain their social and economic betterment, self help and mutual aid in accordance with the co-operative principle. During the year under consideration, the society was engaged in providing credit facilities to its members, accepts deposits and disburses it in the form of loan as per the co-operative laws. The accounts of society are audited u/s. 44AB of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The assessee filed return of income on 26/912013 declaring income at Rs.1,48,985/-. This return was processed u/s.143(1) and was selected for scrutiny manually. Notices u/s.143(2) and 142(1) were issued. The assessee received interest income of Rs.3,37,89,604/- from Commercial banks, Co-operative banks and Co-operative Societies. The Assessing Officer rejected the assessee's claim of deduction of Rs.2,53,41,920/-
u/s. 80P (2)(a)(i) or u/s. 80P (2)(d) of the Act relying on the judgment of 3 ITA No. 2996/PUN/2017 A.Y.2013-14 the Supreme Court in the case of The Totgar's Co-operative Sale Society Ltd v ITO Karnataka [2010] 188 Taxman 282 (SC).
3. During the assessment proceedings, the Assessing Officer on verification of the consolidated profit and loss statement, observed that assessee had earned interest income and dividend of Rs.2,53,41,920/-
from various banks, Nationalized banks, corporate banks and Rs.77,54,565/- from interest earned from co-operative society and Rs.6,93,119/- as dividend income from Mutual Fund. These investments were made out of the surplus funds. The Assessing Officer asked the AR to justify and explain as to how the interest/dividend income qualifies for deduction u/s. 80P(2)(d) of the Act. The AR in response to the letter replied that deduction u/s. 80P(2)(d) is not applicable. Deduction u/s 80P(2)(a)(i) is applicable as the interest income is attributable to the business. While conducting business as a prudent commercial business the society had parked its surplus/ideal funds with various commercial/co-operative banks to maximize its return on its funds. Income earned on these is part and parcel of the business. In support of its contention, the AR relied on the decisions of Cambay Electric Supply Indl. Co. Ltd. Vs. CIT reported at 113 ITR P 84 (SC) and CIT Vs. Bangalore District Co-operative Central Bank Ltd reported at 233 ITR 282.
4. That before the Ld. CIT(Appeals), the Ld. AR submitted that the impugned grounds and legal issues are identical with those involved in the assessee's appeal for A.Y.2014-15. Thereafter, the Ld. AR of the assessee has placed following arguments:
"The undisputed fact in the present case is that the assessee is a Co- operative Credit Society engaged in the business of accepting 4 ITA No. 2996/PUN/2017 A.Y.2013-14 deposits from members and providing credit facilities to its members. It also deposits the idle funds with banks to earn income in order to augment its resources. The activity is in the nature of banking business and incomes earned on advances, deposits and investments are profits and gains of business of the assessee. Therefore, such incomes are eligible for deduction u/s.80P(2)(a)(i) of the Act. Kind attention is drawn to sub-section (2) of section 80P. Sub clauses (i) to (vii) of clause (a) enumerates the type of businesses and the last line says "the whole of the amount of profits and gains of business attributable to anyone or more of such activities." The assessee's business is covered in clause (a) (i)- "in the case of a co-operative Society engaged in-(i) carrying on the business of banking or providing credit facilities to its members."
The assessee's business is covered under this clause. The section says that the whole of the amount of profits and gains of business attributable to the assessee's activities is deductable u/s.80P. The term used in this section is 'attributable to' and not derived from. This phrase 'attributable to' has a wide meaning and is wider than the scope of the phrase 'derived from'. This issue has been considered at length by the Supreme Court in the case of Cambay Electric Supply Industrial Company Ltd v CIT [1978] 113 ITR 84 (SC).
5.2.1 It is further submitted that putting money in the Co-operative Banks and earning interest income was integral part of assessee's business of providing finance. The assessee's arguments are supported by the following judgments-
• CIT Vs. Karnataka State Co-operative Apex Bank 9251 ITR 194 • CIT Vs. Andhra Pradesh State Co-operative Bank Ltd. (336 ITR 516) (AP) Reliance is also placed on the judgment of the Supreme Court in the case of CIT v. Bangalore Distt. Co-op. Central Bank Ltd [1998] 99 TAXMAN 404(SC). This assessee had earned interest from investment in Government Securities and dividend on shares of Industrial Finance Corporation. It was held that these receipts were attributable to assessee's business income deductible u/s.80P (2) (a) (i) of the I T Act.
