S.V Ravishankar, Adv., for the Assessee. Priyadarshi Mishra, Addl.CIT (DR), for the Revenue.

Present appeal has been filed by assessee against order passed by learnt CIT (A)-Davangere for assessment year 2013-14 on following grounds of appeal:

“1. The order of the learned Commissioner of Income-tax (Appeals), Davangere in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant Society's case.

2. The appellant denies itself to be assessed to an income of Rs. 62,02,872/- against the returned income of Rs. 11,25,150/-, on the facts and circumstances of the case.

3. The learned CIT(A) was not justified in law and on facts in not setting aside the order of assessment as bad in law, since the AO has estimated the income, without rejecting the books of accounts, on the facts and circumstances of the case.

4. The learned CIT(A) was not justified in appreciating that there was a clear nexus between the withdrawal and deposit of deposits, to demonstrate that the interest earned was to be set off against the interest paid, as accounted by the appellant, on the facts and circumstances of the case.

5. The learned CIT(A) was not justified in appreciating that the AO ought to have reduced the interest paid on the withdrawals against the interest earned, to arrive at the net income under section 57 (of Income Tax Act, 1961), on the facts and circumstances of the case.

6. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity. Brief facts of the case are as under:

2. The assessee is a co-operative society engaged in the business of providing facilities to its members, marketing of agricultural produce grown by its members and supplying agricultural implements, seeds fertilisers except to its members.

The assessee claimed deduction under section 80 (of Income Tax Act, 1961) P (2) (a), (iii) and (vi) of the Act in respect of these income. The Ld.AO observed that assessee withdrew sum of Rs.10.60 crores from State bank of Mysore overdraft account and made deposit of Rs.10 crore with Pragati Gramina bank. It was noted that, Rs.10 crore was lying with Pragati Gramina bank throughout the year and no amount was withdrawn during the year. Ld. AO was of the opinion that interest amounting to Rs.1,10,51,821/- earned from Pragati Gramina bank is not an income which is chargeable under the head profit and gains of business or profession but the same was to be offered under the head income from other sources.

3. The assessee while filing return of income reduced the interest paid to the state bank with interest received from Pragati Gramina bank.

4. The Ld.AO, after considering the submissions of assessee estimated amount of interest that was paid on overdraft and amount of interest received from Pragati Gramina bank towards business activities and made adhoc disallowance of Rs.50,77,722/-, which was reduced from profit and gains of business of profession and the net profit computed for the purpose of deduction under section 80 (of Income Tax Act, 1961) P was Rs.4,93,08,686/- as against Rs.5,43,86,408/- claimed by assessee.

5. Aggrieved by the order of Ld.AO assessee preferred appeal before the Ld.CIT(A).

6. Ld.CIT(A) of on considering submissions of assessee upheld the order of Ld. AO.

7. Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now.

8. At the outset, Ld.AR submitted that, the primary plea raised before this Tribunal is that interest earned from Pragati Gramina bank cannot be treated as income from other sources.

9. The Ld.AR submitted that assessee had drawn sum of Rs. 10.60 crores on 30/03/2012 from state bank of Mysore OD account and maintain the deposit with Pragati gram in a bank to the tune of Rs. 10 crores. It was submitted that the closing balance of Pragati Gramina Bank as on 31/03/2012 was Rs.10,00,29,570/- and closing balance of the above deposit as on 31/03/2013 was Rs.10,99,76,208/-. He submitted that the interest earned on the above deposit during the financial year was Rs.1,10,51,821/- and TDS of Rs.11,05,182/- was deducted.

The Ld.AR submitted that, there is a clear nexus between the withdrawal and deposit of funds from OD account to Pragati Gramina Bank and that the interest earned was attributable to the business of assessee. He submitted that the purpose of depositing funds from OD account into Pragati Gramina bank was to maintain the OD limit of Rs. 25 crores allowed to assessee with state bank of Mysore. It was submitted that the OD balance during March 2012 was around 14.33 crores and therefore it was necessary to withdraw funds from OD account. He submitted that the interest earned from oh Pragati Gramina bank was equal and to the interest paid on OD account and therefore it is to be netted of and treated as business income.

10. The Ld.AR submitted that authorities below has rejected assessee’s contention for the reason that interest income earned from Pragati Gramina Bank was to be considered as income from other sources as Pragati Gramina Bank is not a co-operative society has implied under section 80P(2)(d) (of Income Tax Act, 1961).

11. The Ld.AR submitted that the interest earned from Pragati Gramina bank was derived from business income as Rs. 10 crore was temporarily deposited with the Gramina bank. The Ld.AR placed reliance on decision of Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Co-operative Society Ltd vs ITO reported in (2015) 55 Taxmann.com 447 in support of his contention.

12. On the contrary Ld.Sr.DR relied on orders passed by authorities below.

13. We have perused submissions advanced by both sides in light of records placed before us.

14. From the aforesaid facts what emerges is that sum of Rs.10,99,76,208/- represents interest earned from a short term deposit with Pragati gramina bank. Present assessee is a co- operative bank that provides credit facilities to its members. The interest income earned by assessee by providing credit facility to its members. It has been submitted that an amount of Rs. 10.60 crores was withdrawn in order to maintain the OD limit of Rs.25 crores allowed to assessee. We note that the Ld.AO estimated the interest attributable to Rs.10 crores as assessee deposited Rs.10 crores with Pragati Gramina Bank and Rs.60 Lacs was used for business purposes which is undisputed.

15. Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Co-operative Society Ltd vs ITO (supra) was deciding identical issue. Hon’ble Court observed and held as under:

“7. 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. v. CITI 19781 113 hR 84 (SC) 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 he 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 (of Income Tax Act, 1961).

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.'

8. 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 Income Tax Act, 1961).

9. 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 assessee-Cooperative 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 Income Tax Act, 1961) or under Section 80P(2)(a)(111) (of Income Tax Act, 1961). 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 Income Tax Act, 1961). 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.

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 he deducted in terms of Section 80P(1) (of Income Tax Act, 1961). In fact similar view is taken by the Andhra Pradesh high Court in the case of (CIT vs. Andhra Pradesh State co-operative Bank Ltd., [20110 200 Taxman 220/12 taxmann.com 66. 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 is answered in favour of the assessee and against the revenue. Hence, we pass the following order:

16. In the present facts of the case we note that amount invested with Pragati Gramina bank was neither due to any members nor a liability. The said money was temporarily parked with Pragati gramina bank, in order to maintain the overdraft limit available to assessee with state bank of Mysore.

17. Respectfully following the decision of Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Co- operative Society Ltd vs ITO (supra), we are of the opinion that interest earned on such deposit would partake the character of business income attributable to carrying on business of banking and is eligible for deduction under section 80 (of Income Tax Act, 1961) P of the Act.

Accordingly grounds raised by assessee stands allowed.

In the result appeal filed by assessee stands allowed.

Order pronounced in the open court on 2nd February, 2021

Sd/- Sd/-

(CHANDRA POOJARI) (BEENA PILLAI)

Accountant Member Judicial Member

Bangalore,

Dated, the 2nd February, 2021.