ITO Vs The New India Assurance Co. Ltd. Employees’ Co-op. Credit Society Ltd. (ITAT Kolkata)
Apex Court in the case of M/s. Totagars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing 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, ‘as 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.
Hon’ble Supreme Court in the case of M/s. Totagars Co-operative Sale Society Ltd. is binding on the revenue authority for the proposition that the interest income arising out of surplus fund invested in short term deposits and securities is the income from other sources. It did not agree with the contention of assessee therein that the interest earned by the assessee from investment is also attributable to the business of providing credit facilities to its members.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), 10, Kolkata dt. 09-11-2015 for the A.Y 2012-13.
2. The only issue to be decided as to whether the CIT-A is justified in allowing the deduction u/s. 80P of the Act in the facts and circumstances of the case.
3. Brief facts of the issue are that the assessee is a co-operative credit society limited, which was registered by the employees’ of the New India Assurance Co. Ltd for their mutual benefits. The assessee filed its return of income for the A.Y under consideration declaring gross total income at Rs. Nil. Under scrutiny, notices u/s. 143(2) and 142(1) of the Act were issued to assessee. In response to which, the AR of the assessee appeared and produced required information and other details as required by the AO. On verification and examination of return of income, the AO found that the assessee claimed interest income under the head ‘profit and gains’ from its business and issued show cause notice explaining why the income received on investment should not be treated as income from other sources. In reply, the assessee stated as under:-
‘In an Employee’s co-operative Credit Society, any moment huge fund may be required to meet the member’s demand for loan. There can be no prediction as to how many members would apply for loan and for how much amount. Hence, it cannot be stated that the deposits are made out of the funds not immediately required for business. Hence, we are left to maintain full liquidity of our investments for carrying on business of proving credit to our members’.
4. The AO found not satisfied with the submissions of the assessee and held that the assessee has got surplus fund in the A.Y under consideration as well as earlier years and made investments mainly with State Bank of India (SBI) and W.B. State Co-operative Bank Ltd and interest income received on such investment, which are not immediately required for its business and said interest income cannot be said as profit or gain from business and treated the same as income from other sources and added Rs.39,30,537/- to the total income of the assessee. Relevant portion of AO’s order is reproduced herein below:-
Income from investment: It was noticed from the P/L account of the society that it is receiving interest on investment (fixed deposit) of Rs 44,92,235/-. The breakup of interest was submitted by the A/R as below:
