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Facts
The assessee, a cooperative society, claimed deduction under Section 80P(2)(d) for interest income earned from fixed deposits in nationalized banks. The Assessing Officer denied this deduction, holding that it was not attributable to the society's core business activities of providing credit facilities. The CIT(A) upheld this decision.
Held
The Tribunal held that the interest income earned from parking funds in fixed deposits with banks, which originated from deposits from members for providing credit facilities, is an integral part of the assessee's business. Therefore, the assessee is entitled to the deduction under Section 80P(2)(d).
Key Issues
Whether interest income earned from deposits with banks, arising from funds collected for providing credit facilities to members, is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
Sections Cited
80P(2)(d), 80P(2)(a)(i), 80P(1), 80P(2)(a)(iii), 80P(2)(d), 80P(2)(e)
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Income Tax Appellate Tribunal, “SMC” BENCH KOLKATA
Before: SHRI GEORGE MATHAN
आदेश / O R D E R This is an appeal filed by the assessee against the order of the ld CIT(A), National Faceless Appeal Centre (NFAC), Delhi, dated 21.09.2023, passed for the assessment year 2018-2019.
Shri S.M.Surana, ld. AR appeared on behalf of the assessee and Shri S.B.Chakraborthy, ld.Sr. DR appeared on behalf of the revenue.
It was submitted by the ld.AR that the only issue in this appeal was against the action of the Assessing Officer in denying the assessee deduction u/s.80P(2)(d) of the Act on the interest income received by the assessee from the bank other than the cooperative bank. It was the submission that the ld. CIT(A) has confirmed the action of the Assessing Officer. It was submitted that both the ld. Assessing Officer and ld. CIT(A)
had relied upon the decision of the Hon’ble Supreme Court in the case of The Totagars Cooperative Sale Society, reported in [2010] 322 ITR 283 (SC). It was the submission that the issue is now squarely covered by the coordinate bench of the Tribunal in the case of Central Bank National Employees Cooperative Credit Society Ltd., passed in dated 02.11.2023, wherein the coordinate bench of the Tribunal has held in para 6 to 6.3 as follows :- 6. Considering the facts of the present case and the submissions made before us, we find force in the arguments of the Ld. Counsel for the assessee. We note that assessee is engaged in the business of providing credit facilities to its members for which it accepts deposits from and lend the same to its members. While accepting deposits, assessee promises to pay interest at a specified rate. When money is lent to the members, interest is recovered which is also at a specified rate. Difference between the two rates is the income of the assessee. However, there are periods when entire deposit received from the members cannot be lent owing to demand for loan not there from the members. In such a situation, whether the money is lent or not, assessee continues to be liable for payment of interest to its members who have made deposit with it. To cover up this liability for payment of interest, these funds are invested with banks in fixed deposit/term deposit which earned certain interest income to be set off against the interest payable to the member/depositors. Parking of funds by the assessee with banks in the form of fixed deposits to earn interest income is part and parcel of the business of providing credit facilities to its members. Assessee has received the deposits from its members only which are subjected to interest charge. 6.1. We note that while sustaining the disallowance, ld. CIT(A) has referred to the interest income in a general sense and not specific to the facts of the case of the assessee. He has noted that "the word 'Profit and Gain of Business' means Business Income and not Income from Other Sources. Interest, in general, arising out of surplus investment in short term deposit are not related to the business activity of the appellant and cannot be attributed to have been on account of providing credit facilities to its members. Such income, primarily interest, can therefore, not be seen to be attributable to the business activity of the appellant and is accessible as 'Income from Other Sources'." 6.2. In the case of Totgars Co-operative Sale Society Ltd. (supra), an important fact which has been noted is that assessee had invested the fund on short term basis since they were not required immediately for business purposes. In the present case, the funds available are for the business purpose of providing credit facilities to its members. It is only because in a given point of time, there is no demand for loan that they have been parked with the banks as fixed deposit. The only fund available with the assesses are out of deposits from its members and there is no surplus funds as such. This fund of the assessee is the operational fund. 6.3. Considering the facts and circumstances of the case and the decision referred above, we are of the considered view that assessee is entitled for deduction of interest income earned from deposits made by it with banks which has arisen out of deposits received from its members pursuant to conduct of business of providing credit facilities to its members. Accordingly, deduction of Rs.30,93,854/- towards interest income earned from deposits with the banks is allowed for deduction u/s. 80P of the Act. Ground taken by the assessee in this respect is thus partly allowed. Since the portion of claim in respect of income from holiday home has not been pressed is, therefore, upheld to that extent.
It was further submission that the issue considered by the SMC Kolkata Bench of the Tribunal in the case of gobdapur Panchpota Samabay Krishi Unnayan Samity Limited, passed in dated 26.02.2025, wherein para 7, the Tribunal has held as follows :- 7. I have heard both the sides and perused the material available on record. It is an admitted fact that the assessee is a Cooperative Agricultural Society and not a Cooperative Bank. 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. I have perused the ratio laid down by the Hon'ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited 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. On perusal of 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 (iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited (v) the processing, without the aid of power, of the agricultural produce of its members, [or] (vi) the collective disposal of the labour of its members, or (vii) 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 8 members,] the whole amount of profits and gains of business attributable to any one or more of such activities:"
Further, I 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 amount of profits and gains of the business attributable to one or more of such activities shall be allowed as Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited 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, 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 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 Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, I extract the 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 Hon'ble High Court of Andhra Pradesh and Telengana in the case of Vavveru Cooperative Rural Bank Limited -vs.- Chief Commissioner of Income Tax and Another [2017] 396 Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited ITR 371 (AP), wherein it has been held that Cooperative Society is eligible for deduction under section 80P(2)(a)(i) of the Act on the interest income received from investment in Banks. The Hon'ble High Court of Andhra Pradesh has categorically held in its judgment in paras 35 to 37, which reads 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.
The original source of the investments made by the petitioners in nationalized 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".
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.' 11. Therefore, considering the ratio laid down by the judgment of the Hon'ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Limited and also the ratio laid down by the Coordinate Bench of Hyderabad in the case of Kakateeya Mutually Aided Thrift and Credit Cooperative Society in ITA No. 107/Viz./2022, CO No. 7/VIZ/2022 dated 30.08.2023, I have no hesitation to come to the conclusion that the facts in the case of Totgars Cooperative Sale Society Limited -vs.- ITO as the ratio laid down by the Hon'ble Supreme Court is not applicable to the present case in hand and, therefore, I am of the firm view that the Gobindapur Panchpota Samabay Krishi Unnayan Samity Limited ld. Assessing Officer as well as ld. CIT(Appeals) are not correct to disallow the amount of Rs.7,66,340/- on the ground that the assessee had earned interest income from savings bank accounts other than cooperative bank. Therefore, the grounds raised
by the assessee are allowed.
5. It was the submission that the order of the lower authorities is required to be reversed.
6. In reply, ld.Sr. DR vehemently supported the order of the ld. Assessing Officer and ld. CIT(A).
7. I have considered the rival submissions. As it is noticed that the issue in this appeal is in regard to the claim of deduction u/s.80P(2)(d) of the Act in respect of the interest income earned from nationalized bank on the fixed deposits, it is noticed that the issue is now squarely covered by the decision of the coordinate bench of the Tribunal in the cases cited hereinabove. This being so, respectfully following the decision of the coordinate bench of the