THE SANGLI SALARY EARNERS CO OP SOCIETY LTD,SANGLI vs. INCOME TAX OFFICER WARD 3 SANGLI, SANGLI

Without prejudice, on the facts and in the circumstances of the case and in law, the Ld. AO and CIT(A) erred in not granting deduction u/s 80P(2)(d) on the interest income of ₹3,70,45,086/- earned from Sangli District Co-operative Bank Ltd. and 39,158/- earned from Primary Teachers Co-operative Bank, which are themselves registered co- operative societies.

The authorities below have wrongly invoked Section 80P(4) The Appellant is not a co-operative bank within the meaning of Part V of the Banking Regulation Act, 1949, but a co-operative credit society registered under the Maharashtra Co-operative Societies Act, 1960, engaged exclusively in providing credit facilities to its members. Section 80P(4) excludes only co-operative banks (engaged in lending money to the public at large under an RBI licence) from the benefit of Section 80P. The Appellant, being a co-operative credit society, squarely falls 2 outside the exclusion carved out by Section 80P(4) Accordingly, the [A] interest earned from deposits with other co-operative societies, including co-operative banks, is fully deductible under Section 80P(2)(d).

On the facts and in the circumstances of the case and in law, the Ld. AO and CIT(A) erred in not granting deduction of ₹50,000/- as provided under section 80P(2)(c)(ii) of the Income-tax Act, 1961. The Appellant, being a co-operative society engaged in activities other than those specified in section 80P(2)(a) or (b), is statutorily entitled to claim deduction of ₹50,000/- from its gross total income. The authorities below failed to allow this mandatory deduction which is available irrespective of the treatment of interest income under other provisions of section 80P.

7. Ground on Proportionate Deduction under Section 57 Without prejudice to the above grounds, and in the alternative, on the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Commissioner (Appeals) have erred in not allowing deduction of proportionate expenditure u/s 57 of the Income- tax Act, 1961, against the interest income of ₹3,71,88,591/-, even after treating the same as "Income from Other Sources".

The Appellant submits that such interest income has been earned out of statutory and working capital funds, on which substantial interest and administrative costs were incurred, and therefore proportionate expenditure of ₹2,46,82,059 (as per detailed working furnished) ought to have been allowed as deduction u/s 57.

8. The Appellant craves leave to add, alter, modify, substitute, delete or rescind any of the above grounds of appeal and/or to submit such further grounds and arguments as may be considered necessary at the time of hearing of the appeal.

PRAYER In view of the facts and circumstances of the case and the grounds urged hereinabove, the Appellant most humbly prays before this Hon'ble Tribunal that t may be pleased to: a) Delete the addition of ₹3,71,88,591/-made by the Assessing Officer by treating the interest income as "Income from Other Sources and consequently allow the deduction under section 80P(2)(a)(i) and/or 80P(2)(d) of the Income-tax Act, 1961. 4 b) The deduction under section 80P(2)(c)(ii) may please be allowed c) Hold that the interest income received from Sangli District Co- operative Bank Ltd.. Primary Teachers Co-operative Bank, and State Bank of India is attributable to the business of the Appellant society and hence eligible for deduction under section 80P of the Act. d) Without prejudice and in the alternative, in the event that the interest income is treated as "Income from Other Sources", direct that proportionate expenditure incurred for earning such income be allowed as deduction under section 57 of the Income-tax Act, 1961, in accordance with the computation of proportionate cost furnished. e) Grant such other relief or reliefs as this Hon'ble Tribunal may deem fit in the facts and circumstances of the case.

Verification

1. Shri Nandkumar Mayappa Lokhande, Secretary of The Sangli Salary Earners Co-operative Society Ltd., Sangli, do hereby verify that the contents of the Statement of Facts and Grounds of Appeal are true and correct to the best of my knowledge and belief. Nothing material has been concealed therefrom.”

Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) for the Assessee filed two paper books. Ld.AR submitted that Assessee is a Co-operative Credit Society. The Assessing Officer has disallowed assessee’s claim for deduction u/s.80P(2)(a)(i) of the Act, following the decision of Hon’ble Supreme Court in the case of Totagars’ Co- operative Sale Society Ltd. 5 2.1 Ld.AR further submitted that in assessee’s own case for A.Y.2017-18 on identical facts ld.CIT(A) has allowed assessee’s appeal. Ld.AR invited our attention to page 66 to 69 of the paper book which was the order of ld.CIT(A). Ld.AR further submitted that ld.CIT(A) for A.Y.2017-18 in para 5 has specifically mentioned that for A.Y.2012-13 to A.Y.2014-15, ld.CIT(A) have allowed assessee’s claim. Ld.AR further relied on the decision of this Tribunal filed in the paper book.

Submission of ld.DR : 3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A).

