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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. This appeal by the Assessee is directed against the order of the Ld. CIT(A)-4, Vadodara dated 19.03.2018 pertaining to A.Y. 2015-16 and following grounds have been taken:
ITA No. 1537/Ahd/2018 2 . A.Y. 2015-16 1.The Ld. CIT (A), has erred in confirming the addition of Rs. 12,25,412/- and not allowing deduction u/s 80P(2)(a)(i) of the I. T. Act 1961. 2. The Ld. CIT (A) has erred in not allowing deduction u/s 80P(2)(c)(ii) of the I. T. Act 1961.
Briefly, stating the facts of the case that on verification of details submitted by the assessee it has been noticed that the assessee has shown deposits of Rs.73,20,536/-with banks in its balance sheet. The assessee has shown in P&L, interest income of Rs.57,17,326/-. The interest received inter alia includes interest received on FD's from the following institutes:- Baroda Guj. Gramin Bank Rs. 169161/- Bank of Baroda Rs. 1056251 Total Rs. 1225412/-
On perusal of details,, it was found that the above mentioned interest payers are not members of co-operative society and hence income received from the above mentioned Interest payers is out of the ambit of section 80P(2)(a)(i) of the IT Act. Consequently the interest income of Rs.1225412/- from the above mentioned interest payers is not admissible for the deduction U/s 80P(2)(a)(i) of the IT Act as the condition laid down in that section are not satisfied.
3.1. The deduction U/s 80P(2)(a)(i) of the IT Act, is allowable to credit society with sole motive to give benefit in respect of income received from the members providing credit facility to them. The section is very specific and the same is reproduced as under- 80P(2)(a)(i). The sums referred to in subsection (1) shall be the following namely:-
ITA No. 1537/Ahd/2018 3 . A.Y. 2015-16 (a) In the case of a Co-operative society engaged in- (b) Carrying on the business of banking or providing credit facilities to its members.
Therefore, it is crystal clear that business of banking or providing credit facility to its members means "members only" and in the instant case it may be seen that Dena Bank, State Bank of India, Bank of Baroda and other banks are not a member of cooperative society and hence income received from these non members is out of the ambit of section 80P(2)(a)(i)of the IT Act. Totai claims of interest from aforesaid institutes comes to Rs.1225412/-.
3.2. Accordingly a show cause notice dated 19.09.2017 to the assessee as to why claim of interest to the extent of Rs.1225412/-, which is interest earned from non members i.e. Dena Bank, State Bank of India and Bank of Baroda should not be disallowed and treated as income from other sources and added to your total income.
3.3. In response to the above the assessee vide its reply dated 20.09.2017 which is received in this office on 22.09.2017 submitted as under: ".....This refers to above. During the course of assessment proceedings, your good self has asked, as To why total investment interest income of Rs.4,70,355/- earned by the society from investment with scheduled bank etc., should not be added to the total income being not eligible for deduction u/s 80P(2)(a)(i) of the I.T. act, 1961. In this connection we would like to state as under:- Ours is a primary Co-op. Credit Society, registered under the Gujarat Co-op. Societies Act 1961, doing activities of acceptance of deposits from members, having utilization of such deposits for the purposes of lending to needy members for their persona! requirements and having character of such deposits as payable on demand
ITA No. 1537/Ahd/2018 4 . A.Y. 2015-16 from such respective members. Any funds, time being not required for the purposes of lending and kept for repayment of such deposits, as the case may be, are parked/invested with other financial institution viz Schedule Banks, Co-operative banks etc. etc. Thus we are carrying out above activities which is in a nature of banking activities lending and kept for repayment of such deposits, as the case may be, are parked/invested with other financial institution viz Scheduled Banks, Co- operative banks etc. etc. Thus we are carrying out above activities which is in a nature of banking activities.
80P(2)(a)(i) of the I.T. Act, 1961, exempt whole of such income of a person engaged in carrying on the business of banking or providing credit facilities to its members.
The word "Banking!: has not been defined in the Income-tax Act 1961. Hence we have to take recourse for meaning of 'Banking' as provided in other regulatory laws which governs and control banking activities as a whole, i.e. The Banking Regulation Act 1949. Section 5 (b) of said act provides definition of Banking as fallow:-
"banking means the accepting, for the purpose of Sending or investment, of deposit of money from the public repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise",
We are accepting deposits for the purposes of lending to/from members. At times, whenever no such requisition/taker is there for lending, such idle money temporarily invested with other financial institution, so as not to have interest income losses, because Society has to pay interest on such amounts. Secondly, since if all monies are employed by our society for the purpose of lending activities, no amount remains with society for the repayment of deposit as and when they called for. No one envisage or
ITA No. 1537/Ahd/2018 5 . A.Y. 2015-16 predict at what time depositors will ask for their repayment, because the same are repayable on demand either at the time of its maturity or even before maturity. Even scheduled and co-op, banks are also required to keep Standard Liquidity Ratio and Cash Reserve Ratio to meet with such deposit repayment eventuality. Our co-op, credit society is bound to repay the same on demand from respective depositor/s. Hence we are bound to keep some amount on hand i.e. readily available and also with a view to, not to incur any such interest losses, we are parking/investing such funds with other financial institution and earning interest on it. Hence keeping such amount invested with other financial institution and earning interest on it is a ancillary activities for attainment of fulfillment of main purposes of lending of money i.e. banking activity. T Considering the above attention of 'Banking' as per the Banking Regulation Act, 1949, our activities of parking/investment of funds for the attainment of main purposes of providing of credit facilities to members, is also a banking activities along with lending activities. Thus as per above definition of 'Banking', our society is doing all such activities as defined therein and accordingly our all such activities are banking activities and thereby all such f income attributable to banking activities only and are eligible for deduction u/s 80P(2)(a)(i) of the I.T. Act 1961.
But ld. A.O. was not agreed with the contention of the assessee and did not allow deduction u/s 80P(2)(a)(i) of Income Tax Act. Thu, we made addition of Rs. 12,25,412/-.
Against the said order, assessee preferred first statutory appeal before the ld. CIT(A) who dismissed the appeal of the assessee.
Now appellant is before us.
ITA No. 1537/Ahd/2018 6 . A.Y. 2015-16 7. We have gone through the relevant and impugned order. As we can see, 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, both the Hon'ble Apex Court and Hon'ble High Court of Gujarat have categorically held that interest income earned on surplus funds in Bank deposits is income from other sources of the assessee liable to be assessed U/s56 of the I.T.Act. Since, the facts in the present case is quite similar to the facts in the case of State Bank of India Employees Co-op Credit &. Supply Society Ltd/the ratio of State Bank of India Employees Co-op Credit & Supply
ITA No. 1537/Ahd/2018 7 . A.Y. 2015-16 Society Ltd Vs Commissioner Of Income Tax ( Guj High Court) is squarely applicable in the instant case . Hence, in the instant case, by respectfully following the ratio of case laws in the case of Totgar Co-op Sale Soc Ltd Vs ITO (SC) and 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 of Hon'ble High Court of Gujarat , interest income of Rs. 29,02,430/- earned by the assessee from investments with bank is held to be not eligible for deduction u/s. 80P(2)(a)(i) of the I.T. Act and accordingly it is to be taxed under the normal provisions of the Act.
Respectfully following the above said judgment and since assessee has parked its surplus funds to the Bank of Baroda and Baroda Gujarat Gramin Bank as appellant has earned interest of Rs. 12,25, 412/- from parking its surplus fund from the banks. So, in these circumstances deduction u/s. 80P(2)(a)(i) cannot be granted.
In the result, appeal filed by the Assessee is dismissed.
Order pronounced in Open Court on 30- 11- 2018 Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 30/11/2018 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER