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Facts
The assessee, a co-operative credit society, earned interest from investments in commercial banks and co-operative banks. The Assessing Officer denied deduction u/s 80P(2)(a)(i) for interest from commercial banks. The Ld. CIT(A) allowed deduction for interest from co-operative banks but confirmed the disallowance of Rs.76,17,761/- from commercial banks.
Held
The Tribunal held that interest income earned by the society from investments in commercial banks is attributable to its business of providing credit facilities to members, as funds not immediately required for lending were invested to earn interest. Citing its own previous order in the assessee's case and precedents from the Karnataka and Andhra Pradesh High Courts, the Tribunal found the income eligible for deduction u/s 80P(2)(a)(i), distinguishing the Totgars' Supreme Court decision.
Key Issues
Eligibility of a co-operative credit society to claim deduction under Section 80P(2)(a)(i) for interest income earned from investments made in commercial banks.
Sections Cited
80P, 80P(1), 80P(2), 80P(2)(a)(i), 80P(2)(d), 56
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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee Southern Railway Employees Co-operative Credit Society against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short "the Ld.CIT(A)”), Delhi, dated 30.07.2024 for the Assessment Year (hereinafter in short "AY”) 2017-18.
The main grievance of the assessee is against the action of the Ld.CIT(A) disallowing deduction of interest income of Rs.76,17,761/- u/s.80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter in short "the Act”)
The brief facts are that the assessee is a society registered under the Multi-State Co-operative Societies Act, 2002 and filed its return of income (RoI) on 07.11.2017 admitting total income at Rs.14,47,320/- after claiming deduction of Rs.18,75,29,188/- under Chapter-VIA of the Act. Later, the case was selected for scrutiny and the AO noted that assessee has received interest income out of the investments made in various banks to the tune of Rs.76,17,761/- & Co-operative Banks to the tune of Rs.2,71,92,924/- [totaling Rs.3,48,10,685/-] and since, the assessee derived interest income from investment made in banks other than the Co-operative Societies, the Assessing Officer denied deduction u/s.80P(2) of the Act and hence disallowed Rs.3,48,10,685/-.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A)/NFAC who took note of the decision of the Hon’ble Madras High Court in the case of Thorapadi Urban Co-op. Credit Society v. ITO, Ward-1 [W.R.Nos.11172 of 2023 dated 10.10.2023] which was decided after citing the Hon’ble Supreme Court decision in the case of The Totgars’ Co-operative Sale Society Ltd. v. ITO reported in [322 ITR 283 (SC)] and noted that Hon’ble Madras High Court had held that deduction u/s.80P(2)(d) of the Act was allowable on receipt of interest from Co-operative Bank which is a Co-operative Society carrying on banking business [Para No.10 of the said order] and thereafter, the Ld.CIT(A) by referring to various other decisions held that the interest earned by the assessee from Co-operative Banks to the tune of Rs.2,71,92,924/- is eligible for deduction u/s.80P(2)(d) of the Act.
1. However, the Ld.CIT(A) confirmed the disallowance of Rs.76,17,761/- claimed by the assessee u/s.80P(2)(a)(i) of the Act.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. The sole controversy in this case is whether the assessee is eligible to claim deduction u/s.80P(2)(a)(i) of the Act on the income derived from investments made in the banks which is not a Co-operative Bank. At the outset, the Ld.AR of the assessee brought to our notice that the issue is no longer res integra since in the assessee’s own case for AYs 2015-16 & 2016-17 [ITA Nos.2237 & 2238/Chny/2019 by order dated 30.09.2020], this Tribunal while deciding similar issue on identical facts has relied upon the decision in the case of the Hon’ble Karnataka High Court in the case of Guttigedarara Credit Co-operative Society Ltd. v. ITO reported in 377 ITR 464, (which was in favour of assessee) and didn’t follow the view expressed by the Hon’ble Gujarat High Court in SBI v. CIT reported in [2016] 72 taxmann.com 64 (Gujarat), by citing
:: 4 :: the decision of the Hon’ble Supreme Court in the case of CIT v.
Vegetable Products ltd., reported in 88 ITR 192 (SC), took a view in favour of the assessee since there were divergent views expressed by the Hon’ble High Courts. Therefore, a view in favour of assessee was taken by this Tribunal by holding as under:
6. We have heard both the sides through video conferencing, perused the materials available on record and gone through the orders of authorities below including case law relied upon by both sides. The point at issue in these appeals is that whether the assessee is eligible to claim deduction under section 80P(2) of the Act on the income derived from the investments made in the banks and other institutions. The assessee is a multi-state cooperative society engaged in the activities of extending credit facilities to the railway employees who were enrolled as members of the society and also it has extended credit facilities to the staff working in Co-operative society, who are not members, but are deemed to be members of the society. The assessee gets interest income for the loans advanced to its members and reinvests the interest in banks and other cooperative societies, for which it receives interest income. The main objection of the Assessing Officer is that the assessee derived interest income from investments made in banks and other institutions other than cooperative societies and therefore, the assessee is not eligible to claim deduction under section 80P of the Act in view of the decision in the case of SBI v. CIT (supra). While confirming the disallowance, the ld. CIT(A) has heavily relied on the decision of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Limited vs. ITO [2010] 322 ITR 283 (SC).
6.1 In the case of The Railway Employees’ Co-op. Credit Society Ltd. v. ITO (supra), the Coordinate Benches of the Tribunal, besides referring to the decision of the Ahmedabad Benches of the Tribunal vide order dated 31.10.2012 in the case of Jafari Momin Vikas Co-op Credit Society Ltd. v. ITO in for assessment year 2009-10, deciding the Cross Objection filed along with appeal [C.O. No. 138/Ahd/2012] in favour of the assessee and by following the decision of the Kolkata Benches of the Tribunal, wherein, the decision of Hon’ble Calcutta High Court was followed, distinguished the decision of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Limited vs. ITO (supra) that the said judgement was rendered on the context that the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes since, admittedly, the assessee is a sales society, markets the produce of its members whose sale proceeds at times were retained by it, as such, the surplus funds arose out of the amount retained from marketing the agricultural produce of the members and invested in short- term deposits/securities. Therefore, the case law relied on by the ld. CIT(A) has no application to the facts of the present case and moreover, the Hon’ble Supreme Court made it very clear that the said decision is confined to the facts of the case and therefore, the Hon’ble Supreme Court was not laying down any law.
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6.2 In the present case, the assessee is not carrying on any separate business for earning such interest income. The interest income earned from Banks is attributable to the business of providing credit facilities to its members and the said interest income is attributable to carrying on the business of banking. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members. Thus, the assessee society is entitled to special deduction under section 80P(2)(a)(i) of the Act. Our view is duly fortified by the decision of the Hon’ble Karnataka High Court in the case of Guttigedarara Credit Cooperative Society Ltd. v. ITO 377 ITR 464, wherein, the Hon’ble Karnataka High Court has observed and held as under:
“7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short-term deposits and from savings bank account. The assessee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question.
8. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i):—
“80P Deduction in respect of income of co- operative societies:— (1) 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.
(2) The sums referred to in sub-section (1) shall be the following, namely:
(a) in the case of co-operative society engaged in—
(i) carrying on the business of banking or providing credit facilities to its members, or ……. the whole of the amount of profits and gains of business attributable to any one or more of such activities.”
9. The word “attributable” used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (at page 93) as under:—
“As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable
:: 6 :: to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.”
Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act.
In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Co-operative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of :: 7 ::
that case. Therefore it is clear, Supreme Court was not laying down any law.
In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It 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 assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220 (AP).
In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial questions of law are answered in favour of the assessee and against the Revenue. Hence, we pass the following order:
Appeal is allowed. The impugned order dated September 19, 2014, is set aside, Parties to bear their own costs.”
6.2 In the case law relied on by the ld. DR in the case of State Bank of India v. CIT (supra), the Hon’ble Gujarat High Court has held that in case of a society engaged in providing credit facilities to its members, it is only interest derived from credit provided to its members which is deductible under section 80P(2)(a)(i) and interest derived by depositing surplus funds with bank not being attributable to business carried on by society, cannot be deducted under section 80P(2)(a)(i) and decided the appeal in favour of the Revenue. However, in the case of Guttigedarara Credit Cooperative Society Ltd. v. ITO (supra), the Hon’ble Karnataka High Court has decided similar issue on an identical facts and circumstances in favour of the assessee by referring the decision of the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516 on similar facts. Thus, when two High Courts’ decisions are in favour of the assessee and one High Court decision is in favour of the Revenue, the law laid down by the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 88 ITR 192 stands applied to take a view in favour of the assessee.
6.3 In view of the decision of the Hon’ble Karnataka High Court in the case of Guttigedarara Credit Cooperative Society Ltd. v. ITO (supra), we set aside the orders of authorities below and direct the Assessing Officer to allow the claim of deduction under section 80P of the Act for both the assessment years. Once the assessee is allowed to claim deduction under section 80P(2)(a)(i) of the Act, the question of proportionate expenses on the interest earned does not arise.
Respectfully following the Tribunal order in the assessee’s own case for earlier years, we find that the issue is no longer res integra and since, the Revenue couldn’t point out any change of facts or law, we allow the appeal of the assessee and direct the AO to allow deduction of Rs.76,17,761/- u/s.80P(2)(a)(i) of the Act.
Coming to Ground No.6, we find that it is to be in consequential. In the light of the above decision given for Ground Nos.1-5 and therefore, Ground No.6 is academic in nature and doesn’t require any adjudication.
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 05th day of February, 2025, in Chennai.