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Facts
The assessee, a Co-Op Society engaged in agricultural credit and rural development, claimed deduction under Section 80P on interest income from investments. The Assessing Officer disallowed this claim, and the CIT(A) upheld the disallowance. The appeal was time-barred by 10 days, but the delay was condoned.
Held
The Tribunal held that the interest income earned by the cooperative society from its investments in nationalized banks, derived from its primary activities, is eligible for deduction under Section 80P(2)(a)(i). The decision relied on the jurisdictional High Court's ruling which distinguished the case from the Supreme Court's decision in Totgar's Cooperative Sale Society Ltd.
Key Issues
Whether interest income earned by a cooperative society from its investments in banks, derived from its core activities, is eligible for deduction under Section 80P of the Income Tax Act.
Sections Cited
80P, 80P(2)(a)(i), 56, 80P(2)(d), 80P(2)(e), 80P(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, KOLKATA’SMC’ BENCH, KOLKATA
Before: SHRI DUVVURU RL REDDY(KZ)
The present appeal is directed at the instance of assessee against the order of ld. Addl/JCIT(A)-Patna dated 9.10.2024 in Appeal No.CIT(A), Kolkata-12/10081/2019-20 passed for Assessment Year 2017-18
The appeal is time barred by10 days. The assessee has filed condonation petition stating the reasons for condoning the delay. Upon consideration of the petition, I am satisfied that the assessee was prevented
P a g e 1 | 8 by reasonable cause for presenting the appeal in time. Hence, I condone the delay and admit the appeal for adjudication.
Briefly stated, the facts are the assessee is a Co-Op Society engaged in the business of a primary agricultural credit society or a Primary Co- Operative agricultural and rural development bank in accordance with the objects and by laws of the Co-Operative society and as approved by the Registrar of societies West Bengal. The appellant is not a primary Co- operative bank. The activities pursued by the assessee during the previous year 2016-17 are identical and same like earlier years and in conformity with the objects and also claimed deduction u/s 80 P(2) of the Act for the asstt. Year 2017-18. The Assessing Officer disallowed Rs 186905/- out of total claim of deduction of Rs 3312101/-u/s 80P on the alleged ground that the savings bank interest income is taxable u/s 56 under the head “income from other sources” as per the rulings by Honble Supreme Court in Totgars co-op Sale Society Ltd Vs ITO (2010) 322 ITR 283(SC). Being aggrieved by the assessment order, the assessee preferred appeal before the ld CIT(A), who dismiss the appeal. Hence, the assessee is in appeal before the Tribunal.
At the time of hearing, ld AR of the assessee submitted that the sole grievance of the assessee is squarely covered by the decision of the Co- ordinate Bench of ITAT, Kolkata in the case of Lankapalli PACS Ltd vs ITO in for A.Y. 2020-2021 order dated 24.10.2024 and produced the copy before the Tribunal. P a g e 2 | 8
On the other hand, ld Sr DR supported the orders of lower authorities,.
I have heard the rival submissions and perused the materials available on record. The sole issue for adjudication before me as to whether the assessee is eligible for deduction u/s.80P with respect to the interest earned on deposits or not?. The Co-ordinate Bench of Vizag ITAT in order dated 24.10.2024 after following the decision of the co-ordinate Bench in the case of Kakateeya Mutually Aided Thrift and Credit Co-operative Society in , C.O. No.07/Viz/2022 dated 30.8.2023 allowed the claim of the assessee, inter alia, observing as under:
“6. I have heard both the parties and perused the material placed on record. Now the question before me is to decide whether the assessee is eligible for deduction u/s 80P with respect to the interest earned on deposits pertaining to reserve fund with Krishna District Coop. Central 6 Limited or not? It is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the Ld. AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction U/s 80P of the Act. The Ld. Revenue Authorities relied on various case laws to state that income from interest on securities ear marked to reserve fund has been held not eligible for deduction u/s 80P. The Ld. Revenue Authorities have also placed relied on the decision of Hon’ble Supreme Court of India in Civil Appeal No.1622 of 2010 in the case of M/s Totgars Cooperative Sale Society Ltd., wherein it was held that “investment of surplus on hand not immediately required in Short Term deposits and securities by a co-operative society providing credit facilities to members or marketing agriculture produce to member”. However, in the instant case, the facts are distinguishable and hence, in my view, the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) shall not be applied to the instant case. On similar set of facts, coordinate Bench of this Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society held in favour of the assessee vide dated 30.08.2023. For the sake of reference, relevant paragraphs of the order are extracted as under :
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“8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is an admitted fact that the assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon’ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub- section (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: “(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, or (ii) a cottage industry, or the marketing of agricultural produce grown by its members, or] (iii) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or P a g e 4 | 8 (iv) the processing, without the aid of power, of the agricultural produce of its members, [or] (v) the collective disposal of the labour of its members, or (vi) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] 8 the whole of the amount of profits and gains of business attributable to any one or more of such activities:”
Further, we also extract below the provisions of section 80P2(d) and (e) of the Act for reference: “ (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; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;”
From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub-clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last,
P a g e 5 | 8 especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the 9 relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below: “34. The case before the Supreme Court in Totgar's Co- operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.”
Further, the Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under: 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalized banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co- operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
P a g e 6 | 8
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 1 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” 12. Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO also affirmed the same view by following the decision of the Hon’ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the jurisdictional High Court are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)- NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A)-NFAC. 13. In the result, appeal of the Revenue is dismissed.” 7. Respectfully following the decision of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Ltd.(supra) and the ratio laid down by the Coordinate Bench of the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co- op Society Limited (supra), I am inclined to quash the order passed by the Ld.CIT(A)-NFAC and allow the appeal of the assessee.”
Since the facts in the present case are identical to the decision of Co- ordinate Bench in the case of Lankapalli PACS Ltd (supra), respectfully following the same, I set aside the order of the ld CIT(A) and allow the appeal of the assessee.
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In he result, appeal of the assessee stands allowed.