Findings &Analysis : 4. We have heard both the parties and perused the records. In this case, Assessee is a Co-operative Credit Society duly registered under Maharashtra Co-operative Societies Act, as mentioned in the Assessment Order. Assessee has filed return of income for A.Y.2020-21 on 13.02.2021. Assessee had claimed deduction u/s.80P of the Act. The Assessing Officer held that income earned from deposits made with Banks and Cooperative Banks amounting 6 to Rs.3,71,88,591/- is not eligible for deduction u/s.80P(2)(a)(i) or 80P(2)(d) of the Act. The Assessing Officer treated the income as income from other sources.

4.1 It is observed from the Assessment Order that Assessee in reply to the notice has specifically brought to the attention of the Assessing Officer that for earlier years, Assessee’s appeal has been allowed by ld.CIT(A). This fact is mentioned in the para 4.3 of the Assessment Order. Inspite of that Assessing Officer disallowed assessee’s claim.

5. Assessee filed appeal before ld.CIT(A). Ld.CIT(A) confirmed the Assessment Order.

5.1 Aggrieved by the order of ld.CIT(A), Assessee filed appeal before this Tribunal.

5.2 It is observed from the order of ld.CIT(A) that Assessee has earned an interest income of Rs.3,71,88,591/- from deposits kept with Co-operative Banks and State Bank of India. It is also noted that Assessee had pleaded before ld.CIT(A) that these deposits are in the nature of statutory reserves mandated under Maharashtra 7 Cooperative Societies Act and hence, interest earned from these deposits are attributable to activity of providing credit facility to its members.

6. In this case, in assessee’s own case for A.Y.2017-18, ld.CIT(A) has held as under : “5. I have carefully considered the matter. I find that an identical issue had come up in appeal before my predecessor in the appellant's own case for AYs 2012-13 to 2014-15. The appellant's claim of deduction u/s 80P was allowed in these AYs. I also find that the above issue is squarely covered in favour of the appellant by the decision of the Hon'ble ITAT Pune Bench in the case of Catholic Urban Cooperative Credit Society (TA No 32/PN/2014 AY 2010-11 dated 29/12/2014 I have perused the decision of the Hon'ble ITAT Pune Bench in the case of Catholic Urban and I find that the Hon'ble ITAT has held that, the interest income earned from fixed deposits with banks, other than cooperative banks is business income and therefore the deduction u/s 80P is allowable on the same The Hon'ble ITAT Pune followed its own order in the case of Niphad Nagan Sahakari Patsanstha Ltd Nashik on the same issue. Quoting from the decision in Catholic Urban- "We find that in the case of Niphad Nagan Sahakari Patsanstha Ltd., Nashik (supra) the Tribunal has followed the decision of the ITAT, Ahmedabad in the case of ITO VS. Mis Jafari Momin Vikas Co-op. Credit Society Ltd. and CO No. 138/Ahd/2012 order dated 31.10.2012 as well as the decision of the ITAT. Cochin in the case of Mutton service Co-operative Bank Ltd. VS. ITO order dated 8 20.01.2012. As the facts of present case are identical as in the case of Niphad Nagar Sahakari Patsanstha Ltd., Nashik (supra) there is no need to take different view the decision in the case of We. Accordingly following Niphad Nagan Sahakari Patsanstha Ltd. Nashik (supra) hold that the interest income earned by the assessee credit society on the fixed deposits from the bank other than Co-operative Society is a part of its business income. Same way the interest earned on saving Bank Alc. with the Sindhudurg District Central Co-operative Bank Ltd. is also part of its business income, Accordingly Ground No.1,2 and 3 are allowed.”

It is therefore evident from the decision of the Hon'ble ITAT Pune Bench that the appellant is eligible to claim a deduction u/s 80P on the interest earned from banks which are not cooperatie banks. The AO is therefore directed to allow the same. The addition of Rs.2,27,019 is therefore deleted.”

6.1 Thus, ld.CIT(A) in assessee’s own case for A.Y.2017-18 has held that the interest earned from Co-operative Banks and SBI is eligible for deduction u/s.80P of the Act, following the decision of ITAT Pune.

6.2 Therefore, as per rule of consistency, the ld.CIT(A) for A.Y.2020-21 was under statutory duty to follow the decisions of ld.CIT(A) for earlier year as there are no changes in the facts.

6.3 Be it as it may be, the issue before us is whether the Interest earned from above mentioned Co-operative Society and State Bank of India is eligible for deduction u/s.80P of the Act or not !

9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………

7.1 Thus, Hon’ble High Court of AP &TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/s.80P(2)(a) of the Act.

Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co- operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged 13 under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.” Unquote

11 Respectfully, following the decisions of Hon’ble Supreme Court and Hon’ble High Courts, we hold that Rs.3,71,88,591/- is eligible for deduction u/s.80P(2)(a)(i) of the Act. Accordingly, grounds of appeal raised by the Assessee are allowed.