SHIKSHA VIBHAG KARMACHARIGAN SAHAKARI SAMITI LIMITED,KOTA vs. INCOME TAX OFFICER, KOTA

PER BENCH :

“ 1. That on the facts and in the circumstances of the case the ld. CIT (A) is wrong, unjust and has erred in law in confirming action of the assessing officer in disallowing deduction of Rs. 48,97,480/- claimed by the appellant u/s 80P/80P(2)(d) of the I.T. Act, 1961 on interest income on FDR(s) with Kota Nagrik Sehkari Bank Ltd. and others.”

2. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them.

The only dispute is regarding the claim of deduction under section 80P in respect of interest received from Kota Nagarik Sahakari Bank Ltd. and on FDRs made with the Scheduled Banks was denied by the AO by applying the provisions of section 80P(4) of the IT Act. The AO disallowed the claim of deduction under section 80P(2)(d) of the IT Act on the ground that the assessee has earned interest on FDRs which is assessable under the head Income from other sources, not business income to be eligible for deduction under section 80P(2)(d) of the IT Act. The ld. CIT (A) has confirmed the disallowance made by the AO.

“6. We have considered the rival submissions as well as relevant material on record. We find that the entire income of the assessee for the year under consideration is only from interest on deposits made with bank as well as cooperative banks. The assessee in its computation of income has given the details of the interest income which comprises the gross interest receipt of Rs. 2,85,47,071/- out of which interest earned on the deposits in saving bank with SBBJ of Rs. 34,779/-. The balance interest received by the assessee is from the deposits made with cooperative banks except the small amount of Rs. 3,221/- as interest on mollasses fund. After reducing the interest paid on FDR loans from Bundi Central Co-operative Bank of Rs. 20,03,200/-, the net interest income was declared by the assessee at Rs. 2,65,43,871/-. The assessee claimed deduction u/s 80P(2)(c)(ii) in respect of the interest deposit in saving bank with SBBJ of Rs. 34,779/- and deduction u/s 80P(2)(d) in respect of the interest from cooperative banks of Rs. 2,65,09,092/-. The AO disallowed the claim of the assessee in toto, on the ground that the assessee is not in the business of banking or not providing credit facilities to its members. The Ld. CIT(A) allowed the claim of the assessee by following the various decisions of the Hon’ble High Court as well as this Tribunal as under:-

“The brief facts of the case are that the assessee had claimed deduction u/ s 80P (2)(d) of the Act in respect of interest of Rs.2,65,43,870/ - on fixed deposits with Coop. Banks. The AO disallowed the said deduction as claimed by the by rejecting the claim of the assessee by holding that since the appellant assessee was not carrying out any commercial activities since year 2000, it was not providing any credit facilities to its members, so it was not eligible for deduction u/s 80P (2) (a) (i) and other sub sections of section 80P. From the facts of the case it is clear that the appellant which is a Co- operative Sugar Mill under liquidation since 2003, in order to compensate it for reclamation of some part of the land owned by it, the State Government has given it a compensation amount previously which had been invested in Bank deposits by the appellant & from which interest the day to day expenses are being met. The A.O. has apparently not understood the provisions involved & applied provisions of section 80P (2) (a)(i) in the case. Subsequently he has held that the society is not eligible for any other deductions u/s 80P. It is notable that the assessee sugar mill has no other income besides the interest income, being in liquidation. In order to claim deduction u/s 80P (2)(d) of the Act, the only condition is that the assessee should be a cooperative society and it should be having interest income accrued from investment with other cooperative society (including co-op. Banks) which is a part of its Gross total income. While the above cases are more on allowability of gross interest u/s 80P (2)(d), they emphasize the allowability of interest related deduction as such. This issue has findings in the landmark order, Hon’ble Supreme Court in the case of Totagar’s Co-operative Sale Society Ltd. vs. ITO 322 ITR 283 283 held that the interest income from the short term deposits and securities not immediately required in the business of the assessee is assessable under the head ‘Income from Other Source’ and no deduction u/s 80P(a)(i) of the Act is allowable. Thus the said decision was delivered by the Hon’ble Apex Court on the provisions of Section 80P(2)(a)(i) of the Act. In the case of Totagar's Co-operative Sale Society Ltd v/ s ITO (supra) the Hon'ble Supreme Court while interpreting the section 80P(2)(a)(i) 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. Thus, from a 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)(a)(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 to its members and the head under which the income is assessable is not material for the claim of deduction under this section. 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 facilities 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)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) 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. The ITAT, Mumbai has also held the same view in the case of Lands End Cooperative Housing Society vs. I.T.O. ward-16(1)(3), Mumbai in ITA No.

3566/Mum/ 2014 for Assessment Year: 2009-10 vide order dated 15/01/2016. In view these facts and circumstances I am of the view that the assessee is entitled to the deduction of Rs.2, 65, 43,870/- in respect of interest received/derived by it or414bsits with coop. banks under section 80(P)(2)(d). Therefore the AO is directed to delete the above disallowance and subsequent addition made u/s 56 accordingly. In the result, this ground of assessee’s appeal is allowed.”

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 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 Bandra 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)(i) 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.

2. 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 cooperative 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 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 facilities 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)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) 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 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, 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."

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,"

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 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 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.”

6.3. 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 Cooperative Society from a Co-operative Bank would necessarily be deductable under Section 80P(1) of the Act.

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.

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.”

Thus the Tribunal after considering the decision of Hon’ble Jurisdictional High Court in case of CIT vs. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (supra) as well as the decision of Hon’ble Karnataka High Court in case of PCIT vs. Totagars Co- operative Sale Society, 392 ITR 74 (Kar.) has upheld the order of the ld. CIT (A) allowing the deduction under section 80P(2)(d) of the Act. Further, the Hon’ble Telangana & Andhra Pradesh High Court in case of Vavveru Co-operative Rural Bank Ltd. vs. CCIT (supra) has discussed this issue in detail in para 28 to 37 as under :-

under clauses (a), (b), (c), (d), (e) and (f). Each one of these clauses deal with different types of co-operative societies engaged in different types of activities. The benefit made available to each one of them is also different from the other. Therefore, it may be useful to present a tabular form, the six categories of co-operative societies covered by clauses (a) to (f) and the nature and extent of the benefit available to each one of them, as follows :

Category of co-op. societies covered by Nature and extent of The whole of the amount of profits (a) (1) Co-operative society carrying on the business and gains of business attributable to of banking or providing credit facilities to its any one or more of such activities. members ; (2) Co-op. society engaged in cottage industry ; (3) Co-operative society engaged in marketing of agricultural produce grown by its members. (4) Co-operative society engaged in purchase of agricultural implements, seeds etc., for the purpose of supplying to its members ; (5) Co-operative society engaged in processing of agricultural produce of its members without the aid of power. (6) Co-operative society engaged in collective disposal of the labour of its members. (7) Co-operative society engaged in fishing or allied activities. The whole of the amount of profits (b) Primary co-operative society engaged in and gains on such business. supplying milk, oil seeds, fruits or vegetables grown by its members to— (1) a federal co-operative society, engaged in the same business ; (2) the Government or a local authority ; (3) the Government company or Corporation engaged in the same business ; (c) (1) A consumer co-operative society engaged in So much of the profits and gains activities other than those specified in clause (a) or attributable to such activities not clause (b) either independently of, or in addition to, exceeding Rs. 100,000 (one hundred all or any of the activities so specified. thousand rupees). (2) Co-operative society other than a consumer co- So much to these profits and gains operative society engaged in activities other than attributable to such activities not those specified in clauses (a) and (b). exceeding Rs. 50,000 (fifty thousand rupees).

(d) Interest or dividends derived by the co-operative The whole of such income. society from its investments with any other co- operative society ; (e) Any income derived by the co-operative society The whole of such income. from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities ; (f) A co-operative society other than (1) A housing The income by way of interest on society ; (2) An urban consumer society ; (3) A securities and the income from house society carrying on transport business ; (4) A society property chargeable under section 22. engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed Rs. 20,000 (twenty thousand rupees).

The Hon’ble High Court has again considered the decision of Hon’ble Supreme Court in case of Totagars Co-operative Sale Society Ltd. vs. ITO (supra) and held that the interest earned on the deposits of the assessee’s own fund made in the banks is eligible for deduction under section 80P(2)(a) being the said income is attributable to the business activity of the assessee. Though there are divergent views on this issue, however, by following the decision of Hon’ble Jurisdictional High Court as well as the decision of this Tribunal, we decide this issue in favour of the assessee and allow the deduction under section 80P/80P(2)(d) in respect of interest earned on deposits made with the banks/cooperative banks. Hence the addition made by the AO on this account for all the three years is deleted.

Order is pronounced in the open court on 17/06/2019.