Interest Income of a Credit Society and Deductibility U/S. 80p

Issue for Consideration

Section 80P of the Income-tax Act grants a deduction to an assessee, being a co-operative society, in respect of such sums that, inter-alia, includes the whole of the amount of profits and gains of business attributable to any one or more of such activities which are listed in clauses (i) to (vii) of clause (a) of sub-section (2). One of the sub-clauses grants a deduction for a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members.

The Courts, in the past, have time and again examined the true meaning of the term ‘attributable’, and have found the same to be of wider import in contrast to the term ‘derived from’. Based on such interpretation, the courts have been inclined to include income from activities incidental to the main business or activity of the assessee, and have held that such incidental income too was eligible for deduction, inasmuch as such income was profits and gains attributable to the business.

In the recent past, the Supreme Court, in the case of Totgars Co-operative Sale Society Ltd., 322 ITR 283 held that income from interest on deposits with the bank, earned by a credit society, was to be taxed u/s.56 of the Income-tax Act.

The above mentioned decision in Totgars Co-operative Sale Society’s case has become a subject matter of controversy leading to conflicting decisions of the High Courts, whereunder, the Gujarat High Court followed the said decision, but the Karnataka High Court chose to distinguish the same on facts, and the Andhra Pradesh High Court held the said decision to be applicable only to Totgars Co-operative Sale Society Limited. In fact, the ratio of the said decision and its applicability has also become debatable.

Tumkur Merchants Souharda Credit Cooperative Ltd.’s case

The issue arose in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer, 55 taxmann.com 447 (Karnataka). The assessee, a Cooperative Society registered under the provisions of section 7 of the Karnataka Co-operative Societies Act, 1959, was engaged in the activity of carrying on the business of providing credit facilities to its members. It filed the return of income for the assessment year 2009-10, declaring a total income of Rs. NIL, after claiming a deduction of Rs.42,02,079/- under the provisions of section 80P of the Act in respect of its business income, which, inter alia, included interest from short term deposits and savings bank accounts aggregating to Rs. 1,77,305.

The assessing authority denied the deduction claimed u/s. 80P and passed an order of assessment, determining a total income of Rs.42,02,079/-, as against the declared income of Rs.NIL. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals) who held that assessee’s interest income earned from short-term deposits with Allahabad Bank of Rs. 1,55,300/- and savings bank account with Axis Bank of Rs.22,005/-, totalling to Rs. 1,77,305/- was liable to income tax, in view of the judgment of the Apex Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO, 322 ITR 283(SC).

Aggrieved by that part of the order, the assessee preferred an appeal to the Tribunal, which dismissed the appeal, following the judgment of the Apex Court in the aforesaid case. Aggrieved by the said order, the assessee filed the appeal challenging the order passed by the Tribunal raising the following substantial question of law: ‘”Whether the Tribunal failed in law to appreciate that the interest earned on short-term deposits were only investments in the course of activity of providing credit facilities to members and that the same cannot be considered as investment made for the purpose of earning interest income and consequently passed a perverse order?”

The assessee, assailing the impugned order, contended before the Karnataka High Court, that the interest accrued in a sum of Rs. 1,77,305/- was from the deposits made by the assessee in a nationalised bank out of the amounts which was used by the assessee for providing credit facilities to its members, and therefore the said interest amount was attributable to the credit facilities provided by the assessee, and formed part of profits and gains of business. It therefore submitted that the appellate authorities were not justified in denying the said benefit in terms of sub-section (2) of section 80P of the Act. In support of the contention that the interest income was eligible for deduction u/s. 80P, it relied on several judgments, and pointed out that the Apex Court in the aforesaid judgment had not laid down any law. In reply, the Revenue strongly relied on the said judgment of the Supreme Court in Totgars Co-operative Sale Society Ltd. (supra), and submitted that the case before the court was covered by the judgment of the Apex Court and no case for interference was called for.

The Karnataka High Court, on hearing the facts and the rival contentions, noted the undisputed facts emerging that the assessee was a co-operative society providing credit facilities to its members, was not carrying on any other business and that the interest income earned by the assessee by providing credit facilities to its members was deposited in the banks for a short duration, which had earned interest in the sum of Rs. 1,77,305/- . 

