Commissioner of Income Tax vs Laksar Co-operative Cane Development Union Ltd.

Barin Ghosh, C.J.—Respondents, in these appeals, are registered Co-operative Societies. They are providing credit facilities to their members. They are not Co-operative Banks and, accordingly, no banking regulation provision is applicable to them. The surplus funds available in their hands have been invested by them in the form of bank fixed deposits, National Savings Certificates etc. There is no dispute that these investments have been made beyond their members, with third parties. The third parties have paid interest on those investments. The interest income, in the hands of the respondents, was treated as other income. Respondents contended, which contention has been accepted by the Tribunal that the funds available to the respondents is a mutual fund and that has been expanded by mutuality and, accordingly, the same should be treated to be profit and gain of business attributable to the activity of providing credit facilities to the members of the respondents. This short finding is under challenge. The fact remains that the investments were made with third parties and, accordingly, though the amount of investment is the amount created by mutuality but the income earned therefrom from the third party, by which the mutual fund has been expanded, has been contributed by a third party and not by mutuality and, as such, the same cannot be taken into account as the profits and gains of business attributable to providing credit facilities to the members of the respondents. Section 80P of the income tax Act will not apply to the same. Had those investments been part of the business requirement of any of the respondents, then, of course, income derived from such investments, as held by the Hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. KARNATAKA STATE CO-OPERATIVE APEX BANK, , would be profits and gains of the business of the respondents. That was not the contention of any of the respondents at any stage. In other words, it was contended by the respondents, at any stage, that these investments were compulsory in nature and, accordingly, were required to be made by them to remain in the business of providing credit facilities to their members. The only contention was that the respondents are providing credit facilities to their members and since the excess available after providing such credit facilities are being invested, the income derived therefrom by way of interest should be treated to be interest paid on the mutual fund, thus invested, and as part of the profits and gains of business attributable to providing credit facilities to its members. No doubt, the fund invested is the mutual fund belonging to the members of the Cooperative Societies, but for keeping those funds invested with a third party, the third party is making contribution to that fund by paying interest and that being no contribution by any of the members of the Societies, the same cannot be treated to be an expansion of the mutual fund by the contributions of the members, the same being an expansion of the funds of the Co-operative Society by a third party for the fund remained invested with it for a certain period of time. This aspect of the matter has already been dealt with by this Court in the case of CIT v. Dehradun Club Ltd. [IT Appeal No. 15 of 2007] and also by the Hon''ble Supreme Court in the case of Bangalore Club v. CIT [2013] 212 Taxman 566/29 taxmann.com 29 and other connected appeals. We, accordingly, allow the appeals, set aside the judgments of the Tribunal as well as of the Commissioner of Appeals and restore the assessment orders.