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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
ORDER PER R.S.SYAL, VP : This appeal by the assessee emanates from the order dated 28-03-2019 passed by the Pr. Commissioner of Income-tax-1, Aurangabad u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2014-15.
Succinctly, the facts of the case are that the assessee is a Credit co-operative society providing credit facility to its members. A return was filed declaring Nil income. Assessment u/s 143(3) of Sant Motiram Maharaj Sah. Pat Sanstha Ltd., the Act was completed determining total income at Rs.89,700/-.
The ld. Pr CIT observed from the records that the assessee society earned a sum of Rs.22,34,270/- as interest on investments made with co-operative banks and claimed deduction u/s.80P(2) of the Act on the same. It was opined that such deduction was not available in respect of interest received from investments made with co-operative banks. In addition, the ld. Pr.CIT also noted that the assessee received a sum of Rs.2,334/- as interest on income-tax refund u/s.244A of the Act, which was not disclosed in the return.
When confronted, the assessee submitted on the first issue that it had claimed deduction u/s.80P(2)(a)(i) of the Act and no claim was made u/s.80P(2)(d). Detailed submissions were filed. After considering such submissions, the ld. Pr.CIT held the assessment order to be erroneous and prejudicial to the interest of the Revenue by observing that deduction u/s.80P(2)(d) could not be allowed on interest on investments made by a co-operative society with co- operative banks. As a co-operative bank is akin to a commercial bank, it does not fall under the purview of co-operative society.
Interest income earned from it was held to be not eligible for deduction u/s.80P(2)(d). As regards interest u/s.244A of the Act,
Sant Motiram Maharaj Sah. Pat Sanstha Ltd., the ld. Pr.CIT held the assessment order to be amenable to revision inasmuch as such interest was not offered for taxation. Aggrieved thereby, the assessee is in appeal before the Tribunal.
We have heard the rival submissions through virtual court and gone through the relevant material on record. The assessee is admittedly a credit co-operative society providing credit facility to its members. The assessee earned interest income, inter alia, on FDRs with State Bank of India and co-operative banks. The Assessing Officer (AO) examined this issue and came to hold that interest of Rs.1,39,695/- on FDRs made with State Bank of India was not eligible for deduction u/s 80P. The assessee accepted that aspect and did not dispute it further. Now the ld. Pr. CIT has taken a view that interest income of Rs.22,34,270/- earned from investments made with co-operative banks also does not qualify for deduction. This evidences that the availability of deduction u/s 80P(2) on the remaining amount of interest earned from the members etc., has also been accepted by the ld. Pr.CIT.
The short point of view of the ld. Pr.CIT is that interest earned from co-operative banks cannot be covered under clause (d) of Sant Motiram Maharaj Sah. Pat Sanstha Ltd., sub-clause (2) of section 80P. Section 80P(1) provides 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 this section, the sums specified in sub-section (2), in computing the total income of the assessee.’ Sub-section (2) opening with: `The sums referred to in sub-section (1) shall be the following’, has clauses (a) to (f). Clause (d), which has been invoked by the ld. Pr. CIT reads: `(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.’ It is axiomatic that only interest derived by a co- operative society from its investments with any other co-operative society is eligible for deduction under clause (d). Conversely, if the payer of the interest is not a co-operative society, its payee, a co- operative society cannot claim deduction thereon under this clause.
Admittedly, the assessee received interest from a co-operative bank and not a co-operative society. A fortiori, such an amount is not eligible for deduction u/s 80P(2)(d) of the Act.
Sant Motiram Maharaj Sah. Pat Sanstha Ltd.,
However, the case of the assessee before the authorities below ab initio has been that it was eligible for deduction on such interest u/s.80P(2)(a)(i) of the Act inasmuch as the assessee was engaged in providing credit facility to its members. At this juncture, it may be apposite to consider the mandate of clause (a)(i) of section 80P(2), which provides that: `(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 such activities’ shall be allowed as deduction. The assessee is admittedly a co-operative society engaged in carrying on the business of providing credit facilities to its members. In such a situation, the whole of the amount of profits and gains of business attributable to providing credit facilities to its members becomes deductible u/s 80P(2) of the Act.