5.2.2 It is submitted that the Co-operative Banks are Co-operative Societies registered under the Maharashtra Co-operative Societies Act, 1960. Therefore, the ld. AO's contention that the judgments given in respect of Co-operative Banks are not applicable to the assessee's case in erroneous. The facts of the assessee's case are squarely covered by the judgment of the C Bench of the ITAT, Mumbai, in the case of ACIT v Maharashtra State Co-operative Market Federation Ltd [2007] 15 SOT 0083. This was a case of a Co-operative Society. It has received interest and dividend on its investments with other co-operative societies. The question before the Tribunal was as to whether the interest and dividend income earned by the society were deductible under section 80P (2) (d) of the IT Act. The Tribunal held that the gross amounts of interest and dividend were deductible under section 80P (2) (d).The observation of the Tribunal is reproduced as under-
"We have heard the rival submissions and perused the records. The scope of s. 8oP(2)(d) of the Act is to allow a deduction in the computation of total income of a Co-operative Society in respect of incomes earned by the society as enumerated in sub-so (2) to s. 8oP in sub-cl. (a) to (j). Under cl. (d) to s. 80P(2), it is provided that where the gross total income of an assessee being a co-operative society includes income by way of 5 ITA No. 2996/PUN/2017 A.Y.2013-14 interest or dividend derived by the co-operative societies from its investment with any other co-operative society, the whole of such income shall be deducted while computing the total income of the assessee. The provisions in s. 80P of the Act had been enacted with a view to encourage and promote growth of co-operative societies by providing certain categories of income as exempt from tax. Income from certain activities carried on by co-operative societies is exempted from tax for the promotion of such societies. Sub-cl. (a) to s. 80P(2) covers the cases of co- operative society engaged in carrying on of different activities by way of business and the profits and gains attributable to such exempted activity is exempt from tax but all activities carried on by co-operative societies are not exempted from tax. In order to arrive at the income, which is exempted from tax, it has been further provided under the cl. (a) to S. 80P(2) that the whole of the profits and gains of the business attributable to such activities shall be exempted from. tax meaning thereby that while determining the profits and gains of business in addition to the expenditure directly incurred for earning such income, all the expenses attributable to earning such income is also to be deducted. It cannot be presumed that no part of the expenditure was incurred in. earning the exempted income. In case the co-operative society is maintaining separate sets of books or separate accounts of expenditure in the exempted and non-exempted activities, the profits as shown in such books or accounts are to be adopted for working out the deduction under s. 80P of the Act, but in case no such separate books or accounts are being maintained in respect of exempted and non-exempted activities of the co-operative society then proportionate disallowance of the expenses is to be worked out. Their Lordships of Hon'ble Rajasthan High Court in Rajasthan Rajya Sahkari Upbhokia Sangh Ltd. 'scase (supra) had upheld the proportionate reduction of expenses before allowing the deduction under s.80P(2) of the IT Act. The co- operative societies governed by the provisions of sub-so (2) to S. 80P are those engaged in the business of providing credit facilities to its members, chit funds, societies engaged in the cottage industries, activity of marketing of agricultural produce to its Members, activity of purchase of agricultural implement/seeds/live-stocks or other machineries intended for agriculture for supplying to its members, fishing or allied activities including carrying, process and preserving, storing and marketing of fish or purchase of material and equipment in connection therewith for the purpose of supplying to its Members and also consumer societies and Co- operative societies engaged in supplying milk, oil, seed, fruits or vegetables to other societies or Government bodies. In addition to the profits and gains earned by the co- operative societies, it has also been provided under cl. (d) to s.80P(2) that the income earned by co-operative society by way of interest and dividend on its investment with any other co-operative society is exempted under the provisions of s. 8oP of the IT Act. The deduction is granted categorically to "the whole such income"
meaning thereby the total interest or dividend received by the co- operative society from its investments made with any other co-operative society are entitled to the deduction under s. 80P of the IT Act. Under cl.(e) to s.80P (2) of the IT. Act, the income earned from letting of godown or warehouses for the purpose of storage, processing or facilitating the marketing of commodities by a co-operative society is exempt from tax."
5.2.3 Reference may also be made to the judgment of the Supreme Court in the case of Bihar State Co-operative Bank Ltd v CIT [1960J 39 ITR 114 (SC). In this case the assessee bank, registered under the Co-operative Act, 1912, received interest on deposits. This income was assessed as income from other sources. The issue reached the Supreme Court. The court held that the moneys laid out in the form of deposits would not cease to be a part of the circulating capital of the 6 ITA No. 2996/PUN/2017 A.Y.2013-14 assessee nor would they cease to form part of its banking business. The returns flowing from them would from part of its profits from its business. In a commercial sense the directors of the company owed to the bank to make investments which earned them interest instead of letting moneys lie idle. It could not be said that the funds of the bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising there from did not form part of its business profits. A copy of the judgment is placed in the Paper Book.
5.2.4 The ld AO has heavily relied on the judgment of the Supreme Court in the case of Totgar's Co-operative Sale Society Ltd v ITO [2010] 322 ITR 283 (SC). It is submitted that the facts of the assessee's case are clearly distinguishable from the facts of the case of Totgar's Co-operatives. The Totgar's Co-operative Sale Society Ltd was engaged in the business of providing credit facilities to its members and marketing their agricultural produce. Sometimes the society retained the sale proceeds of the produce of certain members and utilized the same for making deposits and earned interest income. Retaining members' money received on account of sale proceeds of their agricultural produce and earning interest thereon was not the business activity of the society. Therefore, such interest income was held as' income from other sources' taxable u/s.56 of the I.T Act. The observation of the Supreme Court in the case of Totgar's Co- operative Sale Society Ltd is reproduced as under-
"At the outset, an important circumstances needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(ai) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of "Income from other sources", hence, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain incomes". The head note to section 80P indicates that the said section deals with deductions in respect of income of co-operative Societies. Section 80P(1), inter alia, states that where the gross total income of a co-operative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under section 2(24)(i) of the Act to include profits and gains."
"This sub-section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income".
Therefore, we are required to give a precise meaning to the words ''profits and gains of business" mentioned in section 80P(2) of the Act. In the 7 ITA No. 2996/PUN/2017 A.Y.2013-14 present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression ''profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest" income. As stated above, in this case, interest held as ineligible for deduction under section 8oP(2)(a) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount" which was payable to its members, from whom produce was brought which was invested in short term deposits/securities. Such as 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 in section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act."
The facts underlined by the Supreme Court would clearly show that the ratio of this judgment is not applicable to the facts of the assessee's case.
5.2.5 Kind attention is drawn to the decision dated 13-05-2015, of the ITAT Pune B Bench in the case of Mahesh Nagari Sahkari Pat Sanstha Ltd v ITA, for A.Y-2010-11. This assessee had received interest of Rs.29,28,361/- from bank deposits. The AO considered this income as income from other sources and denied deduction u/s 80P in respect of this amount. The ITAT held that the assessee had made deposits with nationalized bank in order to maintain liquidity and provide ready availability of funds for repayment of deposits on redemption/maturity. The ITAT held that interest income was eligible for deduction u/s. 80P(2)
(a)(i) of the Act. The ITAT has relied on decision in the case of ITO v NiphardN agrik Sahakari Patsanstha Ltd wherein the judgment of the Supreme Court in the case of Totgars Co-operative Sale Society Ltd has been considered at length and distinguished.
5.2.6 Kind attention is also invited to the Circular No. 18/2015 dated 02.11.2015 of the CBDT, wherein, it has been brought to notice of Officers of the Department that in light of examination of the decision in the case of CIT Vs. Nawanshahar Central Co-operative Bank Ltd [2007] 160 TAXMAN 48 (SC) delivered by the Apex Court, that the investment made by the banking concern and income arising out from such investments is attributable to under the head "Profit and gain of business and Profession".
5.2.7. It is submitted that the issue has been decided in the assessee's favour by the Ld. CIT(A)-4, Pune in the assessee's own case for assessment year 2011-12 vide order dated 10.10.2016, in appeal No. PN/CIT(A)-4/ ITO/Ward-3, Satara/16/2014-15/401."
8 ITA No. 2996/PUN/2017A.Y.2013-14
5. The Ld. CIT(Appeals) after considering the submissions of the assessee, assessment order and facts of the case held as follows:
"5.3 DECISION: I have perused the assessment order and the submission made by the appellant as above carefully. The AO's view that the interest income earned by the appellant society on fixed deposit kept with various banks and interest earned on saving banks account is primarily based on the decision of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society (supra). On the other hand, the Ld Counsel for the appellant vehemently argued that the ratio laid down by the Hon'ble Apex Court in the case of Totgars Co-op. Sale Society entirely stands on a different footing and the decision is not applicable to the facts of the present case. the issue is conclusively covered by the decision of the Pune ITAT in the case of Niphad Nagari Sahakari Patsanstha Ltd. in ITA No.1336/PN/2011 involving AY 2008-09. It is seen that the issue of applicability of the ratio laid down by the Hon'ble Apex Court in the case of Totgars Cooperative Sale Society (supra) in the case of cooperative credit societies which are primarily engaged in providing credit facilities to its members have been extensively dealt with by the Pune ITAT in the case of Niphad Nagari Sahakari Patsanstha Ltd. in ITA No. 1336/PN/2011 dated 31.07.2013 for the AY 2008-09 and decided the issue in favour of the assessee. For the sake of ready reference, the relevant discussion made in the said order on the issue is extracted hereunder:
11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT (A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case there is no dispute to the fact that the assessee is a cooperative society engaged in the business activity of credit cooperative society, i.e. providing credit facility to its members. According to the Revenue the income of the society on account of interest from banks other than cooperative banks, interest on mutual funds, long term and short term capital gain on sale of mutual funds etc. are not covered by the activity of providing credit facilities to its members and hence not eligible for deduction u/s.8oP(2)(a)(i) of the Income Tax Act in view of the decision of Hon'ble Supreme Court in the case of Totaqar's Cooperative Sale Society Ltd. (Supra). We find the Ld. CIT(A) allowed the claim of the assessee on the ground that the assessee is entitled to deduction u/s.8oP(2)(a)(i) on account of interest from banks other than cooperative banks, interest on mutual funds long term and short term capital gain on mutual funds etc. While doing so, he held that the decision in the case of Totagar's Cooperative Sale Society Ltd. (Supra) is not applicable to the facts of the present case since in that case the amount invested in short term deposits and securities was not out of interest bearing deposits collected from members but out of sale proceeds of agricultural produce of farmer members marketed by the society. Further, the Hon'ble Apex Court has considered only the latter part of section 80P(2)(a)(i), i.e. income of a cooperative society engaged in providing credit facilities to its members is eligible for deduction and has not considered the earlier part of section 80P(2)( a)(i), i.e. income of a cooperative society engaged in carrying on the business of banking is eligible for deduction.
11.1 We find the Ahmedabad Bench of the Tribunal in the case of M/s.
Jafori Momin Vikas Cooperative Credit Society Ltd. (Supra) after 9 ITA No. 2996/PUN/2017 A.Y.2013-14 considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) has observed as under:
"17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation in its applicably in the circumstances of the assessee's case.
18. It was the stand of the learned CIT (A) that the entire income was not exempt and that it was to be examined as to whether there was any interest income on the short term bank deposits and securities included in the total income of this society which has been claimed as exempt. According to the CIT (A), a similar issue to that of the present one was dealt with by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon'ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act.
19. The issue dealt with by the Hon'ble Supreme Court in the case of Totgars (supra.) is extracted, for appreciation of facts, as under:
"What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of 'income from other sources', hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer ... "
19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.03.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon'ble Supreme Court:
"(On page 286) 7 ..........Before the assessing officer, it was argued by the assessee(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(
a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s)."
19.2. From the above, it emerges that-
10 ITA No. 2996/PUN/2017A.Y.2013-14
(a) That assessee ( issue before the Supreme Court) had admitted before the AO that it had invested surplus funds which were not immediately required for the purpose of its business, in short term deposits;
(b) That the surplus funds arose out of the amount retained from marketing the agricultural produce of the members.
(c) That assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and
(ii) marketing the agricultural produce ; and
(d) That the surplus had arisen emphatically from marketing of agricultural produces 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds.
19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely;
(1) In the case of the assessee, the entire funds were utilized for the purpose of business and that there were no surplus funds:
-in the case of Totgars, it has surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members.
(2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there were no surplus funds as such;
- in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds;
19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source: Balance Sheet of the assessee available on record].
19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totqars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld.CIT(A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s.56 of the Act It is ordered accordingly.
11 ITA No. 2996/PUN/2017A.Y.2013-14 19.7. Before parting with, we would, with due regards, like to record that the ruling of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Manekbang Co-op. Housing Society Ltd. reported in (2012) 22 Taxmann.com 220 (Guj.) has been kept in view while deciding the issue."
