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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI SANDEEP GOSAIN & SHRI O.P.MEENA
Page 1 of 6 Begumpura Nagrik Dhiran Sahakari Mandli Ltd. Vs. DCIT, Cir.-2(2), Surat/ITA No.1756/Ahd/2017 for A.Y.2011-12
आयकरअपील�यअ�धकरण,सुरत�यायपीठ,सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A No.1756/AHD/2017 �नधा�रण वष�/Assessment Year: 2014-15 Begumpura Nagrik Dhiran V The Deputy Commissioner of Sahakari Mandli Ltd., s Income Tax, Begumpura, Surat – 395003. . Circle -2(2), Surat. [PAN: AAAAB 0808 N] अपीलाथ� / Appellant ��यथ�/Respondent �नधा�रतीक�ओरसे /Assessee by Shri Hiren Vepari – CA राज�वक�ओरसे /Revenue by Smt. Anupam Singla – Sr.DR सुनवाईकीतारीख/ Date of hearing: 05.12.2019 उ�घोषणाक�तार�ख/Pronouncement on: 13.12.2019 आदेश /O R D E R PER SANDEEP GOSAIN, JM: 1. This Appeal by the Assessee is directed against the order of Ld.Commissioner of Income Tax(Appeals)-1,Surat dated 09.06.2017 for the assessment year 2014-15.
Grounds raised by the assessee read as under: “(1) On the facts and in circumstances of the case and as per law, the learned Commissioner of Income-tax (Appeals) erred in holding that the appellant co-operative society is not entitled to deduction u/s.80P(2)(i) of the Act.” (2) The appellant craves leave to add, alter or vary any of the grounds of appeal.”
Page 2 of 6 Begumpura Nagrik Dhiran Sahakari Mandli Ltd. Vs. DCIT, Cir.-2(2), Surat/ITA No.1756/Ahd/2017 for A.Y.2011-12
Brief facts of the case are that the assessee is engaged in the business of providing credit facility to its members. The assessee filed the Return of Income on 16.07.2014 declaring gross total income at Rs.26,72,832/- and total income at Rs.NIL after claiming deduction u/s.80P of the Act for the year under consideration. The case was selected for scrutiny and during the assessment proceedings the Assessing Officer(AO) asked for the break up of interest income. And, on the verification of details filed by the assessee, the AO noticed that the assessee received Rs.13,23,781/- from SBI, Ring Road Surat against which society has claimed deduction u/.80P(2)(a)(i) of the Act. The AO found that the assessee had wrongly claimed deduction u/s.80P(2)(a)(i) against such interest also for which a show cause notice was issued by asking the assessee to explain interest income earned on FD from Nationalized Bank cannot be said to be attributable to activities of carrying on the business providing credit facilities to its members and thus not falling within the ambit of Sec. 80P(2)(a)(i) of the I.T.Act.
In response to the show cause noticed served by the ld.AO the assessee submitted his reply as under: “1) The captioned society was incorporated before 31 years with the object to provide credit facilities to members of the society. The members are basically from designed area of; the society and they comes from lower class. Society collects deposits from their members and provides various loans to its members for various purpose /necessities. Board of directors are elected by the members, who administered the society, and laws of Gujarat State co-operatives Act have been implemented - and administered by the Registrar of co-operative society, Surat. By laws of the society are as per the Gujarat State co-operatives Act, and accounts have been audited by the auditors appointed by the Registrar of co-operative society, and net
Page 3 of 6 Begumpura Nagrik Dhiran Sahakari Mandli Ltd. Vs. DCIT, Cir.-2(2), Surat/ITA No.1756/Ahd/2017 for A.Y.2011-12
profit shall be distributed as per the by laws of the society as approved by the Registrar of co-operative, and to meet any eventually, society is required to keep deposit with any bank as per section 71 of the Gujarat State co-operative society act as approved by the Registrar of co-operative to meet the object of the society. Such deposit are account for under the head cash & bank and not under the head investment as per the provisions of the society as approved by the registrar of co-operative, which is clearly evident from audit report of the society. (2) During the year under review, society earned/accrued interest on deposit from State Bank of India Rs. 13,23,781/-. Your office asked the show cause, that such interest does not fall under 80P(2)(a)(i) and hence, should be taxed. We already mention our background and legal position of the society, that maintenance of deposit with nationalized banks is not an investment from getting interest, but it is compulsion as per the by-laws of the society as approved by the Registrar of co- operative, that we have to maintained such level of cash security to repay the amount accepted from members, in case of emergency. Further, we state that the amounts that were not immediately required were deposited in the bank so as to earn interest and was not due to any members. If was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the society for lending money to its members, as there were no takers. Therefore, they had deposited money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of baking and therefore it is liable to be deducted in terms of section80P of the Act. The same has been decided by the I.T.A.T. "SMC" Bench, Ahmedabad in case of Shree Balaji: Urban Co-op. Credit Ltd (ITA No.261/Ahd.2015 dated 26/02/2016). For your ready! reference copy of judgement are attached herewith. Hence, such deposit and interest on such amount are part and parcel of the activities of the society, namely carrying on the business of providing credit facility to its members, and same shall be falling within the ambit of section 80P2J. The section itself says that "the whole of the amount of profit and gain of business attributable to any one or more of such activities" qualifies for deduction under the above section, hence your view in separating the amount received by way of income from various sources are not justifiable. So, kindly consider the income received from State Bank of India as part and parcel of the activities of the society, hence should not be considered for taxed separately. This is also clearly held by the hon'ble IT AT, Ahmedabad bench in case of Jafari Momin Vikas Co-operative Credit Society Ltd. ITA No.149/Ahd/2012.” 5. However, the AO was not convinced with the explanation
submitted by the assessee and he held that interest earned from
nationalized bank is not eligible for deduction u/s. 80P(2) of the Act
because such deduction is restricted to the business income attributable
to the activities of banking or providing credit facilities to its members.
It is held that deduction will be allowed only when there is direct or
proximate connection with or nexus to the income and business carried
Page 4 of 6 Begumpura Nagrik Dhiran Sahakari Mandli Ltd. Vs. DCIT, Cir.-2(2), Surat/ITA No.1756/Ahd/2017 for A.Y.2011-12
on by the society. The AO placed reliance on the decision of Apex Court in the case of Tofagar's Co-op. Credit Society Ltd. Vs. ITO [2010) 322 ITR 283 and treated interest income of Rs.13,23,781/- earned from SBI as “Income from Other Sources” U/s.56 of IT Act and disallowed the claim of deduction made u/s.80P(2)(a) of the I.T.Act.
Being aggrieved, the assessee filed this appeal before the ld.CIT(A), wherein the ld.CIT(A) stated that it was held in Totgar Co-operative Society case that interest income need to be considered as “Income (earned from activities other than of providing credit facilities to members) is not eligible for deduction u/s.80P(2)(a)(i) of the Act. The ld.CIT(A) by respectfully following the ratio of the decision of Apex Court, sustained the disallowance made u/s.80P(2)(a)(i) by dismissing the appeal of the assessee.
