RAILWAYMENS CO. OP. CREDIT SOCIETY LIMITED,,VADODARA vs. ITO, WARD-3(1)(3),, VADODARA

During the course of assessment proceedings, it is seen on verification of the details filed by the assessee that the assessee had earned interest income totaling to Rs.41,35,346/- from Nationalized Bank. It is also seen from the return of income filed that the assessee has claimed deduction under chapter VIA of the Act i.e. u/s SOP of the Act of Rs. Rs.41,35,346/-. The said interest income of Rs.41,35,346/- is earned from surplus funds invested in bank deposits/SB Accounts with nationalized banks. Therefore, the assessee will not be liable for deduction U/s80P(2)(a)(i) on the interest income of Rs.41,35,346/-. The income of Rs.41,35,346/- is therefore, required to be assessed U/s.56 as income from other sources.

In response the notice u/s. 142(1) dated 20.07.2017, the assessee submitted its reply vide letter dated 09.08.2017. The relevant portion of the same is reproduced here as under:

The submission made by the assessee was duly examined and the contentions of the assessee are not found acceptable. Providing credit facilities to the members of the Co-operative Society is a separate and distinct activity from the business of banking activity. Its main and sole purpose is to meet the financial needs of its members. For this the Cooperative Society accepts deposits from its members on interest and advances loan as and when requested by charging interest. The difference of interest rate while accepting the loan and advancing the loan is the gains of Co-operative Society engaged in providing credit facilities to its members.

As mentioned above, during the year under consideration, the assessee earned interest income of Rs.41,35,346/- from Nationalized Banks. The assessee has claimed the entire profit of Rs.41,35,346/- as deduction u/s 80P of the Act. As per this section in the case of a cooperative society engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the profit and gains of business attributable to such activities would be deductible under the section. The section implies that whole .of the profit and gains of business attributable to the activity of providing credit facilities to its members would only be deductible. Earning of interest income from Banks is not the activity for which income would be deductible. The above fact is supported by the details furnished by the assessee credit society as it is clearly stating its activities as "providing credit facilities to members only". Hence, the interest income earned from the members only is eligible for deduction -u/s 80P of the Act.

Notwithstanding to the above, if the intention of the legislature is to grant deduction to the interest income earned from all kind of activities by the Co- operative society, whose activities are covered under the provisions of Sec 80P(2)(a)(i) of the Act, then the provisions of section 80P(2)(d) would not have introduced as one of the sub-sections as part of the section 80P of the I.T.Act. As per Section 80P(2)(d), any assessee being a co-operative society is entitled for deduction on interest income earned from investment with any other co- operative society. From the above, it is clear that the intention of the legislature is nothing but only to give tax incentives to co-operative societies by way of deduction U/s80P of the Act with a clear objective of strengthening the co- operative sector and thereby to promote their activities among the public. In this process, if at all there is any surplus funds with the assessee co-operative, the same can be deposited with another co-operative society which will in turn help other co-operative societies to boost their banking activities and accordingly the objective of the legislature for introducing section 80P of the

Against the said addition, assessee preferred first statutory appeal before the ld. CIT(A) but to no avail.

Now appellant is before us.

We have gone through the relevant and impugned order. As we can see, assessee has earned interest income of Rs. 41,35,346/- parking its surplus funds invested in bank deposit/saving bank account with nationalized bank as has been held in the case of State Bank of India Employees Co-op Credit & Supply Society Ltd. vs. CIT wherein it is held: 5.6 Further, it is important to mention here that Hon'ble High Court of Gularat in its recent decision in the case of State Bank of India Employees Co-op Credit & Supply Society Ltd Vs Commissioner Of Income Tax in Tax Appeal No.486 & 487 Dated,25.04.2016 [20161 72 taxmann.com 64 (Gutarat) by distinguishing its earlier decision In the case of CJT v. Jafari Momin Vikas Co-op, Credit Society Ltd. [20141 362 ITR 331/227 Taxman 59/49 taxmann.com 571 (Guj.) has held that interest income earned from deposits from banks is not exempt U/s80P(2)(a)(i) of the Income tax Act and thereby followed the order of Hon,ble Apex Court in the case of Totgar Co-op Sale Soc Ltd Vs ITO (SO 322 ITR 283: 35DTR25. 6 From the above it can be seen that subsequent to the decision of Hon'ble Supreme court in the case of Totgar Co-op Sale Soc Ltd Vs ITO (SC) 322 ITR 283: 35DTR25, there were number of decisions on this issue by various High Courts and Tribunals in different cases by distinguishing the above judgment in favour of the assessee and Revenue. However, by the recent decision of Hon'ble High Court of Gujarat in the case of State Bank of India Employees Co-op Credit & Supply Society Vs Commissioner Of Income Tax as discussed above, the issue of dispute has been settled at least in the state of Gujarat and therefore, it is just and fair to treat the interest income earned from Co-operative societies, whose business activities are covered under the provisions of section 80P(2)(a)(i) of the IT. Act, as income from other sources U/s 56 of the Act. In the said case laws,

Respectfully following the aforesaid judgment and we hold interest earned from bank/nationalized bank amounting to Rs. 41,35,346/- is treated as income from other sources u/s. 56 of Income Tax Act. Thus, we dismiss the appeal of the assessee.

In the result, appeal filed by the Assessee is dismissed.