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Facts
The assessee, a cooperative credit society, claimed deduction under section 80P on interest income earned from fixed deposits. The Assessing Officer denied the deduction, which was upheld by the CIT(A). The assessee appealed to the tribunal.
Held
The Tribunal held that interest income earned by a cooperative society from fixed deposits, where the funds were derived from its business activities, is eligible for deduction under section 80P(2)(a) of the Act, following various judicial precedents.
Key Issues
Whether interest income earned by a cooperative society from its surplus funds deposited in banks is eligible for deduction under section 80P of the Income Tax Act.
Sections Cited
80P, 80P(2)(a), 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 filed by the assessee against the order of ld.Commissioner of Income Tas(Appeals)[NFAC], under section 250 of the Income Tax Act, 1961 for the A.Y.2018-19; dated 30.09.2024. The Assessee has raised the following grounds of appeal : “1. On the facts and circumstances of the case and in law the CIT(A), NFAC erred in confirming the action of the AO of denying deduction under section 80P in respect interest earned by the [A] appellant society on deposits with other co-operative banks, not accepting the submission of the appellant in this respect. The appellant prays that the AO be directed to delete the addition. The appellant craves leave to add, amend, alter, modify, delete or add a new ground of appeal before or at the time of hearing.” Submission of ld.AR :
2. The ld.Authorised Representative for the Assessee submitted that Assessee is a Credit Cooperative Society, duly registered under Maharashtra Cooperative Societies Act, 1960. Ld.AR submitted that Assessee has kept certain fixed deposits with RDCC Bank, Vidarbak Konkan Bank, Dapoli Urban Bank. Ld.AR submitted that these fixed deposits were out of the money which was not immediately required for Business of the Assessee. Ld.AR further submitted that as per the Maharashtra Cooperative Societies Act, 1960, the Assessee Patsanstha had to mandatorily maintain certain fixed deposits. Therefore, the interest earned is from business of providing credit facility to its members. Therefore, ld.AR pleaded that Assessee is eligible for deduction under section 80P(2)(a) of the Act on the interest earned. Ld.AR submitted that hence addition may be deleted. Ld.AR relied on the following orders of ITAT Pune : [A] Sant Motiram Maharaj Sahakari Pat Sanstha Ltd., 120 taxmann.com Niphad Nagari SAhakariPatsanstha Ltd., in ITA No.1336/PN/2011. Submission of ld.DR :
3. Ld.DR relied on the order of ld.CIT(A) and Assessing Officer. Ld.DR submitted that as per the decision of Hon’ble Supreme Court in the case of Totagars Co-operative Sale Society and Mavilayi Service Cooperative Bank, Assessee is not eligible for deduction under section 80P for the interest income.
Findings & Analysis : 4. We have heard both the parties and perused the records. Assessee is a Cooperative credit Society duly registered under Maharashtra Cooperative Societies Act, 1960. Assessee filed Return of Income electronically on 01.10.2018 declaring gross total income of Rs.36,12,307/- and claimed deduction under section 80P(2) of the Act of Rs.36,12,307/-. Assessee’s case was selected for scrutiny. The Assessing Officer in the assessment order observed that Assessee has received interest income of Rs.27,24,673/- from RDCC Bank, Vidarbh Konkan Bank and [A] Dapoli Urban Bank. The Assessing Officer(AO) held that Assessee is not eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act for the interest income of Rs.27,24,673/-. Assessing Officer relied on the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society Limited.
4.1 Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A). Ld.CIT(A) confirmed the assessment order. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
4.2 Thus, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act, on the interest earned from Co-operative Banks & Banks or not! 4.2.1 This issue has been dealt in various decision of ITAT Pune in favour of assessee.
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 :
ITA No.2721/PUN/2024 [A] 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.
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.
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners [A] 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.”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) are 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 [A] 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 ITA No.644/PUN/2024 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. Rs.27,24,673/-. Accordingly, the only Ground raised by the Assessee is allowed.