Arindam Sinha, Shekhar B. Saraf - (1.) The Court : Revenue has appealed against order dated 17th November, 2017 passed by Income Tax Appellate Tribunal 'D' Bench, Kolkata in ITA 144/Kol/2016 pertaining to assessment year 2012-13. The substantial question of law, on which the appeal was admitted, is set out below:- 'Was Totgar's (supra) made applicable to Co-operative Societies carrying on the business of banking or providing credit facilities to its members, by South Eastern Railway Employees Co-operative Credit Society Ltd. (supra)?' Mr. Bhowmick, learned advocate appears on behalf of appellant- revenue and submits, declaration of law in Totgar's Co-operative Sale Society Ltd. vs ITO reported in (2010) 322 ITR 283 (SC) was on the question whether interest on deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of Income Tax Act, 1961? Supreme Court said, 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. In that connection section 80P was analyzed and appellant, being a co-operative sale society, was held against as follows: 'As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a)(i) 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, the 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 bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-society, was a liability and it was shown in the balance- sheet on the liabilities-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.'
(2.) He submits, Totgar's (supra) was made applicable to an assessee such as respondent by a Division Bench of this Court, to which one of us was party (Arindam Sinha, J.), in CIT vs. South Eastern Railways Employees Cooperative Credit Society Limited reported in [2017]390 ITR 524 (Cal). Appeal of revenue is covered by the decision and the question should be answered accordingly.
(3.) Mr. Majumder, learned senior advocate, Additional Advocate- General appears on behalf of assessee-respondent. He submits, his client is an existing cooperative society, on whom deeming provision in section 6 of West Bengal Co-operative Societies Act, 2006 operates. He relies on sections 79 and 82 therein for provisions relating to firstly, investment of funds by his client and secondly, on mandate to transfer, in every cooperative year, not less than 10% of its net profit to a reserve fund. Corresponding enabling procedure is as per rule 119 in West Bengal Co-operative Societies Rules, 2011. His client made investments as permitted by the Act, Rules and its existing bye-laws, the latter not being inconsistent with the provisions in the Act of 2006. Interest on these investments are profits and gains of his client, being a cooperative society, carrying on business of banking and providing credit facilities to its members. As such, the whole amount of profits and gains achieved from interest earnings on such investments, is to be deducted in computing the total income. Furthermore, he draws attention to the assessment order dated 25th February, 2015. He submits, the Assessing Officer appears to have disallowed major part of the interest income from being deducted, going on the nature of investments. This would be apparent from the deduction allowed by him. He relies on following in the assessment order to make his point. 'However, as per section 80P(2)(d) any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society will be allowed as deduction. Hence, interest received only from cooperative bank amounting to Rs.90,21,660.91 is allowed as deduction u/s 80P(2)(d) and remaining interest received of Rs. 2,43,97,796.35 is added to the total income of the assessee under the head Income from Other Source.' ;