Analysing the provisions of section 80P, the court found that the word ‘attributable’ used in the said section was of great importance. It took note of the fact that the Apex Court had considered the meaning of the word ‘attributable’ as opposed to ‘derived from’ in the case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT ,113 ITR 84. The court found from the above decision that the word “attributable to” was certainly wider in import than the expression “derived from”, and whenever the legislature wanted to give a restricted meaning, they had used the expression “derived from”. The expression, “attributable to”, being of wider import, was used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. 

The court observed that a cooperative society, which was carrying on the business of providing credit facilities to its members, earned profits and gains of business by providing credit facilities to its members; the interest income so derived and the capital, if not immediately required to be lent to the members, could not be kept idle, and the interest income earned on depositing such balance in hand was to be treated as attributable to the profits and gains of the business of providing credit facilities to its members only; the society was not carrying on any separate business for earning such interest income; the income so derived was 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 was liable to be deducted from the gross total income u/s. 80P of the Act.

The court further observed that the Apex Court in the case of Totgars Co-operative Sale Society Ltd.(supra), on which reliance was placed, 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 and the sale consideration received from marketing agricultural produce of its members was retained in many cases, and 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 could not be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or u/s. 80P(2)(a)(iii) of the Act; in the facts of the said case, the Apex Court held that the assessing officer was right in taxing the interest income u/s. 56 of the Act after making it clear that they were confining the said judgment to the facts of that case. It was clear to the Karnataka high court that the Supreme Court in Totgars Co-operative Sale Society Ltd.(supra) was not laying down any law.

In the instant case, the court noted that 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 the accounts and that the amount which was 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 court accordingly held that the said interest income was attributable to carrying on the business of banking and was liable to be deducted in terms of section 80P(1) of the Act. The court cited with approval the decision of the Andhra Pradesh High Court in the case of CIT vs. Andhra Pradesh State co-operative Bank Ltd.,200 Taxman 220.               

State Bank Of India (SBI)’s case

The issue again arose in the case of State Bank of India vs. CIT , 74 taxmann.com 64 before the Gujarat high court. The assessee, a co-operative society, namely State Bank of India Employees Co-op Credit and Supply Society Ltd. was registered under the Gujarat Co-operative Societies Act, 1961 with the object of accepting deposits from salaried persons of the State Bank of India, Gujarat region, with a view to encourage thrift and providing credit facility to them. It had launched various deposit schemes such as Term Deposit, Recurring Deposit, Aid to Your Family Scheme, Members Retiring Benefit Fund etc., and at the same time, was advancing loans to the members, such as consumer goods loan, car-vehicle loan, food grain loan and general purposes loan, etc. It had filed its return of income for assessment year 2009-10 and 2010-11, declaring total income at Rs. Nil, after claiming deduction u/s. 80P of the Income-tax Act, 1961 of Rs.29,69,444/- and Rs.43,64,828/-.respectively.

The matter was taken up in scrutiny by the Assessing Officer who called for various details, including justification regarding claim of deduction u/s. 80P of the Act vide notice u/s. 142(1). The society submitted its replies, narrating the nature of activities carried out by it, and details of claim of deduction u/s. 80P with copy of bye-laws, and the Assessing Officer framed assessment u/s. 143(3) of the Act accepting the claim.

Subsequently, the Commissioner of Income Tax invoked powers u/s. 263 of the Act, proposing to revise the above order on the ground that interest income of Rs.16,14,579/- for assessment year 2009-10 and of Rs.32,83,410/- from the State Bank of India for assessment year 2010-11 was not exempt u/s. 80P(2)(d) of the Act. In response, the assessee contended that the interest income was business income, and was exempt u/s. 80P(2)(a)(i) of the Act. The Commissioner of Income Tax did not find the explanation satisfactory, on the ground that interest income was not business income, so as to be exempt u/s. 80P(2)(a)(i) of the Act. Hence, the assessment order was held to be erroneous and prejudicial to the revenue.