11.2 We find the Cochiti Bench of the Tribunal in the case of Muttom Service Cooperative Aplappuzha Bank Ltd. Vs. ITO (Supra) after considering the decision of Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) and various other decisions have observed as under:
"5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totqar's Co-operative Sale Society Ltd us. ITO (supra.), the Apex court found that the deposit of surplus funds by the cooperative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar's Co-operative Sale Society Lid vs. ITA (supra), the assessee cooperative society was to provide credit facility to its members and market the agricultural produce. The assessee is not in the business of banking. Therefore, this Tribunal is of the opinion that the judgment of the Apex court in Totqar's Cooperative sale Society Ltd (supra) is not applicable in respect of the Co-operative society whose business is banking. Admittedly, the assessee has invested funds in state promoted treasury small savings fixed deposit scheme. Since Government of India has withdrawn India Vikas Patra, as a small savings instrument, funds invested at the discretion of the bank are one of the activities of the banking as per the Banking Regulation Act. Since the assessee Co- operative society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity, therefore, the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income, the assessee is entitled for deduction u/s.80P(2)(a)(i), therefore, this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Co- operative Apex Bank (supra) is applicable to the facts of this case. By respectfully following the judgment of the Apex court in Karnataka State Co-
operative Bank (supra), the order of the Commissioner of Income- tax(A) is upheld.
6. In the result, the appeal of the Revenue stands dismissed."
11.3 In the instant case there is no dispute to the fact that the society is a credit cooperative society authorized by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society.
We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 ( Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which in turn have considered the decision of the Hon'ble 12 ITA No. 2996/PUN/2017 A.Y.2013-14 Supreme Court in the case of Totgars Co-operative Sale Society Ltd.(supra.) we find no infirmity in the order of the Ld. CIT(A).
Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed."
5.3.1 Further, reliance is also placed on CBDT's circular No. 18/2015 dated 02/11/2015, wherein, it has been brought to the notice of Officers of the Department that in light of examination of judicial decision in the case of CIT Vs. Nawanshahar Central Co-operative Bank Ltd. [2007] 160 TAXMAN 48 (SC) delivered by the Apex Court, that the investment made by the banking concern and income arising out from such investments IS attributable to under the head "Profits and gains of Business and Profession".
5.3.2 In the present case too, it is not in dispute that the appellant society is engaged in the business of accepting deposits from members and granting them credit facilities is in the nature of banking business and deposits in question were made in the course of the said business of the appellant society. Therefore, the facts in the case of the appellant are squarely covered by the decision of the jurisdictional Tribunal on the issue as extracted above and also the CBDT's circular No.18/2015 dated 02/11/2015. Accordingly, the Assessing Officer is directed to grant deduction u/s.80P(2)(a)(i) /80P(2)(d) in respect of interest earned by the appellant on deposits made with banks. Ground nos. 1, 3 & 4 raised by the appellant are accordingly allowed."
6. We have perused the case records and given thoughtful consideration to the findings of the Ld. CIT(Appeals). We find that the disallowance made by the Assessing Officer was based on the decision in the case of Totgar's Co-operative Sale Society (supra.) which was analyzed extensively by the Co-ordinate Bench of the Tribunal, Pune in the case of Niphad Nagari Sahakari Patsanstha Ltd. in ITA No.1336/PN/2011 for the assessment year 2008-09 wherein the issue was decided in favour of the assessee.
The factual position in Totgars Cooperative Sale Society (supra.) was different substantially to the facts in the case of the assessee. The facts in the case of Niphad Nagari Sahakari Patsanstha Ltd. (supra.) are similar to the present case in hand. Herein also, we find it is not in dispute that the assessee society is engaged in the business of accepting deposits from members and granting them credit facilities which is in the nature of banking 13 ITA No. 2996/PUN/2017 A.Y.2013-14 business and deposits in question were made in the course of the said business of the assessee society. Therefore, we find that the present case of the assessee is squarely covered by the decision of Pune Bench of the Tribunal. Therefore, we observe that whenever, the credit society is carrying on business of accepting deposits from members and providing them credit facilities, it is allowable for deduction u/s.80P(2)(ai) of the Act. Hence, we do not find any infirmity in the order of the Ld. CIT(Appeals) and relief provided to the assessee is thereby sustained.
7. In the result, appeal of the Revenue is dismissed.
Order pronounced on 08th day of February, 2019.
Sd/- Sd/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER पण ु े / Pune; दनांक / Dated : 08th February, 2019. SB
आदे श क# $ त&ल'प अ(े'षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-4, Pune.
4. The Pr. CIT-3, Pune.
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6. गाड- फ़ाइल / Guard File.
// True Copy // आदे शानुसार / BY ORDER, %नजी स&चव / Private Secretary आयकर अपील य अ&धकरण, पण ु े / ITAT, Pune.
14 ITA No. 2996/PUN/2017A.Y.2013-14 Date 1 Draft dictated on 07.02.2019 Sr.PS/PS 2 Draft placed before author 08.02.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order