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Facts
The assessee, a co-operative credit society, earned interest income from deposits. The Assessing Officer disallowed the deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961, relying on a Supreme Court decision. The CIT(A) upheld this disallowance.
Held
The Tribunal held that the interest income earned by a co-operative society from its surplus funds deposited with banks is eligible for deduction under Section 80P(2)(a)(i) and 80P(2)(d). The Tribunal relied on various High Court and ITAT decisions that distinguished the Supreme Court ruling in Totagars.
Key Issues
Whether interest income earned by a co-operative credit society from its deposits is eligible for deduction under Section 80P of the Income Tax Act, 1961.
Sections Cited
80P(2)(a)(i), 80P(2)(d), 250
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal is filed by the assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] under section 250 of the Income Tax Act, 1961 for the A.Y.2020-21 dated 30.09.2023. The Assessee has raised the following grounds of appeal :
“1. The learned CIT(A) erred on facts and in law in denying the claim of deduction of Rs.10,49,832 u/s 80P(2)(a)(i) of the Income Tax Act 1961 in respect of interest earned by the assessee society from its deposits with other co-operative societies that is part of the regular business operations of the assessee society. The learned CIT(A) failed to appreciate the facts, the submissions in this regard in its proper perspective. Rs.10,49,832/- u/s 80P(2)(d) of the Income Tax Act 1961 in respect of the interest earned by the assessee society from its deposits with other co-operative societies. The learned CIT(A) failed to appreciate the facts, the submission made and the judicial precedents available in this regard in its proper perspective.
Without prejudice to the other grounds of appeal
, the learned CIT(A) erred on facts and in law in denying the alternate claim of deduction of Rs. 10,49,832 u/s 80P(2)(d) of the Income Tax Act 1961 in respect of the interest earned by the assessee society from its deposits with other co-operative societies. The learned CIT(A) failed to appreciate the facts, the submissions made and the judicial precedents available in this regard in its proper perspective.
3. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal.” Submission of ld.AR :
2. The ld.AR for the Assessee filed a paper book. Ld.AR submitted that there has been a delay in filing appeal before Hon’ble ITAT Pune Bench. Ld.AR took us through the affidavit of the Chairman of the Assessee Society. Ld.AR submitted that Assessee is a Registered Co-operative Credit Society of Employees of Malegaon Mahanagar Palika. Ld.AR submitted that the Managing Committee consists of Elected Representative. Ld.AR submitted that they are not well-versed to the Tax Laws. Ld.AR also invited our attention to the Affidavit of Chartered Accountant – Mr.Vikram Mehta who is a 60 years old Chartered Accountant. Mr.Vikram Mehta in his Affidavit has accepted that Dealy was on account of his pre-occupation and also non-availability of competent person to deal with these issues in a small place like Malegon. Ld.AR pleaded with folded hands that Delay may kindly be Condoned. Ld.AR also submitted that the Chairman of the Society is present for hearing today i.e. 22.01.2025 and she also pleaded for Condonation of Delay.
2.1 Ld.AR submitted that grave injustice will be caused to the assessee if the Delay is not condoned. Ld.AR further relied on various decisions of Hon’ble Supreme Court, to buttress his point that substantial justice is more important.
2.2 Ld.AR further submitted that on merits the issue is covered in favour of assessee by various decision of Hon’ble ITAT Pune Benches. The Assessee has earned interest from Nashik District Central Co-operative Bank, Nashik. Assessee had claimed deduction under section 80P(2)(a) of the Act. However, ld.Assessing Officer(AO) disallowed. Ld.AR referred to following decisions of the Hon’ble ITAT Pune Benches : o ITAT Pune Decision in Jankalyan Multistate co-operative Credit Society Limited. o ITAT Pune Decision in Sant Motiram Maharaj Sahakari Pat Sanstha Ltd., o ITAT Pune Decision in Nashik Road Nagari SahkariPatsanstha Limited. Submission of ld.DR : 3. The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A). Ld.DR for the Revenue submitted that in the typical facts of the case, Delay may be Condoned.
Findings & Analysis : 4. We have heard both the parties and perused the records.
4.1 The Assessee is a Co-operative Credit Society engaged in the business of providing credit facilities to its members as mentioned by Assessing Officer in the assessment order. Assessee had filed Return of Income for A.Y.2020-21. Assessee’s case was selected for scrutiny to verify Chapter-VIA Deduction. In the assessment order, Assessing Officer has noted that Assessee has earned Interest Income of Rs.10,49,832/- from Nashik District Central Co- operative Bank, Nashik. Ld.Assessing Officer held that Nashik District Central Co-operative Bank is a Bank, hence, interest earned by assessee from deposits kept with Nashik District Central Co-operative Bank is not allowable as deduction under section 80P(2)(a)(i) or 80P(2)(d) of the Act. The Assessing Officer has relied on the decision of Hon’ble Supreme Court in the case of Totagars co-operative Sale Society Ltd., Vs. ITO 322 ITR 283.
4.2 Thus, the issue involved before us is, whether assessee is eligible for deduction under section 80P(2)(a)(i) of the Act on interest of income of Rs.10,49,832/- earned from Nashik District Central Co-operative Bank, Nashik. This issue is already covered in favour of assessee by various decisions of ITAT Pune Bench.
The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub- section (2) of section 80P or not.
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. …………………… 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. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised 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. 36. 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". 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.”Unquote. 5.1 Thus, the 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/sec.80P(2)(a) of the Act.
5.2 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) is binding precedents for us.
The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 6.1 The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.
7. Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest amount of Rs.10,49,832/-. Accordingly, the only Ground raised by the Assessee is allowed.
On perusal of the Affidavit of the Chairman of the Assessee- Society and Affidavit of the Chartered Accountant who is a Senior Citizen of 60 years old, we are convinced that there was reasonable sufficient cause for delay in filing appeal before this Hon’ble ITAT Pune Bench. It is also noted that ld.DR has no objection in condoning the delay. We are of the opinion that substantial justice is more important. The Assessee is a Small Co-operative Credit Society in a small town i.e.Malegaon. Therefore, in these facts and circumstances of the case, we condone the delay in filing appeal before this Tribunal i.e.ITAT Pune Bench.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 27th January, 2025.