Being aggrieved, the appellant carried the matter in appeal before the Income Tax Appellate Tribunal, which held that interest income earned from members on grant of credit did not have nexus with the interest earned on deposits made with SBI, and could not be said to be the one arising from business of providing credit facility to its members, by drawing support from the decision of the Supreme Court in Totgars Co-operative Sales Society Ltd. vs. ITO 322 ITR 283(SC) .

The assessee being aggrieved, raised substantial questions of law in appeal for consideration of the Gujarat High Court, which included ;

‘(1)     Whether on the facts and in the circumstances of the case, ………… ?

(2)      Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that interest income of Rs……………. on deposits placed with State Bank of India was not exempt under section 80P(2)(a)(i) of the Income Tax Act, 1961?

On behalf of the society, it was submitted that the assessee was a co-operative society formed by the employees of the State Bank of India, Gujarat Circle, under the Gujarat Co-operative Societies Act, 1961 in the category of Employees’ Co-operative Credit Society for the purpose of encouragement of savings and providing credit facilities to the members of the Society; it was not engaged in any other activity except giving credit facilities to its members, who were employees of State Bank of India, and that the income generated by the assessee was mainly on account of differential rate of amount of deposits received from the members and the amount of loans given to the members; the income generated was only from the contributions received from the members and it did not deal in any way with any person other than the members; the employer deducted the contribution from the salary of the employees and the collective contribution received was remitted to the assessee society, generally on the first of every month, while the loans were given to the employees on a fixed day of the month (around 15^th of the month) and not every day, and during the intervening period, the idle money collected by the assessee was deposited with the State Bank of India for the purpose of earning interest; as and when the amount was required, the deposits with the State Bank of India are liquidated and utilised for the purposes of the assessee.

In the above stated facts, it was pleaded that the deposit of amount with State Bank of India was during the course of business and was part of the activities of the assessee society and could not be seen in isolation. It was submitted that the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Limited (supra) would not be applicable to the facts of the present case, inasmuch as to apply the said decision, the necessary facts had to be on record, and that there was no strait-jacket formula that the above decision would be applicable. Reliance was placed upon the decision of the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO, 55 taxmann.com 447, wherein the court had held that the word “attributable to” was certainly wider in import than the expression “derived from” and whenever the legislature used the expression ‘attributable ‘ they intended to gather receipts from sources other than the actual conduct of business. Reliance was also placed upon the decision of the Karnataka High Court in the case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO, 377 ITR 464 wherein the above view has been reiterated. Reliance was also placed upon the decision of the Patna High Court in the case of Bihar State Housing Co operative Federation Ltd. vs. CIT, 315 ITR 286 wherein the court was dealing with the question as to whether on the facts and in the circumstances of that case, the Tribunal was correct in holding that the sum of Rs.15,98,590/- received by way of interest on bank deposit was not ancillary and incidental to carrying on the business of providing credit facilities to its members and as such, exempt u/s. 80P(2)(a)(i) of the Income-tax Act, 1961. It was submitted that the above decisions would be squarely applicable to the facts of the present case, as the factual background in which the said decisions were rendered were similar to the present case.

It was contended that insofar as the interest earned from deposits was concerned, section 80P(2)(a)(i) did not make any difference nor was it possible to read any limitation having regard to the language of the said provision and every income “attributable to any one or more of such activities” should be deducted from the gross total income. It was highlighted that one had to bear in mind the object with which the provision was introduced, viz. to encourage and promote growth of co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. Reference was made to bye-law 7 of the Bye-laws of the appellant society to point out that the interest income was a part of the corpus of the society, and when the corpus was invested, the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) would not be applicable. It was submitted that the interest income was incidental to the main activity of the appellant of providing credit facility and that in the above decision of the Supreme Court, the word ‘incidental’ had not come up for consideration. In conclusion, it was submitted that the appeals deserved to be allowed by answering the questions in favour of the assessee and against the revenue.

Opposing the appeals, it was contended by the Revenue that it was only the interest received from members towards credit facilities extended to them that would fall within the ambit of the expression profits and gains of business attributable to the activities of the appellant; interest from bank on surplus did not have any direct or proximate connection with the activities of the society , and hence, it would not be entitled to the benefit of section 80P(2) of the Act in respect of such income.

It was submitted that in case of a credit co-operative society, it was the income derived from such activity that was exempt. Adverting to the facts of the present case, it was submitted that the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) was squarely applicable. It was submitted that section 80P of the Act was based upon the concept of mutuality, and accordingly exempted any income derived by the society from its members. As the interest earned from the funds deposited with the banks lacked the degree of proximity between the appellant and its members, it could not be categorised as an activity in the pursuit of its objectives, so as to fall within the ambit of section 80P(2)(a)(i) of the Act.

Reference was made to the decision of the Karnataka High Court in the case of Totgars Co-operative Sale Society Ltd. (supra), to point out the nature of the dispute involved in that case. It was submitted that, in that case, the court was concerned with two activities of the assessee society: (i) to provide credit facility to its members, and (ii) to market the agricultural produce of its members. It was submitted that the findings recorded by the Supreme Court were also in connection with the two activities and, therefore, to say that the Supreme Court was only concerned with the surplus of marketing produce was not correct. It was submitted that the observation regarding the judgment being confined to the facts of that case was because the assessee was not in the banking business, and all the earlier decisions in this regard were relating to banking business. It was submitted that the decision of the Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) was based upon an incorrect reading of the above decision of the Supreme Court.

The Gujarat High Court, on hearing the parties to the appeal, noted that the short question that arose for consideration in these appeals was as to whether the appellant was entitled to claim deduction u/s. 80P(2)(a)(i) of the Act in respect of the interest earned on the deposits placed with the State Bank of India. For the purpose of appreciating the controversy in issue, it extensively referred to the records of the case and appreciated the contesting views of the parties before the lower authorities. The court also examined the ratio of the decision of the Supreme Court in Totgars Co-operative Sale Society Ltd. (supra), and supplied emphasis where felt necessary.

Expressing its opinion, the court stated that in case of a society engaged in providing credit facilities to its members, income from investments made in banks did not fall in any of the categories mentioned u/s. 80P(2)(a) of the Act; in the case of Totgars Co-operative Sale Society (supra), the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities, and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Gujarat High Court opined that the above decision was not restricted only to the investments made out of the retained amount which was payable to its members, but was also in respect of funds not immediately required for business purposes. For the above reasons, the Gujarat High Court did not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) to the effect that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) was restricted to the sale consideration received from marketing agricultural produce of its members, which was retained in many cases and invested in short term deposit/security, and that the said decision was confined to the facts of the said case and did not lay down any law.

Relying on the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), the Gujarat High court held that in case of a society engaged in providing credit facilities to its members, income from investments made in banks did not fall within any of the categories mentioned in section 80P(2)(a) of the Act. In the end, the court did not find any infirmity in the order passed by the Tribunal warranting interference, and accordingly held that the Income Tax Appellate Tribunal was justified in holding that interest income of Rs.16,14,579/- and Rs.32,83,410/-respectively on deposits placed with State Bank of India was not exempt u/s. 80P(2)(a)(i) of the Income-tax Act, 1961.

Observations

An assessee, a co-operative society engaged in providing credit facilities to its members, is entitled to deduction for the whole of the amount of profits and gains of business attributable to such activity. As per section 80P(2), in the case of a co-operative society engaged in carrying on the business of providing credit facilities to its members, what is deductible is the whole of the amount of profits and gains of business attributable to any one or more such activities.

A co-operative society which is carrying on the business of providing credit facilities to its members, earns profits and gains from business by providing such facilities to its members. The interest income so earned from members, if not immediately required to be lent to the members, cannot be kept idle. On deposit of such income in a bank so as to earn interest, such interest income enhances the capital available for the credit to its members, besides reducing the cost of interest to members. Such interest so received from bank has the business nexus, in as much as the source thereof is the business income, and should be treated as attributable to the profits or gains of the business of providing credit facilities to its members only, more so where such deposit with the bank is for short period and further so where the bye-laws or the enactment require the society to employ funds. The income so derived is the profits or gains of business that is attributable to the activity of carrying on the business of providing credit facilities to its members by a co-operative society and should be eligible for being deducted from the gross total income u/s. 80P of the Act.

Money is stock-in-trade or circulating capital for a credit society and its normal business is to deal in money and credit. It cannot be said that the business of such a society consists only in receiving contribution from its members. Depositing money with banks or such other societies, as are mentioned in the objects, in a manner that it may be readily available to meet the demand of its members, if and when it arises, is a legitimate mode of carrying on of its business.

The interest received by a credit society on bank deposits, in any case, is ancillary and incidental to carrying on the business of providing credit facilities to its members, and as such, is deductible under the provisions of section 80P(2)(a)(i) of the Act. The nature of credit business, conducted out of the funds of the employees, clearly creates a situation where surplus funds are available, which are deposited in a bank, interest is earned thereon. The placement of such funds, being incidental and ancillary to carrying on business of providing credit facilities to its members, and  by reason of section 80P(2)(a)(i) of the Act, the same should be eligible for deduction. 

The business of a credit society essentially consists of dealing with money and credit. Members put their money in the society at a small rate of interest. In order to meet their demands, as and when they arise, the society has always to keep sufficient cash or easily realisable securities. That is a normal step in the carrying on of the business; in other words, that is an act done in what is truly the carrying on or carrying out of a business.

It is a normal mode of carrying on credit business to invest moneys in a manner that they are readily available and that is just as much a part of the mode of conducting a business as receiving contributions or lending moneys; that is how the circulating capital is employed and that is the normal course of business of a credit society. The moneys laid out in the form of deposits with the bank would not cease to be a part of the circulating capital of the credit society nor would the deposits cease to form part of its business. The returns flowing from the deposits would form part of its profits from its business. In a commercial sense, the managers of the society owe it to the society to make investments which earn them interest, instead of letting moneys lie idle. It cannot be said that the funds which were not lent to borrowers but were laid out in the form of deposits in another bank, to add to the profit instead of lying idle, necessarily ceased to be a part of the stock-in-trade of the society, or that the interest arising therefrom did not form part of its business profits. 

As regards the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra), the court, in the facts of that case, had observed that it was dealing with 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, 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. In the above facts, the Supreme Court held that therefore, to that extent, such interest income could not be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or u/s. 80P(2)(a)(iii) of the Act. In the facts of the said case, the Supreme Court held that the Assessing Officer was right in taxing the interest income u/s. 56 of the Act. The court further made it clear that it was confining the said judgment to the facts of the said case and, therefore, was not laying down any law.

The Supreme Court in that Totgars’ case has held that interest on such investments, could not fall within the meaning of the expression “profits and gains of business” and that such interest income could not be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court held that when the assessee society provides credit facilities to its members, it earns interest income and the interest which accrued on funds not immediately required by the assessee for its business purposes and which had been invested in specified securities as “investment” were ineligible for deduction u/s. 80P(2)(a)(i) of the Act.

It is true that the apex court, in the case of Totgars Co-operative Sale Society Ltd.(supra), dealt with a case where the assessee – co-operative society was also providing credit facilities to the members besides marketing of agricultural produce grown by its members. On the available facts, it appears that, in that case, the interest income from bank was received from the sale consideration received from marketing agricultural produce of its members, which was retained by the society in many cases before the same was finally handed over to the members. 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. Relying on such facts found by the Supreme Court, the Karnataka High Court sought to distinguish the said decision and held that it was not applicable to the facts of the case before it. Significantly, the Apex court itself qualified its decision by observing that the decision was confined to the facts of the said case . In the circumstances, it may be fair to not apply the ratio of the said decision to the facts of any other case, unless the facts therein are found to be identical, and are established  to have been considered by the Apex court.

It is most relevant to note that the Apex court in Totgars’ case had no occasion to consider the decisions delivered by the highest court regularly on the subject, holding that the interest income of a co-operative bank from its investments with banks or government securities was eligible for deduction u/s. 80P of the Act. We are of the opinion that had they been brought to the notice of the court, the decision could have been different. Another factor that requires that the application of the decision of the court shall be restricted to Totgars’ case only, is that the court, at no place, was required to consider whether the income in question could be considered to be attributable to profits and gains of business or not. The court was rather concerned about whether the income would be treated as “profits and gains of business” or from other sources. Again, had the court been persuaded to consider the language of section 80P and the meaning of the term “attributable”, we are sure the decision could have been different.

It is also true that this culling of the fact by the Karnataka High court, from the Supreme court’s decision in Totgar’s case, has been later on found to be not representing the full facts by the Gujarat high court by examining the order of the high court passed in Totgars’ case. While that may be the case, it is at the same time important to take into consideration the fact that the Andhra Pradesh High Court, like the Karnataka High Court, has also held that the interest income is attributable to carrying on the main business of banking, and therefore it was eligible for deduction u/s. 80P(1) of the Act. [Andhra Pradesh State Co-operative Bank Ltd.,200 Taxman 220]. The Andhra Pradesh High Court, while deciding the issue in favour of the assessee society, did consider the decision of the Apex court in Totgars’ case. In the circumstances, it may be that the Karnataka High Court erred in deciding the issue on hand by distinguishing the facts of its case with that of the facts in Totgar’s case. However the decision could not have been different once it was appreciated that the income in question was attributable to the profits and gains of business.

There appears to be merit in the conclusion of the Karnataka and Andhra Pradesh High Courts, which have based their decisions by following the ratio of the oft followed decision of the Apex court in Cambay’s case, dealing with the true meaning of the word ‘attributable’ used in chapter VI-A. The Apex Court had an occasion to consider the meaning of the word ‘attributable’ in the case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT 113 ITR 84 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 be 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. 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.’

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.

The Apex Court, in various decisions, has consistently held the view that interest income on investments made by the banks was attributable to the profits and gains of business and was eligible for deduction u/s. 80P of the Act. [Karnataka State Co-operative Apex Bank, 252 ITR 194 (SC), Mehsana District, Central Co-operative Bank Ltd., 251 ITR 522 (SC), Nawanshahar Central Co-operative Bank Ltd.289 ITR 6 (SC), Bombay State Co-operative Bank Ltd. 70 ITR 86 (SC) (para 16), Bangalore Distt. Co-op. Central Bank Ltd. 233 ITR 282 (SC), Ponni Sugars & Chemicals Ltd. 306 ITR 392 (SC), Ramanathapuram District Co-operative Central Bank Ltd. 255 ITR 423 (SC), Nawanshahar Central Co-operative Bank Ltd.,349 ITR 689 (SC)]. These decisions are an authority for the proposition that, even though the investment made does not form part of its main activity, stock in trade or working capital, still the interest income therefrom would qualify for exemption u/s. 80P of the Income-tax Act.

The Apex court in Nawanshahar Central Cooperative Bank Ltd.’s case (supra), observed as under. “this Court has consistently held that investments made by a banking concern are part of the business of banking. The income arising from such investments would, therefore, be attributable to the business of bank falling under the head “Profits and gains of business” and thus deductible under section 80-P(2)(a)( i) of the Income-tax Act, 1961. This has been so held in Bihar State Coop. Bank Ltd. 39 ITR 114 (SC). Karnataka State Coop. Apex Bank, 259 ITR 144 and Ramanathapuram Distt. Coop. Central Bank Ltd.255 ITR 423(SC).The principle in these cases would also cover a situation where a cooperative bank carrying on the business of banking is statutorily required to place a part of its funds in approved securities.”

Attention is also invited to clause (b) of sub-section 2 of section 80P, which clause while providing for deduction for certain primary societies provides for a deduction in respect of “the whole of the amount of profits and gains of such business” as against “the whole of the amount of profits and gains of business attributable to any one or more of such activities” covered by clause (a) of sub-section 2 of section 80P. A bare reading of the contrasting provisions clearly shows that scope of clause (a) is wider than clause (b), plainly on account of the insertion of the terms ‘attributable and activities’. These terms cannot be treated as redundant and should be given the appropriate meaning.