Being aggrieved, the assessee filed this appeal before this Tribunal. The ld.Counsel of the assessee submitted that the issue is squarely covered in assessee’s own case for previous year 2012-13 by the order of the Co-ordinate Bench of ITAT in ITA No.2799/Ahd/2015 for A.Y. 2012-13 in which para 7 & 8 held as under: “7. We have heard the rival submissions and perused the material on record. We find that the assessee is a Co-operative Society registered under Gujarat Co- operative Societies Act, 1961 with the main object of providing credit to its members out of funds collected from members. When the surplus amount is available with the society, these funds are parked in accordance with section 71 of the Gujarat Co-operative Societies Act 1961 read with Clause 7 of the by-laws of the society with the SBI on which the assessee has earned an interest amount of Rs.18,79,050/-. Thus, the assessee is a Co-operative Society i.e. providing
Page 5 of 6 Begumpura Nagrik Dhiran Sahakari Mandli Ltd. Vs. DCIT, Cir.-2(2), Surat/ITA No.1756/Ahd/2017 for A.Y.2011-12
credit facilities to its members. According to Revenue, the interest earned on FD’s from SBI are not covered by the activity of providing credit facilities to its members, hence, not eligible for deduction u/s.80P(2)(a)(i) of the Act, in view of the decision of Hon'ble Supreme Court in the case Totgars CCS Ltd. (supra). However, the said decision in the case of Totgars CCS Ltd.(supra) is not applicable as admittedly in that case the investment was made out of retained amounts on marketing of agricultural produce of its members whereas in the present case of the assessee it did not carried out any activity except in providing credit facility to its members and that the funds were of operational funds. Therefore, we are of the considered opinion that the judgment of Apex Court in Totgars CCS Ltd.is not applicable in respect of the Co-operative Society whose business is banking. The ld.Counsel has placed reliance on the decision of Hon'ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. vs. ACIT (supra) wherein it was held that the assessee Co-operative Society was eligible for deduction u/s.80P(2)(d) in repsect of gross profit received from Co- operative Bank without adjusting interest paid to said bank. The ld.Counsel has placed reliance in the case of CIT vs Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516 (AP) wherein after considering the decision of Totgars CCS Ltd.(supra) it was observed that the deposits of the surplus is in other banks for the purpose of earning interest is not unauthorized or not barred by any of the applicable statitute the income is certainly attributable to the business of banking. It was further submitted that if section 80P(2)(a) of the Act is given a restrictive meaning as including the interest earned only on the statutory deposits made by a Co-operative Society, it would amount to supplying a casus- omissus and has to be avoided by the court. Investment of funds by banks including the non-reserve is part of banking activities since no bank would like its reserve funds to remain ideal and not earn any interest. Therefore, the interest earned on such deposits is directly attributable to the business of banking and therefore exemption u/s.80P(2)(a)(i) of the Act. Similarly, the Hon'ble Gujarat High Court in the case of CIT vs. Baroda Peoples Co-operative Bank Ltd.(supra) has held that on a plain reading of the Gujarat Co-operative Societies Act 1961, the claim which unfolds is that in the case of a society carrying on a business of banking, it would be permissible to make investment or deposits in any of the specified investments as provided in section 71 of the Gujarat Co-operative Societies Act including in any of the modes specified in section 20 of Indian Trust Act 1882, without there being any upper limit as to the amount that can be invested, once the statutory requirement of reserve fund as stipulated in section 67(2) of the Gujarat Co-operative Societies Act is satisfied. Therefore, it was held that the assessee would be eligible for deduction in terms of section 80P(2)(a)(i) of the Act. 8. In the light of above facts and circumstances, we are of the view that interest earned on FD’s placed with SBI is eligible for deduction u/s.80P(2)(a)(i) of the Act, accordingly we direct the AO to allow the same by respectfully following the aforesaid decision of various Hon'ble High Courts and various Co- ordinate Benches, accordingly Ground No.I (1) of the appeal is allowed.”
In the light of above, keeping in view of the decision of the Co- ordinate Bench decision in the assessee’s own case in Hon'ble ITAT
Page 6 of 6 Begumpura Nagrik Dhiran Sahakari Mandli Ltd. Vs. DCIT, Cir.-2(2), Surat/ITA No.1756/Ahd/2017 for A.Y.2011-12
Surat Bench in the case of ITA No.2799/AHD/2015 for A.Y. 2012-13 the issue of interest earned on FD’s with SBI is eligible for deduction u/s.80P(2)(a)(i) of the Act is squarely covered by the decision given above. Therefore, in order to maintain judicial consistency and judicial discipline, we also deem it appropriate to allow the appeal, accordingly, the appeal of the assessee is allowed and assessee is eligible for deduction and we thus direct the AO to allow the same to the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 13-12-2019.
Sd/- Sd/- (O.P.MEENA) (SANDEEP GOSAIN) (लेखा सद�यतथा/ACCOUNTANT MEMBER) (�याियक सद�यकेसम� /JUDICIAL MEMBER) सुरत/ Surat, �दनांक Dated: 13th December, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat