Holding

Interest earned on surplus funds invested by a cooperative society in short‑term deposits is not attributable to its eligible activities and therefore constitutes "income from other sources" under Section 56, making it ineligible for deduction under Section 80P(2)(a)(i).

Summary

The Totgars' Cooperative Sale Society Ltd., a cooperative credit society, invested surplus funds in short‑term bank deposits and government securities and earned interest. It claimed that this interest was business income eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer treated the interest as "income from other sources" under Section 56 and denied the deduction. The Society also challenged the validity of the reopening notice issued under Section 148, arguing that sanction was not obtained before the notice was served. The Supreme Court held that the interest income was not attributable to any of the activities specified in Section 80P(2) and therefore fell under Section 56, making it ineligible for deduction; it also upheld the Tribunal’s finding that sanction for reopening existed prior to the notice. Consequently, the Court dismissed the Society’s appeals and remitted a question on Section 57 to the High Court.

Issues considered

Whether interest earned on surplus funds invested in short‑term deposits qualifies as business income eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
Whether the notice issued under Section 148 for reopening assessment was valid in view of the timing of the sanction.
Whether deduction under Section 57 for cost of funds and proportionate expenses is applicable to the interest income (question remitted).

Legislation cited

Income Tax Act, 1961s. 148, s. 151, s. 2(24)(i), s. 28, s. 56, s. 57, s. 80P(2)(a)(i), s. 80P(2)(a)(iii)

Subjects

cooperative societyinterest incomeSection 80Pdeductionincome from other sourcesSection 56Section 148assessment reopeningtax law

Judgment

[2010] 2 S.C.R. 496

A MIS. THE TOTGARS' COOPERATIVE SALE SOCIETY
LIMITED
v.
INCOME TAX OFFICER, KARNATAKA
(Civil Appeal No. 1622 of 2010) ·
B FEBRUARY 08, 2010
[S.H. KAPADIA AND AFTAB ALAM, JJ.]

Income Tax Act, 1961:
c
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
produce - Surplus funds invested by Society in short term
0
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
H 496
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 497
INCOME TAX OFFICER, KARNATAKA

received by Assessing Officer on 8.6.2001, there is no reason A
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 8
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.
c
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 D
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. E

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 F
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
H
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 I
was not
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 r. [Para_,, 10]
1

[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 sub-section
is an inclusive provision. The Parliament has included
1

specifically "business profits" into the definition of the
word "income". Therefore, the Court is required to give
a precise meaning to the words "profits ar:td gains of
E business" mentioned in s.BOP (2) of the Act. I~ the instant
case, assessee-Society regularly invests funds not
immediately required for business purposes. Interest on
such investments, therefore, cannot fall within the
meaning of the expression "profits anti gains of
1

F business". [Para 1O] [507-E-G]

1.3. Further, assessee{s) markets the agricultural
produ,ce of its members. It retains the sale proceeds in
many cases. It is this "retained amount" !which was
G 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 liability-side. Therefore, to that ~xtent, such
H
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 499
INCOME TAX OFFICER, KARNATAKA

interest income cannot be said to be attributable either A
to the activity mentioned in s. 80P(2)(a)(i) or in
s.80P(2)(a)(iii) of the Act. Therefore, looking to the facts
and circumstances of the case, the Assessing Officer
was right in taxing the said interest income, u/s 56 of the
Act. [Para 1O] [508-8-E] B

1.4. To say that the source of income is not relevant
for deciding the applicability of s. SOP of the Act would
not be correct because weightage needs be given to the
words "the whole of the amount of profits and gains of
business" attributable to one of the activities specified in C
s.80P(2)(a) of the Act. The words "the whole of the amount
of profits and gains of business" 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. [Para 11] [509-C- D
E]

2. As regards validity of the notice !Jls148 of the Act
to re-open the assessment, it essentially concerns factual
aspect. The Tribunal is the final fact finding Authority E
under the Act. It ·has given a finding of fact that though
the written communication of the sanction, which has no
prescribed format, was received by the Assessing Officer
on 8th June, 2001 but, the approval/sanction for re-
opening of assessment in terms of s. 148 of the Act read F
with s.151 existed even prior to 31st May, 2001. There is
no reason to interfere with this finding of fact given by
the Tribunal. [Para 13] [510-F-G]

3. In the instant matter, the question "Whether, on the
facts and in the circumstances of the case, the Tribunal G
was right .in law in holding that the income by way of
interest on deposits held with scheduled banks, bonds
and other securities was chargeable to tax u/s 56 under
the head 'Income from other sources' without allowing
H
500 SUPREME COURT REPORTS [20101 2 S.C.R.

A. any deduction in respect of cost of funds and
proportionate administrative and other expenses u/s 57"?
advanced by the assessee(s) before the authdrities below
has remained un-answered. Since it involves
interpretation of ss. 56 and 57 of the Act and ~pplicability
B of the said sections to the facts of the instant case, the
question is remitted to the High Court for cctmsideration
in accordance with la\fi. [Para 14 and 15] [511-A-D]

CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1622 of 2010.
c
From the Judgment & Order dated 30.9.2008 of the High
Court of Karnataka Circuit Bench at Dharwad in ITA No. 1568
of 2005.

D WITH

C.A. Nos. 1623, 1624, 1625, 1625, 1626, 1627, 1628 and
1629 of 2010.

S. Ganesh, K.K. Chytanya, S. Sukumaran, Anand Sukmar
E and Meera Mathur for the Petitioner. 1

Parag P. Tripathi, ASG, Naresh Kaushik, Kurial Bahrai, Arti
Gupta, Mohd. Mannan and B.V. Balaram .Das for the
Respondent.
F The Judgment of the Court was delivered b!y

S.H. KAPADIA,J. 1. Heard learned counsel on both sides.
I

2. Leave granted.

G 3. Assessee(s) is a cooperative credit society. During the
relevant assessment years in question, it had surplus funds
which the assessee(s) invested in short-term deposits with the
Banks and in Government securities. On such investments,
interests accrued to the assessee(s). Assessee(s) provides
H credit facilities to its members and also markets the agricultural
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 501
INCOME TAX OFFICER, KARNATAKA [S.H. KAPADIA, J.]

produce of its members. The substantial question of law which A
arises in this batch of civil appeals is - Whether such interest
income would qualify for deduction as business income under
Section 80P(2)(a)(i) of the Income Tax Act, 1961?

4. According to the impugned judgement, which affirms the 8
decision of the Income Tax Appellate Tribunal ['Tribunal', for
short], such interest inc'ome would fall under the Head "Income
from other sources" under Section 56 and not under Section
28 of the Income Tax Act, 1961 ['Act', for short], and,
consequently, the assessee- Society would not be entitled to C
deduction under Section 80P(2)(a)(i) of the Act.

5. The bunch of civil appeals filed by the assessee-Society
concerns Assessment -Years 1991-1992 to 1999-2000
[excluding Assessment Year 1995-1996]; however, the lead
matter is civil appeal arising out of S. L. P. (C) No. 7572 of 2009 D
which relates to Assessment Year 1991- 1992.

6. The assessee-Society was assessed to tax as a
cooperative society. The assessee is the appellant in all eight
civil appeals. For all the above Assessment Years 1991-1992 E
to 1999-2000 [except Assessment· Year 1995- 1996],
assessee(s) filed its Returns disclosing income from business,
i.e., marketing of agricultural produce of its members and
providing credit facilities to them. Assessee(s) also filed its
Profits and Loss Accounts and its balance-sheets along with
F
its Returns. In respect of above-mentioned interest income,
assessee(s) claimed deduction under Section 80P(2)(a)(i) of
the Act. The assessment(s) for the afore-stated period stood
re-opened by issue of notice(s) under Section 148 of the Act.
In this case, we are only concerned with interest income on
short-term Bank deposits and securities. On the basis of the G
balance-sheets for the relevant assessment years, under
instructions from the Assessing Officer, assessee(s) submitted
a chart to the Assessing Officer giving break-up of assets and
liabilities. We re-produce hereinbelow the said chart [See
Annexure 'B' under the caption 'Liabilities']: H
_-,~' -

\ LIABILITIES CJ'1
0
N

Asstt. Capital Asami Ale+ Deposits, Other Total (3),(4) &
Year Reserve Fund + Purchasers Ale Loans, Interest Liabilities & (5) en
Other Funds + Payable Expenditure c
Profits
-u
.:::u
~

m
1 2 3 4 5 '·6 s:
m
1991-92 79,200,553.00 39,341,647.00 45, 772,398. 00 3,948,442.00 89, 176, 115.00 ()
0
c
1992-93 97,769,923.00 41,684,890.00 59;071,490.00 902,856.00 101,659, 132.00 :::u
-I
1993-94 116,354,655.00 37,674,924.00 68,927,247.00 2,893,519.00 109,494,694.00 :::u
m
-u
1994-95 133,817,620.00 42,882, 786.00 86,462, 118.00 1,440,446.00 142,886,414.00 0
:::u
158,289,580.00 -I
1995-96 156,948,290.00 46,898, 160.00 107,201,490.00 4, 189,923.00 en
1996-97 180,468,526.00 53,274,684.00 •I 125,289,995.00 3,568,644.00 182, 133,326.00
'i\3
0
1997-98 211,686;266.00 52,510, 175.00 142,529,130.00 46,694,814.00 241,734, 125.00 ~

0
.........
·-
1998-99 253,295,055.00 - ~66,074, 10TOO- 175,757,230.00 - ~-11. 342, 956-:66 259~1-74,281.00 -- -N
en
1999-00 269,520,510.00 124,571,325.00 209,202,203.00 25, 199,555.00 358,973,088.00 ()
:::u
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 503
INCOME TAX OFFICER, KARNATAKA [S.H. KAPADIA, J.]

7. The Assessing Officer held, on the facts and A
circumstances of these cases, that the interest income which
the assessee(s) had disclosed under the Head "Income from
business' was liable to be taxed under the Head "Income from
other sources". In this connection, the Assessing Officer held
that the assessee-Society had invested the surplus funds as, B
and by way of, investment by. an ordinary investor, hence,
interest on such investment has got to be taxed under the Head
"Income from other sources". Before the Assessing officer, it
was argued by the assessee(s) that it had invested the funds
on short-term basis as the funds were not required immediately C
for business purposes and, consequently, such act of
investment constituted a business activity by a prudent
businessman; therefore, such interest income was liable to be
taxed under Section 28 and not under Section 56 of the Act,
and, consequently, the assessee(s) was entitled to deduction
under Section 80P(2)(a)(i) of the Act. This argument was 0
rejected by the Assessing Officer as also by the Tribunal and
the High Court, hence, these civil appeals have been filed by
the assessee(s).

8. It was the case of the assessee(s) before us that the E
assessee(s) is a cooperative credit society. It's business is to
provide credit facilities to its members and to market the
agricultural produce of its members. According to the
assessee(s), it's activity constituted "eligible activity" under
Section 80P(2)(a)(i) of the Act, hence, it was entitled to the F
benefit of deduction from its gross total income. In this
connection, it was urged that, under Section 80P(2) of the Act,
the whole of the amount of "business profits" attributable to any
one of the enumerated activities is entitled to deduction.
Acc6rding to the assessee(s), one need not go by the source/ G
head of such interest .income because. no sooner interest
income accrued to the assessee(s) on above- mentioned
specified deposits/securities, it became business income
attributable to the activity carried on by the assessee(s) by

. I H
504 SUPREME COURT REPORTS (201 O] 2 S.C.R.
,.

A providing credit facilities to its members or marketing of
agricultural produce of its members and no sooner such interest
income falls under the head "business profits" attributable
I
to
one or more of such eligible activities, such interest income
became eligible for deduction under the said secr:tion. The
8 assessee(s) further contended, before us, that, under
1
Regulations 23 and 28 read with Sections 57 and 58 of the
Karnataka Cooperative Societies Act, 1959, a 1statutory
obligation was imposed on cooperative credit sqcieties to
invest its surplus funds in specified securities and, in view of
C such statutory obligation, the above-mentioned interest income
derived from short-term deposits and securities must be I

considered as income derived by the assessee(s) from its
business activities. In the alternative, it was submitted that, even
assuming for the sake of argument that such interest income
is held to be covered by Section 56 of the Act und~r the head
D "Income from other sources", even then the assessee-Society
was entitled to the benefit of Section 80P(2)(a)(i) of 1the Act. In
this connection, learned counsel for the assessee(s) submitted,
placing reliance on numerous judgements, that the source or
head of income was irrelevant for deciding the question as to
E whether a given item is eligible for deduction under Section
BOP of the Act. According to the assessee(s), orite interest
income accrues on specified investments, particularly when a
local enactment makes it statutorily incumbent on the society
to invest in specified investments, the interest 1income is
F automatically eligible for deduction irrespective of the source
or head under which such income would fall. In this connection,
learned counsel for the assessee(s) submitted that :one needs
to compare the language of Section 80P(2)(a)(i) and (iii) of the
Act with Explanation (baa) to Section 80HHC, th~ language
G used in Section 80HHD(3) and the words used 1in Section
80HHE(5) of the Act. In this connection, it was urged that there
is a wide ·contrast in the language between Section 80P(2)(a)
on one hand and the language used in Section 8(i)HHC read
with Explanation (baa), Section 80HHD(3) and Section
H
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 505
INCOME TAX OFFICER, KARNATAKA [S.H. KAPADIA, J.]

80HHE(5) as also the language used in Sections 72 and 32AB A
of the Act. According to the assessee(s), if one keeps this
contrast in mind, it is clear that the concept of head of income
or source of income will not apply to the provisions of Section
80P(2) of the Act because wherever Parliament intended to
emphasise the applicability of such concept, it has expressiy B
so stated in the relevant section. According to the assessee(s),
by way of illustration, under Explanation (baa) to Section
80HHC or under Section 80HHD(3) or under Section
80HHE(5), etc., the words used are, "'profits of the business'
means the profits of the business as computed under the head c
"Profits and gains of business". Therefore, according to the
assessee(s), when such words do not find place in Section
80P(2) of the Act, it is clear that the concept of source of
income or head of income is not inbuilt in Section 80P(2) of
the Act and, consequently, such a concept cannot be read into·
0
the said section. As stated above, according to the
assessee(s), no sooner surplus funds are invested in specified
securities, interest income from such investment is
automatically eligible for deduction under Section 80P(2)of the
Act.
E
9. In order to determine the issue involved in these civil
appeals, we need tg_ re-produce hereinbelow the relevant
provision of Section SOP of the Act, as it stood at the material
time. It reads thus:
F
"Deduction in respect of income of co- operative societies.

80P.(1) Where, in the case of an assessee being a co-
operative society, the gross total income includes any
income referred to in sub- section (2), there shall be
deducted, in accordance with and subject to the provisions G
of this section, the sums specified in sub-section (2), in
computing the total income of the assessee.

[2] The sums referred to in sub-section (1) shall be the
following, namely:-- H
· 506 SUPREME COURT REPORTS [2010] 2 S.C.R.

A [a] in the case of a co-operative society engaged in-

[i] carrying on the business of banking or providing
credit facilities to its members, or

[ii] · a cottage industry, or
B
[iii] the marketing of the agricultural produce of its
m~mbers, or

[iv] · the purchase of agricultural implements, seeds,
livestock or other articles intended for agriculture for
c the purpose of supplying them to its members, or
. . I - .

I
(v] the processing, without the aid of power, of the
' .. I ,
agricultural produce of its members, or

D (vi] the collective disposal of the labour of its members,
· or

[vii] fishing or allied activities, that is to say, the
catching, curing, processing, preserving, storing or
marketing offish or the purchase of materials and
E
equipment in connection therewith for the purpose
of supplying them to its members,

the whole of the amount of profits and gains of
business attributable to any one or more of·such
F activities."

. 10. At the outset, an important circumstance needs to be
highlighted. In the present case, the interest held not eligible
for deduction under Section 80P(2)(a)(i) of the Act is not the
_ G_ interest receive~ from the members for providing ~redit facilities
to them. What 1s sought to be taxed under Section 56 of the
Act is the interest income arising on the surplus invested in
short-term deposits and securities which surplus was ·not
required for business purposes. Assessee(s) markets the
produce of its members whose sale proceeds at times were
H
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 507
INCOME TAX OFFICER, KARNATAKA [S.H. KAPADIA, J.]

retained by it. In this case, we are concerned with the tax A
treatment of such amount. Since the fund created by such
retention was not required immediately for business purposes,
it was invested in specified securities. The question, before us,
is - whether interest on such deposits/securities, which strictly
speaking accrues to the members' account, could be ta,xed as B
business income under Section 28 of the Act? In our view, 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, as rightly held by the Assessing
Officer. In this connection, we may analyze Section SOP of the c
Act. This section comes in Chapter VI-A, which, in turn, deals
with "Deductions in respect of certain Incomes". The Headnote
to Section eop indicates that the said section deals with
deductions in respect of income of cooperative SoCieties.
Section 80P(1), inter alia, states that where the gross total D
income of a cooperative Society includes any income from one
or more specified activities, then such income shajl be
deducted from the gross total income in computing the total
taxable income of the assessee-Society. An income·, which is
attributable to any of the specified activities in Section 80P(2) E
of the Act, would be eligible for deduction. The word "income"
has been defined under Section 2(24)(i) of the Act to include
profits and gains. This sub-section is an inclusive provision. The
Parliament has included specifically "business profits" into the
definition of the word "income". Therefore, we are required to
give a precise meaning to the words "profits and gains of F
business" mentioned in Section 80P(2) of the Act. In the
present case; as stated above, assessee-Society regularly
invests funds not immediately required for business purposes.
Interest on such investments, therefore, cannot fall within the
meaning of the expression "profits and gains of business". Such G
interest income cannot be said also to be attributable to the
activities of the society, namely, carrying on the business of
providing credit facilities to its members or marketing of the
agricultural produce of its members. When the assessee-
H
508 SUPREME COURT REPORTS [2010] 2 S.C.R.

A Society provides credit facilities to its members, it earns
interest income. 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
B required immediately by the assessee(s)" for its bus1ness
purposes and which have been only invested in specified
securities as "investment". Further, as stated above,
assessee(s) markets the agricultural produce of its members.
It retains the sale proceeds in many cases. It is this "retained
c 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 liability-side. Therefore, to that extent, such
interest income cannot be said to be attributable either to the
0
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.
E
11. An alternative submission was advanced by the
assessee(s) stating that, if interest income in question is held
to be covered by Section 56 of the Act, even then, the
assessee-Society is entitled to the benefit of Section
F 80P(2)(a)(i) of the Act in respect of such interest income. We
find no merit in this submission. Section 80P(2)(a)(i) of the Act
cannot be placed at par with Explanation (baa) to Section
80HHC, Section 80HHD(3) and Section 80HHE(5) of the Act.
Each of the said sections has to be interpreted in the context
G of its subject-matter. For example, Section 80HHC of the Act,
at the relevant time, dealt with deduction in respect of profits
retained for export business. The scope of Section 80HHC is,
therefore, different from the scope of Section 80P of the Act,
which deals with deduction in respect of income of cooperative
H Societies. Even Explanation (baa) to Section 80HHC was

\
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 509
INCOME TAX OFFICER, KARNATAKA [S.H. KAPADIA, J.]

added to restrict the deduction in respect of profits retained for A
export business. The words used in Explanation (baa) to
Section 80HHC, therefore, cannot be compared with the words
used in Section SOP of the Act which grants deduction in
respect of "the whole of the amount of profits and gains of
business". A number of judgements were cited on behalf of the B
assessee(s) in support of its contention that the source was
irrelevant while construing the provisions of Section SOP of the
Act. We find no merit because all the judgements cited were
cases relating to Cooperative Banks and assessee-Society is
not carrying on Banking business. We are confining this c
judgement to the facts of the present case. To say that the
source of income is not relevant for deciding the applicability
of Section 80P of the Act would not be correct because we
need to give weightage to the words "the whole of the amount
of profits and gains of business" attributable to one of the 0
activities specified in Section 80P(2)(p) of the Act. An important
point needs to be mentioned. The words "the whole of the
amount of profits and gains of business" 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. In this particular case, the evidence shows that E
the assessee- Society earns interest on funds which are not
required for business purposes at the given point of time.
Therefore, on the facts and circumstances of this case, in our
view, such interest income falls in the category of "Other
Income" which has been rightly taxed by the Department under F
Section 56 of the Act.

12. Apart from the substantial question of law which we
have answered, assessee-Society has challenged the re-
opening of assessment under Section 148 of the Act. G

13. In this connection, it was urged on behalf of the
assessee(s) that, for the relevant assessment years in question,
the Assessing Officer was required to obtain prior approval of
the Joint Commissioner of Income Tax before issuance of
H
510 SUPREME COURT REPORTS [2010] 2 S.C.R.

A notice under Section 148 of the Act. According to the
----- -assesseeEs-)1 the proposal for re-opening was made on 31st
May, 2001, it was not sent through fax to the office of the
Additional Commissioner of Income rax, -Panaji, and the fax_
report indicates the time of 5.18 p:m., which establishes the fact
s that service of notice on 31st May, 2001, on the assessee(s)
was done prior to the sending of fax for approval. According
to the assessee(s), the approval was given by the Additional
Commissioner of Income Tax on 8th June, 2001. The notice
under Section 148 of the Act was served on 31st May, 2001,
c i.e., prior to the approval of the Additional Commissioner of
Income Tax. In the circumstances, it was urged that the notice
under Section 148 of the Act was invalid and consequential re-
assessment under Section 147 read with Section 144A of the
Act was bad in law. We find no _!TJerit in this argument. At the
outset, we may state that the point raised on validity of the
0
notice under Section 148 of the Act essentially concerns factual
aspect. The Tribunal is the final fact finding Authority under the
Income Tax Act. It has given a finding of fact that, though the
written communication of the sanction, which has no prescribed
format, was received by the Assessing Officer on 8th June,
1
E 2001, yet, it cannot be said that sanction was not accorded prior
to 31st May, 2001. The Tribunal has recorded a finding of fact
that there was a detailed correspondence between -the.
concerned officers prior to 31st May, 2001, in the context of
re-opening of assessment. It may also be mentioned that there
F is a vital difference between grant of sanction and
communication of such sanction. As stated by the Tribunal, no
particular form has been prescribed in the matter of grant of
sanction. For the afore-stated reason, the Tribunal came to the
conclusion that approval/sanction for re-opening of assessment
G in terms of s·ection 148 of the Act read with Section 151 existed
even prior to 31st May, 2001. We see no reason to interfere
with this finding of fact given by the Tribunal.

14. In this matter, one question advanced by the
H assessee(s) before the Authorities below has remained un-
TOTGARS' COOPERATIVE SALE SOCIETY LTD. v. 511
INCOME TAX OFFICER, KARNATAKA [S.H. KAPADIA, J.]

answered. That question is as follows: A

"Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law ln holding that the
income by way of interest on deposits held with scheduled
ba'Qks, bonds and other securities was chargeable to tax 8
under section 56 under the head ·Income from other
sources' without allowing any deduction in respect of cost
of funds and proportionate administrative and other
expenses under section 57?"

15. The above question requires \an answer. It in~ofves., C
interpretation of Section 56 and Sectiolr,i 57 of the Act. It also · •.
involves applicability of the said sections to the facts of the
present case. We, accordingly, remit the said question to the
High Court for consideration in accord,Bnce with law.
D
16. Subject to what is stated above, these civil appeals
filed by the assessee(s) are dismissed with no order as to
costs.

R.P. Appeals dismissed.