The importance of a speaking and detailed order by the Assessing Officer, considering the arguments raised by the petitioner and relevant case law, in assessing the classification of interest income.

JUDGMENT

(Prayer: PETITION filed under Article 226 of The Constitution of India praying for the issuance of Writ of Certiorari, calling for the entire records relating to the impugned order passed by the respondent in No. Nil, dated 17.12.2019 and quash the same.)

1. Mr. A.P. Srinivas, learned Senior Standing Counsel accepts notice for the respondent.

2. By consent expressed by both learned counsel, the Writ Petition is finally disposed even at the stage of admission.

3. Since the issue arising out of impugned assessment dated 17.12.2019 for AY 2012-13 in terms of the Income Tax Act, 1961 ('Act') has been considered and decided by me in a batch of writ petitions filed by several Primary Agricultural Co-operative Societies, in K.2058, Saravanmpatti Primary Agricultural Co-operative Credit Society Ltd. vs. The Income Tax Officer (W.P. No. 17 of 2020 etc. batch dated 31.01.2020) and both learned counsel concur on the position that the aforesaid order is directly applicable to the present case, the said order is applied in the present case as well. Relevant portions of the order in the aforesaid batch of Writ Petitions are extracted below:

"3. The petitioners responded to the queries raised by the Officer. One of the issues that arose for consideration was the eligibility to exemption claimed on the interest income received by the petitioner from deposits/investment of funds in banks. Such income, according to the Officer, was ineligible for deduction under Section 80P, since it did not form part of the operational income of the petitioner/assessee and was liable to be taxed in terms of Section 56 of the I.T. Act. The Officer relied on the judgment of the Supreme Court in the case of Totgars' Cooperative Sale Society Limited vs. ITO, Karnataka, 322 ITR 283.

4. The petitioners were put to notice of the proposal to bring to tax the interest receipts under the head 'other sources'. The petitioners sought to distinguish the judgment in the case of Totgars (supra) on the grounds that Totgars was a Society engaged in sales, whereas, the petitioner was a Primary Agricultural Cooperative Credit Society. That apart, the funds that were deposited giving rise to the interest income did not constitute a surplus, but a mandatory statutory reserve.

5. Reliance was placed on a judgment of the Supreme Court in Commissioner of Income Tax, Jalandhar vs. Nawanshahar Central Cooperative Bank Limited, (2007) 15 SCC 611 wherein the Bench has observed that the deposit effected was in the nature of a statutory reserve. According to the petitioners, such statutory reserve would not fall within the ambit of ‘surplus funds’ and the judgment in the case of Totgars (supra) was inapplicable to their cases.

6. In addition, the petitioner also stated that the total amount invested, Rs.15,51,18,027/- in the case of K.2058 Saravanampatti Primary Agricultural Cooperative Credit Society Limited, petitioner in W.P.No.17 of 2020, (whose facts are taken to be illustrative of the facts in other Writ Petitions as well on the basis of the submissions of both learned counsel to the effect that the facts and legalities in all writ petitions are similar excepting for the figures involved), comprised significantly of external borrowings. In this case, a sum of Rs.12,57,23,490/- had been borrowed from the Coimbatore District Central Cooperative Bank. It is not elaborated as to why this borrowal was effected. Perhaps, it was the mandate of the statutory reserve that compelled the petitioner to effect the borrowing to maintain such reserve.

7. It was also the contention of the petitioners before the Assessing Officer that if at all interest earned was to be brought to tax, then, alternatively, interest paid on the loan should be deducted from interest received or in other words, there should be a netting of the interest paid and received and only the resultant figure be brought to tax.

8. The Assessing Authority however rejected the submissions cursorily stating in a single line that ‘sta