The term “profits and gains of business attributable to” providing credit facilities has a wider connotation. It encompasses not only the income derived strictly from providing credit facilities to its members but also any other income which is attributable to Sant Motiram Maharaj Sah. Pat Sanstha Ltd., such business. So long as there exists a live link, not necessarily direct, between the income and carrying on of the business of providing credit facilities, the resultant income qualifies for deduction. If a particular amount is received by a co-operative society from its members as deposits and a part of the same has been provided as a credit facility to its members, the unspent amount for the time being not required by the members as loan, if utilised elsewhere, will nonetheless lead to generation of profits and gains of business of providing credit facilities to its members.
The thread of link between income and business of providing credit facilities to the members will be broken if despite there being the members wanting to avail credit facilities, the co- operative society chooses to prefer making deposits with banks etc. rather than advancing sums to its members.
Right now we are confronted with a situation in which the assessee co-operative society has made deposits with co-operative banks and earned interest income, which is extantly the bone of contention. The stand of the assessee is that these are short term deposits of the money not required for the time being. The ld. Pr.
CIT has not returned any contrary finding. In such a scenario, the Sant Motiram Maharaj Sah. Pat Sanstha Ltd., entire interest income - not only the one derived from its members by providing credit facilities but also that earned by utilizing the surplus available funds for the time being at some places like investment in FDR etc. - also falls within the ambit of “profits and gains of business attributable to” providing credit facilities to its members.
At this juncture, it is relevant to note that we are dealing with a case in which the ld. Pr. CIT has invoked his power u/s.263 of the Act. It is trite that the exercise of such a power is ousted in case of a debatable issue. An assessment order can be termed as erroneous and prejudicial to the interest of the Revenue if the AO has taken a view which is not legally sustainable. Per contra, if two views are available on a particular issue and the AO adopts one of such possible views, the case goes outside the purview of revisional power to be exercised by the Pr.CIT u/s.263 of the Act.
The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016) decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune
Sant Motiram Maharaj Sah. Pat Sanstha Ltd., Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon’ble High Courts took into consideration the ratio laid down in the case of Totgar’s Cooperative Sale Society Ltd. (2010) 322 ITR 283 (SC). There being no direct judgment from the Hon’ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra).
Insofar as the reliance of the ld. DR on the case of Pr. CIT and Another Vs. Totagars Cooperative Sales Society (2017) 395
Sant Motiram Maharaj Sah. Pat Sanstha Ltd., ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee co-operative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background of the facts that the Hon’ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not u/s.80P(2)(d). Moreover, so many decisions relied on by the ld. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the ld. Pr. CIT was not justified in exercising the revisional power anent to interest income
Sant Motiram Maharaj Sah. Pat Sanstha Ltd., of Rs.22,34,270/- earned on investments made with co-operative banks.
Now we advert to the second issue espoused by the ld. Pr.
CIT about the interest income of Rs.2,334/- received by the assessee on refunds u/s.244A of the Act. We find that this issue is fully and directly covered by the Special Bench order passed by the Mumbai benches of the Tribunal in the case of Maharashtra State Cooperative Bank Ltd. Vs. ACIT (2010) 129 TTJ 521 (SB)
(Mumbai) holding that interest on income-tax refund u/s.244A is covered within the expression “profits and gains of business” occurring in section 80P(2)(a) and ergo eligible for deduction u/s.80P(2)(a)(i) of the Act. Albeit interest amounting to Rs.2,334/- received u/s.244A of the Act is chargeable to tax but at the same time the same is also deductible in full u/s.80P(2)(a)(i) of the Act.
The assessment order in not adding such interest to the total income, cannot be construed as prejudicial to the interest of revenue because such interest income is tax-neutral in the context of the assessee due to the simultaneous availability of deduction u/s.80P(2)(a)(i) on such amount.
Sant Motiram Maharaj Sah. Pat Sanstha Ltd.,
We, therefore, hold that the ld. Pr.CIT was not justified in revising the assessment order on both the counts. The impugned order is set-aside.
In the result, the appeal is allowed. Order pronounced in the Open Court on 23rd September, 2020.
Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 23rd September, 2020 Satish आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2.
3. The Pr.CIT-2, Kolhapur 4. The ACIT, Range-2, Kolhapur िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “बी” / DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
Sant Motiram Maharaj Sah. Pat Sanstha Ltd.,
Date 1. Draft dictated on 16-09-2020 Sr.PS 2. Draft placed before author 16-09-2020 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *