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Income Tax Appellate Tribunal, JAIPUR BENCHES ‘B’ JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1178/JP/2019
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ‘B’ JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1178/JP/2019 fu/kZkj.k o"kZ@Assessment Year : 2016-17 cuke M/s Jaipur Zila Dugdh Utpadak DCIT, Vs. Sahakari Sangh Ltd., Jaipur Circle-06, Diary, Near Gandhi Nagar Jaipur Railway Station, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAAJ0767G vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No.1243/JP/2019 fu/kZkj.k o"kZ@Assessment Year : 2016-17 Cuke DCIT, M/s Jaipur Zila Dugdh Utpadak Vs. Circle-06, Sahakari Sangh Ltd., Jaipur Diary, Jaipur Near Gandhi Nagar Railway Station, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAAJ0767G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P. C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Shri B.K. Gupta (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 07/01/2020 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 04/03/2020 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. These are cross appeals filed by the assessee and the Revenue against the order of ld. CIT(A)-2, Jaipur dated 23.08.2019 wherein the respective grounds of appeal are as under:-
2 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur Grounds of assessee’s appeal:
“1. The Ld. CIT(A) has erred on facts and in law in holding that interest expenditure to the extent of Rs. 4,06,81,723/- is attributable to the interest income of Rs. 6,21,99,978/- earned on FDRs maintained with Jaipur Central Cooperative Bank Ltd., thereby disallowing deduction u/s 80P to this extent.
1.1 The Ld. CIT(A) has erred on facts and in law in not considering that investment in FDRs is made out of own funds and borrowed funds has been utilized for business purpose and therefore, no interest expenditure can be attributed for earning the interest income.”
Grounds of Revenue’s Appeal:
“1. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance made by the AO on account of payment made to ‘sparsh trust’ of Rs. 1,43,57,553/- registered u/s 12A of the IT Act 1961, treating the same as business expenditure in place of donation allowable u/s 80G of the IT Act 1961 despite the fact that the said receipt of donation was declared by the trust as donation income and corresponding expenditure was claimed as application of income.”
Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 2,15,18,255/- made by the AO on account of deduction claimed u/s 80P(2)(d) of the I.T Act, 1961 as the same was earned by way of investment made with the co-operative banks and not eligible for deduction u/s 80P(2)(d).”
3 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur 2. Firstly, we take up Ground No. 1 and 1.1 of the assessee’s appeal and the Ground No. 2 of the Revenue’s appeal. Briefly stated, the facts of the case are that during the year under consideration, the assessee received interest of Rs. 6,21,99,978/- on FDRs placed with Jaipur Central Cooperative Bank on which deduction u/s 80P was claimed. The Assessing officer referring to the decision of Hon’ble Supreme Court in case of Totgar’s Cooperative Sales Society Ltd. Vs. ITO held that if a society is regularly earning interest on funds (not required immediately for business purposes), such interest income is taxable u/s 56 under the head ‘Income from other sources’ and not eligible for deduction u/s 80P. Further the deduction u/s 80P(2)(d) is available on interest or dividend derived from its investment made in co-operative society and not available if interest is received from investment made in co- operative bank. Accordingly, the AO disallowed the claim of deduction u/s 80P at Rs.6,21,99,978/-.
On appeal, the Ld. CIT(A) held that Jaipur Central Cooperative Bank is a cooperative society. The assessee is also a cooperative society. Thus, deduction u/s 80P(2)(d) is admissible to the assessee in respect of income by way of interest or dividend derived by the assessee (cooperative society) from its investment with any other cooperative society (Jaipur Central Cooperative Bank). However, she held that the total interest income of the assessee is Rs.19,15,39,159/- against which total interest expenditure is Rs.12,52,75,656/-. Therefore, the interest expenditure attributable to the interest income of Rs.6,21,99,978/- from JCCB would be Rs.4,06,81,723/- (Rs.12,52,75,656*Rs.6,21,99,978/ Rs.19,15,39,159). Thus, the net interest income from JCCB would be Rs.2,15,18,255/- (Rs.6,21,99,978-
4 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur Rs.4,06,81,723). Accordingly, the AO was directed to allow deduction of Rs.2,15,18,255/- u/s 80P(2)(d) as against Rs 6,21,99,978/- claimed by the assessee. Against the said findings of the ld CIT(A), both the parties are in appeal before us.
During the course of hearing, the ld. AR submitted that similar disallowance was made by AO in AY 2011-12 & 2012-13 which was deleted by ITAT vide its order dt. 02.09.2019 in ITA No.512 & 633/JP/19 and 513 & 634/JP/19, and in AY 2014-15 which was deleted by ITAT vide its order dt. 30.09.2019 in ITA No.22/JP/19. Thus, it is a covered issue and therefore, the appeal of assessee be allowed by dismissing the appeal of department.
On merit, it was further submitted by the ld AR that during the year, the assessee has received interest income on FDR’s amounting to Rs.6,21,99,978/- from Jaipur Central Co-operative Bank Ltd. It is a bank registered under ‘The Rajasthan Co-operative Society Act, 2001.’ Thus, interest income claimed as deduction u/s 80P of the Act is available to the assessee as the Jaipur Central Co-operative Bank Ltd. is a co- operative society. The Ld. CIT(A) has therefore, rightly held that deduction u/s 80P(2)(d) is available to the assessee in respect of interest received from another cooperative society. Reliance in this connection is placed on the decision of ITAT, Jaipur Bench in case of ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill (ITA No. 418 & 419/JP/2017 order dated 31.01.2018). In this case, assessee is a co- operative sugar mill. It claimed deduction u/s 80P(2) & 80P(2)(d) in respect of interest of Rs.2,65,43,870/- on fixed deposits with co- operative banks. AO disallowed the deduction holding that assessee is
5 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur not carrying out banking business nor the income is derived from providing any credit facilities to its members. The Ld. CIT(A) allowed claim of deduction u/s 80P in respect of entire amount. The Ld. D/R submitted that assessee has earned income on account of interest on FDR with co-operative bank and not on the amount deposited with other co-operative societies and therefore, deduction u/s 80P(2)(d) is not available. It was held that the only condition for availing deduction u/s 80P(2)(d) is that income is by way of interest or dividend derived by co-operative society from its investment with any other co-operative society. Co-operative bank is to be treated as co-operative society for the purpose of interest income on investment in such co-operative bank. Hence, assessee is eligible for deduction u/s 80P(2)(d) in respect of the interest income from investment made with the co-operative bank. In view of above, ground of the department be dismissed.
It was further submitted that the Ld. CIT(A) after holding that assessee is entitled to deduction u/s 80P(2)(d) in respect of interest received on FDR made with JCCB observed that assessee has incurred total interest expenditure of Rs.12,52,75,656/- and therefore, interest expenditure attributable to the interest income of Rs.6,21,99,978/- from JCCB would be Rs.4,06,81,723/- and thus, disallowed the claim u/s 80P(2)(d) to that extent.
In this regard, it was submitted that assessee has not incurred any interest expenditure in earning the interest income on FDR with Jaipur Central Co-operative Bank. This is because assessee has interest free funds by way of share capital and accumulated profit of
6 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur Rs.156,18,31,694/- as on 31.03.2016 against which investment in FDR with JCCB is Rs.74.23 cr. as per the following details:- Share Capital Rs.36,91,64,569/- Accumulated Profit Rs.83,35,19,157/- Profit for the year Rs.35,91,47,968/- -------------------- Rs.156,18,31,694/- ------------------- Thus, interest free fund is much more than the investment in FDR with JCCB. It is a settled law that if both interest free funds and interest bearing funds are available, then presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments. The Hon’ble Supreme Court in case of CIT Vs. Reliance Industries Ltd. (2019) 175 DTR 1 has held “Tribunal having found that the interest free funds available to the assessee were sufficient to meet its investment, it could be presumed that funds were given to subsidiaries out of interest free funds and therefore, interest referable to funds given to subsidiaries is allowable as deduction under sec. 36(1)(iii)”. Hence, the observation of Ld. CIT(A) that assessee has incurred interest expenditure of Rs.4,06,81,723/- to earn the interest income of Rs.6,21,99,978/- from JCCB in incorrect.
It may be noted that the position of interest expenditure incurred and interest income earned are reflected in the profit & loss account are as under:- Interest Income - Interest on FDR 17,33,56,089/ - - Interest on Others 1,81,83,070/- Total interest income 19,15,39,159/- 19,15,39,159/- Interest Expenditure
7 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur - Interest on OD 5,53,54,110/- - Interest on DCS 2,83,95,324/- - Interest on TL 4,93,322/- - Interest on WC 4,10,22,900/- Total interest 12,52,75,656/- 12,52,75,656/- expenditure Net interest income 6,62,63,503/- Less: Interest received 6,21,99,978/- on FDR with JCCB Net interest income 40,63,525/- other than interest from JCCB
From the above table it can be noted that even if interest from JCCB is excluded, the net interest income declared by the assessee is Rs.40,63,525/-. Thus, when expenditure on interest is lower than the interest income earned on FDRs, no part of interest expenditure can be attributed to the earning of interest income.
It was further submitted that otherwise also, interest expenditure is incurred on the loan taken for working capital and fixed assets. The investment in these assets are much more than the loan taken as evident from the following table:-
Loan Taken -Working Capital Loan 139,94,00,000/- -Over Draft 72,91,44,659/- -NDDB Loan 20,93,125/- -DCS 61,24,07,075/- Total Loan 274,30,44,859/- 274,30,44,859/- Investment in Stock and debtors -Sundry Debtors 122,01,11,586/- -Stock in trade 197,93,97,019/-
8 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur Total investment in stock 319,95,08,605/- 319,95,08,605/- and debtors
Thus, the entire borrowed funds are utilised for the purpose for which it is taken and therefore, no part of interest expenditure can be attributed to earning of the interest income.
In view of above, AO be directed to allow deduction u/s 80P(2)(d) as claimed by the assessee.
Per contra, the ld. DR relied on the findings of the lower authorities. Further reliance was placed on the Hon’ble Rajasthan High Court’s decision in case of CIT vs. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd.[1996] 84 Taxman 33 (Rajasthan) and decision of Hon’ble Karnataka High Court in case of Pr. CIT, Hubballi vs. Totagars Co- operative Sale Society [2017] 83 taxmann.com 140 (Karnataka).
We have heard the rival contentions and perused the material available on record. The Co-ordinate Bench in assessee’s own case in ITA No. 512, 633, 513 & 634/JP/2019 for A.Y 2011-12 & 2012-13 vide its order dated 02.09.2019 has held as under:-
“12. We have heard the rival contentions and perused the material available on record. The issue under consideration is whether the interest income on FDRs placed by the assessee cooperative society with Jaipur Central Cooperative Bank Ltd is eligible for deduction u/s 80P(2)(d) of the Act which reads as under:
9 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur “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 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 :— (a) ………….. (b) ………….. (c) ………….. (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income.”
The aforesaid provisions have been examined at length by this Bench in case of ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill (Supra) and the relevant findings are reproduced as under:
“6.1 As regards the claim u/s 80P(2)(d), we find that the only condition for availing the deduction under this provision is any income by way of interest or dividend derived by the Cooperative Society from its investment with any other cooperative society, the whole of such income is allowable for deduction u/s 80P(1). Therefore, there is no condition for the assessee society to engaged in the activity of provide credits to the Members or banking business for availing the deduction u/s 80P(2)(d) read with section 80P(1) of the Act. As regards the cooperative bank shall be treated as cooperative societies for the purpose of the interest income on investment in such cooperative bank
10 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur u/s 80P(2)(d) the Mumbai Bench of this Tribunal in case of Lands End Co-operative Housing Society Ltd. Vs. ITO(supra), after considering the decision of the Hon’ble Supreme Court in case of Totagar’s Co-operative Sale Society Ltd. Vs. ITO (supra) has considered and decided this issue in para 8.3 as under:- “8.3 We have heard the rival submissions and perused the material on record. We find that the CIT(A) enhanced the income of the assessee by rejecting the deduction u/s 80P(2)(d) of the Act of Rs.14,88,107/- being interest on investment with other Coop. banks by following the decision in the case of Sandra Samruddihi Co-operative Housing Society Ltd. (Supra) which was passed on the basis of the decision passed by the Hon'ble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd. In the case of Totagar's Co- operative Sale Society Ltd v/s ITAT (supra) the Hon'ble Supreme Court while interpreting the section 80P(2)(a)(0 of the Act held that surplus funds not immediately required in the business and invested in the short term deposit would be assessable under the head 'income from other sources" where the Co- operative society is engaged in carrying on business of banking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Whereas in the case before us the issue is whether a co- operative society which has derived income on investment with cooperative banks is entitled to deduction u/s 80P(2)(d). The provisions of Section 80P(2)(d) of the Act provide deduction in respect of income by way of interest or dividend on investments made with other Cooperative society. For the purposes of better proper understanding of these two provisions the relevant extract of the section are reproduced below:
80P: Deduction in respect of income of co-operative Societies.
11 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur 1. Where, in the case of an assesssee 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 of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
The sums referred to in sub-section (1) shall be the following, namely:-
(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.
The whole of the amount of profits and gains of business attributable to any one or more of much attributes.
(d) In respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income."
From the close perusal of the provisions of u/s 80P(2)(a)(i) and 80P(2)(d) it is clear that the former deals with deduction in respect of profits and gain of business in case of the co-operative society carrying on business of banking or providing credit facilities to its members if the said income is assessable as income from business whereas latter provides for deduction in respect of income by way interest and dividend derived by assessee from its investments with other cooperative society. Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(d)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business whereas for claiming u/s 80P(2)(d) it must have income of interest and dividend on investments with other Co-operative society may or may not be engaged in the banking for providing credit facilities
12 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur to its members and the head under which the income is assessable is not material for the claim of deduction under this section. Now will evaluate the assessee's case in the light of the decision of the Hon'ble Supreme court. The Honble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd.(Supra) held that a society has surplus funds which are invested in short term deposits where the society is engaged in the business of banking or providing credit faculties to its members in that case the said income from short term deposits shall be treated and assessed as income from other sources and deduction u/s 80(P)(2)(a)(0 would not be available meaning thereby that deduction u/s 80(P)(2)(a)(0 is available only in respect of income which is assessable as business income and not as income from other sources. Whereas in distinction to this , the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a coop society by way of interest or dividend from its investments with other coop. society if such income is included in the gross total income of the such coop society. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/-in respect of interest received/derived by it on deposits with coop. banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directly accordingly.”
6.2 We further note that the Hon’ble Jurisdictional High Court in the case of CIT vs. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (supra) by following the decision of Hon’ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. Vs. ACIT, 72 taxmann.com 169 has held in as under:-
“8. We have considered the decisions cited by learned advocate for the assessee as well as the revenue. We feel that the decisions cited by the learned advocate for the assessee shall be applicable on the facts of the
13 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur present case. In the case of K. Nandakumar v. ITO [1993] 204 ITR 856/[1994] 72 Taxman 223 (Ker.), the Kerala High Court has held as under:
'4. The effect of Section 80AB is that, for the purpose of computing the deduction under Section 80L, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature. What the section means is that the net income by way of interest computed in the manner provided by the provisions of the Act shall alone be taken into account for computing the benefit. But it must be noted that payment of interest under a loan transaction incurred for the purpose of deriving income from business is not an item which arises in the computation of interest income "in accordance with the provisions" of the Act. The said amount has to be paid irrespective of whether any interest income is otherwise received or not. Though the interest is payable to the same bank, the fact remains that the amount of income by-way of interest is not calculated under the provisions of the Act with reference to such outgoings which fall under different heads. The assessee is entitled to deduction under Section 37 of all expenditure incurred for the purpose of deriving the business income, and it is under that head that the interest paid on the loan taken from the bank is deducted. The net amount of interest contemplated by Section 80AB should take in the net amount arrived at after meeting the expenses deductible from that item under the provisions of the Act as explained above. That is not the case here. Therefore, Section 80AB has no application to the facts of these cases. The interest paid on the loan transactions has to be deducted from the business income,
14 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur and not from the interest received from the bank on the fixed deposits. The assessees were therefore right in the submissions which they made before the Commissioner of Income-tax in the revision petitions which they filed. This aspect of the matter has been overlooked by the Commissioner in passing the order, exhibit P-5.'
8.1 Similarly, in the case of Doaba Co-operative Sugar Mills Ltd (supra), the Punjab & Haryana High Court has held as under:
'5. The contention of Mr. Gupta, learned counsel appearing for the Revenue, is that the Tribunal was wrong in allowing deduction under Section 80P(2) (d) of the Act because it is not established that the assessee had derived the interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar Central Co-operative Bank and has also received interest from the said co- operative bank, thereby showing that the assessee has on the aggregate paid interest to the bank and, therefore, no deduction under Section 80P(2)(d) can be allowed. To appreciate this argument, we have to look to the provisions of Section 80P(2)(d) of the Act, For facility of reference, it is reproduced as under :
"80P. (2)(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income."
So far as the principle of interpretation applicable to a taxing statute is concerned, we can do no better than to quote the by-now
15 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur classic words of Rowlatt J., in Cape Brandy Syndicate v. IRC [1921] 1 KB 64, 71 :
"...In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used,"
The principle laid down by Rowlatt J., has also been time and again approved and applied by the Supreme Court in different cases including the one, Hansraj Gordhandas v. H. H. Dave, Assistant Collector of Central Excise and Customs, AIR 1970 SC 755, 759.
Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends derived by the co-operative society from its investment with any other co-operative society. This provision does not make any distinction in regard to source of the investment because this Section envisages deduction in respect of any income derived by the co-operative society from any investment with a co-operative society. It is immaterial whether any interest paid to the co- operative society exceeds the interest received from the bank on investments. The Revenue is not required to look to the nature of the investment whether it was from its surplus funds or otherwise. The Act does not speak of any adjustment as sought to be made out by learned counsel for the Revenue. The provision does not indicate any such adjustment in regard to interest derived from the co-operative society from its investment in any other co- operative society. Therefore, we do not agree with the argument
16 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur advanced by learned counsel for the Revenue. In our opinion, the learned Tribunal was right in law in allowing deduction under Section 80P(2)(d) of the Income- tax Act, 1961. in respect of interest of RS. 4,00,919 on account of interest received from Nawanshaln Central Co-operative Bank without adjusting the interest paid to the hank. Therefore, the reference is answered against the Revenue in the affirmative and in favour of the assessee.'
8.2 Moreover, the Bombay High Court in the case of Bai Bhuriben Lallubhai (supra) has held that the purpose for which the assessee borrowed money had no connection whether direct or indirect with the income which she earned from the fixed deposit and that she was not entitled to the deduction claimed under Section 12(2). The High Court held that if an assessee had no option except to incur an expenditure in order to make the earning of an income possible, then undoubtedly the exercise of that option is compulsory and any expenditure incurred by reason of the exercise of that option would come within the ambit of section 12(2) of the Indian Income-Tax Act but where the option has no connection with the carrying on of the business or the earning of the income and the option depends upon personal considerations or upon motives of the assessee, that expenditure cannot possibly come within the ambit of Section 12(2). In the present case, the loan was taken for business purpose more particularly purchase of yarn and not for fixed deposits.
In view of the above, the questions raised in the present appeals are answered in favour of the assessee and against the revenue.
17 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur The order passed by the Tribunal is accordingly quashed and set aside.”
Further the Hon’ble Karnataka High Court in case of PCIT and Another vs. Totagars Co-operative Sale Society 392 ITR 0074 as relied upon by the Ld. AR of the assessee as held in para 7 to 11 as under:-
“7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co- operative Bank should be considered as a Co-operative Society or not? For, if a Co-operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Co- operative Bank would necessarily be deductable under Section 80P(1) of the Act.
The issue whether a Co-operative Bank is considered to be a Co- operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co- operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co-operative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co- operative Society Bank is merely a variety of the Co-operative Societies. Thus the Co-operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society".
Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as
18 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur the meaning of Co-Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co-operative Society'.
Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co- operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.
The learned counsel has relied on the case of Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.”
6.4 Thus, the Hon’ble High Court has held that the Co-operative Bank is considered to a cooperative society for the purpose of section 80P(2)(d). Accordingly, in view of the decisions as cited (supra), we do not find any error or illegality in the orders of the ld. CIT(A) to the extent of the allowing the claim of the assessee u/s 80P(2)(d) in respect of interest income from deposits/FDRs with the Co-operative Banks.”
19 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur 14. Therefore, in light of the aforesaid decision, in the instant case, for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as a co-operative society. Therefore, interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) of the Act.
Now, coming to a related issue as to whether by virtue of provisions of Section 80P(4) of the Act, the claim of the assessee under section 80(P)(2)(d) can be denied to the assessee society. The relevant provisions of section 80P(4) reads as under: “(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.”
The Coordinate Bench in case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs Income-tax Officer-21(2)(1), Mumbai [2018] 94 Taxmann.com 15 had an occasion to examine similar contention and it was held that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a co- operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.
20 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur We see no reason to deviate from the same and agree with the aforesaid view taken by the Co-ordinate Bench and. The relevant findings of the Co-ordinate Bench read as under: “6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought to adjudicate as to whether the claim of the assessee for deduction under section 80P(2)(d), in respect of interest income earned from the investments made with the co-operative banks is in order or not. We find that the issue involved in the present appeal hinges around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P, as had been made available on the statute by the legislature vide the Finance Act 2006, with effect from 01.04.2007. We find that the lower authorities had taken a view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) of the interest income earned on the amounts parked as investments with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. We find that the lower authorities had observed that as the co-operative bank with which the surplus funds of the assessee were parked as investments, were neither Primary Agricultural Credit Society nor a Primary Co- operative Agricultural and Rural Development Bank, therefore, the interest income earned on such investments would not be entitled for claim of deduction under Sec. 80P(2)(d) of the Act.
