LexM/S. THE TOTGARS COOPERATIVE SALE SOCIETY LIMITED versus INCOME TAX OFFICER, KARNATAKA
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[2010] 2 S.C.R. 496
MIS. THE TOTGARS' COOPERATIVE SALE SOCIETY
LIMITED
v.
INCOME TAX OFFICER, KARNATAKA
(Civil Appeal No. 1622 of 2010)
·
FEBRUARY 08, 2010
[S.H. KAPADIA AND AFTAB ALAM, JJ.]
Income Tax Act, 1961:
ss. 80P(2)(a)(i) and (iii) rlw ss.56.and 2(24)(i) - Deduction
in respect of income oi co-operative societies - 'Profit and
gains from business' - Co-operative Society providing credit
facilities to its members and marketing their agricultural
0 produce - Surplus funds invested by Society in short term
deposits - Interest earned thereon - HELD: Does not fall
within the meaning of expression 'profit and gains from
business' - Such interest income .cannot be said to be
. attributable to the activities of the Society - The words 'the
whole of the amount of profits and gains of business'
E attributable to one of the activities specified in s. 80)(2)(a)
emphasise that the income in respect of which deduction is
sought must constitute the operational income and not the
other income which accrues to the Society - Therefore, the
interest earned by the Society on short-term deposits of
F surplus cannot be said to be 'income from business', but is
'income from other sources' liable to tax u/s. 56 and not
entitled to deduction u/s BOP(2)(a).
ss.148 and 151 - Issue of notice where income has
G escaped assessment - Sanction for - HELD: Tribunal being
the final fact finding authority under the Act, having recorded
a finding of fact that approval/sanction for re-opening of
assessment in terms of s.148 rlw s.151 existed even prior to
31.5.2001, though written communication of sanction was
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496
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v.
497
INCOME TAX OFFICER, KARNATAKA
received by Assessing Officer on 8.6.2001, there is no reason
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to interfere with the said finding given by Tribunal.
ss.56 and 57- 'Income from other sources' - Deductions
towards cost of funds and proportionate administrative and
other expenses, in respect of income by way of interest on
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deposits held with Scheduled Banks, bonds and other
securities - HELD: The question involves applicability of ss.
56 and 57, but as it remained unanswered by authorities
below, the question is remitted to High Court for consideration
in accordance with law.
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The assessee, a co-operative society, engaged in the
business of providing credit facilities to its members and
marketing their agricultural produce, invested the surplus
funds in short-term deposits with the Banks and in
Government securities, and earned interest thereon. The
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assessee showed the said interest income under the
Head "Income from business" but the Assessing Officer
assessed it as "income from other sources" u/s 56 and
held that the assessee would not be entitled to deduction
uls 80 P(2)(a) of the Income Tax Act.
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In the instant appeal filed by the assessee, the
question for consideration before the Court was: Whether
the interest income earned by the assessee-Society on
surplus funds invested in short-term deposits would
·qualify for deduction as business income u/s 80P(2)(a) of
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the Income Tax Act, 1961?
Dismissing the appeals, the Court
HELD: 1.1. An income which is attributable to any of G
the activities specified in s.80 P(2) of the Income Tax Act,
1961 would be eligible for deduction. In the instant case,
the interest held not ·eligible for deduction u/s 80P(2)(a)
is not the interest received from the busin.ess of the
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498
SUPREME COURT REPORTS
[2010) 2 S.C.R.
A Society, namely, providing credit facilities to its members
or marketing their agricultural produce. What is sought
to be taxed u/s 56 of the Act is the interest income arising
on the sur.plus, which surplus was not required !tor business
purposes, and was invested in specified securities as
B 'investment'. Assessee{s) markets the produce of its
members whose sale proceeds at times were retained by
it. Since the fund created by such retenti<i>n was not
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required immediately for business purposes, it was
invested in specifted securities. Such inter.est income
c would come in the category of "Income from other
sources" and, therefore, would be taxable u/s 56 of the
Act, as rightly held by the Assessing Office
1r. [Para_,, 10]
[507-E; 506-G-H; 507-A-C]
1.2. The word "income" has been defined u/s 2{24){i)
D of the Act to include profits and gains. This
1sub-section
is an inclusive provision. The Parliament has included
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