KANDIVALI PRITISANGAM CO.OP.HSG. SOCIETY LTD.,MUMBAI vs. ITO 32 (2)(2), MUMBAI

AadoSa / O R D E R भहावीय स िंह, उऩाध्मक्ष के द्वाया / PER MAHAVIR SINGH, VP: This appeal of the assessee is arising out of order of the Commissioner of Income Tax (Appeals)]-44, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-44/ITO-32(2)(2)/IT-230/17-18 vide dated 24.01.2019. The Assessment was framed by the Income Tax Officer, Ward-32(2)(2) Mumbai (in short ITO/ AO) for the A.Y. 2015-16 vide order dated 27.11.2017 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the Assessing Officer in disallowing the claim of deduction under section 80P(2)(d) of 2 Kandivali Pritisangam co-op. Hsg; AY 15-16 the Act for interest income received from co-operative bank. For this assessee has raised the following ground NO.1:-

1. Learned CIT Appeals erred in rejecting the appeal filed for deleting the addition of ₹2,27,290/- under Income from other sources, being interest received from Co-op. Banks made by assessing officer which is not taxable under section 80P(2)(d) of the income tax Act, 1961.

3 Kandivali Pritisangam co-op. Hsg; AY 15-16 “6.4.8 In view of the above discussions, it is held that the interest income earned from investment of surplus funds with the Co-operative Banks are not eligible for deduction under section 80P(2)(d) or under the principle of mutuality. Hence, the impugned disallowance of ₹2,27,290/- is confirmed. Accordingly, the Ground No.1 raised in appeal is dismissed.”

Aggrieved, assessee is in appeal before Tribunal.

“5. We have carefully considered the rival submissions. The facts lie in a narrow compass, inasmuch as, the appellant is a Co-operative society, whose income , inter-alia, included interest earned on deposits with another Cooperative bank. Accordingly, such income was claimed as exempt under section 80P(2)(d) of the Act. The claim has been denied primarily on account of the fact that section 80P(2)(d) of the Act relates to the income earned from a Co-operative society. In this context, the decision of the Mumbai Tribunal in the case of Lands End Co-operative Housing Society Ltd. (supra) is rendered under identical circumstances and the following discussion is relevant:-

8.3 We have heard the rival submissions and perused the material on record. We find that the CIT(A) enhanced the income of the assessee by rejecting the deduction u/s 4 Kandivali Pritisangam co-op. Hsg; AY 15-16 80P(2)(d) of the Act of Rs.14,88,107/- being interest on investment with other Coop. banks by following the decision in the case of Bandra Samruddihi Co-operative Housing Society Ltd.(Supra) which was passed on the basis of the decision passed by the Hon’ble Supreme Court in the case of Totagar’s Cooperative Sale Society Ltd. In the case of Totagar’s Co- operative Sale Society Ltd v/s ITAT (supra) the Hon’ble Supreme Court while interpreting the section 80P(2)(a)(i) of the Act held that surplus funds not immediately required in the business and invested in the short term deposit would be assessable under the head “income from other sources” where the Cooperative society is engaged in carrying on business of banking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Whereas in the case before us the issue is whether a co- operative society which has derived income on investment with cooperative banks is entitled to deduction u/s 80P(2)(d). The provisions of Section 80P(2)(d) of the Act provide deduction in respect of income by way of interest or dividend on investments made with other Cooperative society. For the purposes of better proper understanding of these two provisions the relevant extract of the section are reproduced below: 80P: Deduction in respect of income of co-operative Societies.

(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. The whole of the amount of profits and gains of business attributable to any one or more of much attributes.

(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.

From the close perusal of the provisions of u/s 80P(2)(a)(i) and 80P(2)(d) it is clear that the former deals with deduction in respect of profits and gain of business in case of the co- operative society carrying on business of banking or providing credit facilities to its members if the said income is assessable as income from business whereas latter provides for deduction in respect of income by way interest and dividend derived by assessee from its investments with other cooperative society. Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(d)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business whereas for claiming u/s 80P(2)(d) it must have 6 Kandivali Pritisangam co-op. Hsg; AY 15-16 income of interest and dividend on investments with other Co- operative society may or may not be engaged in the banking for providing credit facilities to its members and the head under which the income is assessable is not material for the claim of deduction under this section. Now will evaluate the assessee’s case in the light of the decision of the Hon’ble Supreme court. The Hon’ble Supreme Court in the case of Totagar’s Co- operative Sale Society Ltd.(Supra) held that a society has surplus funds which are invested in short term deposits where the society is engaged in the business of banking or providing credit facilities to its members in that case the said income from short term deposits shall be treated and assessed as income from other sources and deduction u/s 80(P)(2)(a)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) is available only in respect of income which is assessable as business income and not as income from other sources. Whereas in distinction to this , the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a coop society by way of interest or dividend from its investments with other coop society if such income is included in the gross total income of the such coop society. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/- in respect of interest received/derived by it on deposits with coop. banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directed accordingly.

5.1 It is clear that the Tribunal in the case of Lands End Co-operative Housing Society Ltd. (supra) has considered 7 Kandivali Pritisangam co-op. Hsg; AY 15-16 a similar situation and allowed the claim of the assessee. We find that the CIT(A) has placed reliance on the decision of the Ahmedabad Bench of the Tribunal in the case of State Bank of India Employees Co-operative Credit Society Ltd 57 taxman.com 367. It is further noted by the CIT(A) that the said decision of the Ahmedabad Bench of the Tribunal has been referred to by the SMC Bench of Mumbai Tribunal in the case of Shri Saidatta Cooperative Credit Society Ltd. (supra). In our view, the reliance placed by the CIT(A) on the judgment of the Ahmedabad Bench of the Tribunal is quite untenable, inasmuch as, in the said case the interest income in question was earned from deposits kept with State Bank of India. Obviously, State Bank of India is not a Co-operative society so as to justify the claim that such interest earnings fall within the scope of section 80P(2)(d) of the Act. Further, the reliance placed by the CIT(A) on the decision of the SMC Bench of Mumbai Tribunal in the case of Shri Saidatta Cooperative Credit Society Ltd.(supra) is also of no avail, inasmuch as, the Bench merely set-aside the matter to the file of the Assessing Officer for examination afresh, whereas in the case of Lands End Co-operative Housing Society Ltd(supra), the claim of exemption under section 80P(2)(d) of the Act. with respect to the interest earned from a Co- operative bank has been upheld. Therefore, in view of the said precedent, the claim of the assessee deserves to be allowed. We hold so.”