-1- IN HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS 28TH DAY OF OCTOBER 2014 PRESENT HON BLE MR.JUSTICE N. KUMAR AND HON BLE MR. JUSTICE B. MANOHAR I.T.A. NO. 307 OF 2014 BETWEEN: TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED REP. BY ITS PRESIDENT SHRI M.S.JAYAKUMAR, 1ST FLOOR VEERASHAIVA KALYANA MANTAP BUILDING J.C.ROAD, TUMKUR - 572101 ... APPELLANT (BY SRI. A. SHANKAR AND M. LAVA, ADVS.) AND: INCOME TAX OFFICER WARD-1, AAYAKAR BHAVAN RAMAKRISHNA NAGAR, KUNIGAL ROAD TUMKUR - 572105 RESPONDENT (BY SRI. K.V.ARAVIND, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, PRAYING TO FORMULATE SUBSTANTIAL QUESTIONS OF LAW AND SET ASIDE FINDINGS TO EXTENT AGAINST APPELLANT IN ORDER PASSED BY INCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA No. -2- 1622/BANG/2012 DATED 21/02/2014 FOR ASSESSMENT YEAR 2009-10 (ANNEXURE-A); AND ETC. THIS ITA COMING ON FOR ADMISSION THIS DAY, N. KUMAR J. DELIVERED FOLLOWING: JUDGMENT assessee has filed appeal challenging order passed by Tribunal. 2. This appeal is admitted to consider following substantial question of law: Whether Tribunal failed in law to appreciate that interest earned on short- term deposits were only investment in course of activity of providing credit facilities to members and that same cannot be considered as investment made for purpose of earning interest income and consequently passed perverse order? 3. assessee is Cooperative Society registered under provisions of Section 7 of Karnataka Co-operative Societies Act, 1959. It is engaged in activity of carrying on business of -3- providing credit facilities to its members. It is governed by provisions of Karnataka Co-operative Societies Act, 1959, and Karnataka Co-operative Societies Rules, 1960. assessee filed its return of income for assessment year 2009-10 on 30/09/2008 under provisions of Section 139(1) of Income Tax Act, 1961 (for short hereinafter referred to as Act ), declaring total income of Rs. NIL after claiming deduction of Rs.42,02,079/- under provisions of Section 80P of Act. assessee s case was selected for scrutiny and statutory notice under provisions of Section 143(2) was issued. assessee produced all information to substantiate its claim. assessing authority, taking note of insertion of Section 80P(4) of Act, declined to extend benefit of deduction under Section 80P(2)(i) and passed order of assessment, determining total income of Rs.42,02,079/-, as against declared income of Rs.NIL. Aggrieved by said order, -4- assessee preferred appeal to Commissioner of Income Tax (Appeals)-II. appellate authority held that assessee s activity is not in nature of banking and consequently benefit of deduction under Section 80P of Act cannot be denied. However, insofar as income of assessee consisting of interest earned from short-term deposits with M/s. Allahabad Bank of Rs.1,55,300/- and savings bank account with M/s. Axis Bank of Rs.22,005/-, totaling to Rs.1,77,305/- was held to be liable to income tax in view of judgment of Apex Court in case of M/S. TOTGARS COOPERATIVE SALE SOCIETY LTD., reported in 322 ITR 283 (SC). Aggrieved by that portion of order, assessee preferred appeal to Tribunal which has dismissed appeal following judgment of Apex Court in aforesaid case. Aggrieved by said order, this appeal is preferred by assessee. 4. learned counsel for assessee assailing impugned order contended, interest accrued in -5- sum of Rs.1,77,305/- is from deposits made by assessee in nationalized bank out of amounts which was used by assessee for providing credit facilities to its members and therefore said interest amount is attributable to credit facilities provided by assessee and forms part of profits and gains of business and therefore he submits appellate authorities were not justified in denying said benefit in terms of Sub-sec.(2) of Section 80P of Act. In support of his contentions, he relied on several judgments and pointed out that Apex Court in aforesaid judgment has not laid down any law. 5. Per contra, learned counsel for Revenue strongly relied on said judgment of Supreme Court and submitted, case is covered by that judgment of Apex Court and no case for interference is made out. -6- 6. From aforesaid facts and rival contentions, undisputed facts which emerges is, sum of Rs.1,77,305/- represents interest earned from short-term deposits and from savings bank account. assessee is Cooperative Society providing credit facilities to its members. It is not carrying on any other business. interest income earned by assessee by providing credit facilities to its members is deposited in banks for short duration which has earned interest. Therefore, whether this interest is attributable to business of providing credit facilities to its members, is question. In this regard, it is necessary to notice relevant provision of law ie., Section 80P(2)(a)(i): Deduction in respect of income of co-operative societies: 80P (1) Where, in case of assessee being co-operative society, gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to provisions of this section, sums specified in sub- -7- section (2), in computing total income of assessee. (2) sums referred to in sub-section (1) shall be following, namely: (a) in case of co-operative society engaged in (i) carrying on business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx whole of amount of profits and gains of business attributable to any one or more of such activities. 7. word attributable used in said section is of great importance. Apex Court had occasion to consider meaning of word attributable as supposed to derive from its use in various other provisions of statute in case of CAMBAY ELECTRIC -8- SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX, GUJARAT-II reported in ITR VOL. 113 (1978) PAGE 842 at page 93 as under: As regards aspect emerging from expression attributable to occurring in phrase profits and gains attributable to business of specified industry (here generation and distribution of electricity) on which learned Solicitor-General relied, it will be pertinent to observe that legislature has deliberately used expression attributable to and not expression derived from . It cannot be disputed that expression attributable to is certainly wider in import than expression derived from . Had expression derived from been used, it could have with some force been contended that balancing charge arising from sale of old machinery and buildings cannot be regarded as profits and gains derived from conduct of business of generation and distribution of electricity. In this connection, it may be pointed out that whenever legislature -9- wanted to give restricted meaning in manner suggested by learned Solicitor- General, it has used expression derived from , as, for instance, in section 80J. In our view, since expression of wider import, namely, attributable to , has been used, legislature intended to cover receipts from sources other than actual conduct of business of generation and distribution of electricity. 8. Therefore, word attributable to is certainly wider in import than expression derived from . Whenever legislature wanted to give restricted meaning, they have used expression derived from . expression attributable to being of wider import, said expression is used by legislature whenever they intended to gather receipts from sources other than actual conduct of business. Cooperative Society which is carrying on business of providing credit facilities to its members, earns profits and gains of business by providing credit - 10 - facilities to its members. interest income so derived or capital, if not immediately required to be lent to members, they cannot keep said amount idle. If they deposit this amount in bank so as to earn interest, said interest income is attributable to profits and gains of business of providing credit facilities to its members only. society is not carrying on any separate business for earning such interest income. income so derived is amount of profits and gains of business attributable to activity of carrying on business of banking or providing credit facilities to its members by co-operative society and is liable to be deducted from gross total income under Section 80P of Act. 9. In this context when we look at judgment of Apex Court in case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, Supreme Court was dealing with case where - 11 - assessee-Cooperative Society, apart from providing credit facilities to members, was also in business of marketing of agricultural produce grown by its members. sale consideration received from marketing agricultural produce of its members was retained in many cases. said retained amount which was payable to its members from whom produce was bought, was invested in short-term deposit/security. Such amount which was retained by assessee - Society was liability and it was shown in balance sheet on liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to activity mentioned in Section 80P(2)(a)(i) of Act or under Section 80P(2)(a)(iii) of Act. Therefore in facts of said case, Apex Court held assessing officer was right in taxing interest income indicated above under Section 56 of Act. Further they made it clear that they are confining said judgment to facts of - 12 - that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In instant case, amount which was invested in banks to earn interest was not amount due to any members. It was not liability. It was not shown as liability in their account. In fact this amount which is in nature of profits and gains, was not immediately required by assessee for lending money to members, as there were no takers. Therefore they had deposited money in bank so as to earn interest. said interest income is attributable to carrying on business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of Act. In fact similar view is taken by Andhra Pradesh High Court in 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 matter, order passed by appellate authorities denying benefit of deduction of - 13 - aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. substantial question of law is answered in favour of assessee and against revenue. Hence, we pass following order: Appeal is allowed. impugned order is hereby set aside. Parties to bear their own cost. SD/- JUDGE SD/- JUDGE Rd/- Tumkur Merchants Souharda Credit Cooperative limited v. Income-tax Officer, Ward-1, Tumkur