21 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur 7. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further, we may herein reproduce the relevant extract of the said statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2)(d) (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 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 :— (a) to (c)** ** ** (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;"
Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co-operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other
22 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of the interest income on their investments parked with a co-operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co- operative society from its investments made with any other co- operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under Sec. 2(19) of the Act, as under:— '(19) "Co-operative society" means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;'
We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, as a co-operative bank continues to be a co- operative society registered under the Co-operative Societies Act,
23 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.
We shall now advert to the judicial pronouncements that had been relied upon by the authorized representatives for both the parties and the lower authorities. We find that the issue that a co- operative society would be entitled for claim of deduction under Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. (supra)
(ii) Sea Green Cooperative Housing and Society Ltd. (supra)
(iii) Marwanjee Cama Park Cooperative Housing Society Ltd. (supra). We further find that the Hon'ble High Court of Karnataka in the case of Totagars Cooperative Sale Society(supra) and Hon'ble High Court of Gujarat in the case of State Bank Of India (supra), had also held that the interest income earned by the assessee on its investments held with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the co- operative banks which are functioning at par with other banks
24 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the CIT (A) on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra) being distinguishable on facts, thus, had wrongly been relied upon by him. The adjudication by the Hon'ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments parked with a co-operative bank. We further find that the reliance place by the ld. D.R on the order of the ITAT "F" bench, Mumbai in the case of Vaibhav Cooperative Credit Society (supra) is also distinguishable on facts. We find that the said order was passed by the Tribunal in context of adjudication of the entitlement of the assessee co-operative bank towards claim of deduction under Sec.80P(2)(a)(i) of the Act. We find that it was in the backdrop of the aforesaid facts that the Tribunal after carrying out a conjoint reading of Sec. 80P(2)(a)(i) r.w. Sec. 80P(4) had adjudicated the issue before them. We are afraid that the reliance placed by the ld. D.R on the aforesaid order of the Tribunal being distinguishable on facts, thus, would be of no assistance for adjudication of the issue before us. Still further, the reliance placed by the Ld. D.R on the order of the ITAT 'SMC' Bench, Mumbai in the case of Shri Sai Datta Co-operative Credit Society Ltd. (supra), would also not be of any assistance, for the reason that in the said matter the Tribunal had set aside the issue to the file of the assessing officer for fresh examination. That as regards the reliance placed by the ld. D.R on the judgment of the
25 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur Hon'ble High Court of Karnataka in the case of Totagars co- operative Sale Society (supra), the High Court had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). We however find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian v. Siemens India Ltd. [1983] 15 Taxman 594/[1985] 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Totagars Cooperative Sale Society(supra) and Hon'ble High Court of Gujarat in the case of State Bank Of India (supra), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to be in agreement with the view taken by the lower authorities that the assessee would not be entitled for claim of deduction under Sec. 80P(2)(d), in respect of the interest income on the investments made with the co- operative bank. We thus set aside the order of the lower authorities and conclude that the interest income of Rs. 27,48,553/-earned by the assessee on the investments held with
26 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur the co-operative bank would be entitled for claim of deduction under Sec. 80P(2)(d).
In light of above, by virtue of provisions of Section 80P(4) of the Act, the claim of the assessee under section 80(P)(2)(d) cannot be denied to the assessee society.
Another issue that arise for consideration is whether deduction u/s 80P(2)(d) shall be allowed on the gross interest income on FDRs or it should be allowed on the net interest income calculated after deducting the interest expenditure allocable to funds placed in form of FDR. Though the assessee has challenged the findings of the ld CIT(A) to the effect that it has not incurred any interest expenditure, we find that there is no necessity to examine the same as conceptually, the deduction under section 80P(2)(d) has to be allowed on gross and not on net interest income as held by the Hon’ble Gujarat High Court in case of Surat Vankar Sahakari Sangh Ltd vs ACIT [2016] 72 Taxmann.com 169 (Guj) wherein it was held as under: “3. In all the four appeals, the common issue is grant of net deduction u/s 80P(2)(d) of the Act, in respect of interest and dividend received by the assessee from co-operative societies i.e. bank in this case. The Assessing Officer allowed deduction u/s 80P(2)(d) to the extent of net interest instead of gross interest as claimed by the assessee and disallowed the excess claim of deduction in this regard for all the years under consideration. The amount disallowed by the Assessing Officer and deduction granted by the Assessing Officer is tabularized and recorded as under:
27 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur
Particular Assessment Years 1991-92 1992-93 1993-94 1994-95 Dividend - From co- op 9743 48000 3491 42674 societies Interest (As shown in the 1022699 1214259 1220756 902765 return of income) Deduction u/s 80P(2)(d) of 1027719 1045298 1223026 943736 the Act as per return Disallowed by Assessing 477863 640219 641273 76116 Officer Deduction granted u/s 80P(2)(d) of the Act by 549856 405079 581753 867618 Assessing Officer
We have considered the decisions cited by learned advocate for the assessee as well as the revenue. We feel that the decisions cited by the learned advocate for the assessee shall be applicable on the facts of the present case. In the case of K. Nandakumar v. ITO [1993] 204 ITR 856/[1994] 72 Taxman 223 (Ker.), the Kerala High Court has held as under: '4. The effect of Section 80AB is that, for the purpose of computing the deduction under Section 80L, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature. What the section means is that the net income by way of interest computed in the manner provided by the provisions of the Act shall alone be taken into account for computing the benefit. But it must be noted that payment of interest under a loan transaction incurred for the purpose of deriving income from business is not an item which arises in the computation of interest income "in accordance with the provisions" of the Act. The said amount has to be paid
28 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur irrespective of whether any interest income is otherwise received or not. Though the interest is payable to the same bank, the fact remains that the amount of income by-way of interest is not calculated under the provisions of the Act with reference to such outgoings which fall under different heads. The assessee is entitled to deduction under Section 37 of all expenditure incurred for the purpose of deriving the business income, and it is under that head that the interest paid on the loan taken from the bank is deducted. The net amount of interest contemplated by Section 80AB should take in the net amount arrived at after meeting the expenses deductible from that item under the provisions of the Act as explained above. That is not the case here. Therefore, Section 80AB has no application to the facts of these cases. The interest paid on the loan transactions has to be deducted from the business income, and not from the interest received from the bank on the fixed deposits. The assessees were therefore right in the submissions which they made before the Commissioner of Income-tax in the revision petitions which they filed. This aspect of the matter has been overlooked by the Commissioner in passing the order, exhibit P-5.' 8.1 Similarly, in the case of Doaba Co-operative Sugar Mills Ltd (supra), the Punjab & Haryana High Court has held as under: '5. The contention of Mr. Gupta, learned counsel appearing for the Revenue, is that the Tribunal was wrong in allowing deduction under Section 80P(2) (d) of the Act because it is not established that the assessee had derived the interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar
29 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur Central Co-operative Bank and has also received interest from the said co- operative bank, thereby showing that the assessee has on the aggregate paid interest to the bank and, therefore, no deduction under Section 80P(2)(d) can be allowed. To appreciate this argument, we have to look to the provisions of Section 80P(2)(d) of the Act, For facility of reference, it is reproduced as under : "80P. (2)(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income." 6. So far as the principle of interpretation applicable to a taxing statute is concerned, we can do no better than to quote the by- now classic words of Rowlatt J., in Cape Brandy Syndicate v. IRC [1921] 1 KB 64, 71 : "...In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used," 7. The principle laid down by Rowlatt J., has also been time and again approved and applied by the Supreme Court in different cases including the one, Hansraj Gordhandas v. H. H. Dave, Assistant Collector of Central Excise and Customs, AIR 1970 SC 755, 759. 8. Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends derived by the co- operative society from its investment with any other co-operative society. This provision does not make any distinction in regard to
30 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur source of the investment because this Section envisages deduction in respect of any income derived by the co-operative society from any investment with a co-operative society. It is immaterial whether any interest paid to the co- operative society exceeds the interest received from the bank on investments. The Revenue is not required to look to the nature of the investment whether it was from its surplus funds or otherwise. The Act does not speak of any adjustment as sought to be made out by learned counsel for the Revenue. The provision does not indicate any such adjustment in regard to interest derived from the co- operative society from its investment in any other co-operative society. Therefore, we do not agree with the argument advanced by learned counsel for the Revenue. In our opinion, the learned Tribunal was right in law in allowing deduction under Section 80P(2)(d) of the Income- tax Act, 1961. in respect of interest of RS. 4,00,919 on account of interest received from Nawanshaln Central Co-operative Bank without adjusting the interest paid to the hank. Therefore, the reference is answered against the Revenue in the affirmative and in favour of the assessee.' 8.2 Moreover, the Bombay High Court in the case of Bai Bhuriben Lallubhai (supra) has held that the purpose for which the assessee borrowed money had no connection whether direct or indirect with the income which she earned from the fixed deposit and that she was not entitled to the deduction claimed under Section 12(2). The High Court held that if an assessee had no option except to incur an expenditure in order to make the earning of an income possible, then undoubtedly the exercise of that option is compulsory and any expenditure incurred by reason
31 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur of the exercise of that option would come within the ambit of section 12(2) of the Indian Income-Tax Act but where the option has no connection with the carrying on of the business or the earning of the income and the option depends upon personal considerations or upon motives of the assessee, that expenditure cannot possibly come within the ambit of Section 12(2). In the present case, the loan was taken for business purpose more particularly purchase of yarn and not for fixed deposits. 9. In view of the above, the questions raised in the present appeals are answered in favour of the assessee and against the revenue. The order passed by the Tribunal is accordingly quashed and set aside.”
In light of above discussion and respectfully following the decisions referred supra, the assessee society is held eligible for deduction under section 80P(2)(d) in case of interest income of Rs 1,49,40,834 on FDRs placed with Jaipur Central Cooperative Bank Ltd.”
The aforesaid decision has since been followed by the Coordinate Bench in assessee’s own case for AY 2014-15. Following the Coordinate Bench decision in assessee’s own case for earlier years and considering the principle of consistency, we see no reason to deviate from the earlier decision and accordingly, for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as a co- operative society. Therefore, interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) of the Act and such claim cannot be denied by virtue of provisions of Section 80P(4) of the Act.
32 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur 13. However, in the aforesaid decision, on the related issue of whether deduction u/s 80P(2)(d) should be allowed on gross interest income on FDR on or net interest income calculating after deducting the interest expenditure, the Coordinate Bench has relied on the Hon’ble Gujarat High Court decision in case of Surat Vankar Sahakari Sangh Ltd vs ACIT (supra) and the decision of the Hon’ble Rajsthan High Court in case of Rajasthan Rajya Sahkari Upbhokta Sangh Ltd (supra) which has been brought to our notice by the ld. CIT DR was not considered and being the decision of the Jurisdictional High Court, the same is binding on the Tribunal and therefore, to this extent the decision rendered by the Co-ordinate Bench for earlier years stand distinguishable. In the case of Rajasthan Rajya Sahkari Upbhokta Sangh Ltd (supra), the Hon’ble Rajasthan High Court has held as under:- “3. We have considered the arguments of the learned counsel for the revenue. The provisions of section 80P contemplate the deduction of income of co-operative societies. It is provided under sub-section (1) that 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 of that section, the sums specified in sub-section (2) in computing the total income of the assessee. Sub-section (2)(d) refers to the sum in respect of income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income. So far as determining the eligibility for exemption is concerned, it is not in dispute that the expenses pertain to income which is taxable and non-taxable. A composite account has been maintained by the assessee and a
33 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur separate account with regard to expenditure and income on both types of income has not been maintained. It was in these circumstances that the ITO has determined the total income after apportioning the expenses to both sources of income. The words 'total income' have been defined under section 2(45) of the Act which means the total amount of income referred to in section 5 of the Act, computed in the manner laid down in the Act. Sub- section (1) of section 80P allows the deduction from the gross total income. An assessee may have income from different sources and that income so computed would form the total income. As per section 80B(5) the gross total income means the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. When an assessee has income from different sources, the total income from each of such sources has to be computed in accordance with the provisions of the Act and the expenditure incurred for receiving such income has to be taken into consideration. The assessee has maintained a composite account of the expenses incurred for earning the taxable as well as exempted income and, therefore, bifurcation made in respect of expenditure cannot be considered to be unjustified. This matter was considered in detail in the case of Kota Co-operative Marketing Society Ltd. v. CIT [1994] 207 ITR 608 (Raj.), wherein it has been held that if a co-operative society is carrying on business and earning income, part of which is exempted and part of which is not exempted, the profits and gains attributable to the exempted activity has to be arrived at on the basis of the books of account maintained by the assessee. If separate books or separate
34 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur accounts of expenditure have been maintained for the exempted and non-exempted activities, there is no problem. If separate books of account have not been maintained and expenses have been incurred jointly for earning both the incomes then such expenses relatable to earn the non-exempted activities must be estimated. The income exempted under section 80P(2) has to be arrived at separately in order to determine the income under section 80P(2) and it can never be envisaged that the total income which has been so received could be allowed without deducting the expenditure incurred in earning the income. The use of the words 'the whole of the amount of profits and gains of business attributable to any one or more of such activities' appearing at the end of sub-section (2) of section 80P could be only for such income which is attributable to the activities which are exempted. In order to ascertain the real profit, the expenses incurred in earning the said income has to be deducted. In the present case, the Tribunal has found that allowing the deduction for commission at 50 per cent of the receipts is justified. The Tribunal has relied upon the decision in the case of Cloth Traders (P.) Ltd. v. Addl CIT [1979] 118 ITR 243 (SC), which was overruled by the Apex Court in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120. Following the decision of this Court in the case of CIT v. Loonkar Tools (P.) Ltd. [1995] 213 ITR 721, DBITR Application No. 1 of 1987, decided at Jodhpur on 21-7-1994, we are of the view that the Tribunal was not justified in holding that the assessee is entitled to deduction under section 80P(2)(d) of the entire interest and not the net receipts. We are also of the opinion that the Tribunal
35 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur was not justified in granting the exemption of Rs. 2,49,948 to the assessee.”
The legal proposition thus laid down by the Hon’ble High Court is that the income exempted under section 80P(2) has to be arrived at separately in order to determine the income under section 80P(2) and it can never be envisaged that the total income which has been so received could be allowed without deducting the expenditure incurred in earning the income. In light of the same, the deduction u/s 80P(2)(d) can be allowed only on the net receipt after deducting the expenditure incurred for earning exempt income. Therefore, in the instant case, it needs to be determined whether the assessee has incurred any interest expenditure in earning the interest income.
In this regard, the ld CIT(A) has allocated the whole of the interest expenditure over the interest on FDRs and to the extent of interest attributable to FDRs placed with JCCB, the same has been reduced while working out the net interest income eligible for deduction u/s 80P(2)(d) of the Act. Per contra, the contention of the ld AR is that the assessee has not incurred any interest expenditure in earning such interest income and its interest free funds are much more than the investment in FDRs placed with JCCB and further, a presumption would arise where both interest free funds and interest bearing funds are available, then the investment has been made out of interest free funds. It was accordingly submitted that since interest free funds were used for placing the FDRs with JCCB, no part of interest expenditure can be attributed to earning of such interest income. In our view, what is relevant to determine is at the relevant point in time, when the FDRs were placed with JCCB, what is the position of availability of funds and
36 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur whether at that time, interest free surplus funds were available which were deployed in form of FDRs. However, there is nothing on record to this effect. There is no dispute on the legal proposition that where interest free funds are more than the interest bearing funds, a presumption will arise that investment has been made out of interest free funds. However, such a presumption has to be tested at the point in time when the investment was made and not at the beginning or at the end of the year. In the instant case, merely stating that the assessee has interest free funds by way of share capital and accumulated profits at the yearend will not help the case of the assessee as the same reflect the position subsequent to deployment of funds in FDRs which were placed sometime during the year and not at the end of the year. Further, whether such interest free funds at the yearend are liquid funds or are represented by fixed assets and other currents. In case, there are no liquid funds and all the funds are deployed in fixed and current assets, then the said theory of interest free funds doesn’t support the case of the assessee. Though the ld AR has submitted some figures, however, we find that the matter require further information and verification and in absence of findings of the lower authorities, for the limited purposes of verification of the aforesaid contention, the matter is set-aside to the file of the ld CIT(A) to examine the same afresh. In the result, the respective grounds of appeal are disposed off.
Now coming to the Ground No. 1 of the Revenue’s appeal wherein the Revenue has challenged the action of ld CIT(A) in deletion of disallowance made by the AO of payment made by the assessee to Sparsh Trust and claimed as an business expenditure. In this regard,
37 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur both the parties fairly submitted that the matter is squarely covered by the decision of Hon’ble Rajasthan High Court in assessee’s own case for the earlier years.
In this regard, we refer to the decision of the Hon’ble Rajasthan High Court dated 11.09.2017 wherein in D.B Appeal No. 122/2006, the question of law admitted by the Hon’ble Rajasthan High Court reads as under:- “Whether in the facts and circumstances of the case the ITAT was justified in law in deleting the additions made by the Assessing Officer by way of disallowance of Rs. 11407817/- paid as contribution to ‘sparsh trust’ registered u/s 12AA of the income tax act, 1961 treating the same is business expenditure in place of donation allowable u/s 80G of the I.T. Act, 1961 despite the fact that the said receipt of donation was declared by the trust as donation income and corresponding expenditure was claimed as application in income.”
The Hon’ble High Court referred to the decision passed by the Tribunal in Para 6 which is reproduced as under:- “6. Counsel for the respondent drew over attention to the observations made by the Tribunal which reads as under:- “7. After considering the submissions, orders of the authorities below, we find that assessee deserves to succeed in its ground raised. It is noticed that before creating SPARSH, the assessee was doing all these expenditure itself. Just for betterment of administrative services, the assessee created the Trust through whom
38 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur these expenses are incurred. The Profit & Loss account of the Trust is maintained, copy of which is placed in the compilation and it is seen that whatever the amount has been given by assessee or reimbursed by assessee that has been spent by the Trust on the animals to get better quality and quantity of milk. The assessee had contributed @ Rs. 0.05 paise per liter of milk procured to its Trust for the purpose of incurring expenditure for better quality of milk. An agenda note was prepared which clearly states that the purpose of contribution is for medical and health facility of the animals of the milk producers at the District Level. The contribution made by assessee to trust is thus directly linked with the procurement of better quality, hygienic and more quantity of the milk. It is in the interest of the assessee that the milk animals at the village level from where it procures the milk are healthy & for this purpose, SPARSH trust incurred expenditure in providing vaternity care, regular treatment, emergency care, preventive care, breed improvement through A.I. uninterrupted supply of nutritional supplements etc. Therefore, in our considered view, contribution made by assessee to this trust is an expenditure incurred wholly and exclusively for the purpose of business which is allowable under section 37(1). From the Income and Expenditure account of the Trust, it can be noted that it has incurred an expenditure of Rs. 80,35,447/- in pursuance of its objective and after considering the receipts, there is a deficit of Rs. 23,48,303/- to the trust in the year under consideration. Such deficit is met out of the
39 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur contribution made by the assessee to the trust. It is further seen that before creating this Trust, the assessee was incurring all these expenses itself and all theses expenses were allowed by the department while completing assessment under section 143(3). Therefore, this is not a case that assessee has made any donation to any Trust and, therefore, the same cannot be allowed as business expenditure. The ld. CIT (A) has disallowed the claim of the assessee by observing that since assessee has made donation under section 80G and, therefore, deduction under section 80G is allowable whereas the facts are otherwise. The assessee has not made any donation but has contributed to the trust for a specific purpose i.e. to incur the expenditure to get better milk from milk animal. Various case laws relied upon by assessee are in support of the case of the (16 of 27) [ITA-234/2012] assessee. We are not going into detail in respect to those cases as they have already been mentioned in the written submissions which are reproduced herein above. In view of these facts and circumstances, we hold that the expenditure/contribution made by assessee is allowable as business expenditure. Accordingly, the addition made and confirmed by the lower authorities is deleted. 12. After considering the orders of the AO and ld. CIT (A) and written submissions, we find that the assessee deserves to succeed in this ground also. It is seen that expenditure claimed under the head Vikas Yojna Fund is not any contribution but actual expenditure incurred for
40 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur registering the members and the societies at the village level for which certain incentive/subsidy is given to ensure the regular procurement of milk from these persons/societies. It is further seen that for the purpose of over-all development of the dairy in the State assessee has received grant for revival of the societies from the Apex Society i.e. Rajasthan Co-operative Dairy Federation Limited at Rs. 22,91,920/- which has been offered for taxation by the assessee. The expenditure of Rs. 3 lacs or odd has been incurred for the same purpose i.e. for registering the members and the societies at village level so that regular supply of milk from these persons/societies can be maintained. In view of these facts and circumstances, we are of the view that the AO and ld. CIT (A) were not justified in not allowing the claim of the assessee. On one hand assessee is taxing the grant received by assessee and on the other hand the expenditure incurred for the same purpose is not allowed, which is not justified. In view of the above facts and circumstances, we delete this addition also.” And thereafter, decided the matter in favour of the assessee and the relevant findings of the Hon’ble High Court are contained at para 8 to 10 which read as under:-
“8. Taking into consideration that the Tribunal has observed that the expenses actually given in donation to the trust was to be with the requirement of trust for the benefit and betterment of quality of milk to meet the health of the animals, it was so held by the Tribunal which has been observed above in Para 7 and 12.
41 ITA No. 1178 & 1243/JP/2019_ Ms Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., vs. DCIT, Jaipur 9. In that view of the matter, in our considered opinion, the Tribunal has rightly considered the argument raised by counsel for the appellant and decision cited by him were dealt with. 10. In view of above, the issue in answered in favour of assessee against the department.”
In light of the above respectively following the decision of Rajasthan High Court, the matter is decided in favour of the assessee and against the Revenue and the Ground No. 1 taken by the Revenue is dismissed.
In the result, both the appeal of the assessee and the Revenue are disposed off with above directions. Order pronounced in the open Court on 04/03/2020. Sd/- Sd/- ¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 04/03/2020 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., Jaipur 2. izR;FkhZ@The Respondent- DCIT, Circle-06, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 1178 & 1243/JP/2019)
vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत